IIA

103D CONGRESS

1ST SESSION H. R. 617

IN THE SENATE OF THE UNITED STATES

MARCH 3, 1993

Received; read twice and referred to the Committee on Banking, Housing, and

Urban Affairs

AN ACT

To amend the Securities Exchange Act of 1934 to protect

investors in limited partnerships in rollup transactions,

and for other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Limited Partnership

5 Rollup Reform Act of 1993’’.
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1 SEC. 2. REVISION OF PROXY SOLICITATION RULES WITH

2 RESPECT TO LIMITED PARTNERSHIP ROLLUP

3 TRANSACTIONS.

4 (a) AMENDMENT.—Section 14 of the Securities Ex5 change Act of 1934 (15 U.S.C. 78n) is amended by adding

6 at the end the following new subsection:

7 ‘‘(h) PROXY SOLICITATIONS AND TENDER OFFERS

8 IN CONNECTION WITH LIMITED PARTNERSHIP ROLLUP

9 TRANSACTIONS.—

10 ‘‘(1) PROXY RULES TO CONTAIN SPECIAL PRO11 VISIONS.—It shall be unlawful for any person to so12 licit any proxy, consent, or authorization concerning

13 a limited partnership rollup transaction, or to make

14 any tender offer in furtherance of a limited partner15 ship rollup transaction, unless such transaction is

16 conducted in accordance with rules prescribed by the

17 Commission under subsections (a) and (d) as re18 quired by this subsection. Such rules shall—

19 ‘‘(A) permit any holder of a security that

20 is the subject of the proposed limited partner21 ship rollup transaction to engage in preliminary

22 communications for the purposes of determining

23 whether to solicit proxies, consents, or author24 izations in opposition to the proposed trans25 action, without regard to whether any such

26 communication would otherwise be considered a
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1 solicitation of proxies, and without being re2 quired to file soliciting material with the Com3 mission prior to making that determination, ex4 cept that nothing in this subparagraph shall be

5 construed to limit the application of any provi6 sion of this title prohibiting, or reasonably de7 signed to prevent, fraudulent, deceptive, or ma8 nipulative acts or practices under this title;

9 ‘‘(B) require the issuer to provide to hold10 ers of the securities that are the subject of the

11 transaction such list of the holders of the issu12 er’s securities as the Commission may deter13 mine in such form and subject to such terms

14 and conditions as the Commission may specify;

15 ‘‘(C) prohibit compensating any person so16 liciting proxies, consents, or authorizations di17 rectly from security holders concerning such a

18 transaction—

19 ‘‘(i) on the basis of whether the solic20 ited proxies, consents, or authorizations ei21 ther approve or disapprove the proposed

22 transaction; or

23 ‘‘(ii) contingent on the transaction’s

24 approval, disapproval, or completion;
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1 ‘‘(D) set forth disclosure requirements for

2 soliciting material distributed in connection

3 with a limited partnership rollup transaction,

4 including requirements for clear, concise, and

5 comprehensible disclosure with respect to—

6 ‘‘(i) any changes in the business plan,

7 voting rights, form of ownership interest or

8 the general partner’s compensation in the

9 proposed limited partnership rollup trans10 action from each of the original limited

11 partnerships;

12 ‘‘(ii) the conflicts of interest, if any, of

13 the general partner;

14 ‘‘(iii) whether it is expected that there

15 will be a significant difference between the

16 exchange values of the limited partnerships

17 and the trading price of the securities to

18 be issued in the limited partnership rollup

19 transaction;

20 ‘‘(iv) the valuation of the limited part21 nerships and the method used to determine

22 the value of limited partners’ interests to

23 be exchanged for the securities in the lim24 ited partnership rollup transaction;
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1 ‘‘(v) the differing risks and effects of

2 the transaction for investors in different

3 limited partnerships proposed to be in4 cluded, and the risks and effects of com5 pleting the transaction with less than all

6 limited partnerships;

7 ‘‘(vi) a statement by the general part8 ner as to whether the proposed limited

9 partnership rollup transaction is fair or

10 unfair to investors in each limited partner11 ship, a discussion of the basis for that con12 clusion, and the general partner’s evalua13 tion, and a description of alternatives to

14 the limited partnership rollup transaction,

15 such as liquidation; and

16 ‘‘(vii) such other matters deemed nec17 essary or appropriate by the Commission.

18 ‘‘(E) provide that such soliciting materials

19 contain or be accompanied by an opinion on the

20 fairness of the proposed transaction to holders

21 of each security which is subject to the pro22 posed transaction that—

23 ‘‘(i) includes such information, rep24 resentations, and undertakings with re25 spect to the analysis of the transaction,
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1 scope of review, preparation of the opinion,

2 and basis for and methods of arriving at

3 conclusions as the Commission may require

4 in such rules; and

5 ‘‘(ii) is prepared by a person—

6 ‘‘(I) who does not receive any

7 compensation that is contingent on

8 the transaction’s approval or comple9 tion;

10 ‘‘(II) who meets such additional

11 standards of independence from the

12 person or persons proposing the rollup

13 transaction as shall be required in the

14 rules prescribed by the Commission;

15 ‘‘(III) who has been given access

16 by the issuer to its personnel and

17 premises and relevant books and

18 records; and

19 ‘‘(IV) who has represented to

20 have undertaken an independent anal21 ysis of the fairness of the proposed

22 rollup transaction to holders based

23 upon the information obtained

24 through such access and upon other

25 independently obtained information;
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1 ‘‘(F) require that the soliciting material in2 clude a clear and concise summary of the lim3 ited partnership rollup transaction (including a

4 summary of the matters referred to in clauses

5 (i) through (vi) of subparagraph (D) and a

6 summary of the matter referred to in subpara7 graph (E)), with the risks of the limited part8 nership rollup transaction set forth prominently

9 in the forepart thereof;

10 ‘‘(G) provide that any solicitation or offer11 ing period with respect to any proxy solicita12 tion, tender offer, or information statement in

13 a limited partnership rollup transaction shall be

14 for not less than the lesser of 60 calendar days

15 or the maximum number of days permitted

16 under applicable State law; and

17 ‘‘(H) contain such other provisions as the

18 Commission determines to be necessary or ap19 propriate for the protection of investors in lim20 ited partnership rollup transactions.

21 ‘‘(2) EXEMPTIONS.—The Commission may, con22 sistent with the public interest, the protection of in23 vestors, and the purposes of this Act, exempt by rule

24 or order any security or class of securities, any

25 transaction or class of transactions, or any person or
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1 class of persons, in whole or in part, conditionally or

2 unconditionally, from the requirements imposed pur3 suant to paragraph (1) or from the definition con4 tained in paragraph (4).

5 ‘‘(3) EFFECT ON COMMISSION AUTHORITY.—

6 Nothing in this subsection limits the authority of the

7 Commission under subsection (a) or (d) or any other

8 provision of this title or precludes the Commission

9 from imposing, under subsection (a) or (d) or any

10 other provision of this title, a remedy or procedure

11 required to be imposed under this subsection.

12 ‘‘(4) DEFINITION OF LIMITED PARTNERSHIP

13 ROLLUP TRANSACTION.—As used in this subsection,

14 the term ‘limited partnership rollup transaction’

15 means, except as provided in paragraph (5), a trans16 action involving—

17 ‘‘(A) the combination or reorganization of

18 limited partnerships, directly or indirectly, in

19 which some or all investors in the limited part20 nerships receive new securities or securities in

21 another entity, other than a transaction—

22 ‘‘(i) in which—

23 ‘‘(I) the investors’ limited part24 nership securities are reported under

25 a transaction reporting plan declared
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1 effective before January 1, 1991, by

2 the Commission under section 11A;

3 and

4 ‘‘(II) the investors receive new

5 securities or securities in another en6 tity that are reported under a trans7 action reporting plan declared effec8 tive before January 1, 1991, by the

9 Commission under section 11A;

10 ‘‘(ii) involving only issuers that are

11 not required to register or report under

12 section 12 both before and after the trans13 action;

14 ‘‘(iii) in which the securities to be is15 sued or exchanged are not required to be

16 and are not registered under the Securities

17 Act of 1933;

18 ‘‘(iv) which will result in no signifi19 cant adverse change to investors in any of

20 the limited partnerships with respect to

21 voting rights, the term of existence of the

22 entity, management compensation, or in23 vestment objectives; or

24 ‘‘(v) where each investor is provided

25 an option to receive or retain a security
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1 under substantially the same terms and

2 conditions as the original issue; or

3 ‘‘(B) the reorganization of a single limited

4 partnership in which some or all investors in

5 the limited partnership receive new securities or

6 securities in another entity, and—

7 ‘‘(i) transactions in the security issued

8 are reported under a transaction reporting

9 plan declared effective before January 1,

10 1991, by the Commission under section

11 11A;

12 ‘‘(ii) the investors’ limited partnership

13 securities are not reported under a trans14 action reporting plan declared effective be15 fore January 1, 1991, by the Commission

16 under section 11A;

17 ‘‘(iii) the issuer is required to register

18 or report under section 12, both before and

19 after the transaction, or the securities to

20 be issued or exchanged are required to be

21 or are registered under the Securities Act

22 of 1933;

23 ‘‘(iv) there are significant adverse

24 changes to security holders in voting

25 rights, the term of existence of the entity,
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1 management compensation, or investment

2 objectives; and

3 ‘‘(v) investors are not provided an op4 tion to receive or retain a security under

5 substantially the same terms and condi6 tions as the original issue.

7 ‘‘(5) EXCLUSION FROM DEFINITION.—As used

8 in this subsection, the term ‘limited partnership roll9 up transaction’ does not include a transaction that

10 involves only a limited partnership or partnerships

11 having an operating policy or practice of retaining

12 cash available for distribution and reinvesting pro13 ceeds from the sale, financing, or refinancing of as14 sets in accordance with such criteria as the Commis15 sion determines appropriate.

16 ‘‘(6) DEFINITION OF PARTNERSHIP.—The term

17 ‘partnership’ includes such other entity having a

18 substantially economically equivalent form of owner19 ship instrument as the Commission determines, by

20 rule consistent with the purposes of this subsection,

21 to include within this definition.’’.

22 (b) SCHEDULE FOR REGULATIONS.—The Securities

23 and Exchange Commission shall, not later than 12 months

24 after the date of enactment of this Act, conduct rule25 making proceedings and prescribe final regulations under
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1 the Securities Act of 1933 and the Securities Exchange

2 Act of 1934 to implement the requirements of section

3 14(h) of the Securities Exchange Act of 1934, as amended

4 by subsection (a).

5 SEC. 3. RULES OF FAIR PRACTICE IN ROLLUP TRANS6 ACTIONS.

7 (a) REGISTERED SECURITIES ASSOCIATION RULE.—

8 Section 15A(b) of the Securities Exchange Act of 1934

9 (15 U.S.C. 78o–3(b)) is amended by adding at the end

10 the following new paragraph:

11 ‘‘(12) The rules of the association to promote

12 just and equitable principles of trade, as required by

13 paragraph (6), include rules to prevent members of

14 the association from participating in any limited

15 partnership rollup transaction (as such term is de16 fined in paragraphs (4) and (5) of section 14(h)) un17 less such transaction was conducted in accordance

18 with procedures designed to protect the rights of

19 limited partners, including—

20 ‘‘(A) the right of dissenting limited part21 ners to the following: (i) an appraisal and com22 pensation, or (ii) if the association finds that

23 granting the rights under clause (i) of this sub24 paragraph would be infeasible or not in the fi25 nancial interest of the dissenting limited part-
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1 ners, other comparable rights designed to pro2 tect dissenting limited partners, which may in3 clude the rights set forth in subparagraph (B);

4 ‘‘(B) when the association determines it to

5 be necessary to the protection of such rights,

6 the use of a committee that is independent, as

7 determined in accordance with rules prescribed

8 by the association, of the general partner or

9 sponsor and that would have the authority to

10 protect the interest of limited partners, includ11 ing (but not limited to) the authority (but not

12 the obligation) to hire independent advisors to

13 represent all limited partners at the partner14 ship’s expense, to negotiate the proposed trans15 action with the general partner or sponsor on

16 behalf of the limited partners, and to make a

17 recommendation to the limited partners with re18 spect to the proposed transaction, but not the

19 authority to provide consents or authorizations

20 to the proposed transaction on behalf of limited

21 partners;

22 ‘‘(C) the right not to have their voting

23 power unfairly reduced or abridged;
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1 ‘‘(D) the right not to bear an unfair por2 tion of the costs of a proposed rollup trans3 action that is rejected; and

4 ‘‘(E) restrictions on the conversion of con5 tingent interests or fees into non-contingent in6 terests or fees and restrictions on the receipt of

7 a non-contingent equity interest in exchange for

8 fees for services which have not yet been pro9 vided.

10 As used in this paragraph, the term ‘dissenting lim11 ited partner’ means a holder of a beneficial interest

12 in a limited partnership that is the subject of a lim13 ited partnership rollup transaction who casts a vote

14 against the transaction and complies with proce15 dures established by the association, except that for

16 purposes of an exchange or tender offer, such term

17 means any person who files an objection in writing

18 under the rules of the association during the period

19 in which the offer is outstanding and complies with

20 such other procedures established by the associa21 tion.’’.

22 (b) LISTING STANDARDS OF NATIONAL SECURITIES

23 EXCHANGES.—Section 6(b) of the Securities Exchange

24 Act of 1934 (15 U.S.C. 78f(b)) is amended by adding at

25 the end the following:
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1 ‘‘(9) The rules of the exchange prohibit the list2 ing of any security issued in a limited partnership

3 rollup transaction (as such term is defined in para4 graphs (4) and (5) of section 14(h)), unless such

5 transaction was conducted in accordance with proce6 dures designed to protect the rights of limited part7 ners, including—

8 ‘‘(A) the right of dissenting limited part9 ners to the following: (i) an appraisal and com10 pensation, or (ii) if the exchange finds that

11 granting the rights under clause (i) of this sub12 paragraph would be infeasible or not in the fi13 nancial interest of the dissenting limited part14 ners, other comparable rights designed to pro15 tect dissenting limited partners, which may in16 clude the rights set forth in subparagraph (B);

17 ‘‘(B) when the exchange determines it to

18 be necessary to the protection of such rights,

19 the use of a committee that is independent, as

20 determined in accordance with rules prescribed

21 by the exchange, of the general partner or spon22 sor and that would have the authority to pro23 tect the interest of limited partners, including

24 (but not limited to) the authority (but not the

25 obligation) to hire independent advisors to rep-
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1 resent all limited partners at the partnership’s

2 expense, to negotiate the proposed transaction

3 with the general partner or sponsor on behalf of

4 the limited partners, and to make a rec5 ommendation to the limited partners with re6 spect to the proposed transaction, but not the

7 authority to provide consents or authorizations

8 to the proposed transaction on behalf of limited

9 partners;

10 ‘‘(C) the right not to have their voting

11 power unfairly reduced or abridged;

12 ‘‘(D) the right not to bear an unfair por13 tion of the costs of a proposed rollup trans14 action that is rejected; and

15 ‘‘(E) restrictions on the conversion of con16 tingent interests or fees into non-contingent in17 terests or fees and restrictions on the receipt of

18 a non-contingent equity interest in exchange for

19 fees for services which have not yet been pro20 vided.

21 As used in this paragraph, the term ‘dissenting lim22 ited partner’ means a holder of a beneficial interest

23 in a limited partnership that is the subject of a lim24 ited partnership transaction who casts a vote against

25 the transaction and complies with procedures estab-
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1 lished by the exchange, except that for purposes of

2 an exchange or tender offer, such term means any

3 person who files an objection in writing under the

4 rules of the exchange during the period in which the

5 offer is outstanding.’’.

6 (c) STANDARDS FOR AUTOMATED QUOTATION SYS7 TEMS.—Section 15A(b) of the Securities Exchange Act of

8 1934 (15 U.S.C. 78o–3(b)) is amended by adding at the

9 end the following new paragraph:

10 ‘‘(13) The rules of the association prohibit the

11 authorization for quotation on an automated

12 interdealer quotation system sponsored by the asso13 ciation of any security designated by the Commis14 sion as a national market system security resulting

15 from a limited partnership rollup transaction (as

16 such term is defined in paragraphs (4) and (5) of

17 section 14(h)), unless such transaction was con18 ducted in accordance with procedures designed to

19 protect the rights of limited partners, including—

20 ‘‘(A) the right of dissenting limited part21 ners to the following: (i) an appraisal and com22 pensation, or (ii) if the association finds that

23 granting the rights under clause (i) of this sub24 paragraph would be infeasible or not in the fi25 nancial interest of the dissenting limited part-
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1 ners, other comparable rights designed to pro2 tect dissenting limited partners, which may in3 clude the rights set forth in subparagraph (B);

4 ‘‘(B) when the association determines it to

5 be necessary to the protection of such rights,

6 the use of a committee that is independent, as

7 determined in accordance with rules prescribed

8 by the association, of the general partner or

9 sponsor and that would have the authority to

10 protect the interest of limited partners, includ11 ing (but not limited to) the authority (but not

12 the obligation) to hire independent advisors to

13 represent all limited partners at the partner14 ship’s expense, to negotiate the proposed trans15 action with the general partner or sponsor on

16 behalf of the limited partners, and to make a

17 recommendation to the limited partners with re18 spect to the proposed transaction, but not the

19 authority to provide consents or authorizations

20 to the proposed transaction on behalf of limited

21 partners;

22 ‘‘(C) the right not to have their voting

23 power unfairly reduced or abridged;
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1 ‘‘(D) the right not to bear an unfair por2 tion of the costs of a proposed rollup trans3 action that is rejected; and

4 ‘‘(E) restrictions on the conversion of con5 tingent interests or fees into non-contingent in6 terests or fees and restrictions on the receipt of

7 a non-contingent equity interest in exchange for

8 fees for services which have not yet been pro9 vided.

10 As used in this paragraph, the term ‘dissenting lim11 ited partner’ means a holder of a beneficial interest

12 in a limited partnership that is the subject of a lim13 ited partnership transaction who casts a vote against

14 the transaction and complies with procedures estab15 lished by the association, except that for purposes of

16 an exchange or tender offer such term means any

17 person who files an objection in writing under the

18 rules of the association during the period during

19 which the offer is outstanding.’’.

20 (d) EFFECT ON EXISTING AUTHORITY.—The amend21 ments made by this section shall not limit the authority

22 of the Securities and Exchange Commission, a registered

23 securities association, or a national securities exchange

24 under any provision of the Securities Exchange Act of

25 1934, or preclude the Commission or such association or
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1 exchange from imposing, under any other such provision,

2 a remedy or procedure required to be imposed under such

3 amendments.

4 (e) EFFECTIVE DATE.—The amendments made by

5 this section shall become effective 18 months after the

6 date of enactment of this Act and shall apply to any secu7 rity resulting from a partnership rollup transaction (as

8 such term is defined in section 14(h)(4) of the Securities

9 Exchange Act of 1934) that is issued on or after the date

10 of enactment of this Act.

Passed the House of Representatives, March 2,

1993.

Attest: DONNALD K. ANDERSON,

Clerk.

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