Board Resolutions: Disposition of a Target’s Equity Securities by Section 16 Insiders in a Merger Approval

Summary

This board resolutions template may be used to approve the disposition of certain equity securities by its directors and officers in the context of a merger, and thereby exempting such disposition from the short-swing profit recovery provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended (Exchange Act). This template includes practical guidance, drafting notes, and alternate clauses. Under Section 16(b), a company with equity securities registered under Section 12(b) or Section 12(g) of the Exchange Act may recover from directors, officers and holders of over 10% of the company’s securities, any profits from the purchase and sale of the company’s equity or derivative securities within a period of less than six months by such insiders, including securities obtained in connection with a merger. Rule 16b-3(e) under the Exchange Act provides an exemption from Section 16(b) for certain transactions between the company and its directors and officers. See 17 C.F.R. § 240.16b-3. These resolutions, which are intended to satisfy the pre-approval requirement for an exempt transaction under Rule 16b-3, should be adopted by the board or a board committee of the target company after entry into the merger agreement. For a full listing of key content for in-house counsel and corporate secretaries when performing corporate functions, see In-House Corporate Secretary Resource Kit. For more information on Section 16(b) and a discussion on how Section 16(b) liability is calculated, see Section 16 Forms: Guidance for Completing, Filing, and Amending. For board resolutions approving the acquisition of an acquirer’s equity securities by Section 16 insiders in a merger, see Board Resolutions: Acquisition of an Acquirer’s Equity Securities by Section 16 Insiders in a Merger Approval.