BEFORE THE DEPARTMENT OF JUSTICE
OF THE STATE OF MONTANA
In the matter of the amendment of ARM 23.16.116 and 23.16.122 concerning transfer of interest among licensees and loan evaluation
NOTICE OF PUBLIC HEARING
ON PROPOSED AMENDMENT
TO: All Concerned Persons
1. On July 1, 2010, at 9:00 a.m., the Montana Department of Justice will hold a public hearing in the conference room at the Gambling Control Division, 2550 Prospect Avenue, Helena, Montana, to consider the proposed amendment of the above-stated rules.
2. The Department of Justice will make reasonable accommodations for persons with disabilities who wish to participate in this public hearing or need an alternative accessible format of this notice. If you require an accommodation, contact the department no later than 5:00 p.m. on June 28, 2010, to advise us of the nature of the accommodation that you need. Please contact Rick Ask, Gambling Control Division, 2550 Prospect Avenue, P.O. Box 201424, Helena, MT 59620-1424; telephone (406) 444-1971; fax (406) 444-9157; Montana Relay Service 711; or e-mail firstname.lastname@example.org.
3. The rules proposed to be amended provide as follows, stricken matter interlined, new matter underlined:
23.16.116 TRANSFER OF INTEREST AMONG LICENSEES (1) Except as provided in
(8)(9), an ownership interest may not be transferred among existing owners without submitting an amended gambling license application to the department and obtaining department approval prior to the transfer.
(2) through (3)(c) remain the same.
(d) if the transferring spouse will no longer be a licensee, copies of letters or other documents from lenders, landlords, or other parties to whom the licensee is obligated, which release the spouse from primary responsibility for the obligation, although the transferring spouse may still guarantee the obligation;
(e) if the transferring spouse is no longer a licensee, an updated bank signature card; and
(f) if the licensed entity is a corporation, copies of the cancelled and newly issued stock certificates.
(4) remains the same.
(a) gifting statement which provides the names of the parties, the intent of the parties, and the percentage ownership to be transferred through the gift;
(b) copy of the licensee's most recent financial statements or tax return; and
(c) if the licensed entity is a corporation, copies of the cancelled and newly issued stock certificates.
(5) Gambling activities may continue pending the outcome of a license investigation for a proposed transfer of ownership in a licensed operation from a sale and purchase among owners of that license. This type of transfer must be reported on a Form 37 along with the following documents:
(a) transfer documents that include all terms of sale/transfer;
(b) if the licensed entity is a corporation, copies of the cancelled and newly issued stock certificates;
(c) source of funding documents for the purchase, e.g., bank statements supporting cash payments, loan and security agreements, installment payment agreements, etc.;
(d) copy of licensee's most recent financial statements or tax return;
(e) if the seller/transferor will no longer be a licensee, copies of letters or other documents from lenders, landlords, or other parties to agreements with which the licensee is obligated, which release the seller from primary responsibility for the obligation, although the seller/transferor may still guarantee the obligation; and
(f) if the seller is no longer on the license, an updated bank signature card.
(5) through (8) remain the same but are renumbered (6) through (9).
AUTH: 23-5-115, MCA
IMP: 23-5-115, 23-5-118, 23-5-176, MCA
RATIONALE AND JUSTIFICATION: This rule amendment is reasonable and necessary to implement, as recommended by the Gaming Advisory Council, additional streamlined processes for licensees to report changes in ownership under limited circumstances. The council had previously recommended, and the department adopted, similar rule changes designed to create a streamlined process for notice to the department for changes in license ownership where there would be a change among owners only, and no new party was to be added to the license. As a result, the department created a new application form (Form 37) in order to reduce the paperwork to be filed with the department for certain changes in ownership among licensees. Similarly, these rule changes reflect the council's subsequent recommendation to extend these paperwork reduction processes to the reporting of ownership changes for the sale of interests among licensees, because a complete combined application, and its associated documents, is not required by the department when the resulting ownership will include no party who is not already an owner of the license.
These rule amendments establish the use of Form 37 to report these limited ownership changes, and identify for licensees the documents required to be filed with the department in order to establish the proposed ownership changes. These amendments also clarify that gambling activities may continue pending department approval of the ownership changes submitted on Form 37.
23.16.122 LOAN EVALUATION - INSTITUTIONAL LENDER SECURITY INTERESTS – GUARANTOR PAYMENTS (1) The department will evaluate a transaction to determine if it is a loan using standards in the Uniform Commercial Code, the Internal Revenue Code, and generally accepted commercial lending practices. Loans will also be evaluated in the context of overall financing of the business to determine that a loan rather than an ownership interest exists and that the contract does not grant the lender control of the licensed operation.
(2) Institutional lenders may secure loans made to a license applicant or licensee with security interests on assets belonging to the applicant or licensee. In securing the assets of a license applicant or licensee, an institutional lender may limit the movement of the assets, including a liquor license.
(3) For loans made to a license applicant or licensee, an institutional lender may require loan guarantees and may secure guarantee agreements with assets of the guarantor.
(4) An institutional lender may require payment from loan guarantors without initially exhausting all remedies against the borrower under the following conditions:
(a) if the guarantor is an owner of the applicant/licensee, i.e., partner, shareholder, member, and payment is made with the owner/guarantor's own funds or funds borrowed from an institutional source;
(b) if the guarantor is not an owner, payment may only be made as a loan to the owners or licensed borrower/entity. Funds used to loan the money for the payment under the guarantee, must be the guarantor's own funds or funds borrowed from an institutional source. The guarantor must also be found suitable as a source of credit as part of the application or loan approval process by submitting a personal history statement (Form 10) and a complete set of fingerprints (Form FD-258).
(5) A loan guarantor must annually elect to treat payments made under a loan guarantee agreement as loans, paid in capital, or other equity contributions, as required by the Internal Revenue Code.
(a) If the guarantor elects to treat the payments as loans to the licensee, the licensee must follow requirements for disclosing noninstitutional lenders found in ARM 23.16.120(7).
(b) If the guarantor elects to treat payments as an equity contribution, and such election changes the percentage of ownership in the license, an amended license application must be filed with the department at the time of the election to disclose the change.
AUTH: 23-5-115, MCA
IMP: 16-4-801, 23-5-115, 23-5-118, 23-5-176, MCA
RATIONALE AND JUSTIFICATION: A person must receive both an on-premises alcoholic beverage license (from the Department of Revenue) and a gambling operator license (from the Department of Justice) in order to offer video gambling machines and live poker tables to the public. As a result, the Legislature has created a single, combined application process with nearly the same suitability standards for licensure. These standards include disclosure requirements and standards of review for suitability for ownership, as well as review and approval for financial arrangements incidental to the license application.
The 2009 Legislature, in HB94, amended 16-4-801, MCA, to declare that a regulated lender can use standard loan documents to obtain a security interest in a liquor license, and that use of those standard loan documents does not constitute unauthorized control over the licensed business. This rule amendment is reasonable and necessary because it reflects this same legislative intent in the department's evaluation of institutional loans for gambling licensees.
This rule amendment also recognizes current banking practices that may require guarantee agreements with third parties when it makes loans to gambling licensees. As the department is directed to adopt rules to implement the gambling statutes, and strictly control ownership of gambling businesses, this rule amendment is necessary to establish limits on, and requirements for, third party guarantors in order to prohibit unauthorized control over gambling licenses or licensees.
4. Concerned persons may submit their data, views, or arguments either orally or in writing at the hearing. Written data, views, or arguments may also be submitted to Rick Ask, Gambling Control Division, 2550 Prospect Avenue, P.O. Box 201424, Helena, MT 59620-1424; fax (406) 444-9157; or e-mail email@example.com, and must be received no later than July 8, 2010.
5. An electronic copy of this Notice of Proposed Amendment is available through the Department of Justice's web site at http://doj.mt.gov/resources/administrativerules.asp. The department strives to make the electronic copy of the notice conform to the official version of the notice, as printed in the Montana Administrative Register, but advises all concerned persons that in the event of a discrepancy between the official printed text of the notice and the electronic version of the notice, only the official printed text will be considered. In addition, although the Department of Justice works to keep its web site accessible at all times, concerned persons should be aware that the web site may be unavailable during some periods, due to system maintenance or technical problems.
6. The Department of Justice maintains a list of interested persons who wish to receive notices of rulemaking actions proposed by this agency. Persons who wish to have their name added to the list shall make a written request which includes the name and mailing address of the person to receive notices and specifies that the person wishes to receive notices of rules regarding the Crime Control Division, the Central Services Division, the Forensic Sciences Division, the Gambling Control Division, the Highway Patrol Division, the Law Enforcement Academy, the Division of Criminal Investigation, the Legal Services Division, the Consumer Protection Division, the Motor Vehicle Division, the Justice Information Systems Division, or any combination thereof. Such written request may be mailed or delivered to Rick Ask, 2550 Prospect Avenue, P.O. Box 201424, Helena, MT 59620-1424; fax (406) 444-9157; or e-mail firstname.lastname@example.org, or may be made by completing a request form at any rules hearing held by the Department of Justice. A copy of the interested persons request form may be printed from the Department of Justice's web site at http://www.doj.mt.gov/resources/forms/interestedperson.pdf, and mailed to the rule reviewer.
7. Cregg Coughlin, Assistant Attorney General, Gambling Control Division, has been designated to preside over and conduct the hearing.
8. The bill sponsor contact requirements of 2-4-302, MCA, apply and have been fulfilled. The primary bill sponsor was contacted on May 21, 2010 by e-mail.
By: /s/ Steve Bullock /s/ J. Stuart Segrest
STEVE BULLOCK J. STUART SEGREST
Attorney General, Department of Justice Rule Reviewer
Certified to the Secretary of State June 1, 2010.