I

103D CONGRESS

1ST SESSION H. R. 617

To amend the Securities Exchange Act of 1934 to protect investors in limited

partnerships in rollup transactions, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

JANUARY 26, 1993

Mr. MARKEY (for himself, Mr. FIELDS of Texas, Mr. DINGELL, Mr. SYNAR,

Mr. WYDEN, Mr. SLATTERY, Mr. COOPER, Mr. MORAN, and Mr. NEAL

of Massachusetts) introduced the following bill; which was referred to the

Committee on Energy and Commerce

A BILL

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 and

5 Exchange Act of 1934 (15 U.S.C. 78n) is amended by

6 adding 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.—As used in this subsection,

13 the term ‘limited partnership rollup transaction’

14 means, except as provided in paragraph (5), a trans15 action involving—

16 ‘‘(A) the combination or reorganization of

17 limited partnerships, directly or indirectly, in

18 which some or all investors in the limited part19 nerships receive new securities or securities in

20 another entity, other than a transaction—

21 ‘‘(i) in which—

22 ‘‘(I) the investors’ limited part23 nership securities are reported under

24 a transaction reporting plan declared

25 effective before January 1, 1991, by
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1 the Commission under section 11A;

2 and

3 ‘‘(II) the investors receive new

4 securities or securities in another en5 tity that are reported under a trans6 action reporting plan declared effec7 tive before January 1, 1991, by the

8 Commission under section 11A.

9 ‘‘(ii) involving only issuers that are

10 not required to register or report under

11 section 12 both before and after the trans12 action;

13 ‘‘(iii) in which the securities to be is14 sued or exchanged are not required to be

15 and are not registered under the Securities

16 Act of 1933;

17 ‘‘(iv) which will result in no signifi18 cant adverse change to investors in any of

19 the limited partnerships with respect to

20 voting rights, the term of existence of the

21 entity, management compensation, or in22 vestment objectives; or

23 ‘‘(v) where each investor is provided

24 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 (b) SCHEDULE FOR REGULATIONS.—The Securities

17 and Exchange Commission shall, not later than 12 months

18 after the date of enactment of this Act, conduct rule19 making proceedings and prescribe final regulations under

20 the Securities Act of 1933 and the Securities Exchange

21 Act of 1934 to implement the requirements of section

22 14(h) of the Securities Exchange Act of 1934, as amended

23 by subsection (a).
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1 SEC. 3. RULES OF FAIR PRACTICE IN ROLLUP TRANS2 ACTIONS.

3 (a) REGISTERED SECURITIES ASSOCIATION RULE.—

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

5 (15 U.S.C. 78o–3(b)) is amended by adding at the end

6 the following new paragraph:

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

8 just and equitable principles of trade, as required by

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

10 the association from participating in any limited

11 partnership rollup transaction (as such term is de12 fined in paragraphs (4) and (5) of section 14(h)) un13 less such transaction was conducted in accordance

14 with procedures designed to protect the rights of

15 limited partners, including—

16 ‘‘(A) the right of dissenting limited part17 ners to the following: (i) an appraisal and com18 pensation, or (ii) if the association finds that

19 granting the rights under clause (i) of this sub20 paragraph would be infeasible or not in the fi21 nancial interest of the dissenting limited part22 ners, other rights designed to protect dissenting

23 limited partners;

24 ‘‘(B) the right not to have their voting

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

4 ‘‘(D) 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 rights designed to protect dissenting

15 limited partners;

16 ‘‘(B) the right not to have their voting

17 power unfairly reduced or abridged;

18 ‘‘(C) the right not to bear an unfair por19 tion of the costs of a proposed rollup trans20 action that is rejected; and

21 ‘‘(D) restrictions on the conversion of con22 tingent interests or fees into non-contingent in23 terests or fees and restrictions on the receipt of

24 a non-contingent equity interest in exchange for
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1 fees for services which have not yet been pro2 vided.

3 As used in this paragraph, the term ‘dissenting lim4 ited partner’ means a holder of a beneficial interest

5 in a limited partnership that is the subject of a lim6 ited partnership transaction who casts a vote against

7 the transaction and complies with procedures estab8 lished by the exchange, except that for purposes of

9 an exchange or tender offer, such term means any

10 person who files an objection in writing under the

11 rules of the exchange during the period in which the

12 offer is outstanding.’’.

13 (c) STANDARDS FOR AUTOMATED QUOTATION SYS14 TEMS.—Section 15A(b) of the Securities Exchange Act of

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

16 end the following new paragraph:

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

18 authorization for quotation on an automated

19 interdealer quotation system sponsored by the asso20 ciation of any security designated by the Commis21 sion as a national market system security resulting

22 from a limited partnership rollup transaction (as

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

24 section 14(h)), unless such transaction was con-
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1 ducted in accordance with procedures designed to

2 protect the rights of limited partners, including—

3 ‘‘(A) the right of dissenting limited part4 ners to the following: (i) an appraisal and com5 pensation, or (ii) if the association finds that

6 granting the rights under clause (i) of this sub7 paragraph would be infeasible or not in the fi8 nancial interest of the dissenting limited part9 ners, other rights designed to protect dissenting

10 limited partners;

11 ‘‘(B) the right not to have their voting

12 power unfairly reduced or abridged;

13 ‘‘(C) the right not to bear an unfair por14 tion of the costs of a proposed rollup trans15 action that is rejected; and

16 ‘‘(D) restrictions on the conversion of con17 tingent interests or fees into non-contingent in18 terests or fees and restrictions on the receipt of

19 a non-contingent equity interest in exchange for

20 fees for services which have not yet been pro21 vided.

22 As used in this paragraph, the term ‘dissenting lim23 ited partner’ means a holder of a beneficial interest

24 in a limited partnership that is the subject of a lim25 ited partnership transaction who casts a vote against
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1 the transaction and complies with procedures estab2 lished by the association, except that for purposes of

3 an exchange or tender offer such term means any

4 person who files an objection in writing under the

5 rules of the association during the period during

6 which the offer is outstanding.’’.

7 (d) EFFECT ON EXISTING AUTHORITY.—The amend8 ments made by this section shall not limit the authority

9 of the Securities and Exchange Commission, a registered

10 securities association, or a national securities exchange

11 under any provision of the Securities Exchange Act of

12 1934, or preclude the Commission or such association or

13 exchange from imposing, under any other such provision,

14 a remedy or procedure required to be imposed under such

15 amendments.

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

17 this section shall become effective 18 months after the

18 date of enactment of this Act and shall apply to any secu19 rity resulting from a partnership rollup transaction (as

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

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

22 of enactment of this Act.

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