-------------------- 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. -------------------- BEGINNING OF PAGE #2 ------------------- 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. -------------------- BEGINNING OF PAGE #3 ------------------- 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"). -------------------- BEGINNING OF PAGE #4 ------------------- 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. -------------------- BEGINNING OF PAGE #5 ------------------- "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...) -------------------- BEGINNING OF PAGE #6 ------------------- (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. -------------------- BEGINNING OF PAGE #8 ------------------- 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. -------------------- BEGINNING OF PAGE #9 ------------------- 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.