Georgia Securities Commissioner Holds Second “Fairness Hearing” in Recent M&A Deal

The Georgia Securities Commissioner’s office recently held a fairness hearing pursuant to a request by two merging local banks seeking to facilitate their merger by forgoing the need to register newly issued securities at both the state and federal levels. The hearing, which is Georgia’s second in the last four years, was held on July 26, 2017. A copy of the Commissioner’s Order of Approval is available on the Georgia Secretary of State’s web site.

The fairness hearing process is a unique statutorily-codified transactional registration exemption which exists in a number of states—mostly those states having enacted some form of the model Uniform Securities Act of 2002. While not widely used historically, the fairness hearing process generally provides an exemption from registering securities at the state level for certain mergers and acquisitions (“M&A”) transactions where the state securities regulator passes on the “fairness” of the terms of the merger after conducting an evidentiary administrative hearing. What makes the fairness hearing process especially appealing is that the federal Securities Act of 1933 contains a sister provision at Section 3(a)(10), which provides a federal registration exemption for securities issued in certain M&A transactions where “the terms and conditions of such issuance and exchange are approved, after a hearing upon the fairness of such terms and conditions” by any state or federal governmental authority “expressly authorized by law to grant such approval.” This effectively means that a successful fairness proceeding conducted at the state level not only entitles the applicant to a state “Blue-Sky” registration exemption—but also a federal registration exemption as well.

In Georgia, the fairness hearing exemption is codified at Section 10-5-11(9) of the Georgia Uniform Securities Act of 2008, which exempts M&A transactions where the “fairness of the terms and conditions have been approved by the Commissioner after a hearing.” The Georgia Securities Commissioner’s office has promulgated administrative rules setting forth the roadmap for making an application pursuant to Section 10-5-11(9) as well as the conduct of the actual hearing. These rules, which were implemented in mid-2014, require, among other things, that the transaction have a significant nexus to the state of Georgia (residency of securities holders, place of business of the applicants, etc.), that the applicants submit a detailed application package containing specific transaction documentation, and that the applicants pay a filing fee and a processing fee and undertake to reimburse the Commissioner’s office for its out-of-pocket costs.

The recently-conducted hearing, in which the Commissioner found the proposed merger to be “procedurally and substantively fair and reasonable” was requested by Piedmont Bancorp, Inc. in connection with its acquisition of Mountain Valley Bancshares, Inc. As noted, this was Georgia’s second fairness proceeding, the first one having occurred on December 4, 2013 (see that Order of Approval here). Interestingly, while the 2013 proceeding also involved two bank holding companies (Georgia Commerce Bancshares, Inc. buying Brookhaven Bank), there is no industry or business sector restriction on utilizing either the Georgia or federal exemptive provisions. As such, any merging companies from any industry may utilize the exemption so long as they satisfy the requirements set forth in the Commissioner’s rule. It’s also relevant to note that the SEC’s Division of Corporation Finance has also published significant guidance vis-à-vis satisfying the federal exemption at Section 3(a)(10) of the 1933 Act—see Staff Legal Bulletin No. 3A (CF), dated June 18, 2008.

Clearly, the main calculus involved in deciding whether to pursue the fairness hearing option is weighing the costs of such a hearing against the preparation and submission to the SEC of a detailed securities registration statement on Form S-4, which can be a time consuming and high-priced endeavor. The fairness hearing process can typically be completed within a two month window and usually involves assembling documentation for regulatory review that has already been prepared as part of the merger structuring process.  At least in Georgia, the Commissioner’s rules lay out a clear and concise roadmap for the proceeding and specifically delineates all materials that will need to be submitted as part of the application.  For more information regarding the fairness hearing process in Georgia and other states, contact Parker MacIntyre.


Parker MacIntyre provides legal and compliance services to securities issuers, including small businesses, investment advisers, broker-dealers, registered representatives and hedge funds, among others. Our capital formation practice group assists businesses with the complex issues that arise in the course of raising capital at various stages of their formation, operation and growth, including compliance with federal and state laws and rules. Please visit our website for more information.

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