Limited Partnership Roll-Up Transactions; Final Rule SECURITIES AND EXCHANGE COMMISSION
Federal RegisterDec 8, 1994
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
adopting new rules and amendments to its rules regarding limited
partnership roll-up transactions. The effect of the rule is 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 in SUPPLEMENTARY INFORMATION.
FOR FURTHER INFORMATION CONTACT: Robert B. Toomey, Office of Disclosure
Policy, Division of Corporation Finance, Securities and Exchange
Commission, 450 Fifth Street, NW., Mail Stop 3-12, Washington DC 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-K1 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-K7
and Forms S-1,8 S-4,9 S-11,10 F-1,11 and F-412
under the Securities Act of 1933 (``Securities Act'')13 are being
adopted.
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\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.
\1\017 CFR 239.18.
\1\117 CFR 239.31.
\1\217 CFR 239.34.
\1\315 U.S.C. 77a et seq.
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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-K14 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
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\1\417 CFR 229.901-915.
\1\5Release 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].
\1\6The 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)].
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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 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
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\1\715 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.
\1\8The 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.
\1\917 CFR 229.901(c).
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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 disclosure21 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.
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\2\0Release No. 33-7090 (September 1, 1994) [59 FR 46365].
\2\1See Items 901-915 of Regulation S-K.
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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.
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\2\2The comment letters are available for inspection and copying
at the Commission's Public Reference Room (see File No. S7-26-94).
\2\3The 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.
\2\4See letter from Tony M. Edwards, General Counsel, National
Association of Real Estate Investment Trusts, dated November 1, 1994
(``NAREIT Letter''); see also letter from Judith D. Fryer, Kaye,
Scholer, Fierman, Hays & Handler, for the Subcommittee on
Partnerships, Trusts and Unincorporated Associations of the
Committee on Federal Regulation of Securities, Section of Business
Law of the American Bar Association, dated October 31, 1994 (``ABA
Letter'').
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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 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 disclosure26 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.
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\2\5Thus, 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.
\2\6As there is no analogue to subpart 900 in Regulation S-B [17
CFR 228.10 et seq.], small business issuers, as defined in Rule 405
of Regulation C [17 CFR 230.405], engaged in roll-up transactions
eligible to register on Form S-4 must furnish the information
required by subpart 900 of Regulation S-K as well as the other
requirements of that form. See General Instruction D.3 to Form S-4.
Today's amendments add a sentence to General Instruction I.1 to Form
S-4, as proposed, to refer specifically to the applicability of
subpart 900 of Regulation S-K to small business roll-up
transactions.
The disclosure requirements apply to registration statements on
Form S-4 or Form F-4, the forms generally used in connection with
business combinations or reorganizations. If securities to be issued
in a roll-up transaction are registered on another form, but would
be authorized to be registered on Form S-4 or Form F-4, the roll-up
rules apply in that context. See n. 15 to Release No. 33-6922.
Instructions today are added to Forms S-1, F-1 and S-11 to such
effect. These instructions do not expand the transactions subject to
the roll-up rules, but merely state that transactions that otherwise
meet the definition of roll-up adopted today and are registered on
those forms will be subject to the roll-up rules.
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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 ``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
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\2\7``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.
\2\8The term ``listed securities'' is discussed in Section
II.A.1, below.
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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
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\2\9Although 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.
\3\0The 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.
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(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
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\3\1Amended Item 901(c)(2)(i) of Regulation S-K.
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(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
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\3\215 U.S.C. 78l.
\3\3Amended 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
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.
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(3) Transactions that involve the combination or reorganization of
one or more partnerships in which a non-affiliated party succeeds to
the interests of a general partner or sponsor, if: (A) such action is
approved by not less than 66\2/3\% of the outstanding units of each of
the participating partnerships; and (B) as a result of the transaction,
the existing general partners will receive only compensation to which
they are entitled as expressly provided for in the preexisting
partnership agreements;34
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\3\4Amended Item 901(c)(2)(iv) of Regulation S-K.
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(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\
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\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.
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(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 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\
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\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.
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(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
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\39\Amended Item 901(c)(2)(vii) of Regulation S-K.
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(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\
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\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.
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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.
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\41\See Section I.B.4 of the Proposing Release.
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Three commenters address the ``listed securities'' issue. One
commenter suggests that ECM securities should not be included within
the term ``listed securities'' because such securities fail to provide
investors with predictable and ascertainable market value.\42\ Two
commenters suggest, however, that this exclusion be broadened to
include transactions involving issuers whose securities were listed
prior to the transaction, and where investors receive unlisted
securities in exchange.\43\
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\42\See NASAA Letter.
\43\See NAREIT Letter and ABA Letter.
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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\
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\44\Release No. 34-30445 (March 5, 1992) [57 FR 8693].
\45\One commenter notes that the ECM was established for the
specific purpose of allowing exchange-type trading of securities
that would otherwise fail to meet the substantive listing
requirements of the Amex. See NASAA Letter.
\46\Amended Item 901(c)(2)(vi) of Regulation S-K.
\47\The two separate legislative exclusions are not adopted
since these exclusions may raise the concerns that led to the
Commission's current roll-up disclosure and procedural rules. With
regard to the first exclusion, it is unlikely that a transaction
would be proposed where no listed securities would be issued since
roll-ups historically have been proposed principally as a means to
achieve liquidity. However, such a transaction still could involve
significant conflicts of interest, adverse changes and differing
effects for partnership investors, which will be addressed by the
Commission's roll-up disclosure rules. Further, if the securities to
be issued would not be listed and the limited partnership interests
were not listed securities, investors would not have the alternative
of disposing of their interests rather than participating. The
second exclusion, for transactions where all partnership securities
were listed securities, does not assure that investors who
participate would be able to sell after the roll-up since it does
not require that the securities to be issued be listed securities.
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As noted above, unlike the legislative definition, the Amended S-K
Definition of roll-up transaction is not restricted to transactions
involving limited partnerships. Rather, the Amended S-K Definition
applies to transactions involving all finite-life entities, whether or
not organized as limited partnerships. While commenters generally
support the amendments to the S-K Definition, and in particular,
support efforts to conform the S-K Definition to that in the Act, two
commenters object to the lack of complete conformity with the
definition in the Act, and specifically question the rationale for
having the definition apply to entities other than partnerships.\48\ In
contrast, one commenter supports the Commission's proposal in this
area, noting that several abusive roll-up transactions have involved
real estate investment trusts as well as limited partnerships, and that
new structures are now being used by direct participation programs
(e.g., limited liability companies and business trusts).\49\
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\48\See NAREIT Letter and ABA Letter.
\49\See NASAA Letter.
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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\
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\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.
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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.
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\51\Amended Item 901(c)(2)(v)(C) of Regulation S-K.
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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 the definition. One commenter opposes the
definition as being unnecessary and creating artificial distinctions
among exchange-listed securities.\52\
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\52\Letter from James E. Buck, Senior Vice President and
Secretary, NYSE, dated October 24, 1994 (``NYSE Letter'').
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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.
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\53\S. Rep. No. 121, 103d Cong., 1st Sess. 15 (1993) (``Senate
Report'').
\54\NYSE Letter, citing Senate Report.
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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.
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\55\Id.
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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.
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\56\139 Cong. Rec. H10,966 (daily ed. Nov. 22, 1993) (statement
of Rep. Markey).
\57\Id.
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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 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\
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\58\Exchange Act Section 14(h)(5)(F) [15 USC 78n(h)(5)(F)].
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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.
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\59\ABA Letter, NAREIT Letter.
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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.
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\60\NASAA Letter.
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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 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.
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:
---------------------------------------------------------------------------
\61\New Exchange Act Rule 3b-11.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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)].
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\66\New Rule 3b-11(c).
---------------------------------------------------------------------------
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, 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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 security holders of the same class.\70\
---------------------------------------------------------------------------
\70\New Schedule 14a-104.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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 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.
---------------------------------------------------------------------------
\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.
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
The Commission also adopts, as proposed, a comparable provision for
legislatively defined roll-up transactions structured as tender
offers.\83\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\84\Sections 14(h)(1)(F), (G), and (H) of the Exchange Act [15
U.S.C. 78n(h)(1)(F), (G) and (H)].
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\85\Amended 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;\86\ and
---------------------------------------------------------------------------
\86\Amended 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.\87\
---------------------------------------------------------------------------
\87\Amended Item 911(b)(2) of Regulation S-K.
---------------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\88\17 CFR 230.408.
\89\17 CFR 240.12b-20.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\90\See n. 17, above.
---------------------------------------------------------------------------
Pending roll-up transactions, including those that have been
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.
---------------------------------------------------------------------------
\91\See NAREIT Letter.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\92\15 U.S.C. 77f, 77g, 77h, 77j, 77s.
\93\15 U.S.C. 78n.
---------------------------------------------------------------------------
The amendments to the proxy and tender offer rules are promulgated
pursuant to Sections 14 and 23 of the Exchange Act, as amended.\94\
---------------------------------------------------------------------------
\94\15 U.S.C. 78n, 78w.
---------------------------------------------------------------------------
List of Subjects in 17 CFR Parts 229, 239 and 240
Reporting and recordkeeping requirements, Securities.
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 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, (Sec. 229.901(c)(2) or (c)(3)) 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,
(Sec. 229.901(c)(1)) 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; and
(C) For purposes of paragraph (c)(2)(v) of this Item
(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), 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 (Secs. 229.902-
229.915), 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
(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 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-
240.14a-104) 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--
240.14a-104) 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, 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 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 section 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 (Sec. 229.901(c)(2)(v)(C) of this
chapter).
12. By amending Sec. 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'', by removing ``and'' at the end of paragraph (b)(2), by
removing the period at the end of paragraph (b)(3) and adding in its
place ``; and'' 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, 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). Any person who:
(1) Engages in a solicitation pursuant to Sec. 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 (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.
* * * * *
(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 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 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: December 1, 1994.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-30026 Filed 12-7-94; 8:45 am]
BILLING CODE 8010-01-P
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