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RULE §139.27 Mergers and Acquisitions Dealer Exemption

Published: 2015

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(a) Dealer and agent exemption. The State Securities
Board, pursuant to the Texas Securities Act, Section 12.C, exempts
a Mergers and Acquisitions (M&A) Dealer from registration as a
dealer provided the conditions set forth in this section are met.
The agents for the M&A Dealer are also exempt from registration
provided the conditions set forth in this section are met.
(b) Definitions. The following words and terms, when
used in this section, shall have the following meanings, unless the
context clearly indicates otherwise.
  (1) M&A Dealer--A person engaged in the business
of effecting securities transactions solely in connection with a Qualifying
M&A Transaction, as identified in subsection (c) of this section.
  (2) Actively Operate--The power to elect executive
officers and approve the annual budget or serving as an executive
or other executive manager.
  (3) Privately-Held Company--A company that does not
have any class of securities registered or required to be registered
with a securities regulator and is not required to file periodic information,
documents, or reports under §15(d) of the Exchange Act. The company
must be an operating company that is a going concern and not a shell
company. For purposes of this definition, a "going concern" need not
be profitable so long as it has actually been conducting business,
including soliciting or effecting business transactions or engaging
in research and development activities.
  (4) Shell Company--A company that has no or nominal
operations, and has:
    (A) no or nominal assets;
    (B) assets consisting solely of any amount of cash
or cash equivalents; or
    (C) assets consisting of any amount of cash and cash
equivalents and nominal other assets.
  (5) Business Combination Related Shell Company--a Shell
Company (as defined in SEC Rule 405) that is:
    (A) formed by an entity that is not a shell company
solely for the purpose of changing the corporate domicile of that
entity solely within the United States; or
    (B) formed by an entity that is not a Shell Company
solely for the purpose of completing a business combination transaction
(as defined in SEC Rule 165(f)) among one or more entities other than
the Shell Company, none of which is a Shell Company.
(c) Qualifying M&A Transactions. To be a Qualifying
M&A Transaction, the transaction must meet all the following requirements.

  (1) A Qualifying M&A Transaction is a transfer
of ownership and control of a Privately-Held Company to a buyer through
the purchase, sale, exchange, issuance, repurchase, or redemption
of securities, or a business combination involving securities or assets
of the company.
  (2) Upon completion of the transaction, the buyer or
group of buyers must actively operate the company or the business
conducted with the assets of the company.
  (3) No Qualifying M&A Transaction can involve a
public offering of securities. Any offering or sale of securities
will be conducted in compliance with an applicable exemption from
registration under the Texas Securities Act.
  (4) No party to any Qualifying M&A Transaction
can be a Shell Company, other than a Business Combination Related
Shell Company.
  (5) The buyer, or group of buyers, in any Qualifying
M&A Transaction must, upon completion of the transaction, control
the company. A buyer, or group of buyers collectively, would have
the necessary control if it has the power, directly or indirectly,
to direct the management or policies of a company, whether through
ownership of securities, by contract, or otherwise. The necessary
control will be presumed to exist if, upon completion of the transaction,
the buyer or group of buyers has the right to vote 25% or more of
a class of voting securities; has the power to sell or direct the
sale of 25% or more of a class of voting securities; or in the case
of a partnership or limited liability company, has the right to receive
upon dissolution or has contributed 25% or more of the capital.
  (6) No Qualifying M&A Transaction can result in
the transfer of securities to a passive buyer or group of passive
  (7) Any securities received by the buyer or M&A
Dealer in a Qualifying M&A Transaction are restricted securities
within the meaning of the Securities Act of 1933, Rule 144(a)(3).
(d) Permitted activities. An M&A Dealer may:
  (1) advertise a Privately-Held Company for sale with
information such as the description of the business, general location,
and price range, so long as the dealer does not include an offer for
sale of securities; or
  (2) facilitate a Qualifying M&A Transaction with
a group of buyers only if the group is formed without the assistance
of the M&A Dealer.
(e) Prohibited activities. An M&A Dealer may not:
  (1) have the ability to bind a party to a Qualifying
M&A Transaction;
  (2) directly, or indirectly through any of its affiliates,
provide financing for a Qualifying M&A Transaction; or
  (3) have custody, control, or possession of or otherwise
handle funds or securities issued or exchanged in connection with
a Qualifying M&A Transaction or other securities transaction for
the account of others.
(f) Disclosures.
  (1) To the extent an M&A Dealer represents both
buyers and sellers, it must provide clear written disclosure as to
the parties it represents and obtain written consent from both parties
to the joint representation.
  (2) An M&A Dealer that assists buyers to obtain
financing from unaffiliated third parties must comply with all applicable
legal requirements and must disclose any compensation in writing to
the buyer.
(g) Disqualifications.
  (1) Except as provided in paragraph (2) of this subsection,
the exemption in this section is not available if the M&A Dealer,
or an officer, director, or employee of the M&A Dealer are subject
to any of the following disqualifications:
    (A) any of those described in Rule 262 of SEC Regulation
A, 17 CFR §230.262;
    (B) has been convicted within five years prior to the
filing of the notice required under this exemption of any felony or
misdemeanor involving the offer, purchase, or sale of any security
or the rendering of investment advice, or any felony involving embezzlement,
obtaining money under false pretenses, larceny, or conspiracy to defraud;

    (C) is currently subject to any order, judgment, or
decree of any court of competent jurisdiction, entered within the
last five years, temporarily, preliminarily, or permanently restraining
or enjoining such party from engaging in or continuing to engage in
any conduct or practice involving fraud or deceit in connection with
the purchase or sale of a security or the rendering of investment
    (D) is the subject of a United States Postal Service
fraud order that is currently effective and was issued within the
last five years;
    (E) is currently subject to any state or federal administrative
enforcement order or judgment, entered within the last five years,
finding fraud or deceit in connection with the purchase or sale of
a security or the rendering of investment advice;
    (F) is subject to an order issued by a state or federal
authority that bars the person from association with an entity regulated
by the authority that issued the order, or from engaging in the business
of securities, insurance, or banking, or savings association or credit
union activities; or
    (G) is the subject of a suspension or expulsion from
membership in or association with a member of a self-regulatory organization
that is currently effective and was issued within the last five years.
  (2) The prohibitions of paragraph (1) of this subsection
shall not apply if:
    (A) the party subject to the disqualification is duly
licensed or registered to conduct securities-related business or render
investment advisory services in the state in which the order, judgment,
or decree creating the disqualification was entered against such party;
    (B) before services are rendered under this section,
the Securities Commissioner, or the court or regulatory authority
that entered the order, judgment, or decree, waives the disqualification
upon a showing of good cause.
(h) Recordkeeping and requests for records.
  (1) An M&A Dealer shall maintain and preserve for
a period of three (3) years records of all compensation received and
communications, agreements, or contracts with buyers and/or sellers
in connection with any transaction or transactions in which the dealer
received compensation.
  (2) Upon a written request from the Securities Commissioner
or the Commissioner's authorized representative, an M&A Dealer
relying on the exemption provided by this section shall make available
to the Commissioner all records required to be maintained and preserved
under this subsection. Failure to comply with this subsection will
result in the loss of the exemption provided by this section.

Source Note: The provisions of this §139.27 adopted to be effective February 16, 2015, 40 TexReg 700