Best-Price Rule (Rule 14D-10)

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 specifies that consideration offered to any security holder in a tender offer must be equivalent to the highest consideration paid to some other security holder. The best-price rule is intended to give equivalent treatment to all holders of securities in a tender offer.

Seeing Best-Price Rule (Rule 14D-10)

The Best-price rule (Rule 14D-10), as initially written, required fine-tuning, as questions emerged 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 made. In the event that a few significant level employees who held securities were to receive extra monies in a tender offer, could any remaining security holders be qualified for receive a similar amount?

Amendments to Rule 14D-10

To give lucidity of the rule, the SEC made amendments that came full circle 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 some other security holder for securities tendered in the tender offer." The attention on "securities tendered" avoids some other compensatory agreements in the amount of consideration due to security holders. Second, compensatory arrangements were excluded from the rule. Any amounts to be paid compliant with an arrangement should be "paid or conceded as compensation for past services performed, future services to be performed, or future services to ceased from perform, by the security holder (and matters incidental thereto)" and may "not [be] calculated in light of the number of securities tendered or to be tendered in the tender offer by the security holder." Third, a safe harbor was founded in the rule for compensation arrangements approved by a committee of independent directors.