(The news featured below is a selection from the news covered in the Federal Securities Law Reporter.)

Commenters Propose Modifications To Tender Offer Best Price Proposal 

All of the organizations submitting comments in response to the SEC's proposed amendments to the tender offer best price rule applauded the its efforts to clarify the rule in light of the split in the circuit courts in interpreting the rule. The amendments would clarify that certain compensatory and severance arrangements entered into with directors, officers and employees in connection with a tender offer will not be included under the best price rule. However, eight of nine comment letters offered suggestions to modify the proposal to help ensure that plaintiffs do not redirect their efforts to areas outside the focus of the proposed rule. The comment period on the proposal closed February 21, 2006.

Seven law firms with extensive experience in acquisition transactions took what they described as the unusual step of writing a joint comment letter to express their collective views. The firms, 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, noted that most law firms are advising their clients not to commence tender offers if other acquisition structures are available that do not pose the potential adverse consequences of the best price rule. Unfortunately, the result is that the economic efficiencies of tenders offers are lost.

The firms wrote that they would have preferred that the SEC affirm the bright-line temporal application of the best price rule adopted by some courts, but since the SEC has rejected that approach, the firms suggested other alternatives to achieve the SEC's objectives. The firms, along with all of the other commenters, also supported the extension to self-tender offers of the exemptive and safe harbor provisions outlined in proposed Exchange Act Rule 14d-10. The firms said they could see no basis for discriminating between third-party tenders and issuer self-tenders with respect to the availability of exemptive and safe harbor relief from the otherwise applicable best price requirements.

Dechert LLP said the exemption and safe harbor should not be limited to employee compensation arrangements. If the exemption is too narrowly drawn, Dechert explained, plaintiffs will re-characterize nonexempt arrangements as disguised consideration for tender offer shares. Dechert said the exemption should also include shareholders other than employees and directors. Dechert also urged the SEC to provide company boards with the flexibility to determine the independence of board members consistent with prevailing state laws in addition to listing agreement standards

The Society of Corporate Secretaries and Governance Professionals wrote that the underlying reasons for the proposed amendment to the best price rule apply equally to commercial arrangements. The proposed amendments are not broad enough to avoid litigation, in the society's view. The Securities Industry Association agreed that the new rules should permit commercial arrangements to be covered by the proposed safe harbor and exemption. These agreements may be as important to an acquisition as the retention of key employees, according to the SIA.

Several commenters raised concerns about the proposal's effect on foreign private issuers, many of which do not have compensation committees or committees composed solely of independent directors, to adopt employment arrangements that meet the safe harbor provisions. Shearman & Sterling wrote that the relief provided in the proposed rule should not be withheld from foreign private issues based on governance structures that are unique to domestic issuers. Compensatory arrangements adopted in accordance with local law and governance practices should be excluded from the coverage of the best price rule without requiring any specific form of corporate approval, in the firm's view.

The Association of the Bar of the City of New York urged the SEC to adopt a transition measure under which any plan or arrangement that has been adopted or entered into by a target with the approval of an independent committee prior to the adoption of the safe harbor would automatically be exempted by the rule.