Limited Partnership Roll-up Transactions

Federal RegisterSep 8, 1994

Ask Donna

What actually matters in this document.

Text

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 239 and 240

[Release Nos. 33-7090; 34-34628; File No. S7-26-94]

RIN 3235-AG09

Limited Partnership Roll-up Transactions

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

-----------------------------------------------------------------------

SUMMARY: The Securities and Exchange Commission (``Commission'') is

publishing for comment proposed amendments to its rules regarding

limited partnership roll-up transactions to implement provisions of the

Limited Partnership Rollup Reform Act of 1993 (``Act''), which added,

among other matters, new Section 14(h) of the Securities Exchange Act

of 1934. The proposals would, among other things, amend the current

Commission definition of ``roll-up transaction'' to conform more

closely to the definition of that term in the Act.

DATES: Comments must be submitted on or before November 1, 1994.

ADDRESSES: Comments should be submitted in triplicate to Jonathan G.

Katz, Secretary, Securities and Exchange Commission, 450 Fifth Street,

N.W., Washington, D.C. 20549. Comment letters should refer to File No.

S7-26-94. All comments received will be available for public inspection

and copying in the Commission's Public Reference Room, 450 Fifth

Street, N.W., Washington, D.C. 20549.

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 is proposing to amend 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 proposing

to amend Exchange Act Rules 14a-2,\4\ Rule 14a-6,\5\ and 14a-7,\6\ as

well as to add 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\ under the Securities Act of 1933

(``Securities Act'')\13\ are proposed.

---------------------------------------------------------------------------

\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.

\13\15 U.S.C. 77a et seq.

---------------------------------------------------------------------------

I. Discussion of Proposals

A. Regulatory and Legislative Background

In response to investor complaints and serious concerns raised in

Congressional hearings about limited partnership roll-up transactions,

the Commission adopted rules designed to enhance the quality of

information provided to investors in connection with these

transactions, and established a minimum solicitation period for

them.\14\ Among other things, the Commission adopted subpart 900 of

Regulation S-K to enhance the disclosure submitted to investors in

connection with roll-up transactions (``roll-up rules'').\15\ The roll-

up rules require disclosure with respect to the fundamental changes and

potential adverse effects arising from roll-up transactions and the

conflicts of interest, reasons for, alternatives to and fairness of

such transactions. These rules also require that investors be provided

with individual partnership prospectus supplements with respect to

their own partnerships highlighting, among other things, the effects of

the roll-up transaction on investors in the particular partnership.\16\

In addition to the new disclosure rules, the Commission adopted

amendments to its proxy and tender offer rules\17\ establishing a 60-

day minimum solicitation period for roll-up transactions, or, if

shorter, the maximum period permitted under state law.

---------------------------------------------------------------------------

\14\Release No. 33-6922 (October 30, 1991) [57 FR 57247]. 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].

\15\Items 901-915 of Regulation S-K [17 CFR 229.901-915]. 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 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. An additional sentence is

proposed to be added to General Instruction I.1 to Form S-4 to refer

specifically to the applicability of subpart 900 of Regulation S-K

to small business roll-up transactions.

\16\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 are proposed to be added to Forms S-1, F-1 and S-11 to

such effect.

\17\Exchange Act Rules 14a-6 [17 CFR 240.14a-6], 14c-2 [17 CFR

240.14c-2], and 14e-1 [17 CFR 240.14e-1].

---------------------------------------------------------------------------

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. The

requesting security holder has the option of receiving the list of

security holders or having the issuer mail his or her material.\18\

---------------------------------------------------------------------------

\18\Exchange Act Rule 14a-7(b) [17 CFR 240.14a-7(b)].

---------------------------------------------------------------------------

In 1993, the Exchange Act was amended specifically to address roll-

up abuses. The legislation added Section 14(h) to the Exchange Act,\19\

which imposes certain disclosure and other requirements for roll-up

transactions, as discussed below. While many aspects of the Act

parallel the protections of the Commission's current roll-up rules, the

Act does require some revisions of, and additions to, the Commission's

rules.

---------------------------------------------------------------------------

\19\15 U.S.C. 78n(h).

---------------------------------------------------------------------------

With respect to disclosure requirements, the Act largely codifies

the disclosure requirements of subpart 900 of Regulation S-K. There are

only three minor revisions required by the Act in the area of

disclosure, concerning appraisals, reports, and fairness opinions, as

discussed below.

The legislation also requires revisions to the Commission's proxy

and tender offer rules. These revisions include: an exemption for

preliminary shareholder communications among security holders for the

purpose of determining whether to solicit proxies, consents or

authorizations in opposition to a proposed roll-up transaction; an

expansion of the category of roll-up transactions in which security

holder lists must be provided; and a prohibition of differential or

contingent compensation in connection with roll-up transactions.

The legislation also contains a definition of ``limited partnership

rollup transaction.'' 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. The legislative definition

contains a number of exclusions from its coverage, which makes it

narrower than the Commission's current definition of roll-up

transaction in Item 901 of Regulation S-K (``S-K Definition'').

Although not required by the Act, the Commission is proposing to revise

its S-K Definition of roll-up transaction in certain respects to

conform more closely to the legislative definition. The S-K Definition

would apply to the disclosure and certain other requirements governing

roll-ups, as discussed below, while the legislative definition applies

to all of the new substantive requirements imposed by the Act. Under

today's proposals, the S-K Definition would continue to be broader than

that in the legislation.

Finally, the legislation also amended Sections 6(b) and 15A of the

Exchange Act20 by adding new Sections 6(b)(9) and 15A(b)(12)-

(13).21 These two amendments require registered securities

associations (i.e., the National Association of Securities Dealers

(``NASD'')) to adopt rules to prevent their members from participating

in any roll-up transaction unless the transaction provides specified

protections for limited partners,22 and also require national

securities exchanges to promulgate rules prohibiting the listing of any

national market system security resulting from a limited partnership

roll-up transaction unless the transaction provides those protections

for limited partners (collectively, ``SRO rules''). 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.23

---------------------------------------------------------------------------

\2\015 U.S.C. 78f(b) and 15 U.S.C. 78o-3.

\2\115 U.S.C. 78f(b)(9) and 15 U.S.C. 78o-3(b)(12)-(13).

\2\2The amendments also prohibit the authorization for quotation

on an automated interdealer quotation system sponsored by a

registered securities association of any security designated by the

Commission as a national market system security resulting from a

roll-up transaction that does not provide for certain investor

protections.

See Release No. 34-34533 (August 15, 1994) [59 FR 43147] for

recent NASD rulemaking relating to limited partnership roll-up

transactions.

\2\3Exchange Act Section 15A(b)(12)(A)(i) [15 U.S.C. 78o-

3(b)(12)(A)(i)].

---------------------------------------------------------------------------

B. Proposed Revisions to Regulation S-K Definition of Roll-up

Transaction

1. Basic Coverage of Definition

As noted above, the current S-K Definition of ``roll-up

transaction''24 applies to the Commission's existing requirements

governing roll-ups--special disclosure, a 60-day proxy solicitation or

tender offer period, and the security holder list requirement in proxy

solicitations. The Act has a narrower definition of ``roll-up

transaction'' than the current S-K Definition, since it applies only to

limited partnerships and not all finite life entities. In addition, the

legislative definition contains a number of exclusions not currently

included in the S-K definition. The Commission has analyzed the

legislative coverage of only limited partnerships, as well as each

legislative exclusion, and what coverage and which exclusions would be

appropriate for purposes of its current disclosure and procedural roll-

up requirements. The Commission today is proposing to limit its S-K

Definition of roll-up transaction to encompass certain, but not all, of

the legislative exclusions.25 In effect, this would narrow the

current S-K Definition and reduce disclosure and procedural compliance

burdens for certain entities involved in transactions that would no

longer fall within the S-K Definition of roll-up transaction. The

legislative definition would continue to govern the SRO rules and would

be used in the rule proposals relating to differential compensation.

---------------------------------------------------------------------------

\2\4Item 901(c) of Regulation S-K.

\2\5The S-K Definition is not proposed to be restricted to

limited partnerships.

---------------------------------------------------------------------------

For purposes of disclosure provided to investors in connection with

roll-up transactions, the S-K Definition would differ 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 S-K Definition of a ``roll-up

transaction'' covers, and would continue to cover, transactions

involving finite-life entities, however organized.26 Second, the

Act includes two separate exclusions that depend upon the listed status

of the securities to be issued or exchanged, which would be replaced in

the S-K Definition by a different exclusion for transactions in which

both the partnership securities to be exchanged and the securities to

be issued in the roll-up are listed securities.27

---------------------------------------------------------------------------

\2\6``Partnership'' is defined 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 at Item

901(b)(2)(i) [17 CFR 229.901(b)(2)(i)].

\2\7The term ``listed securities'' is discussed in Part I.B.4,

below.

---------------------------------------------------------------------------

Under the current S-K Definition, a roll-up transaction involves

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. This would continue to be the basic S-K Definition,28 but

under the rules proposed today, the following transactions would be

excluded from the S-K Definition for the first time:29

---------------------------------------------------------------------------

\2\8Proposed amendments to Item 901(c)(1) of Regulation S-K.

\2\9The proposed S-K Definition, like the legislative definition

also would specifically exclude transactions in which the securities

to be issued or exchanged are not required to be and are not

registered under the Securities Act. These transactions 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.

---------------------------------------------------------------------------

Transactions where the interests of the partners 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 limited partnership;

Transactions involving only issuers (both the subject

partnerships and the surviving entity) that are not required to

before and after the transaction;31

---------------------------------------------------------------------------

\3\015 U.S.C. 78l.

\3\1If 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 Section 12, this

exclusion would not be available since the transaction would not

involve only non-Section 12 issuers.

---------------------------------------------------------------------------

Transactions involving 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 not less than 66\2/

3\% of the outstanding units of each of the participating partnerships

approve the roll-up, and, as a result of the transaction, the existing

general partners receive only compensation to which they are entitled

as expressly provided in the preexisting partnership agreement;

Transactions where investors receive securities of an

entity formed more than 12 months before the mailing of soliciting

materials, and such securities are regularly traded and do not exceed

20% of the total outstanding securities of the issuer, exclusive of any

securities of such class held by or for the account of the entity or a

subsidiary of the entity;

Transactions in which both the securities to be issued and

the securities to be exchanged in the roll-up are listed securities;

Transactions in which the investors in none of the

partnerships involved are subject to a significant adverse change with

respect to voting rights, the term of existence of the entity,

management compensation or investment objectives; and

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.32

---------------------------------------------------------------------------

\3\2Proposed Item 901(c)(2) of Regulation S-K. Proposed Item

901(c) of Regulation S-K would 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.

---------------------------------------------------------------------------

Transactions falling within the proposed exclusions from the

definition of ``roll-up transaction'' listed above generally are not

the type that have generated the abuses giving rise to the Act and the

Commission's roll-up rules. Therefore, the Commission believes it

appropriate to simplify compliance burdens by more closely conforming

the S-K Definition to the legislative definition. Comment is requested

on the appropriateness of the proposed exclusions, and whether any or

all of them should be deleted from the proposed S-K Definition,

particularly in view of the disclosure requirements in the roll-up

rules that would no longer apply.33

---------------------------------------------------------------------------

\3\3Although such transactions would 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.

---------------------------------------------------------------------------

Consistent with the Act, Regulation S-K also would 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.34 This would

broaden the current provision, which provides for exemptive action only

on a transaction by transaction basis.35

---------------------------------------------------------------------------

\3\4Proposed Item 901(c)(3) of Regulation S-K.

\3\5Item 901(c)(2) of Regulation S-K [17 CFR 229.901(c)(2)].

---------------------------------------------------------------------------

2. Definition of ``Regularly Traded'' for Purposes of Exclusion

The legislative history of the Act36 indicates that Congress

intended to include as ``regularly traded'' securities those securities

that have a readily ascertainable market value, which are generally

liquid and which investors may sell following the exchange of

securities. Therefore, for purposes of the exclusion above, the

Commission proposes to define the term ``regularly traded'' security as

any security with a minimum closing price of $2.00/share 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.37 The Commission believes that this definition would mean

that only those securities that are too thinly traded to permit

investors to evaluate the consideration being offered in exchange for

their interest would fail to qualify for the exclusion above and that a

public market will be available for those securities qualifying for the

exclusion. Comment is requested as to whether the scope of the proposed

definition is appropriate or whether alternative definitions would meet

the goals of the Act.

---------------------------------------------------------------------------

\3\6S. Rep. No. 121, 103d Cong., 1st Sess. 15 (1993).

\3\7Proposed Item 901(c)(2)(v)(C) of Regulation S-K.

---------------------------------------------------------------------------

In commenting on the appropriateness of the proposed definition

and/or possible alternatives, commenters should address whether the

proposed definition would exclude certain securities having a readily

ascertainable market value and for which a public market is available.

Comment also is requested as to whether the proposed definition would

include certain securities not having a readily ascertainable market

value or for which a public market is not readily available. In

particular, the Commission seeks comment on whether the price per share

and average daily trading volume should be set at a higher or lower

level than currently proposed or whether the price/volume criteria

should have an inverse relationship, e.g., $3.00/share with average

daily volume of 500 shares or $1.00/share with average daily volume of

2,500 shares. The Commission notes that the proposed definition would

exclude certain securities with a relatively high price per share but a

low average daily share volume. Therefore, comment is solicited as to

whether it would be appropriate to define ``regularly traded'' security

with reference to the average daily dollar volume of a security in lieu

of its average daily share volume.

3. Exclusions for No Significant Adverse Change or Provision of Option

To Receive or Retain Substantially the Same Security

The sixth and seventh exclusions listed above would provide that

the roll-up requirements do not apply to transactions in which,

respectively, the investors are not subject to significant adverse

changes or the investors have an option to receive or retain a security

under substantially the same terms and conditions. Comment is solicited

on whether it would be preferable to approach these classes of

transactions on a case by case basis, since the availability of these

exclusions can only be determined based on the particular facts and

circumstances of individual transactions. Specifically, commenters

should address whether the Commission, instead of adopting these two

exclusions, should address these types of transactions under its

Regulation S-K exemptive authority, as discussed above.

4. Statutory Exclusions Not Proposed To Be Included in S-K Definition

As noted above, unlike the legislative definition, the proposed S-K

Definition of roll-up transaction would not be restricted to

transactions involving limited partnerships. Rather, the proposed S-K

Definition would continue to apply to all finite life entities, whether

or not organized as limited partnerships. Based on the Commission's

experience reviewing the disclosure documents filed in connection with

roll-up transactions by finite life entities, including non-partnership

entities, it appears that no differing disclosure is warranted and that

the Commission's roll-up rules should apply to roll-ups of non-

partnership finite life entities, such as finite life trusts, just as

to roll-ups of finite life limited partnerships.

Comment is requested on the appropriateness of continuing the

application of the Commission's roll-up rules to transactions involving

non-partnership entities. Commenters favoring complete conformity to

the legislative definition are asked to address why the technical legal

structure of the participating entities would change the disclosure

needed in connection with these transactions.

Also, the proposed S-K Definition would not include the two

exclusions set forth in the Act for transactions where either no listed

securities, as described below, would be issued or where all of the

partnership interests to be exchanged are listed securities at the time

of filing.38 Instead, a separate exclusion for transactions where

both the securities of the subject partnerships and the surviving

entity are listed securities would be provided.39

---------------------------------------------------------------------------

\3\8Exchange Act Sections 14(h)(4)(A) and (B).

\3\9Proposed Item 901(c)(2)(vi) of Regulation S-K.

---------------------------------------------------------------------------

The transactions encompassed by these two exclusions from the Act's

definition 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

would 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. Accordingly, rather than incorporating these exclusions

into the proposed S-K Definition, the Commission proposes to exclude

transactions where both the partnership interests and the securities to

be issued are listed securities. In these transactions, investors

should be able to dispose of their securities either to avoid

participating in the roll-up or after the roll-up is completed.

Comment is requested concerning whether the two separate exclusions

in the Act should be incorporated in the S-K Definition. Commenters

favoring such exclusions from the regulatory coverage should address

whether these transactions could raise the concerns addressed by the

roll-up rules. Comment also is requested on the proposed new exclusion.

The term ``listed securities'' encompasses securities listed on the

New York Stock Exchange or the American Stock Exchange (``Amex'')

(including those listed on the Emerging Companies Marketplace) or

authorized for quotation on Nasdaq/NM, or in some cases listed on

regional exchanges that substantially meet the Amex listing criteria.

The proposed rule, like the Act, refers to transactions in which all of

the partnerships' securities are reported under a transaction reporting

plan declared effective under Section 11A of the Exchange Act40 by

the date of the enactment of the Act. Comment is requested as to

whether this is the appropriate formulation for describing the

securities for which this exclusion would be available. Comment is

specifically requested as to whether it would be appropriate to narrow

the scope of this exclusion. For example, should the listed to listed

exclusion be narrowed to exclude entities listed on the Emerging

Companies Marketplace, regional exchange listed securities, or any

other specified category of securities?

---------------------------------------------------------------------------

\4\015 U.S.C. 78k-1.

---------------------------------------------------------------------------

C. Proposed Rule Defining Terms Related to Legislative Definition

As noted above, while the S-K Definition of ``roll-up transaction''

governs the Commission's disclosure and procedural rules, the

legislative definition establishes the scope of other requirements,

such as the SRO rules. Accordingly, a new Exchange Act rule is proposed

in order to define related terms used in the legislative definition for

purposes of those other requirements.41 These provisions of the

Act apply to ``limited partnership roll-up transactions'' as defined in

the Act. The related terms addressed in the proposed new rule would be

as follows:

---------------------------------------------------------------------------

\4\1Exchange Act Sections 6(b)(9) and 15A(b)(12)-(13) discussed

in Part I.A, above.

---------------------------------------------------------------------------

As provided in the Act, criteria would be 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.42

---------------------------------------------------------------------------

\4\2Proposed Rule 3b-11(a). This would be 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.

---------------------------------------------------------------------------

An exclusion from the roll-up definition would be provided

for transactions involving only entities registered under the

Investment Company Act of 194043 or regulated as business

development companies.44 This exclusion already is in the current

S-K Definition45 and would remain in effect under the proposal;

transactions involving such entities are subject to extensive

regulation, and the concerns associated with roll-ups have not been

perceived in this area.

---------------------------------------------------------------------------

\4\315 U.S.C. 80a et seq.

\4\4Proposed Rule 3b-11(b).

\4\5Item 901(c)(3) of Regulation S-K [17 CFR 229.901(c)(3)].

---------------------------------------------------------------------------

The term ``regularly traded,'' for purposes of the related

exclusion in the Act, would be defined in the same manner as the

proposed S-K definition discussed above.46

---------------------------------------------------------------------------

\4\6Proposed Rule 3b-11(c).

---------------------------------------------------------------------------

D. Proxy and Tender Offer Rule Revisions

1. Exemption for Preliminary Communications

The Act mandates 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 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 new exemption47 would exempt preliminary communications

from all the proxy rules, except the anti-fraud prohibitions of Rule

14a-9.48 As proposed, the exemption would be available in

connection with any roll-up transaction within the S-K Definition.

Comment is requested as to whether the exemption should be limited to

legislatively defined roll-up transactions.49

---------------------------------------------------------------------------

\4\7Proposed Rule 14a-2(b)(4).

\4\817 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.

\4\9No exemption is needed for solicitations involving

securities that are not registered under the Exchange Act, since

they are not subject to the proxy rules.

---------------------------------------------------------------------------

The proposed exemption contains two conditions. First, the

exemption would be available only to a holder of a security that is the

subject of a proposed roll-up transaction and who is not an affiliate

of the registrant, general partner or sponsor. Second, any person

relying on the new exemption who at the beginning of the solicitation

owns 5% or more of any class of securities that is subject to the

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 would be required to 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.50 As proposed, the information may be provided to

the security holder orally, if the exempt communication is oral. Any

written exempt communication would have to contain the information set

forth in the Notice. The Notice would be required to be submitted to

the Commission whether the exempt communication was oral or written.

---------------------------------------------------------------------------

\5\0The notice submission requirement would be set forth in

proposed Rule 14a-6(n) and proposed Schedule 14a-104, ``Notice of

Exempt Preliminary Roll-up Communication.''

---------------------------------------------------------------------------

The new Notice would contain the following identifying information:

The name of the registrant appearing on the Securities Act registration

statement for the roll-up transaction (or, if a registration statement

has not been filed, the name of the entity into which partnerships are

to be rolled-up); the name of the partnership that is the subject of

the proposed roll-up transaction; the name of the person relying on the

exemption; and the address of the person relying on the exemption.

Further, pursuant to the Act, the security holder's ownership interests

would have to be disclosed (including any holdings in any of the other

entities involved in the roll-up transaction), as well as any relations

of the holder to the parties to the transaction or to the transaction

itself. With respect to the latter, the Notice would require the

security holder to specify and describe these relations if:

The business of the holder in the buying and selling of

limited partnership interests in the secondary market would be

adversely affected if the roll-up transaction was completed;

The holder would suffer direct (or indirect) material

financial injury if the roll-up transaction was completed since the

holder is a service provider (e.g., a property manager) to an affected

limited partnership;

The holder is engaged in another transaction that may be

competitive with the pending roll-up transaction; or

The holder has any other relations to the parties involved

in the transaction or to the transaction itself, or enjoys benefits not

shared on a pro-rata basis by all other security holders of the same

class.

Comment is requested as to the appropriateness of limiting the

exemption to unaffiliated security holders. Comment is also requested

as to the need for the Notice of Exempt Preliminary Roll-up

Communication and its submission to the Commission. Should the rules

require the information to be delivered in writing to all security

holders receiving the exempt communication? With respect to the Notice,

should the remainder of any written communication be required to be

submitted, as in the current Notice of Exempt Solicitation in the proxy

rules?51 Further, comment is requested on the appropriateness of

the various categories of relations of the security holder to the

parties to the transaction or to the transaction itself set forth in

the Notice. Should any proposed category (or categories) be excluded?

Conversely, should any additional category (or categories) be included?

With respect to the timing of the Notice, should the Notice be required

to be submitted within a shorter period of time (e.g., two days) or

longer period of time (e.g., five days) after the first exempt

communication?

---------------------------------------------------------------------------

\5\117 CFR 240.14a-103.

---------------------------------------------------------------------------

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.52 As noted above, 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.53 The requesting security holder has the

option of receiving the list of security holders or having the issuer

mail his or her material. To fully implement the Act, Rule 14a-7 is

proposed to be amended to extend this provision to legislatively

defined roll-ups,54 whether or not involving entities with

securities registered pursuant to Section 12.55 As a result, the

Commission's current provision would continue to apply as it has in the

past; the only change would be to add to legislatively defined roll-ups

involving non-Section 12 limited partnerships.

---------------------------------------------------------------------------

\5\2Section 14(h)(1)(B) of the Exchange Act [15 U.S.C.

78n(h)(1)(B)].

\5\3See Section I.A, above. Rule 14a-7 refers to roll-up

transaction 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.

\5\4Legislatively defined roll-ups, as described in the proxy

and tender offer rules, would consist of roll-up transactions as

defined in 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 proposed

new Regulation S-K definition.

\5\5Rule 14a-2 [17 CFR 240.14a-2], which describes the scope of

the proxy rules, would be amended to make it clear that the 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 proposed Item 901(c)(2) of

Regulation S-K. See Part I.B.4, above.

---------------------------------------------------------------------------

The current tender offer rules also contain a security holder list

provision, but it is applicable only to bidders.56 The proposals

would add a rule requiring 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.57 Both roll-up transactions involving Section 12

registered entities and legislatively defined roll-ups would be

covered.

---------------------------------------------------------------------------

\5\6Exchange Act Rule 14d-5 [17 CFR 240.14d-5].

\5\7Proposed Rule 14e-7(b).

---------------------------------------------------------------------------

F. 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.58 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.59 The proposed rule60 would

make this requirement applicable to all solicitors, regardless of NASD

membership, in connection with a legislatively defined roll-up

transaction.61 The limitation to legislatively defined roll-ups is

consistent with the NASD's pending rule proposal in this area.62

---------------------------------------------------------------------------

\5\8Section 14(h)(1)(C) of the Exchange Act [15 U.S.C.

78n(h)(1)(C)].

\5\9See Article III, Section 34(b)(6) to the Rules of Fair

Practice of the NASD.

\6\0Proposed Rule 14a-15.

\6\1See, e.g., House Report on H.R. 617, in which the Committee

on Energy and Commerce noted that ``. . . the bill would have the

effect of both `locking-in' this rule change [the NASD rule change]

and assuring its extension to non-NASD members, such as proxy

solicitation firms used to solicit consents to a roll-up.''

\6\2Release No. 34-34533. See Part I.A, above.

---------------------------------------------------------------------------

As with the shareholder list provision, the differential and

contingent compensation provision of the Act also would be applicable

to legislatively defined roll-up transactions structured as tender

offers.63 Legislative history indicates that the Commission is to

make its differential or contingent compensation rule parallel to the

NASD rules.64 At the time the Act was passed, the NASD rules

referred to tender offers. Accordingly, pursuant to the Act, a new

rule65 would prohibit this type of compensation in legislatively

defined roll-ups structured as tender offers. This is consistent with

the comparable provision in the NASD rules.66 Thus, as with

persons seeking a proxy approving a roll-up transaction, persons

seeking tenders in a roll-up transaction could not be paid based on

whether the person solicited participated in the tender offer or on

whether the offer was successful.

---------------------------------------------------------------------------

\6\3Proposed Rule 14e-7(a).

\6\4See House Report on H.R. 617 and Senate Report on S. 424.

\6\5Proposed Rule 14e-7(b).

\6\6Article III, Section 34(b)(6) of the Rules of Fair Practice

of the NASD.

---------------------------------------------------------------------------

G. Disclosure Regarding Appraisals, Reports and Fairness Opinions

The statutory requirements that specific information be included in

any roll-up transaction disclosure document largely parallels the

current roll-up rules.67 The only changes required by the

Act68 would affect the disclosure requirements pertaining to

appraisals, reports, and fairness opinions contained in Item 911 of

Regulation S-K.69 The new requirements listed below, while not

currently explicitly required by Regulation S-K, would mandate

information that generally is required under Securities Act Rule

40870 and Exchange Act Rule 12b-20.71 The amendments would

require specific disclosure of:

---------------------------------------------------------------------------

\6\7Section 14(h)(1)(D)-(I) of the Exchange Act [15 U.S.C.

78n(h)(1)(D)-(I)].

\6\8Sections 14(h)(1)(G) and (H) of the Exchange Act [15 U.S.C.

78n(h)(1)(G) and (H)].

\6\917 CFR 229.911.

\7\017 CFR 230.408.

\7\117 CFR 240.12b-20.

---------------------------------------------------------------------------

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;72

---------------------------------------------------------------------------

\7\2Proposed Item 911(a)(2)(vii) of Regulation S-K.

---------------------------------------------------------------------------

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;73 and

---------------------------------------------------------------------------

\7\3Proposed amendment to Item 911(a)(2)(vi) of Regulation S-K.

---------------------------------------------------------------------------

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.74

---------------------------------------------------------------------------

\7\4Proposed Item 911(b)(2) of Regulation S-K.

---------------------------------------------------------------------------

II. Request for Comment

Any interested persons wishing to submit written comments on the

proposed revisions to the Commission's roll-up rules, as well as on

other matters that might have an impact on the proposals contained

herein, are requested to do so. Comments are requested on the impact of

the proposals on registrants, security holders, general partners,

sponsors, broker-dealers, and others. The Commission also requests

comment on whether the proposed rules, if adopted, would have an

adverse impact on competition that is neither necessary nor appropriate

in furthering the purposes of the Exchange Act. Comments will be

considered by the Commission in complying with its responsibilities

under Section 23(a) of the Exchange Act.75 Comment letters should

refer to File No. S7-26-94. All comments received will be available for

public inspection and copying in the Commission's Public Reference

Room, 450 Fifth Street, NW., Washington, DC 20549.

---------------------------------------------------------------------------

\7\515 U.S.C. 78w(a).

---------------------------------------------------------------------------

III. Transition to New Rules

If the proposed rule revisions are adopted, the Commission intends

to make them effective as of their date of publication in the Federal

declared effective but have not yet completed the proxy solicitation or

tender offer, would be subject to the new rules as of the date of the

rules' effectiveness. The exempt communication, shareholder list and

differential compensation provisions would be applicable to roll-ups in

progress, but only from the effective date onward. With respect to the

proposed 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 should comply with

these disclosure requirements and thus be unaffected by the immediate

effectiveness of the explicit requirements.

IV. Cost-Benefit Analysis

To assist the Commission in its evaluation of the costs and

benefits that may result from the proposals, commenters are requested

to provide views and data relating to any costs and benefits associated

with these proposals. The proposals, which are intended to carry out

the purposes of the Act, are expected to have little effect on the net

costs to entities involved in a roll-up transaction. The proposals

would afford investors certain procedural protections to facilitate

shareholder communications and avoid conflicts of interests by persons

soliciting proxies and being compensated for delivery of a certain

outcome. Any additional burdens should be outweighed by the value to

investors of these protections.

Further, some transactions that would be subject to the roll-up

requirements under the current rules would no longer be so subject

under the proposals. Thus, costs would be reduced for entities engaging

in such transactions.

V. Summary of the Initial Regulatory Flexibility Analysis

An initial regulatory flexibility analysis has been prepared in

accordance with 5 U.S.C. 603 concerning the proposed amendments. The

analysis notes that the amendments are intended to comport with the

requirements of the Act.

As discussed more fully in the analysis, the proposals 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 proposed amendments and new rules, however, are

designed to minimize these costs to the greatest extent possible while

enhancing the ability of security holders to analyze roll-up

transactions.

Written comments are encouraged with respect to any aspect to the

analysis. Such comments will be considered in the preparation of the

Final Regulatory Flexibility Analysis if the proposed amendments are

adopted. 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 Basic for Rules

The amendments to Regulation S-K and Forms S-4 and F-4 are being

proposed pursuant to sections 6, 7, 8, 10, and 19 of the Securities

Act, as amended,\76\ and Section 14 of the Exchange Act, as

amended.77

---------------------------------------------------------------------------

\76\15 U.S.C. 77f, 77g, 77h, 77j, 77s.

\77\15 U.S.C. 78n.

---------------------------------------------------------------------------

The amendments to the proxy and tender offer rules are being

proposed pursuant to Sections 14 and 23 of the Exchange Act, as

amended.78

---------------------------------------------------------------------------

\78\15 U.S.C. 78n, 78w.

---------------------------------------------------------------------------

List of Subjects in 17 CFR Parts 229, 239 and 240

Reporting and recordkeeping requirements, Securities.

Text of Proposals

In accordance with the foregoing, Title 17, Chapter II of the Code

of Federal Regulations is proposed to be 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 Sec. 229.901(c) to read as follows:

Sec. 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 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;

(Sec. 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);

(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 (Secs. 229.902-

915), if it finds such action to be consistent with the public interest

and the protection of investors.

* * * * *

3. By amending Sec. 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:

Sec. 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

(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

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 Sec. 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

Sec. 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 Sec. 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 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 Sec. 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 Sec. 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 Sec. 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,

78s, 78w, 78x, 78ll(d), 78q, 79t, 80a-20, 80a-23, 80a-29, 80-37,

80b-3, 80b-4 and 80b-11, unless otherwise noted.

* * * * *

11. By reserving Sec. 240.3b-10 and adding Sec. 240.3b-11 to read

as follows:

Sec. 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 15 U.S.C. 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

(Sec. 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 Sec. 2(a)(48) of that Act

(15 U.S.C. 80a-2(a)(48)).

901(c)(2)(v)(C) of Regulation S-K (Sec. 229.901(c)(2)(v)(C) of this

chapter).

* * * * *

12. By amending Sec. 240.14a-2 by revising the section heading, the

introductory text, 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:

Sec. 240.14a-2 Solicitations to which Sec. 240.14a-3 to Sec. 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 (Sec. 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 Sec. 240.14a-6(n)(1) and specified in the Notice

of Exempt Preliminary Roll-up Communication (Sec. 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 Sec. 240.14a-6(n) and Sec. 240.14a-104 shall be furnished

to the Commission.

13. By amending Sec. 240.14a-6 by adding paragraph (n) to read as

follows:

Sec. 240.14a-6 Filing requirements.

* * * * *

(n) Solicitations subject to Sec. 240.14a-2(b)(4). (1) Any person

who:

(i) Engages in a solicitation pursuant to Sec. 240.14a-2(b)(4), and

(ii) 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 (Sec. 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 Sec. 240.14a-7 by revising paragraph (b) to read as

follows:

Sec. 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 Sec. 240.13e-3;

(ii) A roll-up transaction as defined in Item 901(c) of Regulation

S-K (Sec. 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 (Sec. 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 Sec. 240.14a-15 to read as follows:

Sec. 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 (Sec. 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 Sec. 240.14a-104 to read as follows:

Sec. 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 Sec. 240.14a-2(b)(4) and Sec. 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:

----------------------------------------------------------------------

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.

----------------------------------------------------------------------

17. By adding Sec. 240.14e-7 to read as follows:

Sec. 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 (Sec. 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 (b)(2) 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 Sec. 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 (Sec. 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

(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).

Dated: September 1, 1994.

By the Commission.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-22124 Filed 9-7-94; 8:45 am]

BILLING CODE 8010-01-P

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.