DealLawyers.com Blog

With the deadline now a month behind us, only ten comment letters have been submitted on the SEC’s best price rule proposal.

Kevin Miller of Alston & Bird notes that an overarching concern reflected in many of the comments is that the approval by an appropriate committee (as defined somewhat differently in each of the letters) should be sufficient in and of itself for purposes of satisfying the safe harbor and that challenges to any required determinations by such committees (or the independence of committee members) should not affect the availability of the safe harbor. Several comment letters note that permitting such challenges to affect the availability of the safe harbor would significantly undermine its utility by failing to eliminate unwarranted incentives to utilize statutory mergers in lieu of a two step acquisition structure involving a tender offer.

Below are some highlights from a subset of these letters (without summarizing some of the more technical recommendations regarding wording, etc.):

1. Securities Industry Association

(a) approval of an employment arrangement by a committee of the board of directors of the bidder (if the bidder is a counterparty) or of the subject company (whether or not the subject company is the counterparty) should, in and of itself, satisfy the safe harbor requirements if the members of the committee (an “Independent Committee”) serve on committees subject to SEC approved independence requirements of an SRO such as the NYSE and NASD

(i) Safe harbor approvals/determinations by an Independent Committee and independence of committee members should not be subject to challenge under the best price rule, but only through claims under applicable state law (e.g., for breach of fiduciary duty) or SRO action

(ii) New rules should provide alternative means for foreign private issuers and private companies to satisfy the requirements of the safe harbor

(b) safe harbor and exemption should cover commercial arrangements in addition to employment arrangements.

(c) new rules should apply to issuer tender offers

(d) new rules should contain a de minimus exception for agreements with holders of less than 1% of the class of securities that are the subject of the tender offer

2. Society of Corporate Secretaries & Governance Officers

(a) need not define covered employment compensation, severance or other employee benefit arrangements

(b) new rules should apply to commercial arrangements

(c) new rules should apply to agreements with employees and directors of the bidder

(d) new rules should apply to issuer tender offers

(e) clarify that new rules should apply to hostile tender offers

(f) new rules should not require approval of specific arrangements if within category of approved arrangements

(g) if a member of the compensation committee is conflicted, the new rules should permit recusal of the conflicted member, the designation of a separate independent committee or the designation of a subcommittee of the compensation committee excluding the conflicted member

(h) compensation committees should not be able to exclusively rely on the opinion of a compensation consultant

(i) disclosure as to how safe harbor was satisfied should not be required

(j) compensation committee should not be required to review a list of non-exclusive factors in making its determination

(k) new rules should contain a de minimus exception based on the number of securities beneficially owned (as defined in Section 13 of the Securities Exchange Act and the rules promulgated thereunder) by the employees and directors (but excluding their affiliates) with whom the compensation, severance or other employee benefit arrangement is being made

3. Multi-Law Firm: Cravath, Swaine & Moore, LLP; Davis Polk & Wardwell; Latham & Watkins, LLP; Simpson Thacher & Bartlett LLP; Skadden, Arps, Slate, Meagher & Flom LLP; Sullivan & Cromwell LLP; and Wachtell, Lipton, Rosen & Katz

(a) exemption should cover current, former or future employees, directors and consultants

(b) new rules should include a non-exclusive list of employment compensation, severance or other employee benefit arrangements

(c) rule should include a 3% de minimus exclusion for both employment arrangements and any other type of payments, including commercial arrangements

(d) new rules should apply to issuer tender offers

(e) the safe harbor should be satisfied if the arrangement is approved by (i) any standing or ad hoc committee of the board of directors of the relevant party composed solely of independent directors or (ii) by the board of directors of the relevant party if such party is not required to and does not have independent directors

(f) approval by a committee of independent directors of the target should satisfy the safe harbor even if the acquiror is the counterparty to the arrangement

(g) approval by an independent committee (or the board, if applicable) of the acquiror should be effective even if the actual counterparty is the target so long as the acquiror has agreed to assume or “honor” the arrangement

4. Intel Corporation

(a) scope of exemption should include commercial arrangements

(b) approval of an employment or commercial arrangement by an independent committee of the board of directors of the acquiror (whether or not the acquiror is the counterparty) should satisfy the safe harbor’s requirements

(c) new rules should also apply to issuer tender offers

5. Association of the Bar of the City of New York

(a) committees whose approval should satisfy the requirements of the safe harbor include:

(i) any committee of independent directors of the relevant party (not just compensation committee) and where such party is not a public company or otherwise required by applicable listing regulations to have any independent directors, the board of directors of such party

(ii) a committee of independent directors of the target regardless of whether the target is a counterparty to the arrangement or the bidder has independent directors

(b) clarify that approval of an appropriate committee should be all that is necessary to bring an arrangement into the safe harbor

(c) clarify that approval of an arrangement at any time is sufficient for purposes of the safe harbor and that blanket approvals of all transactions pursuant to specific plans should be sufficient

(d) commercial arrangements should be covered by the exemption and safe harbor

(e) issuer tender offers should be covered by the safe harbor

(f) new rules should include a less than 1% de minimus exclusion

More Analysis on the SEC’s Best Price Rule Proposal

In this podcast, Doron Lipshitz of Stroock & Stroock & Lavan discusses certain aspects the SEC’s proposal to amend the best-price rule, including:

– What is the SEC’s proposal to modify the best price rule?
– In your view, what are the benefits of the SEC’s proposals to the market?
– How would the SEC’s proposal impact the acquisition process and existing deal practices?