[Congressional Bills 103th Congress]
[From the U.S. Government Printing Office]
[S. 424 Referred in House (RFH)]
103d CONGRESS
1st Session
S. 424
_______________________________________________________________________
IN THE HOUSE OF REPRESENTATIVES
September 8, 1993
Referred to the Committee on Energy and Commerce
_______________________________________________________________________
AN ACT
To amend the Securities Exchange Act of 1934 with respect to limited
partnership rollups.
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 and 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). 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 purpose 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--
``(i) 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; and
``(ii) any holder of not less than 5
percent of the outstanding securities that are
the subject of the proposed limited partnership
rollup transaction who engages in the business
of buying and selling limited partnership
interests in the secondary market shall be
required to disclose such ownership interests
and any potential conflicts of interests in
such preliminary communications;
``(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
proxy, consent, or authorization either
approves or disapproves the proposed limited
partnership rollup transaction; or
``(ii) contingent on the approval,
disapproval, or completion of the limited
partnership rollup transaction;
``(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 compensation of the general partner 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 the interests of the limited
partners 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) the statement by the general partner
required under subparagraph (E);
``(vii) any opinion (other than an opinion
of counsel), appraisal, or report received by
the general partner or sponsor that is prepared
by an outside party and that is materially
related to the limited partnership rollup
transaction and the identity and qualifications
of the party who prepared the opinion,
appraisal, or report, the method of selection
of such party, material past, existing, or
contemplated relationships between the party or
any of its affiliates and the general partner,
sponsor, successor, or any other affiliate,
compensation arrangements, and the basis for
rendering and methods used in developing the
opinion, appraisal, or report; and
``(viii) such other matters deemed
necessary or appropriate by the Commission;
``(E) require 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 an evaluation and a description by the
general partner of alternatives to the limited
partnership rollup transaction, such as liquidation;
``(F) 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
``(G) contain such other provisions as the
Commission determines to be necessary or appropriate
for the protection of investors in limited partnership
rollup transactions.
``(2) Summary.--Disclosure requirements established under
paragraph (1)(D) shall require that 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 (viii) of that subparagraph) with the risks
of the limited partnership rollup transaction set forth
prominently in the forepart thereof.
``(3) Exemptions.--The Commission may, consistent with the
public interest, the protection of investors, and the purposes
of this title, 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
paragraphs (1) and (2) or, from the definition contained in
paragraph (5).
``(4) 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.
``(5) Definition.--As used in this subsection the term
`limited partnership rollup transaction' means 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 the date of
enactment of this subsection 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 the date of enactment
of this subsection 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, directly or indirectly, 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 the date of enactment
of this subsection by the Commission under
section 11A;
``(ii) the investors' limited partnership
securities are not reported under a transaction
reporting plan declared effective before the
date of enactment of this subsection 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.
``(6) Exclusions.--For purposes of this subsection, a
limited partnership rollup transaction does not include--
``(A) 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;
``(B) the combination or reorganization of limited
partnerships or the reorganization of a single limited
partnership--
``(i) in which a non-affiliated party
succeeds to the interests of a general partner
or sponsor, if--
``(I) such action is approved by
not less than 66\2/3\ percent of the
outstanding units of each of the
participating limited partnerships; and
``(II) as a result of the
transaction, the existing general
partners are entitled to receive only
compensation expressly provided for in
the preexisting limited partnership
agreements; or
``(ii) involving only limited partnerships
wherein the interests of the limited partners
are repurchased, recalled, or exchanged
pursuant to the terms of the preexisting
limited partnership agreements for securities
in an operating company specifically identified
at the time of the formation of the original
limited partnership; or
``(C) a transaction in which the securities offered
to investors are securities of another entity that are
reported under a transaction reporting plan declared
effective before the date of enactment of this
subsection by the Commission under section 11A, if--
``(i) such other entity was formed, and
such class of securities was reported, not less
than 12 months before the date on which
soliciting material is mailed to investors; and
``(ii) the securities of that entity issued
to investors in the transaction do not exceed
20 percent of the total outstanding securities
of the entity.''.
(b) Schedule for Regulations.--The Securities and Exchange
Commission shall promulgate final regulations under the Securities Act
of 1933 and the Securities Exchange Act of 1934 which shall become
effective not later than 12 months after the date of enactment of this
Act to implement the requirements of section 14(h) of the Securities
Exchange Act of 1934, as added 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 (5) and (6) 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
one of the following--
``(i) an appraisal and compensation;
``(ii) retention of a security under
substantially the same terms and conditions as
the original issue;
``(iii) approval of the limited partnership
rollup transaction by not less than 75 percent
of the outstanding units of each of the
participating limited partnerships; or
``(iv) other rights designed to protect
dissenting limited partners;
``(B) the right not to have their voting power
unfairly reduced or abridged;
``(C) the right not to bear an unfair portion of
the costs of a proposed rollup transaction that is
rejected; and
``(D) 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 person who, on the date on which soliciting
material is mailed to investors, is a holder of a beneficial
interest in a limited partnership that is the subject of a
limited partnership rollup transaction, and 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 person shall file an objection
in writing under the rules of the association during the period
in which the offer is outstanding.''.
(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 (5) and (6) 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
one of the following--
``(i) an appraisal and compensation;
``(ii) retention of a security under
substantially the same terms and conditions as
the original issue;
``(iii) approval of the limited partnership
rollup transaction by not less than 75 percent
of the outstanding units of each of the
participating limited partnerships; or
``(iv) other rights designed to protect
dissenting limited partners;
``(B) the right not to have their voting power
unfairly reduced or abridged;
``(C) the right not to bear an unfair portion of
the costs of a proposed rollup transaction that is
rejected; and
``(D) 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 person who, on the date on which soliciting
material is mailed to investors, is a holder of a beneficial
interest in a limited partnership that is the subject of a
limited partnership rollup transaction, and 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 person shall file 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 (5) and (6)
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
one of the following--
``(i) an appraisal and compensation;
``(ii) retention of a security under
substantially the same terms and conditions as
the original issue;
``(iii) approval of the limited partnership
rollup transaction by not less than 75 percent
of the outstanding units of each of the
participating limited partnerships; or
``(iv) other rights designed to protect
dissenting limited partners;
``(B) the right not to have their voting power
unfairly reduced or abridged;
``(C) the right not to bear an unfair portion of
the costs of a proposed rollup transaction that is
rejected; and
``(D) 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 person who, on the date on which soliciting
material is mailed to investors, is a holder of a beneficial
interest in a limited partnership that is the subject of a
limited partnership rollup transaction, and 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 person shall file 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 12 months after the date of enactment of this Act.
SEC. 4. REVIEW OF FILINGS PRIOR TO EFFECTIVE DATE.
Prior to the effective date of regulations adopted pursuant to this
Act, the Securities and Exchange Commission shall continue to review
and declare effective registration statements and amendments thereto
relating to limited partnership rollup transactions in accordance with
applicable regulations then in effect.
Passed the Senate August 6 (legislative day, June 30),
1993.
Attest:
WALTER J. STEWART,
Secretary.
S 424 RFH----2