Best-Price Rule (Rule 14D-10)
Best-price rule (Rule 14D-10) is a regulation by the Securities and Exchange Commission (SEC) that stipulates that consideration offered to any security holder in a tender offer must be equal to the highest consideration paid to any other security holder. Best-price rule (Rule 14D-10) is a regulation by the Securities and Exchange Commission (SEC) that stipulates that consideration offered to any security holder in a tender offer must be equal to the highest consideration paid to any other security holder. The Best-price rule (Rule 14D-10), as originally written, required fine-tuning, as disputes arose over how to treat certain employment compensation, severance and other employee benefit agreements in a situation of change of control that a completed tender offer created. If some high-level employees who held securities were to receive additional monies in a tender offer, would all other security holders be entitled to receive the same amount? The best-price rule is meant to provide equal treatment to all holders of securities in a tender offer.
Definition of Best-Price Rule (Rule 14D-10)
Best-price rule (Rule 14D-10) is a regulation by the Securities and Exchange Commission (SEC) that stipulates that consideration offered to any security holder in a tender offer must be equal to the highest consideration paid to any other security holder. The best-price rule is meant to provide equal treatment to all holders of securities in a tender offer.
Understanding Best-Price Rule (Rule 14D-10)
The Best-price rule (Rule 14D-10), as originally written, required fine-tuning, as disputes arose over how to treat certain employment compensation, severance and other employee benefit agreements in a situation of change of control that a completed tender offer created. If some high-level employees who held securities were to receive additional monies in a tender offer, would all other security holders be entitled to receive the same amount?
Amendments to Rule 14D-10
To provide clarity of the rule, the SEC made amendments that went into effect in December 2006. The rule was amended in three ways: First, the central language of the rule was changed to: "consideration paid to any security holder for securities tendered in the tender offer is the highest consideration paid to any other security holder for securities tendered in the tender offer." The focus on "securities tendered" excludes any other compensatory agreements in the amount of consideration due to security holders. Second, compensatory arrangements were exempted from the rule. Any amounts to be paid pursuant to an arrangement will have to be "paid or granted as compensation for past services performed, future services to be performed, or future services to be refrained from performing, by the security holder (and matters incidental thereto)" and may "not [be] calculated based on the number of securities tendered or to be tendered in the tender offer by the security holder." Third, a safe harbor was instituted in the rule for compensation arrangements approved by a committee of independent directors.
Related terms:
All-Holders Rule
"All-holders rule” refers to a regulation stating that any tender offer must be made to all shareholders within a particular class of shares. read more
Fiduciary
A fiduciary is a person or organization that acts on behalf of a person or persons and is legally bound to act solely in their best interests. read more
Independent Outside Director
An independent outside director is a member of a company's board of directors whom the company brings in from outside the company. read more
Investment Advisers Act of 1940
The Investment Advisers Act of 1940 is a U.S. federal law that defines the role and responsibilities of an investment advisor/adviser. read more
Katie Couric Clause
The Katie Couric clause is a slang term for a proposed 2006 SEC rule that would have required firms to disclose the pay of non-executive employees. It was not adopted. read more
Safe Harbor
A safe harbor is a legal provision to reduce or eliminate liability in certain situations as long as certain conditions are met. read more
Schedule TO-T
Schedule TO-T must be filed with the SEC by any entity that makes a tender offer for a company's stock, usually as part of a takeover effort. read more
SEC Form CB
SEC Form CB is filed by anyone engaging in tender offers and rights offerings with foreign firms with less than 10% of its securities held by U.S. persons. read more
Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is a U.S. government agency created by Congress to regulate the securities markets and protect investors. read more
Tender Offer
A tender offer is an offer to purchase some or all of shareholders' shares in a corporation. read more