H. Rept. 113-326 - 113th Congress (2013-2014)
January 14, 2014, As Reported by the Financial Services Committee

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House Report 113-326 - SMALL BUSINESS MERGERS, ACQUISITIONS, SALES, AND BROKERAGE SIMPLIFICATION ACT OF 2013




[House Report 113-326]
[From the U.S. Government Printing Office]


113th Congress                                                Report
                  }    HOUSE OF REPRESENTATIVES    {
 2d Session       }                                {          113-326

======================================================================

 
      SMALL BUSINESS MERGERS, ACQUISITIONS, SALES, AND BROKERAGE 
                       SIMPLIFICATION ACT OF 2013

                                _______
                                

January 14, 2014.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

       Mr. Hensarling, from the Committee on Financial Services, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 2274]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Financial Services, to whom was referred 
the bill (H.R. 2274) to amend the Securities Exchange Act of 
1934 to provide for a notice-filing registration procedure for 
brokers performing services in connection with the transfer of 
ownership of smaller privately held companies and to provide 
for regulation appropriate to the limited scope of the 
activities of such brokers, having considered the same, report 
favorably thereon with amendments and recommend that the bill 
as amended do pass.
    The amendments are as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This Act may be cited as the ``Small Business Mergers, Acquisitions, 
Sales, and Brokerage Simplification Act of 2013''.

SEC. 2. REGISTRATION EXEMPTION FOR MERGER AND ACQUISITION BROKERS.

  Section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 
78o(b)) is amended by adding at the end the following:
          ``(13) Registration exemption for merger and acquisition 
        brokers.--
                  ``(A) In general.--Except as provided in subparagraph 
                (B), an M&A broker and any person associated with an 
                M&A broker shall be exempt from registration under this 
                section.
                  ``(B) Excluded activities.--An M&A broker or a person 
                associated with an M&A broker is not exempt from 
                registration under this paragraph if such broker or 
                associated person does any of the following:
                          ``(i) Directly or indirectly, in connection 
                        with the transfer of ownership of an eligible 
                        privately held company, receives, holds, 
                        transmits, or has custody of the funds or 
                        securities to be exchanged by the parties to 
                        the transaction.
                          ``(ii) Engages on behalf of an issuer in a 
                        public offering of any class of securities that 
                        is registered, or is required to be registered, 
                        with the Commission under section 12 or with 
                        respect to which the issuer files, or is 
                        required to file, periodic information, 
                        documents, and reports under subsection (d).
                  ``(C) Rule of construction.--Nothing in this 
                paragraph shall be construed to limit any other 
                authority of the Commission to exempt any person, or 
                any class of persons, from any provision of this title, 
                or from any provision of any rule or regulation 
                thereunder.
                  ``(D) Definitions.--In this paragraph:
                          ``(i) Control.--The term `control' means the 
                        power, directly or indirectly, to direct the 
                        management or policies of a company, whether 
                        through ownership of securities, by contract, 
                        or otherwise. There is a presumption of control 
                        for any person who--
                                  ``(I) is a director, general partner, 
                                member or manager of a limited 
                                liability company, or officer 
                                exercising executive responsibility (or 
                                has similar status or functions);
                                  ``(II) has the right to vote 20 
                                percent or more of a class of voting 
                                securities or the power to sell or 
                                direct the sale of 20 percent or more 
                                of a class of voting securities; or
                                  ``(III) in the case of a partnership 
                                or limited liability company, has the 
                                right to receive upon dissolution, or 
                                has contributed, 20 percent or more of 
                                the capital.
                          ``(ii) Eligible privately held company.--The 
                        term `eligible privately held company' means a 
                        company that meets both of the following 
                        conditions:
                                  ``(I) The company does not have any 
                                class of securities registered, or 
                                required to be registered, with the 
                                Commission under section 12 or with 
                                respect to which the company files, or 
                                is required to file, periodic 
                                information, documents, and reports 
                                under subsection (d).
                                  ``(II) In the fiscal year ending 
                                immediately before the fiscal year in 
                                which the services of the M&A broker 
                                are initially engaged with respect to 
                                the securities transaction, the company 
                                meets either or both of the following 
                                conditions (determined in accordance 
                                with the historical financial 
                                accounting records of the company):
                                          ``(aa) The earnings of the 
                                        company before interest, taxes, 
                                        depreciation, and amortization 
                                        are less than $25,000,000.
                                          ``(bb) The gross revenues of 
                                        the company are less than 
                                        $250,000,000.
                          ``(iii) M&A broker.--The term `M&A broker' 
                        means a broker engaged in the business of 
                        effecting securities transactions solely in 
                        connection with the transfer of ownership of an 
                        eligible privately held company, regardless of 
                        whether the broker acts on behalf of a seller 
                        or buyer, through the purchase, sale, exchange, 
                        issuance, repurchase, or redemption of, or a 
                        business combination involving, securities or 
                        assets of the eligible privately held company, 
                        if the broker reasonably believes that--
                                  ``(I) upon consummation of the 
                                transaction, any person acquiring 
                                securities or assets of the eligible 
                                privately held company, acting alone or 
                                in concert, will control and, directly 
                                or indirectly, will be active in the 
                                management of the eligible privately 
                                held company or the business conducted 
                                with the assets of the eligible 
                                privately held company; and
                                  ``(II) if any person is offered 
                                securities in exchange for securities 
                                or assets of the eligible privately 
                                held company, such person will, prior 
                                to becoming legally bound to consummate 
                                the transaction, receive or have 
                                reasonable access to the most recent 
                                year-end balance sheet, income 
                                statement, statement of changes in 
                                financial position, and statement of 
                                owner's equity of the issuer of the 
                                securities offered in exchange, and, if 
                                the financial statements of the issuer 
                                are audited, the related report of the 
                                independent auditor, a balance sheet 
                                dated not more than 120 days before the 
                                date of the offer, and information 
                                pertaining to the management, business, 
                                results of operations for the period 
                                covered by the foregoing financial 
                                statements, and material loss 
                                contingencies of the issuer.
                  ``(E) Inflation adjustment.--
                          ``(i) In general.--On the date that is 5 
                        years after the date of the enactment of the 
                        Small Business Mergers, Acquisitions, Sales, 
                        and Brokerage Simplification Act of 2013, and 
                        every 5 years thereafter, each dollar amount in 
                        subparagraph (D)(ii)(II) shall be adjusted by--
                                  ``(I) dividing the annual value of 
                                the Employment Cost Index For Wages and 
                                Salaries, Private Industry Workers (or 
                                any successor index), as published by 
                                the Bureau of Labor Statistics, for the 
                                calendar year preceding the calendar 
                                year in which the adjustment is being 
                                made by the annual value of such index 
                                (or successor) for the calendar year 
                                ending December 31, 2012; and
                                  ``(II) multiplying such dollar amount 
                                by the quotient obtained under 
                                subclause (I).
                          ``(ii) Rounding.--Each dollar amount 
                        determined under clause (i) shall be rounded to 
                        the nearest multiple of $100,000.''.

SEC. 3. EFFECTIVE DATE.

  This Act and any amendment made by this Act shall take effect on the 
date that is 90 days after the date of the enactment of this Act.

  Amend the title so as to read: A bill to amend the Securities 
Exchange Act of 1934 to exempt from registration brokers 
performing services in connection with the transfer of 
ownership of smaller privately held companies.

                          Purpose and Summary

    Introduced by Rep. Bill Huizenga, H.R. 2274 is a bill to 
amend the Securities Exchange Act of 1934 to exempt mergers and 
acquisition brokers (``M&A broker'') from registration under 
that Act. The term ``M&A broker'' means a broker engaged in the 
business of effecting securities transactions solely in 
connection with the transfer of ownership of a smaller 
privately held company. Despite the fact that an M&A broker 
does not engage directly or indirectly in securities or 
underwriting transactions, an M&A broker is subject to the same 
regulatory regime as a traditional broker-dealer. Those 
compliance costs are often passed on to the portfolio companies 
that are the M&A brokers' clients, making the transfer of 
ownership more costly.

                  Background and Need for Legislation

    According to a recent white paper released by Alliance of 
Merger and Acquisition Advisors (AM&AA) and the International 
Business Brokers Association, ``M&A Brokers play a vital role 
in helping small- and mid-cap companies manage the transition 
from one owner to the next. Their services enable successful 
entrepreneurs to liquidate their accumulated capital and move 
on to the next phase of their lives--often retirement--while 
simultaneously aiding new entrepreneurs to invest their capital 
in the continued success of the company. This fosters continued 
economic development, growth, and innovation, all of which are 
critical to preserving and creating jobs.''
    Despite the valuable services they provide to small 
business owners and investors, according to Shane Hansen with 
the Alliance of Merger & Acquisition Advisors, who testified at 
a June 12, 2013, hearing in the Capital Markets and Government 
Sponsored Enterprises Subcommittee, ``The burdens and costs of 
initial broker-dealer registration and on-going compliance with 
current SEC and FINRA requirements are substantial. Initial 
set-up and compliance related costs often exceed $150,000. On-
going compliance costs often exceed $75,000 per year.'' Mr. 
Hansen added, ``Substantially all of these costs are 
necessarily passed on to the business sellers and buyers who 
use the registered broker-dealer's services. These high costs 
drive some business sellers and buyers to engage unregistered 
M&A Brokers if they want professional assistance with their 
transactions.''
    In an October 8, 2013 piece on The Hill's website, Michael 
Nall, President of AM&AA, a leading international organization 
serving the middle-market M&A industry, stated, ``HR 2274, the 
Small Business Mergers, Acquisitions, Sales, and Brokerage 
Simplification Act of 2013 is an excellent bipartisan bill, one 
whose time has come, and Congress should get it done before the 
end of the year. It's not a sexy bill, not one that prime-time 
TV will be talking about, and not one that will evoke a 
question in the next presidential debates, but it's a bill that 
does have teeth and it is a serious and substantive piece of 
small business legislation. . . . The current one-size-fits-all 
law treats the sale of a small, privately held business the 
same as a Wall Street investment banker selling securities of a 
public company. For instance, a sale of a local candy store 
with seller financing can technically be considered a 
securities transaction requiring broker-dealer registration 
with the SEC. There is a big difference between the sale of a 
small business to a buyer who will be active in managing the 
business after the sale and the sale to passive investors of 
securities of a publicly-traded company on the New York Stock 
Exchange. Current law does not distinguish between these two 
activities--and it should. It's time for Washington to define 
the differences. HR 2274 does just that.''
    According to the October 23, 2013, testimony of Tom 
Quaadman, Vice President of the Center for Capital Markets 
Competitiveness at the U.S. Chamber of Commerce, ``[H.R. 2274] 
would simplify the registration of these brokers, it contains a 
number of safeguards to prevent abuses. . . . This is a common 
sense reform that should help entrepreneurs avail themselves of 
expert assistance in selling their business and realizing the 
full value of their enterprise, thereby providing further 
incentives for aspiring entrepreneurs to push forward with 
their ideas. By facilitating M&A activity, it would provide 
another source of capital for smaller companies.''
    Heath Abshure, testifying on October 23, 2013, on behalf of 
the North American Securities Administrators Association 
(NASAA), stated ``State securities administrators generally 
support the targeted, well-balanced provisions of H.R. 2274 . . 
. the traditional registration process for broker-dealers is 
not particularly well suited for the M&A Firms. Furthermore, 
individuals who work for these firms and earn commission-based 
compensation in M&A deals have the additional burden of 
affiliating with a registered broker-dealer firm in order to 
obtain registration. . . . Investor protection is best served 
when regulatory necessity and transparency is balanced sensibly 
with the practicalities inherent in any business model. ''

                                Hearings

    The Committee on Financial Services' Subcommittee on 
Capital Markets and Government Sponsored Enterprises held a 
hearing on H.R. 2274 on October 24, 2013.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
November 14, 2013, and ordered H.R. 2274, as amended, to be 
reported favorably to the House by a recorded vote of 57 yeas 
to 0 nays (Record vote no. FC-38), a quorum being present.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto.
    1. A motion by Chairman Hensarling to report the bill (H.R. 
2274), as amended, to the House with a favorable recommendation 
was agreed to by a record vote of 57 yeas to 0 nays (Record 
vote no. FC-38). [please see attached vote tally]

                                              RECORD VOTE NO. FC-38
----------------------------------------------------------------------------------------------------------------
         Representative             Yea       Nay     Present     Representative      Yea       Nay     Present
----------------------------------------------------------------------------------------------------------------
Mr. Hensarling.................        X   ........  .........  Ms. Waters.......        X   ........  .........
Mr. Gary G. Miller (CA)........        X   ........  .........  Mrs. Maloney (NY)        X   ........  .........
Mr. Bachus.....................        X   ........  .........  Ms. Velazquez....        X   ........  .........
Mr. King (NY)..................        X   ........  .........  Mr. Watt.........        X   ........  .........
Mr. Royce......................        X   ........  .........  Mr. Sherman......        X   ........  .........
Mr. Lucas......................        X   ........  .........  Mr. Meeks........        X   ........  .........
Mrs. Capito....................        X   ........  .........  Mr. Capuano......        X   ........  .........
Mr. Garrett....................        X   ........  .........  Mr. Hinojosa.....        X   ........  .........
Mr. Neugebauer.................        X   ........  .........  Mr. Clay.........        X   ........  .........
Mr. McHenry....................        X   ........  .........  Mrs. McCarthy      ........  ........  .........
                                                                 (NY).
Mr. Campbell...................  ........  ........  .........  Mr. Lynch........  ........  ........  .........
Mrs. Bachmann..................  ........  ........  .........  Mr. David Scott          X   ........  .........
                                                                 (GA).
Mr. McCarthy (CA)..............        X   ........  .........  Mr. Al Green (TX)        X   ........  .........
Mr. Pearce.....................        X   ........  .........  Mr. Cleaver......        X   ........  .........
Mr. Posey......................        X   ........  .........  Ms. Moore........        X   ........  .........
Mr. Fitzpatrick................        X   ........  .........  Mr. Ellison......        X   ........  .........
Mr. Westmoreland...............        X   ........  .........  Mr. Perlmutter...        X   ........  .........
Mr. Luetkemeyer................        X   ........  .........  Mr. Himes........        X   ........  .........
Mr. Huizenga (MI)..............        X   ........  .........  Mr. Peters (MI)..        X   ........  .........
Mr. Duffy......................        X   ........  .........  Mr. Carney.......        X   ........  .........
Mr. Hurt.......................        X   ........  .........  Ms. Sewell (AL)..        X   ........  .........
Mr. Grimm......................        X   ........  .........  Mr. Foster.......        X   ........  .........
Mr. Stivers....................        X   ........  .........  Mr. Kildee.......        X   ........  .........
Mr. Fincher....................        X   ........  .........  Mr. Murphy (FL)..        X   ........  .........
Mr. Stutzman...................        X   ........  .........  Mr. Delaney......        X   ........  .........
Mr. Mulvaney...................        X   ........  .........  Ms. Sinema.......        X   ........  .........
Mr. Hultgren...................        X   ........  .........  Mrs. Beatty......        X   ........  .........
Mr. Ross.......................        X   ........  .........  Mr. Heck (WA)....        X   ........  .........
Mr. Pittenger..................        X   ........  .........
Mrs. Wagner....................        X   ........  .........
Mr. Barr.......................        X   ........  .........
Mr. Cotton.....................        X   ........  .........
Mr. Rothfus....................        X   ........  .........
----------------------------------------------------------------------------------------------------------------

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee states that H.R. 2274, 
among other things, exempts mergers and acquisitions brokers 
from registration under the Securities Exchange Act of 1934.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                 Congressional Budget Office Estimates

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, December 9, 2013.
Hon. Jeb Hensarling,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 2274, the Small 
Business Mergers, Acquisitions, Sales, and Brokerage 
Simplification Act of 2013.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susan Willie.
            Sincerely,
                                              Douglas W. Elmendorf.
    Enclosure.

H.R. 2274--Small Business Mergers, Acquisitions, Sales, and Brokerage 
        Simplification Act of 2013

    CBO estimates that implementing H.R. 2274 would lead to a 
minor increase in spending by the Securities and Exchange 
Commission (SEC) to clarify the applicability of regulations 
regarding registration requirements for brokers of mergers and 
acquisitions. The SEC is authorized to collect fees sufficient 
to offset its annual appropriation; therefore, CBO estimates 
that the net budgetary effect of implementing the bill would be 
negligible. Pay-as-you-go procedures do not apply to this 
legislation because it would not affect direct spending or 
revenues.
    Under H.R. 2274, brokers engaging in certain securities 
transactions that involve transferring ownership of a privately 
held company would be exempt from requirements to register with 
the SEC. CBO expects that the change in the workload of the SEC 
to implement H.R. 2274 would not be significant because the 
bill would not require the agency to undertake a formal 
rulemaking.
    H.R. 2274 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    The CBO staff contact for this estimate is Susan Willie. 
The estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of the section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 2274 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

                    Duplication of Federal Programs

    Pursuant to section 3(j) of H. Res. 5, 113th Cong. (2013), 
the Committee states that no provision of H.R. 2274 establishes 
or reauthorizes a program of the Federal Government known to be 
duplicative of another Federal program, a program that was 
included in any report from the Government Accountability 
Office to Congress pursuant to section 21 of Public Law 111-
139, or a program related to a program identified in the most 
recent Catalog of Federal Domestic Assistance.

                   Disclosure of Directed Rulemaking

    Pursuant to section 3(k) of H. Res. 5, 113th Cong. (2013), 
the Committee states that H.R. 2274 requires the SEC to 
promulgate regulations to carry out the provisions of H.R. 
2274.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    This Section cites H.R. 2274 as the ``Small Business 
Mergers, Acquisitions, Sales, and Brokerage Simplification Act 
of 2013.''

Section 2. Merger and acquisition brokers

    This section prescribes the guidelines that govern whether 
and when a mergers and acquisitions broker, as defined in the 
bill, is exempt from registration under the Securities Exchange 
Act of 1934.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

                    SECURITIES EXCHANGE ACT OF 1934


TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *



           registration and regulation of brokers and dealers

  Sec. 15. (a) * * *
  (b)(1) * * *

           *       *       *       *       *       *       *

          (13) Registration exemption for merger and 
        acquisition brokers.--
                  (A) In general.--Except as provided in 
                subparagraph (B), an M&A broker and any person 
                associated with an M&A broker shall be exempt 
                from registration under this section.
                  (B) Excluded activities.--An M&A broker or a 
                person associated with an M&A broker is not 
                exempt from registration under this paragraph 
                if such broker or associated person does any of 
                the following:
                          (i) Directly or indirectly, in 
                        connection with the transfer of 
                        ownership of an eligible privately held 
                        company, receives, holds, transmits, or 
                        has custody of the funds or securities 
                        to be exchanged by the parties to the 
                        transaction.
                          (ii) Engages on behalf of an issuer 
                        in a public offering of any class of 
                        securities that is registered, or is 
                        required to be registered, with the 
                        Commission under section 12 or with 
                        respect to which the issuer files, or 
                        is required to file, periodic 
                        information, documents, and reports 
                        under subsection (d).
                  (C) Rule of construction.--Nothing in this 
                paragraph shall be construed to limit any other 
                authority of the Commission to exempt any 
                person, or any class of persons, from any 
                provision of this title, or from any provision 
                of any rule or regulation thereunder.
                  (D) Definitions.--In this paragraph:
                          (i) Control.--The term ``control'' 
                        means the power, directly or 
                        indirectly, to direct the management or 
                        policies of a company, whether through 
                        ownership of securities, by contract, 
                        or otherwise. There is a presumption of 
                        control for any person who--
                                  (I) is a director, general 
                                partner, member or manager of a 
                                limited liability company, or 
                                officer exercising executive 
                                responsibility (or has similar 
                                status or functions);
                                  (II) has the right to vote 20 
                                percent or more of a class of 
                                voting securities or the power 
                                to sell or direct the sale of 
                                20 percent or more of a class 
                                of voting securities; or
                                  (III) in the case of a 
                                partnership or limited 
                                liability company, has the 
                                right to receive upon 
                                dissolution, or has 
                                contributed, 20 percent or more 
                                of the capital.
                          (ii) Eligible privately held 
                        company.--The term ``eligible privately 
                        held company'' means a company that 
                        meets both of the following conditions:
                                  (I) The company does not have 
                                any class of securities 
                                registered, or required to be 
                                registered, with the Commission 
                                under section 12 or with 
                                respect to which the company 
                                files, or is required to file, 
                                periodic information, 
                                documents, and reports under 
                                subsection (d).
                                  (II) In the fiscal year 
                                ending immediately before the 
                                fiscal year in which the 
                                services of the M&A broker are 
                                initially engaged with respect 
                                to the securities transaction, 
                                the company meets either or 
                                both of the following 
                                conditions (determined in 
                                accordance with the historical 
                                financial accounting records of 
                                the company):
                                          (aa) The earnings of 
                                        the company before 
                                        interest, taxes, 
                                        depreciation, and 
                                        amortization are less 
                                        than $25,000,000.
                                          (bb) The gross 
                                        revenues of the company 
                                        are less than 
                                        $250,000,000.
                          (iii) M&A broker.--The term ``M&A 
                        broker'' means a broker engaged in the 
                        business of effecting securities 
                        transactions solely in connection with 
                        the transfer of ownership of an 
                        eligible privately held company, 
                        regardless of whether the broker acts 
                        on behalf of a seller or buyer, through 
                        the purchase, sale, exchange, issuance, 
                        repurchase, or redemption of, or a 
                        business combination involving, 
                        securities or assets of the eligible 
                        privately held company, if the broker 
                        reasonably believes that--
                                  (I) upon consummation of the 
                                transaction, any person 
                                acquiring securities or assets 
                                of the eligible privately held 
                                company, acting alone or in 
                                concert, will control and, 
                                directly or indirectly, will be 
                                active in the management of the 
                                eligible privately held company 
                                or the business conducted with 
                                the assets of the eligible 
                                privately held company; and
                                  (II) if any person is offered 
                                securities in exchange for 
                                securities or assets of the 
                                eligible privately held 
                                company, such person will, 
                                prior to becoming legally bound 
                                to consummate the transaction, 
                                receive or have reasonable 
                                access to the most recent year-
                                end balance sheet, income 
                                statement, statement of changes 
                                in financial position, and 
                                statement of owner's equity of 
                                the issuer of the securities 
                                offered in exchange, and, if 
                                the financial statements of the 
                                issuer are audited, the related 
                                report of the independent 
                                auditor, a balance sheet dated 
                                not more than 120 days before 
                                the date of the offer, and 
                                information pertaining to the 
                                management, business, results 
                                of operations for the period 
                                covered by the foregoing 
                                financial statements, and 
                                material loss contingencies of 
                                the issuer.
                  (E) Inflation adjustment.--
                          (i) In general.--On the date that is 
                        5 years after the date of the enactment 
                        of the Small Business Mergers, 
                        Acquisitions, Sales, and Brokerage 
                        Simplification Act of 2013, and every 5 
                        years thereafter, each dollar amount in 
                        subparagraph (D)(ii)(II) shall be 
                        adjusted by--
                                  (I) dividing the annual value 
                                of the Employment Cost Index 
                                For Wages and Salaries, Private 
                                Industry Workers (or any 
                                successor index), as published 
                                by the Bureau of Labor 
                                Statistics, for the calendar 
                                year preceding the calendar 
                                year in which the adjustment is 
                                being made by the annual value 
                                of such index (or successor) 
                                for the calendar year ending 
                                December 31, 2012; and
                                  (II) multiplying such dollar 
                                amount by the quotient obtained 
                                under subclause (I).
                          (ii) Rounding.--Each dollar amount 
                        determined under clause (i) shall be 
                        rounded to the nearest multiple of 
                        $100,000.

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