Section 16(b) Exemptions for Directors and Officers in Mergers

Summary

This practice note discusses the exemptions from § 16(b) profit forfeiture provisions that are available in Rules 16b-3(d) and 16b-3(e) as promulgated under the Securities and Exchange Act of 1934 (the Exchange Act). Section 16(b) of the Exchange Act provides that any profit realized by an officer, director, or 10% shareholder of a public company from any matched purchase or sale of any equity security of the company (other than an exempted security) within a six-month period shall be recoverable by the issuer. See 15 USCS § 78p. Taking the view that certain transactions between officers and directors on one hand, and an issuer on the other, do not present opportunities for insider profit, the Securities and Exchange Commission (SEC) adopted Rules 16b-3(d) and 16b-3(e) (17 CFR 240.16b-3) exempting directors and officers from § 16(b) short swing liability in particular circumstances. Rules 16b-3(d) and 16b-3(e), as further clarified in Skadden, Arps, Slate, Meagher & Flom L.L.P, 1999 ...