HomePublicationsNewsletter ArchiveNewslettersVolume 21Issue 20Compliance Summary: Transfer of Interest in Licensed Suppliers

In addition to its regular coverage of gaming news, The Michigan Gaming Newsletter will be providing compliance updates and summaries of the various legal and regulatory requirements for companies involved in the state’s gaming industry. This week, we have included a review of licensee transfer of interest approval requirements. The following is a general discussion of the state’s compliance requirements and should not be considered legal advice.

Those companies that hold a supplier license issued by the Michigan Gaming Control Board (“MGCB”) are subject to certain review and approval requirements related to transfers of interest in the licensee’s ownership. It is important for licensees to understand these approval provisions, as prior approval is required by the MGCB before executing such transfers, especially as such approvals may require a significant amount of time for regulatory review and approval.

General Requirements

Part 5 of the MGCB Rules require an application to be filed and Board approval of transfer of interest in supplier licensees that result in a transfer of over 1% of a privately-held company, or over 5% of a public company. Any person or entity that will acquire an ownership interest at or above these thresholds is required to be found qualified and suitable by the MGCB prior to the transfer being completed.

Once a purchase arrangement has been negotiated by the licensee and new potential owner, the new owner must complete and submit the MGCB’s Transfer of Interest Application. This form requires the disclosure of the names and addresses of the transformer and transferee, charts showing ownership holdings before and after the transaction, the proposed transfer agreement, and the proposed dates of the transfer.

The MGCB will also require those who meet the definition of a “key person” to complete a Business Disclosure or Personal Disclosure form for a suitability finding. The definition of “key person,” contained in Rule 104(c), includes directors, officers, 5% or greater owners, key management officials, and other positions that have significant roles within the entity acquiring the licensee interest. Institutional investors, discussed in more detail below, may however hold up to 10% ownership before being required to file for qualification. These disclosure forms require the applicant to submit detailed personal background histories, including information on work, criminal, bankruptcy, tax, and family histories.

Regulatory staff will then review the transfer and suitability materials to ensure that the transaction meets the requirements of the Michigan Gaming Control and Revenue Act (“Act”), as well as the MGCB Rules. The process often includes follow-up information requests and communications with gaming staff, and those new to the process will likely find benefit in acquiring legal and regulatory counsel to assist with the approval. After the review has concluded, staff will recommend to the Board either approval or denial of the transfer and related suitability applications for key persons. If a denial is issued, the applicant may request a hearing to review the decision. If the transfer is approved, it may proceed according to the purchase agreements that were approved by the MGCB.

Institutional Investors

Importantly, certain institutional investors may seek a waiver from the suitability and qualification requirements of the MGCB transfer of interest rules. This type of waiver allows the MGCB to review and approve the transfer without requiring additional suitability findings for the institutional investor or its key persons.

Institutional investors may seek a waiver if the proposed transfer is less than 15% of the total ownership interest in the licensee. To qualify, the investor must meet the definition of “institutional investor” under Act, which includes entities such as pension funds, banks, investment firms, and other traditional financial firms. In addition, the institutional investor must certify that it will only hold the ownership interest in a passive nature and that it will not attempt to affect or influence the business affairs of the licensee.

 

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