premerger notification; reporting and waiting period ......-thepremerger'notificatio~rules several...

HeinOnline -- 59 Fed. Reg. 30545 1994

Federal Register I 'Vol. 59,: No. H3 'JiTuesda\', June 14, 1994 I Ptop~s~d Ru'Jes 3054:5

FEDERAL TRADE COMMISSION

16 CFR Part 803

(h) Speciall1ight permits may be issued inaccordance .with'§§'21.197 and 21.199 of theFederal AviatiOli Regulations (14 eFR 21.197and 21.199) to 0PElrl\te the airplane to alocation where the r\lquirements of this .... Dcan be accoll1plisheO.

,Issued in Renton, Washington. on lune 8,1994.Darrell M. ~ederson,Ac/iryg Mana,ger, TranSPQl1 AirploneDirec/om/e, Aircraft CertiJiCfl/ion Service. ,IFR Doc. 94~143p2 Fi)e,d 6-1:3-94; 8:45 amiBILLING CODE 491G-l:H)

(1) Prior to the accumulation of 10,000total hours time-in-serviCe on 'the airplanestrut, orwithin 120 day.s,after the effectivedate of this AD, whichever occurs later. Or, (2Y \Vithin 12 mo'ntlis after the immediately

preceelirig inspection accomplished 'inaccordance with paragraph (aJ of this AD., Note 1: Paragraph (b) of this.AD specifies

an inspection zone that is,expanded beyondthe zone described in Revision q of theservice bulletin to cover a 30·inch 'widthIrom NAC STA 230 to jljI\C',STA'300.

(c) For airplanes on which a 'frame stiffenerand a skin doubler have been installedduring productiolJ or in a


30546· Federal Register I VOl. 59. No. 113· / Tuesday. June 14, 1994' j Proposed Rules

amendments would affect theinformation collection requirement ofthepremerger notification program. theproposed amendments have beensubmitted to OMB for review under§ 3504(h) of the Paperwork ReductionAct. These provisions are describedmore fully in the Notice of Applicationto OMB under the Paperwork ReductionAct. which also is being published inthe Federal Register today. Commentson the Commission's submission maybedirected to the Office of Information andRegulatory Affairs, Office ofManagement and Budget. Washington,DC 20503. Attention: Desk Officer forthp Federal Trade Commission.

BackgroundSection 7A of the Clayton Act ("the

Act"). 15 U.S.C. 18a. as added bySections 201 and 202 of the Hart-Scott-Rodino Antitrust Improvements Act of1976. requires parties to certainacquisitions of assets or votingsecurities to notify the Federal TradeCommission (hereafter referred to as"the Commission") and the AssistantAttorney General in charge of theAntitrust Division of the Department ofJustice (hereafter referred to as "theAssistant Attorney General" or "theDepartment") before consummating theacquisition. The parties must then waita certain designated period before theconsummation of such acquisition. Thetransactions to which the a'dvancenotice requirement is applicable and thelength of the waiting period required areset out respectively in subsections (a)and (b) of Section 7A. This amendmentto the Clayton Act does not change thestandards used in determining thelegality'of mergers and acquisitionsunder the antitrust laws.

The legislative history suggestsseveral Plirposes underlying the act.Congress wanted to assure that largeacquisitions were subjected tomeaningful scrutiny under the antitrustlaws prior to consummation. To thisend. Congress clearly intended toeliminate the large "midnight merger,"which is negotiated in secret andannounced just before. or sometimesonly after. tpe closing takes place.Congress also provided an opportunityfor the Commission or the AssistantAttorney General (which are sometimeshereafter referred to collectively as the"antitrust agencies" or the "enforcementagencies") to seek a court orderenjoining the completion of thosetransactions that either agency deems topresent significant antitrust problems.Finally. Congress sought to facilitate aneffective remedy when a challenge by "one of the enforcement agencies proved"uccessful. Thus. the Act requires that

. the antitrust agencies receive priornotification of Significant acquisitions,provides certain tools to facilitate aprompt. thorough investigation of thecompetitive implications of theseacquisitions. and assures theenforcement agencies an opportunity toseek a preliminary injunction before theparties to an acquisition are legally freeto consummate it. The problem ofunscrambling the assets after thetransaction has faken place is therebyeliminated.

Subsection 7A(d)(l) of the act, 15U.S.C. 18a(d)(1). directs theCommission. with the concurrence ofthe Assistant Attorney General. in-accordance with 5U:S.C. 553. to requirethat the notification be in such form andcontain such information anddocumentary material as may benecessary and appropriate to determine

·whether 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. in accordance with. ~U.S.C. 553. the authority (A) to definethe terms used in the act. (B) to exemptfrom the act's notification and waitingperiod requirements additional personsor transactions which are not likely toviolate the antitrust laws and (C) toprescribe such other rules as may benecessary and appropriate to carry outthe purposes of section 7A.

The Commission. with theconcurrence of the Assistant AttorneyGeneral. promulgated implementingrules ("the rules") and a Notificationand Report Form and jssued anaccompanying Statement of Basis andPurpose. all of which were published in

·the Federal Register of July 31. 1978. 43FR 33450. and became effective on

·September 5. 1978.The rules are divided into three parts,

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

Changes of a substantive nature havebeen made in the premerger notificationrules or Form on ten occasions since

·they were first promulgated. See. 44 FR60781 (November 21. 1979); 45 FR14205 (March 5. 1980); 46 FR 38710(July 29. 1981); 48 FR 34427 (July 29.

1983); 50 FR 38742 (September 24.1985); 51 FR 10368 (March 26. 1986); 52FR 7066 (March 6. 1987) (all of thesechanges included revisions in theForm); 52 FR 20058 (May 29. 1987); 54FR 21427 (May 18. 1989) and 55 FR31371 (August 2. 1990).

The current set of proposals to changethe Form is designed to improve theprogram's effectiveness by requiring thesubmission of certain additionalinformation that will be very useful tothe agencies in the performance of theirinitial antitrust reviews of proposedtransactions. The propo~alsalso includeseveral modifications that are intendedto reduce the burden of completing theHSR Form consistent with the agencies'antitrust enforcement needs. The 'Commission invites interested personsto'submit comments on theappropriateness of the proposedchanges to the Form and itsinstructions.

Proposed Changes in the Instructionsand Form

a. Transactions Subject to theBankruptcy Code

Section 363(b) of the BankruptcyCode. 11 U.S.C. 363(b). provides for awaiting period often days fortransactions in which a trustee inbankruptcy fil~s notification of aproposed acquisition as an acquiredperson. Since 11 U.S.C. 1107 providesthat a debtor-in-possession essentiallyhas the same powers as a trustee inbankruptcy. a debtor-in-possession alsomay file notification as an acquiredperson and thereby invoke the ten-daywaiting period. Due to the very limitedtime proVided for the initial review ofsuch transactions. it is important that .the Commission and the Departmentquickly and easily identify transactionsto which the Bankruptcy Codeprovisions apply. For this reason, theCommission proposes to modify thepreamble found on page one of the Form'to include the question:

Is this filing being made as anacquired person by a trustee inbankruptcy or a debtor-in-possessionsubject to Section 363(b) of meBankruptcy Code. 11 U.S.c. 363(b)? yes·I I no / I

b. Notification for an Acquisition ThatHas Taken Place

Several times each year. persons filepremerger notifications for acquisitionsthat have been consummated prior tofiling notification and observing theappropriate waiti.ng period. Usually.stich persons call the Commission'sPremerger Notification Office ("PNO")promptly after discovering the violation.


Fe,deral J{egfster I Vol. 59, No. 113 I TUl'lsday, June 14, 1994 I Proposed 'Rules 30547

, Many of these violations are det~rlI1ined. Bilateral and multilateral efforts haveto be inadvertent, the result of simple ,been undertaken, to fosternegligence. The PNO advises per~~,:s, communication and cooperationwho have cons,ummated an acqUIsitIOn between antitrust authorities in order to

, in violation of the Act t6 file a corrective assist them in determining whether, filing as soon as possible and to submit ,proposed acquisitions, violate the.ira detailed, writtenexplimatioll signed respective antitrust laws and aVOId

. by a company official exphUning how . conflict in,enforcement of those laws.the violation occurred and the steps that ,Bilaterai agreements between the United\vill be taken to ensure future States and Australia, Canada; thecompliance with the filing' . European Commission and Germany ,requirements. The letter of e~pl~na~lOn provide for, inter alia, timelyneed not accompany the c~rrectIve ' ,notification of investigations whichfiling. The submission of a corrective, involve important interests ofthe .comp'liant notification will, in most signatories, sharing of non-confidentIalinstances, stop the accruing of civil information, and, where possible,penalties after the waiting period has coordination of investigations. A 1986expired. Recommendation of the Organization '

The PNO has established procedures for Economic Cooperation andfor processing corrective filings and Developm'ent (OECD) similarly providesconducting an informal inquiry ~o. for timely notification and informationdetermine whether to refer the ,VIOlatIOn sharing among the OECD J1lembers'.to'the appropriate litigation of(ice for Further efforts toward cooperation andinvestigation and a possible civil even convergence of premerger 'penalty, action. The PNO procedures are notification requirementshave beendesigned to monitor pl;}F~onswhohave recommended by the American Barviolated the Act to identi fy repeat Association in -Ihe1991 Report of itsoffenders. For tllis reason, it is. ; special Committee on Internationalimportant that filings for a~quisitions Antitrust.

, that have already been consummated be Cooperation and potential. easily identified and assigned to the coordination may be hindered by thepersons who monitor and process such inability of ant~trustauthorities tolearnviolations. Sometimes, persons who file as early as possible of the fact of thecorrective filings do not identify them as submission of premerger notification topertaining to an acquisition that has another jurisdiction. This deficiency isalready been consummated. - "complicated by the lack o'f uniformityConsequently, their filing~ arellot among the nations' premerger '

'always assigned to the persons who , notification provisionsasto the timinghave the ex~ertis? to handl? thes? ' of the submission of notification. As amatters. To IdentIfy corr,ectIve fi!mgs result, submission of notific;:ations toeasily to ensur~ that they are ass~gned different jurisdictions 'at different timesto the approprIate person for ~evIew. the' often occurs.Commission proposes to modIfy the To provide for timely alert of multiplepr~amble found on I?ag~,Qne of the For11] notifications of a parti~ular transactionto mch!de ~he qu~stlOn. in order to foster cooperation between

Is ~h~s, film; ~~ng Tad~ r.6ea~ the notified jurisdictions and therebyacqUISItIOn t ~ as a rea ~ e/ / assist the Commission and theconsummated, yes /-.-- no --- Department in determining-whetherc. Transactions Subject to Foreign such transaction would violate theGovernmental Regulation antitrust laws, tile Commission proposes'

To enforce their antitrust statuteS', to modify the preamble .foun~ o~ pagemany foreign governments'require, or . 'one onhe Form to req~Ire a b~hng ofprovide for voluntary submission of, the na~e.(s) of any ~oreJgn antitrust orpremerger notification comparable to c~mpetIho~ authOrIty that has been orthat required by the Form. Their wJlI?~ ~ohfied o(the proposedthresholds for notification overlap to acquISltlOn. The proposed laT)guagevarying degrees with'those of section reads as follows: '.,7A. Accordingly, parties to a merger or , If, to t?? know!edge. or bebef ~l theacquisition may file notification with, person flhng nO~Ifi~a.tlOn, a for~lgnand need clearance from, more than' one antitrust or competItIOn authonty hassovereign authority: The potential for been .o~ ~ill ~e notified of the proposedmultiple notifications has grownacqUl~ltI?n,.b~t the name and country. or'because ofthe increase not only in . other JurlsdIClJO? .of e.ach such authorJ!ymerger enforcement organizations, but an~ t?e date notIfIcatIOn was made or ISalso in the number of transactions antIcI pated to be made:involving firms based in different --..:.'---------:--:-----countries and/or which do business inmore tIia~ one:country. ' '

d. Calclllation of the Percentage of.Asset~ in Item :J

At present, the instructions' to item 3require both the acquiring and acquired'persons to state the percentage of assets,percentage of voting securities and the·aggregate total dollar amount of assetsand voting securities that,will be heldby the acquiring person as a result of theacquisition. Detennining the percentage .ofassets held has proven to be difficultfor acquiring persons because theygenerally are not aware of the bookvalue of the assets or the total bookvalue of the acquired person's' assets,which' is the information needed tomake the required calCulation. On theother hand, acquired persons can .readily ascertain the percentage of theii' ,total assets being acquired. For this'reason, the Commission proposes toamend item 3(a) to require only theacquired person to determine thepercentage of assets of the acquiredperson that will be held as a result ofthe acquisition., Some filing persons have expresseduncertainty regarding the informationthat item 3(b) requires. Item 3(b) see~sto obtain information regarding thepercentag~of voting securities of th~ .issuer or issuers whose voting secuntles,will be held as a result of theacquisition. Thus, if voting securities of'incire than one issuer will be held a~ aresult'of the acquisition', percentages

, should be provided for each issuer. TheCommission proposes to add clarifyinglanguage to the instructions in item 3(b)., Accordingly, the Commissionproposes to m'odify the instructions toitem 3 to read as follows:

Assets and voting securities held as aresult of the acquisition (item 3(a) to becompleted by the acquired person only;items 3(b) and 3(c) to be completed byboth the acquiring and acquiredpersons). State:

Item 3(a)-the percentage of assets ofthe acquired person (see §80l.12(d);

Item 3(b)~the percentage(s) of votingsecurities of each issuer (see§ 801.12(a)); , ,

Item 3(c)-the aggregate total dollaramount of assets and voting securities ofthe acquired person to be held by eachacquiring' person as a result of theacquisition (see §§801.13 and 801.14).

e. Elimination of DocumentIdentification in Item 4(0)

At present, the instructions to item4(a) of the Form permit filing persons fomerely identify documents filed withthe Securities and ExchangeCommission (SEC) in lieu of their actualsubmission as attachments to the Formwhen copi~~ of the documents are not


30548 Federal ~egister: / Vol. 59, No. 113 r Tuesday, June.Hi :1994 /. Proposed Rules

"readily available:' Fortunately. filing (partnership interests generally "do notpersons rarely use this proviso and entitle the owner of that interest to vote

. , generally submit the required SEC for a corporate "director" or "andocuments with their Forms. If filing individual exercising similarpersons failed to submit. these functions"). See 16 CFR 801.1(b).documents, i~ ":ould hinder the ability 'example 2, and 52 FR 20058, 20062of the Commlss~on a~d the Department. (May 29, 1987). The Commissionto. c0!ilplete.th~Ir all;tItrust r.evlews believes that documents prepared by orwlth~n the hmlted tIme penods for partners of a partnership andprovIded ~y the act. .. persons responsible for managing the

Accordmgly, the CommIssion . ..proposes to delete the following affaIr~ of a partnership are hkely toinstruction presently included as the~ontam t~e same t~pes of marketlast sentence in item 4(a): mformatIon found m documents

Alternatively, if the person filing prepared "b~ or for offi~ers or directors"notification does not have copies of of a corporatIOn. For thIS reason, theresponsive documents readily available, Commission proposes to amend itemidentification of such documents and' 4(c) to require the submission ofcitation to date and place of filing will documents prepared by or for partnersconstitute compliance. of a partnership. However, thef Submission of 4(c) Documents Commission is concern~d about thePrepared by or for Partners burden that such a reqUIrement may

. impose on limited partners in a limited, Ite~ 4(c) of the Form regUlres., partnership. There are often numerous

reportmg persons to submIt all studIes. limited partners in a limited .surveys. analyses and reports that were rt h' d 't' th C ..,prepared by or for any officer or director pa ners IP: an 1 l~ .e ommlsslon s(or indiyiduals exercising similar ull;de~tandmg t~at ~Imlted partners arefunctions in the case of an prmclpally passIVe mvestors because.unincorporated entity) for the purpose gen~r~lly,.the~ must refrain fromof evaluating or analyzing the proposed partlclpat~o~ m the con~u~t of t?eacquisition with respect to market' ~art?~rshlp ~n orde: t~ hmlt their .shares, competition, competitors, habilIty. Dmform LImited PartnershIpmarkets, potential for sales growth or Act (D.L.A.). section 1. Indeed, theproduct or geographic market Commission has observed that often theexpansion. Item 4(c) also encompasses limited partners are pension funds,officers or directors of any entity insurance companies and similar typesincluded within the reporting person. of investors.See 43 FR 33450, 33525 (July 31, ~978). In contrast, general partners in a

Item 4(c) documents often provIde l"t d artne h' d artn 'aI bl . '. h . 'bl d lml €I p rs Ip an p €Irs mva ua €I mSlg ts mto POSSI e pro uct I rt h' II th

and geographic markets as well as the . gen~r~ pa ~ers lp are n?~a y. €Icompetitive purposes and projected declSlonmakers who partIcipate m thecompetitive consequences of the day-to-da~ man~gemen! o! aproposed transaction. As such, item 4(c) partnersh~p. Umform LImIted.documents are often essential to PartnershIp Act (D.L.A.), sectIon 6.Commission and Departmep.t attorneys Consequently. they are likely to create.in making preliminary determinations or have created ~or ~hem: documentsof product and geographic markets and that meet the crIteria of Item 4(c). Ontheir iriitial evaluations of the, potential the other hand, limited partners in acompetitive effects of a proposed limited partnership are likely to have inacquisition: In addition, item 4(c) their possession primarily item 4(c)documents also have been very useful to documents which are also within thethe agencies in preparing requests for control of the general partners. Theadditional information and Commission believes that any benefitdocumentary material. . that may be derived from requiring a

At present, the instructions to item search for and submission of item 4(c)4(c) require.~he ~ubmission of documents by limited partners isdocuments which ":ere prepared ~y or outweighed by the additional burdenfor any of~cer(s) or dlfecto~(~) (or, m the that such a requirement would impose.case of )JI1mcorporated entItIes, . ' . ..individuals exercising similar functions) ,Accordmgly, the ~ommlsslOn .* * *." Item 4(c) applies to all entitie~, proposes .to ~mend Item 4(c) to reqUIreincluded within the reporting person the submISSIon of documents ~reparedand, thus, to partnerships. However, it by or for ~eneral p~rtners of a hmltedhas been argued that partnerships do partnership and partners of a generalnot have item 4(c) documents because partnership. These changes arethey contain no individuals exercising contained in the proposed item 4(c)functions similar to officers or di~ctors language that,follows section g.

g. Submission of Documents Relating toBusinesses or Products of Parties to theTransaction

The Commission and the Departmenthave received certain types ofdocuments in response to requests foradditional information that the 'Commission believes would be veryuseful to the agencies in conduqingtheir initial assessment of the possiblecompetitive effects of a proposedtransaction. These documents describeor'analyze the businesses of, theproducts manufactured by or theservices provided by the parties to thetransaction 01' relate to the possibleintegration of operations.

In this regard. the Commission'sexperience with filings hasdemonstrated. that it is sometimesdifficult to identify the specific productsproduced by the filing persons using theinformation presently required by theForm. Thl;l SIC codes do not alwaysprovide the specificity needed todetermine the products or services ofthe filing persons. As a result, theagency cleared to review the transactionmay spend much of the waiting periodtrying to determine if the filing, personsmanufacture products that actually .compete. The agency is then left withless time to reach conclusions aboutother antitrust issues. such as entry, thatare necessary to determine whether theacquisition raises serious antitrust

, concerns. Documents that discuss oranalyze the businesses, products orservices of the parties to the transaction.if submitted when the filings are made.may. in some cases, obviate the need forthe issuance of a request for additionalinformation and documentary materials.Such request would otherwise beneeded to resolve the competitive issuesthat the agency lacked the time toresolve during the initial waiting period.

To provide the agencies withadditional documentary material toanalyze the competitive effects of aproposed acquisition. to assist theagencies in resolving all competitiveissues during the initial waiting periodand. in some cases, to eliminate theneed to issue a request for additionalinformation and documentary materials.the Commission proposes to modify .item 4(c) to require the submission ofdocuments that discuss. describe oranalyze (1) the businesses of, theproducts manufactured or the servicesprovided by the acquiring person andthe business enterprise.being acquired(as represented by the assets or issuerwhose voting securities are beingacquired) or (2) the possible integrationof the operations of the acquiring personand the business enterprise being


,Federal Register I Vol. 59. No. 113 I Tuesday. June 14, 1994 I Proposed ·Rules 3054~

atXjl.lired. Documents covered by thechange are limited to documents thatare considered to be within thetraditional criteria of item 4(cJ notedabove and are prepared by or for anyofficers or directors (or, in the case ofunincorporated entities, individualsexercising similar functions or generalpartners of a limited partnership andpartners of a general partnersbip) for thepurpose of discussing, evaluating oranalyzing the proposed acquisition.

Allhough the amendment expands thecategories of documents that filingpersons are required to submit, theCommission believes that thedocuments may help to clarifyinformation that the parties report initem 7(a) concerning the SIC productcode overlaps. For transactions thatpose no antitrust concerns, thesedocuments are likely to enhance theability of the agencies to expedite their

• review and grant early termination ofthe'waiting period when requested.

Accordingly, the Commission .proposes to amend item 4(cl of the Formto read as follows: ,

Item 4(c)-AU studies, surveys,analyses, or reports or documents whichwere prepared by or for any officer(s) ordirector(s) including officers or directorsof any entity within the.filing person(or. in the case of unincorporatedentities, individualsexercising·similarfunctions or, in the case Qf a limitedpartnership, any general partner(s) ofsuch partnership and, in the case of ageneral partnership, the partners of suchpartnership} for the purpose ofdiscussing, evaluating or analyzing theacquisition with respect to H) marketshares, competition, competitors,markets, potential for sales growth orexpansion into product or geographicmarkets; (ij) the businesses of, productsmanufactured by or services providedby the acquiring person and thebusiness enterprise being acquired (asrepresented by the assets or issuerwhose voting securities are beingacquired}; or (iii} the integration of theoperations of the acquiring person andthe business enterprise to be acquired.

h. Submission ofSolicitationDocuments

Pursuant to the requirements of item4(c}, filing persons often submit avariety of documents, including offeringmemoranda, analyses by investmentbankers and similar documentsprepared by consultants and investmentfirms for the purpose of soliciting .expressions of interest from prospectivflpurchasers. These documents oftenprovide detailed information on theoperations and the market position ofthe acquired person.

On occasion, counsel for n filingperson has contended that investmentbankers' books or other types of offeringdocuments prepared by third parties asgeneral selling documents are notcovered by item 4(c} because they were

.not prepared for the specific acquisitionfor which a filing is being made. Thisposition appears to'be based, in part, onthe statement in the Statement of Basisand Purpose ("SBP") that the "reportingperson must submit only thosedocuments prepared in connection withthe reported acquisition." 43 FR 33450,33525 Ouly 31, 1978), The COmmissiondid not intend, nor' does it interpret,. thislanguage to mean that only documentsprepared after the acquiror has beenidentified qualify as item 4(c}documents. Rather; it is theCommission's view that sud}documents were "prepared inconnection with the reported

. acquisition" even though at the time ofpreparation the specific acquirorhadnot been identified. Similarly, ifanacquiror is considering a number ofacquisition candidates and preparesdocuments which analyze variousaspects of competition prior to makingits decision regarding whicl1

. candidate(s) to pursue, those documentspertaining to the candidate(sl selectedare item4(c} documents.

Counsel for filing persons also havecontended that investment bankers'books are not item 4(c} documentsbecause it is not clear that suchdocuments are prepared "by or for anyofficer(s} or director(s)," TheCommission believes that suchdocuments meet this requirement'because they are usually prepared at thedirection of an officer or director of theacquired person. Moreover, in theCommission's view such documents of.the acquiring person qualifY as 4(c}documents because they are preparedfor the officers or directors-thedecision-makers who will determinewhether to pursue an acquisition. Thefact that investment bankers' booksusually are prepared by outsideconsultants also has no bearing onwhether such documents are covered byitem 4(cJ. As the Commission madeclear in the SBP when the premergernotification rules were promulgated,item 4(c} documents include"documents prepared by any person,including consultants, for officers anddirectors." See 43 FR 33450, 33525 {Julyjl, 1978}. The Commission proposes toamend item 4(c} by adding ne.w item4(c}(ii) which will make clear that thesubmission of investment. bankers'books and similar documents preparedin connection with the sale orthe

acquired person or any portion of theacquired person is required. However,this new section is not Umiied. todocuments "prepared by or for anyofficer(s) or director(s}" of the acquiringor the acquired person. Documents ofthis type have provided valuableinformation to the agencies in

. connection with their antitrust reviewsand the agencies should not beprecluded from re€eiving thesedocuments simply because they werenot prepared expressly for officers ordirectors.

Accordingly, the Commissionproposes to add, a new subsection toitem 4. to be identified as item 4(c)fii)and to renumber item 4(c) to item4(c)(i). Proposed item 4(c)(iij will readas follows=

Item 4(c)(iiJ-AH investment bankers'books, offering memoranda, and similardocuments which have been preparedby any person for the purpose ofsoliciting expressions of interest fromprospel.i.ive purchasers of the assets orentity to be acquire&

i.Submission ofan Index for Item 4(C)Documents

At present, persons filing documentsrequired by item 4 of the Form mayprovide an optional index for thedocuments submitted. An index to item4 documents has proven to be valuableto both t1~ Premerger NotificationOffice staff as weH as to litigation staffin expediting theil' reviews of proposedacquisitions, especially when numerousdocuments are submitted.

In order to facilitate the reviewprocess', the Commission proposes torequire the submission of an index ofdocuments submitted in response toitems 4(c)(i} and 4(cJ(ii}. Such indiceswill better enable the Commission andthe Department to keep track of item4(c) documents. They also will enablethe agencies to determine whether filingparties have inadvertently omitted anydocuments identified as item 4(c}documents.

Accordingly, the Commissionproposes to add the following languageto the general instructions to item 4,amended to require the submission ofan index identifying all item 4(c)(i) and4(c)(ii) documents:

Persons filing notification mustprovide an in~ex of documents beingsubmitted pursuant to Items 4(c)(i} and4(c)(ii). With respect to each document,provide the name of the document, thedate of preparation, and the name andtitle ofthe document's authors andrecipients.


30,550, .:.. : FederalR,egi&teri fA':o.l~·59, No.; ,113 I;fl,lesday,.Ju.ne 14,: 19~4 I p.i:ppo'sed ,Rules i." ';,: ';' ' •.'.

j. Acquisition of the Assets ofan produc,tion facilities, after the mostInsurance Carrier .recent year for which the filing person

Item 5 of the Form requires insurance .reports revenues m item 5(b)(iii). Forcarriers, i.e., persons deriving revenues example, such persons assert that if thein 2-digit SIC major group 63; to supply' revenues reported in item 5(b)(iii) arerevenue information only for industries for calendar year 1992, than they neednot within SIC major group 63 and not report in item ~(b)(ii) any newinstructs such persons t~ complete the product developed in 1993 whichInsurance Appendix to the Form when generated revenues under an SIC codevoting securities of an insurance carrier not previously used by the filing person.are to be acquired. If the proposed This interpretation of the currentacquisition is Rot of voting securities language of item 5(b)(ii) would permitbut of assets that generate insurance filing persons to omit potentiallyrevenues within 2-digit SIC major group important information that is not called63, the current instructions do not. for elsewhere on the Form. It might'require the filing person to complete allow an SIC code overlap to go

.either item 5 or the Insurance unreported, as well ~s information aboutAp.pendix. To correct this omission, the the filing person's ability to

manufacture the new product.Commission proposes to modify· item 5 The Commission beHeves that theand the Insurance Appendix to require language of item 5(b)(ii) does not permitinsurance carriers to complete the . this' limited reading. However, theInsurance Appendix if the acquisition is Commission proposes to amend itemofassets that generate insurance 5(b)(ii) to make explicit that allrevenues. manufactured products added or

'. Accordingly, the Commission deleted after the base year must be, . proposes to revise item 5 and the reported. The amendment will alert, ,Insurance Appendix instructions to the filing persons that they must provide, ··Form to read as follows: . the ~~most,current information

Item S"':""Insurance Carfi.ers (2-digit. available" about their production. SICmajor group 63) should supply the activities to enable the agencies to betterinformation requested only with respect assess the competitive effects of a

: to industries not within SIC major group 'proposed transaction. See 43 FR 33450,63. If voting se


',l .. '30551

. Product~ deleted by reason ofdispositions of assets'or votingsecurities since 1987 should also Ill' ,listed in Item 5(b)(ii).

I. For~ign Manufactured ProductsSection 803.2(c)(1) of the rules, 16

CFR 803.2(c)(1), instructs filing personsto provide information in response toitems 5, 7,8 and 9 and the InsuranceAppendix "with respect to operationsconducted within the United States."Areas included in the United States aredefined in §801.1(kJ, 16 CFR801.1(k),Filing persons are not required tosubmit SIC code infornlation all adetailed manufacturing basis forproducts they manufacture outside theUnited States even if they sell theproducts in the United States. Forexample, if a filing person manufactureda product in 1987 in Canada, importedit into the United States and sold thatproduct,at the wholesale or retail level,the filing person would report revenuesderived from those sales in item 5{a)using a wholesale or retail 4-digit SIC.code. The filing perSon would not berequir'ld to identify in eHher item S(a)or item5(bl(n the product itm:iilUfaetured in: canada using thedescriJitive4-digit SIC code or the 7-digi't SIC produd code' for manufacturedproducts that would have been requiredif the product had been··manufactured int.he United Statf'..s. Similarly, ifthe filingperson derived revenues in the mostrecent year from sales of the product inthe United States, the-person wouldreport those revenues in item 5(c) using

,the appropriate 4-digH wholesale or'retail code'. The filing person wvuld 110treport those revenues in item 5(b)(iit}using the: appropriate 5-digit SICprodtfct class code for manufacturedproducts as it would have if the prodlll;lhad been manufadured in the UnitedStales. ., 'The 4-digit SICwholesale and retailcode~neported in items 5(a) and 5(c) donot identify the SICmanufaduringl:ii~r,iiqt, iricluded within the '.person fiWig' notification, list theisslltlfand'da'Ss', the 'n'umber and' percentage:ofedl~h:cnlSS:ofvotii1gseeu'rities heM; nnd


:i0552 Federal Register I VoL 59. No. 113 I Tuesday, June 14, 1994 I Proposed Rules·

(optional) the entity within the personfiling notification which holds thesecurities. Holdings of less than tenpercent of the outstanding votingsecurities of any issuer. and holdings ofissuers with total assets of less than $10million, may be omitted.

. n. Reporting of5-Digit SIC CodeOverlaps

At present, item 7 of the Formrequires the filing person who hasknowledge or belief that it and any otherparty to the acquisition derived .revenues in the most recent year fromany of the same 4-digit SIC industrycodes to list the overlapping SIC codesand to provide its description. If thetransaction involves the formation of ajoint venture or other corporation. thefiling person must indicate the common4-digit SIC codes in which it derivesrevenues and in which the joint venturewill derive revenues as well as thecommon codes it has with other partiesto the transaction. The Commissionproposes to amend item 7 in two ways.

FIrst. the Commission proposes torequire filing persons to identify andprovide g~ographicmarket information.for overlapping 5-digit SIC product classcQdes as well as 4-digit SIC codes formanufacturing operations (SIC majorgroups 20-39). The Commission hasfound that many of the 4-digit SIC codeswithin SIC major groups 20-39 are toobroad for proper product linedeterminations. Because many productsare oftell included within a particular 4·digit SIC code, it is difficult todetermine based on 4-digit informationwhether the parties to the transaction .produce competing products. However,5-digit SIC codes delineate specificproduct classes that are less inclusivethan the 4-digit SIC codes that classifyproducts by manufacturing industry.Modifying item 7 to include overlapping5-digit SIC codes will provide ·moredetailed geographic market information,.about a more narrowly defined class of.products that the filing persons producein common. For example, the 4-digit SICcode, 2834 • PharmaceuticalPreparations, is sub-eategorized intonine different 5-digit SIC codes. Thus.fOf the most part, while the informationreceived in response to item 7 has beenvery useful,"the Commission believesthat information regarding geographicmarkets at the 5-digit SIC code overlaplevel will improve the agencies' initialantitrust review.

Second, the Commis~ionproposes.toamel1d itep! 7to require filing persons.to include S~Ccode overlaps andgeograp,hic market information for

.product:> added and facilities that beganoperations:~fter the period for which

revenue information was provided inresponse to items 5(b)(iii) and 5(c). Atpresent, Item 7 requires a filing personto id!lntify.overlaps from operations inwhich it derived revenues "in the mostrecent year." If a filing person interpretsthis language narrowly ttl mean onlyoverlaps for operations in which itreported revenues in items 5(b)(iiO and5(c) for the most recent year (for whichit has compiled twelve months ofrevenue information), overlaps which·exist due to products or facilities addedafter that period would not beidentified. The Commission is aware ofat least one instance in \vhich a filingperson failed to report geographicmarket information for a retailestablishment it opened and from whichit derived revenues after the year forwhich it reported revenues in item 5(c).The failure to disclose such locations inresponding to item 7 compromises theagencies' ability to make a completeassessment of the potential competitiveeffects of a proposed acquisition. Forthis reason, the Commission proposes toamend item 7 to clarify that filingpersons are required to report productoverlap and geographic marketinformation current to the date of filing.

In addition, consistent with theproposal described above, theCommission proposes to amend currentitem 7(c)(iv),which will be renumbered

. item 7(C)(v). This item requires filingpersons to provide the street addresses,arranged by state, county and'city ortown. of establishments in certainindustries, e.g.,letail trade, for whichthe competitive effects in localgeographic markets may be of concern.The Commission proposes to amendrenumbered item 7(c)(v) to make clearthat the listing of establishments mustinclude establishments acqUired orconstructed since the end of the mostrecent year for which period revenuesare reported in item 5(b)(iH).

The Commission therefore proposesto amena item 7 to require: (1) Thedisclosure of SIC code overlaps andgeographic market information at the 5-digit product class level as well as the4-digit industry level in SIC majorgroups 20-39; (2) the listing of SIC codeoverlaps and geographic marketsresulting from products added orbusinesses entered into since the end ofthe most recent year for which revenuesare reported in item 5(b)(iii) or item5(c)(0; and (3) in newly numbered item7(c)(v), the listing of establishmentsacquired or constructed since the end ofthe most r!lcent year for which periodrevenue information was provided ilLresponse to items5(b)(iii) and 5(c). Theproposed amendments read as follows:

Item 7-1£, to the knowledge or beliefof the person filing notification, theperson filing notification derived .dollarrevenues in the most recent year (andlor in the period from the end of themost recent year tothe date of filing ofthis Notification and Report. Fo.rm) fromany 4-digit SIC code or, within SICmajor groups 20-39 (manufacturing .industries), from any 4-digit industry or5~digit product class code in Which anyother person whoisa party to theacquisition also derived dollar reveiluesin the most recent year'or since the endof the most recent year (or in \\'hieh a .joint venture or other corporation willderive dollar r~venues), then for each 4-digit (SIC code) industry and eClch 5-.digit (SIC code) product class: .

Item 7(a)-List the 4-digit (industry)and 5-digit (product class) SIC codesand the description for the industriesand product classes;. Item 7(b)-Listthe name of f;achperson who is a party tothe acquisitionwho derived dollar revenues in the 4-digit industry and 5-digit product classcode; :. .

Item 7(c)(0-For each 4-c\igit industryand 5-digit product class code withinSIC major groups 20-39 (manufacturinKindustries) listed in Item 7(a")abpve,listthe states (or, if desired. portionsthereoO in which. to the,knowledge orbelief of the person filing notification,the products in that 4-digit industry and5-digit proquct class produced by theperson filing notification are soldwithout a significant change in their .form, whether they are sold ,by theperson filing notification orby others towhom such products have been sold:Qrresold;

Item 7(c)(v)-For each 4-digit industrywithin SIC major groups 52~1. 70. 75.78. and 80 (retail trade. banking. andcertain services) listed in item 'l(a) .above, provide the street address.' .arranged by state, county an~. City ortown, of each establishment 'from \vhichdollar revenues were deri\'ed iilthe'most recent year or sinc~ the end oJ themost recent year, includingestablishments acquired 'or constructedby the filing person since the elid of themost recent year. ,"

o. Submission of Geographic MarketInformation for Health Care Facilities

At present. item 7 does nbtahvaysprovide the enforcement agencies with

.the geographic market informationneeded to assess the potential:anticompetitive effects of acquisitionsinvolving health care facilities. The .problem results from the use of different4-digit SIC codes to report the rev.enuesderived from owned versus managedhealth care facilities. Persons \"\'ho


"

Federal Register / Vb!. 59, No: 1'.13;;t 11Tbesday, June 14, 1994' / I>roposed Rules 30553

their revenues in item 5 under one of sixdifferent '4-digil SIC codes in industrygroups 805 and 806. I~ contrast, personswho nianage health care facilities but donot own the facility report revenuesderived from their management servicesunder 4~djgitSICcode 8741- 'Management Services. Consequently,since filing persons use different 4-digitSIC codes to report revenues derivedfrom owned and manageq health carefacilities, they are not required toidentify these operations as overlaps initem 7(a). Thus, if one party to anacquisition derived revenue from theownership and operation of a generalmedical hospital (4-digit SIC code 8062)in the most recent year and the otherparty derived revenue from themanagement 'of a general medi,calhospital (4-digitSIC code 8741) in thesame metropolitan area, the partieswould not be required to identify theseoperations as an overlap in item 7 or toproVide geographic market information.

The Commission believes thatinformation concerning the operation ofboth owned and managed health carefacilities is essential to the agencies'abHity'to perform an initial antitrustre.view of health care acquisitions. Asthe Corilmission found in Hospital ,Corporation a/America, 106 F.T.C. 361

. (1985), ofI'd, H8spital Corporation ofAmerica v. Federal Trade Commission,

. 807 F.2d 1381 (7th'Cir. 1986), cert,denie.d.481 U.S. 1038 (1987).management contracts greatly enhancethe ability ofa firm to coordinatebehavior ~etween its 'owned hospitalsand the hospitals it manages, therebyincreasing the likelihood ofanticompetitive consequences. For thisreason. the Commission' held thatinCluding the m,anagement contracts tobe acquired from Hospital Affiliateswithin Hospital Corporation ofAmerica's markei shares presented amore accurate piCture of HCA 's post-acquisition market power.

The importance of receivinginformation concerning managementcontracts in the health care area isfurther supported by the fact th.atapproxim~tely eight percent of the,

'nation's community hospitals areoperated under management contracts,often by hospital companies that bothmanage hospitals for others as well as

, operate hospitals which they own. SeeAmerican Hospital Ass'n, Guide to theHealth Care Field (1992) and HospitalStatistics (1992-1993ed.). Howev.er,' ,geographic information for managedhealth care facilities is not readilyavailable on a current basis from theseor any other published sources, Thus, itis important that the enforcementagellciesreceivlfwith the HSR filing

overlap and geographic market p. Sllbmis~iojj .ofCoililty GeographIcinformation cohL~rniiJg health care MarketIn!dmtotloit 'facilities that are owned, as well


30554 Federal Register I VoL 59. No. 113 I Tuesday, June 14. 1994 I Proposed Rules

counties within a state. the identity ofsuch states.

q. Increase in Reporting Threshold forVendor-Vendee Relation.ships '

At present. item 6 .of the Formrequires filing persons that are alsovendees to provide certain informationifthe acquiring and the acquiredpersons maintained a vendor-vendee'relationship during the most recent yearwith respect to any manufacturedproduct that the vendee either resells'.consumes in. or incorporates into, themanufacture of a product. If theproposed acquisition involves theformation of a joint venture or othercorporation. item 8 requires each personforming the entity to identify anymanufactured product it purchasedfrom any other such person which willbe supplied to the joint venture or othercorporation. If the aggregate annualsales of the manufactured product donot exceed $1 million. the filing personneed not list the product in item 8. Theintended purpose of item 8 is to"identify certain instances in which areported acquisition may result invertical foreclosure or anincrease invertical integration in an industry." See43 FR 33450.33533 (July 31. 1978).

The Commission is aware that the $1million threshold can make complyingwith item 8 burdensome. Respondingcan be particularly difficult for a largefirm without a centralized accountingsystem that tracks the sales andpurchases of each of its many divisionsand subsidiaries. Consequently. such afirm may need to undertake a significantrecords check to determine whether ithad sales or purchases of over $1million of product from the other personto the transaction in order to supply thedata called for by item 8. .

The CommiSSIOn proposes to increasethe threshold in item 8 to require thereporting of vendor-vendeerelationships when aggregate annualsales or purchases of a manufacturedproduct during the most recent yearexceed $5 million. In 1978. theCommission declined to raise the.threshold to $5 or $10 million becauseit was concerned that a reporting floor'higher than $1 million would excludesome highly significant vertical 'relationships. See 43 FR 33450. 33534(July 31. 1978). However. theCommission's experience in reviewingfilings and investigating proposedtransactions in recent years hasindicated that acquisitions in whicheither party makes product purchasesfrom the other party under $5 millionrarely, if ever. present risks of verticalforeclosure or increased verticalintegration in a given industry. In

addition, this threshold should simplifyfiling persons' reporting obligationsbecause even large firms with numerousoperations are likely to be able easily toidentify customers that purchase thisvolume of product. Vendees that mustsupply the data required by item 8 alsowill likely know if they acquiredproducts exceeding $5 million from asingle source of supply.

Accordingly. the Commissionproposes to modify item 8 of the Formto read: '

Manufactured products are thosewithin 2-digit SIC major groups 20-39.Any product purchased from the vendorin the aggregate annual amount notexceeding $5 million. or themanufacture. consumption or use ofwhich is not attributable to the assets tobe acquired. or to the issuer whosevoting securities are to be acquired(including entities controlled by theissuer). may be omitted.

r. Reporting ofPrior AcquisitionsAt present. item 9 requires the

acquiring person to list certain prioracquisitions when both the acquiringperson and the acquired'issuer or theacquired assets had attributable to themrevenues of $1 million or more in themost recent year in the same 4-digit SICcode. The acquiring person is required

, to list only prior acquisitions madewithin the previous five~years of morethan 50 percent of the voting securitiesor assets of entities which had annualnet sales ortota! assets greater than $10million in the year prior to theacquisition. .. ' '

The purpose of item 9 is "to assist the.agencies in identifying any prior

,acquisitions by the acquiring person"that may suggest a pattern ofacquisitions in a particular jndustry bythat person." 43 FR 33450. 33,534 (July31.1978). Item 9 has been useful to theagencies in monitoring competitionwithin industries. Responses to thisitem have provided information relatingto acquisitions for which a premergerfiling was not made as well asinformation regarding possibleviolations of the Act for failure to filenotification. .

As stated above. item 9 currentlyrequires information regarding prioracquisitions involving common 4-digitSIC codes in which both the acquiring

, person and the issuer or assets to beacquired derived revenues of $1 million

, or more in the most recent year. In 1987.the Commission decided not to adopt asuggestion to raise the $1 millionthreshold to $10 million "because the .agencies sometimes find overlaps of lessthan $10 million in a given 4-digit SIC

.code to be of significance." 52 FR 7078

(March 6. 1987) The Commissionexplained that this is partiCularly truewhen the parties compete in small localmarkets and when the acquiror has alarge market share. [d. However. basedon the Commission's experience inreviewing acquisitions since 1987. theCommission has observed thatacquisitions in which either partycurrently derives revenues of less than$5 million in the same 4-digit SICindustry code seldom presentcompetitive concerns. Thus.information about the acquiringperson's prior acqnisitions involvingsuch industries is of limited value.either in analyzing the transaction forwhich the acquiring person is currentlyfiling notification. or for monitoring ,competition in the given industry. Forthis reason, the Commission proposes toraise the $1 million threshold presentlyfound in item 9 to $5 million.

The Commission also proposes toclarify the language in item 9 whichprovides that "only ac.quisitions of morethan 50 percent of the voting securitiesor assets of entities" need be listed.With respect to asset acquisitions. thislanguage has been read to mean thatonly acquisitions of more than 50percent of the assets of an entity needbe listed. While the more than 50percent threshold is justif'ied for votingsecurities acquisitions. it appears tohave no basis from an antitrustperspective as applied to assets. Inmany cases. filing parties often haverecognized this incongruity and haveincluded in their response to item 9acquisitions of assets that did notconstitute more, than 50 percent of theacquired entity's ass~ts; strictapplication of the more than 50 percentrequirement to' assets would permitnearly all prior acquisitions from large,multi-divisional corporations to gounreported in item 9. Accordingly, theCommission proposes to modify theinstructions to item 9 to make clear thatasset acquisitions are not subject to the50. percent test.

In addition. the Commission proposesto modify the language bfthe "more

. than 50 percent" test as applied to theacquisition of voting securities to a "50percent or more" test consistent withthe Commission's definition of controlof ari is'suer. See 16 CFR 801.1(b).·

Accordingly. the Commissionproposes that the instructions to item 9be,revised. in part. as follows:

Item 9-Previous acquisitions (to becompleted by acquiring persons).Determine each 4-digit (SIC code)indU6try listed in Item 7(a) above. inwhich the person filing 'notificationderived dollar revenues of $5 million ormore in the most recent year and in


. Federal Register I Vol. 59, No. 113 I Tuesday, June 14, 1'994 I Proposed Rules 30555

which either (1) the issuer to beacquired derived revenue ,of $5 millionor more in the most recent year (or inthe case of the formation of a jointventure or other corporation, where thejoint venture or other corporation can beexpected to derive, revenues of $5million or more), or (2) revenues of $5million or more in the most reGent yearare attributable to the assets to.be'acquired. . .', ' ., . For each such 4-digit industry, list allacquisitions made by the person filingnotification in the five years prior to thedate of filing. List only acquisitions of(1) 50 percent or more of tbe votingsecurities oran issuer which had assetsor annual net sales of $10 million ormore in the year prior to the acquisitionor (2) acquisitions of assets valued at$10 million or more at the time of theiracquisition., By direction of the Commissi0J1. ,

Donald S. Clark,Secretary. .IFR Doc. 94-14316 Filed 6-13-94; 8:45 ami. ., .BILLING ,CODE 6750-41-P.

DEPARTMENT OF JUSTICE

Drug Enforcement Ad":,inistratfon

21 CFR Part 1301'

RegiStration of Manufacturers andImporters of Control/ed Substances'

AGENCY: Drug EnforcementAdministration (DEA).ACTIC?N: Supplemental notice of .proposed rulemaking(SNPRM).

SUMMARY: On October 7; 1993,'DEApublished a notice a proposed 'rulemaking (NPRM)in the FederalRegiste'r (58 FR 52246) to amend itsregulations to eliminate the mandatory.administrative hearing requirement for.objections to the registration of certainbulk manufacturers and importers of •controlled substances: This SNPRMrevises the NPRM by proposing toeliminate the hearing provision relatingto bulk manufacturers altogether andleave unaltered the hearing provisio!lrelating to registration of importers.DATES: Written comments aridobjections to this SNPRM must bereceived on or before August 15, 1994.ADDRESSES: Comments and objections

, should be submitted in quintuplicate tothe Administrator, Drug EnforcementAdministration, Washington; DC 20537.Attention: DEA Federal RegisterRepresentative/CCR.FOR AJRTHER INFORMATION CONTACT:Julie C. Gallagher, Associate ChiefCounsel, Diversion an'd Regulatory

Section, Office of Chief Counsel, Drug ,Enforcement Administration,Washington, DC 20537, telephone (202)307-8010.SUPPLEMENTARY INFORMATION: On·October 7,1993, IlEA published aNPRM in the Federal Register (58 FR52246). The DEA proposed to amendtwo sections of its regulations, .specifically 21 CFR 1301.43(a) and1311.42(a), in which the Administratoris required to hold an administrativehearing on an application for .registration to manufacture or import abulk Schedule I or II controlledsubstance when requested to do.so byany current bulk manufacturer of thesubstance(s) or by any other applicantfor a similar registration. Because theproposals in this SNPRM differ in somerespects from the NPRM, DEA .encourages interested persons to filecomments in response to this SNPRMeven if they have already commented onthe NPRM. Comments previouslyreceived under the NPRM will beconsidered under the SNPRM to ~heextent they are relevant tothe changesin the SNPRM.

Section 1311.42(a)

In the NPRM, DEA propose.d to .remove the provision which enabled aperson registered as a bulk manufacturerof a controlled substance or applicantthereof to requ~st a hea~ing on theapplication of an impC?rter of that. .controlled substance. As severalcommentators argued, the proposedamendment to 21 CFR 1311.42, cannotbe reconciled with the hearingprovisions of 21 U.S.c. 9~8(i). Therelevant portion of 21 U.S.C. 9580)states: "prior to issuing.a registrationunder this section ... the AttorneyGeneral shall give manufacturersholding registrations for the bulkmanufacture of the substance anopportunity for a hearing." In keepingwith the above requirement, 21 CFR1311.42, allows current bulkmanufacturer registrants to request anadministrative hearing regarding theirobjections to the registration of certainimporters of Schedule I and IIcontrolled substances. With an existingstatute in effect. DEAis not empoweredto adopt regulations that contravene theexpress language of that statute.Therefore, based on the hearing .provisions under 21 U.S.c. 958(i), 21CFR 1311.42, Application forimportation of Schedule I and IIcontrolled substances. shall remainunchanged.

Section 1301.43(a)

Unlike the registration of imponers.the Controlled Substances Act (21

U.S.C. 801, et seq.) does not require thatcurrent registrants be allowed to r~questa p'e~ring on an applicati()n forregistration as a bulk manufacturer of acontrolled substance. The NPRMproposedto modify § 1301.43(a) andprovide for a hearing only when ""heAdministrator detemiines that a hearingis necessary to receive factual evidenceand/or expert testimony with respect to 'issues raised by t!Je application or

'objections thereto." The SNPRM goesone step further and eliminates thishearing provision entirely. However, theAdministrator would still be required tohold hearings when requested by the

',applicant pursuant to an order to showcause, § 1301.44, and current registrantsand applicants would still be permittedto submit comments or objectionsconcerning an application forregistration. In addition, currentregistrants and applicants would begranted an opportunity to participate in 'any hearings conducted pursuant to§ 1301.44.

DEA recognizes that the antecedentfor this hearing provision derives fromstatu~ory acknowledgement that limitingthe number of registrants may increase.the capability to control diversion. Theregulations clearly state, however, thatthe Administrator is not required to .limit the number of manufacturers evenif the· current registrants can provide anadequate supply, as long-as DEA canmaintain effective controls againstdiversion. 21 CFR 1301.43(b). Inaddition. as stated in the NPRM, lheAdministratqr has never denied anapplication solely on the basis ofincreased danger of diversion or adverseimpactupon domestic competjtion.. DEA also agrees that currentregistrants and applicants should beallowed to object to an additionalregistration by filing comments ongrounds that it would adversely affectdiversion or competition in a highlyregulated industry; But DEA finds thaIregistrants and applicants have abusedthe mandatory hearing requirement inthe past and it remains a future sourceof abuse where these individuals deler

'. or delay new registrations and retaliateby opposing annual renewals., Most important, the proposed change

as provideq herein does not violate, statutory intent but instead comports

with sound principles of substantiveand procedural due process. First,elimin~ting the hearing requirementexcept when requested by the applicanlafter issuance' of an order to show cause.supports the statutory and regulatorymandate that an applicant forregistration as a bulk manufacturer shallhave the burden ofproof at "anyhearing" that the requirements of