Mergers and Acquisitions and Section 16(b) Romeo and Dye treatise


Below is copied from the Romeo and Dye Section 16 (b) Treatise, which apparently some attorneys cite as legal authority. In my view it is inaccurate and misleading and should not be considered authority.

14.04      Romeo and Dye     SECTION 16 TREATISE               1402

[c] Acquisitions in Mergers


Acquisitions in a merger of the equity securities (including derivative securities) of the acquiror are eligible for exemption under Rule 16 b-3(d). 21

 These acquisitions may be made by officers or directors of the acquiror who own securities of the target prior to the merger, or by employees or directors of the target who will become officers or directors of the acquiror at or about the time of the merger.22

Because acquisitions in a merger can be deemed to be purchases under Section 16(b), the availability of the Rule 16b-3(d) exemption can be crucial.Fortunately, the SEC staff has stated that the rule can be relied upon to exempt from Section 16(b) all forms of acquisitions in a merger by the persons named in the preceding paragraph.23 There are, however, various procedural requirements that the staff believes must be satisfied, as discussed elsewhere in this book.24

21 Skadden, Arps, Slate, Meagher & Flom LLP, Q.2 and 3(d), SEC No-Action Letter (January 12, 1999). See ROMEO AND DYE, SECTION 16 FORMS AND FILINGS HANDBOOK, Model Form 179 (2009), for an illustration of the reporting of an acquisition in a merger. Dispositions in a merger are discussed in §§ 10.07[2][b] supra and 14.05[1][c] infra, and are illustrated in ROMEO AND DYE, SECTION 16 FORMS AND FILINGS HANDBOOK, Model Form 173 (August 2005).

22 Skadden, Arps, Slate, Meagher & Flom LLP, Q.2 and 3(d), SEC No-Action Letter (January 12, 1999). The Skadden letter is discussed at length in § 10.07[2] supra. When the Commission adopted the current version of Rule 16b-3 in 1996, it did not mention the possibility that the rule might be available to exempt acquisitions in a merger. See Release No. 34-37260 (1996). This possibility seemed remote at the time for two reasons. First, as explained in Release No. 34-4696 (1952), the Commission historically had been hostile to providing an exemption for merger transactions involving non-affiliated issuers, stating that "[t]he policy of Section 16(b) to discourage short-swing trading by insiders seems highly relevant to purchases or sales within six months of a merger if the merger involves a significant change in the character of the enterprise." (The Commission, however, did provide in Rule 16b-7 an exemption for merger acquisitions involving a corporate reorganization or change in domicile.) Second, in the course of announcing in Release No. 34-37260, § II.E. at n. 85-86 (1996), that Rule 16b-3(e) was available to exempt certain dispositions to the issuer occurring in mergers, the Commission made it clear that the exemption should be narrowly construed.

23 Skadden, Arps, Slate, Meagher & Flom LLP, SEC No-Action Letter, Q.2 (January 12, 1999).

24 See §§ 10.07[2][d] supra and 14.06[2] infra. These requirements relate to the advance approval of merger acquisitions by either the board of directors, a committee of Non-Employee Directors, or security holders of the acquiror. To take full advantage of the staff's position, negotiators for the target company should insist on a covenant in the merger agreement requiring the acquiror to obtain approval in a manner that will secure an exemption under Rule 16b-3(d) for all acquisitions in connection with the merger by persons associated with the target who are or may become officers or directors of the acquiror.


Questions about the two paragraphs above.

Does eligible for exemption mean exempted ?

Romeo and Dye refer to the Skadden Arps Jan 12,1999 No Action letter as some authority. However the SEC in the Gryl v. Shire 298 F.3d 136 case in an Amicus Curiae Brief stated in footnote 7:

 7. The Commission does not have the authority to enforce Section 16(b), which is enforced solely through private actions. Thus, its staff does not issue no-action letters in connection with that provision.

Also the Second Circuit Court of Appeals stated in the Gryl v. Shire case:

" SEC no-action letters constitute neither agency rule-making nor adjudication and thus are entitled to no deference beyond whatever persuasive value they might have, see Morales v. Quintel 249 F.3d 115, 129(2d Cir . 2001) 

 In footnote 8 of the Gryl v. Shire case the court stated:

"It is significant that, because the SEC's 1996 Release is connected to the agency's rule-making function, while the Skadden N0-Action Letter is not, only the former must be accorded weight by us".

Yet Romeo and Dye cite the Skadden Arps No-Action Letter on Jan 12, 1999 as authority in their Section 16 (b) Treatise.


In the


the SEC decided to clarify SEC Rule 16 b-3 as the Third Circuit in Levy v. Sterling 314 F.3d 106 (3d.Cir 2002) ruled that Rule 16 b-3 was limited to Grants, Awards, and other Compensation Award type grants.

"In 1996 the SEC "broadened the Rule 16 b-3 exemption and extended it to other transactions between issuers and their officers and directors.
The release stated on page 3 that:

"Rule 16b-3(a) provides that ""A transaction between the issuer (including an employee benefit plan sponsored by the issuer) and an officer or director of the issuer that involves issuer equity securities shall be exempt from section 16(b) of the Act if the transaction satisfies the applicable conditions set forth in this section". "As this makes clear, the only limitations on the exemption for transactions between the issuer and its officer or director are the objective conditions set forth in later subsections of the rule, each of which applies to a different category of transactions."""

--------End of the quote from the SEC release on August 9, 2005------

So the SEC is explaining SEC Rule 16 b-3 and makes references to paragraph 16 b-3(a) and quotes 16 b-3(a) which refers to the objective conditions set forth in later subsections of the rule. One of the subsections is 16 b-3(d), which has certain required conditions necessary for the exemption of Acquisition from the Issuer.

So why does the Romeo and Dye Treatise treat 16 b-3(d) and its conditions a constituting the only necessary requirements for an exemption from Section 16 (b) as if 16 b-3(a) does not exist.

Attorneys for defendants in Section 16 b suits refer to Romeo and Dye's Treatise as authority and try to forget about the requirements in SEC 16 b-3(a). So these attorneys try to expand the exemptions by referring to the Romeo and Dye Treatise for their support.

Perhaps Romeo and Dye will reply to this Topic, explaining why my analysis is incorrect.

John Olagues


Edited Sun, Jun 16, 2019 11:07 AM

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