In November 2015, the SEC issued two new C&DIs with respect to Rule 14a-4(a)(3), the SEC’s “unbundling rule”, which requires that proxy statements identify clearly and impartially each separate matter intended to be acted on at a stockholder meeting. Existing SEC guidance provides that if a material amendment to an acquiror’s organizational documents to be made in connection with an acquisition transaction would, if presented on a stand- alone basis, require the approval of its shareholders under state law, the rules of a national securities exchange, or its organizational documents, then the acquiror’s form of proxy must present any such amendment separately from any other material proposal, including, if applicable, approval of the issuance of securities to target stockholders or approval of a transaction agreement. Under the existing guidance, material amendments would include governance matters such as the adoption of a classified board, limitations on the removal of directors, and the adoption of supermajority voting requirements.

New C&DI 2.01 provides that if, consistent with existing SEC guidance, the acquiror is required under Rule 14a-4(a)(3) to present an amendment or multiple amendments separately on its form of proxy, or would be so required if it were conducting a solicitation subject to Regulation 14A, then a target subject to Regulation 14A also must present any such amendment separately on its form of proxy. The C&DI notes the SEC staff position that target stockholders should have an opportunity to express their views separately on those material provisions that will establish their substantive rights as stockholders, even if they would not otherwise be entitled to vote on these matters under state corporate law.

These new C&DIs are widely seen as a response to inversion transactions, which frequently involve substantive governance changes resulting from the change in jurisdiction of incorporation of the acquiror, while the resulting company may continue to have a large percentage of U.S.-based stockholders. However, given that the required vote is non-binding, the outcome may have little practical effect. The C&DIs note that the transaction may, but need not, be conditioned on target approval of the corporate governance changes. The C&DIs also clarify that in transactions where a new acquisition vehicle is formed that will issue securities in the transaction (such as in a “double-dummy” structure), the party whose stockholders are expected to own the greater percentage of equity following the closing would be treated as the acquiror for purposes of the unbundling rule.