[Federal Register Volume 60, Number 145 (Friday, July 28, 1995)]
[Proposed Rules]
[Pages 38930-38941]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-18596]




[[Page 38929]]

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Part V





Federal Trade Commission





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16 CFR Parts 801 and 802



Premerger Notification; Reporting and Waiting Period Requirements; 
Proposed Rule

  Federal Register / Vol. 60, No. 145 / Friday, July 28, 1995 / 
Proposed Rules  

[[Page 38930]]


FEDERAL TRADE COMMISSION

16 CFR Parts 801 and 802


Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Notice of Proposed Rulemaking.

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SUMMARY: This notice proposes amendments to the premerger notification 
rules that require the parties to certain mergers or acquisitions to 
file reports with the Federal Trade Commission and the Assistant 
Attorney General in charge of the Antitrust Division of the Department 
of Justice and to wait a specified period of time before consummating 
such transactions. The reporting and waiting period requirements are 
intended to enable these enforcement agencies to determine whether a 
proposed merger or acquisition may violate the antitrust laws if 
consummated and, when appropriate, to seek a preliminary injunction in 
federal court to prevent consummation.
    This notice seeks comments on five proposed rules that would define 
or create exemptions to the requirements imposed by the act. These 
proposed rules have been developed to clarify the types of transactions 
that are in the ordinary course of business of the parties to the 
transaction and are exempt under section 7A(c)(1) of the Hart-Scott-
Rodino-Act. They also provide several new exemptions under section 
7A(d)(2)(B) for certain types of acquisitions of realty and carbon-
based mineral reserves that appear unlikely to violate the antitrust 
laws. These proposed rules are designed to reduce the compliance burden 
on the business community by eliminating the application of the 
notification and waiting requirements to a significant number of 
transactions that, in most cases, are unlikely to violate the antitrust 
laws. They will also allow the enforcement agencies to focus their 
resources more effectively on those transactions that present the 
potential for competitive harm.

DATES: Comments must be received on or before September 29, 1995.

ADDRESSES: Written comments should be submitted to both (1) the 
Secretary, Federal Trade Commission, Room 136, Washington, DC 20580, 
and (2) the Assistant Attorney General, Antitrust Division, Department 
of Justice, Room 3214, Washington, DC 20530.

FOR FURTHER INFORMATION CONTACT:
Melea R. Epps, Attorney, or John M. Sipple, Jr., Assistant Director, 
Premerger Notification Office, Bureau of Competition, Room 303, Federal 
Trade Commission, Washington, DC 20580. Telephone: (202) 326-3100.

SUPPLEMENTARY INFORMATION:

Regulatory Flexibility Act

    The proposed amendments to the Hart-Scott-Rodino premerger 
notification rules are designed to reduce the burden of reporting on 
the public. The Commission has determined that none of the proposed 
rules is a major rule, as that term is defined in Executive Order 
12291. The amendments will not result in any of the following: an 
annual effect on the economy of $100 million or more; a major increase 
in costs or prices for consumers, individual industries, Federal, 
State, or local government agencies, or geographic regions; or 
significant adverse effects on competition, employment, investment, 
productivity, innovation, or on the ability of United States-based 
enterprises to compete with foreign-based enterprises in the domestic 
market. None of the amendments expands the coverage of the premerger 
notification rules in a way that would affect small business. 
Therefore, pursuant to section 605(b) of the Administrative Procedure 
Act, 5 U.S.C. 605(b), as added by the Regulatory Flexibility Act, Pub. 
L. 96-354 (September 19, 1980), the Federal Trade Commission has 
certified that these rules will not have a significant economic impact 
on a substantial number of small entities. Section 603 of the 
Administrative Procedure Act, 5 U.S.C. 603, requiring a final 
regulatory flexibility analysis of these rules, is therefore 
inapplicable.

Background

    Section 7A of the Clayton Act (``the act''), 15 U.S.C. 18a, as 
added by sections 201 and 202 of the Hart-Scott-Rodino Antitrust 
Improvements Act of 1976, requires parties to certain acquisitions of 
assets or voting securities to give advance notice to the Federal Trade 
Commission (hereafter referred to as ``the Commission'') and the 
Assistant Attorney General of the Antitrust Division of the Department 
of Justice (hereafter referred to as ``the Assistant Attorney 
General''). The parties must then wait certain designated periods 
before the consummation of such acquisitions. The transactions to which 
the advance notice requirement is applicable and the length of the 
waiting period required are set out respectively in subsections (a) and 
(b) of section 7A. This amendment to the Clayton Act does not change 
the standards used in determining the legality of mergers and 
acquisitions under the antitrust laws.
    The legislative history suggests several purposes underlying the 
act. Congress wanted to ensure that certain acquisitions were subjected 
to meaningful scrutiny under the antitrust laws prior to consummation. 
To this end, Congress intended to eliminate the ``midnight merger'' 
which is negotiated in secret and announced just before, or sometimes 
only after, the closing takes place. Congress also provided an 
opportunity for the Commission or the Assistant Attorney General (who 
are sometimes hereafter referred to as the ``antitrust agencies'' or 
the ``enforcement agencies'') to seek a court order enjoining the 
completion of those transactions that either agency determines would 
present significant antitrust problems. Finally, Congress sought to 
facilitate an effective remedy when a challenge by one of the 
enforcement agencies proved successful. Thus, the act requires that the 
antitrust agencies received prior notification of certain acquisitions, 
provides tools to facilitate a prompt, thorough investigation of the 
competitive implications of these acquisitions, and assures the 
enforcement agencies an opportunity to seek a preliminary injunction 
before the parties to an acquisition are legally free to consummate it. 
The problem of unscrambling the assets after the transaction has taken 
place is thereby reduced.
    Subsection 7A(d)(1) of the act, 15 U.S.C. 18a(d)(1), directs the 
Commission, with the concurrence of the Assistant Attorney General, in 
accordance with 5 U.S.C. 553, to require that the notification be in 
such form and contain such information and documentary material as may 
be necessary and appropriate to determine whether the proposed 
transaction may, if consummated, violate the antitrust laws. Subsection 
7A(d)(2) of the act, 15 U.S.C. 18a(d)(2), grants the Commission, with 
the concurrence of the Assistant Attorney General, in accordance with 5 
U.S.C. 553, the authority to (a) define the terms used in the act, (b) 
exempt from the act's notification and waiting period requirements 
additional classes of persons or transactions which are not likely to 
violate the antitrust laws, and (c) prescribe such other rules as may 
be necessary and appropriate to carry out the purposes of section 7A.
    The Commission, with the concurrence of the Assistant Attorney 
General, promulgated implementing rules (``the rules'') and the 
Notification and Report Form (the ``Form'') and issued an accompanying 
Statement of 

[[Page 38931]]
Basis and Purpose, all of which were published in the Federal Register 
of July 31, 1978, 43 FR 33451, 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 of the terms used in the 
act and rules, and explains which acquisitions are subject to the 
reporting and waiting period requirements. Part 802 contains a number 
of exemptions from these requirements. Part 803 explains the procedures 
for complying with the act. The Form, which is completed by persons 
required to file notification, is an appendix to part 803 of the rules.
    Changes of a substantive nature have been made in the premerger 
notification rules or Form on ten occasions since they were first 
promulgated: 44 FR 66781 (November 21, 1979); 45 FR 14205 (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 28, 1986); 52 FR 7066 
(March 6, 1987); 52 FR 20058 (May 29, 1987); 54 FR 21425 (May 18, 1989) 
and 55 FR 31371 (August 2, 1990).
    The current set of proposed changes to the rules interprets the act 
and expands the current policies of the Commission's Premerger 
Notification Office regarding transactions in the ordinary course of 
business that are exempt from the notification and waiting requirements 
of the act. The proposals also include several new exemptions for 
acquisitions of certain types of real property assets and carbon-based 
mineral reserves. The Commission, as part of its ongoing review of the 
rules, invites interested persons to submit comments on these proposed 
rules and the Statement of Basis and Purpose.

Statement of Basis and Purpose for the Commission's Proposed Revisions 
to the Premerger Notification Rules

    Proposed Secs. 802.1, 802.2, 802.3, 802.4, and 802.5 describe 
certain types of acquisitions that would be exempt from the 
notification requirements of the act. They would replace and expand 
existing Sec. 802.1, which describes certain applications of the 
exemption granted by section 7A(c)(1) of the act for acquisitions of 
goods or realty in the ordinary course of business. Proposed revisions 
to Sec. 801.15 would define when the aggregation rules apply to 
acquisitions covered by these newly proposed rules.
    In 1985, the Commission proposed three new provisions under part 
802. Previously proposed Sec. 802.1 would have addressed the statutory 
``ordinary course of business'' exemption; previously proposed 
Sec. 802.2 would have exempted certain acquisitions of unimproved land, 
office buildings and residential properties; and previously proposed 
Sec. 802.3 would have exempted certain acquisitions of carbon-based 
mineral reserves.
    In response to the 1985 notice of proposed rulemaking, the 
Commission received twenty comments that focused wholly or in part on 
the then proposed Secs. 802.1, 802.2, and 802.3. The persons who 
commented are listed in the Federal Register of March 6, 1987, 52 FR 
7066. The comments are available for public inspection in the Federal 
Trade Commission's Public Reference Room, Reference number 223.2.1-1-E 
and F.
    On March 23, 1995, the Chairman of the Commission and the Assistant 
Attorney General for the Antitrust Division of the Department of 
Justice jointly announced eight initiatives for review of transactions 
under the act. One of the initiatives is a reduction in the number of 
filings received pursuant to the act. A draft of several revisions to 
the Hart-Scott-Rodino rules under consideration by the staff of the 
Commission's Premerger Notification Office (PNO) was made available to 
the public. Those revisions would eliminate the necessity to file 
premerger notification for certain transactions that are not likely to 
violate the antitrust laws. The draft reflected careful consideration 
by the staff of the comments received in response to the 1985 
proposals, the experience of the PNO during the intervening years in 
its determinations of the reportability of a large number of 
transactions not specifically exempted by the act or the rules an the 
experience of the enforcement agencies in conducting their antitrust 
review of premerger filings.
    Included in the March 23 draft was a series of questions to be 
considered in determining whether the revisions under consideration by 
the PNO effectively exempted transactions that were unlikely to violate 
the antitrust laws and facilitated uncomplicated application of the 
rules. In response to an invitation for comment, the staff of the 
Commission received extensive input from the private antitrust bar and 
worked closely with the Department of Justice to address the questions 
raised in the draft. As a result, the draft revisions were reformulated 
significantly to enhance their effectiveness in exempting classes of 
transactions that are unlikely to create competitive problems, while 
ensuring that the enforcement agencies continue to receive notification 
of classes of acquisitions that are more likely to present potential 
antitrust concerns. The Commission now formally proposes the following 
amendments to the premerger notification rules.
    Criteria for the Rules. Section 7A(c)(1) of the act exempts 
``acquisitions of goods or realty transferred in the ordinary course of 
business.'' Existing Sec. 802.1(a) interprets this statutory language 
to apply the exemption to acquisitions of voting securities of entities 
holding only realty. Existing Sec. 802.1(b) denies the exemption to the 
sale of goods or real property if they constitute ``all or 
substantially all of the assets of that entity or an operating division 
thereof'' unless the entity qualifies for the exemption under existing 
Sec. 802.1(a) because its assets consist solely of real property and 
assets incidental to the ownership of real property.
    The reportability of transfers in the ordinary course of business 
has long been a frequent source of questions from the public. Proposed 
Sec. 802.1 represents interpretations of section 7A(c)(1) made by the 
PNO over the years, and it also broadens these interpretations to 
exempt additional classes of acquisitions that are unlikely to violate 
the antitrust laws.
    Proposed Sec. 802.1(a) preserves the concept of existing 
Sec. 802.1(b) and makes the exemption unavailable for acquisitions of 
all or substantially all of the assets of an operating unit. Operating 
unit is defined as assets operated by the acquired person as a business 
undertaking in a particular area or for particular products or 
services. The sale of all or substantially all of the assets of a 
business is generally equivalent to the sale of a business enterprise. 
Although it is possible that the effects of selling capacity might be 
to enhance competition, it can also diminish competition, and each 
acquisition must be judged individually. The current and proposed rules 
therefore require generally that acquisitions that transfer the 
equivalent of a business remain subject to the prior notification 
obligations of the act.
    Proposed Sec. 802.1 also defines categories of acquisitions of 
goods that are deemed to be in the ordinary course of business and are 
therefore exempt from the notification requirements. Individual review 
of such transactions is typically unnecessary because selling goods is 
the essence of manufacturing, wholesaling, and retailing businesses. 
Sales in the ordinary course of business should not in any way diminish 
the capacity of the selling firm to compete.

[[Page 38932]]

    Proposed Sec. 802.1 provides that certain acquisitions of used 
durable goods qualify for exemption from the reporting requirements as 
transfers of goods in the ordinary course of business. These exemptions 
for specific types of acquisitions of used durable goods acknowledge 
that certain transfers of productive assets are made in the ordinary 
course to increase or upgrade capacity and to improve efficiencies. 
However, the ordinary course of business exemption generally will not 
reach other acquisitions involving productive capacity. The Commission 
invites comment regarding other types of transfers of productive 
assets, especially those not involving operating units, that may 
qualify for the ordinary course of business exemption.
    Proposed Sec. 802.2 (concerning real property assets) and proposed 
Sec. 802.3 (concerning carbon-based mineral reserves and rights) are 
based, for the most part, on the Commission's authority in section 
7A(d)(2)(B) of the act to exempt transactions that are unlikely to 
violate the antitrust laws. These proposals provide exemptions for 
certain acquisitions of assets that are usually abundant and are used 
in markets that are unconcentrated. These two factors make it unlikely 
that a transfer of these types of assets will have anticompetitive 
effects. It is thus not necessary to examine each individual 
transaction to determine if it will violate the antitrust laws.
    To accommodate parties who choose to structure their transactions 
as acquisitions of voting securities rather than as acquisitions of the 
underlying assets, proposed Sec. 802.4 exempts acquisitions of voting 
securities of issuers whose assets consist solely of the assets 
exempted by proposed Secs. 802.2 and 802.3.
    Proposed Sec. 802.5 exempts acquisitions by certain investors of 
rental real property, the acquisition of which is not already exempted 
by Sec. 802.2. Proposed Sec. 802.5 is based on the use to which those 
buyers put the acquired assets. It would exempt institutional investors 
(as defined in Sec. 802.64) and persons whose sole business is the 
acquisition or management of investment rental property from the 
requirements of the act when they are acquiring investment rental 
property assets. The Commission believes that, so long as the assets 
remain as investment rental property assets, the acquisition of these 
assets is unlikely to violate the antitrust laws.
    Proposed Secs. 802.1, 802.2, 802.3, 802.4 and 802.5 are based on 
the Commission's authority in section 7A(d)(2)(A) of the act to 
``define the terms used in (section 7A)'' (with the concurrence of the 
Assistant Attorney General) and sections 7A(d)(2) (B) and (C) to 
``exempt * * * transactions which are not likely to violate the 
antitrust laws'' and to ``prescribe such other rules as may be 
necessary and appropriate to carry out the purposes of [section 7A].'' 
However, the Commission reserves the right to investigate certain 
transactions exempted from the reporting requirements by the proposed 
rules if these transactions are characterized by factors that increase 
the likelihood that the consummation of the transactions may violate 
the antitrust laws.
    The Commission is aware that even with the significant coverage of 
the proposed rules, the exempt status of many transactions will remain 
unaddressed. These proposed rules do not interpret or apply to the 
entire statutory exemption created by section 7A(c)(1); there remain 
categories of transactions involving goods and realty that are not 
expressly treated under the proposed rules. For example, certain 
acquisitions of credit card receivables and certain acquisitions of 
assets subject to a lease financing arrangement may qualify for 
exemption as transfers in the ordinary course of business. Persons who 
desire advice on the exempt status of any transfer of goods, realty or 
other assets may contact the Premerger Notification Office, Bureau of 
Competition, Room 303, Federal Trade Commission, Washington, DC 20580, 
or phone (202) 326-3100.
I. Proposed Section 802.1: Acquisition of Goods in the Ordinary Course 
of Business

    Section 7A(c)(1) of the act exempts ``acquisitions of goods or 
realty transferred in the ordinary course of business.'' Proposed 
Sec. 802.1 defines some acquisitions of assets that are in the ordinary 
course of business and other acquisitions that are not. This proposed 
section only covers transfers of goods. Transfers of realty are covered 
in proposed Sec. 802.2.
    Proposed Sec. 802.1 defines four categories of acquisitions of 
goods: acquisitions of an operating unit, acquisitions of new goods, 
acquisitions of current supplies, and acquisitions of used durable 
goods. The proposed section states whether and under what circumstances 
each type of acquisition is exempt. These four categories of asset 
acquisitions are not comprehensive. As noted above, some asset 
acquisitions may not fit neatly into any of these defined categories.
    Proposed Sec. 802.1 has four paragraphs: Paragraph (a) denies the 
ordinary course of business exemption to any transfer of goods that is 
equivalent to the sale of a business. The next three paragraphs define 
acquisitions of goods that may be exempt. Paragraph (b) exempts the 
acquisition of new goods, and paragraph (c) exempts the acquisition of 
current supplies. Paragraph (d) defines certain transfers of used 
durable goods that are within the ordinary course of business. These 
include the following: acquisitions by or from bona fide dealers and 
resellers; transfers by an acquired person that has replaced the 
productive capacity of the assets being sold; and transfers by an 
acquired person that has outsourced an auxiliary function that was 
provided by the goods being sold.
    In determining whether a given acquisition of goods is in the 
ordinary course of business and is therefore exempt under a provision 
of Sec. 802.1, one should first determine if the goods constitute an 
operating unit. If the goods being sold make up an operating unit of 
the seller, the inquiry ends there, and the transaction is not exempt. 
If the goods do not constitute an operating unit, then they should be 
classified as either new goods, current supplies or used durable goods, 
and the appropriate provisions under Sec. 802.1 should be applied.
    The organization of Sec. 802.1 is intended to make it easier to 
identify routine acquisitions that meet the criteria of section 
7A(c)(1) for an exemption as an acquisition of goods transferred in the 
ordinary course of business. Sales of new goods and purchases of 
current supplies are frequent. The objective of the businesses covered 
by paragraphs (b) and (c) is to buy and sell such goods and supplies; 
thus such transactions meet the common meaning of transfers in the 
ordinary course of business. Exempting these transactions facilitates 
acquisitions of new goods that normally expand the supply of products 
or expand productive capacity and therefore do not tend to lessen 
competition. In contrast, acquisitions of entire businesses have 
greater potential to concentrate productive capacity and thereby may 
diminish competition.
    A. Operating Units. Proposed Sec. 802.1(a) excludes the acquisition 
of all or substantially all of the assets of an ``operating unit'' from 
the ordinary course of business exemption. An ``operating unit'' can be 
thought of as a collection of assets that has been operated as a 
business undertaking. The assets of an operating unit can include 
realty, current supplies and durable goods. Common examples of 
operating units include, but are not limited to, 

[[Page 38933]]
regional divisions or company branches, international operations, a 
financial group, transportation operations, a factory or an oil 
processing facility. Factors important in determining whether a group 
of asset constitutes an operating unit include the extent to which the 
assets being sold are devoted to producing a certain product, or the 
extent to which such assets serve one or more specific geographic 
markets.
    The proposal uses the term ''operating unit'' rather than the term 
``operating division'' used in existing Sec. 802.1(b). The latter term 
has created some uncertainty because some business entities use the 
term ``division'' in a manner that may not be consistent with this 
rule. For example, a business might use the term ``division'' to 
designate an unincorporated administrative segment of its enterprise, 
such as the ``East Coast Division'' or ``Tri-State Division.'' Such 
usage is designed to serve the needs of the business. The term 
``operating unit'' has been proposed in order to make clear that the 
application of the rule is not dependent on the terminology used by a 
business.
    The term ``operating unit'' is defined in the rule as ``assets that 
are operated by the acquired person as a business undertaking in a 
particular geographic area or for particular products and services, 
even though those assets may not be organized as a separate legal 
entity.'' Example 1 to Sec. 802.1 illustrates a combination of assets 
that is considered to be an operating unit, the acquisition of which 
would be excluded from the ordinary course of business exemption. As 
further guidance in determining when a collection of assets constitutes 
an operating unit, the following factors are relevant: (1) Whether the 
seller is terminating a business function as a result of the sale, such 
as ceasing to sell in a geographic region or manufacture products for a 
particular business segment; (2) whether the industry perceives the 
assets as a separate unit; and (3) whether the sale of assets includes 
durable goods and the current supplies that are used in the operation 
of those durable goods.
    The sale of an operating unit is one kind of transfer that the 
premerger notification program was intended to review and thus is not 
exempt under the ordinary course of business exemption. During review, 
the antitrust agencies consider whether, and to what extent, 
concentration of productive capacity may be increased by the sale of a 
business and whether competition will be adversely affected by the 
acquisition of a business.
    B. New Goods. Proposed Sec. 802.1(b) describes the type of 
acquisitions of goods that are most commonly referred to as 
acquisitions ``in the ordinary course of business.'' This paragraph 
exempts acquisitions of new goods that were produced by the seller for 
the purpose of sale or that were held by the seller solely for the 
purpose of resale.
    Paragraph (b) of proposed Sec. 802.1 focuses on the purpose for 
which the seller holds the new goods to determine if the transaction is 
in the ordinary course of business and is therefore exempt. The sales 
of new goods which the paragraph exempts are routine sales of inventory 
by manufacturers, wholesalers or retailers conducted in the ordinary 
course of business. As a general matter, there is no difficulty 
identifying the goods in the two circumstances in which this exemption 
applies. Goods that are ``produced'' mean goods not used by the seller 
to which he has added value through processing or manufacture and may 
include refurbished goods. ``New goods held at all times by the 
acquired person solely for resale'' means inventory held for sale that 
is not to be used by the seller or others prior to sale. When the 
seller uses goods that are held for sale, the exemption does not apply. 
The paragraph is specifically worded to deny this exemption to any sale 
of goods that were purchased for use, even if the goods are 
subsequently sold without being used.
    The exemption set forth in paragraph (b) does not apply to any 
acquisition of new goods which are sold as part of a transaction that 
includes all or substantially all of the assets of an operating unit. 
This limitation on the exemption of new goods would apply even if all 
the assets transferred were new goods held solely for the purpose of 
resale. For example, if a marine supply wholesaler, which owned only an 
extensive inventory of hundreds of items from different manufacturers, 
sells its entire inventory to one person, the acquisition would not be 
exempt even though the sale is composed entirely of new goods. The sale 
of all of its inventory would be considered the sale of all or 
substantially all of its business since the primary assets of such a 
wholesaling business are inventory.
    C. Current Supplies. Proposed Sec. 802.1(c) described another 
category of asset acquisitions--the acquisition of ``current 
supplies''--that qualify for the ordinary course exemption. ``Current 
supplies'' is a new term to the rules and is described in subparagraphs 
(1), (2) and (3). Current supplies include goods bought for resale, raw 
materials, components, maintenance supplies and the like. Current 
supplies are purchased frequently and are either consumed in the daily 
conduct of business or incorporated into a final product. The proposal 
states that current supplies do not include used durable goods, which 
are discussed in proposed Sec. 802.1(d).
    The acquisition of current supplies is unlikely to create or 
extinguish a competitive entity and is therefore exempt unless acquired 
as part of an acquisition of an operating unit. Parties are permitted 
to claim the exemption even if the goods purchased are not new (so long 
as they are not used durable goods), so long as the acquired goods are 
to be held for resale, are to be consumed by the buyer, or are 
otherwise incorporated in the acquiring person's final product.
    In applying paragraph (c), the focus is on the business of the 
acquiring person to determine if the exemption is available.
    D. Used Durable Goods. Proposed Sec. 802.1(d) provides that certain 
acquisitions of used durable goods qualify for the ordinary course of 
business exemption. The Commission recognizes that sales of used 
durable goods often meet a common sense definition of transfers of 
goods in the ordinary course of business and that not all used durable 
goods acquisitions have competitive significance. Sales of such used 
durable goods may be routine and considered by parties to be in the 
ordinary course of their businesses.
    Sales of used durable goods may also facilitate the purchase of a 
new generation of equipment that will increase the productive capacity 
of a business. Therefore, paragraph (d) represents an attempt to 
identify certain categories of transfers of used durable goods that 
meet a common sense definition of ``ordinary course'' and appear 
unlikely to violate the antitrust laws: When goods are being acquired 
by or from persons holding the goods solely for resale; when the 
acquired person is replacing or upgrading the productive capacity 
provided by the goods being sold; and when the acquired person is 
outsourcing the auxiliary support functions performed by the goods 
being sold. Sales of used durable goods that diminish a company's 
productive capacity or sales of productive assets that result in a 
company's exit from a given product or geographic market are not 
included in the ordinary course of business exemption.
    Proposed Sec. 802.1(d) defines an acquisition of used durable goods 
as a transaction that is in the ordinary course of business if it meets 
specific criteria. The term ``used durable good'' is new to the rules 
currently in force. It is defined in proposed Sec. 802.1(d) as a used 
good 

[[Page 38934]]
which was ``designed to be used repeatedly and has a useful life 
greater than one year.''
    An acquisition of used durable goods is exempt as within the 
ordinary course of business if two requirements are satisfied. The 
first requirement is that they must not be acquired as part of a 
transfer of an operating unit, defined in paragraph (a) as ``assets 
that are operated by the acquired person as a business undertaking in a 
particular geographic area or for particular products or services.'' 
This restriction prevents a company from using Sec. 802.1(d) to 
transfer assets that result in the company's exit from a particular 
product line or regional market without first observing the reporting 
requirements.
    The second requirement for exempting an acquisition of a used 
durable good is that any one of four criteria set forth in the proposed 
rule must be satisfied. The first criterion, that the acquiring person 
must hold the goods at all times solely for resale, and the second, 
that the acquired person must have held the goods at all times solely 
for resale, represent an exemption for dealers whose business is to 
purchase and sell used goods. The proposed exemption is unavailable if 
the person making the acquisition is in reality an intermediary for 
either the seller or another person who intends to use the goods (see 
Example 5 to Sec. 802.1). This limitation attempts to forestall abuse 
of the dealer exemption by requiring notification in circumstances 
where there is any possibility that the dealer might be acting as a 
broker or an agent for an acquiring person or a third party. After 
considerable assessment of the necessity and applicability of this 
exemption, the Commission believes that the exemption should be 
included to allow dealers to make transfers within the ordinary course 
of their business without having to observe the reporting and waiting 
requirements. However, the Commission will closely monitor such 
transactions to ensure that the exemption is not being used as a ploy 
to circumvent the notification requirements of the act.
    The third criterion recognizes that it is in the ordinary course of 
business for a company to replace or upgrade productive capacity and to 
sell the capacity it is replacing. Thus, an exemption is permitted for 
the sale of used durable goods if the productive capacity of these 
goods is replaced substantially or upgraded. Such replacements may 
result in an increase in the acquired person's productive capacity or 
manufacturing efficiencies. The proposed rule allows replacement of the 
used durable goods by acquisition or by lease. No minimum lease term is 
specified, however, in order for a transfer of the goods being replaced 
to be in the ordinary course of business, the replacement goods must be 
leased for a period that is substantially long enough to maintain or 
increase the company's current productive capacity. Such a period is 
industry specific and must be determined in good faith by the acquired 
person. Because this proposed provision requires that the productive 
capacity must be replaced substantially, the exemption is lost if the 
replacement goods result in more than a de minimis decease in the 
acquired person's capacity or an exit from a line of business or 
specific product or geographic market in which the acquired person 
currently operates.
    The fourth criterion permits an exemption for sales of used durable 
goods if the acquired person is replacing an auxiliary support function 
that had been performed internally using the goods being sold by 
contracting with the purchaser or a third party to perform 
substantially similar functions. This provision essentially provides an 
exemption for the transfer of goods by persons that have elected to 
outsource certain of their auxiliary support functions. For example, a 
company may decide that it would be more cost effective to have a third 
party provide its data processing needs. To accomplish this objective, 
the company may enter into a contract with a third party for these 
services and sell all of the equipment it used internally to provide 
this function. Such transfers appear unlikely to pose any competitive 
concerns.
    Auxiliary support functions include management, accounting, data 
processing, legal services, research and development, testing and 
warehousing. Although companies will sometimes outsource the 
manufacturing of some products they market, the sale of used durable 
goods that were used to produce those products does not qualify for 
exemption under this provision. Manufacturing, including the 
manufacturing of inputs for other products produced by the acquired 
person, is not an auxiliary function.
    The exemption for the transfer of goods in connection with the 
outsourcing of auxiliary functions may include the sale of goods, such 
as machinery, that may constitute a discrete business unit. However, 
such a transfer does not constitute the acquisition of an operating 
unit unless the goods being sold are also used to derive revenues by 
providing services to entities not included within the acquired person. 
A company division that only provides auxiliary support services to the 
company's operating units is not itself an operating unit. A company 
unit that provides auxiliary services supports or benefits the 
company's operating units. For example, in a company containing a unit 
that only provides the company's internal data processing needs, that 
unit would be deemed to provide auxiliary support functions. However, 
if that unit derived revenues from providing data processing services 
to third parties, then the unit would be considered to be an operating 
unit. The distinction between an operating unit and a unit providing 
auxiliary support functions is, to some extent, industry specific.
    The replacement and outsourcing exemptions both require that before 
the exemptions apply, the acquired person has already taken definitive 
steps to replace the goods being sold or obtain the auxiliary support 
functions that the goods being sold formerly provided. In addition, 
these steps must have been taken in good faith; this requirement 
prevents sham contracts that the acquired person cancels after 
transferring the productive capacity without observing the notification 
requirements and without replacing the capacity.

II. Proposed Section 802.2: Certain Acquisitions of Real Property 
Assets

    Proposed Sec. 802.2 identifies six categories of real property 
acquisitions that would be exempt from the reporting requirements of 
the act. It would exempt certain acquisitions of new facilities, 
unproductive real property, office and residential property, hotels and 
motels, agricultural property, and rental retail space and warehouses.
    Some of these proposed provisions would create entirely new 
exemptions, and they result in part from an extensive review by the 
enforcement agencies of categories of real property acquisitions that 
appear ``not likely to violate the antitrust laws.'' Certain of the 
categories expand the exemption provided in current section 7A(c)(1) 
for acquisitions of realty in the ordinary course of business. For the 
most part, the types of real property assets that are included within 
this exemption are abundant, and their holdings are widely dispersed. 
Transfers of these categories of real property are generally small 
relative to the total amount of holdings, and entry into regional and 
local markets for these types of real property assets is usually easy.
    The exemptions for new facilities, unproductive real property, 
office and residential property, hotels and motels, 

[[Page 38935]]
agricultural property, rental retail space and warehouses state that 
any non-exempt assets that are being transferred as part of an 
acquisition of the exempt assets are separately subject to the 
requirements of the act and the rules. This approach to non-exempt 
portions of acquisitions is also used in Sec. 802.3.
    A. New Facilities. Proposed Sec. 802.2(a) exempts the acquisition 
of new facilities, which may include real estate, equipment and assets 
incidental to the ownership of the new facility. The term ``new 
facility'' is new to the rules, and reflects the position of the PNO 
that transfers of ``turnkey'' facilities, i.e., new facilities capable 
of commencing operations immediately, are acquisitions of realty in the 
ordinary course of business and thus are exempt under 7A(c)(1). 
Although the provision is intended primarily to exempt turnkey 
facilities, it does not require that the facility be ready for 
immediate occupancy. The facility may need additional construction or 
outfitting at the time it is purchased and still qualify for the 
exemption.
    The exemption applies only to new facilities that have not produced 
income. It also applies only if the acquired person has held the 
facility at all times solely for sale. The language of the exemption 
allows holders of the new facilities to be either builders of the 
facility (``constructed by the acquired person for sale'') or other 
persons, such as a creditor, who take possession of a new facility with 
the intention of selling it (``held at all times by the acquired person 
solely for resale''). These limitations prevent the sale by an acquired 
person of capacity constructed for the acquired person's use, as 
Example 1 to Sec. 802.2 illustrates.
    Proposed Sec. 802.2(a) requires separate valuation of non-exempt 
assets being purchased in an acquisition of a new facility. If the 
value of the non-exempt assets exceed $15 million, and no other 
exemptions apply, then the purchase of these assets are subject to the 
notification requirements.
    B. Unproductive property. Proposed Sec. 802.2(b) exempts certain 
acquisitions of unproductive real property. The primary purpose of this 
exemption is to eliminate filing requirements for acquisitions of 
properties that have not generated a significant amount of income 
during a certain period of time. The exemption incorporates the 
concepts of undeveloped, non-income producing property, the acquisition 
of which is in the ordinary course of business, and abandoned property, 
which is no longer used to generate revenues.
    Unproductive real property is real property that has not produced 
revenues of $5 million during the 36 months preceding the transaction 
and includes raw land, structures or other improvements and natural 
resources. Structures and improvements are additions to the real 
property that add value and include, for example, buildings, parking 
lots, recreational facilities (e.g., golf courses), orchards and 
vineyards. Natural resources refers to any assets growing or appearing 
naturally on the land, such as timber and mineral deposits. Proposed 
Sec. 802.2(b) excludes from the exemption acquisitions of manufacturing 
and non-manufacturing facilities that have not yet begun operations 
(turnkey facilities)--these are addressed in Sec. 802.2(a)--as well as 
facilities that began operations within twelve months before the 
acquisition. Production machinery and equipment are not included in the 
definition of structures and improvements.
    The revenue test will exempt most wilderness and rural land that is 
not used commercially and urban land that is vacant or contains 
structures that have generated a minimal amount of income during the 
most recent three-year period.
    C. Office and residential property. Proposed Sec. 802.2(c) exempts 
acquisitions of office and residential property. The definition of 
office or residential property has two components: (1) Real property, 
the acquisition of which is not exempt under any other provision of the 
act; and (2) real property used primarily for office or residential 
purposes. Although the proposed rule does not specify the meaning of 
``primarily,'' it is contemplated that at least 75 percent of the space 
in the qualifying property, excluding common areas and parking 
facilities, is used for office or residential purposes. Under this 
definition, the total space being measured should consist of non-exempt 
property. Therefore, in determining whether a building is being used 
primarily for office or residential purposes, any portion of the 
building consisting of rental retail space, the acquisition of which is 
exempt under Sec. 802.2(f), should be excluded from the determination. 
This proposal represents a broader exemption than the current PNO 
policy, which exempts office and residential property only if the value 
of the retail space being acquired in the same Standards Metropolitan 
Statistical Area does not exceed $15 million.
    If the acquisition includes assets other than office or residential 
property, the acquisition of those assets is separately subject to the 
notification requirements. For example, if the acquiring person is also 
purchasing a factory for $20 million, the acquisition of the factory is 
separately subject to the reporting requirements. The proposed rule 
also specifies that if the purchaser is acquiring a business that is 
conducted on the office or residential property, the acquisition of the 
business, including the space in which the business is conducted, is 
subject to the notification requirements of the act. If the value of 
the business and the space in which the business is conducted exceeds 
$15 million, the acquisition is reportable.
    The inclusion of ``assets incidental to the ownership of office and 
residential property'' is derived from the language of existing 
Sec. 802.1. Although incidental assets may have value apart from the 
real property, they are often necessary for the continued and 
uninterrupted use of the property. Therefore, incidental assets are 
included in the description in proposed Sec. 802.2(c) of office and 
residential property and are exempt assets.
    D. Hotels and motels. Proposed Sec. 802.2(d) exempts from the 
reporting requirements acquisitions of hotels and motels, except when 
these assets are to be acquired in connection with the acquisition of a 
ski resort or a casino or other gaming facility. The proposed exemption 
is based on the Commission's observation that acquisitions of hotels 
and motels, except for those excluded from the exemption, are unlikely 
to violate the antitrust laws. These types of assets are plentiful and 
widely held, and often they are owned by investor groups that hire 
management firms or national chains to operate the facilities. Even in 
local market entry appears to be relatively easy.
    This exemption would include the acquisition by a national hotel 
chain of hotel assets of another hotel chain. However, if the 
acquisition includes assets other than hotels and motels, e.g., the 
selling firm's trademark or its hotel management business, these assets 
must be separately valued to determine whether their acquisition is 
subject to the notification requirements.
    E. Agricultural property. This section exempts acquisitions of 
agricultural property and associated assets integral to the 
agricultural business activities conducted on the property. 
Agricultural property that is intended to be covered by this exemption 
is real property that generally derives revenues under Major Groups 01 
and 02 of the 1987 Standard Industrial Classification (SIC) Manual. 
Associated assets integral to the agricultural business activities 

[[Page 38936]]
conducted on the property to be acquired include equipment, structures, 
(e.g., barns used to house livestock and other animals), fertilizer, 
animal feed inventory (e.g., livestock, poultry, crops, fruits, 
vegetables, milk, and eggs),
    As described in the proposed rule, the exemption for the 
acquisition of agricultural property does not include processing 
facilities, even though revenues from processing facilities located on 
a farm may be reported under SIC codes starting with 01 or 02. If a 
dairy or poultry processing market is concentrated in a given local 
area, the transfer of in-house processing capacity may have a 
significant effect on the market. For this reason, the Commission 
believes that such transfers should be reviewed prior to consummation 
so the enforcement agencies can determine whether the proposed 
acquisition will affect competition adversely.
    This exemption reflects the Commission's continuing efforts to 
develop exemptions for categories or acquisitions that are not likely 
to violate the antitrust laws. In the case of agricultural property 
exempted by Sec. 802.2, there is an abundance of real property assets 
with widely dispersed ownership. Such acquisitions are unlikely to have 
adverse effects on competition.
    F. Rental retail space; warehouse. Proposed Sec. 802.2(f) exempts 
acquisitions of two other categories of real property, rental retail 
space and warehouses. Rental retail space includes structures that 
house retail establishments, such as shopping centers, strip smalls, 
and stand alone buildings. These types of assets are abundant and 
widely held by insurance companies, banks, other institutional 
investors and individual investors as investments and rental property. 
The Commission believes that acquisitions of these types of real 
property assets are unlikely to violate the antitrust laws.
    However, the proposed rule provides that if the acquiring person is 
also acquiring a business that is conducted on the real property, the 
acquisition of that business, including the portion of the real 
property on which the business is conducted, is separately subject to 
the notification requirement of the act. For example, if any purchaser 
(including a department store chain) proposed to acquire from any 
seller (including another department store chain) several shopping 
centers and the stores of the seller located in the shopping centers, 
the acquisition of the stores including the portion of the shopping 
centers in which the stores were located, would be separately subject 
to the notification requirements. However, the acquisition of the 
portion of the shopping centers that housed other retail establishments 
would be exempt under this proposed rule. Example 8 illustrates that 
the exemption for the acquisition of warehouses is lost if warehouses 
are being acquired in connection with the acquisition of a wholesale 
distribution business.
    The proposed rule also provides that if an acquisition of rental 
retail space or a warehouse includes other assets, those other assets 
are separately subject to the reporting requirements of the act.
III. Proposed Section 802.3: Acquisition of Carbon-Based Mineral 
Reserves

    Proposed Sec. 802.3 adds an exemption for certain acquisitions of 
carbon-based mineral reserves, whether such reserves are currently in 
production or have ever been in production. The Commission proposes to 
exempt acquisitions of carbon-based mineral reserves valued at $200 
million or less.
    This proposal is designed to exempt acquisitions of producing 
reserves. If the reserves being acquired are not yet producing, or are 
producing at a level below the income threshold in Sec. 802.2(b), the 
acquisition may be exempted by Sec. 802.2(b) as an acquisition of 
unproductive real property. If the reserves qualify as unproductive 
property, their acquisition is exempt, regardless of the value of the 
reserves. Producing reserves are governed by the valuation requirement 
of Sec. 802.3 and are not exempt if their value exceeds $200 million.
    The Commission's studies of the coal and oil and gas industries 
have shown that the value of the reserves in these industries are 
substantial compared with asset holdings in other industries. The 
holdings of reserves in these industries are widely dispersed, and 
individual acquisitions have had minimal effect on concentration. 
However, the Commission believes that an unlimited exemption for 
reserves in these industries is inappropriate, because the scale of the 
largest acquisitions of reserves warrants an examination of the 
potential effects on competition.
    The $200 million threshold in proposed Sec. 802.3 applies to 
reserves, rights to the reserves and associated exploration or 
production assets. The acquisition of these associated assets is not 
separately reportable because these assets generally have no 
competitive significance separate from the reserves. In many instances, 
producing reserves contain dedicated equipment that may have a market 
value exceeding $15 million but have no practical value absent the 
reserves. In addition, the wide availability of used equipment in the 
oil and gas and coal industries makes it unlikely that a servicer of 
oil fields or coal mines could purchase reserves to restrict supply of 
available equipment in a given region. Thus, the Commission believes 
that the inclusion of associated exploration and production assets is 
necessary to facilitate meaningful application of the exemption.
    Associated exploration or production assets are defined in the 
current proposal to include equipment, machinery, fixtures and other 
assets that are integral to the exploration or production activities of 
the reserves. In the oil and gas industry, examples of associated 
exploration or production assets include proprietary or licensed 
geological and geophysical data, wells, pumps, compressors, easements, 
permits and rights of way. Excluded from these assets are flow and 
gathering pipelines, distribution pipelines, interests in pipelines, 
processing facilities and refineries. Acquisitions of these assets in 
certain local markets have, from time to time, raised competitive 
concerns prompting investigations by the enforcement agencies, and the 
Commission does not believe that such acquisitions as a class are not 
likely to violate the antitrust laws.
    In the coal industry, associated production assets are facilities 
and equipment that are dedicated exclusively to production of the 
reserves being transferred. For example, in surface mining in the 
western U.S., such assets may consist of various load out facilities, 
including storage barns and railroad spurs, and heavy equipment such as 
draglines. Associated production assets would also include the long-
term coal contracts and federal leases related to the reserves.
    It has been suggested that any exemption for carbon-based mineral 
reserves be expanded to included all mineral reserves and renewable 
natural resources. The perceived need for such an exemption regarding 
non-producing reserves may be lessened by the inclusion in these 
proposals of Sec. 802.2(b), which would exempt acquisitions of other 
such reserves that are either not yet producing or have generated 
revenues below the threshold amount. Regarding producing reserves, the 
Commission has not included these in Sec. 802.3 because it does not 
have an adequate factual basis for determining that these categories of 
transactions should be exempt from the requirements of the act or 
subject to a threshold higher than the $15 million threshold that is 
identified in Sec. 802.20.

[[Page 38937]]


IV. Proposed Section 802.4: Acquisitions of Voting Securities of 
Issuers Holding Only Real Property and Carbon-Based Mineral Reserves

    Proposed Sec. 802.4 is designed to exempt the acquisition of voting 
securities of certain real estate companies that hold real property 
assets the direct acquisition of which are exempt from the reporting 
requirements pursuant to proposed Secs. 802.2 and 802.3. This provision 
derives in part from existing Sec. 802.1(a) which exempts ``an 
acquisition of the voting securities of an entity whose assets consist 
solely of real property'' and related assets, if a direct acquisition 
of those real property and related assets would be exempt.

    As the Commission stated when it promulgated existing 
Sec. 802.1: (T)he applicability of (existing 802.1(a)) should not 
depend upon the form of the acquisition. At least from an antitrust 
standpoint, whether real estate is acquired directly or by acquiring 
voting securities would seem to make no difference * * *. 43 FR 
33488, July 31, 1978.

Proposed Sec. 802.4(a) retains this approach with regard to new 
facilities, unproductive real property, office and residential 
property, hotels and motels, agricultural property, rental retail space 
and warehouses. Proposed Sec. 802.4(b) contains a comparable exemption 
for carbon-based mineral reserves.
V. Proposed Section 802.5: Acquisitions of Investment Rental Property 
Assets by Certain Investors

    Proposed Sec. 802.5 would exempt acquisitions of investment rental 
property by institutional investors (as defined by Sec. 802.64 of the 
rules) and by persons whose sole business is the acquisition or 
management of investment rental property. This exemption is based in 
part on section 7A(c)(11) of the act which exempts ``acquisitions, 
solely for the purpose of investment, by a bank, bank association, 
trust company, investment company, or insurance company, of * * * (B) 
assets in the ordinary course of its business.'' It is designed to 
exempt most types of real property acquisitions typically made by 
institutional investors or real estate development and management 
companies that are not exempted by proposed Sec. 802.2. The proposed 
rule supplements proposed Sec. 802.2 by recognizing that there may be 
additional categories of assets that, when transferred to certain 
parties, are not likely to violate the antitrust laws.
    Institutional investors, such as financial institutions, insurance 
companies, pensions plans and REITs, typically acquire for investment 
real property such as hotels and shopping centers. Acquisitions of 
these types of assets are exempt under Sec. 802.2(d) and 
Sec. 802.2(f)(1), respectively. Proposed Sec. 802.5 is intended to 
exempt acquisitions of other types of real estate, such as industrial 
parks, that institutional investors and real estate development and 
management companies often purchase.
    This exemption is applicable only to institutional investors or 
persons engaged solely in the business of acquiring or managing 
investment rental property. It applies only to acquisitions of real 
property that will be held by the purchaser solely for rental or 
investment purposes. Thus, the intent of the purchaser at the time of 
the acquisition must be considered to determine whether the exemption 
is available.
    Acquisitions of real property by institutional investors and real 
estate development and management companies are typically made solely 
for investment. These investors play no active role in the business 
conducted on these properties and seek only to profit from their 
investment in the real estate. In order to reduce risk of loss in the 
value of the real estate they hold, purchasers of numerous properties 
generally do not concentrate their investments in a single geographic 
market. In many cases, these properties are purchased from persons who 
already maintain them as investment rental property. Given the size and 
unconcentrated nature of the real estate market, such acquisitions are 
not likely to violate the antitrust laws.
    The requirement that real property, in order to come within the 
definition of ``investment rental property assets,'' be held solely for 
rental or investment purposes is designed to exclude from the exemption 
acquisitions of rental property that may reduce competition. In one 
such scenario, the acquiring person purchases property that is leased 
to a competitor of an entity within the same person as the 
institutional investor, and then chooses not to renew the competitor's 
lease in order to disadvantage the competitor. Since the purchaser 
intends to use its ownership of the property to disadvantage a 
competitor, the property will not be held solely for rental or 
investment purposes, and the Sec. 802.5 exemption is not available. The 
requirement that property will be rented only to entities not included 
within the acquired person is also designed to assure that the 
exemption will not be available for any acquisition that is designed to 
achieve business objectives that are not related to the real estate 
market.
    For some acquisitions, in order to determine prior to the 
acquisition whether the buyer's use requirement will be fulfilled post-
acquisition, it may be necessary to examine the acquisition intent of 
the acquiring person, particularly if that investor is controlled by a 
person that also controls entities engaged in other businesses. The 
acquisition intent can be inferred from the context of the transaction 
and from actions by the acquiring person before the acquisition. 
Circumstances or conduct such as the following may be scrutinized 
separately or in combination to determine whether the acquiring person 
has an intent that is fully consistent with holding property solely as 
investment rental property assets: (1) The acquiring person undertook, 
prior to the acquisition, a study of the cost of converting the 
property for use by one of its businesses; (2) the property is to be 
converted for use by the acquiring person; (3) the property will be 
transferred to an entity within the acquiring person which would not 
qualify for an exemption under Sec. 802.5; (4) prior to the 
acquisition, the property is being leased to or used by entities 
included within the acquiring person; (5) a portion of the acquired 
property is being leased at the time of the acquisition to a competitor 
of the acquiring person; and (6) the purchase price reflects the value 
of a business operated on the property rather than the investment 
rental value of the property.
    The investment rental property exemption may apply to real 
property, such as office or residential property, hotels and motels, 
that is also exempt under proposed Sec. 802.2. However, the important 
distinction between Sec. 802.2 and Sec. 802.5 is that Sec. 802.2 
exempts acquisitions of specific classes of assets by any acquiring 
person and does not incorporate the intent-based test of Sec. 802.5. 
Proposed Sec. 802.5 exempts any type of asset that can be classified as 
investment rental property, but it is available only to institutional 
investors and real estate development and management companies. In 
addition, the exemptions for acquisition of real property under 
Sec. 802.2 apply even if the acquiring person occupies the property for 
any purpose; proposed Sec. 802.5 permits the acquiring person to use 
the acquired investment rental property assets only to manage or 
operate real property.

VI. Aggregation Rules

    Section 801.15 states that the aggregation rules of Sec. 801.13 do 
not apply to specified classes of transactions. At present, 
transactions exempted by section 7A(c)(1) of the act fall within one of 
the classes listed. As a result of Sec. 801.15(a), in determining 

[[Page 38938]]
whether the more than $15 million size-of-transaction criterion of 
section 7A(a)(3) is met, the value of assets acquired in the ordinary 
course of business is never counted. Because proposed Sec. 802.1 merely 
declares that certain acquisitions are and are not considered in the 
ordinary course of business under section 7A(c)(1), it does not appear 
necessary to list proposed Sec. 802.1 separately in Sec. 801.15(a). 
However, to eliminate possible confusion, proposed Sec. 802.1 is listed 
in proposed Sec. 801.15(a), along with 7A(c)(1), to make clear that 
assets exempted pursuant to Sec. 802.1(a), (b) and (c)(1) are not 
deemed to be held as the result of an acquisition for aggregation 
purposes. Therefore, a acquisition of current supplies valued at $8 
million is not aggregated with later acquisitions from the same person 
to determine if a proposed acquisition would exceed the $15 million 
size-of-transaction notification threshold, since the current supplies 
are exempt pursuant to section 7A(c)(1) and Sec. 802.1(b).
    The other proposed exemptions based on section 7A(c)(1) and other 
sections of the act, e.g., section 7A(d)(2)(B), are listed separately 
in Sec. 801.15 to make clear whether and under what circumstances the 
assets they describe must be aggregated pursuant to Sec. 801.13. 
Proposed Sec. 802.2, which would exempt acquisitions of new facilities, 
unproductive real property, office and residential property, hotels and 
motels, agricultural property, rental retail space and warehouses, is 
also listed in Sec. 801.15(a), because Sec. 802.2 sets no dollar limit 
on the amount of exempt assets that may be acquired without prior 
notification. Proposed Sec. 802.4(a), which exempts acquisitions of 
voting securities of issuers holding assets whose purchase would be 
exempt under Sec. 802.2, and proposed Sec. 802.5, which exempts 
acquisitions of investment rental property by certain investors, also 
appear in proposed Sec. 801.15(a).
    Proposed Sec. 802.3, which exempts acquisitions of carbon-based 
mineral reserves, and proposed Sec. 802.4(b), which exempts 
acquisitions of voting securities of issuers holding exempt assets 
under Sec. 802.3, appear in Sec. 801.15(b). This provision requires 
parties to aggregate the value of otherwise exempt assets that are 
transferred in separate acquisitions. Section 801.15(b) provides that 
the aggregation rules of Sec. 801.13 are to be applied if, as a result 
of a proposed subsequent transaction, the assets from that transaction 
and an earlier transaction will exceed a quantitative limitation on the 
exemption of assets of that kind. Thus the $200 million carbon-based 
mineral reserves limitation in Sec. 802.3 which was not reached in an 
earlier acquisition may be exceeded by a subsequent acquisition of 
reserves.
    Example 4 of Sec. 801.15 amends the current Example 4, in which the 
acquiring person is purchasing two mines. The existing example does not 
indicate whether the mines contain carbon-based minerals. Based on the 
value of the mines stated in the example, proposed Sec. 802.3 would 
exempt their acquisition, if they are carbon-based mineral reserves. To 
avoid possible confusion, the acquired assets have been changed to 
manufacturing plants.
List of Subjects in 16 CFR Parts 801 and 802

    Antitrust.

Proposals

    The Commission proposes to amend title 16, chapter I, subpart H, 
the Code of Federal Regulations as follows:

PART 801--COVERAGE RULES

    1. The authority citation for part 801 continues to read as 
follows:

    Authority: Sec. 7A(d), Clayton Act, 15 U.S.C. 18a(d), as added 
by sec. 201, Hart-Scott-Rodino Antitrust Improvements Act of 1976, 
Pub. L. 94-435, 90 Stat. 1390.

    2. Section 801.15(a) (2) and (b) are revised to read as follows:


Sec. 801.15  Aggregation of voting securities and assets the 
acquisition of which was exempt.

* * * * *
    (a) * * *
    (2) Sections 802.1, 802.2, 802.4(a), 802.5, 802.6(b)(1), 802.8, 
802.31, 802.35, 802.50(a)(1), 802.51(a), 802.52, 802.53, 802.63, and 
802.70;
    (b) Assets or voting securities the acquisition of which was exempt 
at the time of acquisition (or would have been exempt, had the act and 
these rules been in effect), or the present acquisition of which is 
exempt, under section 7A(c)(9) and Secs. 802.3, 802.4(b), 802.50(a)(2), 
802.50(b), 802.51(b) and 802.64 unless the limitations contained in 
section 7A(c)(9) or those sections do not apply or as a result of the 
acquisition would be exceeded, in which case the assets or voting 
securities so acquired will be held; and
* * * * *
    3. Section 801.15, Example 4 is revised, and Example 5 is added to 
read as follows:


Sec. 801.15  Aggregation of voting securities and assets the 
acquisition of which was exempt.

* * * * *
    Examples: * * *
    4. Assume that acquiring person ``B,'' a United States person, 
acquired from corporation X two manufacturing plants located abroad, 
and assume that the acquisition price was $40 million. In the most 
recent year, sales in the United States attributable to the plants 
were $15 million, and thus the acquisition was exempt under 
Sec. 802.50(a)(2). Within 180 days of that acquisition, ``B'' seeks 
to acquire a third plant from X, to which United States sales of $12 
million were attributable in the most recent year. Since under 
Sec. 801.13(b)(2), as a result of the acquisition, ``B'' would hold 
all three plants of X, and the $25 million limitation in 
Sec. 802.50(a)(2) would be exceeded, under paragraph (b) of this 
rule, ``B'' would hold the previously acquired assets for purposes 
of the second acquisition. Therefore, as a result of the second 
acquisition of all three plants before acquiring the third plant.
    5. ``A'' acquires $100 million in coal rights from ``B.'' Two 
months later, ``A'' agrees to acquire oil and gas rights valued at 
$75 million from ``B.'' Paragraph (b) of this section and 
Sec. 801.13 require aggregating the previously exempt acquisition of 
coal rights with the second acquisition. If the two acquisitions, 
when aggregated, exceed the $200 million limitation on the exemption 
for carbon-based mineral reserves in Sec. 802.3, ``A'' and ``B'' 
would be required to file notification for the latter acquisition, 
including within the filings the earlier acquisition. Since, in this 
example, the total value of the assets in the two acquisitions, when 
aggregated, is less than $200 million, both acquisitions are exempt 
from the notification requirements.

PART 802--EXEMPTION RULES

    1. The authority citation for part 802 continues to read as 
follows:

    Authority: Sec. 7A(d), Clayton Act, 15 U.S.C. 18a(d), as added 
by sec. 201, Hart-Scott-Rodino Antitrust Improvements Act of 1976, 
Pub. L. 94-435, 90 Stat. 1390.

    2. Section 802.1 is revised to read as follows:


Sec. 802.1  Acquisitions of goods in the ordinary course of business.

    Acquisitions of goods in the ordinary course of business are, 
pursuant to section 7A(c)(1), exempt from the notification requirements 
of the act. This section identifies certain acquisitions of goods that 
are exempt as transfers in the ordinary course of business. This 
section also identifies certain acquisitions of goods that are not in 
the ordinary course of business and, therefore, do not qualify for the 
exemption.
    (a) Operating unit. An acquisition of all or substantially all the 
assets of an operating unit is not an acquisition in the ordinary 
course of business. An operating unit means assets that are operated by 
the acquired person as a business undertaking in a particular 

[[Page 38939]]
geographic area or for particular products or services, even though 
those assets may not be organized as a separate legal entity.
    (b) New goods. An acquisition of new goods produced by the acquired 
person for sale, or of new goods held by the acquired person solely for 
resale, is in the ordinary course of business, except when acquired as 
part of an acquisition described in paragraph (a) of this section.
    (c) Current supplies. An acquisition of current supplies is in the 
ordinary course of business except when acquired as part of an 
acquisition described in paragraph (a) of this section. The term 
``current supplies'' includes the following kinds of assets:
    (1) Goods acquired for the purpose of resale (e.g., inventory),
    (2) Goods acquired for consumption in the acquiring person's 
business (e.g., office supplies, maintenance supplies or electricity), 
and
    (3) Goods acquired to be incorporated in the final product (e.g., 
raw materials and components).
    The term ``current supplies'' does not include used durable goods 
(see paragraph (d) of this section.
    (d) Used durable goods. A good is ``durable'' if it is designed to 
be used repeatedly and has a useful life greater than one year. An 
acquisition of used durable goods is an acquisition in the ordinary 
course of business if the goods are not acquired as part of an 
acquisition described in paragraph (a) of this section and any of the 
following criteria are met:
    (1) The goods are acquired and held by the acquiring person solely 
for resale; or
    (2) The goods are acquired from an acquired person who acquired and 
has held the goods solely for resale; or
    (3) The productive capacity of the goods being sold has been 
replaced substantially by the acquired person, by acquisition or lease, 
or the acquired person has in good faith executed a contract, agreement 
in principle or letter of intent to replace substantially, by 
acquisition or lease, the productive capacity of the goods being sold; 
or
    (4) The goods have been used by the acquired person to provide 
auxiliary functions, such as management services, accounting, data 
processing, and legal services, that support its primary business 
functions, and the acquired person has in good faith executed a 
contract, agreement in principle or letter of intent to obtain 
substantially similar auxiliary functions as were provided by the goods 
being sold.

    Examples: 1. Stereo Corporation, which manufacturers cassette 
and compact disc players, decides to sell all of the assets of its 
Customer Service Division to ``X'' for $16 million. This division 
repairs the company's products and products manufactured by others. 
The division's assets include a repair facility valued at $10 
million and an inventory of replacement parts valued at $6 million. 
The combined assets constitute an operating unit of Stereo 
Corporation. Thus, no part of the acquisition is exempt as an 
acquisition in the ordinary course of business.
    2. ``A,'' a manufacturer of airplane engines, agrees to pay $20 
million to ``B,'' a manufacturer of airplane parts, for certain 
engine components to be used in the manufacture of the airplane 
engines. The acquisition is exempt under Sec. 802.1(b) as new goods 
as well as under Sec. 802.1(c)(3) as current supplies.
    3. ``A,'' a power generation company, proposes to purchase from 
``B,'' a coal company, $25 million of coal under a long-term 
contract for use in its facilities to supply electric power to a 
regional public utility and steam to several industrial sites. This 
transaction is exempt under Sec. 802.1(c)(2) as an acquisition of 
current supplies. However, if ``A'' proposed to purchase coal 
reserves rather than enter into a contract to acquire output of a 
coal mine, the acquisition would not be exempt as an acquisition of 
goods in the ordinary course of business. The acquisition may still 
be exempt pursuant to Sec. 802.3 as an acquisition of reserves of 
carbon-based minerals if the requirements of that section are met.
    4. ``A,'' a national producer of canned fruit, preserves, jams 
and jellies, agrees to purchase from ``B'' for $25 million a total 
of 10,000 acres of orchards and vineyards in several locations 
throughout the U.S. ``A'' plans to harvest the fruit from the 
acreage for use in its canning operations. The acquisition is not 
exempt under Sec. 802.1 because orchards and vineyards are real 
property, not ``goods.'' If, on the other hand, ``A'' had contracted 
to acquire from ``B'' the fruit and grapes harvested from the 
orchards and vineyards, the acquisition would qualify for the 
exemption as an acquisition of current supplies under 
Sec. 802.1(c)(3). Although the transfer of orchards and vineyards is 
not exempt under Sec. 802.1, the acquisition would be exempt under 
Sec. 802.2 as an acquisition of agricultural property.
    5. ``A,'' a major passenger airline, proposes to sell two of its 
used aircraft for $15.5 million to ``B,'' a used airplane dealer who 
purchases planes from the major U.S. airline companies. ``B's'' 
acquisition of the used airplanes is exempt under Sec. 802.1(d)(1) 
provided that ``B'' is not acting as a broker or as the agent for 
the seller or the ultimate purchaser of the used airplanes.
    6. ``A,'' a passenger airline, plans to sell for $18 million two 
of its used airplanes to ``B,'' a cargo airline. ``A'' will also 
sell three of its used airplanes for $25 million to ``C,'' a 
regional passenger air carrier. ``A'' has, in good faith, executed a 
contract to acquire planes with essentially the same capacity from 
an airplane manufacturer to replace the planes it is selling to 
``B'' and ``C.'' Since ``B'' and ``C'' are acquiring goods that the 
seller, ``A,'' has contracted to replace, both acquisitions are 
exempt under Sec. 802.1(d)(3).
    7. ``A,'' a manufacturing company, has acquired several new 
machines that will replace equipment on one of its production lines. 
``A's'' capacity to produce the same products will increase modestly 
when the integration of the new equipment is completed. ``B,'' a 
manufacturing company that produces products similar to those 
produced by ``A,'' has entered into a contract to acquire for $18 
million the machinery that ``A'' is replacing. Since ``A'' is 
replacing with new machinery the productive capacity of the used 
equipment it is selling, the acquisition by ``B'' is exempt under 
Sec. 802.1(d)(3).
    8. ``A'' will sell to ``B'' for $16 million all of the equipment 
``A'' uses to perform ``A's'' data processing requirements. ``A'' 
and ``B'' also entered into a contract which requires ``B'' to 
perform ``A's'' data processing requirements. Although the assets 
``B'' will acquire make up essentially all of the assets of one of 
``A's'' auxiliary support services divisions, the acquisition 
qualifies for the exemption in Sec. 802.1(d)(4) because auxiliary 
support functions, however organized, are not an operating unit as 
defined by Sec. 802.1(a). Auxiliary functions are not a ``business 
undertaking'' as that term is used in Sec. 802.1(a). Rather, 
auxiliary functions provide support and benefit to the company's 
operating units and support the company's primary business 
activities. However, if the assets being sold also derived revenues 
from providing data processing services to third parties, then the 
transfer of these assets would not be exempt under Sec. 802.1(d)(4), 
since the equipment is being used in connection with a business 
undertaking of ``A,'' in addition to providing auxiliary functions 
to ``A''.
    In this example, the acquisition by ``B'' is exempt under 
Sec. 802.1(d)(4) because ``A'' has entered into a contract for the 
provision of the auxiliary functions provided by the goods being 
sold. The exemption would apply even if ``A'' were contracting for 
the provision of these services with a party other than ``B.''
    9. ``A,'' an automobile manufacturer, is discontinuing its 
manufacture of metal seat frames for its cars. ``A'' enters into a 
contract with ``B,'' a manufacturer of various fabricated metal 
products, to sell its seat frame production lines and to purchase 
from ``B'' all of its metal seat frame needs for the next five 
years. This transfer of productive capacity by ``A'' is not exempt 
pursuant to Sec. 802.1(d)(4). ``A's'' sale of production lines is 
not the transfer of goods that provide auxiliary functions to 
support the primary business activities of ``A''; this manufacturing 
equipment is an integral part of ``A's'' production operations and 
thus comprises an operating unit.

    3. Part 802 is amended by adding Secs. 802.2, 802.3, 802.4 and 
802.5 to read as follows:


Sec. 802.2  Certain acquisitions of real property assets.

    (a) New facilities. An acquisition of a new facility is exempt as a 
transfer of realty in the ordinary course of business. A new facility 
is a structure that has not produced income and was 

[[Page 38940]]
either constructed by the acquired person for sale or held at all times 
by the acquired person solely for resale. The new facility may include 
realty, equipment or other assets associated with the operation of the 
new facility. In an acquisition that includes a new facility, the 
transfer of any other assets shall be subject to the requirements of 
the act and these rules as if they were being acquired in a separate 
acquisition.
    (b) Unproductive real property. An acquisition of unproductive real 
property shall be exempt from the requirements of the act. In an 
acquisition that includes unproductive real property, the transfer of 
any assets that are not unproductive real property shall be subject to 
the requirements of the act and these rules as if they were being 
acquired in a separate acquisition.
    (1) Unproductive real property is any real property, including raw 
land, structures or other improvements and natural resources, that has 
not generated total revenues in excess of $5 million during the thirty-
six (36) months preceding the acquisition.
    (2) Unproductive real property does not include manufacturing and 
non-manufacturing facilities that have not yet begun operation or 
manufacturing or non-manufacturing facilities that began operation 
within the twelve (12) months preceding the acquisition.
    (c) Office and residential property. (1) An acquisition of office 
or residential property shall be exempt from the requirements of the 
act. In an acquisition that includes office or residential property, 
the transfer of any assets that are not office or residential property 
shall be subject to the requirements of the act and these rules as if 
such assets were being transferred in a separate acquisition.
    (2) Office and residential property is real property, the 
acquisition of which is not exempt under another provision of the act, 
that is used primarily for office and residential purposes and 
includes:
    (i) Office buildings,
    (ii) Residences,
    (iii) Common areas on the property, including parking and 
recreational facilities, and
    (iv) Assets incidental to the ownership of such property, including 
cash, prepaid taxes or insurance, rental receivables and the like.
    (3) If the acquisition includes the purchase of a business 
conducted on the office and residential property, the transfer of that 
business, including the space in which the business is conducted, shall 
be subject to the requirements of the act and these rules as if such 
business were being transferred in a separate acquisition.
    (d) Hotels and motels. (1) An acquisition of a hotel or motel shall 
be exempt from the requirements of the act. In an acquisition that 
includes a hotel or motel, the transfer of any assets that are not a 
hotel or motel shall be subject to the requirements of the act and 
these rules as if they were being acquired in a separate acquisition.
    (2) An acquisition of a hotel or motel that includes a casino, or a 
hotel or motel that is being acquired as part of the acquisition of a 
ski resort, shall be subject to the requirements of the act and these 
rules.
    (e) Agricultural property. An acquisition of agricultural property 
and associated agricultural assets shall be exempt from the 
requirements of the act. Agricultural property is real property and 
assets that primarily generate revenues from the production of crops, 
fruits, vegetables, livestock, poultry, milk and eggs.
    (1) Associated agricultural assets are assets integral to the 
agricultural business activities conducted on the property. Associate 
agricultural assets include, but are not limited to, inventory (e.g., 
livestock, poultry, crops, fruit, vegetables, milk, eggs); equipment 
dedicated to the income-generating activities conducted on the real 
property; structures that house livestock and other animals raised on 
the real property; and fertilizer and animal feed. Associated 
agricultural assets do not include processing facilities, such as 
poultry slaughtering and processing facilities.
    (2) If an acquisition of agricultural property includes processing 
facilities and other assets that are not associated agricultural 
assets, these facilities and assets are subject to the requirements of 
the act and these rules as if they were being acquired in a separate 
acquisition.
    (f) Retail rental space; warehouses. An acquisition of retail 
rental space (including shopping centers) or warehouses shall be exempt 
from the requirements of the act, except when the retail rental space 
or warehouse is to be acquired in an acquisition of a business 
conducted on the real property. In an acquisition of retail rental 
space or warehouses, the transfer of any assets that are neither retail 
rental space nor warehouses shall be subject to the requirements of the 
act and these rules as if such assets were being transferred in a 
separate acquisition.

    Examples: 1. ``A,'' a major automobile manufacturer, builds a 
new automobile plant in anticipation of increased demand for its 
cars. The market does not improve and ``A'' never occupies the 
facility. ``A'' then sells the facility to ``B,'' another automobile 
manufacturer. This acquisition is not exempt as an acquisition of an 
new facility, even though the facility has not produced any income, 
since ``A'' did not construct the facility for sale. Also, the 
acquisition is not exempt as an acquisition of unproductive property 
since manufacturing facilities that have not yet begun operations 
are explicitly excluded from that exemption.
    2. ``A'' proposes to acquire a $100 million tract of wilderness 
land from ``B.'' Copper deposits valued at $17 million and timber 
reserves valued at $20 million are situated on the land and will be 
conveyed as part of this transaction. During the last three fiscal 
years preceding the sale, the property generated $50,000 from the 
sale of a small amount of timber cut from the reserves. ``A's'' 
acquisition of the wilderness land from ``B'' is exempt as an 
acquisition of unproductive real property because the property did 
not generate annual revenues exceeding $5 million during the thirty-
six months preceding the acquisition. The copper deposits and timber 
reserves are by definition unproductive real property and, thus, are 
not separately subject to the notification requirements.
    3. ``A'' proposes to purchase from ``B'' for $40 million an old 
steel mill that is not currently operating to add to ``A's'' 
existing steel production capacity. The mill has not generated 
revenues during the 36 months preceding the acquisition but contains 
equipment valued at $16 million that ``A'' plans to refurbish for 
use in its operations. ``A's'' acquisition of the mill and the land 
on which it is located is exempt as unproductive real property. 
However, the transfer of the equipment and any other assets other 
than the unproductive property is not exempt and is separately 
subject to the notification requirements of the act.
    4. ``A'' proposes to purchase two downtown lots, Parcels 1 and 
2, from ``B'' for $40 million. Parcel 1 contains no structures or 
improvements. A hotel is located on Parcel 2 and has generated $9 
million in revenues during the past 3 years. The purchase of Parcel 
1 is exempt if it qualifies as unproductive real property; i.e., it 
has not generated annual revenues in excess of $5 million in the 
three fiscal years prior to the acquisition. Parcel 2 is not 
unproductive real property, but its acquisition is exempt under 
Sec. 802.2(d) as the acquisition of a hotel.
    5. ``A'' intends to purchase a poultry farm from ``B.'' The 
acquisition of the poultry farm is a transfer of agricultural 
property that is exempt pursuant to Sec. 802.2(e). If, however, 
``B'' has a poultry slaughtering and processing facility on his 
farm, ``A'' would be required to file notification for the 
acquisition of the processing facility if the higher of the 
acquisition price or the fair market value of the facility exceeds 
$15 million.
    6. ``A'' proposes to purchase the prescription drug wholesale 
distribution business of ``B'' for $50 million. The business 
includes six regional warehouses used for ``B's'' national wholesale 
drug distribution business. Since ``A'' is acquiring the warehouses 
in connection with the acquisition of ``B's'' prescription drug 

[[Page 38941]]
wholesale distribution business, the acquisition of the warehouses in 
not exempt.
Sec. 802.3  Acquisitions of carbon-based mineral reserves.

    (a) An acquisition of carbon-based mineral reserves (oil, natural 
gas, coal, shale or tar sands) or rights to carbon-based mineral 
reserves, whether such reserves are presently in production or have 
ever been in production, and associated exploration or production 
assets shall be exempt from the requirements of the act if the value of 
the carbon-based mineral reserves, the rights and the associated 
exploration or production assets to be held as a result of the 
acquisition does not exceed $200 million. In an acquisition that 
includes carbon-based mineral reserves, rights to carbon-based mineral 
reserves and associated exploration or production assets, the transfer 
of any other assets shall be subject to the requirements of the act and 
these rules as if they were being acquired in a separate acquisition.
    (b) Associated exploration or production assets means equipment, 
machinery, fixtures and other assets that are integral to current or 
future exploration or production activities associated with the carbon-
based mineral reserves that are being acquired. Associated exploration 
or production assets do not include any pipeline system or processing 
facility.

    Example: 1. ``A'' proposes to purchase from ``B'' for $250 
million gas reserves that are not yet in production and have not 
generated any income. ``A'' will also acquire from ``B'' for $180 
million producing oil reserves and associated assets such as wells, 
compressors, pumps and other equipment. The acquisition of the gas 
reserves is exempt as a transfer of unproductive property under 
Sec. 802.2(b). The acquisition of the oil reserves and associated 
assets is exempt pursuant to Sec. 802.3, since the acquisition price 
does not exceed the $200 million limitation.
    2. ``A,'' an oil company, proposes to acquire oil reserves 
currently in production, several associated processing facilities 
and a gathering pipeline system for $180 million. The acquisition of 
the reserves is exempt. However, ``A'' must determine the value of 
the processing facilities and the gathering pipeline system, since 
these assets are excluded from the exemption in Sec. 802.3 for 
transfers of associated exploration or production assets. If their 
value exceeds $15 million, and their acquisition is not otherwise 
exempt, ``A'' must file with respect to the transfer of the 
facilities and the pipeline system.
    3. ``A,'' an oil company, proposes to acquire a coal mine and 
associated production assets for $90 million from ``B,'' an oil 
company. ``A'' will also purchase from ``B'' oil reserves valued at 
$100 million and an oil refinery valued at $13 million. The 
acquisition of the coal mine and the oil reserves is exempt pursuant 
to Sec. 802.3. Although the refinery is excluded from the exemption 
in Sec. 802.3 for transfers of associated exploration and production 
assets, ``A's'' acquisition of the refinery is not subject to the 
notification requirements of the act because its value does not 
exceed $15 million.


Sec. 802.4  Acquisitions of voting securities of issuers holding 
certain real property assets.

    (a) An acquisition of voting securities of an issuer whose assets 
consist solely of assets whose purchase would be exempt from the 
requirements of the act pursuant to Sec. 802.2 is exempt from the 
reporting requirements.
    (b) An acquisition of voting securities of an issuer whose assets 
consist or will consist solely of assets whose purchase would be exempt 
from the requirements of the act pursuant to Sec. 802.3 is exempt from 
the reporting requirements.

    Example 1. ``A,'' a real estate investment company, proposes to 
purchase 100 percent of the voting securities of Company C, a 
wholly-owned subsidiary of ``B,'' a construction company. C's assets 
are a newly constructed, never occupied hotel, including fixtures, 
furnishings and insurance policies. The hotel qualifies as a new 
facility under Sec. 802.2(a), and is also exempt under 
Sec. 802.2(d). Therefore, the acquisition of the voting securities 
of C is exempt pursuant to Sec. 802.4(a).


Sec. 802.5  Acquisitions of investment rental property assets by 
certain investors.

    (a) Acquisitions of investment rental property assets, or of voting 
securities of an entity the assets of which consist solely of 
investment rental property assets, by an institutional investor (as 
defined by Sec. 802.64) or by any person whose sole business is the 
acquisition or management of investment rental property assets, shall 
be exempt from the requirements of the act.
    (b) Investment rental property assets. Investment rental property 
assets means real property that:
    (1) Will be rented only to entities not included within the 
acquiring person; and
    (2) Will be held solely for rental or investment purposes. 
Investment rental property assets include:
    (i) Property currently rented,
    (ii) Property held for rent but not currently rented,
    (iii) Common areas on the property,
    (iv) Assets incidental to the ownership of property, which may 
include cash, prepaid taxes or insurance, rental receivables and the 
like, and
    (v) Space occupied by the acquiring person for the sole purpose of 
maintaining, managing, or supervising the operation of real property.

    Example: 1. Insurance Company ``A'' proposes to acquire a 
hospital currently leased to and operated by ``B,'' a major for-
profit hospital corporation. ``A'' intends to continue ``B's'' lease 
with the exception of one floor of the hospital, which ``A'' will 
lease to an independent radiology clinic which the hospital will use 
for its outpatient radiology needs. This acquisition is an exempt 
acquisition of investment rental property assets since ``A'' intends 
to rent the facility to the hospital and an independent clinic and, 
thus, is holding the hospital solely for rental and investment 
purposes.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 95-18596 Filed 7-27-95; 8:45 am]
BILLING CODE 6750-01-M