SEC Revises Periodic Report Filing Deadlines and Proposes Amendments to the Tender Offer “Best-Price” Rule

December 16, 2005

On December 14, 2005, the Securities and Exchange Commission held an open meeting during which the Commission adopted revisions to the deadlines for filing periodic reports and the definition of an "accelerated filer".  The Commission also proposed revisions to the "best-price" rule applicable to registered tender offers intended to resolve a split among federal circuits on the interpretation of the existing rule.  At the same meeting, the Commission proposed amendments to liberalize the deregistration process for foreign companies; these amendments are summarized in a separate Gibson Dunn memo, dated December 14, 2005.

Adoption of Revisions to the Periodic Report Filing Deadlines for "Accelerated Filers"

The Commission adopted revisions to the periodic reporting deadlines for certain large public companies.  The newly adopted rules modify the final phase-in of the accelerated reporting scheme previously adopted by the Commission in 2002.  The new rules retain the accelerated filing status of companies with a public float of $75 million or more, but create a new category of accelerated filers called "large accelerated filers" which are companies with a public float of $700 million or more.

The newly adopted rules effect changes to the periodic filing deadlines of both accelerated filers and large accelerated filers as follows:

  • Beginning with fiscal years ending on or after December 15, 2006, the deadline for large accelerated filers to timely file annual reports on Form 10-K will be cut from 75 days to 60 days.

  • The deadline for accelerated filers (not large accelerated filers) to timely file annual reports on Form 10-K will remain at 75 days.

  • The deadline for accelerated filers and large accelerated filers alike to file quarterly reports on Form 10-Q will remain at 40 days.

The new rules also permit an accelerated filer whose public float drops below $50 million to file an annual report on a non-accelerated basis for the same fiscal year that the float drops below the $50 million threshold.  Similarly, a large accelerated filer will be permitted to exit large accelerated filer status if its public float should drop below $500 million.

It should be noted that the periodic report filing deadlines for all other reporting companies remain unchanged.  Non-accelerated filers must file annual reports on Form 10-K or 10-KSB within 90 days and quarterly reports on Form 10-Q or 10-QSB within 45 days in order to be current in their reporting.  The newly adopted amendments do not impact filing deadlines for Form 20-F or Form 40-F applicable to foreign private issuers.

Proposed Amendments to the Tender Offer Best-Price Rule

In addition, the Commission voted to approve proposed amendments to the best-price rule set forth in Exchange Act Rules 14d-10(a)(2) and 13e-4(f)(8)(ii), applicable to third-party tender offers and issuer tender offers, respectively.  The best-price rule provides that the consideration offered and paid to any security holder in a tender offer must be equal to the highest consideration paid to any other security holder in the offer.  Using this rule, plaintiffs have challenged retention agreements, golden parachutes and similar arrangements with target company executives by characterizing such compensation as separate tender offer consideration that violates the best-price rule.  The proposed revisions should address a split among federal courts as to whether the best-price rule in fact applies to such employment and compensation arrangements.  This uncertainty regarding the application of the best price rule has led many acquirors to shy away from conducting a tender offer when engaging in a business combination transaction.

Specifically, the proposed revisions are expected to address this issue by:

  • Exempting from the third-party tender offer rule the "negotiation, execution or amendment of an employment compensation, severance or other benefit arrangement," so long as the consideration paid under the agreement relates solely to past or future services, severance, or a non-competition agreement, and not the number of shares owned or tendered by an employee or director of the target company. 
  • Clarifying that the best-price rule applicable to both issuer and third-party tender offers is limited to the payment for securities tendered in a tender offer, and not consideration paid for other compensatory purposes.
  • Providing a general safe harbor covering arrangements approved by an independent compensation committee or a committee of the board of either the target or the bidder depending on the entity entering into the arrangement.
  • Clarifying that the best-price rule is not limited solely to the period when a tender offer is pending.

The Commission will be soliciting comments on the proposed amendments to the tender offer best-price rule for 60 days following publication in the Federal Register.  When the SEC publishes the proposed amendments, which is expected some time next week, we will circulate a more detailed memo summarizing the specific proposals.

Gibson, Dunn & Crutcher lawyers are available to assist clients in addressing any questions they may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or John F. Olson (202-955-8522, [email protected]), Ronald Mueller (202-955-8671, [email protected]), Brian J. Lane (202-887-3646, [email protected]) or Amy L. Goodman (202-955-8653, [email protected]) in the firm’s Washington, D.C. office, or James J. Moloney (949-451-4343, [email protected]) in the firm’s Orange County office.

© 2005 Gibson, Dunn & Crutcher LLP