October 19, 2006

SEC Adopts “Best Price” Rule Amendments

Yesterday, the SEC adopted long-awaited amendments to the best-price rule, Rule 14d-10, which brings the M&A world back to “normal” in the wake of conflicting decisions among the US Circuit Courts in this area during the past few years. Here is an opening statement from Corp Fin – and here is an opening statement from Chairman Cox.

As expected, the amendments:

– clarify that the rule applies only with respect to the consideration offered and paid for securities tendered in a tender offer

– clearly exclude compensation arrangements, so long as they meet certain requirements

– provide a safe harbor for compensation arrangements that are approved by independent directors

– include an exemption that contains specific substantive standards that must be satisfied

Join two of the SEC Staffers who drafted the rule amendments – as well as two former SEC Staffers who served in Corp Fin’s Office of Mergers & Acquisitions – in this newly announced webcast: “The Evolving ‘Best Price’ Rule.”

Good News for Members!

For the many of you that are members of, we have just tweaked our database so that you can use your ID and password for to access the thousands of pages of content on

We have made this switch now, since the two sites will be combined next year – creating an even more comprehensive resource for all your Section 16 needs. Try a no-risk trial for 2007 if you are not yet a member (and get the rest of 2006 for free) – or if you already are a member, renew your membership today (as all memberships are on a calendar-year basis).

Watch Out for those “Stealth” Restatements II

A few members reacted to my blog on “stealth” restatements. Here is one of those reactions: “I saw the WSJ article on “stealth restatements” and pulled the Form 8-Ks referenced in the article. My take on it is that the SEC Staff, through the comment letter process, is “informally” changing its policy on when an Item 4.02 Form 8-K is required.

The crux of an Item 4.02 filing is that a company’s Board, or the chief accounting officer, or the company’s external auditor concludes that previously issued financial statements “should no longer be relied upon because of an error in such financial statements” as addressed in APB No. 20. There are lots of situations – including, it would appear, the Sun Microsystems and Inter-Tel restatements – where a company restates its financial statements to correct and error, but the restatement does not cause the company or the external auditors to conclude that the prior financial statements cannot be relied upon. My reading of Item 4.02 is that a Form 8-K would not be required in those instances. By their comment letters, the SEC Staff seems to be expanding Item 4.02 to reach restatements where that critical conclusion has not been made. I don’t see any basis for that in the instructions to Item 4.02 or in the FAQ’s. Am I missing something in this analysis?”

Feel free to weigh in with your own analysis or experiences on this one by shooting me an email.