[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