Union Calendar No. 10

103D CONGRESS

1ST SESSION H. R. 617

[Report No. 103–21]

A BILL

To amend the Securities Exchange Act of 1934 to

transactions, and for other purposes.protect investors in limited partnerships in rollup

FEBRUARY 25, 1993

Reported with an amendment, committed to the Commitordered to be printed tee of the Whole House on the State of the Union, and
IB

Union Calendar No. 10

103D CONGRESS

1ST SESSION H. R. 617

[Report No. 103–21]

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

FEBRUARY 25, 1993

Reported with an amendment, committed to the Committee of the Whole

House on the State of the Union, and ordered to be printed

[Strike out all after the enacting clause and insert the part printed in italic]

[For text of introduced bill, see copy of bill as introduced on January 26, 1993]

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,
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1 SECTION 1. SHORT TITLE.

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

3 Rollup Reform Act of 1993’’.

4 SEC. 2. REVISION OF PROXY SOLICITATION RULES WITH

5 RESPECT TO LIMITED PARTNERSHIP ROLLUP

6 TRANSACTIONS.

7 (a) AMENDMENT.—Section 14 of the Securities Ex8 change Act of 1934 (15 U.S.C. 78n) is amended by adding

9 at the end the following new subsection:

10 ‘‘(h) PROXY SOLICITATIONS AND TENDER OFFERS IN

11 CONNECTION WITH LIMITED PARTNERSHIP ROLLUP

12 TRANSACTIONS.—

13 ‘‘(1) PROXY RULES TO CONTAIN SPECIAL PROVI14 SIONS.—It shall be unlawful for any person to solicit

15 any proxy, consent, or authorization concerning a

16 limited partnership rollup transaction, or to make

17 any tender offer in furtherance of a limited partner18 ship rollup transaction, unless such transaction is

19 conducted in accordance with rules prescribed by the

20 Commission under subsections (a) and (d) as required

21 by this subsection. Such rules shall—

22 ‘‘(A) permit any holder of a security that is

23 the subject of the proposed limited partnership

24 rollup transaction to engage in preliminary

25 communications for the purposes of determining

26 whether to solicit proxies, consents, or authoriza-
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1 tions in opposition to the proposed transaction,

2 without regard to whether any such communica3 tion would otherwise be considered a solicitation

4 of proxies, and without being required to file so5 liciting material with the Commission prior to

6 making that determination, except that nothing

7 in this subparagraph shall be construed to limit

8 the application of any provision of this title pro9 hibiting, or reasonably designed to prevent,

10 fraudulent, deceptive, or manipulative acts or

11 practices under this title;

12 ‘‘(B) require the issuer to provide to holders

13 of the securities that are the subject of the trans14 action such list of the holders of the issuer’s secu15 rities as the Commission may determine in such

16 form and subject to such terms and conditions as

17 the Commission may specify;

18 ‘‘(C) prohibit compensating any person so19 liciting proxies, consents, or authorizations di20 rectly from security holders concerning such a

21 transaction—

22 ‘‘(i) on the basis of whether the solic23 ited proxies, consents, or authorizations ei24 ther approve or disapprove the proposed

25 transaction; or
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1 ‘‘(ii) contingent on the transaction’s

2 approval, disapproval, or completion;

3 ‘‘(D) set forth disclosure requirements for

4 soliciting material distributed in connection

5 with a limited partnership rollup transaction,

6 including requirements for clear, concise, and

7 comprehensible disclosure with respect to—

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

9 voting rights, form of ownership interest or

10 the general partner’s compensation in the

11 proposed limited partnership rollup trans12 action from each of the original limited

13 partnerships;

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

15 the general partner;

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

17 will be a significant difference between the

18 exchange values of the limited partnerships

19 and the trading price of the securities to be

20 issued in the limited partnership rollup

21 transaction;

22 ‘‘(iv) the valuation of the limited part23 nerships and the method used to determine

24 the value of limited partners’ interests to be
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1 exchanged for the securities in the limited

2 partnership rollup transaction;

3 ‘‘(v) the differing risks and effects of

4 the transaction for investors in different

5 limited partnerships proposed to be in6 cluded, and the risks and effects of complet7 ing the transaction with less than all lim8 ited partnerships;

9 ‘‘(vi) a statement by the general part10 ner as to whether the proposed limited part11 nership rollup transaction is fair or unfair

12 to investors in each limited partnership, a

13 discussion of the basis for that conclusion,

14 and the general partner’s evaluation, and a

15 description of alternatives to the limited

16 partnership rollup transaction, such as liq17 uidation; and

18 ‘‘(vii) such other matters deemed nec19 essary or appropriate by the Commission.

20 ‘‘(E) provide that such soliciting materials

21 contain or be accompanied by an opinion on the

22 fairness of the proposed transaction to holders of

23 each security which is subject to the proposed

24 transaction that—
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1 ‘‘(i) includes such information, rep2 resentations, and undertakings with respect

3 to the analysis of the transaction, scope of

4 review, preparation of the opinion, and

5 basis for and methods of arriving at conclu6 sions as the Commission may require in

7 such rules; and

8 ‘‘(ii) is prepared by a person—

9 ‘‘(I) who does not receive any

10 compensation that is contingent on the

11 transaction’s approval or completion;

12 ‘‘(II) who meets such additional

13 standards of independence from the

14 person or persons proposing the rollup

15 transaction as shall be required in the

16 rules prescribed by the Commission;

17 ‘‘(III) who has been given access

18 by the issuer to its personnel and

19 premises and relevant books and

20 records; and

21 ‘‘(IV) who has represented to have

22 undertaken an independent analysis of

23 the fairness of the proposed rollup

24 transaction to holders based upon the

25 information obtained through such ac-
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1 cess and upon other independently ob2 tained information;

3 ‘‘(F) require that the soliciting material in4 clude a clear and concise summary of the limited

5 partnership rollup transaction (including a sum6 mary of the matters referred to in clauses (i)

7 through (vi) of subparagraph (D) and a sum8 mary of the matter referred to in subparagraph

9 (E)), with the risks of the limited partnership

10 rollup transaction set forth prominently in the

11 forepart thereof;

12 ‘‘(G) provide that any solicitation or offer13 ing period with respect to any proxy solicitation,

14 tender offer, or information statement in a lim15 ited partnership rollup transaction shall be for

16 not less than the lesser of 60 calendar days or the

17 maximum number of days permitted under ap18 plicable State law; and

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

20 Commission determines to be necessary or appro21 priate for the protection of investors in limited

22 partnership rollup transactions.

23 ‘‘(2) EXEMPTIONS.—The Commission may, con24 sistent with the public interest, the protection of in25 vestors, and the purposes of this Act, exempt by rule
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1 or order any security or class of securities, any trans2 action or class of transactions, or any person or class

3 of persons, in whole or in part, conditionally or un4 conditionally, from the requirements imposed pursu5 ant to paragraph (1) or from the definition contained

6 in paragraph (4).

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

8 Nothing in this subsection limits the authority of the

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

10 provision of this title or precludes the Commission

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

12 other provision of this title, a remedy or procedure re13 quired to be imposed under this subsection.

14 ‘‘(4) DEFINITION OF LIMITED PARTNERSHIP

15 ROLLUP TRANSACTION.—As used in this subsection,

16 the term ‘limited partnership rollup transaction’

17 means, except as provided in paragraph (5), a trans18 action involving—

19 ‘‘(A) the combination or reorganization of

20 limited partnerships, directly or indirectly, in

21 which some or all investors in the limited part22 nerships receive new securities or securities in

23 another entity, other than a transaction—

24 ‘‘(i) in which—
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1 ‘‘(I) the investors’ limited part2 nership securities are reported under a

3 transaction reporting plan declared ef4 fective before January 1, 1991, by the

5 Commission under section 11A; and

6 ‘‘(II) the investors receive new se7 curities or securities in another entity

8 that are reported under a transaction

9 reporting plan declared effective before

10 January 1, 1991, by the Commission

11 under section 11A;

12 ‘‘(ii) involving only issuers that are

13 not required to register or report under sec14 tion 12 both before and after the trans15 action;

16 ‘‘(iii) in which the securities to be is17 sued or exchanged are not required to be

18 and are not registered under the Securities

19 Act of 1933;

20 ‘‘(iv) which will result in no signifi21 cant adverse change to investors in any of

22 the limited partnerships with respect to vot23 ing rights, the term of existence of the en24 tity, management compensation, or invest25 ment objectives; or
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1 ‘‘(v) where each investor is provided an

2 option to receive or retain a security under

3 substantially the same terms and conditions

4 as the original issue; or

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

6 partnership in which some or all investors in the

7 limited partnership receive new securities or se8 curities in another entity, and—

9 ‘‘(i) transactions in the security issued

10 are reported under a transaction reporting

11 plan declared effective before January 1,

12 1991, by the Commission under section 11A;

13 ‘‘(ii) the investors’ limited partnership

14 securities are not reported under a trans15 action reporting plan declared effective be16 fore January 1, 1991, by the Commission

17 under section 11A;

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

19 or report under section 12, both before and

20 after the transaction, or the securities to be

21 issued or exchanged are required to be or

22 are registered under the Securities Act of

23 1933;

24 ‘‘(iv) there are significant adverse

25 changes to security holders in voting rights,
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1 the term of existence of the entity, manage2 ment compensation, or investment objec3 tives; and

4 ‘‘(v) investors are not provided an op5 tion to receive or retain a security under

6 substantially the same terms and conditions

7 as the original issue.

8 ‘‘(5) EXCLUSION FROM DEFINITION.—As used in

9 this subsection, the term ‘limited partnership rollup

10 transaction’ does not include a transaction that in11 volves only a limited partnership or partnerships

12 having an operating policy or practice of retaining

13 cash available for distribution and reinvesting pro14 ceeds from the sale, financing, or refinancing of assets

15 in accordance with such criteria as the Commission

16 determines appropriate.

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

18 ‘partnership’ includes such other entity having a sub19 stantially economically equivalent form of ownership

20 instrument as the Commission determines, by rule

21 consistent with the purposes of this subsection, to in22 clude within this definition.’’.

23 (b) SCHEDULE FOR REGULATIONS.—The Securities

24 and Exchange Commission shall, not later than 12 months

25 after the date of enactment of this Act, conduct rulemaking
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1 proceedings and prescribe final regulations under the Secu2 rities Act of 1933 and the Securities Exchange Act of 1934

3 to implement the requirements of section 14(h) of the Secu4 rities Exchange Act of 1934, as amended 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 (15

9 U.S.C. 78o–3(b)) is amended by adding at the end the fol10 lowing new paragraph:

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

12 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 lim19 ited partners, including—

20 ‘‘(A) the right of dissenting limited partners

21 to the following: (i) an appraisal and compensa22 tion, or (ii) if the association finds that granting

23 the rights under clause (i) of this subparagraph

24 would be infeasible or not in the financial inter25 est of the dissenting limited partners, other com-
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1 parable rights designed to protect dissenting lim2 ited partners, which may include the rights set

3 forth in subparagraph (B);

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

5 be necessary to the protection of such rights, the

6 use of a committee that is independent, as deter7 mined in accordance with rules prescribed by the

8 association, of the general partner or sponsor

9 and that would have the authority to protect the

10 interest of limited partners, including (but not

11 limited to) the authority (but not the obligation)

12 to hire independent advisors to represent all lim13 ited partners at the partnership’s expense, to ne14 gotiate the proposed transaction with the general

15 partner or sponsor on behalf of the limited part16 ners, and to make a recommendation to the lim17 ited partners with respect to the proposed trans18 action, but not the authority to provide consents

19 or authorizations to the proposed transaction on

20 behalf of limited partners;

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

22 power unfairly reduced or abridged;

23 ‘‘(D) the right not to bear an unfair portion

24 of the costs of a proposed rollup transaction that

25 is rejected; and
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1 ‘‘(E) restrictions on the conversion of con2 tingent interests or fees into non-contingent in3 terests or fees and restrictions on the receipt of

4 a non-contingent equity interest in exchange for

5 fees for services which have not yet been pro6 vided.

7 As used in this paragraph, the term ‘dissenting lim8 ited partner’ means a holder of a beneficial interest

9 in a limited partnership that is the subject of a lim10 ited partnership rollup transaction who casts a vote

11 against the transaction and complies with procedures

12 established by the association, except that for purposes

13 of an exchange or tender offer, such term means any

14 person who files an objection in writing under the

15 rules of the association during the period in which the

16 offer is outstanding and complies with such other pro17 cedures established by the association.’’.

18 (b) LISTING STANDARDS OF NATIONAL SECURITIES

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

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

21 end the following:

22 ‘‘(9) The rules of the exchange prohibit the list23 ing of any security issued in a limited partnership

24 rollup transaction (as such term is defined in para25 graphs (4) and (5) of section 14(h)), unless such
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1 transaction was conducted in accordance with proce2 dures designed to protect the rights of limited part3 ners, including—

4 ‘‘(A) the right of dissenting limited partners

5 to the following: (i) an appraisal and compensa6 tion, or (ii) if the exchange finds that granting

7 the rights under clause (i) of this subparagraph

8 would be infeasible or not in the financial inter9 est of the dissenting limited partners, other com10 parable rights designed to protect dissenting lim11 ited partners, which may include the rights set

12 forth in subparagraph (B);

13 ‘‘(B) when the exchange determines it to be

14 necessary to the protection of such rights, the use

15 of a committee that is independent, as deter16 mined in accordance with rules prescribed by the

17 exchange, of the general partner or sponsor and

18 that would have the authority to protect the in19 terest of limited partners, including (but not

20 limited to) the authority (but not the obligation)

21 to hire independent advisors to represent all lim22 ited partners at the partnership’s expense, to ne23 gotiate the proposed transaction with the general

24 partner or sponsor on behalf of the limited part25 ners, and to make a recommendation to the lim-
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1 ited partners with respect to the proposed trans2 action, but not the authority to provide consents

3 or authorizations to the proposed transaction on

4 behalf of limited partners;

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

6 power unfairly reduced or abridged;

7 ‘‘(D) the right not to bear an unfair portion

8 of the costs of a proposed rollup transaction that

9 is rejected; and

10 ‘‘(E) restrictions on the conversion of con11 tingent interests or fees into non-contingent in12 terests or fees and restrictions on the receipt of

13 a non-contingent equity interest in exchange for

14 fees for services which have not yet been pro15 vided.

16 As used in this paragraph, the term ‘dissenting lim17 ited partner’ means a holder of a beneficial interest

18 in a limited partnership that is the subject of a lim19 ited partnership transaction who casts a vote against

20 the transaction and complies with procedures estab21 lished by the exchange, except that for purposes of an

22 exchange or tender offer, such term means any person

23 who files an objection in writing under the rules of

24 the exchange during the period in which the offer is

25 outstanding.’’.
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1 (c) STANDARDS FOR AUTOMATED QUOTATION SYS2 TEMS.—Section 15A(b) of the Securities Exchange Act of

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

4 end the following new paragraph:

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

6 authorization for quotation on an automated

7 interdealer quotation system sponsored by the associa8 tion of any security designated by the Commission as

9 a national market system security resulting from a

10 limited partnership rollup transaction (as such term

11 is defined in paragraphs (4) and (5) of section 14(h)),

12 unless such transaction was conducted in accordance

13 with procedures designed to protect the rights of lim14 ited partners, including—

15 ‘‘(A) the right of dissenting limited partners

16 to the following: (i) an appraisal and compensa17 tion, or (ii) if the association finds that granting

18 the rights under clause (i) of this subparagraph

19 would be infeasible or not in the financial inter20 est of the dissenting limited partners, other com21 parable rights designed to protect dissenting lim22 ited partners, which may include the rights set

23 forth in subparagraph (B);

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

25 be necessary to the protection of such rights, the
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1 use of a committee that is independent, as deter2 mined in accordance with rules prescribed by the

3 association, of the general partner or sponsor

4 and that would have the authority to protect the

5 interest of limited partners, including (but not

6 limited to) the authority (but not the obligation)

7 to hire independent advisors to represent all lim8 ited partners at the partnership’s expense, to ne9 gotiate the proposed transaction with the general

10 partner or sponsor on behalf of the limited part11 ners, and to make a recommendation to the lim12 ited partners with respect to the proposed trans13 action, but not the authority to provide consents

14 or authorizations to the proposed transaction on

15 behalf of limited partners;

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

17 power unfairly reduced or abridged;

18 ‘‘(D) the right not to bear an unfair portion

19 of the costs of a proposed rollup transaction that

20 is rejected; and

21 ‘‘(E) 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 association, except that for purposes of

9 an exchange or tender offer such term means any per10 son who files an objection in writing under the rules

11 of the association during the period during which the

12 offer is outstanding.’’.

13 (d) EFFECT ON EXISTING AUTHORITY.—The amend14 ments made by this section shall not limit the authority

15 of the Securities and Exchange Commission, a registered

16 securities association, or a national securities exchange

17 under any provision of the Securities Exchange Act of 1934,

18 or preclude the Commission or such association or exchange

19 from imposing, under any other such provision, a remedy

20 or procedure required to be imposed under such amend21 ments.

22 (e) EFFECTIVE DATE.—The amendments made by this

23 section shall become effective 18 months after the date of

24 enactment of this Act and shall apply to any security re25 sulting from a partnership rollup transaction (as such term
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1 is defined in section 14(h)(4) of the Securities Exchange

2 Act of 1934) that is issued on or after the date of enactment

3 of this Act.

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