[Federal Register Volume 59, Number 173 (Thursday, September 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-22124]
[[Page Unknown]]
[Federal Register: September 8, 1994]
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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.
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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.
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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.
\10\17 CFR 239.18.
\11\17 CFR 239.31.
\12\17 CFR 239.34.
\13\15 U.S.C. 77a et seq.
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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.
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\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].
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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\
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\18\Exchange Act Rule 14a-7(b) [17 CFR 240.14a-7(b)].
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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.
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\19\15 U.S.C. 78n(h).
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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
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\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)].
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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.
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\2\4Item 901(c) of Regulation S-K.
\2\5The S-K Definition is not proposed to be restricted to
limited partnerships.
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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
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\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.
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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
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\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.
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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
register or report under Section 12 of the Exchange Act,30 both
before and after the transaction;31
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\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.
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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
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\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.
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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
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\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.
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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
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\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)].
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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.
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\3\6S. Rep. No. 121, 103d Cong., 1st Sess. 15 (1993).
\3\7Proposed Item 901(c)(2)(v)(C) of Regulation S-K.
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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
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\3\8Exchange Act Sections 14(h)(4)(A) and (B).
\3\9Proposed Item 901(c)(2)(vi) of Regulation S-K.
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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?
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\4\015 U.S.C. 78k-1.
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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:
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\4\1Exchange Act Sections 6(b)(9) and 15A(b)(12)-(13) discussed
in Part I.A, above.
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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
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\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.
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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.
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\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)].
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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
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\4\6Proposed Rule 3b-11(c).
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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
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\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.
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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.
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\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.''
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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.
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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.
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\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.
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\5\6Exchange Act Rule 14d-5 [17 CFR 240.14d-5].
\5\7Proposed Rule 14e-7(b).
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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.
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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.
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\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.
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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.
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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.
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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
Register. Pending roll-up transactions, including those that have been
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
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\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;
(C) For purposes of subparagraph (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);
(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
(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 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)).
(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 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):
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2. Name of partnership that is the subject of the proposed roll-
up transaction:
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3. Name of person relying on exemption:
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4. Address of person relying on exemption:
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5. Ownership interest of security holder in partnership that is
the subject of the proposed roll-up transaction:
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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.
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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.
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c. The holder is engaged in another transaction that may be
competitive with the pending roll-up transaction.
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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.
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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