[Federal Register Volume 59, Number 235 (Thursday, December 8, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-30026]


[[Page Unknown]]

[Federal Register: December 8, 1994]


_______________________________________________________________________

Part VII





Securities and Exchange Commission





_______________________________________________________________________



17 CFR Part 229 et al.




Limited Partnership Roll-Up Transactions; Final Rule
SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 239 and 240

[Release Nos. 33-7113; 34-35036; File No. S7-26-94]
RIN 3235-AG09

 
Limited Partnership Roll-Up Transactions

AGENCY: Securities and Exchange Commission.

ACTION: Final rules.

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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.
---------------------------------------------------------------------------

    \59\ABA Letter, NAREIT Letter.
---------------------------------------------------------------------------

    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.
---------------------------------------------------------------------------

    \60\NASAA Letter.
---------------------------------------------------------------------------

    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