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RULE §139.27Mergers and Acquisitions Dealer Exemption

(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 buyers.

  (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 advice;

    (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; or

    (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

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