-------------------- BEGINNING OF PAGE #1 -------------------
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 229, 239 and 240
[Release Nos. 33-7113; 34-35036; File No. S7-26-94]
RIN 3235-AG09
Limited Partnership Roll-up Transactions.
AGENCY: Securities and Exchange Commission.
ACTION: Final Rules.
SUMMARY: The Securities and Exchange Commission ("Commission")
is adopting new rules and amendments to its rules regarding
limited partnership roll-up transactions to implement provisions
of the Limited Partnership Rollup Reform Act of 1993 ("Act"),
which, among other matters, added new Section 14(h) of the
Securities Exchange Act of 1934. In addition, the amendments
will conform the current Commission definition of "roll-up
transaction" more closely to the definition of that term in the
Act.
DATES: Effective Date: The rule and amendments are effective on
December 17, 1994.
Transition Dates: For a discussion of transition
provisions, see Section III, below.
FOR FURTHER INFORMATION CONTACT: Robert B. Toomey, Office of
Disclosure Policy, Division of Corporation Finance, Securities
and Exchange Commission, 450 Fifth Street, N.W., Mail Stop 3-12,
Washington D.C. 20549, at (202) 942-2910.
SUPPLEMENTARY INFORMATION: The Commission today adopts
amendments to change the definition of limited partnership roll-
up transaction contained in Item 901(c) of Regulation S-K -[1]-
to conform more closely to the definition in the
Act, -[2]- which added new provisions regarding roll-up
transactions to the Securities Exchange Act of 1934 ("Exchange
Act"). -[3]- The Commission, consistent with the Act, also is
adopting amendments to Exchange Act Rules 14a-2, -[4]- Rule 14a-
6, -[5]- and 14a-7, -[6]- as well as adding new Exchange Act
Rules 3b-11, 14a-15 and 14e-7, and a new Notice of Exempt
Preliminary Roll-up Communication. Finally, revisions to Item
911 of Regulation S-K -[7]- and Forms
S-1, -[8]- S-4, -[9]- S-11, -[10]- F-1, -[11]- and F-4 -[12]-
-[1]- 17 CFR 229.901(c).
-[2]- Government Securities Act Amendments of 1993, Pub. L.
103-202, Title III, 107 Stat 2344 (1993).
-[3]- 15 U.S.C. 78a et seq.
-[4]- 17 CFR 240.14a-2.
-[5]- 17 CFR 240.14a-6.
-[6]- 17 CFR 240.14a-7.
-[7]- 17 CFR 229.911.
-[8]- 17 CFR 239.11.
-[9]- 17 CFR 239.25.
-[10]- 17 CFR 239.18.
-[11]- 17 CFR 239.31.
-[12]- 17 CFR 239.34.
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under the Securities Act of 1933 ("Securities Act") -[13]- are
being adopted.
I. INTRODUCTION
In response to investor complaints and serious concerns
raised in Congressional hearings about limited partnership roll-
up transactions, in 1991, the Commission adopted subpart 900 of
Regulation S-K -[14]- to enhance the quality of information
provided to investors in connection with roll-up transactions,
and established a minimum 60-day proxy solicitation or tender
offer period for
them. -[15]- The Commission acted again in the area of roll-ups
in 1992, when, as part of its proxy reform, it provided rights to
security holders to obtain a list of security holders in
connection with a roll-up related proxy solicitation involving
Section 12 registered securities. -[16]-
In December 1993, Section 14(h) was added to the Exchange
Act to address roll-up abuses. -[17]- The Act represented the
culmination of Congressional inquiry into the area of roll-ups.
New Section 14(h) of the Exchange Act imposes certain disclosure
and other requirements for roll-up transactions. With respect to
disclosure requirements, the Act largely codifies the disclosure
requirements of subpart 900 of Regulation S-K; revisions to the
Commission's proxy and tender offer rules also are required. The
Act also contains a definition of "limited partnership roll-up
-[13]- 15 U.S.C. 77a et seq.
-[14]- 17 CFR 229.901-915.
-[15]- Release No. 33-6922 (October 30, 1991) [56 FR 57237].
In June 1991, the Commission issued a release providing
interpretive guidance of the existing disclosure
requirements applicable to roll-up transactions. See
Release No. 33-6900 (June 17, 1991) [56 FR 28979].
-[16]- The requesting security holder has the option of
receiving the list of security holders or having the
issuer mail his or her material. Exchange Act Rule
14a-7(b) [17 CFR 240.14a-7(b)].
-[17]- 15 U.S.C. 78n(h). The Act also amended Sections 6(b)
and 15A of the Exchange Act [15 U.S.C. 78f(b) and 15
U.S.C. 78o-3] to require registered securities
associations and national securities exchanges to adopt
rules providing for certain protections for investors
whose securities are the subject of a roll-up
transaction ("SRO Rules"). See Release No. 34-34533
(August 15, 1994) [59 FR 43147] and Release No. 34-
34803 (October 7, 1994) [59 FR 52202] for recent
rulemaking of the National Association of Securities
Dealers ("NASD") in this area. For example, registered
securities associations are required to promulgate
rules preventing their members from participating in
roll-up transactions unless a dissenting limited
partner is given the opportunity to receive an
appraisal and compensation for the limited partnership
security, or other comparable rights are provided.
The Act requires that the Commission prescribe regulations
implementing its provisions by December 17, 1994. Section
302(b) of the Government Securities Act Amendments of 1993.
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transaction" -[18]- and sets forth a number of exclusions for its
coverage, which makes it narrower than the Commission definition
of roll-up transaction in current Item 901 of Regulation S-K ("S-
K Definition"). -[19]-
In September 1994, the Commission published for comment
proposed amendments to its rules concerning roll-up transactions
as well as new rules to implement the provisions of the Act
("Proposing Release"). -[20]- The Proposing Release noted that
while many of the requirements of the Act parallel existing rules
of the Commission, minor revisions were required in the area of
disclosure -[21]- and the proxy and tender offer rules. The
proposed changes also included amendments to the Commission's S-
K Definition of roll-up transaction to conform that definition
more closely to the definition contained in the Act.
The Commission received five letters of comment on the
proposals; the letters were submitted from two professional
associations, a law firm, the North American Securities
Administrators Association ("NASAA"), and the New York Stock
Exchange ("NYSE"). -[22]- Commenters generally support the
proposals, -[23]- and agree that the S-K Definition should be
more closely conformed to that in the Act. However, two
commenters advocate complete conformity of the S-K Definition to
the one in the Act. -[24]- Other specific comments and concerns
are discussed below.
After consideration of the comments and the Commission's
experience in the area of roll-up transactions, the proposed
amendments are being adopted substantially as proposed. Although
not required by the Act, and as outlined more completely below,
the Commission today adopts a definition of roll-up transaction
for disclosure and certain other requirements governing roll-ups
-[18]- The legislation generally defines the term as a
transaction involving the combination or reorganization
of one or more limited partnerships, directly or
indirectly, in which some or all the investors receive
new securities or securities in another entity. A
roll-up may be structured as an acquisition, a merger,
a tender (exchange) offer or in some other fashion.
-[19]- 17 CFR 229.901(c).
-[20]- Release No. 33-7090 (September 1, 1994) [59 FR 46365].
-[21]- See Items 901-915 of Regulation S-K.
-[22]- The comment letters are available for inspection and
copying at the Commission's Public Reference Room (see
File No. S7-26-94).
-[23]- The NYSE addressed only one part of the proposals,
namely, the definition of "regularly traded," which it
opposed. See Section II.A.2, below, for further
discussion.
-[24]- See letter from Tony M. Edwards, General Counsel,
National Association of Real Estate Investment Trusts,
dated November 1, 1994 ("NAREIT Letter"); see also
letter from Judith D. Fryer, Kaye, Scholer, Fierman,
Hays & Handler, for the Subcommittee on Partnerships,
Trusts and Unincorporated Associations of the Committee
on Federal Regulation of Securities, Section of
Business Law of the American Bar Association, dated
October 31, 1994 ("ABA Letter").
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that conforms more closely to the definition in the Act; the
legislative definition applies to all of the new substantive
requirements imposed by the Act. Under today's amendments, the
S-K Definition, as amended ("Amended S-K Definition"), will
continue to be broader than that in the legislation. The sole
difference between the proposals and the amendments being adopted
today is that, as discussed below, the "listed to listed"
exclusion of the Amended S-K Definition adopted today will not
include securities listed on the American Stock Exchange's
("Amex") Emerging Company Marketplace ("ECM").
II. DISCUSSION OF AMENDMENTS AND NEW RULES
A. Amendments to Regulation S-K Definition of Roll-up
Transaction
1. Definition and Exclusions
Consistent with the proposals, the amendments to the S-K
Definition adopted today add certain, but not all, of the
exclusions contained in the Act. Thus, the Amended S-K
Definition is narrower in scope than the current S-K Definition,
-[25]-
but broader than that in the Act. The Amended S-K Definition
applies to the disclosure -[26]- and certain other requirements
governing roll-ups, as discussed below, while the legislative
definition applies to the SRO Rules and the new rule relating to
differential compensation.
For purposes of disclosure provided to investors in
connection with roll-up transactions, the S-K Definition, as
amended today, differs from the legislative definition in two
principal respects, as discussed in more detail below. First,
the Act applies only to transactions involving limited
partnership entities, while the Amended S-K Definition of a
-[25]- Thus, certain transactions that would have been covered
by the current S-K Definition will no longer be covered
under the Amended S-K Definition. Disclosure and
procedural compliance burdens for these transactions
will be reduced.
-[26]- As there is no analogue to subpart 900 in Regulation S-
B [17 CFR 228.10 et seq.], small business issuers, as
defined in Rule 405 of Regulation C [17 CFR 230.405],
engaged in roll-up transactions eligible to register on
Form S-4 must furnish the information required by
subpart 900 of Regulation S-K as well as the other
requirements of that form. See General Instruction D.3
to Form S-4. Today's amendments add a sentence to
General Instruction I.1 to Form S-4, as proposed, to
refer specifically to the applicability of subpart 900
of Regulation S-K to small business roll-up
transactions.
The disclosure requirements apply to registration statements
on Form S-4 or Form F-4, the forms generally used in
connection with business combinations or reorganizations.
If securities to be issued in a roll-up transaction are
registered on another form, but would be authorized to be
registered on Form S-4 or Form F-4, the roll-up rules apply
in that context. See n. 15 to Release No. 33-6922.
Instructions today are added to Forms S-1, F-1 and S-11 to
such effect. These instructions do not expand the
transactions subject to the roll-up rules, but merely state
that transactions that otherwise meet the definition of
roll-up adopted today and are registered on those forms will
be subject to the roll-up rules.
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"roll-up transaction" will continue to cover transactions
involving finite-life entities, however organized. -[27]-
Second, the Act includes two separate exclusions that depend upon
the listed status of the securities to be issued or exchanged,
which are replaced in the Amended S-K Definition by a different
exclusion for transactions in which both the securities to be
exchanged and the securities to be issued in the roll-up are
listed
securities. -[28]-
Under today's amendments to the S-K Definition, the
following transactions, which do not generally present the
concerns the roll-up regulatory framework was designed to
address, -[29]- are excluded from the S-K Definition for the
first time: -[30]-
(1) transactions wherein the interests of all of the
investors in each of the partnerships are repurchased,
recalled, or exchanged in accordance with the terms of
the preexisting partnership agreement for securities in
an operating company specifically identified at the
time of the formation of the original partnership;
-[31]-
(2) transactions that involve only issuers that are not
required to register or report under Section 12 of the
Exchange Act, -[32]- both before and after the
transaction; -[33]-
-[27]- "Partnership" is defined currently at Item 901(b) of
Regulation S-K [17 CFR 229.901(b)] to mean any finite-
life limited partnership, or other finite-life entity.
"Finite-life" is defined currently at Item 901(b)(2)(i)
[17 CFR 229.901(b)(2)(i)]. Today's amendments do not
change these definitions.
-[28]- The term "listed securities" is discussed in Section
II.A.1, below.
-[29]- Although such transactions will be excluded from the
coverage of the roll-up rules, if a transaction raises
concerns addressed by the roll-up rules, whether or not
excluded from the rules, the disclosure required under
the rules should be considered from an anti-fraud
perspective. See Release No. 33-6922, Section III.B.
-[30]- The Amended S-K Definition, like the legislative
definition, also excludes transactions where the
securities to be issued or exchanged are not required
to be, and are not, registered under the Securities
Act. See amended Item 901(c)(2)(ii) of Regulation S-
K. Transactions meeting the criteria of this exclusion
have never been subject to the Commission's roll-up
requirements, since such requirements are triggered by
the filing of a Securities Act registration statement.
-[31]- Amended Item 901(c)(2)(i) of Regulation S-K.
-[32]- 15 U.S.C. 78l.
-[33]- Amended Item 901(c)(2)(iii) of Regulation S-K. As
discussed in the Proposing Release, if a transaction
involves the issuance of a security that, after the
transaction, would be convertible into a security of an
issuer that is required to register or report under
(continued...)
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(3) transactions that involve the combination or
reorganization of one or more partnerships in which a
non-affiliated party succeeds to the interests of a
general partner or sponsor, if: (A) such action is
approved by not less than 66-2/3% of the outstanding
units of each of the participating partnerships; and
(B) as a result of the transaction, the existing
general partners will receive only compensation to
which they are entitled as expressly provided for in
the preexisting partnership agreements; -[34]-
(4) transactions in which the securities offered to
investors are securities of another entity that are
reported under a transaction reporting plan declared
effective before December 17, 1993 by the Commission
under Section 11A of the Exchange Act, -[35]- if: (A)
such other entity was formed, and such class of
securities was reported and regularly traded, -[36]-
not less than 12 months before the date on which
soliciting material is mailed to investors; and (B) the
securities of that entity issued to investors in the
transaction do not exceed 20% of the total outstanding
securities of the entity, exclusive of any securities
of such class held by or for the account of the entity
or a subsidiary of the entity; -[37]-
(5) transactions in which all of the investors' partnership
securities are reported under a transaction reporting
plan declared effective before December 17, 1993 by the
Commission under Section 11A of the Exchange Act and
such investors receive new securities or securities in
another entity that are reported under a transaction
reporting plan declared effective before December 17,
1993 by the Commission under Section 11A of the
Exchange Act; except that, for purposes of this
-[33]-(...continued)
Section 12, this exclusion would not be available since
the transaction would not involve only non-Section 12
issuers. See n. 31 to the Proposing Release.
Three commenters voice concern that since no time limit was
placed on the convertibility of the security, certain
transactions that provide for convertibility to a Section 12
registered security after a long period of time would
unnecessarily be subject to the roll-up requirements. See
NAREIT Letter, ABA Letter and letter from James E. Showen of
Hogan & Hartson L.L.P., dated November 1, 1994 ("Hogan &
Hartson Letter"). The Commission acknowledges the
commenters' concerns, but rather than set a time limit for
the conversion feature, the Commission notes the possibility
that certain of these transactions, based on their
particular facts and circumstances, may not require the
special protections of the rules. Parties involved in such
transactions may seek exemptive relief. See Amended Item
901(c)(3) of Regulation S-K.
-[34]- Amended Item 901(c)(2)(iv) of Regulation S-K.
-[35]- 15 U.S.C. 78k-1.
-[36]- See Section II.A.2, below, for a discussion of the term
"regularly traded."
-[37]- Amended Item 901(c)(2)(v) of Regulation S-K.
-------------------- BEGINNING OF PAGE #7 -------------------
exclusion, securities that are reported under a
transaction reporting plan declared effective before
December 17, 1993 by the Commission under Section 11A
of Exchange Act do not include securities listed on the
Amex's ECM; -[38]-
(6) transactions in which the investors in any of the
partnerships involved in the transaction are not
subject to a significant adverse change with respect to
voting rights, the terms of existence of the entity,
management compensation or investment objectives;
-[39]- and
(7) transactions in which all investors are provided an
option to receive or retain a security under
substantially the same terms and conditions as the
original issue. -[40]-
The Act sets forth two exclusions for transactions where
either no listed securities would be issued or where all of the
partnership interests to be exchanged are listed securities at
the time of filing. Rather than including these exclusions in
the Amended S-K Definition, the Proposing Release solicited
comment on a single exclusion for transactions in which both the
securities of the subject partnerships and the surviving entity
are listed securities, since the transactions encompassed by the
legislative exclusions may raise the concerns (e.g., significant
conflicts of interest, adverse changes and differing effects for
partnership investors) that led to the Commissions' roll-up
disclosure and procedural rules. -[41]- For purposes of the
Proposing Release, the term "listed securities" encompassed
securities listed on the NYSE or the Amex (including those listed
on the ECM) or authorized for quotation on Nasdaq/NM, or in some
cases listed on regional exchanges that substantially meet the
Amex listing criteria. However, comment was solicited as to
whether any specified categories of securities, for example,
those listed on the ECM, should be excluded.
-[38]- Amended Item 901(c)(2)(vi) of Regulation S-K. As noted
above, the exclusion of the Amex's ECM from this
provision is the only change from the proposals. See
below for a more complete discussion of this exclusion.
-[39]- Amended Item 901(c)(2)(vii) of Regulation S-K.
-[40]- Amended Item 901(c)(2)(viii) of Regulation S-K.
Amended Item 901(c) of Regulation S-K does not contain
the exclusion contained in Section 14(h)(5)(A) of the
Exchange Act [15 U.S.C. 78n(h)(5)(A)] for transactions
involving non-finite-life entities, since the term
"partnership" is already defined at Item 901(b)(1) of
Regulation S-K [17 CFR 229.901(b)(1)] to include only
"finite-life" entities.
In response to the Commission's request for comment in the
Proposing Release, two commenters support retaining the
sixth and seventh exclusions in the interests of certainty
(NAREIT and ABA Letters), while one commenter advocates
treatment of these transactions on a case-by-case basis
(Letter from Philip A. Feigin, President, and Jerry Baker,
Chair, Direct Participation Programs Committee, NASAA, dated
November 1, 1994 ("NASAA Letter")). In the interest of more
complete conformity with the legislation, the exclusions are
adopted as proposed.
-[41]- See Section I.B.4 of the Proposing Release.
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Three commenters address the "listed securities" issue. One
commenter suggests that ECM securities should not be included
within the term "listed securities" because such securities fail
to provide investors with predictable and ascertainable market
value. -[42]- Two commenters suggest, however, that this
exclusion be broadened to include transactions involving issuers
whose securities were listed prior to the transaction, and where
investors receive unlisted securities in exchange. -[43]-
The Commission notes that the ECM was intended to provide
small companies an opportunity to list their securities that
otherwise would not qualify for an exchange listing. -[44]- The
regulatory treatment of ECM securities differs in important
respects from the treatment of other listed securities. The
listing standards for ECM issuers are significantly lower than
those for regular Amex-listed issuers, and accordingly, the
market for ECM securities may not be as liquid and deep as those
for other listed securities. In addition, companies listed on
the ECM are generally not marginable unless they satisfy the
company specific criteria for inclusion in the Federal Reserve's
OTC Margin List subject to the same maintenance margin treatment
for OTC non-NMS securities, rather than the treatment accorded
regular Amex companies under Federal Reserve Board Regulation T.
After consideration of the foregoing, as well as the comments
received, -[45]- the Commission has determined to adopt the
"listed-to-listed" exclusion, -[46]- as proposed, except that
securities listed on the ECM will not be encompassed within the
exclusion. -[47]-
-[42]- See NASAA Letter.
-[43]- See NAREIT Letter and ABA Letter.
-[44]- Release No. 34-30445 (March 5, 1992) [57 FR 8693].
-[45]- One commenter notes that the ECM was established for
the specific purpose of allowing exchange-type trading
of securities that would otherwise fail to meet the
substantive listing requirements of the Amex. See
NASAA Letter.
-[46]- Amended Item 901(c)(2)(vi) of Regulation S-K.
-[47]- The two separate legislative exclusions are not adopted
since these exclusions may raise the concerns that led
to the Commission's current roll-up disclosure and
procedural rules. With regard to the first exclusion,
it is unlikely that a transaction would be proposed
where no listed securities would be issued since roll-
ups historically have been proposed principally as a
means to achieve liquidity. However, such a
transaction still could involve significant conflicts
of interest, adverse changes and differing effects for
partnership investors, which will be addressed by the
Commission's roll-up disclosure rules. Further, if the
securities to be issued would not be listed and the
limited partnership interests were not listed
securities, investors would not have the alternative of
disposing of their interests rather than participating.
The second exclusion, for transactions where all
partnership securities were listed securities, does not
assure that investors who participate would be able to
sell after the roll-up since it does not require that
the securities to be issued be listed securities.
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As noted above, unlike the legislative definition, the
Amended S-K Definition of roll-up transaction is not restricted
to transactions involving limited partnerships. Rather, the
Amended S-K Definition applies to transactions involving all
finite-life entities, whether or not organized as limited
partnerships. While commenters generally support the amendments
to the S-K Definition, and in particular, support efforts to
conform the S-K Definition to that in the Act, two commenters
object to the lack of complete conformity with the definition in
the Act, and specifically question the rationale for having the
definition apply to entities other than partnerships. -[48]- In
contrast, one commenter supports the Commission's proposal in
this area, noting that several abusive roll-up transactions have
involved real estate investment trusts as well as limited
partnerships, and that new structures are now being used by
direct participation programs (e.g., limited liability companies
and business trusts). -[49]-
Based on the staff's experience of reviewing the disclosure
documents filed in connection with roll-up transactions by
finite-life entities, including non-partnership entities, such as
finite-life trusts, it has been determined that the roll-up
regulatory framework should continue to apply to all finite-life
entities. Finite-life entities other than partnerships do not
necessarily provide investors with any additional protections in
a roll-up transaction because of their different legal
structures. No distinction between the disclosure required for
non-partnership finite-life entity roll-ups and partnership roll-
ups appears warranted based on the technical legal structure of
the entities.
Finally, consistent with the Act and the proposals, today's
amendments to Regulation S-K provide that the Commission may
exempt by rule or order any security or class of securities, any
transaction or class of transactions or any person or class of
persons from the definition of roll-up transaction or the
requirements imposed on a roll-up transaction. -[50]-
2. Definition of "Regularly Traded" For Purposes of
Exclusion
The Commission adopts, as proposed, solely for purposes of
the fourth exclusion above, a new definition of the term
"regularly traded" security as any security with a minimum
closing price of $2.00 or more for a majority of the business
days during the preceding three-month period and a six-month
minimum average daily trading volume of 1,000 shares. -[51]- The
Commission believes that for the purposes of the rule, a minimum
average price of $2.00/share and average daily trading volume of
1,000 shares are appropriate to capture the universe of
securities that are regularly traded.
The Commission solicited comment as to whether the scope
of the proposed definition was appropriate or whether alternative
definitions would meet the goals of the Act. Comment was
specifically solicited on the appropriateness of the minimum
average price and daily trading volume criteria proposed for
defining "regularly traded" securities. Four commenters address
-[48]- See NAREIT Letter and ABA Letter.
-[49]- See NASAA Letter.
-[50]- Amended Item 901(c)(3) of Regulation S-K. Prior to
these amendments, exemptive action could only be taken
on a transaction-by-transaction basis.
-[51]- Amended Item 901(c)(2)(v)(C) of Regulation S-K.
-------------------- BEGINNING OF PAGE #10 -------------------
the definition. One commenter opposes the definition as being
unnecessary and creating artificial distinctions among exchange-
listed securities. -[52]-
This commenter argues that the legislative history does not
support the definition. -[53]- The commenter interprets the
legislative history to refer to all national market system
securities issued by any entity formed more than 12 months before
the mailing of soliciting materials. The legislative history
mentions only one other qualification according to this commenter
- namely, the securities offered as consideration cannot exceed
20% of the total outstanding securities of the issuer. -[54]-
The commenter states that the further reference to securities
that are "widely traded and seasoned" is a reference to all
national market system securities issued by any entity formed
more than 12 months before the mailing of soliciting materials.
This reference is not intended to further delimit the universe of
securities to be covered.
The commenter notes that the Senate Report speaks in terms
of securities that are "generally liquid" and that "may be sold
by investors" after the
roll-up. -[55]- The commenter asserts that all securities listed
on the NYSE meet these criteria.
The Commission notes that the Senate Report does not speak
explicitly in terms of all national market system securities.
The Senate Report does not state that all national market system
securities are widely traded and seasoned. The legislative
history of the Act indicates that the House of Representatives
added the term "regularly traded" to the bill passed by the
Senate because it was concerned that certain national market
system securities might not have a sufficiently liquid trading
market. -[56]- Representative Markey stated that "regularly
traded" securities were those securities for which there existed
an active, liquid and orderly secondary trading market. -[57]-
While the NYSE may provide a liquid and orderly trading market
for all securities that it lists, the commenter has not
demonstrated that there is an active trading market for all such
securities.
Furthermore, the Commission believes that the term
"regularly traded" should be interpreted to further qualify the
type of securities eligible for the exclusion. In this regard,
the Commission notes that the Act provides, in pertinent part,
that a transaction does not constitute a limited partnership
roll-up transaction if it is:
(F) a transaction, except as the Commission may
otherwise provide by rule for the protection of
investors, in which the securities offered to investors
-[52]- Letter from James E. Buck, Senior Vice President and
Secretary, NYSE, dated October 24, 1994 ("NYSE
Letter").
-[53]- S. Rep. No. 121, 103d Cong., 1st Sess. 15 (1993)
("Senate Report").
-[54]- NYSE Letter, citing Senate Report.
-[55]- Id.
-[56]- 139 Cong. Rec. H10,966 (daily ed. Nov. 22, 1993)
(statement of Rep. Markey).
-[57]- Id.
-------------------- BEGINNING OF PAGE #11 -------------------
are securities of another entity that are reported
under a transaction reporting plan declared effective
before the date of enactment of [the Act] by the
Commission under section 11A, if-
(i) such other entity was formed, and such
class of securities was reported and regularly
traded not less than 12 months before the date on
which soliciting materials is mailed to investors.
(emphasis added). -[58]-
The Commission agrees with the commenter that a specialist's
affirmative obligations provide assurance that a national market
system security received as consideration "may be sold by
investors." However, the Commission notes that the Senate
Report also refers to securities that have a "readily
ascertainable market value." The Commission believes that as a
general matter, securities that have a limited trading volume
also have a limited trading depth. Consequently, such securities
may have a less readily ascertainable market value than do those
securities with a greater trading volume. It is more difficult
for investors to evaluate the consideration being offered in
exchange for their interest when they are offered securities
characterized by a limited trading volume.
Two other commenters also criticize the proposed definition.
-[59]-
These commenters argue that a definition is unnecessary. They
also argue that the
the definition does not assure that investors can adequately
assess the consideration being offered for their interests, and
may exclude certain securities for which investors can adequately
assess the consideration being offered for their interests. The
Commission believes that a definition provides useful guidance to
registrants, and that the definition proposed by the Commission
increases the likelihood that the securities would be regularly
traded.
One commenter opposes the proposed definition because it
believes that the guidelines set forth in the definition do not
adequately assure that the market value of the offered securities
will be readily ascertainable or that a public market will be
readily available. -[60]- This commenter recommends that the
minimum price be raised to $5/share, and that the minimum volume
level be increased. This commenter argues that a higher
threshold is necessary because most investors will sell their
post-roll-up securities in the trading market more or less at one
time - shortly after the consummation of the transaction.
The Commission agrees with the commenter that often,
investors will sell their post-roll-up securities shortly after
the transaction has been consummated, but believes that the
proposed definition will assure that the market value of the
offered securities is readily ascertainable and that sufficient
liquidity will exist for investors to sell any securities
received.
Finally, the Commission notes that adopted Item 901(c)(3)
will permit the Commission to exempt by rule or order any
security or class of securities from the definition of roll-up
transaction or the requirements imposed on roll-up transaction by
Items 902-915 of Regulation S-K if it finds such action to be
-[58]- Exchange Act Section 14(h)(5)(F) [15 USC 78n(h)(5)(F)].
-[59]- ABA Letter, NAREIT Letter.
-[60]- NASAA Letter.
-------------------- BEGINNING OF PAGE #12 -------------------
consistent with the public interest and the protection of
investors. The Commission today adopts a bright-line test for
the active, liquid and orderly secondary trading market required
by the Act. The Commission is not foreclosed from revisiting the
issue at a later date. Any applicant may request an exemption
for a particular security or class of security which does not
satisfy the definition but for which there exists an active,
liquid and orderly secondary trading market if circumstances so
require.
-------------------- BEGINNING OF PAGE #13 -------------------
B. Rule Defining Terms Related to Legislative Definition
The Commission adopts, as proposed, a new Exchange Act rule
defining related terms used in the legislative definition for
purposes of, among other things, the SRO rules. -[61]- The
related terms addressed in the new rule are as follows:
As provided in the Act, criteria are set forth to
determine when a partnership has an operating policy or
practice of retaining cash available for distribution
and reinvesting proceeds from the sale, financing or
refinancing of assets. -[62]-
An exclusion from the roll-up definition is provided
for transactions involving only entities registered
under the Investment Company Act of 1940 -[63]- or
regulated as business development companies. -[64]-
This exclusion is in the current as well as Amended S-
K Definition; -[65]- transactions involving such
entities are subject to extensive regulation, and the
concerns associated with roll-ups have not been
perceived in this area.
The term "regularly traded," for purposes of the
related exclusion in the Act, is defined in the same
manner as the Amended S-K Definition being adopted
today. -[66]-
C. Proxy and Tender Offer Rule Revisions
1. Exemption for Preliminary Communications
The Act requires the Commission to adopt a new proxy rule
exemption to allow preliminary communications among security
holders for the purpose of determining whether to solicit
proxies, consents or authorizations in opposition to a proposed
roll-up transaction. The Act further requires that persons
relying on the exemption who are in the business of buying and
selling limited partnership interests in the secondary market,
and who hold 5% or more of the securities subject to the roll-
up, provide specified disclosure to the security holders to whom
the communication is made.
The Proposing Release proposed changes to the Commission's
proxy rules in order to incorporate this exemption; the
Commission adopts the changes as proposed. The new exemption
exempts preliminary communications from all the proxy rules,
-[61]- New Exchange Act Rule 3b-11.
-[62]- New Rule 3b-11(a). This is accomplished by referring
to the definition of "finite-life" in Item 901(b)(2) of
Regulation S-K [17 CFR 229.901(b)(2)]. If a
partnership is not finite-life as defined in 901(b)(2),
then it would be a reinvesting partnership for purposes
of the exclusion from the Act for transactions
involving only reinvesting partnerships. See Section
14(h)(5)(A) of the Act.
-[63]- 15 U.S.C. 80a-1 et seq.
-[64]- New Rule 3b-11(b).
-[65]- Amended Item 901(c)(3) of Regulation S-K [17 CFR
229.901(c)(3)].
-[66]- New Rule 3b-11(c).
-------------------- BEGINNING OF PAGE #14 -------------------
except the anti-fraud prohibitions of Rule 14a-9. -[67]- This
exemption is available to any roll-up transaction within the
Amended S-K Definition. -[68]- The new exemption contains two
conditions, as proposed. First, it is available only to a holder
of a security that is the subject of a proposed roll-up
transaction who is not an affiliate of the registrant, general
partner or sponsor. The exemption also provides that any person
relying on it who owns 5% or more of any class of securities that
is subject of a proposed roll-up transaction and who is engaged
in the business of buying and selling limited partnership
interests in the secondary market would be entitled to rely on
the exemption only if specified disclosures are made. The person
must disclose to any security holder solicited under this
exemption that person's security ownership and any relations of
the person to the parties to the transaction or to the
transaction itself, as set forth in a new Notice of Exempt
Preliminary Roll-up Communication, and furnish or mail the notice
to the Commission within three days of the first exempt
communication. -[69]-
The Notice, which is being adopted as proposed, requires,
among other things, disclosure of the security holder's security
ownership, as well as any relations of the holder to the parties
to the transaction or to the transaction itself. These relations
include:
whether the business of the holder in buying and
selling of limited partnership interests would be
adversely affected if the roll-up transaction was
completed;
whether the holder is a service provider to an affected
limited partnership and would suffer material financial
injury if the roll-up was completed;
whether the holder is engaged in another transaction
that may compete with the pending roll-up transaction;
and
whether the holder has any other relations to the
parties involved in the transactions, or enjoys other
benefits not shared on a pro rata basis by all other
-[67]- 17 CFR 240.14a-9. The other solicitation exemptions in
the proxy rules, including the exemption afforded by
Rule 14a-2(b)(1) [17 CFR
240.14a-2(b)(1)], also would be available to roll-up
communications meeting the conditions of those exemptions.
-[68]- No exemption is needed for solicitations involving
securities that are not registered under Section 12 of
the Exchange Act, since they are not subject to the
proxy rules.
-[69]- The information may be provided to the security holder
orally, if the exempt communication is oral. Any
written communication must contain the information set
forth in the Notice. See New Rule 14a-6(n) and
Schedule 14a-104.
Persons filing the Notice with respect to mandated
electronic filers should file the Notice in paper format
until the necessary form type is available through the EDGAR
system. Notice will be provided in the SEC Digest and the
Federal Register and on the EDGAR Bulletin Board when the
new EDGAR form type for the Notice is available. At that
time, the Notice may be filed either in paper or
electronically.
-------------------- BEGINNING OF PAGE #15 -------------------
security holders of the same class. -[70]-
Comment was solicited on the appropriateness of limiting the
availability of this exemption to unaffiliated security holders.
-[71]-
Two commenters object to this limitation. -[72]- These
commenters assert that affiliated security holders should be
provided with the same rights and be subject to the same
obligations as 5% holders who engage in the business of buying
and selling limited partnerships in the secondary market. The
Commission has determined to adopt the rule, as proposed, to
provide that the exemption is not available to any person who is
an affiliate of the registrant, general partner or sponsor. The
Commission believes that the nature of the relationships between
affiliates of the roll-up sponsor or the general partner(s) on
the one hand, and unaffiliated limited partners on the other, is
such that affiliates communicating with limited partners in
connection with a roll-up should be subject to the Commission's
proxy
rules. -[73]- Such persons may have a strong interest in the
roll-up's success; in effect, their communication may be quite
similar to those of the partnership or registrant, which, of
course, would be subject to the proxy rules.
2. Security Holder Lists
The Act requires issuers to provide to holders of securities
that are the subject of a roll-up a list of the holders of the
securities of that entity in accordance with rules prescribed by
the Commission. -[74]- As part of its proxy reform adopted in
1992, the Commission provided such rights for security holders in
connection with a roll-up related proxy solicitation involving
Section 12 registered securities. -[75]- The Commission is
adopting amendments to Rule 14a-7 that extend the roll-up
provisions of that rule to transactions involving legislatively
defined roll-ups, -[76]- whether or not involving entities with
-[70]- New Schedule 14a-104.
-[71]- See Proposing Release, Section I.D.1.
-[72]- See NAREIT Letter and ABA Letter.
-[73]- This limitation is consistent with a similar limitation
in Rule 14a-2(b)(1) of the Commission's proxy rules
dealing with certain exempt communications where no
proxy is solicited.
-[74]- Section 14(h)(1)(B) of the Exchange Act [15 U.S.C.
78n(h)(1)(B)].
-[75]- See Rule 14a-7(b) [17 CFR 240.14a-7(b)]. Rule 14a-7
refers to roll-up transactions as defined in Item
901(c) of Regulation S-K. However, because Rule 14a-7
currently only applies to solicitations of shareholders
of Section 12 entities, not all roll-ups as defined in
Item 901(c) of Regulation S-K are subject to the rule.
-[76]- Legislatively defined roll-ups consist of roll-up
transactions as defined in Amended Item 901(c) of
Regulation S-K, except for transactions that do not
involve limited partnerships, and transactions that
meet one of the legislative exclusions not encompassed
by the Amended S-K Definition.
-------------------- BEGINNING OF PAGE #16 -------------------
securities registered pursuant to Section 12. -[77]- The
amendment does not affect the operation of Rule 14a-7, but merely
adds to the coverage of the rule legislatively defined roll-ups
involving non-Section 12 limited partnerships.
Similarly, a new tender offer rule requires subject
companies to provide to holders of securities that are the
subject of a roll-up structured as a tender offer a list of the
holders of that entity at the holder's option. -[78]- Both roll-
ups involving Section 12 registered entities and legislatively
defined roll-ups are covered by the new rule. -[79]-
D. Differential or Contingent Compensation
The Act prohibits the compensation of a person soliciting
proxies, consents or authorizations in connection with a roll-up
transaction on the basis of whether or not the solicited proxy,
consent or authorization either approves or disapproves the
proposed transaction, or is contingent on approval, disapproval
or completion of the transaction. -[80]- The Commission adopts
new Rule 14a-15 as proposed to incorporate this provision into
its regulatory framework. This rule makes unlawful the
compensation of a person soliciting proxies, consents or
authorizations in connection with a roll-up transaction on the
basis of whether or not the solicited proxy, consent or
authorization either approves or disapproves the proposed
transaction, or is contingent on approval, disapproval or
completion of the transaction. -[81]- This proscription is
limited to legislatively defined roll-ups. -[82]-
The Commission also adopts, as proposed, a comparable
-[77]- Today's amendments revise Rule 14a-2 [17 CFR 240.14a-
2] to indicate that the proxy rules apply in some
instances to roll-ups not involving Section 12
registered securities.
To the extent that the transaction involves only issuers
that are not required to register or report under Section
12, both before and after the transaction, the transaction
would be excluded from the definition of roll-up pursuant to
Item 901(c)(2) of Regulation S-K. See Section II.A.1,
above.
-[78]- New Rule 14e-7(b). The current tender offer rules
(i.e., Rule 14d-5 [17 CFR 240.14d-5]) also contain a
security holder list provision but it is applicable
only to bidders.
-[79]- The Commission received one comment on the security
holder list proposal that supports the adoption of the
provision as proposed. See NASAA Letter.
-[80]- Section 14(h)(1)(C) of the Exchange Act [15 U.S.C.
78n(h)(1)(C)]. Since 1991, the rules of the NASD have
forbidden members in connection with a roll-up
transaction (whether a proxy solicitation or a tender
offer) from accepting compensation based upon the
result of the solicitation. See Article III, Section
34(b)(6) to the Rules of Fair Practice of the NASD.
-[81]- The rule is applicable to all solicitors regardless of
NASD membership.
-[82]- This limitation to legislatively defined roll-ups is
consistent with the NASD's rule in this area. See
Release No. 34-34803 (October 7, 1994).
-------------------- BEGINNING OF PAGE #17 -------------------
provision for legislatively defined roll-up transactions
structured as tender
offers. -[83]-
E. Disclosure Regarding Appraisals, Reports and Fairness
Opinions
The Act requires the Commission to amend its roll-up
disclosure rules with respect to appraisals, reports, and
fairness opinions. -[84]- The Commission proposed, and today
adopts, amendments to its disclosure rules that require specific
disclosure of:
any compensation of the preparer of any opinion,
appraisal or report (other than an opinion of counsel)
that is contingent on the transaction's approval or
completion and, if so, the reasons for compensating
that party on a contingent basis; -[85]-
any reasons for the general partner, sponsor or
affiliate placing a limitation on the scope of the
outside party's investigation in connection with any
opinion, appraisal, or report, including, but not
limited to, access to its personnel, premises and
relevant books and records; -[86]- and
with respect to fairness opinions only, any reasons for
the general partner or sponsor concluding that a
fairness opinion was not necessary for the limited
partners or shareholders to make an informed decision
on the proposed transaction if such an opinion on the
fairness of the proposed roll-up transaction to
investors in each of the affected partnerships was not
obtained. -[87]-
The information required by these changes is generally
already required under Securities Act Rule 408 -[88]- and
Exchange Act Rule 12b-20, -[89]- and thus, no new burdens are
imposed on registrants.
III. EFFECTIVE DATE
The new rules and amendments are effective on December 17,
1994, in accordance with the Administrative Procedures Act, which
allows for effectiveness in less than 30 days after publication,
inter alia, "as provided by the agency for good cause and
published with the rule." 5 U.S.C. 553(d)(3). It is necessary
for the amendments and new rules to become effective as of
December 17, 1994 in order to comply with the Congressional
mandate that the rules be in place by that date. -[90]-
Pending roll-up transactions, including those that have been
-[83]- New Rule 14e-7(a). The Commission received one comment
on the differential compensation proposal that supports
the adoption of the provision as proposed. See NASAA
Letter.
-[84]- Sections 14(h)(1)(F), (G), and (H) of the Exchange Act
[15 U.S.C. 78n(h)(1)(F), (G) and (H)].
-[85]- Amended Item 911(a)(2)(vii) of Regulation S-K.
-[86]- Amended Item 911(a)(2)(vi) of Regulation S-K.
-[87]- Amended Item 911(b)(2) of Regulation S-K.
-[88]- 17 CFR 230.408.
-[89]- 17 CFR 240.12b-20.
-[90]- See n. 17, above.
-------------------- BEGINNING OF PAGE #18 -------------------
declared effective but have not yet completed the proxy
solicitation or tender offer, are subject to the new rules as of
the date of the rules' effectiveness. The exempt communication,
shareholder list and differential compensation provisions are
applicable to roll-ups in progress, but only from the effective
date onward. With respect to the amended Regulation S-K
disclosure requirements, in view of the fact that the new
disclosure obligations are generally required under existing
rules, all pending registration statements and those transactions
that have had their registration statements declared effective by
the staff but have not yet been completed should already comply
with these disclosure requirements and thus be unaffected by the
December 17 effectiveness of the new requirements.
IV. COST-BENEFIT ANALYSIS
No empirical data was submitted in response to the
Commission's invitation to provide information on the cost and
benefits of the proposed new rules and amendments. One
commenter, however, notes that the cost to issuers of the
Commission's decision not to include all of the exclusions from
the legislative definition of roll-up could be considerable.
-[91]- The Commission notes, in this regard, that the overall
effect of the amended definition will be to decrease costs since
fewer transactions will be subject to the roll-up rules, given
the number of legislative exclusions incorporated into the
Amended S-K Definition.
V. SUMMARY OF THE FINAL REGULATORY FLEXIBILITY ANALYSIS
A final regulatory flexibility analysis has been prepared in
accordance with 5 U.S.C. 603 concerning the amendments and new
rules. The analysis notes that the amendments and new rules are
intended to comport with the requirements of the Act.
As discussed more fully in the analysis, the amendments and
new rules would affect persons that are small entities, as
defined by the Commission's rules, but would affect small
registrants in the same manner as other registrants. The rules
being adopted today, however, are designed to minimize these
costs to the greatest extent possible while enhancing the ability
of security holders to analyze roll-up transactions, and
providing them with important protections.
A copy of the analysis may be obtained by contacting Robert
B. Toomey, Office of Disclosure Policy, Division of Corporation
Finance, Mail Stop 3-12, 450 Fifth Street, N.W., Washington, D.C.
20549.
VI. STATUTORY BASIS FOR RULES
The amendments to Regulation S-K and Forms S-4 and F-4 are
promulgated pursuant to sections 6, 7, 8, 10, and 19 of the
Securities Act, as amended, -[92]- and Section 14 of the Exchange
Act, as amended. -[93]-
The amendments to the proxy and tender offer rules are
promulgated pursuant to Sections 14 and 23 of the Exchange Act,
as amended. -[94]-
List of Subjects in 17 CFR Parts 229, 239 and 240
Reporting and recordkeeping requirements, Securities.
-[91]- See NAREIT Letter.
-[92]- 15 U.S.C. 77f, 77g, 77h, 77j, 77s.
-[93]- 15 U.S.C. 78n.
-[94]- 15 U.S.C. 78n, 78w.
-------------------- BEGINNING OF PAGE #19 -------------------
TEXT OF AMENDMENTS
In accordance with the foregoing, Title 17, Chapter II of
the Code of Federal Regulations is amended as follows:
PART 229 - STANDARD INSTRUCTIONS FOR FILING FORMS UNDER THE
SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF
1934 AND ENERGY POLICY AND CONSERVATION ACT OF
1975--REGULATION S-K
1. The authority citation for Part 229 continues to read,
in part, as follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj,
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78w, 78ll(d),
79e, 79n, 79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless
otherwise noted.
* * * * *
2. By revising 229.901(c) to read as follows:
229.901 (Item 901) Definitions.
* * * * *
(c)(1) Except as provided in paragraph (c)(2) or (c)(3)
of this Item, roll-up transaction means a transaction involving
the combination or reorganization of one or more partnerships,
directly or indirectly, in which some or all of the investors in
any of such partnerships will receive new securities, or
securities in another entity.
(2) Notwithstanding paragraph (c)(1) of this Item, roll-up
transaction shall not include:
(i) A transaction wherein the interests of all of the
investors in each of the partnerships are repurchased, recalled,
or exchanged in accordance with the terms of the preexisting
partnership agreement for securities in an operating company
specifically identified at the time of the formation of the
original partnership;
(ii) A transaction in which the securities to be issued or
exchanged are not required to be and are not registered under the
Securities Act of 1933 (15 U.S.C. 77a et seq.);
(iii) A transaction that involves only issuers that are
not required to register or report under Section 12 of the
Securities Exchange Act of 1934 (15 U.S.C. 78l), both before and
after the transaction;
(iv) A transaction that involves the combination or
reorganization of one or more partnerships in which a non-
affiliated party succeeds to the interests of a general partner
or sponsor, if:
(A) Such action is approved by not less than 66-2/3% of the
outstanding units of each of the participating partnerships; and
(B) As a result of the transaction, the existing general
partners will receive only compensation to which they are
entitled as expressly provided for in the preexisting partnership
agreements;
(v) A transaction in which the securities offered to
investors are securities of another entity that are reported
under a transaction reporting plan declared effective before
December 17, 1993 by the Commission under Section 11A of the
Securities Exchange Act of 1934 (15 U.S.C. 78k-1), if:
(A) Such other entity was formed, and such class of
securities was reported and regularly traded, not less than 12
months before the date on which soliciting material is mailed to
investors; and
(B) The securities of that entity issued to investors in
-------------------- BEGINNING OF PAGE #20 -------------------
the transaction do not exceed 20% of the total outstanding
securities of the entity, exclusive of any securities of such
class held by or for the account of the entity or a subsidiary of
the entity;
(C) For purposes of paragraph (c)(2)(v) of this Item
( 229.901(c)(2)(v)), a regularly traded security means any
security with a minimum closing price of $2.00 or more for a
majority of the business days during the preceding three-month
period and a six-month minimum average daily trading volume of
1,000 shares.
(vi) A transaction in which all of the investors'
partnership securities are reported under a transaction reporting
plan declared effective before December 17, 1993 by the
Commission under Section 11A of the Securities Exchange Act of
1934 (15 U.S.C. 78k-1) and such investors receive new securities
or securities in another entity that are reported under a
transaction reporting plan declared effective before December 17,
1993 by the Commission under Section 11A of the Securities
Exchange Act of 1934 (15 U.S.C. 78k-1), except that, for purposes
of this paragraph, securities that are reported under a
transaction reporting plan declared effective before December 17,
1993 by the Commission under Section 11A of the Securities
Exchange Act of 1934 shall not include securities listed on the
American Stock Exchange's Emerging Company Marketplace;
(vii) A transaction in which the investors in any of the
partnerships involved in the transaction are not subject to a
significant adverse change with respect to voting rights, the
terms of existence of the entity, management compensation or
investment objectives; or
(viii) A transaction in which all investors are provided
an option to receive or retain a security under substantially the
same terms and conditions as the original issue.
(3) The Commission, upon written request or upon its own
motion, may exempt by rule or order any security or class of
securities, any transaction or class of transactions, or any
person or class of persons, in whole or in part, conditionally or
unconditionally, from the definition of roll-up transaction or
the requirements imposed on roll-up transactions by Items 902 -
915 of Regulation S-K ( 229.902 - 915), if it finds such action
to be consistent with the public interest and the protection of
investors.
* * * * *
3. By amending 229.911 by adding a sentence to the end of
paragraph (a)(2)(vi), adding paragraph (a)(2)(vii), and revising
paragraph (b) to read as follows:
229.911 (Item 911) Reports, opinions and appraisals.
(a) * * *
(2) * * *
(vi) * * * If any limitation was imposed by the general
partner, sponsor or affiliate on the scope of the investigation,
including, but not limited to, access to its personnel, premises,
and relevant books and records, state the reasons therefor.
(vii) State whether any compensation paid to such
outside party is contingent on the approval or completion of the
roll-up transaction and, if so, the reasons for compensating such
parties on a contingent basis.
* * * * *
(b) Fairness Opinions: (1) If any report, opinion or
appraisal relates to the fairness of the roll-up transaction to
investors in the partnerships, state whether or not the report,
opinion or appraisal addresses the fairness of:
(i) The roll-up transaction as a whole and to investors in
each partnership; and
-------------------- BEGINNING OF PAGE #21 -------------------
(ii) All possible combinations of partnerships in the roll-
up transaction (including portions of partnerships if the
transaction is structured to permit portions of partnerships to
participate). If all possible combinations are not addressed:
(A) Identify the combinations that are addressed;
(B) Identify the person(s) that determined which
combinations would be addressed and state the reasons for the
selection of the combinations; and
(C) State that if the roll-up transaction is completed with
a combination of partnerships not addressed, no report, opinion
or appraisal concerning the fairness of the roll-up transaction
will have been obtained.
(2) If the sponsor or the general partner has not obtained
any opinion on the fairness of the proposed roll-up transaction
to investors in each of the affected partnerships, state the
sponsor's or general partner's reasons for concluding that such
an opinion is not necessary in order to permit the limited
partners or shareholders to make an informed decision on the
proposed transaction.
* * * * *
PART 239 - FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
4. The authority citation for Part 239 continues to read,
in part, as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77sss,
78c, 78l, 78m, 78n, 78o(d), 78w(a), 78ll(d), 79e, 79f, 79g, 79j,
79l, 79m, 79n, 79q, 79t,
80a-8, 80a-29, 80a-30 and 80a-37, unless otherwise noted.
* * * * *
5. By amending Form S-1 (referenced in 239.11) by adding
General Instruction IV. to read as follows:
NOTE: The text of Form S-1 does not, and the amendment will
not, appear in the Code of Federal Regulations.
Form S-1
* * * * *
General Instructions
* * * * *
IV. Roll-up Transactions
If the securities to be registered on this Form will be
issued in a roll-up transaction as defined in Item 901(c) of
Regulation S-K (17 CFR 229.901(c)), attention is directed to the
requirements of Form S-4 applicable to roll-up transactions,
including, but not limited to, General Instruction I.
* * * * *
6. By amending General Instruction I. to Form S-4
(referenced in 239.25) by adding a sentence to paragraph 1
between the first and second sentence and adding paragraph 3. to
read as follows:
NOTE: The text of Form S-4 does not, and the amendment will
not, appear in the Code of Federal Regulations.
Form S-4
* * * * *
General Instructions
* * * * *
I. Roll-up Transactions.
1. * * * A "small business issuer," defined in 230.405,
that is engaged in a roll-up transaction shall refer to the
disclosure items in subpart 900 of Regulation S-K. * * *
2. * * *
3. Attention is directed to the proxy rules (17 CFR
240.14a-1 et seq.) and Rule 14e-7 of the tender offer rules (17
CFR 240.14e-7) if securities to be registered on this Form will
be issued in a roll-up transaction. Such rules contain
-------------------- BEGINNING OF PAGE #22 -------------------
provisions specifically applicable to roll-up transactions,
whether or not the entities involved have securities registered
pursuant to Section 12 of the Exchange Act.
* * * * *
7. By amending Form S-11 (referenced in 239.18) by adding
General Instruction F. to read as follows:
NOTE: The text of Form S-11 does not, and the amendment will
not, appear in the Code of Federal Regulations.
Form S-11
* * * * *
General Instructions
* * * * *
F. Roll-up Transactions
If the securities to be registered on this Form will be
issued in a roll-up transaction as defined in Item 901(c) of
Regulation S-K (17 CFR 229.901(c)), attention is directed to the
requirements of Form S-4 applicable to roll-up transactions,
including, but not limited to, General Instruction I.
* * * * *
8. By amending Form F-1 (referenced in 239.31) by adding
General Instruction IV. to read as follows:
NOTE: The text of Form F-1 does not, and the amendment will
not, appear in the Code of Federal Regulations.
Form F-1
* * * * *
General Instructions
* * * * *
IV. Roll-up Transactions
If the securities to be registered on this Form will be
issued in a roll-up transaction as defined in Item 901(c) of
Regulation S-K (17 CFR 229.901(c)), attention is directed to the
requirements of Form S-4 applicable to roll-up transactions,
including, but not limited to, General Instruction I.
* * * * *
9. By amending Form F-4 (referenced in 239.34) by adding
paragraph 3. to General Instruction G. to read as follows:
NOTE: The text of Form F-4 does not, and the amendment will
not, appear in the Code of Federal Regulations.
Form F-4
* * * * *
General Instructions
* * * * *
G. Roll-up Transactions.
* * * * *
3. Attention is directed to the proxy rules (17 CFR
240.14a-1 et seq.) and Rule 14e-7 of the tender offer rules (17
CFR 240.14e-7) if securities to be registered on this Form will
be issued in a roll-up transaction. Such rules contain
provisions specifically applicable to roll-up transactions,
whether or not the entities involved have securities registered
pursuant to Section 12 of the Exchange Act.
* * * * *
PART 240 - GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE
ACT OF 1934
10. The authority citation for Part 240 continues to read,
in part, as follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77eee, 77ggg,
77nnn, 77sss, 77ttt, 78c, 78d, 78i, 78j, 78l, 78m, 78n, 78o, 78p,
78q, 78s, 78w, 78x, 78ll(d), 78q, 79t, 80a-20, 80a-23, 80a-29,
-------------------- BEGINNING OF PAGE #23 -------------------
80-37, 80b-3, 80b-4 and 80b-11, unless otherwise noted.
* * * * *
11. By reserving 240.3b-10 and adding 240.3b-11 to read
as follows:
240.3b-11 Definitions relating to limited
partnership roll-up transactions for
purposes of sections 6(b)(9), 14(h) and
15A(b)(12) - (13).
For purposes of Sections 6(b)(9), 14(h) and 15A(b)(12) -
(13) of the Act (15 U.S.C. 78f(b)(9), 78n(h) and 78o-3(b)(12) -
(13)):
(a) The term limited partnership roll-up transaction does
not include a transaction involving only entities that are not
"finite-life" as defined in Item 901(b)(2) of Regulation S-K
( 229.901(b)(2) of this chapter).
(b) The term limited partnership roll-up transaction does
not include a transaction involving only entities registered
under the Investment Company Act of 1940 (15 U.S.C. 80a-1 et
seq.) or any Business Development Company as defined in 2(a)(48)
of that Act (15 U.S.C. 80a-2(a)(48)).
(c) The term "regularly traded" shall be defined as in Item
901(c)(2)(v)(C) of Regulation S-K ( 229.901(c)(2)(v)(C) of this
chapter).
* * * * *
12. By amending 240.14a-2 by revising the section heading,
the introductory paragraph, the reference "240.14a-14" in the
introductory text of paragraph (a) to read "240.14a-15" and the
reference "14a-14" in the introductory text of paragraph (b) to
read "240.14a-15" and by adding paragraph (b)(4) to read as
follows:
240.14a-2 Solicitations to which 240.14a-3 to
240.14a-15 apply.
Sections 240.14a-3 to 240.14a-15, except as specified below,
apply to every solicitation of a proxy with respect to securities
registered pursuant to Section 12 of the Act (15 U.S.C. 78l),
whether or not trading in such securities has been suspended. To
the extent specified below, certain of these sections also apply
to roll-up transactions that do not involve an entity with
securities registered pursuant to Section 12 of the Act.
* * * * *
(b) * * *
(4) Any solicitation in connection with a roll-up
transaction as defined in Item 901(c) of Regulation S-K ( 229.901
of this chapter) in which the holder of a security that is the
subject of a proposed roll-up transaction engages in preliminary
communications with other holders of securities that are the
subject of the same limited partnership roll-up transaction for
the purpose of determining whether to solicit proxies, consents,
or authorizations in opposition to the proposed limited
partnership roll-up transaction; provided, however, that:
(i) This exemption shall not apply to a security holder who
is an affiliate of the registrant or general partner or sponsor;
and
(ii) This exemption shall not apply to a holder of five
percent (5%) or more of the outstanding securities of a class
that is the subject of the proposed roll-up transaction who
engages in the business of buying and selling limited partnership
interests in the secondary market unless that holder discloses to
the persons to whom the communications are made such ownership
interest and any relations of the holder to the parties of the
transaction or to the transaction itself, as required by
240.14a-6(n)(1) and specified in the Notice of Exempt
-------------------- BEGINNING OF PAGE #24 -------------------
Preliminary Roll-up Communication ( 240.14a-104). If the
communication is oral, this disclosure may be provided to the
security holder orally. Whether the communication is written or
oral, the notice required by 240.14a-6(n) and 240.14a-104 shall
be furnished to the Commission.
13. By amending 240.14a-6 by adding paragraph (n) to read
as follows:
240.14a-6 Filing requirements.
* * * * *
(n) Solicitations subject to 240.14a-2(b)(4). Any person
who:
(1) Engages in a solicitation pursuant to 240.14a-2(b)(4),
and
(2) At the commencement of that solicitation both owns five
percent (5%) or more of the outstanding securities of a class
that is the subject of the proposed roll-up transaction, and
engages in the business of buying and selling limited partnership
interests in the secondary market, shall furnish or mail to the
Commission, not later than three days after the date an oral or
written solicitation by that person is first made, sent or
provided to any security holder, five copies of a statement
containing the information specified in the Notice of Exempt
Preliminary Roll-up Communication ( 240.14a-104). Five copies of
any amendment to such statement shall be furnished or mailed to
the Commission not later than three days after a communication
containing revised material is first made, sent or provided to
any security holder.
14. By amending 240.14a-7 by revising paragraph (b) to
read as follows:
240.14a-7 Obligations of registrants to provide a
list of, or mail soliciting material to,
security holders.
(a) * * *
(b)(1) The requesting security holder shall have the
options set forth in paragraph (a)(2) of this section, and the
registrant shall have corresponding obligations, if the
registrant or general partner or sponsor is soliciting or intends
to solicit with respect to:
(i) A proposal that is subject to 240.13e-3;
(ii) A roll-up transaction as defined in Item 901(c) of
Regulation S-K ( 229.901(c) of this chapter) that involves an
entity with securities registered pursuant to Section 12 of the
Act (15 U.S.C. 78l); or
(iii) A roll-up transaction as defined in Item 901(c) of
Regulation S-K ( 229.901(c) of this chapter) that involves a
limited partnership, unless the transaction involves only:
(A) Partnerships whose investors will receive new
securities or securities in another entity that are not reported
under a transaction reporting plan declared effective before
December 17, 1993 by the Commission under Section 11A of the Act
(15 U.S.C. 78k-1); or
(B) Partnerships whose investors' securities are reported
under a transaction reporting plan declared effective before
December 17, 1993 by the Commission under Section 11A of the Act
(15 U.S.C. 78k-1).
(2) With respect to all other requests pursuant to this
section, the registrant shall have the option to either mail the
security holder's material or furnish the security holder list as
set forth in this section.
* * * * *
15. By adding 240.14a-15 to read as follows:
-------------------- BEGINNING OF PAGE #25 -------------------
240.14a-15 Differential and contingent compensation in
connection with roll-up transactions.
(a) It shall be unlawful for any person to receive
compensation for soliciting proxies, consents, or authorizations
directly from security holders in connection with a roll-up
transaction as provided in paragraph (b) of this section, if the
compensation is:
(1) Based on whether the solicited proxy, consent, or
authorization either approves or disapproves the proposed roll-
up transaction; or
(2) Contingent on the approval, disapproval, or completion
of the roll-up transaction.
(b) This section is applicable to a roll-up transaction as
defined in Item 901(c) of Regulation S-K ( 229.901(c) of this
chapter), except for a transaction involving only:
(1) Finite-life entities that are not limited partnerships;
(2) Partnerships whose investors will receive new
securities or securities in another entity that are not reported
under a transaction reporting plan declared effective before
December 17, 1993 by the Commission under Section 11A of the Act
(15 U.S.C. 78k-1); or
(3) Partnerships whose investors' securities are reported
under a transaction reporting plan declared effective before
December 17, 1993 by the Commission under Section 11A of the Act
(15 U.S.C. 78k-1).
16. By adding 240.14a-104 to read as follows:
240.14a-104 Notice of Exempt Preliminary Roll-up
Communication. Information regarding
ownership interests and any potential
conflicts of interest to be included in
statements submitted by or on behalf of a
person pursuant to 240.14a-2(b)(4) and
240.14a-6(n).
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
NOTICE OF EXEMPT PRELIMINARY ROLL-UP COMMUNICATION
1. Name of registrant appearing on Securities Act of 1933
registration statement for the roll-up transaction (or, if
registration statement has not been filed, name of entity
into which partnerships are to be rolled up):
_________________________________________________________________
______
2. Name of partnership that is the subject of the proposed
roll-up transaction:
_________________________________________________________________
______
3. Name of person relying on exemption:
_________________________________________________________________
______
-------------------- BEGINNING OF PAGE #26 -------------------
4. Address of person relying on exemption:
_________________________________________________________________
______
5. Ownership interest of security holder in partnership that is
the subject of the proposed roll-up transaction:
_________________________________________________________________
______
_________________________________________________________________
______
Note: To the extent that the holder owns securities in
any other entities involved in this roll-up
transaction, disclosure of these interests also
should be made.
6. Describe any and all relations of the holder to the parties
to the transaction or to the transaction itself:
a. The holder is engaged in the business of buying and
selling limited partnership interests in the secondary
market would be adversely affected if the roll-up
transaction were completed.
_______________________________________________________
______
_______________________________________________________
______
_______________________________________________________
______
b. The holder would suffer direct (or indirect) material
financial injury if the roll-up transaction were
completed since it is a service provider to an affected
limited partnership.
_______________________________________________________
_____
_______________________________________________________
_____
_______________________________________________________
_____
c. The holder is engaged in another transaction that may
be competitive with the pending roll-up transaction.
_______________________________________________________
_____
_______________________________________________________
_____
_______________________________________________________
_____
d. Any other relations to the parties involved in the
transaction or to the transaction itself, or any
benefits enjoyed by the holder not shared on a pro rata
basis by all other holders of the same class of
securities of the partnership that is the subject of
the proposed roll-up transaction.
-------------------- BEGINNING OF PAGE #27 -------------------
_______________________________________________________
_______
_______________________________________________________
_______
_______________________________________________________
_______
17. By adding 240.14e-7 to read as follows:
240.14e-7 Unlawful tender offer practices in
connection with roll-ups.
In order to implement Section 14(h) of the Act (15 U.S.C.
78n(h)):
(a)(1) It shall be unlawful for any person to receive
compensation for soliciting tenders directly from security
holders in connection with a roll-up transaction as provided in
paragraph (a)(2) of this section, if the compensation is:
(i) Based on whether the solicited person participates in
the tender offer; or
(ii) Contingent on the success of the tender offer.
(2) Paragraph (a)(1) of this section is applicable to a
roll-up transaction as defined in Item 901(c) of Regulation S-K
( 229.901(c) of this chapter), structured as a tender offer,
except for a transaction involving only:
(i) Finite-life entities that are not limited partnerships;
(ii) Partnerships whose investors will receive new
securities or securities in another entity that are not reported
under a transaction reporting plan declared effective before
December 17, 1993 by the Commission under Section 11A of the Act
(15 U.S.C. 78k-1); or
(iii) Partnerships whose investors' securities are
reported under a transaction reporting plan declared effective
before December 17, 1993 by the Commission under Section 11A of
the Act (15 U.S.C. 78k-1).
(b)(1) It shall be unlawful for any finite-life entity
that is the subject of a roll-up transaction as provided in
paragraph (b)(2) of this section to fail to provide a security
holder list or mail communications related to a tender offer that
is in furtherance of the roll-up transaction, at the option of a
requesting security holder, pursuant to the procedures set forth
in 240.14a-7.
(2) Paragraph (b)(1) of this section is applicable to a
roll-up transaction as defined in Item 901(c) of Regulation S-K
( 229.901(c) of this chapter), structured as a tender offer, that
involves:
(i) An entity with securities registered pursuant to
Section 12 of the Act (15 U.S.C. 78l); or
(ii) A limited partnership, unless the transaction involves
only:
(A) Partnerships whose investors will receive new
securities or securities in another entity that are not reported
under a transaction reporting plan declared effective before
December 17, 1993 by the Commission under Section 11A of the Act
(15 U.S.C. 78k-1); or
-------------------- BEGINNING OF PAGE #28 -------------------
(B) Partnerships whose investors' securities are reported
under a transaction reporting plan declared effective before
December 17, 1993 by the Commission under Section 11A of the Act
(15 U.S.C. 78k-1).
By the Commission.
Jonathan G. Katz
Secretary
Dated: December 1, 1994.