[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 424 Engrossed in Senate (ES)]

103d CONGRESS

  1st Session

                                 S. 424

_______________________________________________________________________

                                 AN ACT

 To amend the Securities Exchange Act of 1934 with respect to limited 
                          partnership rollups.
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
103d CONGRESS
  1st Session
                                 S. 424

_______________________________________________________________________

                                 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:






                                                             Secretary.

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