(a) “Eligible rollup transaction” means a rollup transaction in which the new securities issued are listed or approved for listing on a national securities exchange which has been certified by the commissioner under subdivision (o) of Section 25100, if the exchange requires as a condition to listing or designation that the rollup transaction be conducted in accordance with procedures to protect the rights of limited partners.
(b) The rights of limited partners will be presumed to be protected if the rollup transaction provides for the right of dissenting limited partners:
(1) To receive compensation for their limited partnership units based on an appraisal of the limited partnership assets performed by an independent appraiser unaffiliated with the sponsor or general partner of the limited partnership and which value the assets as if sold in an orderly manner in a reasonable period of time, plus or minus other balance sheet items, and less the cost of sale or refinancing. Compensation to dissenting limited partners of rollup transactions may be cash, secured debt instruments, unsecured debt instruments, or freely tradeable securities; provided, however, that:
(A) Rollups which utilize debt instruments as compensation provide for a trustee and an indenture to protect the rights of the debt holders and provide a rate of interest based upon, but not less than, the then applicable federal rate as determined in accordance with Section 1274 of the Internal Revenue Code of 1986.
(B) Rollups which utilize unsecured debt instruments as compensation, in addition to the requirements of subparagraph (A), limit total leverage to 70 percent of the appraised value of the assets.
(C) All debt securities have a term no greater than seven years and provide for prepayment with 80 percent of the net proceeds of any sale or refinancing of the assets previously owned by the entity or any part thereof.
(D) Freely tradeable securities utilized as compensation to dissenting limited partners must be issued by an issuer whose securities are listed on a national securities exchange that has been certified for at least one year prior to the transaction, and the number of securities to be received in return for limited partnership interests must be determined by an appraisal of limited partnership assets, conducted in a manner consistent with this paragraph, in relation to the average last sale price of the freely tradeable securities in the 20-day period following the transaction. If the issuer of the freely tradeable securities is affiliated with the sponsor or general partner, newly issued securities to be utilized as compensation to dissenting limited partners shall not represent more than 20 percent of the issued and outstanding shares of that class of securities after giving effect to the issuance. For the purposes of the preceding sentence, a sponsor or general partner is “affiliated” with the issuer of the freely tradeable securities if the sponsor or general partner receives any material compensation from the issuer or its affiliates in conjunction with the rollup transaction or the purchase of the general partner’s interest; provided, however, that nothing herein shall restrict the ability of a sponsor or general partner to receive any payment for its equity interests and compensation as otherwise provided by this section.
(2) To receive or retain a security with substantially the same terms and conditions as the security originally held, provided that the receipt or retention of that security is not a step in a series of subsequent transactions that directly or indirectly through acquisition or otherwise involves future combinations or reorganizations of one or more rollup participants. Securities received or retained will be considered to have the same terms and conditions as the security originally held if:
(A) There is no material adverse change to dissenting limited partners’ rights, including, but not limited to, rights with respect to voting, the business plan, or the investment, distribution, management compensation and liquidation policies of the limited partnership or resulting entity.
(B) The dissenting limited partners receive the same preferences, privileges, and priorities as they had pursuant to the security originally held.
The rights set forth in paragraphs (1) and (2) are the only rights of dissenting limited partners to which the presumption under this subdivision applies. A general partner or sponsor shall file an application for qualification pursuant to Section 25110 or Section 25120 with respect to any other rights proposed to be offered to dissenting limited partners.
At the time a registration statement is filed with the Securities and Exchange Commission with respect to an eligible rollup transaction, a general partner or sponsor shall notify, to the maximum extent permitted by the federal securities laws, each limited partner who has an address in this state by certified mail of the following: That a registration statement has been filed with the Securities and Exchange Commission with respect to a rollup transaction; that the general partner or sponsor claims an exemption from the review process under the law by virtue of Section 25014.7, which defines “eligible rollup transaction”; that the general partner or sponsor has the burden of proof under the law that the transaction meets the definition of eligible rollup transaction; and that the commissioner does not recommend or endorse the transaction.
(c) The rights of limited partners shall be presumed not to be protected if the general partner:
(1) Converts an equity interest in the limited partnerships subject to a rollup for which consideration was not paid and which was not otherwise provided for in the limited partnership agreement and disclosed to limited partners, into a voting interest in the new entity, provided, however, an interest originally obtained in order to comply with the provisions of Internal Revenue Service Revenue Proclamation 89-12 may be converted.
(2) Fails to follow the valuation provisions in the limited partnership agreements of the subject limited partners when valuing their limited partnership interests.
(3) Utilizes a future value of their equity interest rather than the current value of their equity interest, as determined by an appraisal conducted in a manner consistent with paragraph (1) of subdivision (b), when determining their interest in the new entity.
(d) The rights of limited partners shall be presumed not to be protected as to voting rights, if:
(1) The voting rights in the entity resulting from a rollup do not generally follow the original voting rights of the limited partnerships participating in the rollup transaction.
(2) A majority of the interest in an entity resulting from a rollup transaction may not, without concurrence by the sponsor, general partners, board of directors or trustee, depending on the form of entity, vote to:
(A) Amend the limited partnership agreement, articles of incorporation or bylaws, or indenture.
(B) Dissolve the entity.
(C) Remove management and elect new management.
(D) Approve or disapprove the sale of substantially all of the assets of the entity.
(3) The general partner or sponsor proposing a rollup is not required to provide each person whose equity interest is subject to the rollup transaction with a document which instructs the person on the proper procedure for voting against or dissenting from the rollup transaction.
(4) The general partner or sponsor does not utilize an independent third party to receive and tabulate all votes and dissents, and require that the third party make the tabulation available to the general partner and any limited partner upon request at any time during and after voting occurs.
(e) The rights of limited partners shall be presumed not to be protected as to transaction costs if:
(1) Limited partners bear an unfair portion of the transaction costs of a proposed rollup transaction that is rejected. For purposes of this provision, transaction costs are defined as the costs of printing and mailing the proxy, prospectus, or other documents; legal fees not related to the solicitation of votes or tenders; financial advisory fees; investment banking fees; appraisal fees; accounting fees; independent committee expenses; travel expenses; and all other fees related to the preparatory work of the transaction, but not including costs that would have otherwise been incurred by the subject limited partnerships in the ordinary course of business, or solicitation expenses.
(2) Transaction costs of a rejected rollup transaction are not apportioned between general and limited partners of the subject limited partnerships according to the final vote on the proposed transaction as follows:
(A) The general partner or sponsor bears all rollup transaction costs in proportion to the number of votes to reject the rollup transaction.
(B) Limited partners bear transaction costs in proportion to the number of votes to approve the rollup transaction.
(3) The dissenting limited partnership is required to pay any of the costs of the rollup transaction and the general partner or sponsor is not required to pay the rollup transaction costs on behalf of the dissenting limited partnerships in a rollup in which one or more limited partnerships determines not to approve the transaction, but where the rollup transaction is consummated with respect to one or more approving limited partnerships.
(f) The rights of limited partners shall be presumed not to be protected as to fees of general partners and sponsors, if:
(1) General partners and sponsors are not prevented from receiving both unearned management fees discounted to a present value, if those fees were not previously provided for in the limited partnership agreement and disclosed to limited partners, and new asset-based fees.
(2) Property management fees and other management fees are not appropriate, not reasonable and greater than what would be paid to third parties for performing similar services.
(3) Changes in fees which are substantial and adverse to limited partners are not approved by an independent committee according to the facts and circumstances of each transaction.
(g) A general partner or sponsor proposing a rollup transaction shall pay all solicitation expenses related to the transaction, including all preparatory work related thereto, in the event the rollup transaction is not approved. For purposes of this section, “solicitation expenses” include direct marketing expenses such as telephone calls, broker-dealer factsheets, legal and other fees related to the solicitation, as well as direct solicitation compensation to brokers and dealers.
(h) A broker or dealer may not receive compensation for soliciting votes or tenders from limited partners in connection with a rollup transaction unless that compensation:
(1) Is payable and equal in amount regardless of whether the limited partner votes affirmatively or negatively in the proposed rollup.
(2) In the aggregate, does not exceed 2 percent of the exchange value of the newly created securities.
(3) Is paid regardless of whether the limited partners reject the proposed rollup transaction.
(i) As used in this section, the following terms have the following meanings:
(1) “Limited partnership” includes any entity determined to be a “partnership” pursuant to Section 14(h)(4)(B) of the Securities Exchange Act of 1934 or such other entity having a substantially economically equivalent form of ownership instrument.
(2) “Dissenting limited partner” means a holder or a beneficial interest in a limited partnership that is the subject of a rollup transaction who casts a vote against the rollup transaction, except that for purposes of an exchange or tender offer dissenting limited partner means any person who files a dissent from the terms of the transaction with the party responsible for tabulating the votes or tenders, to be received in connection with the transaction during the period in which the offer is outstanding.
(3) “Management fee” means a fee paid to the sponsor, general partner, their affiliates, or other persons for management and administration of the limited partnership.
(Amended by Stats. 2009, Ch. 131, Sec. 8. (AB 991) Effective January 1, 2010.)
Last modified: October 25, 2018