[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[H.R. 617 Referred in Senate (RFS)]
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.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Limited Partnership Rollup Reform
Act of 1993''.
SEC. 2. REVISION OF PROXY SOLICITATION RULES WITH RESPECT TO LIMITED
PARTNERSHIP ROLLUP TRANSACTIONS.
(a) Amendment.--Section 14 of the Securities Exchange Act of 1934
(15 U.S.C. 78n) is amended by adding at the end the following new
subsection:
``(h) Proxy Solicitations and Tender Offers in Connection With
Limited Partnership Rollup Transactions.--
``(1) Proxy rules to contain special provisions.--It shall
be unlawful for any person to solicit any proxy, consent, or
authorization concerning a limited partnership rollup
transaction, or to make any tender offer in furtherance of a
limited partnership rollup transaction, unless such transaction
is conducted in accordance with rules prescribed by the
Commission under subsections (a) and (d) as required by this
subsection. Such rules shall--
``(A) permit any holder of a security that is the
subject of the proposed limited partnership rollup
transaction to engage in preliminary communications for
the purposes of determining whether to solicit proxies,
consents, or authorizations in opposition to the
proposed transaction, without regard to whether any
such communication would otherwise be considered a
solicitation of proxies, and without being required to
file soliciting material with the Commission prior to
making that determination, except that nothing in this
subparagraph shall be construed to limit the
application of any provision of this title prohibiting,
or reasonably designed to prevent, fraudulent,
deceptive, or manipulative acts or practices under this
title;
``(B) require the issuer to provide to holders of
the securities that are the subject of the transaction
such list of the holders of the issuer's securities as
the Commission may determine in such form and subject
to such terms and conditions as the Commission may
specify;
``(C) prohibit compensating any person soliciting
proxies, consents, or authorizations directly from
security holders concerning such a transaction--
``(i) on the basis of whether the solicited
proxies, consents, or authorizations either
approve or disapprove the proposed transaction;
or
``(ii) contingent on the transaction's
approval, disapproval, or completion;
``(D) set forth disclosure requirements for
soliciting material distributed in connection with a
limited partnership rollup transaction, including
requirements for clear, concise, and comprehensible
disclosure with respect to--
``(i) any changes in the business plan,
voting rights, form of ownership interest or
the general partner's compensation in the
proposed limited partnership rollup transaction
from each of the original limited partnerships;
``(ii) the conflicts of interest, if any,
of the general partner;
``(iii) whether it is expected that there
will be a significant difference between the
exchange values of the limited partnerships and
the trading price of the securities to be
issued in the limited partnership rollup
transaction;
``(iv) the valuation of the limited
partnerships and the method used to determine
the value of limited partners' interests to be
exchanged for the securities in the limited
partnership rollup transaction;
``(v) the differing risks and effects of
the transaction for investors in different
limited partnerships proposed to be included,
and the risks and effects of completing the
transaction with less than all limited
partnerships;
``(vi) a statement by the general partner
as to whether the proposed limited partnership
rollup transaction is fair or unfair to
investors in each limited partnership, a
discussion of the basis for that conclusion,
and the general partner's evaluation, and a
description of alternatives to the limited
partnership rollup transaction, such as
liquidation; and
``(vii) such other matters deemed necessary
or appropriate by the Commission.
``(E) provide that such soliciting materials
contain or be accompanied by an opinion on the fairness
of the proposed transaction to holders of each security
which is subject to the proposed transaction that--
``(i) includes such information,
representations, and undertakings with respect
to the analysis of the transaction, scope of
review, preparation of the opinion, and basis
for and methods of arriving at conclusions as
the Commission may require in such rules; and
``(ii) is prepared by a person--
``(I) who does not receive any
compensation that is contingent on the
transaction's approval or completion;
``(II) who meets such additional
standards of independence from the
person or persons proposing the rollup
transaction as shall be required in the
rules prescribed by the Commission;
``(III) who has been given access
by the issuer to its personnel and
premises and relevant books and
records; and
``(IV) who has represented to have
undertaken an independent analysis of
the fairness of the proposed rollup
transaction to holders based upon the
information obtained through such
access and upon other independently
obtained information;
``(F) require that the soliciting material include
a clear and concise summary of the limited partnership
rollup transaction (including a summary of the matters
referred to in clauses (i) through (vi) of subparagraph
(D) and a summary of the matter referred to in
subparagraph (E)), with the risks of the limited
partnership rollup transaction set forth prominently in
the forepart thereof;
``(G) provide that any solicitation or offering
period with respect to any proxy solicitation, tender
offer, or information statement in a limited
partnership rollup transaction shall be for not less
than the lesser of 60 calendar days or the maximum
number of days permitted under applicable State law;
and
``(H) contain such other provisions as the
Commission determines to be necessary or appropriate
for the protection of investors in limited partnership
rollup transactions.
``(2) Exemptions.--The Commission may, consistent with the
public interest, the protection of investors, and the purposes
of this Act, 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 requirements imposed pursuant to
paragraph (1) or from the definition contained in paragraph
(4).
``(3) Effect on commission authority.--Nothing in this
subsection limits the authority of the Commission under
subsection (a) or (d) or any other provision of this title or
precludes the Commission from imposing, under subsection (a) or
(d) or any other provision of this title, a remedy or procedure
required to be imposed under this subsection.
``(4) Definition of limited partnership rollup
transaction.--As used in this subsection, the term `limited
partnership rollup transaction' means, except as provided in
paragraph (5), a transaction involving--
``(A) the combination or reorganization of limited
partnerships, directly or indirectly, in which some or
all investors in the limited partnerships receive new
securities or securities in another entity, other than
a transaction--
``(i) in which--
``(I) the investors' limited
partnership securities are reported
under a transaction reporting plan
declared effective before January 1,
1991, by the Commission under section
11A; and
``(II) the investors receive new
securities or securities in another
entity that are reported under a
transaction reporting plan declared
effective before January 1, 1991, by
the Commission under section 11A;
``(ii) involving only issuers that are not
required to register or report under section 12
both before and after the transaction;
``(iii) in which the securities to be
issued or exchanged are not required to be and
are not registered under the Securities Act of
1933;
``(iv) which will result in no significant
adverse change to investors in any of the
limited partnerships with respect to voting
rights, the term of existence of the entity,
management compensation, or investment
objectives; or
``(v) where each investor is provided an
option to receive or retain a security under
substantially the same terms and conditions as
the original issue; or
``(B) the reorganization of a single limited
partnership in which some or all investors in the
limited partnership receive new securities or
securities in another entity, and--
``(i) transactions in the security issued
are reported under a transaction reporting plan
declared effective before January 1, 1991, by
the Commission under section 11A;
``(ii) the investors' limited partnership
securities are not reported under a transaction
reporting plan declared effective before
January 1, 1991, by the Commission under
section 11A;
``(iii) the issuer is required to register
or report under section 12, both before and
after the transaction, or the securities to be
issued or exchanged are required to be or are
registered under the Securities Act of 1933;
``(iv) there are significant adverse
changes to security holders in voting rights,
the term of existence of the entity, management
compensation, or investment objectives; and
``(v) investors are not provided an option
to receive or retain a security under
substantially the same terms and conditions as
the original issue.
``(5) Exclusion from definition.--As used in this
subsection, the term `limited partnership rollup transaction'
does not include a transaction that involves only a limited
partnership or partnerships having an operating policy or
practice of retaining cash available for distribution and
reinvesting proceeds from the sale, financing, or refinancing
of assets in accordance with such criteria as the Commission
determines appropriate.
``(6) Definition of partnership.--The term `partnership'
includes such other entity having a substantially economically
equivalent form of ownership instrument as the Commission
determines, by rule consistent with the purposes of this
subsection, to include within this definition.''.
(b) Schedule for Regulations.--The Securities and Exchange
Commission shall, not later than 12 months after the date of enactment
of this Act, conduct rulemaking proceedings and prescribe final
regulations under the Securities Act of 1933 and the Securities
Exchange Act of 1934 to implement the requirements of section 14(h) of
the Securities Exchange Act of 1934, as amended by subsection (a).
SEC. 3. RULES OF FAIR PRACTICE IN ROLLUP TRANSACTIONS.
(a) Registered Securities Association Rule.--Section 15A(b) of the
Securities Exchange Act of 1934 (15 U.S.C. 78o-3(b)) is amended by
adding at the end the following new paragraph:
``(12) The rules of the association to promote just and
equitable principles of trade, as required by paragraph (6),
include rules to prevent members of the association from
participating in any limited partnership rollup transaction (as
such term is defined in paragraphs (4) and (5) of section
14(h)) unless such transaction was conducted in accordance with
procedures designed to protect the rights of limited partners,
including--
``(A) the right of dissenting limited partners to
the following: (i) an appraisal and compensation, or
(ii) if the association finds that granting the rights
under clause (i) of this subparagraph would be
infeasible or not in the financial interest of the
dissenting limited partners, other comparable rights
designed to protect dissenting limited partners, which
may include the rights set forth in subparagraph (B);
``(B) when the association determines it to be
necessary to the protection of such rights, the use of
a committee that is independent, as determined in
accordance with rules prescribed by the association, of
the general partner or sponsor and that would have the
authority to protect the interest of limited partners,
including (but not limited to) the authority (but not
the obligation) to hire independent advisors to
represent all limited partners at the partnership's
expense, to negotiate the proposed transaction with the
general partner or sponsor on behalf of the limited
partners, and to make a recommendation to the limited
partners with respect to the proposed transaction, but
not the authority to provide consents or authorizations
to the proposed transaction on behalf of limited
partners;
``(C) the right not to have their voting power
unfairly reduced or abridged;
``(D) the right not to bear an unfair portion of
the costs of a proposed rollup transaction that is
rejected; and
``(E) restrictions on the conversion of contingent
interests or fees into non-contingent interests or fees
and restrictions on the receipt of a non-contingent
equity interest in exchange for fees for services which
have not yet been provided.
As used in this paragraph, the term `dissenting limited
partner' means a holder of a beneficial interest in a limited
partnership that is the subject of a limited partnership rollup
transaction who casts a vote against the transaction and
complies with procedures established by the association, except
that for purposes of an exchange or tender offer, such term
means any person who files an objection in writing under the
rules of the association during the period in which the offer
is outstanding and complies with such other procedures
established by the association.''.
(b) Listing Standards of National Securities Exchanges.--Section
6(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(b)) is
amended by adding at the end the following:
``(9) The rules of the exchange prohibit the listing of any
security issued in a limited partnership rollup transaction (as
such term is defined in paragraphs (4) and (5) of section
14(h)), unless such transaction was conducted in accordance
with procedures designed to protect the rights of limited
partners, including--
``(A) the right of dissenting limited partners to
the following: (i) an appraisal and compensation, or
(ii) if the exchange finds that granting the rights
under clause (i) of this subparagraph would be
infeasible or not in the financial interest of the
dissenting limited partners, other comparable rights
designed to protect dissenting limited partners, which
may include the rights set forth in subparagraph (B);
``(B) when the exchange determines it to be
necessary to the protection of such rights, the use of
a committee that is independent, as determined in
accordance with rules prescribed by the exchange, of
the general partner or sponsor and that would have the
authority to protect the interest of limited partners,
including (but not limited to) the authority (but not
the obligation) to hire independent advisors to
represent all limited partners at the partnership's
expense, to negotiate the proposed transaction with the
general partner or sponsor on behalf of the limited
partners, and to make a recommendation to the limited
partners with respect to the proposed transaction, but
not the authority to provide consents or authorizations
to the proposed transaction on behalf of limited
partners;
``(C) the right not to have their voting power
unfairly reduced or abridged;
``(D) the right not to bear an unfair portion of
the costs of a proposed rollup transaction that is
rejected; and
``(E) restrictions on the conversion of contingent
interests or fees into non-contingent interests or fees
and restrictions on the receipt of a non-contingent
equity interest in exchange for fees for services which
have not yet been provided.
As used in this paragraph, the term `dissenting limited
partner' means a holder of a beneficial interest in a limited
partnership that is the subject of a limited partnership
transaction who casts a vote against the transaction and
complies with procedures established by the exchange, except
that for purposes of an exchange or tender offer, such term
means any person who files an objection in writing under the
rules of the exchange during the period in which the offer is
outstanding.''.
(c) Standards for Automated Quotation Systems.--Section 15A(b) of
the Securities Exchange Act of 1934 (15 U.S.C. 78o-3(b)) is amended by
adding at the end the following new paragraph:
``(13) The rules of the association prohibit the
authorization for quotation on an automated interdealer
quotation system sponsored by the association of any security
designated by the Commission as a national market system
security resulting from a limited partnership rollup
transaction (as such term is defined in paragraphs (4) and (5)
of section 14(h)), unless such transaction was conducted in
accordance with procedures designed to protect the rights of
limited partners, including--
``(A) the right of dissenting limited partners to
the following: (i) an appraisal and compensation, or
(ii) if the association finds that granting the rights
under clause (i) of this subparagraph would be
infeasible or not in the financial interest of the
dissenting limited partners, other comparable rights
designed to protect dissenting limited partners, which
may include the rights set forth in subparagraph (B);
``(B) when the association determines it to be
necessary to the protection of such rights, the use of
a committee that is independent, as determined in
accordance with rules prescribed by the association, of
the general partner or sponsor and that would have the
authority to protect the interest of limited partners,
including (but not limited to) the authority (but not
the obligation) to hire independent advisors to
represent all limited partners at the partnership's
expense, to negotiate the proposed transaction with the
general partner or sponsor on behalf of the limited
partners, and to make a recommendation to the limited
partners with respect to the proposed transaction, but
not the authority to provide consents or authorizations
to the proposed transaction on behalf of limited
partners;
``(C) the right not to have their voting power
unfairly reduced or abridged;
``(D) the right not to bear an unfair portion of
the costs of a proposed rollup transaction that is
rejected; and
``(E) restrictions on the conversion of contingent
interests or fees into non-contingent interests or fees
and restrictions on the receipt of a non-contingent
equity interest in exchange for fees for services which
have not yet been provided.
As used in this paragraph, the term `dissenting limited
partner' means a holder of a beneficial interest in a limited
partnership that is the subject of a limited partnership
transaction who casts a vote against the transaction and
complies with procedures established by the association, except
that for purposes of an exchange or tender offer such term
means any person who files an objection in writing under the
rules of the association during the period during which the
offer is outstanding.''.
(d) Effect on Existing Authority.--The amendments made by this
section shall not limit the authority of the Securities and Exchange
Commission, a registered securities association, or a national
securities exchange under any provision of the Securities Exchange Act
of 1934, or preclude the Commission or such association or exchange
from imposing, under any other such provision, a remedy or procedure
required to be imposed under such amendments.
(e) Effective Date.--The amendments made by this section shall
become effective 18 months after the date of enactment of this Act and
shall apply to any security resulting from a partnership rollup
transaction (as such term is defined in section 14(h)(4) of the
Securities Exchange Act of 1934) that is issued on or after the date of
enactment of this Act.
Passed the House of Representatives, March 2, 1993.
Attest:
DONNALD K. ANDERSON,
Clerk.
HR 617 RFS----2