New Expanded Nevada Gaming Institutional Investor Waiver Ownership Thresholds: More of a Good Thing
January 2010

Newly amended Nevada gaming regulations allow institutional investors to own up to 25% of any class of a publicly traded company’s voting securities without having to obtain a license or finding of suitability. On January 21, 2010, the Nevada Gaming Commission (“NGC”) unanimously adopted amendments to NGC Regulation 16, increasing the maximum thresholds of the beneficial ownership levels that institutional investors are allowed to have and yet qualify for a waiver of the intrusive and expensive background investigation and licensing/ finding of suitability process. These amendments are generally welcomed as a solution for institutional investors who find themselves holding greater equity ownership interests in Nevada public gaming companies as a result of the many financial restructurings occurring in the gaming industry. Other institutional investors may be able to take advantage of these amendments to increase their equity interests in Nevada publicly-traded gaming companies given their current historically low stock prices.

General Shareholder/Beneficial Owner Regulatory Requirements

This amended regulation is a significant departure from the existing regulations that require licensing or a finding of suitability for persons beneficially owning more than 10% of any class of voting securities and only allowing waivers for institutional investors to acquire up to 15%. Pursuant to Nevada Revised Statute (“NRS”) § 463.643, any person who acquires, directly or indirectly, beneficial ownership of (a) any voting security of a gaming company registered with the NGC as a publicly traded corporation (“PTC”), may be required to be found suitable as such; (b) more than 5 % of any class of voting securities of a PTC, is required to notify the Nevada State Gaming Control Board (“GCB”), in writing, within 10 days of knowledge of such acquisition; and (c) more than 10% of any class of voting securities of a PTC, shall apply to the NGC for a finding of suitability as such within 30 days after the Chairman of the GCB mails such beneficial owner a written notice requiring such finding of suitability application.

However, pursuant to the Regulations of the NGC, if a bona fide institutional investor is required to file an application for a finding of suitability under either of the scenarios set forth in (a) or (c) above (and particularly (c) above), under certain circumstances such institutional investor may apply for and receive a waiver of such finding of suitability requirement.

Institutional Investor Waivers

Pursuant to NGC Regulation 16.430, under certain circumstances and prior to January 21, 2010, an institutional investor that acquires more than 10% but not more than 15% of any class of a PTC’s voting securities, may apply to the NGC for a waiver of such finding of suitability requirement (the “Waiver”) if such institutional investor holds the voting securities for investment purposes only. Now however, with the January 21, 2010, amendments to NGC Regulation 16.430, an institutional investor is allowed to beneficially own up to and including 25% of any class of a PTC’s voting securities and still qualify for the Waiver. However, the institutional investor owning more than 20% but not more than 25% must still be careful to comply with the GCB’s and NGC’s “acquisition of control” approval requirements discussed below.

Also, where an institutional investor has previously been granted a Waiver, prior to January 21, 2010, such institutional investor could beneficially own more than 15% but not more than 19% of any class of a PTC’s voting securities, if such additional ownership resulted from a stock repurchase program conducted by the PTC. In addition, under such circumstances and prior to January 21, 2010, an institutional investor in this case was required to reduce its ownership percentage in the PTC to 15% or less within one year from the date it received notice that it exceeded the 15% threshold, with an extension of such one year period potentially available from the Chairman of the GCB.

However, with the January 21, 2010, amendments to NGC Regulation 16.430, an institutional investor is now allowed to beneficially own more than 25% but not more than 29% of any class of a PTC’s voting securities, if such additional ownership resulted from a stock repurchase program conducted by the PTC. In addition, the requirement of reducing its beneficial ownership back down to the usual permissible level was deleted from NGC Regulation 16.430. The only additional requirement still applicable to an institutional investor in such situations
is that the institutional investor cannot purchase or otherwise acquire any additional voting securities of the PTC that would result in an increase in its ownership percentage.

Institutional Investor Waivers and Acquisitions of Control of PTC’s

Pursuant to NGC Regulation 16.430(7), a Waiver granted to an institutional investor does not also include a waiver or exemption from or constitute an approval to allow it to acquire control of a PTC pursuant to NGC Regulation 16.200. Prior to January 21, 2010, an institutional investor intending to apply for a Waiver was also required to simultaneously apply to the GCB and the NGC for an exemption from the prior approval requirements of NGC Regulation 16.200 only if the proposed acquisition would give it, directly or indirectly, the power to direct or cause the direction of the management and policies (“control”) of the PTC.

However, with the January 21, 2010, amendments to NGC Regulation 16.430, an institutional investor is now also required to apply to the GCB and the NGC for an exemption from the prior approval requirements of NGC Regulation 16.200 if at the time of the making of its Waiver application, it intends to increase its beneficial ownership to more than 20% but not more than 25% of any class of voting securities of a PTC. The January 21, 2010, amendments to NGC Regulation 16.430(7) also added the clarifying statement that if at the time an institutional investor applies to the GCB and the NGC for a Waiver it does not intend to increase its beneficial ownership to more than 20% of any class of the voting securities of a PTC, but subsequently forms the intention to increase its beneficial ownership thereof to more than 20% but not more than 25%, it must apply to the GCB and the NGC at that time for an exemption from the prior approval requirements of NGC Regulation 16.200 for an acquisition of control.

This Client Alert has been prepared by Lewis and Roca LLP for informational purposes only and is not legal advice. Readers should seek professional legal advice on matters involving these issues.

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