[Federal Register Volume 70, Number 19 (Monday, January 31, 2005)]
[Rules and Regulations]
[Pages 4988-5019]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-1679]
[[Page 4987]]
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Part VII
Federal Trade Commission
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16 CFR Parts 801, 802 and 803
Premerger Notification; Reporting and Waiting Period Requirements;
Final Rule Revised Jurisdictional Thresholds for Section 7A of the
Clayton Act; Notice
Federal Register / Vol. 70, No. 19 / Monday, January 31, 2005 / Rules
and Regulations
[[Page 4988]]
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FEDERAL TRADE COMMISSION
16 CFR Parts 801, 802 and 803
Premerger Notification; Reporting and Waiting Period Requirements
AGENCY: Federal Trade Commission.
ACTION: Final rule.
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SUMMARY: The Commission is amending the premerger notification rules
(``the rules'') to reflect adjustment and publication of reporting
thresholds as required by the 2000 amendments \1\ to Section 7A of the
Clayton Act, 15 U.S.C. 18a, as added by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, Public Law 94-935, 90 Stat. 1390 (``the
Act.''). The Act requires all persons contemplating certain mergers or
acquisitions, which meet or exceed the jurisdictional thresholds in the
Act, to file notification with the Federal Trade Commission (``the
Commission'') and the Assistant Attorney General in charge of the
Antitrust Division of the Department of Justice (``the Assistant
Attorney General'') and to wait a designated period of time before
consummating such transactions. The reporting and waiting period
requirements are intended to enable these enforcement agencies to
determine whether a proposed merger or acquisition may violate the
antitrust laws if consummated and, when appropriate, to seek a
preliminary injunction in Federal court to prevent consummation.
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\1\ 15 U.S.C. 18a(a). See Pub. L. 106-553, 114 Stat. 2762.
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DATES: These final rules are effective March 2, 2005.
FOR FURTHER INFORMATION CONTACT: Marian R. Bruno, Assistant Director,
Karen E. Berg, Attorney, Malcolm L. Catt, Attorney, B. Michael Verne,
Compliance Specialist, or Nancy M. Ovuka, Compliance Specialist,
Premerger Notification Office, Bureau of Competition, Room 303, Federal
Trade Commission, Washington, DC 20580. Telephone: (202) 326-3100.
SUPPLEMENTARY INFORMATION:
Statement of Basis and Purpose
The 2000 amendments to section 7A require the Commission to revise
the Act's jurisdictional and filing fee thresholds annually, based on
the change in gross national product, in accordance with section
8(a)(5) for each fiscal year beginning after September 30, 2004. The
Commission, with the concurrence of the Assistant Attorney General, is
adopting these final rules to reflect the revised thresholds in the
examples contained in the rules and to provide a method for future
adjustments as required by the 2000 amendments. These final rules will
also adjust references to the notification and filing fee thresholds
and other limitations in the rules and the Antitrust Improvements Act
Notification and Report Form and its Instructions to remain consistent
with the revised jurisdictional and filing fee thresholds.
The Commission notes that the effective date of the new thresholds
does not affect or void the waiting period expressly required under
section 7A(b)(1) of the Act, which provides that the waiting period
shall begin with the date the Commission and the Antitrust Division of
the Department of Justice (collectively ``the Agencies'') receive the
filing, and shall not end until thirty days after that date, absent
early termination under section 7A(b)(2). Accordingly, the 30-day
statutory waiting period shall continue to apply to all proposed
transactions filed with the Agencies for review, even in cases where
the Agencies receive a filing before the effective date of the new
thresholds but the waiting period for that filing does not expire until
after that date.
Implementing the Threshold Changes in Examples to the Rules
Rather than attempt to revise the examples annually, a
parenthetical ``(as adjusted)'' has been added where necessary
throughout the rules to notify the filer where such a change in
statutory threshold value occurs. The term ``as adjusted'' is then
defined in new subsection 801.1(m) and refers to a table of the
adjusted values published in the Federal Register notice titled
``Revised Jurisdictional Thresholds for Section 7A of the Clayton
Act.'' The notice will also contain a table showing adjusted values for
the rules. This Federal Register notice will be published in January of
each year and the values contained therein will be effective as of the
effective date published in the Federal Register notice and will remain
effective until superceded in the next calendar year. The notice will
also be available at http://www.ftc.gov. For ease of application, such
adjusted values will be rounded up to the next highest $100,000.
In addition to the revisions to the examples throughout the rules
as a result of the mandatory adjustments to the thresholds in the Act,
the Commission will adjust the notification thresholds and certain
limitations contained in the exemptions as discussed below. The
notification thresholds and other limitations will be implemented in
the same way as in the changes to the examples as discussed above (i.e.
by adding the parenthetical ``(as adjusted)'' following the relevant
threshold or limitation).
Non-Mandatory Revisions
Section 801.1(h) Definition of Notification Threshold
The HSR statute provides that an acquisition is reportable if, as a
result of the acquisition, the acquirer will hold voting securities of
the acquired person valued in excess of $50 million. Under the statute,
once an acquirer holds voting securities valued at more than $50
million, any additional purchase of even one voting share is
reportable. As the antitrust agencies recognized in the original
rulemaking proceeding in 1978,\2\ this provision would result in far
more filings than are needed for effective antitrust review. At the
same time, as the acquirer's holding in the company continue to
increase in size through subsequent transactions, the agencies must
have some opportunities to review the later transactions. That is,
there must be some points (thresholds) where these additional
acquisitions become reportable.
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\2\ 43 FR 33487 (July 31, 1978).
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Section 801.1(h) defines the term ``notification threshold'' and
sets forth five reporting thresholds. Failing to adjust these
thresholds to correspond to adjusted thresholds for filing fees would
create two different sets of thresholds, one for fees and another for
notification requirements, creating confusion and difficult
administrative problems. Therefore, the notification thresholds will be
adjusted annually to correspond to the adjusted filing fee thresholds.
Although adjustment of the $1 billion limitation associated with the 25
percent threshold is not mandated on this basis, this limitation will
also be adjusted annually, by the same percentage as the other
notification thresholds, in order to avoid its eventually coming too
close to the $500 million notification threshold as it is adjusted. The
Commission believes that such changes are consistent with Congressional
intent and with encouraging efficient antitrust review.
Section 801.40 Formation of Joint Venture or Other Corporations
Section 801.40 provides a special size-of-person test in the
formation of new corporations. The values used to determine whether the
transaction satisfies this test are the same as the jurisdictional
size-of-person thresholds
[[Page 4989]]
and will therefore be adjusted to remain identical to them.
Section 802.4 Acquisitions of Voting Securities of Issuers Holding
Certain Assets the Direct Acquisition of Which Is Exempt
Section 802.4 exempts the acquisition of voting securities of
issuers that hold certain assets the direct acquisition of which is
exempt under the act or the rules, and do not hold other non-exempt
assets with an aggregate fair market value of more than $50 million.
The rationale for this rule is that the applicability of an exemption
should not depend on the form the acquisition takes, since the
antitrust analysis would be the same whether voting securities or
assets are being acquired. The statute does not mandate adjustment to
this $50 million limitation. However, since this threshold functions in
the same manner as the size-of-transaction test in an asset
acquisition, this limitation is adjusted to remain consistent with
mandated adjustments to the $50 million jurisdictional threshold.
Section 802.21 Acquisitions of Voting Securities Not Meeting or
Exceeding Greater Notification Threshold (as Adjusted)
The annual adjustment of notification thresholds can make it
difficult for filing parties to determine which notification thresholds
are applicable for purposes of this exemption. For example, where a
notification threshold increases after a party files but before a year
has passed, a question may arise as to whether the notification
threshold in place at the time it filed or the adjusted notification
threshold would apply. Section 802.21 is amended to provide an
acquiring person with a one year period to reach the notification
threshold in place at the time that they filed, even though the
notification threshold may have subsequently been adjusted during that
year. Note, however, that an acquiring person may then acquire up to
the next greater adjusted notification threshold (as opposed to the
next notification threshold in place at the time of filing) during the
five years following expiration of the waiting period. This is
illustrated in two new examples to section 802.21.
Sections 802.50 and 802.51 Acquisitions of Foreign Assets or Voting
Securities of a Foreign Issuer
The adjustment statute does not require adjustment of the
limitations contained in sections 802.50 and 802.51 regarding
acquisitions of foreign assets and voting securities. The Commission
nonetheless is amending the rules to make such adjustments, inasmuch as
the Commission has previously amended these limitations to correspond
to changes to thresholds in the Act. For example, in 2002,\3\ the
Commission amended the limitations in these sections by adopting the
$50 million size-of-transaction threshold established in the 2000
amendments to the act.\4\ In doing so, the Commission noted that the
principle underlying sections 802.50 and 802.51 was that the
acquisitions of foreign assets or voting securities should not be
subject to the reporting requirements unless the assets or voting
securities being acquired have sufficient impact on U.S. commerce. The
Commission noted that the $50 million threshold amount established in
the 2000 legislation provided an appropriate measure of such an impact.
The Commission also referenced the 1978 SBP which explained that the
$110 million limitation contained in the sections was adopted to
approximate the size-of-person criteria of the act. Therefore, the $50
million limitations in these exemptions will be adjusted annually to
remain in sync with the adjusted size-of-transaction threshold.
Similarly, the $110 million limitation on combined U.S. sales or assets
of the acquiring and acquired person will be adjusted in sync with the
annual adjustments to the size-of-person test amounts.
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\3\ 67 FR 11898 (March 18, 2002)
\4\ See Pub. L. 106-553, 114 Stat. 2762.
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Appendix: Premerger Notification and Report Form
Item 2(c) of the Form and Instructions requires the acquiring
person to indicate the notification threshold that it will meet or
exceed in an acquisition of voting securities. This item will be
amended to add ``(as adjusted)'' to the appropriate notification
thresholds on the Form and in the Instructions.
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that the
agency conduct an initial and final regulatory analysis of the
anticipated economic impact of the proposed amendments on small
businesses, except where the Commission certifies that the regulatory
action will not have a significant economic impact on a substantial
number of small entities. 5 U.S.C. 605.
Because of the size of the transactions necessary to invoke a Hart-
Scott-Rodino filing, the premerger notification rules rarely, if ever,
affect small businesses. Indeed, the 2000 amendments to the Act were
intended to reduce the burden of the premerger notification program by
exempting all transactions valued at $50 million or less. Further, none
of the proposed rule amendments expands the coverage of the premerger
notification rules in a way that would affect small business.
Accordingly, the Commission certifies that these proposed rules will
not have a significant economic impact on a substantial number of small
entities. This document serves as the required notice of this
certification to the Small Business Administration.
Paperwork Reduction Act
Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3518, requires
agencies to submit requirements for ``collections of information'' to
the Office of Management and Budget (``OMB'') and obtain clearance
prior to instituting them. Such collections of information include
reporting, recordkeeping, or disclosure requirements contained in
regulations. The HSR premerger notification rules and Form contain
information collection requirements, as defined by the Paperwork
Reduction Act, that have been reviewed and approved by the Office of
Management and Budget under OMB Control No. 3084-0005 through May 31,
2007. As noted earlier, these final rules implement amendments to
Section 7A of the Clayton Act that require annual adjustments to the
jurisdictional thresholds.
There were 1,104 transactions requiring notification in FY 2003.
FTC staff estimates that 45 of these transactions would not have
required notification had the thresholds been adjusted by the average
percentage change in the gross national product over the fifteen years
that the thresholds in Section 8 have been annually adjusted.
Generally, each transaction involves two filings (because each party to
the transaction is required to file). The existing OMB clearance is
premised on the staff's estimate that each of these filings requires 39
hours to complete. Accordingly, staff estimates that the final rule
changes will result in a reduction in the hours burden of 3,510 hours
per year (45 transactions x 2) x 39 hours. This estimate is based on
fiscal year 2003 filings,\5\ and constitutes approximately a 4%
reduction from the previous burden estimate of 87,530 hours. Thus, the
total burden hours under the HSR rules as revised will be 84,020 hours.
Similarly, staff estimates the total labor costs under the final rules
to be $35,708,000 (rounded to the nearest thousand), a decrease of
[[Page 4990]]
$1,492,000 from the previous estimate of $37,200,000.\6\
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\5\ FY 2003 is the latest fiscal year for which statistics have
been published in the Annual Report to Congress.
\6\ The reduction of approximately $1,492,000 in labor costs is
based on an estimated average of $425 per hour for executives' and
attorneys' wages (3,510 hours x $425/hour = $1,491,750).
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On January 11, 2005, the Office of Management and Budget approved
the new burden estimates resulting from these final rule changes.
Administrative Procedure Act
These final amendments are technical and non-substantive, to the
extent they make conforming rule changes that merely incorporate by
reference the adjusted filing thresholds to be published elsewhere in
the Federal Register, or merely clarify the application of the existing
rules under the adjusted thresholds, without amending the existing
rules in any other way. Accordingly, the Commission has determined that
these amendments are not subject to the public notice and comment
procedures of the Administrative Procedure Act. See 5 U.S.C. 553(b)(A).
List of Subjects in 16 CFR Parts 801, 802 and 803
Antitrust.
0
For the reasons stated in the preamble, the Federal Trade Commission
amends 16 CFR parts 801, 802 and 803 as set forth below:
PART 801--COVERAGE RULES
0
1. The authority citation for part 801 continues to read as follows:
Authority: 15 U.S.C. 18a(d).
0
2. Amend Sec. 801.1 by revising paragraph (h) and adding paragraph (n)
to read as follows:
Sec. 801.1 Definitions.
* * * * *
(h) Notification threshold. The term ``notification threshold''
means:
(1) An aggregate total amount of voting securities of the acquired
person valued at greater than $50 million (as adjusted) but less than
$100 million (as adjusted);
(2) An aggregate total amount of voting securities of the acquired
person valued at $100 million (as adjusted) or greater but less than
$500 million (as adjusted);
(3) An aggregate total amount of voting securities of the acquired
person valued at $500 million (as adjusted) or greater;
(4) Twenty-five percent of the outstanding voting securities of an
issuer if valued at greater than $1 billion (as adjusted); or
(5) Fifty percent of the outstanding voting securities of an issuer
if valued at greater than $50 million (as adjusted).
* * * * *
(n) (as adjusted). The parenthetical ``(as adjusted)'' refers to
the adjusted values published in the Federal Register notice titled
``Revised Jurisdictional Threshold for Section 7A of the Clayton Act.''
This Federal Register notice will be published in January of each year
and the values contained therein will be effective as of the effective
date published in the Federal Register notice and will remain effective
until superseded in the next calendar year. The notice will also be
available at http://www.ftc.gov. Such adjusted values will be
calculated in accordance with Section 7A(a)(2)(A) and will be rounded
up to the next highest $100,000.
0
3. Amend Sec. 801.2(d) by revising Examples 2 and 3; by removing
Example 4; and by redesignating Example 5 as Example 4 to read as
follows.
Sec. 801.2 Acquiring and acquired persons.
* * * * *
(d) * * *
Examples:
* * * * *
2. In the above example, suppose the consideration for Y
consists of $8 million worth of the voting securities of A. With
regard to the transfer of this consideration, ``B'' is an acquiring
person because it will hold voting securities it did not previously
hold, and ``A'' is an acquired person because its voting securities
will be held by B. Since these voting securities are worth less than
$50 million (as adjusted), the acquisition of these securities is
not reportable. ``A'' will therefore report as an acquiring person
only and ``B'' as an acquired person only.
3. In the above example, suppose that, as consideration for Y, A
transfers to B a manufacturing plant valued in excess of $50 million
(as adjusted). ``B'' is thus an acquiring person and ``A'' an
acquired person in a reportable acquisition of assets. ``A'' and
``B'' will each report as both an acquiring and an acquired person
in this transaction because each occupies each role in a reportable
acquisition.
* * * * *
0
4. Amend Sec. 801.4(b) by revising Examples 1 and 5 to read as
follows:
Sec. 801.4 Secondary acquisitions.
* * * * *
(b) * * *
Examples:
1. Assume that acquiring person ``A'' proposes to acquire all
the voting securities of corporation B. This section provides that
the acquisition of voting securities of issuers held but not
controlled by B or by any entity which B controls are secondary
acquisitions by ``A.'' Thus, if B holds more than $50 million (as
adjusted) of the voting securities of corporation X (but does not
control X), and ``A'' and ``X'' satisfy Sections 7A (a)(1) and
(a)(2), ``A'' must file notification separately with respect to its
secondary acquisition of voting securities of X. ``X'' must file
notification within fifteen days (or in the case of a cash tender
offer, 10 days) after ``A'' files, pursuant to Sec. 801.30.
* * * * *
5. In previous Example 4, suppose the consideration paid by A
for the acquisition of B is in excess of $50 million (as adjusted)
worth of the voting securities of A. By virtue of Sec. 801.2(d)(2),
``A'' and ``B'' are each both acquiring and acquired persons. A will
still be deemed to have acquired control of B, and therefore the
resulting acquisition of the voting securities of X is a secondary
acquisition. Although ``B'' is now also an acquiring person, unless
B gains control of A in the transaction, B still makes no secondary
acquisitions of stock held by A. If the consideration paid by A is
the voting securities of one of A's subsidiaries and B thereby gains
control of that subsidiary, B will make secondary acquisitions of
any minority holdings of that subsidiary.
* * * * *
0
5. Amend Sec. 801.11(e) by revising Examples 1, 3 and 4 to read as
follows:
Sec. 801.11 Annual net sales and total assets.
* * * * *
(e) * * *
Examples: * * *
1. A will borrow $105 million in cash and will purchase assets
from B for $100 million. In order to establish whether A's
acquisition of B's assets is reportable, A's total assets are
determined by subtracting the $100 million that it will use to
acquire B's assets from the $105 million that A will have at the
time of the acquisition. Therefore, A has total assets of less than
$10 million (as adjusted) and does not meet any size-of-person test
of Section 7A(a)(2).
* * * * *
3. Assume that company A will make a $150 million acquisition
and that it must pay a loan origination fee of $5 million. A borrows
$161 million. A does not meet the size-of-person test in Section
7A(a)(2) because its total assets are less than $10 million (as
adjusted). $150 million is excluded because it will be consideration
for the acquisition and $5 million is excluded because it is an
expense incidental to the acquisition. Therefore, A is only a $6
million person. Note that if A were making an acquisition valued at
over $200 million (as adjusted), the acquisition would be reportable
without regard to the sizes of the persons involved.
4. Assume that ``A'' borrows $195 million to acquire $100
million of assets from ``B'' and $60 million of voting securities of
``C.'' The balance of the loan will be used for working capital. To
determine its size for purposes of its acquisition from ``B,'' ``A''
subtracts the $100 million that it will use for that acquisition.
Therefore, A has total assets of $95 million for purposes of its
acquisition from ``B.'' To determine its size with respect
[[Page 4991]]
to its acquisition from ``C,'' ``A'' subtracts the $60 million that
will be paid for ``C's'' voting securities. Thus, for purposes of
its acquisition from ``C'', ``A'' has total assets of $135 million.
In the first acquisition ``A'' meets the $10 million (as adjusted)
size-of-person test and in the second acquisition ``A'' meets the
$100 million (as adjusted) size-of-person test of Section 7A(a)(2).
0
6. Amend Sec. 801.13(a) by revising Examples 1 and 4 to read as
follows:
Sec. 801.13 Voting securities or assets to be held as a result of
acquisition.
* * * * *
(a) * * *
Examples:
1. Assume that acquiring person ``A'' holds in excess of $50
million (as adjusted) of the voting securities of X, and is to
acquire another $1 million of the same voting securities. Since
under paragraph (a) of this section all voting securities ``A'' will
hold after the acquisition are held ``as a result of'' the
acquisition, ``A'' will hold in excess of $50 million (as adjusted)
of the voting securities of X as a result of the acquisition. ``A''
must therefore observe the requirements of the act before making the
acquisition, unless the present acquisition is exempt under Section
7A(c), Sec. 802.21 or any other rule.
* * * * *
4. On January 1, company A acquired in excess of $50 million (as
adjusted) of voting securities of company B. ``A'' and ``B'' filed
notification and observed the waiting period for that acquisition.
Company A plans to acquire $1 million of assets from company B on
May 1 of the same year. Under Sec. 801.13(a)(3), ``A'' and ``B'' do
not aggregate the value of the earlier acquired voting securities to
determine whether the acquisition is subject to the act. Therefore,
the value of the acquisition is $1 million and it is not reportable.
* * * * *
0
7. Amend Sec. 801.14(b) by revising Examples 1 and 2 to read as
follows:
Sec. 801.14 Aggregate total amount of voting securities and assets.
* * * * *
(b) * * *
Examples:
1. Acquiring person ``A'' previously acquired less than $50
million (as adjusted) of the voting securities (not convertible
voting securities) of corporation X. ``A'' now intends to acquire
additional assets of X. Under paragraph (a) of this section, ``A''
looks to Sec. 801.13(a) and determines that the voting securities
are to be held ``as a result of'' the acquisition. Section 801.13(a)
also provides that ``A'' must determine the present value of the
previously acquired securities. Under paragraph (b) of this section,
``A'' looks to Sec. 801.13(b)(1) and determines that the assets to
be acquired will be held ``as a result of'' the acquisition, and are
valued under Sec. 801.10(b). Therefore, if the voting securities
have a present value which when combined with the value of the
assets would exceed $50 million (as adjusted), the asset acquisition
is subject to the requirements of the act since, as a result of it,
``A'' would hold an aggregate total amount of the voting securities
and assets of ``X'' in excess of $50 million (as adjusted) .
2. In the previous example, assume that the assets acquisition
occurred first, and that the acquisition of the voting securities is
to occur within 180 days of the first acquisition. ``A'' now looks
to Sec. 801.13(b)(2) and determines that because the second
acquisition is of voting securities and not assets, the asset and
voting securities acquisitions are not treated as one transaction.
Therefore, the second acquisition would not be subject to the
requirements of the act since the value of the securities to be
acquired does not exceed the $50 million (as adjusted) size-of-
transaction test.
0
8. Amend Sec. 801.15(c) by revising Examples 1, 4, 6 and 7 to read as
follows:
Sec. 801.15 Aggregation of voting securities and assets the
acquisition of which was exempt.
* * * * *
(c) * * *
Examples:
1. Assume that acquiring person ``A'' is simultaneously to
acquire in excess of $50 million (as adjusted) of the convertible
voting securities of X and less than $50 million (as adjusted) of
the voting common stock of X. Although the acquisition of the
convertible voting securities is exempt under Sec. 802.31, since
the overall value of the securities to be acquired is greater than
$50 million (as adjusted), ``A'' must determine whether it is
obliged to file notification and observe a waiting period before
acquiring the securities. Because Sec. 802.31 is one of the
exemptions listed in paragraph (a)(2) of this section, ``A'' would
not hold the convertible voting securities as a result of the
acquisition. Therefore, since as a result of the acquisition ``A''
would hold only the common stock, the size-of-transaction tests of
Section 7A(a)(2) would not be satisfied, and ``A'' need not observe
the requirements of the act before acquiring the common stock.
(Note, however, that the value of the convertible voting securities
would be reflected in ``A's'' next regularly prepared balance sheet,
for purposes of Sec. 801.11).
* * * * *
4. Assume that acquiring person ``B,'' a United States person,
acquired from corporation ``X'' two manufacturing plants located
abroad, and assume that the acquisition price was in excess of $50
million (as adjusted). In the most recent year, sales into the
United States attributable to the plants were less than $50 million
(as adjusted), and thus the acquisition was exempt under Sec.
802.50(a)(2). Within 180 days of that acquisition, ``B'' seeks to
acquire a third plant from ``X,'' to which United States sales were
attributable in the most recent year. Since under Sec.
801.13(b)(2), as a result of the acquisition, ``B'' would hold all
three plants of ``X,''if the $50 million (as adjusted) limitation in
Sec. 802.50(a)(2) would be exceeded, under paragraph (b) of this
section, ``B'' would hold the previously acquired assets for
purposes of the second acquisition. Therefore, as a result of the
second acquisition, ``B'' would hold assets of ``X'' exceeding $50
million (as adjusted) in value, would not qualify for the exemption
in Sec. 802.50(a)(2), and must observe the requirements of the act
and file notification for the acquisition of all three plants before
acquiring the third plant
* * * * *
6. ``X'' acquired 55 percent of the voting securities of M, an
entity controlled by ``Z,'' six months ago and now proposes to
acquire 50 percent of the voting stock of N, another entity
controlled by ``Z.'' M's assets consist of $150 million worth of
producing coal reserves plus less than $50 million (as adjusted)
worth of non-exempt assets and N's assets consist of a producing
coal mine worth $100 million together with non-exempt assets with a
fair market value of less than $50 million (as adjusted). ``X's''
acquisition of the voting securities of M was exempt under Sec.
802.4(a) because M held exempt assets pursuant to Sec. 802.3(b) and
less than $50 million (as adjusted) of non-exempt assets. Because
``X'' acquired control of M in the earlier transaction, M is now
within the person of ``X,'' and the assets of M need not be
aggregated with those of N to determine if the subsequent
acquisition of N will exceed the limitation for coal reserves or for
non-exempt assets. Since the assets of N alone do not exceed these
limitations, ``X's'' acquisition of N also is not reportable.
7. In previous Example 6, assume that ``X'' acquired 30 percent
of the voting securities of M and proposes to acquire 40 percent of
the voting securities of N, another entity controlled by ``Z.''
Assume also that M's assets at the time of ``X's'' acquisition of
M's voting securities consisted of $90 million worth of producing
coal reserves and non-exempt assets with a fair market value of less
than $50 million (as adjusted), and that N's assets currently
consist of $60 million worth of producing coal reserves and non-
exempt assets with a fair market value which when aggregated with
M's non-exempt assets would exceed $50 million (as adjusted). Since
``X'' acquired a minority interest in M and intends to acquire a
minority interest in N, and since M and N are controlled by ``Z,''
the assets of M and N must be aggregated, pursuant to Secs.
801.15(b) and 801.13, to determine whether the acquisition of N's
voting securities is exempt. ``X'' is required to determine the
current fair market value of M's assets. If the fair market value of
M's coal reserves is unchanged, the aggregated exempt assets do not
exceed the limitation for coal reserves. However, if the present
fair market value of N's non-exempt assets also is unchanged, the
present fair market value of the non-exempt assets of M and N when
aggregated is greater than $50 million. Thus the acquisition of the
voting securities of N is not exempt. If ``X'' proposed to acquire
50 percent or more of the voting securities of both M and N in the
same acquisition, the assets of M and N must be aggregated to
determine if the acquisition of the voting securities of both
issuers is exempt. Since the fair market value of the aggregated
non-exempt assets exceeds $50 million (as
[[Page 4992]]
adjusted), the acquisition would not be exempt.
* * * * *
Sec. 801.20 [Amended]
0
9. Amend Sec. 801.20(c) by removing Examples 1 and 2.
0
10. Amend Sec. 801.30(b) by revising Example 2 to read as follows:
Sec. 801.30 Tender offers and acquisitions of voting securities from
third parties.
* * * * *
(b) * * *
Examples:
* * * * *
2. Acquiring person ``A'' proposes to acquire in excess of $50
million (as adjusted) of the voting securities of corporation X on a
securities exchange. The waiting period begins when ``A'' files
notification. ``X'' must file notification within 15 calendar days
thereafter. The seller of the X shares is not subject to any
obligations under the act.
* * * * *
0
11. Amend Sec. 801.31 by revising the Example to read as follows:
Sec. 801.31 Acquisitions of voting securities by offerees in tender
offers.
* * * * *
Example: Assume that ``A,'' which has annual net sales exceeding
$100 million (as adjusted), makes a tender offer for voting
securities of corporation X. The consideration for the tender offer
is to be voting securities of A. ``S,'' a shareholder of X with
total assets exceeding $10 million (as adjusted), wishes to tender
its holdings of X and in exchange would receive shares of A valued
in excess of $50 million (as adjusted). Under this section, ``S's''
acquisition of the shares of A would be an acquisition separately
subject to the requirements of the act. Before ``S'' may acquire the
voting securities of A, ``S'' must first file notification and
observe a waiting period--which is separate from any waiting period
that may apply with respect to ``A'' and ``X.'' Since Sec. 801.30
applies, the waiting period applicable to ``A'' and ``S'' begins
upon filing by ``S,'' and ``A'' must file with respect to ``S's''
acquisition within 15 days pursuant to Sec. 801.30(b). Should the
waiting period with respect to ``A'' and ``X'' expire or be
terminated prior to the waiting period with respect to ``S'' and
``A,'' ``S'' may wish to tender its X-shares and place the A-shares
into a nonvoting escrow until the expiration or termination of the
latter waiting period.
0
12. Amend Sec. 801.32 by revising the Example to read as follows:
Sec. 801.32 Conversion and acquisition.
* * * * *
Example: Assume that acquiring person ``A'' wishes to convert
convertible voting securities of issuer X, and is to receive common
stock of X valued in excess of $50 million (as adjusted). If ``A''
and ``X'' satisfy the criteria of Section 7A(a)(1) and Section
7A(a)(2)(B)(ii), then ``A'' and ``X'' must file notification and
observe the waiting period before ``A'' completes the acquisition of
the X common stock, unless exempted by Section 7A(c) or the
regulations in this part. Since Sec. 801.30 applies, the waiting
period begins upon notification by ``A,'' and ``X'' must file
notification within 15 days.
0
13. Amend Sec. 801.40 by revising paragraphs (c)(1) and (2) and
Examples 1 and 2 to read as follows:
Sec. 801.40 Formation of joint venture or other corporations.
* * * * *
(c) * * *
(1)(i) The acquiring person has annual net sales or total assets of
$100 million (as adjusted) or more;
(ii) The joint venture or other corporation will have total assets
of $10 million (as adjusted) or more; and
(iii) At least one other acquiring person has annual net sales or
total assets of $10 million (as adjusted) or more; or
(2)(i) The acquiring person has annual net sales or total assets of
$10 million (as adjusted) or more;
(ii) The joint venture or other corporation will have total assets
of $100 million (as adjusted) or more; and
(iii) At least one other acquiring person has annual net sales or
total assets of $10 million (as adjusted) or more.
* * * * *
Examples:
1. Persons ``A,'' ``B,'' and ``C'' agree to create new
corporation ``N,'' a joint venture. ``A,'' ``B,'' and ``C'' will
each hold one third of the shares of ``N.'' ``A'' has more than $100
million (as adjusted) in annual net sales. ``B'' has more than $10
million (as adjusted) in total assets but less than $100 million (as
adjusted) in annual net sales and total assets. Both ``C's'' total
assets and its annual net sales are less than $10 million (as
adjusted). ``A,'' ``B,'' and ``C'' are each engaged in commerce.
``A,'' ``B,'' and ``C'' have agreed to make an aggregate initial
contribution to the new entity of $18 million in assets and each to
make additional contributions of $21 million in each of the next
three years. Under paragraph (d) of this section, the assets of the
new corporation are $207 million. Under paragraph (c) of this
section, ``A'' and ``B'' must file notification. Note that ``A'' and
``B'' also meet the criterion of Section 7A(a)(2)(B)(i) since they
will be acquiring one third of the voting securities of the new
entity for in excess of $50 million (as adjusted). N need not file
notification; see Sec. 802.41.
2. In the preceding example ``A'' has over $10 million (as
adjusted) but less than $100 million (as adjusted) in sales and
assets, ``B'' and ``C'' have less than $10 million (as adjusted) in
sales and assets. ``N'' has total assets of $500 million. Assume
that ``A'' will acquire 50 percent of the voting securities of ``N''
and ``B'' and ``C'' will each acquire 25 percent. Since ``A'' will
acquire in excess of $200 million (as adjusted) in voting securities
of ``N'', the size-of-person test in Sec. 801.40(c) is inapplicable
and ``A'' is required to file notification.
0
14. Amend 801.90 by revising Examples 1 and 2 to read as follows:
Sec. 801.90 Transactions or devices for avoidance.
* * * * *
Examples:
1. Suppose corporations A and B wish to form a joint venture. A
and B contemplate a total investment of over $100 million (as
adjusted) in the joint venture; persons ``A'' and ``B'' each have
total assets in excess of $100 million (as adjusted). Instead of
filing notification pursuant to Sec. 801.40, A creates a new
subsidiary, A1, which issues half of its authorized shares to A.
Assume that A1 has total assets of $3000. ``A'' then sells 50
percent of its A1 stock to ``B'' for $1500. Thereafter, ``A'' and
``B'' each contribute in excess of $50 million (as adjusted) to A1
in exchange for the remaining authorized A1 stock (one-fourth each
to ``A'' and ``B''). A's creation of A1 was exempt under Sec.
802.30; its $1500 sale of A1 stock to ``B'' did not meet the size-
of-transaction filing threshold in Section 7A(a)(2)(B); and the
second acquisition of stock in A1 by ``A'' and ``B'' was exempt
under Sec. 802.30 and Sections 7A(c)(3) and (10). Since this scheme
appears to be for the purpose of avoiding the requirements of the
act, the sequence of transactions will be disregarded. The
transactions will be viewed as the formation of a joint venture
corporation by ``A'' and ``B'' having over $10 million (as adjusted)
in assets. Such a transaction would be covered by Sec. 801.40 and
``A'' and ``B'' must file notification and observe the waiting
period.
2. Suppose ``A'' wholly owns and operates a chain of twenty
retail hardware stores, each of which is separately incorporated and
has assets of less than $10 million. The aggregate fair market value
of the assets of the twenty store corporations is in excess of $50
million (as adjusted). ``A'' proposes to sell the stores to ``B''
for in excess of $50 million (as adjusted). For various reasons it
is decided that ``B'' will buy the stock of each of the store
corporations from ``A.'' Instead of filing notification and
observing the waiting period as contemplated by the act, ``A'' and
``B'' enter into a series of five stock purchase-sale agreements for
$12 million each. Under the terms of each contract, the stock of
four stores will pass from ``A'' to ``B''. The five agreements are
to be consummated on five successive days. Because after each of
these transactions the store corporations are no longer part of the
acquired person (Sec. 801.13(a) does not apply because control has
passed, see Sec. 801.2), and because $12 million is below the size-
of-transaction filing threshold of Section 7A(a)(2)(B), none of the
contemplated acquisitions would be subject to the requirements of
the act. However, if the stock of all of the store corporations were
to be purchased in one transaction, no exemption would be
applicable, and the act's requirements would have to be met. Because
it appears that the purpose of making five separate contracts is to
avoid the
[[Page 4993]]
requirements of the act, this section would ignore the form of the
separate transactions and consider the substance to be one
transaction requiring compliance with the act.
PART 802--EXEMPTION RULES
0
15. The authority citation for part 802 continues to read as follows:
Authority: 15 U.S.C. 18a(d).
0
16. Amend Sec. 802.1 by revising Examples 1 through 7, 9 and 10, to
read as follows:
Sec. 802.1 Acquisitions of goods and realty in the ordinary course of
business.
* * * * *
Examples:
1. Greengrocer Inc. intends to sell to ``A'' all of the assets
of one of the 12 grocery stores that it owns and operates throughout
the metropolitan area of City X. Each of Greengrocer's stores
constitutes an operating unit, i.e., a business undertaking in a
particular location. Thus ``A's'' acquisition is not exempt as an
acquisition in the ordinary course of business. However, the
acquisition will not be subject to the notification requirements if
the acquisition price or fair market value of the store's assets
does not exceed $50 million (as adjusted).
2. ``A,'' a manufacturer of airplane engines, agrees to pay in
excess of $50 million (as adjusted) to ``B,'' a manufacturer of
airplane parts, for certain new engine components to be used in the
manufacture of airplane engines. The acquisition is exempt under
Sec. 802.1(b) as new goods as well as under Sec. 802.1(c)(3) as
current supplies.
3. ``A,'' a power generation company, proposes to purchase from
``B,'' a coal company, in excess of $50 million (as adjusted) of
coal under a long-term contract for use in its facilities to supply
electric power to a regional public utility and steam to several
industrial sites. This transaction is exempt under Sec. 802.1(c)(2)
as an acquisition of current supplies. However, if ``A'' proposed to
purchase coal reserves rather than enter into a contract to acquire
output of a coal mine, the acquisition would not be exempt as an
acquisition of goods in the ordinary course of business. The
acquisition may still be exempt pursuant to Sec. 802.3(b) as an
acquisition of reserves of coal if the requirements of that section
are met.
4. ``A,'' a national producer of canned fruit, preserves, jams
and jellies, agrees to purchase from ``B'' for in excess of $50
million (as adjusted) a total of 20,000 acres of orchards and
vineyards in several locations throughout the U.S. ``A'' plans to
harvest the fruit from the acreage for use in its canning
operations. The acquisition is not exempt under Sec. 802.1 because
orchards and vineyards are real property, not ``goods.'' If, on the
other hand, ``A'' had contracted to acquire from ``B'' the fruit and
grapes harvested from the orchards and vineyards, the acquisition
would qualify for the exemption as an acquisition of current
supplies under Sec. 802.1(c)(3). Although the transfer of orchards
and vineyards is not exempt under Sec. 802.1, the acquisition would
be exempt under Sec. 802.2(g) as an acquisition of agricultural
property.
5. ``A,'' a railcar leasing company, will purchase in excess of
$50 million (as adjusted) of new railcars from a railcar
manufacturer in order to expand its existing fleet of cars available
for lease. The transaction is exempt under Sec. 802.1(b) as an
acquisition of new goods and Sec. 802.1(c), as an acquisition of
current supplies. If ``A'' subsequently sells the railcars to ``C,''
a commercial railroad company, that acquisition would be exempt
under Sec. 802.1(d)(2), provided that ``A'' acquired and held the
railcars solely for resale or leasing to an entity not within
itself.
6. ``A,'' a major oil company, proposes to sell two of its used
oil tankers for in excess of $50 million (as adjusted) to ``B,'' a
dealer who purchases oil tankers from the major U.S. oil companies.
``B's'' acquisition of the used oil tankers is exempt under Sec.
802.1(d)(1) provided that ``B'' is actually acquiring beneficial
ownership of the used tankers and is not acting as an agent of the
seller or purchaser.
7. ``A,'' a cruise ship operator, plans to sell for in excess of
$50 million (as adjusted) one of its cruise ships to ``B,'' another
cruise ship operator. ``A'' has, in good faith, executed a contract
to acquire a new cruise ship with substantially the same capacity
from a manufacturer. The contract specifies that ``A'' will receive
the new cruise ship within one month after the scheduled date of the
sale of its used cruise ship to ``B.'' Since ``B'' is acquiring a
used durable good that ``A'' has contracted to replace within six
months of the sale, the acquisition is exempt under Sec.
802.1(d)(3).
* * * * *
9. Three months ago ``A,'' a manufacturing company, acquired
several new machines that will replace equipment on one of its
production lines. ``A's'' capacity to produce the same products
increased modestly when the integration of the new equipment was
completed. ``B,'' a manufacturing company that produces products
similar to those produced by ``A,'' has entered into a contract to
acquire for in excess of $50 million (as adjusted) the machinery
that ``A'' replaced. Delivery of the equipment by ``A'' to ``B'' is
scheduled to occur within thirty days. Since ``A'' purchased new
machinery to replace the productive capacity of the used equipment,
which it sold within six months of the purchase of the new
equipment, the acquisition by ``B'' is exempt under Sec.
802.1(d)(3).
10. ``A'' will sell to ``B'' for in excess of $50 million (as
adjusted) all of the equipment ``A'' uses exclusively to perform its
billing requirements. ``B'' will use the equipment to provide
``A's'' billing needs pursuant to a contract which ``A'' and ``B''
executed 30 days ago in conjunction with the equipment purchase
agreement. Although the assets ``B'' will acquire make up
essentially all of the assets of one of ``A's'' management and
administrative support services divisions, the acquisition qualifies
for the exemption under Sec. 802.1(d)(4) because a company's
internal management and administrative support services, however
organized, are not an operating unit as defined by Sec. 802.1(a).
Management and administrative support services are not a ``business
undertaking'' as that term is used in Sec. 802.1(a). Rather, they
provide support and benefit to the company's operating units and
support the company's business operations. However, if the assets
being sold also derived revenues from providing billing services for
third parties, then the transfer of these assets would not be exempt
under Sec. 802.1(d)(4), since the equipment is not being used
solely to provide management and administrative support services to
``A''.
* * * * *
0
17. Amend Sec. 802.2 by revising examples 2 through 7, 9, 10, and 12
to read as follows:
Sec. 802.2 Certain acquisitions of real property assets.
* * * * *
Examples:
* * * * *
2. ``B,'' a subsidiary of ``A,'' a financial institution,
acquired a newly constructed power plant, which it leased to ``X''
pursuant to a lease financing arrangement. ``A's'' acquisition of
the plant through B was exempt under Sec. 802.63(a) as a bona fide
credit transaction entered into in the ordinary course of ``A's''
business. ``X'' operated the plant as sole lessee for the next eight
years and now proposes to exercise an option to buy the plant for in
excess of $50 million (as adjusted). ``X's'' acquisition of the
plant is exempt pursuant to Sec. 802.2(b). The plant is being
acquired from B, the lessor, which held title to the plant for
financing purposes, and the purchaser, ``X,'' has had sole and
continuous possession and use of the plant since its construction.
3. ``A'' proposes to acquire a tract of wilderness land from
``B'' for consideration in excess of $50 million (as adjusted).
Copper deposits valued in excess of $50 million (as adjusted) and
timber reserves valued in excess of $50 million (as adjusted) are
situated on the land and will be conveyed as part of this
transaction. During the last three fiscal years preceding the sale,
the property generated $50,000 from the sale of a small amount of
timber cut from the reserves two years ago. ``A's'' acquisition of
the wilderness land from ``B'' is exempt as an acquisition of
unproductive real property because the property did not generate
revenues exceeding $5 million during the thirty-six months preceding
the acquisition. The copper deposits and timber reserves are by
definition unproductive real property and, thus, are not separately
subject to the notification requirements.
4. ``A'' proposes to purchase from ``B'' for in excess of $200
million (as adjusted) an old steel mill that is not currently
operating to add to ``A's'' existing steel production capacity. The
mill has not generated revenues during the 36 months preceding the
acquisition but contains equipment valued in excess of $50 million
(as adjusted) that ``A'' plans to refurbish for use in its
operations. ``A's'' acquisition of the mill and the land on which it
is located is exempt as unproductive
[[Page 4994]]
real property. However, the transfer of the equipment and any assets
other than the unproductive property is not exempt and is separately
subject to the notification requirements of the act.
5. ``A'' proposes to purchase two downtown lots, Parcels 1 and
2, from ``B'' for in excess of $50 million (as adjusted). Parcel 1,
located in the southwest section, contains no structures or
improvements. A hotel is located in the northeast section on Parcel
2, and it has generated $9 million in revenues during the past three
years. The purchase of Parcel 1 is exempt if it qualifies as
unproductive real property, i.e., it has not generated annual
revenues in excess of $5 million in the three fiscal years prior to
the acquisition. Parcel 2 is not unproductive real property, but its
acquisition is exempt under Sec. 802.2(e) as the acquisition of a
hotel.
6. ``A'' plans to purchase from ``B,'' a manufacturer, a newly-
constructed building that ``B'' had intended to equip for use in its
manufacturing operations. ``B'' was unable to secure financing to
purchase the necessary equipment and ``A'', also a manufacturer,
will be required to invest in excess of $50 million (as adjusted) in
order to equip the building for use in its production operations.
This building is not a new facility under Sec. 802.2 (a), because
it was not constructed or held by ``B'' for sale or resale. However,
the acquisition of the building qualifies for exemption as
unproductive real property pursuant to Sec. 802.2(c)(1). The
building is not yet a manufacturing facility since it does not
contain equipment and requires significant capital investment before
it can be used as a manufacturing facility.
7. ``A'' proposes to purchase from ``B,'' for in excess of $50
million (as adjusted), a 100 acre parcel of land that includes a
currently operating factory occupying 10 acres. The other 90
adjoining acres are vacant and unimproved and are used by ``B'' for
storage of supplies and equipment. The factory and the unimproved
acreage have an aggregate fair market value of in excess of $50
million (as adjusted). The transaction is not exempt under Sec.
802.2(c) because the vacant property is adjacent to property
occupied by the operating factory. Moreover, if the 90 acres were
not adjacent to the 10 acres occupied by the factory, the
transaction would not be exempt because the 90 acres are being used
in conjunction with the factory being acquired and thus are not
unproductive property.
* * * * *
9. ``A'' intends to acquire three shopping centers from ``B''
for a total of in excess of $200 million (as adjusted). The anchor
stores in two of the shopping centers are department stores, the
businesses of which ``A'' is buying from ``B'' as part of the
overall transaction. The acquisition of the shopping centers is an
acquisition of retail rental space that is exempt under Sec.
802.2(h). However, ``A's'' acquisition of the department store
businesses, including the portion of the shopping centers that the
two department stores being purchased occupy, are separately subject
to the notification requirements. If the value of these assets
exceeds $50 million (as adjusted), ``A'' must comply with the
requirements of the act for this part of the transaction.
10. ``A'' wishes to purchase from ``B'' a parcel of land for in
excess of $50 million (as adjusted). The parcel contains a race
track and a golf course. The golf course qualifies as recreational
land pursuant to Sec. 802.2(f), but the race track is not included
in the exemption. Therefore, if the value of the race track is more
than $50 million (as adjusted), ``A'' will have to file notification
for the purchase of the race track.
* * * * *
12. ``A'' proposes to purchase the prescription drug wholesale
distribution business of ``B'' for in excess of $50 million (as
adjusted). The business includes six regional warehouses used for
``B's'' national wholesale drug distribution business. Since ``A''
is acquiring the warehouses in connection with the acquisition of
``B's'' prescription drug wholesale distribution business, the
acquisition of the warehouses is not exempt.
0
18. Amend Sec. 802.3 by revising Examples 2 and 3 to read as follows:
Sec. 802.3 Acquisitions of carbon-based mineral reserves.
* * * * *
Examples:
* * * * *
2. ``A,'' an oil company, proposes to acquire for $180 million
oil reserves currently in production along with field pipelines and
treating and metering facilities which serve such reserves
exclusively. The acquisition of the reserves and the associated
assets are exempt. ``A'' will also acquire from ``B'' for in excess
of $50 million (as adjusted) a natural gas processing plant and its
associated gathering pipeline system. This acquisition is not exempt
since Sec. 802.3(c) excludes these assets from the exemption in
Sec. 802.3 for transfers of associated exploration or production
assets.
3. ``A,'' an oil company, proposes to acquire a coal mine
currently in operation and associated production assets for $90
million from ``B,'' an oil company. ``A'' will also purchase from
``B'' producing oil reserves valued at $100 million and an oil
refinery valued at $13 million. The acquisition of the coal mine and
the oil reserves is exempt pursuant to Sec. 802.3. Although Sec.
802.3(c) excludes the refinery from the exemption in Sec. 802.3 for
transfers of associated exploration and production assets, ``A's''
acquisition of the refinery is not subject to the notification
requirements of the act because its value does not exceed $50
million (as adjusted).
* * * * *
0
19. Amend Sec. 802.4 by revising paragraph (a) and Examples 1 and 2 to
read as follows:
Sec. 802.4 Acquisitions of voting securities of issuers holding
certain assets the direct acquisition of which is exempt.
(a) An acquisition of voting securities of an issuer whose assets
together with those of all entities it controls consist or will consist
of assets whose purchase would be exempt from the requirements of the
act pursuant to Section 7A(c)(2) of the act, Sec. 802.2, Sec. 802.3
or Sec. 802.5 of this part is exempt from the reporting requirements
if the acquired issuer and all entities it controls do not hold other
non-exempt assets with an aggregate fair market value of more than $50
million (as adjusted).
* * * * *
(c) * * *
Examples:
1. ``A,'' a real estate investment company, proposes to purchase
100 percent of the voting securities of C, a wholly-owned subsidiary
of ``B,'' a construction company. C's assets are a newly
constructed, never occupied hotel, including fixtures, furnishings
and insurance policies. The acquisition of the hotel would be exempt
under Sec. 802.2(a) as a new facility and under Sec. 802.2(d).
Therefore, the acquisition of the voting securities of C is exempt
pursuant to Sec. 802.4(a) since C holds assets whose direct
purchase would be exempt under Sec. 802.2 and does not hold non-
exempt assets exceeding $50 million (as adjusted) in value.
2. ``A'' proposes to acquire 60 percent of the voting securities
of C from ``B.'' C's assets consist of a portfolio of mortgages
valued at $55 million and a small manufacturing plant valued at $26
million. The manufacturing plant is an operating unit for purposes
of Sec. 802.1(a). Since the acquisition of the mortgages would be
exempt pursuant to Section 7A(c)(2) of the act and since the value
of the non-exempt manufacturing plant is less than $50 million (as
adjusted), this acquisition is exempt under Sec. 802.4(a).
* * * * *
0
20. Amend Sec. 802.5 by revising Example 2 to read as follows:
Sec. 802.5 Acquisitions of investment rental property assets.
* * * * *
Examples:
* * * * *
2. ``X'' intends to buy from ``Y'' a development commonly
referred to as an industrial park. The industrial park contains a
warehouse/distribution center, a retail tire and automobile parts
store, an office building, and a small factory. The industrial park
also contains several parcels of vacant land. If ``X'' intends to
acquire this industrial park as investment rental property, the
acquisition will be exempt pursuant to Sec. 802.5. If, however,
``X'' intends to use the factory for its own manufacturing
operations, this exemption would be unavailable. The exemptions in
Sec. 802.2 for warehouses, rental retail space, office buildings,
and undeveloped land may still apply and, if the value of the
factory is $50 million (as adjusted) or less, the entire transaction
may be exempted by that section.
0
21. Amend Sec. 802.9 by revising Example 1 to read as follows:
Sec. 802.9 Acquisition solely for the purpose of investment.
* * * * *
[[Page 4995]]
Examples:
1. Suppose that acquiring person ``A'' acquires 6 percent of the
voting securities of issuer X, valued in excess of $50 million (as
adjusted). If the acquisition is solely for the purpose of
investment, it is exempt under Section 7A(c)(9).
* * * * *
0
22. Amend Sec. 802.21 by revising the heading, paragraph (a)(3), and
Examples 1 through 4 following paragraph (a); by adding new Examples 5
and 6 to paragraph (a) to read as follows; and by removing paragraph
(c).
Sec. 802.21 Acquisitions of voting securities not meeting or
exceeding greater notification threshold (as adjusted).
(a) * * *
(3) The acquisition will not increase the holdings of the acquiring
person to meet or exceed a notification threshold (as adjusted) greater
than the greatest notification threshold met or exceeded in the earlier
acquisition.
Examples:
1. In 2004, Corporation A acquired $53 million of the voting
securities of corporation B and both ``A'' and ``B'' filed
notification as required, indicating the $50 million threshold.
Within five years of the expiration of the original waiting period,
``A'' acquires additional voting securities of B but not in an
amount sufficient to meet or exceed $100 million (as adjusted) or 50
percent of the voting securities of B. No additional notification is
required.
2. In 2004, Corporation A acquired $53 million of the voting
securities of corporation B and both ``A'' and ``B'' filed
notification as required, indicating the $50 million threshold.
Suppose that in year three following the expiration of the waiting
period, the $50 million notification threshold has been adjusted to
$56 million pursuant to Section 7A(a)(2)(a) of the Act. ``A'' now
intends to acquire an additional $5 million of the voting securities
of B. ``A'' is not required to file another notification even though
it now holds voting securities in excess of the $56 million
notification threshold (which is greater than the $50 million
notification threshold indicated in its filing), because it has not
met or exceeded a notification threshold (as adjusted) greater than
the notification threshold exceeded in the earlier acquisition (i.e.
$100 million (as adjusted) or 50% notification thresholds).
3. Same facts as in Example 2 above except now the five year
period has expired. Suppose that, the $50 million notification
threshold has been adjusted to $57 million pursuant to Section
7A(a)(2)(a) of the Act. ``A'' now holds $58 million of voting
securities of B. Because Sec. 802.21(a)(2) is no longer satisfied,
the acquisition of any additional voting securities of B will
require a new filing because ``A'' will hold voting securities
valued in excess of the $57 million notification threshold. If,
however, the $50 million notification threshold had been adjusted to
$60 million at the end of the five-year period, A could acquire up
to that threshold without a new filing.
4. This section also allows a person to recross any of the
threshold notification levels that were in effect at the time of
filing notification any number of times within five years of the
expiration of the waiting period following notification. Thus, if in
Example 1, ``A'' had disposed of some voting securities so that it
held less than $50 million of the voting securities of B, and
thereafter had increased its holdings to more than $50 million but
less than $100 million or 50 percent of B, notification would not be
required if the increase occurred within 5 years of the expiration
of the original waiting period.
5. A files notification at the $50 million notification
threshold and acquires $51 million of the voting securities of B in
the year following expiration of the waiting period. The next
greater notification threshold at the time of filing was $100
million. In year three, the $100 million notification threshold has
been adjusted to $106 million. A can now acquire up to, but not meet
or exceed, voting securities of B valued at $106 million. As the
original $100 million threshold is adjusted upward in years four and
five, A can acquire up to those new thresholds as the adjustments
are effected.
6. A files notification at the $50 million threshold in January
of year one. In February of year one, the $50 million threshold is
adjusted to $52 million. A only needs to acquire in excess of $50
million of voting securities of B, not in excess of $52 million, to
have exceeded the threshold which was filed for in the year
following expiration of the waiting period (see Sec. 803.7). It may
then acquire up to the next greater notification threshold (as
adjusted) during the five years following expiration of the waiting
period.
0
23. Amend Sec. 802.35 by revising Examples 1 and 2 to read as follows:
Sec. 802.35 Acquisitions by employee trusts.
* * * * *
Examples:
1. Company A establishes a trust for its employees that meets
the qualifications of section 401 of the Internal Revenue Code.
Company A has the power to designate the trustee of the trust. That
trust then acquires 30% of the voting securities of Company A for in
excess of $50 million (as adjusted). Later, the trust acquires 20%
of the stock of Company B, a wholly-owned subsidiary of Company A,
for in excess of $50 million (as adjusted). Neither acquisition is
reportable.
2. Assume that in the example above, ``A'' has total assets of
$100 million (as adjusted). ``C'' also has total assets of $100
million (as adjusted) and is not controlled by Company A. The trust
controlled by Company A plans to acquire 40 percent of the voting
securities of Company C for in excess of $50 million (as adjusted).
Since Company C is not included within ``A,'' ``A'' must observe the
requirements of the act before the trust makes the acquisition of
Company C's shares.
0
24. Amend Sec. 802.41 by revising Examples 1 and 2 to read as follows:
Sec. 802.41 Joint venture or other corporations at time of formation.
* * * * *
Examples:
1. Corporations A and B, each having sales of in excess of $100
million (as adjusted), each propose to contribute in excess of $50
million (as adjusted) in cash in exchange for 50 percent of the
voting securities of a new corporation, N. Under this section, the
new corporation need not file notification, although both ``A'' and
``B'' must do so and observe the waiting period prior to receiving
any voting securities of N.
2. In addition to the facts in Example 1 of this section, A and
B have agreed that upon creation N will purchase 100 percent of the
voting securities of corporation C for in excess of $50 million (as
adjusted). Because N's purchase of C is not a transaction in
connection with N's formation, and because in any event C is not a
contributor to the formation of N, ``A,'' ``B'' and ``C'' must file
with respect to the proposed acquisition of C and must observe the
waiting period.
0
25. Amend Sec. 802.50 by revising paragraphs (a), (b)(2) and (b)(3)
and Examples 2 through 4 to read as follows:
Sec. 802.50 Acquisitions of foreign assets.
(a) The acquisition of assets located outside the United States
shall be exempt from the requirements of the act unless the foreign
assets the acquiring person would hold as a result of the acquisition
generated sales in or into the U.S. exceeding $50 million (as adjusted)
during the acquired person's most recent fiscal year.
(b) * * *
(2) The aggregate sales of the acquiring and acquired persons in or
into the United States are less than $110 million (as adjusted) in
their respective most recent fiscal years;
(3) The aggregate total assets of the acquiring and acquired
persons located in the United States (other than investment assets,
voting or nonvoting securities of another person, and assets included
pursuant to Sec. 801.40(d)(2) of this chapter) are less than $110
million (as adjusted) ; and
* * * * *
Examples:
* * * * *
2. Sixty days after the transaction in example 1, ``A'' proposes
to sell to ``B'' a second manufacturing plant located abroad; sales
in or into the United States attributable to this plant, when
combined with the sales into the United States of the first plant,
totaled in excess of $50 million (as adjusted) in the most recent
fiscal year. Since ``B'' would be acquiring the second plant within
180 days of the first plant, both plants would be considered assets
of ``A'' held by ``B'' as a result of the second acquisition (see
Sec. 801.13(b)(2) of this chapter). Since the total sales in or
into the United States exceed $50 million (as adjusted), the
acquisition of the second plant would not be exempt under this
paragraph (a) of this section.
3. Assume that ``A'' and ``B'' are foreign persons with
aggregate sales in or into the
[[Page 4996]]
United States of in excess of $110 million (as adjusted). If ``A''
acquires only foreign assets of ``B,'' and if those assets generated
$50 million (as adjusted) or less in sales in or into the United
States, the transaction is exempt.
4. Assume that ``A'' and ``B'' are foreign persons with
aggregate sales in or into the United States and assets located in
the United Sates of less than $110 million (as adjusted). If ``A''
acquires only foreign assets of ``B,'' and those assets generated in
excess of $50 million (as adjusted) in sales in or into the United
States during the most recent fiscal year, the transaction is exempt
from reporting if the assets are valued at $200 million (as
adjusted) or less, but is reportable if valued at greater than $200
million (as adjusted).
0
26. Amend Sec. 802.51 by revising paragraphs (a), (b), (c)(2) and
(c)(3) and Examples 1 through 3 to read as follows:
Sec. 802.51 Acquisitions of voting securities of a foreign issuer.
(a) By U.S. persons. (1) The acquisition of voting securities of a
foreign issuer by a U.S. person shall be exempt from the requirements
of the act unless the issuer (including all entities controlled by the
issuer) either: holds assets located in the United States (other than
investment assets, voting or nonvoting securities of another person,
and assets included pursuant to Sec. 801.40(d)(2) of this chapter)
having an aggregate total value of over $50 million (as adjusted); or
made aggregate sales in or into the United States of over $50 million
(as adjusted) in its most recent fiscal year.
(2) If interests in multiple foreign issuers are being acquired
from the same acquired person, the assets located in the United States
and sales in or into the United States of all the issuers must be
aggregated to determine whether either $50 million (as adjusted)
limitation is exceeded.
(b) By foreign persons. (1) The acquisition of voting securities of
a foreign issuer by a foreign person shall be exempt from the
requirements of the act unless the acquisition will confer control of
the issuer and the issuer (including all entities controlled by the
issuer) either: holds assets located in the United States (other than
investment assets, voting or nonvoting securities of another person,
and assets included pursuant to Sec. 801.40(d)(2) of this chapter)
having an aggregate total value of over $50 million (as adjusted); or
made aggregate sales in or into the United States of over $50 million
(as adjusted) in its most recent fiscal year.
(2) If controlling interests in multiple foreign issuers are being
acquired from the same acquired person, the assets located in the
United States and sales in or into the United States of all the issuers
must be aggregated to determine whether either $50 million (as
adjusted) limitation is exceeded.
(c) * * *
(2) The aggregate sales of the acquiring and acquired persons in or
into the United States are less than $110 million (as adjusted) in
their respective most recent fiscal years;
(3) The aggregate total assets of the acquiring and acquired
persons located in the United States (other than investment assets,
voting or nonvoting securities of another person, and assets included
pursuant to Sec. 801.40(d)(2) of this chapter) are less than $110
million (as adjusted); and
* * * * *
Examples:
1. ``A,'' a U.S. person, is to acquire the voting securities of
C, a foreign issuer. C has no assets in the United States, but made
aggregate sales into the United States of in excess of 50 million
(as adjusted) in the most recent fiscal year. The transaction is not
exempt under this section.
2. Assume that ``A'' and ``B'' are foreign persons with
aggregate sales in or into the United States in excess of $110
million (as adjusted), and that ``A'' is acquiring 100% of the
voting securities of ``B.'' Included within ``B'' is U.S. issuer C,
whose total U.S. assets are valued in excess of $50 million (as
adjusted). Since ``A'' will be acquiring control of an issuer, C,
with total U.S. assets of more than $50 million (as adjusted), and
the parties' aggregate sales in or into the U.S. in the relevant
time period exceed $110 million (as adjusted), the acquisition is
not exempt under this section.
3. ``A,'' a foreign person, intends to acquire 100 percent of
the voting securities of two wholly owned subsidiaries of ``B'' for
a total of in excess of $50 million (as adjusted). BSUB1 is a
foreign issuer with less than $50 million (as adjusted) in sales
into the U.S. in its most recent fiscal year and with assets of less
than $50 million (as adjusted) located in the U.S. Less than $50
million (as adjusted) of the acquisition price has been allocated to
BSUB1. BSUB2 is a U.S. issuer with more than $50 million (as
adjusted) in U.S. sales and more than $50 million (as adjusted) in
assets located in the U.S. Less than $50 million (as adjusted) of
the acquisition price is allocated to BSUB2. Since BSUB1 does not
exceed the $50 million (as adjusted) limitation for U.S. sales or
assets in Sec. 802.51(b), its voting securities are not held as a
result of the acquisition (see Sec. 801.15(b) of this chapter).
Since the acquisition price for BSUB2 alone would not result in
``A'' holding in excess of $50 million (as adjusted) of voting
securities of the acquired person, the transaction is non-reportable
in its entirety. Note that the U.S. sales and assets of BSUB1 are
not aggregated with those of BSUB2 for purposes of determining
whether the limitations in paragraph (b) of this section are
exceeded. If BSUB2 were also a foreign issuer, such aggregation
would be required under paragraph (b)(2) of this section, and the
transaction in its entirety would be reportable.
0
27. Amend Sec. 802.52 by revising its Example to read as follows:
Sec. 802.52 Acquisitions by or from foreign governmental
corporations.
* * * * *
Example: The government of foreign country X has decided to sell
assets of its wholly owned corporation, B, all of which are located
in foreign country X. The buyer is ``A,'' a U.S. person. Regardless
of the aggregate sales in or into the United States attributable to
the assets of B, the transaction is exempt under this section. (If
such aggregate sales were $50 million (as adjusted) or less, the
transaction would also be exempt under Sec. 802.50).
0
28. Amend Sec. 802.64 by revising Example 1 to read as follows:
Sec. 802.64 Acquisitions of voting securities by certain
institutional investors.
* * * * *
(c) * * *
Examples:
1. Assume that A and its subsidiary, B, are both institutional
investors as defined in paragraph (a) of this section, that X is
not, and that the conditions set forth in paragraphs (b)(2), (3) and
(4) of this section are satisfied. Either A or B may acquire voting
securities of X worth in excess of $50 million (as adjusted) as long
as the aggregate amount held by person ``A'' as a result of the
acquisition does not exceed 15 percent of X's outstanding voting
securities. If the aggregate holdings would exceed 15 percent, ``A''
may acquire no more than $50 million (as adjusted) worth of voting
securities without being subject to the requirements of the act.
* * * * *
PART 803--TRANSMITTAL RULES
0
29. The authority citation for part 803 continues to read as follows:
Authority: 15 U.S.C. 18a(d).
0
30. Amend Sec. 803.5(a)(2) by revising Examples 2 and 3 to read as
follows:
Sec. 803.5 Affidavits required.
(a) * * *
(2) * * *
Examples:
* * * * *
2. ``A'' holds 100,000 shares of the voting securities of
Company B. ``A'' has a good faith intention to acquire an additional
900,000 shares of Company B's voting securities. ``A'' states in its
notice to B, inter alia, that as a result of the acquisition it will
hold 1,000,000 shares. If 1,000,000 shares of Company B represent 20
percent of Company B's outstanding voting securities, the statement
will be deemed by the enforcement agencies a notification for the
$100 million threshold (as adjusted).
3. Company A intends to acquire voting securities of Company B.
``A'' does not know exactly how many shares it will acquire, but it
knows it will definitely acquire in excess of $50 million (as
adjusted) worth and may
[[Page 4997]]
acquire 50 percent of Company B's shares. ``A'''s notice to the
acquired person would meet the requirements of Sec. 803.5(a)(1)(iii)
if it states, inter alia, either: ``Company A has a present good
faith intention to acquire in excess of $50 million (as adjusted) of
the outstanding voting securities of Company B, and depending on
market conditions, may acquire more of the voting securities of
Company B and thus designates the 50 percent threshold,'' or
``Company A has a present good faith intention to acquire in excess
of $50 million (as adjusted) of the outstanding voting securities of
Company B, and depending on market conditions may acquire 50 percent
or more of the voting securities of Company B.'' The Commission
would deem either of these statements as intending to give notice
for the 50 percent threshold.
* * * * *
0
31. Amend Sec. 803.7 by revising its example to read as follows:
Sec. 803.7 Expiration of notification.
* * * * *
Example: ``A'' files notification that in excess of $100 million
(as adjusted) of the voting securities of corporation B are to be
acquired. One year after the expiration of the waiting period, ``A''
has acquired less than $100 million (as adjusted) of B's voting
securities. Although Sec. 802.21 will permit ``A'' to purchase any
amount of B's voting securities short of $100 million (as adjusted)
within 5 years from the expiration of the waiting period, A's
holdings may not meet or exceed the $100 million (as adjusted)
notification threshold without ``A'' and ``B'' again filing
notification and observing a waiting period.
0
32. Amend Sec. 803.9(a) by revising Examples 1 through 6 to read as
follows:
Sec. 803.9 Filing fee.
(a) * * *
Examples:
1. ``A'' wishes to acquire voting securities issued by B, where
the greater of the acquisition price and the market price is in
excess of $50 million (as adjusted) but less than $100 million (as
adjusted) pursuant to Sec. 801.10. When ``A'' files notification
for the transaction, it must indicate the $50 million (as adjusted)
threshold and pay a filing fee of $45,000 because the aggregate
total amount of the acquisition is less than $100 million (as
adjusted), but greater than $50 million (as adjusted).
2. ``A'' acquires less than $50 million (as adjusted) of assets
from ``B.'' The parties meet the size of person criteria of Section
7A(a)(2)(B), but the transaction is not reportable because it does
not exceed the $50 million (as adjusted) size of transaction
threshold of that provision. Two months later ``A'' acquires
additional assets from ``B'' valued at between $50 million (as
adjusted) and $100 million (as adjusted). Pursuant to the
aggregation requirements of Sec. 801.13(b)(2)(ii), the aggregate
total amount of ``B's'' assets that ``A'' will hold as a result of
the second acquisition is in excess of $100 million (as adjusted).
Accordingly, when ``A'' files notification for the second
transaction, ``A'' must indicate the $100 million (as adjusted)
threshold and pay a filing fee of $125,000 because the aggregate
total amount of the acquisition is less than $500 million (as
adjusted), but not less than $100 million (as adjusted).
3. ``A'' acquires in excess of $50 million (as adjusted) of
voting securities issued by B after submitting its notification and
$45,000 filing fee and indicates the $50 million (as adjusted)
threshold. Two years later, ``A'' files to acquire additional voting
securities issued by B valued at $50 million (as adjusted) because
it will exceed the next higher reporting threshold (see Sec. Sec.
801.1(h)). Assuming the second transaction is reportable and the
value of its initial holdings is unchanged (see Sec. Sec.
801.13(a)(2) and 801.10(c)), the provisions of Sec. 801.13(a)(1)
require that ``A'' report that the value of the second transaction
is in excess of $100 million (as adjusted) because ``A'' must
aggregate previously acquired securities in calculating the value of
B's voting securities that it will hold as a result of the second
acquisition. ``A'' should pay a filing fee of $125,000.
4. ``A'' signs a contract with a stated purchase price in excess
of $100 million (as adjusted), subject to adjustments, to acquire
all of the assets of ``B.'' If the amount of adjustments can be
reasonably estimated, the acquisition price--as adjusted to reflect
that estimate--is determined. If the amount of adjustments cannot be
reasonably estimated, the acquisition price is undetermined. In
either case the board or its delegee must also determine in good
faith the fair market value. (Sec. 801.10(b) states that the value
of an asset acquisition is to be the fair market value or the
acquisition price, if determined and greater than fair market
value.) ``A'' files notification and submits a $45,000 filing fee.
``A'''s decision to pay that fee may be justified on either of two
bases, and ``A'' should submit an attachment to the Notification and
Report Form explaining the valuation. First, ``A'' may have
concluded that the acquisition price can be reasonably estimated to
be less than $100 million (as adjusted), because of anticipated
adjustments--e.g., based on due diligence by ``A's'' accounting firm
indicating that one third of the inventory is not saleable. If fair
market value is also determined in good faith to be less than $100
million (as adjusted), the $45,000 fee is appropriate.
Alternatively, ``A'' may conclude that because the adjustments
cannot reasonably be estimated, acquisition price is undetermined.
If so, ``A'' would base the valuation on the good faith
determination of fair market value. The acquiring party's execution
of the Certification also attests to the good faith valuation of the
value of the transaction.
5. ``A'' contracts to acquire all of the assets of ``B'' for in
excess of $500 million (as adjusted). The assets include hotels,
office buildings, and rental retail property, all of which are
exempted by Sec. 802.2. Section 802.2 directs that these assets are
exempt from the requirements of the act and that reporting
requirements for the transaction should be determined by analyzing
the remainder of the acquisition as if it were a separate
transaction. Furthermore, Sec. 801.15(a)(2) states that those
exempt assets are never held as a result of the acquisition.
Accordingly, the aggregate amount of the transaction is in excess of
$100 million (as adjusted), but less than $500 million (as
adjusted). ``A'' will be liable for a filing fee of $125,000, rather
than $280,000, because the value of the transaction is not less than
$100 million (as adjusted) but less than $500 million (as adjusted).
Note, however, that ``A'' must include an attachment in its
Notification and Report Form setting out both the in excess of $500
million (as adjusted) total purchase price and the basis for its
determination that the aggregate total amount of the acquisition
under the rules is between $100 million (as adjusted) and $500
million (as adjusted) rather than in excess of $500 million (as
adjusted), in accordance with the Instructions to the Form.
6. ``A'' acquires coal reserves from ``B'' valued at $150
million. No notification or filing fee is required because the
acquisition is exempted by Sec. 802.3(b). Three months later, A
proposes to acquire additional coal reserves from ``B'' valued at
$500 million (as adjusted). This transaction is subject to the
notification requirements of the act because the value of the
acquisition exceeds the $200 million limitation on the exemption in
Sec. 802.3(b). As a result of Sec. 801.13(b)(2)(ii), the prior
$150 million acquisition must be added because the additional $500
million (as adjusted) of coal reserves were acquired from the same
person within 180 days of the initial acquisition. Because
aggregating the two acquisitions exceeds the $200 million exemption
limitation, Sec. 801.15(b) directs that ``A'' will also hold the
previously exempt $150 million acquisition; thus, the aggregate
amount held as a result of the $500 million (as adjusted)
acquisition exceeds $500 million (as adjusted). Accordingly, ``A''
must file notification to acquire the coal reserves valued in excess
of $500 million (as adjusted) and pay a filing fee of $280,000.
* * * * *
0
33. Revise the Appendix to part 803 to read as follows:
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By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 05-1679 Filed 1-28-05; 8:45 am]
BILLING CODE 6750-01-C