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HeinOnline -- 48 Fed. Reg. 34427 1983

Federal Register / Vol. 48, No. 147 / Friday, July 29, 1983 / Rules and Regulations 34427

16 CFR Parts 801, 802, and 803

Premerger Notification; Reporting andWaiting Period ReqUirements

AGENCY: Federal Trade Commission.ACTION: Final rules.

SUMMARY: These rules amend thepremerger notification rules, whichrequire the parties to certain mergers oracquisitions to file reports with theFederal Trade Commission and theDepartment of Justice and to wait aspecified period of time beforeconsummating such transactions. Thesereporting and wailing periodrequirements enable the antitrustenforcement agencies to determinewhether a proposed merger oracquisition might violate the antitrustlaws and, if necessary, to seek apreliminary injunction in federal courtbefore the transaction is consummated.On the basis of its experience with thepremerger notification rules issued in1978, the Commission is promulgatingthese amendments to increase theclarity, reduce the burden and improvethe effectiveness of the rules and the "Notification and Report Form.EFFECTIVE DATE: August 29, 1983.FOR FURTHER INFORMATION CONTACT:John M. Sipple, Jr., Senior Attorney,Premerger Notification Office, orRoberta S. Baruch, Deputy AssistantDirector for Evaluation, Bureau ofCompetition, Room 303, Federal TradeCommission, Washington, D.C. 20580.Telephone: (202) 523-3894.SUPPLEMENTARY INFORMATION:

Regulatory Flexibility ActThese amendments to the Hart-Scott

Rodino premerger notification rules arelargely technical. designed to resolveconfusion and reduce unnecessaryreporting. They do not materiallyexpand the coverage of the premergernotification rules, nor do they have anysignificant economic impact upon anyentities affected by the rules. Therefore,

..

case to be adequately substantiated. Itappears obvious to me that they cannot.If Sterling has a reasonable basis for aclaim that Vanquish provides superiorpain relief to aspirin, it cannot have areasonable basis for a claim that Bayeraspirin relieves pain just as well as allOTC internal analgesics. Conversely, ifSterling has reasonable basis for a claimthat aspirin relieves pain just aseffectively as all OTC internalanalgesics, it cannot have a'reasonablebasis for a claim that Vanquish relievespain better than aspirin. Where asadvertiser makes an objective andverifiable claim that its productperforms better than any other product,adequate substantiation for that claimnecessarily precludes the advertiserfrom having a reasonable basis for aclaim that another product works betterthan, or as well as, the one advertised.

The Commission seems troubled,however, by the application of an"inconsistent contemporaneous claims"theory. It notes the apparentdiscrepancy between the case where asingle advertiser is held liable formaking inconsistent claims, and thecase where the same claims are madeseparately by two different advertisersand the Commission finds eachadequately substantiated. In fact, such aresult would not be anomalous. Indeed.it would be perfectly consistent with thereasonable basis doctrine, which takesinto account not only the sufficiency ofthe evidence on which an advertiserrelies but also "the reasonableness ofthe advertiser's action and his goodfaith." National Dynamics Corp.• 82F.T.C. 488, 553 (1973). In considering anadvertiser's reasonableness, theCommission routinely considersinformation in the advertiser'spossession which might give theadvertiser reason to question theevidence relied upon to substantiate aclaim. Clearly. an advertiser possessingdata which directly contradicts a claimcannot have a reasonable belief in thetruth of that claim. On the other hand, ifthe contradictory evidence exists but theadvertiser is unaware of it and wouldhave no reason to know about it, theadvertiser would not be precluded frommaking the claim. In other words,whether or not there is liability depends,at least in part, on the advertiser'sknowledge. The application of theinconsistent contemporaneous claimstheory simply is one example of theeffect of this standard, and accordinglyreflects no deviation from theestablished reasonable basis doctrine.

It is true, as the majority notes, thatwe could have proceeded to determinewhich of Sterling's claims was the one

that lacked a reasonable basis. But pursuant to section 605(b) of thewhere the conclusion is inescapable, as Administrative Procedure Act, 5 U.S.C.it is here, that one claim or the other '605(b), as added by the Regulatorylacked a reasonable basis, it seems like Flexibility Act, Pub. L. 96-354a waste of resources to require both (September 19, 1980) the Federal Tradesides to go through the full panoply of Commission has certified that theseevidentiary exchanges just to find out rules will not have a significantwhich claim was the one to violate economic impact on a substantialSection 5. Accordingly, I would have number of small entities. Section 603 ofsustained the allegations of the the Adrhinistrative Procedure Act, 5complaint with respect to the making of U.S.C. 603, requiring a final regulatorycontemporaneous inconsistent claims. flexibility analysis of these rules, is

Issued July 5, 1983. therefore inapplicable.IFR Doc. 83-20596 Filed 7-2ll-83; 6:45 amI BackgroundBILLING CODE 675CHll-M

Section 7A of the Clayton Act ("theAct"), 15 U.S.C. 18a, as added bysections 201 and 202 of the Hart-ScottRodino Antitrust Improvements Act of1976, requires persons contemplatingcertain acquisitions of assets or votingsecurities to give advance' notice to theFederal Trade Commission (hereafterreferred to as "the Commission") andthe Assistant Attorney General incharge of the Antitrust Division of theDepartment of Justice (hereafter referredto as "the Assistant Attorney General")and to wait certain designated periodsbefore the consummation of suchacquisitions. The transactions to whichthe advance notice requirement isapplicable and the length of the waitingperiod required are set out respectivelyin subsections (a) and (b) of section 7A.-The Hart-Scott-Rodino amendment tothe Clayton Act does not change thestandards used in determining thelegality of mergers and acquisitionsunder the antitrust laws.

The legislative history suggestsseveral purposes underlying the Act.First, Congress clearly intended toeliminate the large "midnight merger,"which is negotiated in secret andannounced just before, or sometimesonly after, the closing takes place.Second, Congress wanted to assure thatlarge acquisitions were subjected tomeaningful scrutiny under the antitrustlaws prior to consummation. Third,Congress provided an opportunity forthe enforcement agencies to seek a courtorder enjoining the completion of thosetransactions which the agencies deemedto present significant antitrust problems.Finally, Congress sought to facilitate an

.effective remedy where a challenge byone of the enforcement agencies provedsuccessful. Thus the Act requires thatthe agencies received prior notificationof significant acquisitions, providescertain tools to facilitate a prompt,thorough investigation, and assures anopportunity to seek a preliminaryinjunction before the parties are legallyfree to complete the transaction.eliminating the problem of unscrambling


34428 Federal Register / Vol. 48, No, 147 / Friday, July 29, 1983 / Rules and Regulations

List of Subjects

16 CFR Parts 801 and 802

Antitrust.

16 CFR Part 803

Antitrust, Reporting andrecordkeeping req4irements.

Statement of Basis and Purpose for theCommission's Revised PremergerNotification Rules

Authority: The Federal TradeCommission promulgates theseamendments to the premergernotification rules pursuant to section7A(d) of the Clayton Act, 15 U.S.C.

The Notification and Report Form,which is completed by persons requiredto file notification, is an appendix. toPart 803 of the rules.

Two changes have been made in thepremerger notification rules since theywere first promulgated. The first was anincrease in the minimum dollar valueexemption contained in § 802.20 of therules. This amendment was proposed inthe Federal Register of August 10, 1979,44 FR 47099, and was published in finalform in the Federal Register ofNovember 21, 1979, 44 FR 60781. Thesecond amendment replaced therequirement that certain revenue datafor the year 1972 be provided in theNotification and Report Form with arequirement that comparable data beprovided for the year 1977. This changewas made because total revenues forthe year 1977 broken down by StandardIndustrial Classification (SIC) codesbecame available from the Bureau of theCensus. The amendment appeared in theFederal Register of March 5, 1980, 45 FR14205, and was effective May 3, 1980.

In addition, the Notification andReport Form has been revised twice.The new versions were approved by theOffice of Management and Budget onDecember 29, 1981, and February 23,1983, respectively.

Comments

These rules were proposed forcomment in the Federal Register of July29, 1981, 46 FR 38710, and the commentperiod ended September 28, 1981. Thefollowing comments were received inresponse to this proposal:

the assets after the transaction hastaken place.

Subsection 7A(d)(l) of the Act, 15U.S.C. 18a(d)(1), directs the Commission,with the concurrence of the AssistantAttorney General and by rule inaccordance with 5 U.S.C. 553, to requirethat the notification be in such form andcontain such information anddocumentary material as may benecessary and appropriate to determinewhether the proposed transaction may,if consummated, violate the antitrustlaws. Subsection 7A(d)(2) of the Act, 15U.S.C. 18a(d)(2), grants the Commission,with the concurrence of the AssistantAttorney General and by rule inaccordance with 5 U.S.C. 553, theauthority (A) to define the terms used inthe Act, (B) to exempt additionalpersons or transactions from the Act'snotification and waiting periodrequirements, and (C) to prescribe suchother rules as may be necessary andappropriate to carry out the purposes ofSection 7A.

On December 15, 1976, theCommission issued proposed rules and aproposed Notification and Report Formto implement the Act. This proposedrulemaking was published in the FederalRegister of December 20,1976,41 FR55488. Because of the volume of publiccomment, it became clear to theCommission that some substantialrevisions would have to be made in theoriginal rules. On July 25, 1977, theCommission determined that additionalpublic comment on the rules would bedesirable and approved revisedproposed rules and a revised proposedNotification and Report Form. Therevised rules and Form were publishedin the Federal Register of August 1, 1977,42 FR 39040. Additional changes in therevised rules and Form were made afterthe close of the comment period. TheCommission formally promulgated thefinal rules and Form and issued anaccompanying Statement of Basis andPurpose on July 10, 1978. The AssistantAttorney General gave his formalconcurrence on July 18, 1978. The finalrules and Form and the Statement ofBasis and Purpose were published in theFederal Register of July 31, 1978, 43 FR33451, and became effective onSeptember 5, 1978.

The rules are divided into three partswhich appear at 16 CFR Parts 801, 802,and 803. Part 801 defines a number ofthe terms used in the Act and rules, andexplains which acquisitions are subjectto the reporting and waiting periodrequirements. Part 802 contains anumber of exemptions from theserequirements. Part 803 explains theprocedures for complying with the Act.

1.2.3.4.5.

6.

9-24-819-25-8'19-28-819-28-819-28-81

9-28-81

Organization

Atlantic Richfiald Company.Shearman & Sterling.Sullivan & Cromwell.Howrey & Simon (William J. Boyd, Esq.).Covington & Burling (Edwin M. Zimmer·

man. Esq.).Skadden. Arps. Slate, Meahger & Flom

(Stephen M. Axinn. Esq.).

18a(d), as added by section 201 of theH~rt-Scott.Rodino Antitrust -Improvements Act of 1976, Pub. L. 94435,90 Stat. 1390.

Note:-The orginal premergernotification rules affected by thesechanges were promulgated on July 31,1978. Those rules or sections thereof willbe referred to as "the 1978 rules," "1978§ " and so forth.

1, Section 801.1(a)(2): Deletion of "OtherGroup Organized for Any Purpose"fromthe Definition ofthe Term "Entity";Insertion of "Estate ofa DeceasedNatural Person"

Section 801.1(a) of the rules defines a"person" as an ultimate parent entityand all entities which it controls. Theterm "entity," which does not appear inthe Act, is used throughout the rules andin the Notification and Report Form torefer to the component parts of theperson to which the provisions of theAct and rules apply.

Section 801.1(a)(2) defines "entity" bysetting forth a list of the types oforganizational units which are includedwithin that term. Section 801.1(a)(2) hasbeen amended in two respects. First, thephrase "or other group organized for anypurpose" has been deleted. The phrasewas included in the definition to captureorganizational units other than thosespecifically mentioned which might

. participate in acquisitions subject to theAct. Informal contacts between theCommission staff and persons wishingto determine the reportability ofparticular transactions indicate that theconcept of "group" is a source ofconsiderable uncertainty and concern.This concern is caused in part by thefact that the Securities and ExchangeCommission ("SEC'~) also requiresreporting' by entities called groups. TheSEC's definition of "group," however,which is geared to securities regulation,is too broad for purposes of the rules. '

.Yet the presence of the term "group" inthe rules has led to uncertainty whetherthe SEC's definition was intended to beapplied. Moreover, experience with therules and the Act has demonstrated thatthe concept of "group" is unnecessaryfor applying the rules; the otherorganizational units named in thedefinition have adequately coveredsituations raising antitrust concerns.

Second, the Commission has added"estate of a deceased natural person" tothe list of organizational units whichmay be entities. This change willeliminate any confusion that may haveexisted previously over whether anestate can be a person under the Act.

The Commission has also changed§§ 801.11(d) and 803.6(a) to specify how



the estate of a deceased natural personwill be treated in the rules. Section801.11 explains the method fordetermining the assets of a person forpurposes of the size-of-person test. Newparagraph 801.11 (d) provides that, as inthe case of a natural person, no assetsother than investment assets. votingsecurities. and other income-producingproperty shall be included indetermining the size of an estate of adeceased natural person. Section803.6(a) lists, for various categories ofreporting persons, who may certify theNotification and Report Form on behalfof the person filing notification. Newsubparagraph (5) stipulates that anyduly authorized legal representativemay certify the filing where the personfiling notification is the estate of adeceased natural person. The scope ofthe term "duly authorized legalrepresentative" includes such commonlyused designations as "administrator.""administratrix," "executor." and"executrix," as well as any lesscommonly used terms for individualswho may serve the same function.

PARTS 801 AND 803-[AMENDED]

Section 801.1 is amended by revisingparagraph (a)(2), § 801.11 is amended byrevising paragraph (d). and § 803.6 isamended by adding paragraph (a)(5) toread as follows:

§ 801.1 Definitions.

(a)· • •(2) Entity. The term "entity" means

any natural person, corporation.company, partnership, joint venture,association, joint-stock company. trust,estate of a deceased natural person,foundation, fund, institution, society,union. or club, whether incorporated ornot, wherever located and of whatevercitizenship, or any receiver. trustee inbankruptcy or similar official or anyliquidating agent for any of theforegoing, in his or her capacity as such;or any joint venture or other corporationwhich has not been formed but theacquisition of the voting securities orother interest in which, if alreadyformed, would require notification underthe act and these rules: Provided,however, that the term "entity" shall notinclude any foreign state. foreigngovernment. or agency thereof (otherthan a corporation engaged incommerce). nor the United States, any ofthe States thereof, or any politicalsubdivision or agency of either (otherthan a corporation engaged i.ncommerce).

§ 801.11 Annual net sales and total assets.

(d) No assets of any natural person orof any estate of a deceased naturalperson. other than investment assets.voting securities and other incomeproducing property, shall be included indetermining the total assets of a person.

§ 803.6 Certification.

(a)· • •(5) In the case of the estate of a

deceased natural person, by any dulyauthorized legal representative of suchestate. '

2. Section B01.1(f).' Conversion

The definition of "conversion" in§ 801.1(f)(3) of the rules has beenbroadened. The 1978 § 801.1(f)(3)defined conversion as the exchange,without the payment of additionalconsideration, of voting securities, asdefined in § 801.1(f)(1). which do notpresently give the owner or holder theright to vote for directors of the issuer,for securities which entitle the owner orholder to vote.

This definition proved to be toonarrow in that it covered onlyexchanges of voting securities which donot give the owner or holder a presentright to vote for directors, for votingsecurities which do carry a present rightto vote. Occasionally. voting securitiesare created which entitle the owner orholder to vote for directors but whichare also convertible into other securitieswith different voting rights. Under theoriginal definition, an exchange of thistype of security was not a conversion,because before the exchange thesecurities to be exchanged had votingrights. As a result. such exchanges didnot fall within § 801.30 and its specialprovisions. Section 801.30 applies tocertain transactions, includingconversions, in which the acquiredperson may be hostile or indifferent tothe acquisition. To prevent the acquiredperson from blocking the transaction byrefusing to comply with the Act's filingrequirements, this section provides thatthe waiting period begins when theacquiring person files.

The amended definition makes noreference to the voting rights of thesecurities before the exchange takesplace. Whether a transaction is aconversion turns on whether it is theexercise of a right inherent in theownership of any securities to exchangethem for other securities which havepresent voting rights. The use of theword "exercise" in the definition isintended to distinguish conversion fromthe automatic maturation of an inchoate

right, such as, for example. if preferredshares become entitled to vote becausedividends are not paid. The newdefinition also eliminates asunnecessary all references to the"payment of additional consideration."

Conversions under the amendeddefinition which do not increase directlyor indirectly the acquiring persons percentum share of outstanding votingsecurities of the issuer are, of course,exempt from the notification andwaiting period requirements undersection 7A(c)(10) of the Act.

Comment 6 criticizes the amendeddefinition because it does not apply toexchanges of securities issued by oneperson which are convertible into votingsecurities of an issuer included within adifferent person. For example. supposeA (included in person "A") wishes todispose of its minority interest in thevoting securities of B (included in person"B") and A issues non-voting debentureswhich may be exchanged for theunderlying B shares. The commentasserts that since such an exchange isnot a conversion (because B is not anentity included within A) it would not becovered by § 801.30, and B could blockthe transfer by refusing to file. The .comment proposes that "conversion" bedefined as the exercise of a right toexchange securities for other securitieswhich give the holder the right to votefor directors of any issuer.

The Commission has determined thatthe suggested modification isunnecessary. In the example above, theholder of the non-voting debenturesissued by A may make a reportableacquisition of B's voting securities whenit exchanges the debentures for thevoting securities of B held by A. Such anexchange is covered by § 801.30(a)(5)because it is an acquisition of votingsecurities from a holder other than theissuer. A hostile issuer in such atransaction will therefore be in no betterposition to interfere with such anexchange than if the transaction wasconsidered a conversion. It should benoted also that if the A debentures givethe owner or holder the right to vote theunderlying B shares prior to conversion,any person proposing to acquire thesedebentures may be required to observethe filing and waiting periodrequirements of the Act before doing so.See the staff formal interpretation. June2,1981.

. Section 801.1 is amended by revisingparagraph (f)(3) and examples 1 and 2which follow paragraph (f)(3) and byadding example 3 to read as follows:

§ 801.1 Definitions.


34430 Federal Register / Vol. 48, No. 147 / Friday, July 29, 1983 / Rules and Regulations

(f). • •(3) Conversion. The term "conversion"

means the exercise of a right inherent inthe ownership or holding of particularvoting securities to exchange suchsecurities for securities which presentlyentitle the owner or holder to vote fordirectors of the issuer or of any entityincluded within the same person as theissuer.

Examples: 1. The acquisition of convertibledebentures which are convertible intocommon stock is an acquisition cif "votingsecurities." However, § 802.31 exempts theacquisition of such securities from therequirements of the act, provided that theyhave no present voting rights.

2. Options and warrants are also "votingsecurities" for purPoses of the act, becausethey can be exchanged for securitieo withpresent voting rights. Section 802.31 exemptsthe acquisition of options and warrants aswell, since they do not themselves havepresent voting rights and hence areconvertible voting securities. Notificationmay be required prior to exercising optionsand warrants, however.

3. Assume that Xhas issued preferredshares which presently entitle the holder tovote for directors of X, and that these sharesare convertible into common shares of X.Because the preferred shares confer a presentright to vote for dirctors of X, they are "votingsecurities." (See § 801.1(f)(1).) They are not"convertible voting securities," however,because the definition of that term excludessecurities which confer a present right to votefor directors of any entity. (See § 801.1(f)(2).)Thus, an acquisition of these preferred sharesissued by Xwould not be exempt as anacquisition of "convertible voting securities."(See § 802.31.) If the criteria in § 7A(a) aremet, an acquisition of X's preferred shareswould be subject to the reporting and waitingperiod requirements of the Act. Moreover. theconversion of these preferred shares intocommon shares of Xwould also bepotentially reportable, since the holder wouldbe exercising a right to exchange particularvoting securities for different votingsecurities having a present right to vote fordirectors of the issuer. Because this exchangewould be a "conversion," § 801.30 wouldapply. (See § 801.30(a)(6).)

3. Section 801.2.' Acquiring andAcquired Persons in Mergers andConsolidations

Two of the most basic concepts in theAct and the rules are those of acquiringand acquired person. For example, thesize-of-transaction test in section7A(a)(3) of the Act, which determineswhether a transaction is of a reportablesize, provides that an acquisition will bereportable if the acquiring person willhold (a) 15% or more of the votingsecurities or assets of the acquiredperson. or (b) an aggregate total amountof the voting securities and assets of theacquired person in excess of $15 million.Similarly, many of the rules depend fortheir application on whether the filing

party is an acquiring or acquired person.In order to apply the provisions of theAct and of the rules and to complete theNotification and Report Form properly,therefore. a filing party must determinewhether it is an acquiring or an acquiredperson, or both.

The terms acquiring and acquiredperson are defined, respectively, inparagraphs (a) and (b) of § 801.2. Anacquiring person is "[any] person which.as a result of an acquisition, will holdvoting securities or assets, eitherdirectly or indirectly...." and, for mos"tpurposes, an acquired person is the one"within which the entity whose assets orvoting securities are being acquired isincluded.... " Paragraphs (c), (d). and(e) of § 801.2 concern the application ofthese concepts in specificcircumstances.

Amended paragraph 801.2(c) providesthat a person may be both an acquiringand an acquired person in a singletransaction. The amendment makesclear that a person is both an acquiringand an acquired person in a transactionwhen it occupies both roles in separateparts of the transaction. The examplefollowing the paragraph illustrates sucha situation: "Corporation A (an entitywithin the person "A") plans to transfercertain of its assets to corporation B (anentity within person "B") in return forvoting securities of 8." With respect tothe transfer of assets, "B" is anacquiring person and "A" is an acquiredperson; with respect to the transfer ofvoting securities, "A" is an' acquiringperson and "B" is an acquired person. Inthe transaction as a whole. therefore,"A" and "B" are.both acquiring andacquired persons.

It should be noted that for purposes ofthis section new § 801.2(c) distinguishesbetween an acquisition and atransaction. An acquisition ischaracterized by the presence of onlyone acquiring and one acquired person.A transaction, as the word is used inthis section, is a set of one or morerelated acquisitions which areconsidered together for reportingpurposes. This distinction clarifiesparagraph (c) and its relationship toparagraphs (a) and (b) of § 801.2.

New § 801.2(d) changes and clarifiesthe treatment of mergers andconsolidations under the rules. Theamended paragraph is also moreconsistent with other provisions of therules. The 1978 § 801.2(d) designated theparties to all mergers and consolidationsas both acquiring and acquired persons,This provision proved to be a significantsource of confusion since it called forquite different treatment for similartransactions. It also caused someunnecessary reporting.

New paragraph (d)(l)(i) of § 801.2states that mergers and consolidationsare subject to the Act and are to betreated as acquisitions of votingsecurities. Mergers and consolidationshave aspects of both acquisitions ofassets and acquisitions of votingsecurities. The new rule eliminates theambiguity in the present treatment ofmergers and consolidations by opting totreat mergers and consolidations in allcases as involving an acquisition ofvoting securities.

New paragraph (d)(l)(ii) sets up amechanism for determining theacquiring party in mergers. Mergers aregoverned by state corporate law. Onefeature common to most, if not all. statestatutes is that documents which mustbe filed with state authorities toeffectuate a merger will specify, amongother things, the participatingcorporation which will survive thetransaction. This is the basis fordetermining the acquiring party. In amerger, the acquiring party is theperson, as defined by § 801.1(a), whichafter consummation will include thecorporation designated the surviyor infilings made in accordance with statelaw, Paragraph (d)(l)(ii) also providesthat the party so identified will bedeemed to have made an acquisition ofvoting securities.

Paragraph (d)(2) completes theanalysis of mergers and consolidationsby enabling the parties to aU suchtransactions to determine whether theyare acquiring or. acquired persons. orboth. A party is an acquiring personunder paragraph (d)(2)(i) if. as a result ofthe transaction, it will hold assets orvoting securities it did not holdpreviously. The acquiring party in amerger, determined in accordance withparagraph (d)(l)(ii) of this section, istherefore the acquiring person in anacquisition of voting securities. All otherparties to that acquisition are acquiredpersons under paragraph (d)(2)(ii)because, as a result of the acquisition,the assets or voting securities of entitiesincluded within them will be held byanother person.

'the transfer of the consideration inthe acquisition just described isanalyzed separately and may itselfconstitute a reportable acquisition. Inthis acquisition, the acquiring andacquired persons exchange roles.Depending on the nature and amount ofthis 'consideration, its acquisition mayormay not be reportable and may be anacquisition of assets or of votingsecurities. The analysis of the reportingobligations of the parties with respect tothe acquisition of voting securities, andthe analysis of their obligation with


Federal Register / Vol. 48,' No. 147 I Friday, July 29, 1983 I Rules and Regulations 34431

respect to the acquisition involved in thetransfer of the consideration willdetermine for the transaction taken as awhole whe~her the parties must reportas acquiring persons. acquired persons.or both. The analysis of mergers undernew § aOl.2(d) will thus have the sameresult as that of any other transactionunder § aOl.2(c).

In a consolidation. the participants alllose their preacquisition identities andthe resulting entity is new. Sinceacquiring and acquired persons cannotreadily be identified in suchtransactions, new § aOl.2(d)(2)(Hi).designates all parties both acquiring andacquired persons and new § a01.2(d)(l)makes clear that such transactions shallbe treated as acquisitions of votingsecurities. Under revised § aOl.2(d).then. a party is designated both anacquiring and an acquired person only ifit occupies both roles in reportableacquisitions involved in a merger or if itis a party to a consolidation.

The examples following revised§ a01.2(d) illustrate its application.Example 1 illustrates a "triangular"merger in which corporation A proposesto acquire Y. a subsidiary of corporationB, by merging Y into A's own subsidiary.X. which will survive. The considerationfor the acquired corporation is cash andthe voting securities of an unrelatedissuer, C. Since "A" (the person ofwhich A is the ultimate parent entity)will include the surviving corporation. X.after the consummation of thetransaction, it is the acquiring person inan acquisition of voting securities. Since"B" is the person whose assets or votingsecurities will be acquired. it is anacquired person. But, since cash and thesecurities of another person are notconsidered assets of the person fromwhich they are acquired (see § a01.21),the acquisition by B of the considerationfor Y from A is not separatelyreportable. In the transaction as awhole. therefore. "A" is an acquiringperson only and "B" an acquired persononly. "B" may have a separate reportingobligation with respect to its acquisitionof the voting securities of C, however.

Example 2 illustrates the analysis ofsimilar transaction in which theconsideration for Y includes th~ voting.securities of the acquiring party. A. Forthe same reasons, "A" is an acquiringperson and "B" is an acquired person. Inaddition. "A" is an acquired person.because its voting securities will be heldby another person as a result of thetransaction. and "B" is an acquiringperson with respect to those votingsecurities. Since these voting securitiesare less than 15% of the outstandingvoting securities of A and are worth less

than $15 million. however. the'acquisition of them is not reportable."A" therefore still reports as anacquiring person only and "B" as anacquired person only. Example 3 showsthat the result is the same when B'sacquisition of the consideration for Y isexempt. Example 4 shows a case inwhich the consideration for Y is assetsthe receipt of which is also a reportableacquisition. In this transaction. "A" isan acquiring and "B" an acquired personin an acquisition of voting securities.and "B" is an acquiring and "A" anacquired person in an acquisition ofassets. Both will therefore report in bothcapacities. Finally, example 5 illustratesa consolidation in which all parties willlose their separate legal identities as aresult of the transaction. In thesecircumstances. all persons party to thetransaction report as both acquiring andacquired persons.

Comment 3 points out that some Statecorporate statutes permit a merger to beeffectuated by the filing of a certificateof merger. See e.g., Del. Code Ann. tit. a,§ 251(c). The comment suggests that thewords "or certificate" be inserted in§ aOl.2(d)(l)(H). Comment 6 suggeststhat example 1 make clear that "B" mayhave a separate reporting obligationwith respect to the voting securities ofC. which form part of the considerationfor A's acquisition of Y. TheCommission has adopted bothsuggestions.

Amended § a01.2(e) makes clear thatwhen the shareholder of an acquiredperson l:ll:4uileS assets or votingsecurities in exchange for its shares inan acquired issuer. the acquisition isseparately subject to the Act.

Section aOl.2 is amended by revisingparagraphs (c), (d). and (e) and byadding examples 1-5 which followparagraph (d) to read as follows:

§ 801.2 Acquiring and acquired persons:

(c) For purposes of the act and theserules, a person may be an acquiringperson and an acquired person withrespect to separate acquisitions ~hich

comprise a single transaction.. (d)(l)(i) Mergers and consolidations

are transactions subject to the act andshall be treated as acquisitions of votingsecurities.

(H) In a merger. the person which,after consummation. will include thecorporation in existence prior toconsummation which is designated asthe surviving corporation in the plan.agreement. or certificate of mergerrequired to be filed with stateauthorities to effectuate the transaction

shall be deemed to have made anacquisition of voting securities.

(2)(i) Any person party to a merger orconsolidation is an acquiring person if.as a result of the transaction. suchperson will hold any assets or votingsecurities which it did not hold prior tothe transaction.

(H) Any person party to a merger orconsolidation is an acquired person if,as a result of the transaction. the assetsor voting securities of any entityincluded within such person will be heldby any other person.

(Hi) All persons party to a transactionas a result of which all parties will losetheir separate pre-acquisition identitiesshall be both acquiring and acquiredpersons.

Examples: 1. Corporation A (the ultimateparent entity included within person "A")proposes to acquire Y. a wholly-ownedsubsidiary of B (the ultimate parent entityincluded within person "a"). The transactionis to be carried out by merging Y into X. awholly-owned subsidiary of A. with Xsurviving. and by distributing the assets of Xto a. the only shareholder of Y. The assets ofX consist solely of cash and the votingsecurities of C. an entity unrelated to "A" or"a". Since X is designated the survivingcorporation in the plan or agreement ofmerger or consolidation and since X will beincluded in "A" after consummation of thetransaction. "A" will be deemed to havemade an acquisition of voting securities. Inthis acquisition. "A" is an acquiring personbecause it will hold assets or votingsecurities it did not hold prior to thetransaction. and "a" is an acquired personbecause the assets or the voting securities ofan entity previously included within it will beheld by A as a result of the acquisition. a willhold the cash and voting securities of C as aresult of the transaction. but since § 801.21applies. this acquisition is not reportable. "A"is therefore an acquiring person only. and "a"is an acquired person only. "a" may.however. have a separate reportingobligation as an acquiring person in aseparate transaction involving the votingsecurities of C.

2. In the above example. suppose theconsideration for Y consists of $8 millionworth of the voting securities of A.constituting less than 15% of A's outstandingvoting securities. With regard to the transferof this consideration. "a" is an acquiringperson because it will hold voting securities itdid not previously hold. and "A" is anacquired person because its voting securitieswill be held by a. Since these votingsecurities are worth less than $15 million andconstitute less than 15% of the outstandingvoting securities of A. however. theacquisition of these securities is notreportable. "A" will therefore report as anacquiring person only and "a" as an acquiredperson only.

3. In the above example. suppose theconsideration for Y is 50% of the votingsecurities of Z. a wholly-owned subsidiary ofA which. together with all entities it controls.


34432 Federal Register / Vol. 48. No. 147 / Friday. July 29. 1983 / P.ules and Regulations

has annual net sales and total assets of lessthen $25 million. Suppose also that the valueof these securities is less than $15 million.Since the acquisition of the voting securitiesof Z is exempt under the minimum dollarvalue exemption in § 802.20, "A" will reportin this transaction as an acquiring persononly and "B" as an acquired person only.

4. In the above example, suppose that. asconsideration for Y, A transfers to Bamanufacturing plant valued at $16 million."B" is thus an acquiring person and "A" anacquired person in a reportable acquisition ofassets."A" and "B" will each report as bothan acquiring and an acquired person in thY:transaction because each occupies eaclrfolein a reportable acquisition.

5. Corporations A (the ultimate parententity in person "A") and B (the ultimateparent entity in person "B") propose toconsolidate into C, a newly formedcorporation. All shareholders of A and Bwillreceive sharesof C, and both A and B WIlllose their separate pre-acquisition identities."A" and "B" are both acquiring and acquiredpersons because they are parties to atransaction in which all parties lose theirseparate pre-acquisition identities.

(e) Whenever voting securities orassets are to be acquired from anacquiring person in connection with anacquisition, the acquisition of votingsecurities or assets shall be separatelysubject to the act.

4. Section 801.4: SecondaryAcquisitions in Tender Offers and inMergers and Consolidations

The term "secondary acquisition" isdefined in § 801.4(a) of the rules as anacquisition in which the acquiringperson. by obtaining control of an issuerholding voting securities of anotherissuer which it does not control.becomes the holder of the latter issuer'svoting securities.

The 1978 § 801.4 did not make specialprovisions for cases where the primaryacquisition is a tender offer. Since suchtransactions have different waitingperiod requirements under the Act andrules. the presence of a secondaryacquisition could interfere with theconsummation of the primarytransaction under the old rule where thelatter was a tender offer. New § 801.4(c)provides that when a tender offer resultsin a reportable secondary acquisition.the same waiting period requirementsapplicable to the primary acquisitionshall also be applicable to thesecondary acquisition. For example. ifthe primary acquisition is a cash tenderoffer which has a 15-day waiting period.the waiting period for a secondaryacquisition will also be 15 days. Ifsecond requests are issued inconnection with the secondaryacquisition when the primaryacquisition is a cash tender offer. the

waiting period for the secondaryacquisition will expire 10 days after theresponse of the acquiring person hasbeen received. the same as if requestshad been issued in connection with thecash tender offer. Thus. when theprimary acquisition is a tender offer andone or more requests for additional ,information are made in connection withthe resulting secondary acquisition. aresponse by the acquiring person willcause the waiting period for thesecondary acquisition to begin runningagain. A second request directed to theacquired person in such a secondaryacquisition will not affect the running ofthe waiting period in that transaction.

In many instances. this change willeliminate the possibility that areportable secondary acquisition willinterfere with the consummation of theprimary transaction. In some cases,however, interference could still occur.Under new § 801.4(c), the end of thewaiting period for a secondaryacquisition will coincide with that of theprimary acquisition only if the acquiringperson files for both at the same time.The presence of a secondary acquisitioncan thus still affect consummation of theprimary acquisition if, for example, theacquiring person only learns that it willbe making a reportable secondaryacquisition after it has filed for theprimary transaction.

Because of this possibility, theacquired firm in a hostile takeover maybe able to exercise favoritism amongpotential suitors. The hostile target maybe able to confer an advantage on oneacquiror by informing it of all potentialsecondary acquisitions whilewithholding the information from othersuitors.

Comment 4 suggests two ways ofdealing with these problems. First. thecomment recommends that acquiredpersons in acquisitions covered by§ 801.30. i.e.• those in which the targetmay be hostile. be required to disclosepotential secondary acquisitions to eachacquiring person. Alternatively, thecomment suggests that if the acquiringperson discovers unknown. reportablesecondary acquisitions it be 'allowed toconsummate the primary acquisition,provided that the acquiring personexercises no control Over the stockinvolv~d in the secondary acquisitionand immediately puts it into escrowuntil all waiting periods relating to thesecondary acquisition have expired.

Although these proposals may havemerit, the Commission cannot endorsethem without further analysis andcomment. The notice by the acquiredperson of potential secondaryacquisitions. for example. may inpractice be burdensome'on acquired

persons and may not always beworkable. The structure of any escrowprovision will also have to be workedout very carefully. In addition. it wouldbe desirable to subject any additionalchange in this sensitive area to publiccomment. For these reasons, theCommission has decided to promulgatethe original change at this time, while itcontinues to consider theappropriateness of further revisions.

Since the application of the rulecovering secondary acquisitions in thearea of mergers and consolidations issomewhat complex. the Commission hasadded examples 4. 5. and 6 to § 801.4 toillustrate the treatment of secondaryacquisitions in these contexts. Example4 shows that when the acquiring personin a merger is an acquiring person only,it may have to report minority holdingsof the acquired issuer as secondaryacquisitions. Even when both parties toa merger are both acquiring andacquired persons. example 5 illustratesthat each acquiring person mustconsider only the minority holdings ofissuers it will control as a result of thetransaction as potential secondaryacquisitions. Finally. example 6indicates that in a consolidation eachparty must regard minority holdings ofall other parties as potential secondaryacquisitions.

Section 801.4 is amended by addingexamples 4, 5, and 6 followingparagraph (b) and by adding paragraph(c) to read as follows:

§ 801.4 Secondary acquisitions.

(b)' * •Examples:' ••4. In the previous e)(amples. assume A's.

acquisition of Bis accomplished by merging Binto A's subsidiary, S, and S is designated thesurviving corporation. B's voting securitiesare cancelled. and B's shareholders are toreceive cash in return. Since S is designatedthe surviving corporation and A will control Sand also hold assets or voting securities it didnot hold previously, "A" is an acquiringperson in an acquisition of voting securitiesby virtue of §§ 801.2 (d)(l)(ii) and (d)(2)(i). Awill be deemed to have acquired control of B,and A's resulting acquisition of the votingsecurities of X is a secondary acquisition.Since cash, the only. consideration paid forthe voting securities of B, is not consideredan asset of the person from which it isacquired, by virtue of § 801.2(d)(2) "A" is anacquiring person only. The acquisition of theminority holding of B in X is therefore 1\secondary acquisition by "A," but since "B"is an acquired person only, "B" is not deemedto make any secondary acquisition in/thistransaction.

5. In example 4 above, suppose theconsideration paid by A for the acquisition ofB is $20 million worth of the voting securitiesof A. By virtue of § 801.2(d)(2), "A" and "B"


Federal Register I Vol. 48, No. 147 I Friday, July 29, 1983 I Rules and Regulations 34433

are each both acquiring and acquiredpersons. A will still be deemed to haveacquired control of B. and therefore theresulting acquisition of the voting securitiesof X is a secondary acquisition. Although "B"is now also an acquiring person. unless Bgains control of A in the transaction, Bstillmakes no secondary acquisitions of s'tockheld by A. If the consideration paid by A isthe voting securities of one of A'ssubsidiaries and Bthereby gains control ofthat subsidiary, Bwill make secondaryacquisitions of any minority holdings of that~b~d~ry. •

6. Assume that A and Bpropose throughconsolidation to create a new corporation. C.and that both A and Bwill lose theircorporate identities as a result. Since noparticipating corporation in existence prior toconsummation is the designated survivingcorporation, "A" and "B" are each bothacquiring and acquired persons by virtue of§ 801.2(d)(2J(iii). The acquisition of theminority holdings of entities within each aretherefore potential secondary acquisitions bythe other.

(c) Where the primary acquisition is(1) a cash tender offer, the waiting

period procedures established for cashtender offers pursuant to sections 7A(a)and 7A(e) of the act shall be applicableto both the primary acquisition and thesecondary acquisition; (2) a non-cashtender offer> the waiting periodprocedures established for tender offerspursuant to section 7A(e)(2) of the actshall be applicable to both the primaryacquisition and the secondaryacquisition.

5. Section 801.33: Acceptance forPayment Is the Consummation ofanAcquisition

New § 801.33 states that theacceptance for payment of votingsecurities tendered in a tender offer isthe consummation of an acquisitionunder the Act. The term "acceptance forpayment" denotes the final stage in atender offer. At this point, the offerordecides whether to accept any, SOqle. orall of the tendered shares and obtainsan unconditional right to the acceptedshares while becoming legallycommitted to pay the tenderingshareholders for them. When a tenderoffer is of a reportable size and the offerends during the waiting period, it mightappear that the offeror could acceptsome or all tendered shares for paymentwithout violating the Act on the premisethat the acquisition would not beconsummated if the shares were left inthe depository until the waiting periodends or is terminated. By stating thatacceptance for payment is theconsummation of an acquisition, thenew rule makes clear that the offerorcannot, either during or after expirationof the offer, accept for payment shareswhich will trigger the requirements of

the Act unless the reporting and waitingperiod requirements have already beencomplied with.

The offeror may. of course, accept anytendered shares for payment, withoutcomplying with the Act, so long as theseshares, when added to its prior holdings,do not reach or exceed a new reportingthreshold. (See § 80U(h).} As pointedout by comment 6, the offeror may alsoaccept shares for payment. theacquisition of which is exempt under theAct or these rules.

Section 801.33 is added to read asfollows:

§ 801.33 Consummation of an acquisitionby acceptance of tendered shares ofpayment.

The acceptance for payment of anyshares tendered in a tender offer is theconsummation of an acquisition of those

, shares within the meaning of the act.

6. Section 801.40: Determination oftheAssets ofa foint Venture or OtherCorporation for the Purpose ofApplyingCertain Exemptions

Amended § 801.40(c) clarifies theapplication of certain exemptions to theformation of a joint venture or other newcorporation. Section 801.40 establishesthe manner in which the reportingrequirements of the Act will be appliedto the formation of a joint venture orother corporation. This section analyzesthe transaction by which a joint ventureor other corporation is formed asacquisitions of the voting securities ofthe new corporation by two or morecontributors. To be reportable, theacquisition by a particular contributormust meet the size criteria of the Act.The assets of the joint venture or othercorporation (the acquired person) forpurposes of the size of person test aredetermined in accordance with a specialassets test set out in § 801.40(c). Thistest requires the inclusion of not onlythose assets which would appear on abalance sheet but also assets which anyperson contributing to the formation ofthe joint venture corporation has agreedto transfer or for which agreements havebeen obtained by the joint venture toacquire at any time. The assets of thejoint venture corporation at the time ofits formation also include any amount ofcredit which any contributor has agreedto extend and any obligation of the jointventure corporation which anycontributor has agreed to guarantee.

Three exemptions, §§ 802.20(b),802.50(b)(1), and 802.51(b),depend fortheir application on a test which issimilar to the size-of-person test. Section802.20(b) exempts certain transactionsin which the acquiring person would notacquire control of an issuer with annual

net sales or total assets of $25 million ormore. Section 802.50(b)(1) exempts anacquisition of voting securities of aforeign issuer if the issuer does not holdassets located in the United Statesvalued at $15 million or more. Section802.51(b) exempts an acquisition ofvoting securities by a foreign person ifthe acquisition will not confer control ofan issuer with United States assetsvalued at $15 million or more or aUnited States issuer with annual netsales or total assets of $25 million ormore. Amended § 801.40(c) makesexplicit that its provisions are to be usedin determining the assets of a jointventure or other corporation forpurposes of determining whether theseexemptions apply to its formation. Thisproposed change incorporates into thelanguage of the rule the position alreadytaken by the Commission in theStatement of Basis and Purpose to 1978§ 802.20, which says that § 801.40(c) isused to apply the minimum dollar valueexemption in these contexts. See 43 FR33491.

Comment 5 suggests that the languageof the proposed change is too broad and,as a'result, could produce undesirableconsequences. In particular, Section802.50(b)(1) exempts acquisitions by aUnited States person of voting securitiesof a foreign issuer which does not holdassets located in the United States(exclusive of investment assets and thevoting and non-voting securities of aperson) valued at $15 million or more.The comment points out that § 801.40(c)as amended could lead to the conclusionthat the formation of a foreign jointventure corporation is reportable if ithas a loan guarantee by a United Statescontributor and this is its only contactwith United States commerce. Thisresult follows because the loanguarantee is an asset of the joint venture.corporation according to § 801.40(c) andis arguably located in the United States.

This problem arises becausecommitments of credit and loanguarantees are counted as assets only inthe special circumstances of theformation of a new joint venturecorporation. They would not ordinarilyappear as assets on a person's balancesheet, and so would not affect theapplicability of,the exemptions in§§ 802.50 and 802.51. While loancommitments and loan guarantees areimportant for determining the size of thenewly formed corporation, they are notrelevant to that corporation's nexus withUnited States commerce, which is asignificant element of the exemptionsprovided in §§ 802.50 and 802.51. TheCommission has therefore amended§§ 802.50 and 802.51 to eliminate loan


34434 Federal Register / Vol. 48, No. 147 / Friday, July 29. 1983 / Rules and Regulations

commitments and loan guarantees fromthe assets to be included in applyingthose exemptions. These changes are setforth in item 10 below, with otherchanges in §§ 802.50 and 802.51.

Section 801.40 is amended by revisingparagraph (c) to read as follows:

§ 801.40 Formation of a Joint venture orother corporation.

(c) For purposes ofparagraph (b) ofthis section and determining whetherany exemptions provided by the act andthese rules apply to its formation, theassets of the joint venture or othercorporation shall include:

(1) All assets which any personcontributing to the formation of the jointventure or other corporation has agreedto transfer or for which agreements havebeen secured for the joint venture orother corporation to obtain at any time,whether or not such person is sqbject tothe requirements of the act; and

(2) Any amount of credit or anyobligations of the joint venture or othercorporation which any personcontributing to the formation has agreedto extend or guarllntee, at any time.

7. Section 802.6: Exemption forTransactions Requiring Appravalby theCivil Aeronautics Board

Certain transactions involving theacquisition or consolidation of control ofair carriers or persons substantiallyengaged in the business of aeronuaticsrequire approval by the CivilAeronautics Board ("CAB") prior toconsummation. 49 U.S.C.1378. New§ 802.6(b) would provide a partialexemption for these acquisitions, sincethe 'enforcement agencies can evaluatethe aeronautical aspects of thesetransactions in proceedings before theCAB. The Justice Department hasauthority to intervene in cases beforethe CAB and may also take other legalaction independent of the proceedings

, before the Board. While the Commissiondoes not have independent jurisdictionover regulated air carriers, it is alsoauthorized to intervene before theBoard. As intervenors, both agenciescan avail themselves of the discoveryprocedures provided by the Board'srules of practice to obtain theinformation necessary to perform anantitrust analysis of the aeronauticalaspects of an acquisition. With respectto these aspects, therefore, the agenciesdo not need the waiting periods or thefull reporting requirements of the Act.

New § 802.6(b) exempts those portionsof CAB approved transactions involvingthe businesses of aeronautics or airtransportation so long as the parties

provide the Federal Trade Commissionand the Department of Justice withcopies of all information anddocumentary materials submitted to theCAB. In the original proposal, notice tothe ~ommission was not requiredbecause the Commission lacksjurisdiction over regulated air carriers.However, the Commission can intervenebefore the CAB and present its views onthe competitive significance of the

,proposed merger. Further, theCommission has 'a statutory obligationto administer the premerger notificationprogram and to monitor compliance withthe Act. These responsibilities cannot becarried out adequately unless theCommission. receives filings for alltransactions required to be reportedunder the Act. Since the burden ofsupplying the Commission with aduplicate filing is small, the rule hasbeen changed to require filings withboth the Assistant Attorney General andthe Commission, as is required for allother filings.

Where the acquired person isinvolved in both aeronautic and nonaeronautic businesses the entiretransaction may not be exempt if thevalue of the non-aeronautic businesswhich is acquired meets the size oftransaction test and the acquisition isnot otherwise exempt. In particular,under new § 802.6(bJ(2), if thetransaction is an acquisition of assets,the non-aeronautic portion of thetransaction must be reported if thatportion is not exempt under the otherprovisions of the Act and rules.Similarly, if the transaction is anacquisition of voting securities, or istreated as such under the rules, the nonaeronautic portion of the transactionmust be reported if the value of thevoting securities exceeds $15 millionand if the non-aeronautic portion of thetransaction is not exempt under theother provisions of the Act and rules.These limitations are necessary becausethe CAB has jurisdiction over only thatpart of the transaction involving airtransportation or aeronautics. Theantitrust agencies must still review thenon-aeronautic part of the transaction ifit is not otherwise exempt.

As originally porposed, new~802.6(b)provided no exemption at all fortransactions involving both aeronauticand non-aeronautic businesses if bothparties to the transaction had nonaeronautic sales or revenues greaterthan $10 million. Comment 3 suggeststhat the $10 million threshold for nonaeronautic businesses is too low, since,according to the comment, a competitiveoverlap this small is insignificant forsubstantive antitrust purposes. Thecomment recommends that the proposed

rule simply follow the approach taken inthe other exemptions in the rules. Whilethe Commission does not believe that acompetitive overlap of this size isgenerally insignificant, the Commissionagrees this exemption should parallelthe other exemptions in the rules.Accordingly, the Commission hasrestyled the rule so that the nonaeronautic part of the transaction willessentially be treated as a separateacquisition, with all existing exemptionsapplicable to that part of thetransaction.

To accomplish this, the rule has beendivided into two subsections-(bJ(l) and(bJ(2)-and subsection (b)(l) has beenadded to the exemptions listed in§ 801.15(a)(2).

Subsection (b)(l) generally retains thelanguage of the original proposal. Thus,subject to the provisions of subsection(b)(2), if a merger'is subject to CABapproval it is exempt if copies of allinformation and documeritary materialfiled with the CAB arecontemporaneously filed with bothagencies.

Subsection (bJ(2) treats mergersinvolving air carriers with one or morenon-aeronautics businesses differentlythan the original proposal. Under newsubsection (b)(2), the acquired person'snon-aeronautics business or businessesare treated as assets to be purchased bythe acquiring person. If the purchase ofthese assets is not exempt under someother provision of the rules it must bereported. Where the transaction isstructured as a merger, consolidation oracquisition of voting securities theparties must still treat the acquisition ofthe acquired person's non-aeronauticbusiness or businesses as an acquisitionof assets: To determine the value of theassets to be acquired see § 801.10(b).Since all acquisitions of non-aeronauticbusinesses are deemed acquisitions ofassets, the aggregation rule set forth in§801.13(b) will apply to successiveacquisitions between the same acquiringand acquired persons. For the samereason, the rule for aggregatingacquisitions of voting securities andacquisitions of assets set forth in§ 801.14 would not apply.

Where a transaction requiring CABapproval is an acquisition of votingsecurities, or is treated as such under .the rules, new § 802.6(bJ(2J(ii) eliminatesany reporting obligation with respect tothe non-aeronautic part of thetransaction if the value of the votingsecurities acquired is less than $15million. Conversely, if the acquiringperson will hold voting securities of theacquired person valued at $15 million ormore, § 802.6(b)(2J(ii) requires the


Federal Register I Vol. 48, No. 147 I Friday, July 29, 1983 I Rules and Regulations 34435

acquiring person to treat the entire nonaeronautic business or businesses of theacquired issuer (and all entities itcontrols) as assets held as a result of theacquisition. The acquisition will then bereportable (assuming no otherexemption applies) if the non-aeronauticbusiness or businesses acquired arevalued at $15 million or more.

Comment 6 states that the CAB has nojurisdiction over acquisitions of lessthan 10% of the voting securities of aperson engaged in aeronautics and airtransportation. It is thus possible for anacquisition of less than 10% to besubject to the reporting and waitingperiod requirements of the Act, while alarger acquisition would be exempt. Thecomment finds this result anomalousand proposes an exemption foracquisitions of less than 10% of such aperson. The Commission believes thatsuch an exemption would beinappropriate. The new exemption in§ 602.6(b) for CAB-reviewedacquisitions is justified by the fact thatboth the CAB and the antitrust agenciescan review the antitrust implications ofsuch acquisitions without preinergerfilings. To exempt acquisitions not soreviewed and not covered by any otherexemptions would be contrary to thepurposes of the Act.

Transactions subject to new § 802.6(b)should be reported to the antitrustagencies as follows. If some or all of the

. transaction is exempt under§ 602.6(b)(1), and no part of thetransaction is reportable because of§ 802.6(b)(2), then to secure theexemption under §802.6(b)(1), all copiesof the materials filed with the CAB mustbe contemporaneously filed with bothantitrust agencies. If part of thetransaction is exempt under§ 602.6(b)(1), but part must be reportedbecause of § 802.6(b)(2), then partiesmust still provide copies of all /information and documentary materialfiled with the CAB. In addition,however, under §603.2(c)(2) they mayrespond to certain parts of the Form(items 5, 7, 8 and 9 and the appendiX) byproviding information only with respectto their non-aeronautic business orbusinesses.

Existing § 602.6 has been redesignatedas §602.6(a) and new § 802.6(b) and anexample following paragraph (b) havebeen added as follows. In addition, in§ 602.53 the reference to "§ 602.6" ischanged to read "§ 802.6(a) and § 801.15is amended by revising paragraph (a)(2)to read as follows:

§ 802.6 Federal agency approval.. . .(b) (1) Except as provided in

§ 602.6(b)(2), any transaction which

requires approval by the CivilAeronautics Board prior tocons\lJl1mation, pursuant to section 408of the Federal Aviation Act, 49 U.S.C.1378, shall be exempt from therequirements of the act if copies of allinformation and documentary materialfiled with the Civil Aeronautics Boardare contemporaneously filed with theFederal Trade Commission and theAssistant Attorney General.

(2) The following will be consideredassets held as a result of an acquisitionrequiring approval by the CivilAeronautics Board pursuant to section408 of the Federal Aviation Act, andsuch assets will not be exempt under§ 602.6(b)(1):

(i) if the transaction is an acquisitionof assets, the assets which are engagedin a business or businesses other thanaeronautics or air transportation asdefined in section 101 of the FederalAviation Act, 49 U.S.C. 1301;

(ii) if the transaction is an acquisitionof voting securities, or is treated underthe rules as an acquisition of voting .securities, and the acquiring person will.as a result of the acquisition. hold votingsecurities of the acquired person valuedin excess of $15 million, the business orbusinesses of the acquired issuer (and'all entities which it controls) which arenot engaged in aeronautics or airtransportation as defined in section 101of the Federal Aviation Act, 49 U.S.C.1301.

Example: Assume that A (an entityincluded within person "A") proposes toacquire voting securities of B (an entityincluded within person "B") for $100 million.A and B are both air carriers who meet thesize-of-person test. but B also owns acommercial data processing business locatedin the United States with a value of $30million. !\ssume that this transaction requiresCAB approval under 49 U.S.C. 1378. Since theacquired person has a business other thanaeronautics or air transportation. the partiesmust report under § 802.elb)l2) because theparties meet the size-of-person test. no otherexemption applies to the acquisition of thedata processing business, and the acquisitionof the non-aeronautic business is deemed tobe an acquisition of assets valued at $30million.

§ 801.15 Aggregation of voting securitiesand assets the acquisition of which wasexempt.

(a)' • •(2) Sections 802.6(b)(1), 602.8, 602.31,

802.50(a)(1), 602.51(a). 802.52, 802.53,802.63, and 802.70;

•

8. Section 802.8: Exemption forAcquisitions Involving Insured Banks orOther Financial Institutions

New § 802.8(b) exempts acquisitionssubject to the approval of federalregulatory agencies pursuant to theChange in Bank Control Act and theChange in Savings and Loan Control Actif copies of all information anddocumentary material filed with theregulatory agency are filed with theFederal Trade Commission and theAssistant Attorney General at least 30days prior to consummation of thetransaction.

Section 7A(c)(7) of the Act completelyexempts from reporting and waitingperiod requirements "transactionswhich require agency approval undersection 18(c) of the Federal DepositInsurance Act (12 U.S.C. 1828(c)), orsection 3 of the Bank Holding CompanyAct of 1956 (12 U.S.C. 1842),"Subsequent to passage of the Act andthe promulgation of the original rules,Congress passed the FinancialInstitutions Regulatory and Interest RateControl Act of 1978, Pub. L. 95-630, 92Stat. 3683. Titles VI and VII, which areknown respectively as-the Change inBank Control Act and the Change inSavings and Loan Control Act. TheseActs apply to other transactionsinvolving regulated financial institutionsand thus broaden the approvalrequirements imposed on banks andsavings and loan holding companies bythe statutes cited in section 7A(c)(7).Under these Acts, all personscontemplating acquisitions of banks orsavings and loans must now notify theappropriate regulatory agency 60 daysprior to consummation and provide itwith specified information. See 12 U.S.C.1817(j)(6); 12 U.S.C. 1730(q)(6).

The exemption provided for thisbroader category of transactions by§ 602.8(b) is a qualifiEl,d one, however,patterned after the exemption providedin section 7A(c)(8). As originallyproposed, it would have allowed thesubmission of an index of documents inlieu of copies of all documents, aspermitted by § 602.6. Experience withprocedures under the new regulatorystatutes covered by § 602.8(b), however,has shown that the appropriateregulatory agency cannot alwaysforward the material submitted quicklyenough to the Department of Justice toallow adequate opportunity for review.Therefore, the new rule does not permitan index to be submitted in lieu ofcopies. In addition, the rule as proposedwould have required parties to filecopies of documents with theDepartment of Justice only. No notice to


34436 Federal Register / Vol. 48, No. 147 / Friday, July 29, 1983 / Rules and Regulations

the Commission was required becausethe Commission lacks jurisdiction overbanks and savings and loanassociations. The Commission, however,has a statutory obligation to administerthe premerger notification program andto monitor compliance with the Act.These responsibilities cannot be carriedout adequately unless the Commissionreceives filings for all transactionsrequired to be reported under the Act.Since the burden of supplying aduplicate filing to the Commission issmall, the rule has been changed torequire filings with both the AssistantAttorney General and the Commission,as is required for all other filings,

New § 802.8(b)(2) exempts a coveredacquisition from all requirements of theAct, including the filing requirements, ifthe appropriate regulatory agency findsthat its approval is necessary to preventthe failure of one of the financialinstitutions involved. This provision isdesigned to cover situations in which·the approving agency must act quicklyto prevent the collapse of a bank orother institution, and mirrors a provisionin 1978 § 802.8 (redesignated § 802.8(a)).

Section 802.8 is redesignated § 802.8(a) and paragraph (b) is added to readas follows:

§ 802.8 Certain supervisory acquisitions.

(b)(l) A merger, consolidation,purchase of assets, or acquisition whichrequires agency approval under 12U.S.C. 1817(j) or 12 U.S.C. 1730(q) shallbe exempt from the requirements of theact if.copies of all information anddocumentary materials filed with anysuch agency are contemporaneouslyfiled with the Federal TradeCommission and the Assistant AttorneyGeneral at least 30 days prior toconsummation of the proposedacquisition.

(2) A transaction described inparagraph (b)(l) of this section shall beexempt from the requirements of the act,including specifically the filingrequirement, if the agency whoseapproval is required finds that approvalof.such transaction is necessary toprevent the probable failure of one ofthe institutions involved.

9. Sectiqn 802.42: Partial Exemption forAcquisitions in Connection With theFormation ofCertain foint Ventures orOther Corporations

New § 802.42 partially exemptscontributors to the formation of jointventure corporations in cases whereother contributors are entirely exemptunder section 7A(c)(8) of the Act. Under§ 801.40 of the rules, the formation of ajoint venture or other corporation is

analyzed as an acquisition of the votingsecurities of the newly-formedcorporation by each contributor, andeach contributor must determinewhether its acquistion is reportableunder the Act. In the case of theformation of a joint venture corporationin which one participant is exemptunder section 7A(c)(8) but anotherparticipant is not, the non-exemptparticipant was required to file underthe 1978 rules if its acquisition of thevoting securities of the joint venturecorporation met the size criteria of theAct and was not otherwise exempt.Since contributors exempted by section7A(c)(8) submit information anddocuments relating to the formation of ajoint venture corporation to theenforcement agencies, the Commissionhas determined that other participantsneed not be required to make an initialpremerger notification filing.

This exemption is limited to the filingof a Notifir.ation and Report Form. Inaddition, in lieu of the Form, § 802.42(a)requires the party to submit an affidavitclaiming this exemption and attesting toa good faith intention of going forwardwith the transaction. Section 802.42(b)states that the party remains subject toall other provisions of the Act and therules. The submission of the affidavitthus initiates a 30-day waiting period.During this period, the Commission orthe Assistant Attorney General mayissue a request for additionalinformation or documentary material toany non-exempt party to the acquisition,and such a request will extend thewaiting period until 20 days after aresponse is received.

Comment 2 exprcsGes a concern thatthe exemption from filing created by§ 802.42 may negate the exemption in§ 802.41 for the joint venture or othercorporation at the time of its formation.If the exemption in § 802.41 wereconditioned on filing being made by oneor more contributors to the formation ofthe joint venture corporation, anexemption for contributors might implya filing obligation for the joint venturecorporation. The exemption for the jointventure or other corporation at the timeof its formation is not so conditioned,however, and is unaffected by whetheror not any of the contributors aresubject to a filing requirement.


§ 802.42 Partial exemption for acquisitionsIn connection with the formation of certainJoint ventures or other corporations.

(a) Whenever one or more of thecontributors in the formation of a jointventure or other corporation whichotherwise would be subject to the

requirements of the act by reason of§ 801.40 are exempt from theserequirements under section 7A(c)(8), anyother contributor in the formation whichis subject to the act and not exemptunder section 7A(c}(8) need not file aNotification and Report Form, providedthat rio less than 30 days prior to thedate of consummation any suchcontributor claiming this exemption hassubmitted an affidavit to the FederalTrade Commission and to the AssistantAttorney General stating its good faithintention to make the proposedacquisition and asserting theapplicability of this exemption.

(b) Persons relieved of therequirement to file a Notification andReport Form pursuant to paragraph (a)of this section remain subject to allother provisions of the act and theserules.

10. Sections 802.50 and 802.51:Acquisitions ofand byForeign Persons

Two changes have been made in§§ 802.50 and 802.51 which exempt,respectively, certain acquisitions of andby foreign persons. First, the minimumamount of contact with United States .commerce necessary for a transaction tobe reportable has been raised. Theseamounts now coincide with those inamended § 802.20. See 44 FR 60781(November 21, 1979). Specifically,§ 802.50(a) now exempts acquisitions bya United States person of foreign assetsunless sales in or into the United Statesof $25 million or more are attributable tosuch assets. New § 802.50(b) exemptsacquisitions by a United States personof a foreign issuer unless the foreignissuer (or an entity controlled by it)holds assets located in the United Stateswith an aggregate book value of $15million or more, or had sales in or intothe United States of $25 million or morein its most recent fiscal year. Amended§ 802.51(b) exempts an acquisition by aforeign person of a foreign issuer whichdoes not confer control of an issuer withassets located in the United States withan aggregate book value of $15 millionor more, or confer control of a UnitedStates issuer with annual net sales ortotal assets of $25 million or more.Finally, new § 802.5i(c) exemptsacquisitions by a foreign person ofassets located in the United Statesvalued at less than $15 million. Three ofthe examples to §§ 802.50 and 802.51have been changed to reflect these newlevels.

The second change has been to amend§§ 802.51 (b)(l) and (d) to exclude fromthe determination-of the dollar amountof assets located in the United States, inaddition to "investment assets," the



..

value of any voting or nonvotingsecurities of another person held by theacquired person. The 1976 § 602.50(b)excluded from the value of assetslocated in the United States the value of"investment assets and voting ornonvoting securities of another person"but 1976 § 602.51 referred only toinvestment assets. Investment assets aredefined in § 601.1(i)(2) of the rules as"cash. deposits in financial institutions.other money market instruments. andinstruments evidencing governmentobligations." The Statement of Basis andPurpose to § 602.50 states that thepurpose of disregarding these assets is"[t]o exclude assets that do not reflect asubstantial business presence in theUnited States and generally have littlecompetitive significance." 43 FR 33497(July 31, 1978). Since this rationaleapplies equally to acquisitions byforeign persons. the provisions of§ 802.51 have been made to coincidewith those of § 802.50.

In determining whether an acquisitionis exempt under § 802.51(c). one neednot include the value of any voting ornonvoting securities of another personwhich are to be acquired because§ 801.21(b) must be applied in thedetermination of the value of suchassets. That section excludes suchsecurities from the determination of thevalue of assets when acquired. Section602.51(c) has not, therefore. beenamended. since it is already consistentwith § 802.50(b)(1).

Loan commitments and loanguarantees counted among the assets ofa newly-formed joint venturecorporation pursuant to § 801.40(c)(2).like investment assets and securities ofanother person. do not reflect asubstantial business presence orcompetitive significance in the UnitedStates. The changes to § 801.40(c) makeclear that the assets of a joint venturecorporation as determined inaccordance with that section are to beused for purposes of applyingexemptions provided by the rulesincluding §§ 802.50 and 802.51. Comment5 points out that the formation of aforeign joint venture with no assets inthe United States other than a loanguarantee by a United Statescorporation would not be exempt underthe proposed language of §§ 801.40(C)and 802.51(b). although this result isclearly unintended and undeairable. TheCommission has therefore added to thekinds of assets to be excluded whenapplying §§ 802.50(b)(1), 102.51(b)(2),and S02.51(d). "assets included pursuantto § 801.4tJ{c}(2)."

Two comments address the raising ofthe reporting floor bl §§ i02.50 aDd

602.51. Comment 3 asserts that theincreases are far too small. Thecomment argues. that considerations ofcomity are particularly important andthat foreign governments are especiallyresentful of the intrusion of-UnitedStates antitrust law into predominantlyforeign transactions. The commentsuggests that the minimum threshold beat least $75 million. The Commissiondoes not agree with this suggestion. Thepresent changes in §§ 802.50 and 802.51are designed to make the reporting floorfor transactions involving foreignpersons coincide with those fortransactions between United Statespersons as formulated in the minimumdollar value exemption of § 602.20. Thischange is justified by the Commission'sdetermination when § 602.20 wasamended that transactions with lessimpact on United States commerce areunlikely to violate the antitrust laws. Ifadditional experience shows thattransactions with still greater effects oncommerce are unlikely to violate theantitrust laws. these thresholds can beraised again.

Comment 6 contends that thesechanges have introduced a contradictioninto § 802.51(b). The comment cites theexample of an acquisition by a foreignperson of another foreign person havingone United States subsidiary all ofwhose assets are located in the UnitedStates and are valued at $20 million andwhich had $20 million in sales. Theacquiring person is acquiring control ofan issuer which holds assets located inthe United States valued at more than$15 million. and the comment contendsthat according to § 602.51(b)(1) thetransaction is reportable. But, since theacquiring person is gaining control of aUnited States issuer with less than $25million in annual net sales and totalassets. § 802.51(b)(2) makes it exempt.This comment does not take intoconsideration the precise wording of§§ 802.50 and 802.51. The provisions ofthese sections are stated in thealternative. If anyone (or more) of theparagraphs is satisfied, the transactionis exempt. See Statement of Basis andPurpose to § 802.51. 43 FR 33498 (July 31,1978). There is thus no contradiction innew § 802.51(b); since § 802.51(b)(2) issatisfied. the transaction is exempt.

Section 802.50 is amended by revisingparagraphs (a)(2), (b)(l). and (b){2.example 2 which follows paragraph (a).and tDe example which followsparagraph (b) and i 802.81 is amendedby revisiolll paragraphs (b}(l). (b){2). (c).and (d) and example 2 which followsparagraph (d) to read as follows:

§ 802.50 Acquisitions of foreign assets orof voting securities of a foreign Issuer byUnited States persons.

(a) Assets. ••••

(2) The acquisition of assets locatedoutside the United States. to which salesin or into the United States areattributable. shall be exempt from therequirements of the act unless as aresult of the acquisition the acquiringperson would hold assets of theacquired person to which such salesaggregating $25 million or more duringthe acquired person's mpst recent fiscalyear were attributable. .-

Examples:' ••2. Sixty days after the transaction in

example 1, "A" proposes to sell to "B" asecond manufacturing plant located abroad;sales in or into the United States attributableto this plant totaled $20 million in the mostrecent fiscal year. Since "B" would beacquiring the second plant within 180 days ofthe first plant, both plants would beconsidered assets of "A" now held by "B".See § 801.13(b)(2). Since the total annualsales in or into the United States exceed $215million, the acquisition of the second plantwould not be exempt under this paragraph.

(b) Voting Securities. • • •(1) Holds assets located in the United

States (other than investment assets.voting or nonvoting securities of anotherperson. and assets included pursuant to§ 801.40(c)(2)) having an aggregate bookvalue of $15 million or more; or

(2) Made aggregate sales in or into theUnited States of $25 million or more inits most recent fiscal year.

Example: "A," a U.S. person, is to acquirethe voting securities of C, a foreign issuer. Chas no assets in the United States, but madeaggregate sales into the United States of $27million in the most recent fiscal year. Thetransaction is not exempt under this section.

§ 802.51 AcquIsitions by foreign persons.•

(b)' • •(1) An issuer which holds assets

located in the United States (other thaninvestment assets. voting or nonvotingsecurities of another person. and assetsincluded pursuant to § 801.40(c)(2))having an aggregate book value of $15million or more. or

(2) A U.S. issuer with annual net salesor total assets of $25 million or more;

(c) The acquisition is of less than $15million of assets located in the UnitedStates (other than investment assests);or

(d) The acquired person is also aforeign person, the aggregate annualsales of the acquiring and acquiredpersons in or into the United States areless than $110 million, and the asgregatetotal asseta of the acquiring and


Federal Register I Vol. 48, No. 147 I Friday, July 29, 1983 I Rules and Regulations

acquired persons located in the UnitedStates (other than investment assets,voting or nonvoting securities of anotherperson, and assets included pursuant to§ 801.4O(c)(2)) are less than $110 million.

Examples:' ••2. In example 1. assume that "A" is

acquiring "B's" stock and that includedwithin "B" is issuer C. a U.S. issuer whosetotal assets are valued at $27 million. SinceC's voting securities will be acquiredindirectly. and since "A" thus will beacquiring control of a U.S. issuer with totalassets of more than $25 million. theacquisition cannot be exempt under thissection.

(b) The acquiring person or entity issubject to an order of the Federal TradeCommission or of any Federal court inan action brought by the Federal TradeCommission or the Department ofJustice, requiring prior approval of suchacquisition by the Federal TradeCommission. such court, or theDepartment of Justice, and suchapproval has been obtained.

12. Section 803.2: Incorporation byReference

This new provision incorporates intothe rules the circumstances under whichincorporation by reference has beenpermitted by the staff in formalinterpretations issued on April 7, 1981,and April 10, 1979. New paragraph (e)permits a person filing notification toincorporate by reference in item 4(a) ofthe Notification and Report Form anySEC documents submitted by that

11. Section 802.70: AcquisitionsRequiring the Approvalofa FederalCourt in a Bankruptcy Praceeding

Paragraph (b) of § 802.70 has beenamended to make clear that acquisitionsexempted thereunder are limited tothose subject to an order and requiringprior approval in connection withactions initiated by the Commission orthe Department of Justice. TheCommission has made this changespecifically to exclude from thisexemption acquisitions subject to priorapproval of a federal court because theyare of, by, or from a corporation inbankruptcy. In bankruptcy proceedings,the court will generally not considerantitrust issues in deciding whether toapprove an acquisition. Therefore, suchacquisitions should not generally beexempted from the requirements of theAct.

No comments addressed this rule.Section 802.70 is amended by revising

paragraph (b) to read as follows:

§ 802.70 AcquisItions subject to order.*

* *

person with an earlier filing whichremain' current and are called for in alater filing. Of course, the person wouldstill be required to submit anydocuments called for by item 4(a) thatwere not previously submitted. Areporting person may thus incorporateby reference a Form 1o-K from a filingmade six months earlier (provided thatno Form 1D-K has been filed morerecently with the SEC) but will berequired to submit any more recentForms 1D-Q or 8-K not submitted withan earlier filing. In addition, when thesame parties file for a higher notificationthreshold, (see § 801.1(b)) no more than90 days after having filed for a lowerthreshold, they may incorporate byreference any documents or informationsubmitted with the earlier filingprovided that the documents andinformation are the most recentavailable.

Comment 6 suggests thatincorporation by reference also bepermitted for documents called for byitem 4(b) of the Notification and ReportForm; that is, annual reports, annualaudit reports, and regularly preparedbalance sheets. The Commission hasdecided to adopt part of this suggestion.New paragraph (e) has been expandedto permit a person filing notification toincorporate by reference in item 4(b) ofthe Notification and Report Form anyannual reports submitted with an earlierfiling which remain ourrent and arecalled for in the later filing. Thisexpansion is feasible because theCommission has recently enlarged itsrecord-keeping system to include annualreports. This change was made in largepart because the Securities andExchange Commission now permitscompanies to attach annual reports totheir Form 1D-K's and incorporate byreference into their Form 1D-K'sinformation contained in their annualreport. As a result, many of the Form1D-K's in the Commission's files alreadyincluded copies of the annual report.

Since the Commission's recordkeeping system does not now includeother documents called for by item 4(b),such an annual audit reports andregularly prepared balance sheets, theCommission cannot permit furtherincorporation by reference at this time.However, the Commission is currentlyexploring how additional incorporationby reference could be allowed withoutsignificantly increasing the cost orreducing the effectiveness of thepremerger notification program.

Section 803.2 is amended by addingparagraph (e) to read as follows:

§ 803.2 .Instructions applicable tonotification and report form.

(e) A person filing notification may.incorporate by reference onlydocumentary materials required to befiled in response to item 4(a) of theNotification and Report Form andannual reports required to be filed inresponse to item 4(b), which werepreviously submitted with a filing by thesame persoil and which are the mostrecent versions available; except thatwhen the same parties file for a highernotification threshold no more than 90days after having made filings withrespect to a lower threshold, each partymay incorporate by reference in thesubsequent filing any documents orinformation in its earlier filing providedthat the documents and information arethe most recent available.

13. Section 803.3: Statement ofReasonsfor Noncompliance

Section 803.3, which sets forth theinformation which must be contained ina statement of reasons fornoncompliance. has been revised torequire a more detailed explanation ofthe filing person's noncompliance. Thisgreater detail is necessary because paststatements of noncompliance have notalways provided the enforcementagencies with sufficient information todetermine whether substantialcompliance has been achieved. Section7A(b)(1)(A) of the Act provides that thewaiting period shall begin on the date ofreceipt by the Commission and theAssistant Attorney General ofcompleted notification or, if suchnotification is not completed, on thedate ofreceipt of the notification to theextent completed and a statement of thereasons for noncompliance. Section7A(e)(2) of the Act similarly provides,with respect to a response to a requestfor additional information, that thewaiting period shall begin to run againon the date of receipt of either acompleted response or the response tothe extent completed accompanied by astatement of reasons for noncompliance.

In the new rule, the introductoryparagraph has been revised toemphasize that a statement of reasonsfor noncompliance must contain all theinformation relied lipon to explain thenoncompliance, since the informationspecifically requested in the rule maynot provide an adequate explanation inall cases. Paragraph (a), which isunchanged from the 1978 rule, calls foran explanation of why the person isunable to respond completely.Paragraph (b) calls for an explanation ofthe information which would have been



necessary for a complete response. Inthe new rule, persons are required tospecify which documents or classes ofdocuments would have provided therequested information. Paragraph (c) isintended to enable the enforcementagencies to evaluate the adequacy of thesearch for responsive information ordocuments. The reporting person isrequired to identify persons having therequired information, to describe effortsto obtain it and list the names of personswho searched for such information and,if no effort was made, to explain why.Finally, paragraph (d) specifies theinformation which must be providedwhere noncompliance is based on aclaim of privilege.

Comment 1 objects to the requirementin revised § 803.3(c) that the identity ofpersons who searched for responsivedocuments be disclosed on the groundsthat such persons would often be legalcounsel and disclosure of their nameswould violate the "work product"exemption from discovery. TheCommission believes that this provisionof the rule is necessary to allow theinvestigative staff to evaluate theadequacy of a search for documents.Since the rule does not require thedisclosure of any information relating toan attorney's legal analysis or strategyin pending litigation, this requirementpresents no threat to the rights the"work product" exemption is intendedto protect.

Section 803.3 is revised to read asfollows:

§ 803.3 Statement of reasons fornoncompliance.

A complete response shall be suppliedto each item on the Notification andReport Form and to any request foradditional information pursuant tosection 7A(e) and § 803.20. Wheneverthe person filing notification is unable tosupply a complete response, that personshall provide, for each item for whichless than a complete response has beensupplied, a statement of reasons fornoncompliance. The statement of .reasons for noncompliance shall containall information upon which a personrelies in explanation of itsnoncompliance and shall include atleast the following:

(a) Why the person is unable tosupply a complete response;

(b) What information, and whatspecific documents or categories ofdocuments, would have been requiredfor a complete response;

(c) Who, if anyone, has the requiredinformation, and specific documents orcategories of documents; and adescription of all efforts made to obtain

such information and documents,including the names of persons whosearched for required information anddocuments, and where the search wasconducted. If no such efforts were made,provide an explanation of the reasonswhy, and a description of all effortsnecessary to obtain requiredinformation and documents;

(d) Where noncompliance is based ona claim of privilege, a statement of the

. claim of privilege and all facts relied onin support thereof, including the identityof each document, its author, addressee,date, subject matter, all recipients of theoriginal and of any copies, its presentlocation, and who has control of it.

14. Section 803.5: Affidavits SubmittedWith the Notification and Report Form

Two revisions have been made in§ 803.5 which sets forth therequirements for the affidavits that mustbe submitted with the Notification andReport Form. First, new paragraph (3)has been added to § 803.5(a) requiringacquiring persons in transactionscovered by § 801.30 to include in theirpremerger notification filing a copy ofthe notice served on the acquired personpursuant to § 803.5(a)(1).

Second, a requirement that the partiesattest to a good faith intention toconsummate the transaction has beenincluded in paragraph (b) of § 805.5,which applies to transactions notcovered by § 801.30. Such a requirementalready appears in paragraph (a) andhas been inserted here to increase theenforcement agencies' assurance thatthe intention to complete the transactionis current as of the time of filing.

Comment 3 asserts that the newrequirement that a copy of the noticetransmitted to the acquired person beattached to the acquiring person'saffidavit will not solve the problem ofassuring that the acquired personreceives actual notice of the proposedacquisition. The comment suggestsinstead that the acquiring person becharged with the responsibility ofdelivering the notice to the chiefexecutive officer of the acquired person.While the proposal may have merit, theCommission has not had any indicationsthat acqpired persons are not actuallyreceiving the notice required. Thesuggestion was therefore not pursued.The purpose of requiring thara copy ofthe notice be submitted with theacquiring person's filing is not to assurethat the acquired person has receivedthe notice but to enable the enforcementagencies to determine whether thesubstance of the notice is adequateunder the rules.

Comment 3 also argues that it isunnecessary to require the parties to a

consensual transaction to attest to agood faith intention to consummate thetransaction, since a lack of good faith isnever the reason for the failure of such atransaction to be completed. TheCommission believes, however, that theadditional assurance that at the time offiling the parties intend to go throughwith the transaction justifies theminimal additional effort to comply withthis requirement.

Section 803.5 is amended by addingparagraph (a)(3) and by revisingparagraph (b) to read as follows:

§ 803.5 Affidavits required.

(a)' • •(3) The affidavit required by this

paragraph must have attached to it acopy of the written notice received bythe acquired person pursuant toparagraph (a)(l) of this section.

(b) Non-section 801.30 acquisitions.For acquisitions to which § 801.30 doesnot apply, the notification required bythe act shall contain an affidavit,attached to the front of the notification,attesting that a contract, agreement inprinciple or letter of intent to merge oracquire has been executed, and furtherattesting to the good faith intention ofthe person filing notification to completethe transaction.

15. Section 803.8: English Versions ofForeign Language Documents

New § 803.8 sets out thecircumstances in which personssubmitting foreign language documentsare required to provide the sameinformation in English as well.Paragraph 803.8(a) requires that.whenever an "English language version"of any foreign language information ordocumentary material exists at the timeof submission of the Notification andReport Form both the foreign andEnglish language versions shall besubmitted. An English language versionis an English language outline, summary,extract, or verbatim translation of aforeign language document. Paragraph§ 803.8(b) requires that personssubmitting foreign language documentsor information in response to a requestfor additional information ordocumentary material provide verbatimEnglish translations or existing Englishlanguage versions or both to the extentspecified in the request.

Four comments (1, 2, 3, and 6)addressed the new· rule. None criticizedthe requirement that existing Englishversions of foreign-language documentsbe submitted with the initial filing. Allobjected to the requirement thatverbatim translations be submitted asrequired by a request for additional


34440 Federal Register / Vol. 48. No. 147 / Friday, July 29, 1983 / Rules and Regulations

information. Comments 1, 2, and 6suggest that the provision conflicts withthe intent of Congress and gives theenforcement agencies what amounts toan "automatic stay" of acquisitionsinvolving foreign persons. Severalcomments expressed concern that theenforcement agencies wouldautomatically require translation of alldocuments requested from a foreignperson, unduly delaying consummation.In addition, three comments assertedthat the power to impose such a burdenis beyond the agencies' authority andwill have a detrimental effect on foreigninvestment in this country.

Two comments suggest alternatives.Comment 1 proposes that the agenciesbe able to require translations only ofdocuments which would be called for byitem 4(c) of the Form, that is, documentsanalyzing the proposed acquisition interms of markets and competition.Comment 3 suggests two approaches.One is to allow the recipient of therequest to translate selected documentsafter foreign language versions havebeen submitted and the waiting periodhas resumed. Alternatively, thecomment proposes that the filing ofEnglish summaries should start thewaiting period, but that it would besuspended after ten days unlesstranslations of selected documents weresubmitted.

The Commission does not agree that arequest for translations of foreignlanguage documents is beyond the scopeof the information-gathering authoritygranted by Congress when it created thepremerger review program. Theenforcement agencies are not limited torequesting existing documents andpreviously compiled information, but areauthorized to "require the submission ofadditional information or documentarymaterial relevant to the proposedacquisition ...." 15 U.S.C. 18a(e)(1).Congress could have exemptedtransactions involving foreign firms fromthe requirements of the Act or placedlimitations on the enforcement agencies'powers to investigate them. ThatCongress did not do so is a clearindication that it intended the agenciesto scrutinize these transactions asthoroughly as any others. Thisobligation to investigate acquisitionswith foreign participants requires thatthe agencies have access to the sameinformation about the foreign person asthey have about a United States person.While the Commission recognizes thedelay and expense that may be imposedby a request for English languagetranslations, the tight statutory timelimits during which the enforcementagencies must assess the competitive

effects of a transaction and take anynecessary enforcement action do notinclude any special extensions fortranslating essential documents. Theonly way to assure that the agencieswill have the full time period mandatedby Congress to analyze the antitrustsignificance of a transaction is to requirethat the information necessary beprovided in a form that is immediatelyusable.

The alternatives proposed in thecomments appear unsatisfactory forseveral reasons. First, the suggestionthat authority to require translations belimited to particular categories ofdocuments or information could oftendeprive the enforcement agencies of theinformation necessary to evaluate thecompetitive effects of a particularacquisition. The suggestion that thewaiting period resume when the foreignlanguage documents are received, withthe parties submitting selectedtranslations while the time is running,would prevent the enforcement agenciesfrom using the full, mandated timeperiod to review the information andmake a decision about the need forenforcement action. Finally, theproposal to suspend the waiting period asecond time until selected verbatimtranslations are provided would stillsignificantly shorten the agencies' timeto review necessary information. Inaddition, this proposal is inconsistentwith the time schedules provided by theAct, and may be beyond theCommission's authority.

While it does not appear possible tolimit translations to a specific categoryof documents or information in alltransactions, or to create a specialwaiting period based on the submissionof English language summaries anddescriptions of documents, theenforcement agencies have often foundit possible to limit requests fortranslations in particular cases. Twoapproaches are available. First.representatives of the parties areencouraged to meet with investigatingattorneys at the Department of Justice orthe Commission before a request foradditional information is prepared. Suchmeetings often provide informationhelpful in narrowing the scope of arequest, limiting the categories ofdocuments for which verbatimtranslations are required. andidentifying categories of documents forwhich English language summaries areadequate. Even after a request foradditional information has beendelivered, the investigating attorneys atboth enforcement agencies haveauthority to reduce or modifyspecifications or requirements for

translation in particular cases.Particularly where a person preparing a ~

response to a request believes that a ,.large number of documentll areresponsive but appear unrelated to theantitrust analysis. the parties shouldcontact the requesting agency to discussthe actual nature of the responsivedocuments. what points theinvestigating attorneys anticipatedwould be elucidated by the documentsrequested, and whether some or all ofthe responsive documents should beexempted entirely or not translated.

The enforcement agencies remainaware of the burden placed onrecipients of requests for additionalinformation by the requirement that theyprovide verbatim translations, and willcontinue to be sensitive to minimizingthis burden when such requests areissued. Translations of foreign languagedocuments will be required to the leastextent consistent with the agencies'fulfilling their law enforcementobligations. The determination of whentranslations are necessary must bemade on a case-by-case basis. however,and any general limitation on whentranslation can be required would beinconsistent with the goals of the Act.


§ 803.8 ForeIgn language documents.

(a) Whenever at the time of filing aNotification and Report Form there is anEnglish language outline. summary.extract or verbatim translation of anyinformation or of all or portions of anydocumentary materials in a foreignlanguage required to be submitted bythe act or these rules. all such Englishlanguage versions shall be filed alongwith the foreign language information ormaterials.

(b) Documentary materials orinformation in a foreign languagerequired to be submitted in responses toa request for additional information ordocumentary materialshaU besubmitted with verbatim Englishlanguage trarislations. or all existingEnglish language versions. or both. asspecified in such request.

16. Section 803.20(a): Response toSecond Requests: Where Submitted

Section 803.20 establishes proceduresgoverning requests for additionalinformation or documentary material("second requests") by the antitrustenforcement agencies. These requestshave the effect of extending the waitingperiod. Consummation of the proposedacquisition normally cannot occur until20 days (10 days in the case of a cashtender offer) after completed responses


Federal Register / Vol. 4~, No. 147 / Friday, July 29, 1983 / Rules and Regulations 34441

to the request(s) are received by therequesting agency. Section 803.20(a)(2)originally provided that responses tose'cond requests were returnable "at theoffice designated in § 803.l0(c)"-that is,at the headquarters offices of theantitrust enforcement agencies inWashington, D.C. To make proceduresfor return of responses more flexible,this provision has been revised to makeresponses to second requests returnableat the location designated in the requestor, if no location is designated, at theoffices designated in § 803.l0(c).

No 'comments addressed this revision.

Section 803.20 is amended by revisingparagraph (a)(2) to read as follows:

§ 803.20 Requests for additionalInformation or documentary material.

(a)· ••(2) All the information and

documentary material required to besubmitted pursuant to a request underparagraph (a)(l) of this section shall besupplied to the Commission or to theAssistant Attorney General, whichevermade such request, at such location asmay be designated in the request, or, ifno such location is designated, at theoffice designated in § 803.l0(c). If suchrequest is not fully complied with, astatement of reasons for noncompliancepursuant to § 803.3 shall be provided foreach item or portion of such requestwhich is not full complied with.

17. Section 80S.20(b}: AdditionalNotification Procedures RegardingIssuance ofSecond Requests

Section 803.20(b)(2) of the rulesspecifies when a second request shall beeffective. Previously, a second request inwriting was effective upon receipt orupon communication (i.e.• reading thefull text) either in person or bytelephone, where such communicationwas followed by written confirmationmailed within the waiting period. TheCommission's experience has been thatparties receiving second requestsusually prefer to waive communicationby telephone and to send an agent toobtain a written copy of it. To providefor this procedure in the rules, theCommission has amended§ 803.20(b)(2)(ii).

The amended subsection specifiesthat a request is effective when notice ofits issuance is given to the person towhom the request is issued, providedthat written confirmation (i.e.• a copy) ofthe request is mailed to that personbefore the expiration of the initialwaiting period. Such notice may begiven by telephone or in person. Toassure that a party to whom a second

request is issued learns of the contentsof the request as soon as possible, therule also provides that, upon request ofthe individual receiving notice. theentire contents of the second requestwill be read.

Section 803.20(b)(2)(ii) requires thatpersons filing notification keep adesignated individual available duringnormal business hours for purposes ofreceiving requests for clarification or

. amplification, requests for additional(nformation or documentary material, ornotice of the issuance 'Of such requests.New subsection (iii) has been added toaddress a particular problem whicharises when the individual so designatedis not located in this country. The newsubsection requires that when areporting person designates anindividual located outside the UnitedStates pursuant to subsection (ii), atleast one individual located within theUnited States and accessible bytelephone also be designated for thelimited purpose ofreceiving notice ofthe issuance of a request for additionalinformation or documentary material.This change is designed to facilitatecommunications between the requestingagency and the receipient of the request.

Comment 6 urges the Commission tomake two additional changes in theprocedures governing the issuance ofsecond requests. First, to give therecipient knowledge of the contents ofthe request as soon as possible, thecomment suggests requiring the issuingagency to have a written copy of therequest available at its Washington,D.C., office on the day the request isissued to be picked up by the recipient.Second, when the last day of the waitingperiod falls on a holiday or weekend thecomment proposes that notice of arequest be required to be given by closeof business (i.e.• 5:00 p.m. Washington.D.C., time) on the last business day priorto the expiration of the waiting period.

The Commission has decided not toadopt these suggestions. In practice, thestaffs of the enforcement agencies whenissuing second requests normallyemploy the procedures which Comment6 recommends. A written copy of therequest is always made available to therecipient at the Washington, D.C., officeof the requesting agency so that therecipient may obtain it as quickly andconveniently as possible. Regarding thesecond suggestion, the requirement togive notice of the issuance of a secondrequest usually means that notice isgiven during the regular business hoursof the recipient. However, thecircumstances in which a secondrequest is issued sometimes vary fromthis pattern. Requiring by rule that theseprocedures be observed could, in

unusual cases, hamper the enforcement.agencies in carrying out theirresponsibilities under the Act.Moreover, the comment gives no reasonwhy incorporating these procedures inthe rules is unnecessary.

Section 803.20 is amended by revisingparagraph (b)(2)(ii) and adding'paragraph (b)(2)(iii). The introductorytext of paragraph (b)(2) is republishedfor the information of the reader.

§ 803.20 Requests for additionalInformation or documentary material.

(b)· • •(2) When request effective. A request

for additional information ordocumentary material shall beeffective-

(ii) In the case of a written request,upon notice of the issuance of suchrequest to the person to which it isdirected within the original30-day (or,in the case of a cash tender offer, 15day) waiting period (or, if § 802.23applies, such other period as thatsection provides), provided that writtenconfirmation of the request is mailed tothe person to which the request isdirected within the original 3O-day (or,in the case of a cash tender offer, 15day) waiting period (or, if § 802.23applies, such other period as thatsection provides). Notice to the personto which the request is directed may begiven by telephone or in person. Theperson filing notification shall keep adesignated individual reasonablyavailable during normal business hoursthroughout the waiting period throughthe telephone number supplied on thecertification page of the Notification andReport Form. Notice of a request foradditional information or documentarymaterial need be given by telephoneonly to that individual or to theindividual designated in accordancewith subparagraph (iii) below. Upon therequest of the individual receivingnotice of the issuance of such a request,the full text of the request will be read.The written confirmation of the requestshall be mailed to the ultimate parententity of the person filing notification, orif another entity within the person filednotification pursuant to § 803.2(a), thento such entity.

(iii) When the individual designated inaccordance with paragraph (b)(2)(ii)above is not located in the UnitedStates, the person filing notificationshall designate an additional individuallocated within the United States to bereasonably available during normalbusiness hours throughout the waiting


34442 Federal Register / Vol. 48, No. 147 / Friday, July 29, 1983 / Rules and Regulations'

period through a telephone numbersupplied on the certification page of theNotification and Report Form. This

. individual shall be designated for thelimited purpose of receiving notificationof the issuance of requests for additionalinformation or documentary material inaccordance with the proceduredescribed in paragraph (b)(2)(ii) above.

In addition to the commentsaddressed above, the Commissionreceived co'mments which were outsidethe scope of the notice of proposedrulemaking. Some of these commentsproposed additional changes in thepremerger notification rules. TheCommission will retain these commentsand consider them as it exploresadditional changes in the rules.

By direction of the Commission.Emily H. Rock.Secretary.IFR Doc. 83-20641 Filed 7-28-83: 6:45 Bml

BIWNG CODE 67SD-OI-M

DEPARTMENT OF ENERGY

Federal Energy RegulatoryCommission

18 CFR Part 154

[Docket No. RM81-21-000; Order No. 320]

Recovery of Alaska Natural Gastransportation System Charges

AGENCY: Federal Energy RegulatoryCommission, DOE.ACTION: Final rule.

SUMMARY: Federal Energy RegulatoryCommission (Commission) is amendingits rules by adding provisionsestablishing a cost-recovery mechanismfor the shippers of Alaska natural gasthrough the Alaska Natural GasTransportation System (ANGTS). Thefinal rule establishes the conditions for apermanent tariff provision by which ashipper may flow through to itsjurisdictional customers ("track") thejurisdictional portion of changes in itsANGTS charges by means of periodicrate adjustment filings lesscomprehensive than general rate changefilings under section 4(e) of the NaturalGas Act. A shipper may also recover thejurisdictional portion of these chargesthrough a cost-of-service tariff approvedby the Commission. The rule alsoestablishes the mechanism for shippertracking of any charges the sponsors arepermitted to impose prior to the flow ofgas through the ANGTS ("pre-deliverycharges").

DATES: Notice of the effective date ofthis rule will be published later in theFederal Register. This rule will beeffective on the latest of the followingdates: (1) If rehearing is granted, on thedate on which a Commission order onrehearing becomes effective, (2) ifrehearing is requested but deemeddenied in accordance with 18 CFR385.713, on the date on which it isdeemed denied, (3) if rehearing is notrequested, by August 29, 1983, or (4) thedate on which the Commissionpublishes in the Federal Register OMB'sapproval under the PaperworkReduction Act and the OMB controlnumber.FOR FURTHER INFORMATION CONTACT:Jan Macpherson, Office of the 'GeneralCounsel, Federal Energy RegulatoryCommission, 825 North Capitol StreetNE., Washington 20426; (202) 357-8033)

Issued: July 25, 1983.

I. Introduction

The Federal Energy RegulatoryCommission (Commission) is amendingits regulations by establishingprocedures under which a shipper ofAlaska natural gas may recover from itsjurisdictional customers charges .incurred by the shipper for the use of theAlaska Natural Gas TransportationSystem (ANGTS). These sections(sections 154.201 through 154.213)establish the terms and conditions for apermanent·tariff provision that a shippermay propose in order to adjust its ratessemiannually to "track" or flow throughto its jurisdictional customers thejurisdictional portion of changes in itsANGTS charges. Alternatively, ashipper may recover the jurisdictionalportion of these charges through a costof-service tariff approved by theCommission. Without this rule, a shipperwould be required to make a generalrate change filing under section 4(e) ofthe Natural Gas Act (NGA) every timethe shipper wanted to adjust its rates toreflect any changes in its ANGTScharges; in addition, the Commissionwould have to institute a proceedingunder section 5 of the NGA to reducethe shipper's rates to reflect decreasesin the shipper's ANGTS charges.Tracking such changes through apermanent tariff provision will enable ashipper to adjust its rates by means offilings less comprehensive than section4(e) general rate change filings. In thesetracking filings, the Commission'sreview will extend only to the mattersessential to permit a finding that theadjusted rates are "just and .reasonable." The rule is designed toassure matching of a shipper's ANGTScharges and amounts collected over

time to prevent over- or under-collectionby the shipper. 4

As a prerequisite to tracking, a _shipper must file a section 4(e) generalrate change to establish a Base TariffRate, which is subject to periodic reviewand to which the tracking adjustmentswi.ll be made. It must also file anANGTS Charges Recovery Clause (ACRClause) in its tariff containing provisionsto implement the tracking mechanismset forth in this rule. As an alternative,the shipper may seek approval of a costof-service tariff. A shipper must decideevery three years whether to continue touse the tracking mechanism or a cost-ofservice tariff or to recover such chargesthrough general rate change filings. Adecision to discontinue tracking or acost-of-service tariff is subject toCommission approval.

This rulemaking also establishes theprocedures by which a shipper mayadjust its rates to recover ANGTScharges incurred before the actualdelivery of Alaska natural gas(predelivery charges). if any. to theextent that such charges are approvedby the Commission or the NationalEnergy Board of Canada (NEB) and tothe extent that recovery of CanadianANGTS charges is consistent with thePresident's Findings and ProposedWaiver ofLaw (October 15, 1981)(Waiver), approved by Joint Resoultionof Congress, S.J. Res. 115, Pub. L. 97-93,95 Stat. 1204 (1981).

After considering the commentssubmitted in response to the proposedrule, the Commission finds that theavailability of this tracking mechanismis in the public interest because it willfacilitate financing and progress on theANGTS and thereby assist in makingavailable in the contiguous 48 states thelarge reserves of Alaskan natural gas.The tracking mechanism set forth in thisrule will provide incentives for shippersto use the ANGTS and may improve theavailability and terms of financing forthe ANGTS while assuring a timelyflow-through from a shipper to itscustomers of decreases in ANGTgcharges as the initial investment in theANGTS is depreciated. The CanadianGovernment also has found thattracking is essential for the financing ofthe Canadian segment. Accordingly, theCommission finds that issuance of thisrule is necessary and related to theconstructioll and intitial operation of theANGTS within the operation of theANGTS within the meaning of section 9of the Alaska Natural GasTransportation System Act (ANGTA), 15U.S.C.719-7190.