[Federal Register Volume 61, Number 61 (Thursday, March 28, 1996)]
[Rules and Regulations]
[Pages 13666-13689]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-7529]



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FEDERAL TRADE COMMISSION
16 CFR Parts 801 and 802


Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Final rule.

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SUMMARY: The Commission amends 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.
    These amendments consist of five rules that define or create 
exemptions to the requirements imposed by the Hart-Scott-Rodino Act. 
These rules 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 are not 
likely to violate the antitrust laws. These 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 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.

EFFECTIVE DATE: April 29, 1996.


[[Page 13667]]

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

SUPPLEMENTARY INFORMATION:

Regulatory Flexibility Act

    These 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 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 Sec. 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 in charge 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'' 
that 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 has reason to 
believe 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 receive 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 and 
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 and 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 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 to the premerger 
notification rules or Form on eleven 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); 55 FR 31371 (August 2, 1990); and 60 FR 40704 (August 9, 1995). 
The current amendments interpret the act and expand 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. They also include 
several new exemptions for acquisitions of certain types of real 
property assets and carbon-based mineral reserves.

Comments

    These amendments reflect extensive analysis of comments received in 
response to the notice of proposed rulemaking published by the Federal 
Trade Commission, in consultation with the Assistant Attorney General, 
in the Federal Register of July 28, 1995, 60 FR 38930. The notice 
contained the current amendments in a proposed form and provided 60 
days for interested persons to submit comments on the proposed rules. 
During the 60-day period 29 comments were received. In addition, three 
new comments and one supplemental comment were received after the 
expiration of the comment period. The commenters are identified below.

[[Page 13668]]


------------------------------------------------------------------------
                                                                Date of 
     Number of comment                  Commenter               comment 
------------------------------------------------------------------------
 1                          American Council of Life              9/7/95
                             Insurance.                                 
 2                          Heller Ehrman White & McAuliffe..    9/15/95
 3                          Pillsbury, Madison & Sutro on        9/26/95
                             behalf of Chevron Corporation.             
 4                          The Perkin-Elmer Corporation.....    9/21/95
 5                          Atlantic Richfield Company.......    9/27/95
 6                          Pillsbury, Madison & Sutro.......    9/25/95
 7                          General Motors Corporation.......    9/28/95
 8                          Boult, Cummings, Conners & Berry.    9/28/95
 9                          Section of Antitrust Law of the      9/29/95
                             American Bar Association.                  
10                          Federal Express..................    9/28/95
11                          Ford Motor Company...............    9/28/95
12                          BellSouth Corporation............    9/28/95
13                          Equipment Leasing Association of     9/29/95
                             America.                                   
14                          Ronald A. Bloch of McDermott,        9/29/95
                             Will & Emery.                              
15                          Arter & Hadden on behalf of          9/29/95
                             Kennecott Corporation.                     
16                          U.S. Chamber of Commerce.........    9/29/95
16A                         U.S. Chamber of Commerce             11/9/95
                             (Supplemental Comments).                   
17                          Rinehart & Associates, Investment    9/28/95
                             Forestry.                                  
18                          Timberland Investment Services,      9/28/95
                             LLC.                                       
19                          O'Melveny & Myers on behalf of       9/29/95
                             Marriott International, Inc..              
20                          American Hospital Association....    9/29/95
21                          Weil, Gotschal & Manges..........    9/29/95
22                          Latham & Watkins.................    9/29/95
23                          International Council of Shopping    9/29/95
                             Centers.                                   
24                          Colorado Oil & Gas Association...    9/29/95
25                          ITT Corporation..................    9/27/95
26                          American Hotel & Motel               9/29/95
                             Corporation.                               
27                          American Transport Association of    9/29/95
                             America.                                   
28                          National Independent Energy          9/29/95
                             Producers.                                 
29                          Latham & Watkins on behalf of        10/6/95
                             Host Marriott Corporation.                 
30                          Forest Investment Associates.....    9/28/95
31                          National Association of Real         11/2/95
                             Estate Investment Trusts.                  
32                          Association of Private Pension        2/1/96
                             and Welfare Plans.                         
------------------------------------------------------------------------

    The commenters generally favored the adoption of the exemptions but 
also advocated the expansion of certain of the proposals to include 
exemptions for other types of transactions which, they argued, raise 
few competitive concerns. The final amendments contain revisions to the 
proposed rule that address certain commenters' concerns and exclude 
from the reporting requirements additional transactions that the 
Commission and the Assistant Attorney General found were unlikely to 
violate the antitrust laws. A few of the comments contained suggestions 
that were outside the scope of the proposed rulemaking; these 
suggestions may be considered by the Commission in future rulemaking 
efforts.

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

    Authority: The Federal Trade Commission, with the concurrence of 
the Assistant Attorney General, promulgates these amendments to the 
premerger notification rules pursuant to section 7A(d) of the 
Clayton Act, 15 U.S.C. 18a(d), as added by section 201 of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, Pub. L. 94-435, 90 
Stat. 1390.

    The five amendments to the premerger notification rules--
Secs. 802.1, 802.2, 802.3, 802.4, and 802.5--describe certain types of 
acquisitions that are exempt or are not exempt from the notification 
requirements of the act. They 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 
transferred in the ordinary course of business. Revisions to 
Sec. 801.15 define when the aggregation rules apply to acquisitions 
covered by these 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 of an entity 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 to the 
Premerger Notification Office. Amended Sec. 802.1 represents 
interpretations of section 7A(c)(1) made by the Premerger Notification 
Office over the years, and it also broadens these interpretations to 
exempt additional classes of acquisitions of goods that qualify as 
transfers in the ordinary course of business and thus are unlikely to 
violate the antitrust laws.
    Amended 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 that are operated by the acquired person as 
a business undertaking in a particular location or for particular 
products or services.'' The sale of all or substantially all of the 
assets of a business undertaking is generally equivalent to the sale of 
a business. Amended Sec. 802.1(a) recognizes that acquisitions that 
transfer the equivalent of a business are not in the ordinary course 
and thus are not exempt from the prior notification obligations of the 
act.
    Amended 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 transactions such as typical acquisitions of new goods and current 
supplies is generally unnecessary because buying and 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.
    Amended 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 that are not the sale of an 
operating unit are made in the ordinary course of business. For 
example, an equipment leasing company may be acquiring used durable 
goods as current supplies, or the seller may be replacing these assets 
to increase or upgrade capacity and to improve efficiencies. However, 
many used durable goods acquisitions involving productive assets are 
not within the ordinary course of business and thus are not exempt 
under Sec. 802.1.
    New Secs. 802.2 (concerning real property assets) and 802.3 
(concerning carbon-based mineral reserves) are based 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 
sections

[[Page 13669]]
provide exemptions for certain acquisitions of assets that are abundant 
and are used in markets that are generally 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, new Sec. 802.4 exempts acquisitions of voting 
securities of issuers holding assets of two types: (1) assets, the 
direct acquisition of which is exempted by section 7A(c)(2) of the act 
or Secs. 802.2, 802.3 or 802.5 of the rules, and (2) assets, the direct 
acquisition of which is not exempt by section 7A(c)(2) of the act or 
Secs. 802.2, 802.3 or 802.5 of the rules, that are valued at $15 
million or less. The exemption for the acquisition of the voting 
securities of an issuer holding assets, the acquisition of which is 
exempt under section 7A(c)(2)--bonds, mortgages, deeds of trust and 
other obligations that are not voting securities--is designed to 
provide the same treatment for the direct acquisition of such assets ( 
a transaction which is already exempt from the reporting requirements) 
and the acquisition of the voting securities of an issuer holding these 
assets.
    New Sec. 802.5 exempts acquisitions of investment rental property 
assets, the acquisition of which is not already exempted by Sec. 802.2. 
Section 802.5 is based on the use to which buyers will put the acquired 
assets. The Commission believes that the acquisition of investment 
rental property assets--defined in Sec. 802.5(b) as real property that, 
except for limited circumstances, will be rented only to entities not 
included within the acquiring person and will be held solely for rental 
or investment purposes--is unlikely to violate the antitrust laws.
    Sections 802.1 through 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]'' 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].'' These exemptions, of course, 
relate only to premerger reporting, and transactions exempted from the 
reporting requirements by the new rules remain subject to the antitrust 
laws.
    The Commission is aware that even with the significant coverage of 
the new rules, the exempt status of many transactions will remain 
unaddressed. These rules do not and are not intended to interpret or 
apply to the entire statutory exemption created by section 7A(c)(1). 
For example, certain acquisitions of credit card receivables 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. Section 802.1: Acquisitions of Goods and Realty 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.'' Amended 
Sec. 802.1 provides that an acquisition of all the assets of an 
operating unit is not an acquisition in the ordinary course of 
business. It also defines certain acquisitions of goods that are in the 
ordinary course of business and therefore exempt from the reporting 
requirements. This section primarily covers exemptions for certain 
acquisitions of goods. Exemptions for the acquisition of certain types 
of realty are set out in new Sec. 802.2. The realty exemptions are not 
subject to the exclusion for acquisitions of an operating unit.
    Amended 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 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.
    Amended Sec. 802.1 has four paragraphs: Paragraph (a) denies the 
ordinary course of business exemption to any transfer of goods and 
realty 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: (1) transfers to and from bona fide dealers, 
resellers or lessors; (2) transfers by an acquired person that has 
replaced the productive capacity of the assets being sold; and (3) 
transfers by an acquired person that has outsourced the management and 
administrative support services provided by the goods being sold.
    In determining whether a given acquisition of goods and realty is 
in the ordinary course of business and is therefore exempt under a 
provision of amended Sec. 802.1, one must first determine if the assets 
are substantially all of the assets of an operating unit. If the assets 
being sold comprise all or substantially all of the assets of an 
operating unit of the seller, the inquiry ends there, and the 
acquisition is not exempt as a transfer of goods or realty in the 
ordinary course of business. If the assets do not constitute all or 
substantially all of the assets of an operating unit, then the goods 
should be classified as either new goods, current supplies or used 
durable goods.
    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, sell or lease 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 operating units 
are not within the common meaning of ``ordinary course'' and have the 
potential to concentrate productive capacity and thereby diminish 
competition.
    Proposed Sec. 802.1 addressed only exemptions for acquisitions of 
goods in the ordinary course of business. Acquisitions of realty in the 
ordinary course of business are also exempted, pursuant to section 
7A(c)(1) of the act. Section 802.2 covers certain exemptions for 
acquisitions of realty, and it is possible that acquisitions of realty 
other than those identified in Sec. 802.2 are transfers of real 
property in the ordinary course of business that are exempt. Language 
added to Sec. 802.1 concerning realty makes the provision consistent 
with the exemption provided in section 7A(c)(1).
    A. Operating Unit. Amended Sec. 802.1(a) excludes from the ordinary 
course of business exemption any acquisition of all or substantially 
all of the assets of an ``operating unit.'' As defined by the amended 
provision, an

[[Page 13670]]
operating unit is a collection of assets that has been operated as a 
business undertaking and that may include goods, realty and other types 
of property. Amended Sec. 802.1(a) also indicates that operating units 
are not necessarily separate legal entities. A determination of which 
groups of assets constitute an operating unit within a company will 
vary significantly among businesses, because the manner in which 
businesses are organized is company-specific. Thus, examples of 
operating units include, but are not limited to, regional divisions, 
company branches, international operations, a hospital, a retail store, 
a factory or a processing facility.
    The definition of operating unit indicates that the assets that 
comprise the unit are operated ``in a particular location or for 
particular products or services.'' Proposed Sec. 802.1(a) defined an 
operating unit as assets operated ``in a particular geographic area or 
for particular products or services.'' The word ``location'' was 
substituted for ``geographic area'' since a single location of a 
company's business, i.e., a manufacturing plant, a retail store, a 
funeral home, constitutes an operating unit. Each location of a 
company's operations is viewed as a separate business undertaking, and 
the purchase of all of the assets of one of a company's stores or 
production facilities is not a transaction within the ordinary course 
of business. Because amended Sec. 802.1(a) no longer uses the term 
``geographic area,'' the determination of which of the seller's 
operations comprise an operating unit is no longer dependent in part 
upon whether certain locations are sufficiently proximate to comprise a 
business undertaking in a particular geographic area. Example 1 to 
Sec. 802.1 illustrates that an operating unit consists of one grocery 
store within a company's chain of stores.
    A key factor in determining whether a group of assets being sold 
constitutes an operating unit is whether the seller, as a result of the 
sale, will cease to sell particular products or provide particular 
services from a specific location or will exit the business of selling 
particular products or providing particular services. The operating 
unit definition specifically excludes references to relevant product 
markets and relevant geographic markets. Thus, a section 7 antitrust 
analysis is unnecessary and inappropriate in determining whether assets 
being sold comprise an operating unit for purposes of determining 
whether notification is required.
    Another probative factor in determining whether a group of assets 
constitutes an operating unit is whether the seller derived third party 
revenues from the use of the assets. In certain cases, this factor may 
distinguish an operating unit from a set of assets that have been used 
solely to provide management and administrative support services, such 
as in-house accounting or billing services, that generate no third 
party revenues directly but support the seller's business operations.
    Amended Sec. 802.1(a) 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 certain 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 the ``Tri-State 
Division,'' that provides support functions to the business'' 
manufacturing activities. Such usage is designed to serve the needs of 
the business. The term ``operating unit'' has been adopted in order to 
make clear that the application of the rule is not dependent on the 
terminology used by a business.
    Comment 11 suggested that Sec. 802.1(a) be revised to focus on 
whether the seller is exiting a line of business or a geographic area. 
However, the wording of amended Sec. 802.1(a) makes no explicit 
reference to the seller's exit from a line of business or geographic 
area. As discussed above, this provision no longer emphasizes the 
operation of a business undertaking in a particular geographic area; 
instead, the focus is on the location of a specific business 
undertaking. Also, while the seller's exit from a business segment can 
be a major indication that certain assets constitute an operating unit, 
it is not that only possible indication. The extent to which the assets 
are used to generate third party revenues is also an important factor 
and may determine that a group of assets comprises an operating unit, 
even though there may be disagreement as to whether the seller is 
actually exiting a business segment. For example, the sale of revenue 
generating assets at a specific location can be the sale of an 
operating unit even if the seller is continuing in that line of 
business at other locations.
    Comment 11 also suggested that the operating unit should be defined 
as assets operated by the acquired person as a business undertaking 
including all similar products or services offered by the acquired 
person, or all operations in a geographic area. Interpretation of the 
terminology ``similar products or services'' could require a 
complicated analysis of the seller's products to determine whether the 
assets being sold were used to manufacture those products of the seller 
that were sufficiently different from the seller's other products to 
deem that an operating unit was being transferred. Thus, the suggested 
language was not adopted in order to avoid the necessity of such an 
analysis.
    B. New Goods. Amended 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, which are typically routine sales of 
inventory by manufacturers, wholesalers or retailers conducted in the 
ordinary course of business.
    Proposed Sec. 802.1(b) exempted acquisitions of new goods 
``produced by the acquired person for sale, or * * * held by the 
acquired person solely for resale.'' The proposed rule did not exempt 
any acquisitions of goods from a seller that purchased or produced the 
goods for his own use but decided to sell the goods without using them. 
This language was eliminated from amended Sec. 802.1(b) in order to 
simplify the rule. Further, the change addresses a concern raised by 
Comment 21 that the proposed rule would not exempt acquisitions of new 
equipment from companies that ordered the equipment for their own use 
but discovered before or upon delivery that they could not use the 
equipment. The Commission has concluded that such sales should be 
exempt because sales of new equipment that are not part of the sale of 
an operating unit are not likely to raise an antitrust concern, even 
though the equipment may have been purchased by the seller for use. As 
a result of the deletion of this language, the rule no longer focuses 
on the purpose for which the acquired person holds the new goods. The 
exemption is also available for acquisitions of goods that the seller 
in good faith considers to be new, even though he may have used the 
goods for demonstration purposes, customer trials or other purposes 
that are incidental to the sale of the goods. The term ``new'' implies 
that the goods have not been used to generate income.
    Comments 9, 13 and 21 suggested that an exemption be included for 
acquisitions of new goods produced or held for lease. Amended 
Sec. 802.1(b) adopts this suggestion by exempting acquisitions of new 
goods regardless of the purpose for which the goods were produced or 
acquired. As a result, an equipment leasing company that sells new 
inventory that it has been unable to lease may avail itself of the 
exemption as long as the inventory of new goods

[[Page 13671]]
does not constitute an operating unit of the company.
    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 purchased the entire 
inventory of another marine supply wholesaler which owned only an 
extensive inventory of hundreds of items from different manufacturers, 
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. Amended Sec. 802.1(c) describes another 
category of asset acquisitions--the acquisition of ``current 
supplies''--that qualifies 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 solely for the 
purpose of resale or leasing to an entity not included within the 
acquiring person, raw materials, components, maintenance supplies and 
the like. Current supplies are generally purchased frequently and are 
used for inventory by the purchaser, consumed in the daily conduct of 
business or incorporated into a final product. Current supplies may 
also consist of used durable goods, discussed in new Sec. 802.1(d), 
which, for example, may be purchased as inventory by equipment leasing 
companies or used equipment dealers. However, acquisitions of current 
supplies are not in the ordinary course of business if they are 
acquired as part of an acquisition of all or substantially all the 
assets of an operating unit.
    In proposed Sec. 802.1(c), the term ``current supplies'' explicitly 
excluded used durable goods. Amended Sec. 802.1(c) now redefines 
``current supplies'' to eliminate this exclusion, as suggested by 
Comments 9 and 21. Although ``used durable goods'' are addressed 
explicitly in Sec. 802.1(d), the Commission recognizes that used 
assets, as well as new assets, may meet the definition of ``current 
supplies'' in Sec. 802.1(c). Parties are permitted to claim the 
exemption even if the goods purchased are not new, so long as the 
acquired goods are to be held for third-party resale or lease, are to 
be consumed by the buyer, or are otherwise incorporated in the 
acquiring person's final product.
    Amended Sec. 802.1(c)(1) includes additional language to make clear 
that the exemption does not apply unless the goods being acquired will 
be resold or leased to an entity that is not within the acquiring 
person. The addition prevents a buyer from claiming the exemption for 
the acquisition from a competitor of used productive equipment which 
the buyer in turn resells or leases to a subsidiary.
    The used durable goods provision, Sec. 802.1(d), contains a 
provision exempting the acquisition of the category of goods described 
in proposed Sec. 802.1(c)(1) as goods acquired for the purpose of 
resale or leasing. The language of amended Sec. 802.1(c)(1) has been 
changed largely to mirror the language of the comparable provision in 
the used durable goods exemption, Sec. 802.1(d)(1). Read together, the 
amended provisions exempt, with certain exceptions, acquisition of new 
goods and used durable and non-durable goods that are acquired and held 
solely for the purpose of resale or leasing to entities not within the 
acquiring person.
    Amended Sec. 802.1(c) also adds goods acquired for lease to the 
categories of assets comprising current supplies. These changes, also 
suggested in Comments 9 and 21, make the exemption available for 
inventory purchases of equipment by leasing companies.
    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. 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. Amended Sec. 802.1(d) provides that certain 
acquisitions of used durable goods qualify for the ordinary course of 
business exemption. The term ``used durable good'' is new to the rules 
currently in force. It is defined as a used good which was ``designed 
to be used repeatedly and has a useful life greater than one year.'' 
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 some categories of used durable goods acquisitions 
lack 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.
    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: (1) when the goods are being acquired and held solely for the 
purpose of resale or leasing to an entity not within the acquired 
person; (2) when the goods are being acquired from an acquired person 
holding the goods solely for resale or leasing to an entity not within 
the acquired person; (3) when the acquired person is replacing or 
upgrading the productive capacity provided by the goods being sold; and 
(4) when the acquired person is outsourcing the management and 
administrative support services provided by the goods being sold.
    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 an 
acquisition of an operating unit as defined in Sec. 802.1(a). Thus, if 
the used durable goods constitute, or are being acquired as part of a 
group of assets that constitute, a business undertaking in a particular 
location or for particular products or services, the ordinary course 
exemption does not apply.
    The second requirement for exempting an acquisition of a used 
durable good is that any one of four criteria set forth in the amended 
rule must be satisfied. The first criterion, that the goods must be 
acquired and held solely for the purpose of resale or leasing to an 
entity not within the acquiring person (i.e., current supplies as the 
term is used in Sec. 802.1(c)(1)), and the second, that the acquired 
person must have held the goods at all times solely for resale or 
leasing to an entity not within the acquired person, represent an 
exemption for dealers whose business is to purchase and sell used goods 
and for equipment leasing companies which buy used goods for leasing 
purposes. After considerable assessment of the necessity and 
applicability of Sec. 802.1(d)(1) and (2), the Commission believes that 
the exemption should be included to allow dealers to make transfers 
within the ordinary course of their business, in good faith 
transactions conducted on their own behalf, 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 by two or more parties acting in concert to 
circumvent the notification requirements of the act.

[[Page 13672]]

    Comment 9 recommended that proposed Sec. 802.1(d)(1) and (2) apply 
even when the acquiring person is an intermediary, since dealers often 
search for used equipment at the request of the ultimate buyer. The 
Commission declines to adopt this recommendation, which would permit 
potentially anticompetitive transfers of used equipment to occur 
without a reporting requirement if the dealer brokers the transaction 
for the seller or the ultimate buyer. Thus, the exemption is 
unavailable if the person making the acquisition is in reality an 
intermediary for either the seller or another person who intends to 
hold the goods (see Example 6 to Sec. 802.1). This limitation attempts 
to forestall abuse of the dealer exemption by requiring notification in 
circumstances where the dealer is acting as a broker or an agent for a 
purchaser or a seller. In these instances, the dealer generally does 
not take beneficial ownership of the goods and thus is not actually 
acquiring the goods. The true parties to the acquisition--the seller 
and the person that will have beneficial ownership of the goods as a 
result of the acquisition--should be subject to the notification 
requirements.
    In proposed Sec. 802.1(d), the first criterion, (d)(1), limited the 
exemption to purchases of goods acquired and held solely for resale, 
and the second criterion, (d)(2), exempted acquisitions of goods 
purchased from a seller who had acquired and held the goods solely for 
resale. Amended Sec. 802.1(d) exempts acquisitions of goods acquired 
and held solely for the purpose of resale or leasing and acquisitions 
of goods from a seller who had acquired and held the goods solely for 
resale or leasing. The provision now exempts inventory purchases and 
sales by leasing companies of used durable goods that they have leased 
or held for lease to third parties, as long as the goods are not being 
purchased or sold as part of the transfer of an operating unit. Such 
transactions are within the ordinary course of business of leasing 
companies, which typically acquire goods for leasing and sell goods 
which they have held for leasing. The revisions address concerns raised 
in Comments 6, 11, 13, 16 and 21 about the inclusion in the used 
durable goods provisions of exemptions for sales and purchases of 
leased goods.
    Amended Sec. 802.1 (d)(1) and (d)(2) change the language of the 
proposals to clarify that the exemptions within these provisions are 
available only if (1) the buyer acquires the goods to resell or lease 
to an entity that is not within it, or (2) the buyer acquires goods 
that the seller has held only to resell or lease to entities not within 
it. As noted above, this change was also made to Sec. 802.1(c)(1), one 
of the current supplies provisions.
    In proposed and amended Sec. 802.1(d)(2), the exemption applies 
only if the goods are acquired from an acquired person who held the 
goods solely for resale or leasing. The limitation that the goods be 
held solely for resale or lease is designed to guard against transfers 
by a seller who has used the goods to maintain a competitive presence 
and is now selling productive capacity.
    The third criterion in Sec. 802.1(d) 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 all or 
substantially all of the productive capacity of these goods is being 
replaced. Such replacements may result in an increase in the acquired 
person's productive capacity or manufacturing efficiencies. The 
exemption will not apply unless the acquired person has already 
replaced the capacity or taken definitive steps to replace the capacity 
of the goods being sold. 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.
    Proposed Sec. 802.1(d)(3) imposed no time limit between the 
replacement of the capacity and the sale of the capacity being 
replaced. However, a key factor in determining whether the goods being 
sold represent productive capacity that has been or will be replaced is 
whether the sale is sufficiently contemporaneous with the past or 
future purchase of replacement goods such that the goods being sold 
represent a bona fide sale of replaced capacity. To insure that the 
replacement of capacity is sufficiently contemporaneous, 
Sec. 802.1(d)(3) has been modified to require either that the capacity 
has been replaced within the six months prior to the sale of the goods 
being replaced, or that a contract has been executed in good faith to 
replace the capacity within six months.
    Proposed Sec. 802.1(d)(3) allowed use of the exemption if the 
acquired person had executed either a contract, agreement in principle 
or letter of intent to replace the capacity of the goods being sold. 
The exemption now requires an executed contract for the purchase of the 
replacement equipment, since only the contract imposes a binding 
obligation on the seller to acquire the equipment to replace the 
capacity of the goods being sold.
    Normally companies that intend to remain in a particular business 
do not sell capacity prior to replacing that capacity or making 
contractual arrangements to replace the capacity. If the replacement of 
capacity is not sufficiently proximate to the sale of the goods 
representing the capacity replaced, a firm could experience an absence 
from the market that would have a detrimental effect on its competitive 
position. The six-month windows will permit firms to integrate the new 
replacement equipment into its operations for a reasonable period of 
time before selling the used equipment. The six-month windows will also 
allow a company to operate without the replacement capacity but only 
for a brief period of time so as not to affect adversely its 
competitive presence in the market.
    The rule allows replacement of the productive capacity of the used 
durable goods being sold by acquisition or by lease. No minimum lease 
term is specified; however, in order for an acquisition 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 productive capacity. 
Such a period is industry specific and must be determined in good faith 
by the acquired person. Because this provision requires that all or 
substantially all of the productive capacity be replaced, the exemption 
is lost if the replacement goods result or will result in more than a 
de minimis decrease in the acquired person's capacity or an exit from a 
line of business in which the acquired person currently operates.
    The fourth criterion permits an exemption for sales of used durable 
goods if (1) the goods are used by the acquired person solely to 
provide management and administrative support services for the acquired 
person's business operations, and (2) the acquired person has in good 
faith executed a contract to outsource the management and 
administrative support services provided by the goods being sold. 
Management and administrative support services include services such as 
accounting, legal, purchasing, payroll, billing and repair and 
maintenance of the acquired person's own equipment. For example, a 
company that has equipment in-house to provide its administrative data 
processing needs may decide that it would be more cost effective to 
have a third party provide these services. To accomplish this 
objective, the company

[[Page 13673]]
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 concern.
    Proposed Sec. 802.1(d)(4) used the term ``auxiliary functions'' to 
describe the services provided by the goods being sold. That term has 
been changed in new Sec. 802.1(d)(4) to ``management and administrative 
support services.'' This term is more descriptive and conveys more 
clearly that these services support the business operations of the 
acquired person and are not integral to the person's business 
operations.
    The rule does not define ``management and administrative support 
services'' but instead lists certain services that are included within 
that term and other services that are not included.
    Although companies will sometimes outsource the manufacturing of 
some products they market, the sale of used durable goods that were 
used to manufacture 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 a management 
and administrative support service within the meaning of this 
exemption. Thus, if a company decides to sell the equipment it had used 
to manufacture a product, even if it had entered into a contract for a 
third party to manufacture the product, the sale of that equipment is 
not exempt under Sec. 802.1(d)(4). The loss of the company's control 
over the manufacturing of the product may raise competitive concerns 
warranting investigation by the enforcement agencies.
    In the Statement of Basis and Purpose to the proposed rules, 
research and development, testing and warehousing were listed as 
auxiliary support functions. The Commission does not consider these 
activities to be management and administrative support services; they 
are integral to a company's product design, development, production and 
distribution and thus are tied directly to the competitive business 
activities of the company. In an analysis of a given industry, these 
activities may have a significant impact on issues involving 
innovation, entry and product distribution.
    The exemption requires that the goods have been used ``solely'' to 
provide the acquired person with management and support services for 
its business operations. The transfer of goods that solely provide 
internal management and administrative support services does not 
constitute the acquisition of an operating unit. A company division 
that only provides management and administrative support services to 
the company's operating units is not itself an operating unit; it 
supports or benefits the company's operating units. For example, in a 
company containing a division that only provides the company's internal 
data processing needs, that division would be deemed to provide 
management and administrative support services. The limitation on the 
sale of an operating unit contained in Sec. 802.1(a) would not exclude 
from the exemption under Sec. 802.1(d)(4) the sale of all of the 
equipment from that division. However, if that division derived 
revenues from providing data processing services to third parties, then 
the unit would be considered to be an operating unit. Further, 
equipment used to derive third party revenues would not have been used 
solely to provide management and administrative support services for 
the business operations of the acquired person.
    Proposed Sec. 802.1(d)(4), like proposed Sec. 802.1(d)(3), 
permitted the use of the exemption if the acquired person had a 
contract, agreement in principle or letter of intent to obtain the 
administrative and management support services provided by the goods 
being sold. New Sec. 802.1(d)(4) requires that the acquired person 
execute in good faith a contract for the services to be outsourced. The 
contract gives rise to a binding obligation on the acquired person to 
outsource the services provided by the goods being sold.
    Comment 14 suggested that a sale of goods pursuant to the decision 
to downsize or discontinue a management and administrative support 
service should also be included within the exemption. The 
recommendation was not adopted because the Commission does not have 
sufficient information and knowledge at this time to conclude that the 
elimination--as opposed to the outsourcing--of management and 
administrative support services in every business setting is unlikely 
to raise competitive concerns.
    Comment 7 suggested that examples to Sec. 802.1(d)(4) that 
distinguish between goods that perform a management and administrative 
support service and goods that are an integral part of operations that 
affect competition be changed to reflect a more objective standard, 
such as goods that generate third party revenues. This suggestion was 
not adopted because of the variation among industries of the factors 
that distinguish goods that perform management and administrative 
support services from goods that are integral to the business 
operations of the company. In a vertically integrated company, for 
example, equipment it used for componentry manufacture would not be 
considered goods that perform a management and administrative support 
service, even though the company derived no third party revenues from 
the sale of the components, but used the components in the manufacture 
of its final products. Example 12 illustrates a similar application of 
Sec. 802.1(d)(4). Therefore, if a company has an internal operation 
that also derives third party revenues, that operation will not be 
considered a management and administrative support service; however, 
the fact that a company's internal operation does not derive third 
party revenues does not automatically make the operation a management 
and administrative support service.
    Comments 10 and 27 recommended an exemption for transfers of used 
airplanes that do not qualify for the exemption in Sec. 802.1(d)(3). 
Comment 27 presented statistics showing that there may be little 
correlation between used equipment sold by air carriers and new 
equipment that they purchase. The commenter stated that this absence of 
correlation would make the exemption in Sec. 802.1(d)(3) unavailable 
for most potentially reportable sales of used aircraft. Comment 10 
suggested an exemption for acquisitions of less than 15 percent of an 
air carrier's total productive capacity, while Comment 27 stated that 
exempt acquisitions of used aircraft and spare parts should be limited 
to less than 15 percent of an air carrier's total productive assets.
    Although a specific exemption for acquisitions of used aircraft has 
not been added to the final rules, the recommendations and concerns 
raised by Comments 10 and 27 are still under consideration. In 
providing certain limited exemptions for transfers of used durable 
goods in this rulemaking, the Commission's primary concern is that the 
acquisitions that qualify for these exemptions are ordinary course of 
business transactions and do not constitute either significant 
downsizing or substantial transfers of productive capacity without 
replacement. The recommendations made by Comments 10 and 27 suggest a 
less restrictive exemption for sales of aircraft that would not require 
replacement and would permit limited downsizing. The Commission has no 
experience in implementing HSR exemptions based on the sale of a 
limited percentage of the acquired person's capacity or assets or a 
basis to conclude that such acquisitions do not pose competitive

[[Page 13674]]
concerns. Moreover, an exemption based on the sale of capacity would 
present difficulties in determining the appropriate measure to use in 
applying the exemption. However, Comments 10 and 27 have raised issues 
that may be unique to the airline industry, and the Commission believes 
that further consideration is needed.
    Other additions to Sec. 802.1(d) that were suggested by commenters 
include a recommendation in Comment 3 to exempt purchases of goods for 
the purpose of demolition, disassembly and sale of usable parts (e.g., 
an oil tanker being sold for scrap and parts) and goods that can no 
longer lawfully be used for the purpose for which they were used by the 
acquired person (e.g., oil tankers no longer allowed to call on U.S. 
ports because of hull restrictions that are sold for other lawful 
uses). Specific provisions to address these types of transactions were 
not adopted. Most purchases of used equipment for scrap and parts 
should be exempt as an acquisition of current supplies under 
Secs. 802.1(c)(1) and 802.1(d)(1). With regard to the second exemption 
suggested, the Commission does not have evidence to show that such 
transactions occur with sufficient frequency to warrant the addition of 
the exemption, and it is not confident that a clearly-bounded exemption 
could be created to cover a category of transactions not likely to 
violate the antitrust laws.

II. Section 802.2: Certain Acquisitions of Real Property Assets

    New Sec. 802.2 exempts eight categories of real property 
acquisitions from the reporting requirements of the act. These include 
acquisitions of new facilities, certain used facilities by the original 
lessee in a lease financing arrangement, unproductive real property, 
office and residential property, hotels and motels, recreational 
property, agricultural property, and rental retail space and 
warehouses.
    This new rule creates new exemptions for several categories of real 
property acquisitions that the enforcement agencies, after extensive 
review, have concluded ``are not likely to violate the antitrust 
laws.'' Section 7A(d)(2)(B) of the act. 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.
    Previously, the Premerger Notification Office had interpreted 
section 7A(c)(1) of the act as exempting certain acquisitions of new 
facilities, undeveloped realty, office buildings and residential 
property as transfers of realty in the ordinary course of business. 
Although new Sec. 802.2 is not based on section 7A(c)(1) of the act, 
certain acquisitions of realty exempted by this new exemption may also 
qualify for exemption as transfers of realty in the ordinary course of 
business. The primary difference between new Sec. 802.2, that exempts 
the acquisition of certain types of realty, and amended Sec. 802.1, 
that exempts the acquisition of goods and realty in the ordinary course 
of business, is that the former--because it is not based on the 
``ordinary course'' concept--does not limit the exemption to 
acquisitions that are not acquisitions of operating units. In fact, 
several categories of realty exempted by new Sec. 802.2, e.g., hotels, 
motels and agricultural land, may qualify as operating units, but they 
are exempt under this provision.
    The exemptions for new facilities, certain used facilities, 
unproductive real property, office and residential property, hotels and 
motels, certain recreational land, 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. The Commission recognizes that this approach may result, as 
Comment 9 has pointed out, in ``a more fragmented analysis * * * 
generating value allocation issues.'' However, the Commission believes 
that this inconvenience is offset by an approach that results in an 
expanded exemption for realty acquisitions.
    A. New Facilities. New 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 the Commission has concluded that 
acquisitions of new facilities are not likely to violate the antitrust 
laws. Although the provision is intended primarily to exempt 
``turnkey'' facilities, i.e., new facilities capable of commencing 
operations immediately with minimal additional capital investment, 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. However, if the 
facility requires a substantial amount of additional construction or 
outfitting, it may not be classified as a new facility but may qualify 
as unproductive real property as defined in new Sec. 802.2(c).
    The new exemption is unchanged from proposed Sec. 802.2(a), and it 
applies only to new structures 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 the holder of the 
new facility to be either a builder 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.
    New 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 exceeds $15 million, and no other exemptions 
apply, then the purchase of these non-exempt assets is separately 
subject to the notification requirements.
    B. Used facilities. New Sec. 802.2(b) exempts the acquisition of a 
used facility by a lessee that has had sole and continuous possession 
and use of the facility since it was first built, from a lessor that 
holds title to the facility for financing purposes in the ordinary 
course of its business. This provision was not contained in the 
proposed rules. It is being adopted in response to Comment 6.
    New facilities are often acquired through lease financing 
arrangements. In a lease financing arrangement a creditor, in a bona 
fide credit transaction entered into in the ordinary course of its 
business, acquires a new facility and immediately leases it to a lessee 
that will have sole and continuous use and possession of the facility, 
usually under a long-term lease. The lessee generally has the option to 
purchase the facility from the lessor at or before the end of the lease 
term. Currently, there is no exemption for this acquisition even though 
the acquisition of the new facility may have been exempt under 
Sec. 802.2(a) if the lessee had acquired the facility directly when it 
first began operation and had financed the purchase through an 
installment sales arrangement.
    New Sec. 802.2(b) will effectively treat the subsequent acquisition 
by the original lessee of a used facility that the lessee originally 
took possession of as a new facility through a lease financing 
arrangement the same as the direct

[[Page 13675]]
purchase of a new facility through a more traditional credit 
arrangement. This new exemption also will effectively treat this 
category of acquisitions the same as an acquisition of a leased 
facility by a lessee subject to a sale/leaseback arrangement. In a 
sale/leaseback arrangement the owner of a facility sells the facility 
to a creditor that acquires it in a bona fide credit transaction in the 
ordinary course of its business. The creditor immediately leases the 
facility back to the owner, now lessee, under a long-term lease. The 
arrangement is often used as method of raising capital. Since the 
original owner/lessee held beneficial ownership of the facility prior 
to the sale/leaseback arrangement and the lessor typically receives 
only title and a security interest in the facility, the Premerger 
Notification Office generally has informally interpreted the rules to 
require no notification for the subsequent repurchase because the 
original owner/lessee did not relinquish beneficial ownership when it 
entered into the sale/leaseback arrangement.
    C. Unproductive real property. New Sec. 802.2(c) exempts 
acquisitions of unproductive real property. Subject to the limitations 
of Sec. 802.2(c)(2), unproductive real property is real property, 
including raw land, structures or other improvements, associated 
production and exploration assets as defined in Sec. 802.3(c), natural 
resources and assets incidental to the ownership of the real property, 
that has not produced revenues of more than $5 million during the 36 
months preceding the transaction. Structures and improvements are 
additions to the real property that add value and include, for example, 
buildings and parking lots. Production machinery and equipment are not 
included in the definition of structures and improvements, and their 
acquisition must be analyzed separately to determine whether 
notification is required. Natural resources refers to any assets 
growing or appearing naturally on the land, such as timber and mineral 
deposits.
    New Sec. 802.2(c)(2) excludes from the exemption acquisitions of 
manufacturing and non-manufacturing facilities that have not yet begun 
operations as well as facilities that have been in operation at any 
time during the twelve months preceding the acquisition. The exclusion 
for manufacturing and non-manufacturing facilities that have not begun 
operations is narrow and applies to facilities that are held by a 
person who neither constructed the facility for sale nor held the 
facility at all times for resale. The acquisition of a new structure 
from a person who built the facility to sell or held it solely for 
resale is exempt under new Sec. 802.2(a), the exemption for new 
facilities. The exclusion in Sec. 802.2(c)(2)(i) is also intended to 
apply to ``turnkey'' facilities, i.e., new facilities capable of 
commencing operations immediately with minimal additional capital 
investment; whether acquisition of a ``turnkey'' facility is exempt is 
determined under Sec. 802.2(a). A new facility that is partially 
complete, is not ready to commence operation in the immediate future 
and requires substantial additional capital investment is not yet a 
manufacturing or non-manufacturing facility within the meaning of 
Sec. 802.2(c)(2)(i). Such a facility may qualify as unproductive real 
property.
    New Sec. 802.2(c)(2)(iii) also excludes real property that is 
either adjacent to or used in conjunction with real property that does 
not qualify as unproductive real property and is part of the 
acquisition. This exclusion is intended to make Sec. 802.2(c) 
unavailable for the acquisition of vacant land adjoining productive 
property, such as a factory, a poultry processing facility or a meat 
packing plant, which is also part of the acquisition. This exclusion 
was not in the proposed rule. Without this exclusion, it might have 
been argued that the acquisition of the vacant land should be exempt 
under Sec. 802.2 if income has been derived only from the factory and 
not from activities taking place on the vacant land. However, this 
exemption is not permitted under Sec. 802.2(c) because the vacant land, 
due to its adjacency to the factory, is considered to be part of the 
productive property that is being acquired. If the vacant land were not 
adjoining the factory but were used in connection with the factory 
operations, the Sec. 802.2(c) exemption would still be unavailable for 
the acquisition of the vacant land because it was used in conjunction 
with the factory. Example 7 illustrates this exclusion from 
Sec. 802.2(c).
    The primary purpose of new Sec. 802.2(c) is to eliminate filing 
requirements for acquisitions of formerly productive property, which is 
no longer used to generate revenues, and undeveloped, non-income 
producing property. New Sec. 802.2(c) will exempt most wilderness and 
rural land that is not used commercially, and urban land that is vacant 
or contains facilities that have ceased operations more than twelve 
months prior to the acquisition and that have generated a minimal 
amount of income during the most recent three-year period.
    ``Associated production and exploration assets as defined in 
Sec. 802.3(c),'' was added to the definition of unproductive real 
property in response to Comments 15 and 24. This addition will include 
within the exemption for acquisitions of unproductive real property any 
machinery or equipment associated with a formerly productive coal mine 
or oil and gas reserve that has not been in operation for twelve months 
prior to the acquisition and has not generated revenues of more than $5 
million during the thirty-six months prior to the acquisition.
    New Sec. 802.2(c)(2) incorporates a suggestion made by Comment 14 
that the language of the proposed rule's exclusion for manufacturing 
and non-manufacturing facilities ``that began operation within the 
twelve (12) months preceding the acquisition'' be modified. Comment 14 
pointed out that the proposed exemption excludes from the definition of 
unproductive real property facilities that began operation during the 
twelve-month period prior to the acquisition but includes operations 
that were commenced more than twelve months before the acquisition. One 
of the concepts underlying this exemption is to exclude from the 
reporting requirements formerly productive facilities, i.e., facilities 
whose operations have ceased and are no longer being used to generate 
revenues. The exemption was not intended to apply to manufacturing and 
non-manufacturing operations begun more than twelve months prior to the 
acquisition and continuing to operate during the twelve-month period 
prior to the acquisition. The language suggested by Comment 14 excludes 
from the exemption manufacturing and non-manufacturing facilities that 
were in operation at any time during the twelve months preceding the 
acquisition. Because this language is more consistent with the 
``formerly used/abandoned facilities concept'' underlying this 
exemption, the Commission has decided to adopt this suggestion in the 
final rule.
    Comment 14 also suggested that language be added to Sec. 802.2(c) 
that, for purposes of this provision, no revenues be deemed generated 
by any real property used solely to provide management and 
administrative support services (formerly ``auxiliary support 
functions'') for the business operations of the acquired person. The 
commenter expressed concern that while the acquisition of goods used by 
the seller to provide these support services would be exempt under 
Sec. 802.1(d)(4), the acquisition of a facility used only to house 
equipment that provides these support services may not be exempt from 
the notification requirements. The

[[Page 13676]]
Commission agrees that if the acquisition of the equipment providing 
the management and administrative support service is exempt under 
Sec. 802.1(d)(4), then the acquisition of a facility used solely to 
house the equipment should be exempt. However, in most cases this type 
of facility can be classified as office property, the acquisition of 
which is exempt under Sec. 802.2(d).
    D. Office and residential property. New Sec. 802.2(d) exempts 
acquisitions of office and residential property. ``Office or 
residential property'' is defined as real property that is used 
primarily for office or residential purposes.
    The rule specifies that in determining whether real property is 
used primarily for office or residential purposes, the total space 
being measured should consist of real property, the acquisition of 
which is not exempted by other provisions of the act or rules. 
Therefore, in making this determination, any portion of the building 
consisting of, for example, rental retail space, the acquisition of 
which is exempt under Sec. 802.2(f), should be excluded.
    The language of new Sec. 802.2(d)(2) differs somewhat from the 
language in the proposed rule in order to make clearer the procedure 
for determining whether real property is used primarily for office and 
residential purposes. Although new Sec. 802.2(d) does not specify the 
meaning of ``primarily,'' it is contemplated that at least 75 percent 
of the space in the qualifying property is used for office or 
residential purposes. Example 8 applies this threshold to exempt the 
acquisition of a multi-use building.
    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.
    New Sec. 802.2(d)(3) 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 separately subject to the notification 
requirements of the act. For example, if a company owns an office 
building in which it operates a department store and the purchaser of 
that building is acquiring not only the space that the store occupies 
but also the retail operations of the department store, the acquisition 
of the department store business as well as the space that the store 
occupies 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 of the department store business 
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 new Sec. 802.2(d) of office and 
residential property and are exempt assets.
    Comment 14 suggested that language be added to new Sec. 802.2(d) to 
exempt structures that house equipment that provide management and 
administrative support services to the seller and owner of the 
structure. As mentioned above, the Commission believes that the common 
meaning of office space includes space used solely to provide 
management and administrative support services to the acquired person. 
For example, if an acquired person owns a building that primarily 
houses the computer equipment used to provide its administrative data 
processing needs, and the acquired person, in good faith, executed a 
contract for substantially the same services, the sale of the equipment 
would be exempt pursuant to Sec. 802.1(d)(4). The sale of the building 
also would qualify for exemption as an acquisition of office property, 
since the building is not housing a ``business'' that is being 
transferred but office equipment that is being sold.
    E. Hotels and motels. New Sec. 802.2(e) exempts from the reporting 
requirements acquisitions of hotels and motels, and improvements to 
those facilities, such as golf, swimming, tennis, restaurant, health 
club or parking facilities (but excluding ski facilities), and assets 
incidental to the ownership of those facilities. The exemption, 
however, excludes the acquisition of a hotel or motel that includes a 
gambling casino.
    The exemption is based on the Commission's review of past HSR 
notifications and observation that acquisitions of hotels and motels, 
except for those excluded from the exemption, are unlikely to violate 
the antitrust laws. Several commenters affirmed the Commission's 
understanding that 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 markets 
entry appears to be relatively easy.
    The proposed exemption for the acquisition of hotels and motels 
excluded hotels ``acquired as part of the acquisition of a ski 
resort.'' This exclusion raised questions concerning the treatment of a 
ski resort containing a hotel versus a hotel that has ski facilities 
along with other recreational improvements. The wording of the new 
exemption excludes ski facilities from improvements included with a 
hotel or motel which may be acquired without observing the reporting 
requirements. As a result, in an acquisition of a hotel with ski 
facilities, the acquisition of the hotel is exempt, but the ski 
facilities must be valued separately to determine if their acquisition 
is subject to the notification requirements.
    Ski facilities are not included within the exemption for 
acquisitions of hotels and motels because the Commission does not have 
a basis for concluding that the acquisition of a ski facility is not 
likely to violate the antitrust laws. In addition, ski facilities do 
not appear to be characterized by the same ease of entry as hotels 
generally. Gambling casinos are also excluded from the exemption 
because they involve services other than lodging, and their acquisition 
may affect competition in certain local markets. Also, certain areas 
may have licensing requirements for gambling casinos that serve as an 
impediment to entry.
    Comments 9 and 14 suggested that the exemption for hotels and 
motels be expanded to included the acquisition of related improvements, 
such as golf courses, swimming and tennis facilities and restaurants. 
The Commission agrees that the inclusion of these improvements, as well 
as health clubs and parking facilities, does not raise antitrust 
concerns and, thus, has included such related improvements as 
qualifying for the exemption. The Commission also has added language 
exempting the acquisition of assets incidental to the ownership of the 
hotel or motel being acquired to make clear that all related permits 
and tangible personal property used directly in the operation of the 
facility are included within the exemption.
    In the Statement of Basis and Purpose accompanying the proposed 
rule, the Commission made clear that ``this exemption would include the 
acquisition by a national hotel chain of hotel assets of another hotel 
chain.'' The Statement of Basis and Purpose went on to say that ``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

[[Page 13677]]
the notification requirements.'' Comments 19, 26 and 29 suggested that 
the exemption for hotels and motels be expanded to included the 
acquisition of trademarks and hotel management businesses. These 
comments assert that hotel and motel assets are plentiful and that 
entry into the hotel/motel business is relatively easy, justifying a 
broader exemption to cover all hotel and motel asset acquisitions. The 
Commission has learned that acquisitions of hotel and motel assets 
typically include the transfer of the hotel management contracts in 
effect at the time of the acquisition as well as licenses to use the 
trademarks associated with the hotel or motel being acquired. Thus new 
Sec. 802.2(e) explicitly includes these contracts and licenses among 
the list of assets incidental to the operation of the hotel or motel. 
However, the exemption does not include the acquisition of hotel 
management businesses or the purchase of a hotel trademark. Such 
acquisitions, even if made in connection with the purchase of a hotel 
or motel, are not considered to be transfers of incidental assets 
associated with a hotel or motel and are therefore separately subject 
to the requirements of the act.
    F. Recreational Land. New Sec. 802.2(f) exempts the acquisition of 
recreational land, which is defined as real property used primarily as 
golf, swimming, or tennis club facilities and assets incidental to the 
ownership of such property. If an acquisition includes any property or 
assets other than recreational land, the acquisition of these other 
assets is separately subject to the notification requirements.
    This exemption was not originally included in proposed Sec. 802.2 
and is being added to the final rule in response to Comment 14 that 
suggested an exemption for certain types of recreational land. The 
Commission has received HSR filings for a very small number of 
acquisitions of recreational land, primarily golf courses. Based on 
this experience, the Commission believes that the acquisition of 
certain types of recreational land is not likely to violate the 
antitrust laws. This exemption is limited to the types of recreational 
realty the acquisition of which is exempt as improvements when acquired 
as part of a hotel or motel under Sec. 802.2(e). Recreational land 
under Sec. 802.2(f) does not include, for example, ski facilities, 
multi-purpose arenas, stadia, racetracks and amusement parks.
    G. Agricultural property. New Sec. 802.2(g) exempts acquisitions of 
agricultural property, assets incidental to the ownership of the 
property and associated assets integral to the agricultural business 
activities conducted on the property. Agricultural property that is 
covered by this exemption is real property that primarily derives 
revenues under Major Groups 01 and 02 of the 1987 Standard Industrial 
Classification (SIC) Manual. Associated assets integral to the 
agricultural business activities conducted on the property to be 
acquired include structures (e.g., barns used to house livestock), 
fertilizer, animal feed and inventory (e.g., livestock, poultry, crops, 
fruits, vegetables, milk, and eggs). In an acquisition that includes 
assets that are covered by this exemption, the transfer of any other 
assets is separately subject to the notification requirements.
    Associated agricultural assets do not include processing equipment 
or facilities. If a meat packing 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 agencies can determine whether 
the proposed acquisition will affect competition adversely.
    The proposed rule exempting acquisitions of agricultural property 
included within the definition of associated agricultural assets 
``equipment dedicated to the income-generating activities conducted on 
the real property.'' New Sec. 802.2(g) omits this equipment from the 
definition of associated agricultural assets because in certain cases 
the equipment may be part of a processing facility, the acquisition of 
which is not exempt under Sec. 802.2(g).
    The final rule also changes the proposed rule by including a 
parenthetical reference to SIC Major Groups 01 and 02 in the definition 
of agricultural property. This inclusion is intended to make clear that 
acquisitions of agricultural land on which other activities involving 
farm products are conducted, e.g., activities included within SIC Major 
Groups 20 (e.g., meat packing plants, poultry slaughtering and 
processing, milk processing, and corn wet milling), 42 (farm product 
storage and warehousing) and 51 (buying and marketing of farm products) 
are not included within the exemption.
    New Sec. 802.2(g)(2), which has been added to the proposed rule, 
provides that ``agricultural property does not include any real 
property and assets either adjacent to or used in conjunction with 
facilities that are not associated agricultural assets and that are 
included in the acquisition.'' This provision excludes from the 
exemption, for example, acquisitions of any real property and assets 
that are either adjacent to or used in conjunction with poultry or 
livestock slaughtering, processing or packing facilities that are also 
being acquired. Thus, if a meat packing plant is surrounded by vacant 
land that serves as a buffer zone for environmental purposes or as an 
area for grazing cattle in connection with the plant operations, and an 
acquiring person intends to purchase the plant and the surrounding 
property, the acquisition of the vacant land is not exempt either as an 
acquisition of agricultural land or an acquisition of unproductive real 
property [see discussion of Sec. 802.2(c)(2)]. The vacant land is 
considered to be part of the business of the plant, and its 
acquisition, along with that of the plant, is subject to the reporting 
requirements.
    H. Rental retail space; warehouses. New Sec. 802.2(h) exempts 
acquisitions of two other categories of real property, rental retail 
space and warehouses. Rental retail space includes structures that 
house and are rented to retail establishments and include real property 
assets such as shopping centers, strip malls, 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 new rule provides that if the retail rental space or 
warehouses are to be acquired in an acquisition of a business conducted 
on the real property, the acquisition of the retail rental space or 
warehouses is not exempt. Thus, if an 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 a department 
store chain proposed to acquire from another department store chain 
several shopping centers and the department store business conducted by 
the seller in several stores located in these shopping centers, the 
acquisition of the seller's department store business and the portion 
of the shopping centers in which the stores are located would be 
subject to the notification requirements. The acquisition of the 
portion of the shopping centers that housed other retail establishments 
would be exempt under this rule. Similarly, as illustrated in Example 
12, the exemption for the acquisition of warehouses is lost if

[[Page 13678]]
warehouses are being acquired in connection with the acquisition of a 
wholesale distribution business.
    The new 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. New 
Sec. 802.2(h) differs from the proposed rule only in the addition to 
the exemption of assets incidental to the ownership of retail rental 
space or warehouses. Without this addition, it would be necessary to 
value separately any incidental assets associated with the ownership of 
the property, contrary to the treatment of real property assets 
included in other provisions of Sec. 802.2.

III. Section 802.3: Acquisitions of Carbon-Based Mineral Reserves

    New Sec. 802.3 adds exemptions for certain acquisitions of carbon-
based mineral reserves. Specifically, Sec. 802.3(a) exempts the 
acquisition of reserves of oil, natural gas, shale and tar sands or the 
rights to such assets if the value of the reserves, the rights and 
associated exploration and production assets to be held as a result of 
the acquisition do not exceed $500 million. Similarly, Sec. 802.3(b) 
exempts the acquisition of reserves of coal or rights to coal reserves 
if the value of the reserves, the rights and associated exploration and 
production assets to be held as a result of the acquisition do not 
exceed $200 million. Associated exploration and production assets are 
defined in new Sec. 802.3(c) to mean, with certain specified 
exceptions, equipment, machinery, fixtures, and other assets that are 
integral and exclusive to current or future exploration or production 
activities associated with the carbon-based mineral reserves that are 
being acquired.
    The Commission's studies of the coal and oil and gas industries 
have shown that the values 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 of coal and oil and gas is inappropriate, because acquisitions 
of carbon-based mineral reserves above the newly established thresholds 
may warrant an examination of their potential effects on competition.
    New Sec. 802.3 differs from proposed Sec. 802.3 in that new 
Sec. 802.3(a) expands the exemption for oil, natural gas, shale and tar 
sands by increasing the value of the reserves that will be held as a 
result of the acquisition that qualify for the exemption from $200 
million to $500 million. This increase is based on statistical 
information provided by Comments 5 and 9 indicating that the ownership 
of oil and gas reserves in the United States and worldwide is 
relatively unconcentrated. Moreover, the acquisition of $500 million of 
crude oil reserves in the United States would amount to about 1/10 of 1 
percent of domestic oil reserves. Such an acquisition, if made by the 
leading commercial owner of domestic reserves, would result in an 
increase in the HHI of about 2 points in an unconcentrated market. The 
Commission has concluded that acquisitions of oil and gas reserves 
valued at $500 million or less are unlikely to violate the antitrust 
laws. However, the $200 million threshold for transactions involving 
coal reserves was retained from proposed Sec. 802.3. The Commission 
does not have sufficient information to support a higher threshold for 
coal reserves acquisitions. Also, because acquisitions of coal reserves 
may tend to affect local or regional markets, a higher threshold may 
exempt transactions that should be reviewed for their impact on such 
markets.
    Sections 802.3(a) and 802.3(b) primarily are designed to exempt 
acquisitions of producing reserves, but also may exempt some 
acquisitions of non-producing reserves that may also be exempt as 
unproductive real property under Sec. 802.2(c). Because the exemption 
is not based on the ``ordinary course'' concept, the exemptions also 
apply if the reserves and associated assets being transferred 
constitute all or substantially all of the assets of an operating unit. 
If the reserves being acquired are not yet producing, the acquisition 
also is likely to be exempt under Sec. 802.2(c) as an acquisition of 
unproductive real property. For formerly producing reserves that have 
not been in production during the twelve months preceding the 
acquisition and have not generated revenues in excess of $5 million 
during the 36 months preceding the acquisition, their acquisition would 
qualify as unproductive real property. If the reserves qualify as 
unproductive property, their acquisition is exempt, regardless of the 
value of the reserves. Currently producing reserves are governed by the 
valuation requirements of Sec. 802.3. Example 1, which involves an 
acquisition consisting of non-producing gas reserves, producing oil 
reserves and assets associated with the producing reserves, illustrates 
the application of Sec. 802.2(c) and Sec. 802.3 to the separate 
components of the acquisition.
    The $500 million threshold in Sec. 802.3(a) and the $200 million 
threshold in Sec. 802.3(b) apply 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 
Sec. 802.3(c) to include equipment, machinery, fixtures and other 
assets that are integral to the exploration or production activities of 
the reserves. Such assets do not include any intellectual property 
rights that may be transferred with 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.
    As in the oil and gas industry, exploration or production assets 
associated with coal reserves may include proprietary or licensed 
geological and geophysical data, easements, permits and rights of way. 
In surface mining in the western U.S., associated production assets may 
consist of various load out facilities, including storage barns and 
silos, dryer barns and railroad spurs, and heavy equipment such as 
draglines and crushers. Such assets would also include the long-term 
coal contracts and federal leases related to the reserves.
    New Sec. 802.3 also changes the categories of assets that are 
excluded from the definition of associated production or exploration 
assets as it relates to oil and natural gas reserves. Proposed 
Sec. 802.3 excluded from associated production or exploration assets 
all flow and gathering pipelines, distribution pipelines, interests in 
pipelines, processing facilities and refineries, because acquisitions 
of these assets in certain local markets have, from time to time, 
raised competitive

[[Page 13679]]
concerns prompting investigations by the enforcement agencies. However, 
Comments 3, 5, 9 and 24 recommended including in the definition of 
associated exploration or production assets pipeline systems and field 
treating facilities that serve a particular producing property and have 
no competitive significance apart from the oil and natural gas reserves 
being acquired. The Commission has concluded that acquisitions of these 
systems and facilities in connection with the reserves to which they 
are dedicated are unlikely to violate the antitrust laws because they 
do not have the potential for competing in the provision of services to 
third parties. Therefore, the definition of associated exploration or 
production assets now clearly delineates dedicated facilities from 
facilities serving third parties by excluding ``any pipeline and 
pipeline system or processing facility which transports or processes 
oil and gas after it passes through the meters of a producing field; 
and any pipeline or pipeline system that receives gas directly from gas 
wells for transportation to a natural gas processing facility or other 
destination.''
    Comments 17, 18 and 30 proposed an exemption for acquisitions of 
timberland, noting that the raw material supply and manufacturing 
resources in the forestry industry are abundant, and ownership of 
timberland is fragmented. However, because there has been enforcement 
interest in a number of transactions involving timberland in the 
western United States, the Commission declined to include an exemption 
for acquisitions of timberland to insure that the enforcement agencies 
continue to receive notification of those acquisitions of timberland 
that may present competitive concerns.
    Comment 9 noted that the enforcement agencies, as they obtain 
additional experience and information about other natural resources, 
will perhaps identify ways of expanding Sec. 802.3 to include other 
types of producing reserves without posing undue risk to competition. 
For non- producing reserves of other minerals and renewable natural 
resources, Sec. 802.2(c) will exempt acquisitions of these reserves if 
they qualify as unproductive real property. Regarding producing 
reserves, the Commission has not included these in Sec. 802.3 at this 
time because it does not have an adequate factual basis for determining 
that acquisitions of other types of mineral reserves and renewable 
natural resources should be exempt from the requirements of the act or 
subject to a reporting level higher than the statutory $15 million 
threshold. However, the Commission will continue to collect information 
about other minerals and renewable natural resources and determine at a 
later date if expansion of Sec. 802.3 to include acquisition of 
reserves of these resources is warranted.

IV. Section 802.4: Acquisitions of Voting Securities of Issuers Holding 
Certain Assets the Direct Acquisition of Which Is Exempt

    New Sec. 802.4 exempts the acquisition of voting securities of 
issuers that hold certain assets the direct acquisition of which is 
exempt under the act or the rules. New Sec. 802.4(a) exempts the 
acquisition of voting securities of an issuer whose assets, together 
with those of all entities controlled by the issuer, consist of assets 
whose direct purchase is exempt from the notification requirements 
pursuant to section 7A(c)(2) of the act or Secs. 802.2, 802.3 and 802.5 
of the rules. New Sec. 802.4(b) defines ``issuer'' as used in 
Sec. 802.4 to mean a single issuer, or two or more issuers controlled 
by the same person. The exemptions provided by new Sec. 802.4 are 
available so long as the acquired issuer or issuers do not in the 
aggregate hold exempt assets that exceed the threshold limitations of 
the cited rules and non-exempt assets with a fair market value of more 
than $15 million. New Sec. 802.4(c) states that fair market value as 
determined in accordance with Sec. 801.10 (c)(3) of the rules is the 
standard to apply in determining the value of assets held by an issuer 
whose voting securities are being acquired pursuant to Sec. 802.4. New 
Sec. 802.4 applies to acquisitions resulting in the holding of a 
minority interest as well as a controlling interest in the acquired 
issuer's outstanding voting securities.
    Section 802.4 derives in part from original Sec. 802.1(a) which 
exempted ``an acquisition of the voting securities of an entity whose 
assets consist solely of real property'' and related assets, if a 
direct acquisition of that real property and those related assets would 
be exempt. The rationale for original Sec. 802.1(a) and new Sec. 802.4 
is that the applicability of an exemption should not depend on the form 
of the acquisition. The antitrust analysis would seem to be the same 
whether assets or voting securities are acquired. See Statement of 
Basis and Purpose to Sec. 802.1(a), 43 FR 33488 (July 31, 1978).
    Proposed Sec. 802.4(a) extended this approach by exempting 
acquisitions of voting securities of issuers whose assets consist 
solely of assets exempt under proposed Sec. 802.2: new facilities, 
unproductive real property, office and residential property, hotels and 
motels, agricultural property, rental retail space and warehouses. 
Proposed Sec. 802.4(b) contained a comparable exemption for issuers 
whose assets consist solely of carbon-based mineral reserves exempt 
under proposed Sec. 802.3.
    New Sec. 802.4 differs in five respects from the proposal. First, 
new paragraph (a) no longer requires that the issuer whose voting 
securities are being acquired hold solely exempt assets. New 
Sec. 802.4(a) provides that the issuer also may hold up to $15 million 
of non-exempt assets in addition to the exempt assets. Second, proposed 
paragraph (b) has been merged into new paragraph (a). In the proposed 
exemption, the aggregation principles of Sec. 801.15(b) applied only to 
Sec. 802.4(b), while Sec. 801.15(a) applied to Sec. 802.4(a). Because 
of the new provision that an issuer whose voting securities are being 
acquired pursuant to Sec. 802.4 also may hold up to $15 million of non-
exempt assets, Sec. 801.15(b) applies to all transactions under 
Sec. 802.4. New Sec. 802.4(a) now describes all classes of acquisitions 
that are exempt pursuant to Sec. 802.4.
    Third, new Sec. 802.4(a) has been expanded and now provides an 
exemption for voting securities acquisitions of issuers that hold 
assets the direct acquisition of which are exempt pursuant to section 
7A(c)(2) of the act and Sec. 802.5 of the rules. Fourth, new 
Sec. 802.4(b) has been added to the rule to make clear that the term 
``issuer'' as used in Sec. 802.4(a) means a single issuer or two or 
more issuers controlled by the same person. Lastly, new Sec. 802.4(c) 
has been added to make clear that the value of assets held by an issuer 
whose voting securities are being acquired pursuant to Sec. 802.4 is 
the fair market value determined in accordance with Sec. 801.10(c)(3) 
of the rules.
    The first change responds to Comments 2, 5 and 9, which noted that 
the requirement in proposed Sec. 802.4 that the acquired issuer could 
hold solely assets exempt under Secs. 802.2 and 802.3 was very limiting 
and caused the proposed exemption to fall short of the goal of treating 
voting securities acquisitions the same as asset purchases. Proposed 
Secs. 802.2 and 802.3 provided an exemption for asset acquisitions 
involving the purchase of certain types of realty and carbon-based 
mineral reserves and required that the acquisition of any non-exempt 
assets be separately analyzed to determine whether notification was 
required prior to their purchase. Thus, under proposed Secs. 802.2 and 
802.3, a person could acquire certain exempt assets and non- exempt 
assets valued at $15 million or

[[Page 13680]]
less and would not be required to file. However, in contrast, the 
requirement in proposed Sec. 802.4 that the acquired issuer hold solely 
exempt assets precluded the exemption if the issuer held any assets not 
exempt under Secs. 802.2 and 802.3.
    The Commission agrees that this limitation seemed to undercut the 
rationale underlying Sec. 802.4 to reduce the extent to which the form 
of the transaction affects the requirement to file notification. For 
this reason, as noted previously, the Commission has modified proposed 
Sec. 802.4 to exempt acquisitions of issuers that hold assets exempt 
under section 7A(c)(2) of the act and new Secs. 802.2, 802.3, and 
802.5, and non-exempt assets with a fair market value of $15 million or 
less.
    Comment 2 also suggested that proposed Sec. 802.4 be amended to 
exempt acquisitions of voting securities of issuers that hold 
``incidental assets,'' i.e., assets incidental to the ownership of the 
exempt assets, in addition to the assets that are exempt pursuant to 
proposed Secs. 802.2 and 802.3. The commenter pointed out that since 
incidental assets were not included in every provision of the proposed 
rules as exempt assets, the ownership of incidental assets by an 
acquired issuer would limit the application of Sec. 802.4. As noted 
previously, the Commission has modified the language of proposed 
Sec. 802.4 to include within the exemption acquisitions of voting 
securities of issuers holding assets exempt under the cited rules and 
non-exempt assets with a fair market value of $15 million or less. The 
Commission also has included within the various subsections of 
Secs. 802.2 and 802.3 language that will include within the exemptions, 
assets incidental to the ownership of the exempt assets. The Commission 
believes that since the ownership of incidental assets has little 
effect on competition, the value of incidental assets should not be 
included in the determination of whether the acquired issuer holds non-
exempt assets with a fair market value exceeding $15 million. The 
Commission believes that these modifications adequately address the 
concerns raised by this comment.
    The second change was made because the provisions of Sec. 801.15(b) 
that address aggregation of previous acquisitions now govern all voting 
securities acquisitions of issuers holding assets exempt under the 
sections included within new Sec. 802.4(a). Proposed Sec. 802.4(a) 
contained exemptions that did not require aggregation because the 
exemptions were not based on the holding of assets valued at less than 
a set threshold amount. For instance, the exemption for certain types 
of realty provided in Sec. 802.2 is applicable regardless of the value 
of the exempt assets to be acquired. However, since new Sec. 802.4(a) 
has eliminated the restriction that an issuer whose voting securities 
are to be acquired hold solely exempt assets and now permits the 
acquired issuer to hold non-exempt assets valued at $15 million or 
less, the principles of Sec. 801.15(b) apply, and aggregation is 
required to determine whether this limitation will be exceeded.
    The third change from the proposed rules reflects a suggestion by 
Comment 9 that section 7A(c)(2) of the act be included within 
Sec. 802.4. Section 7A(c)(2) exempts acquisitions of ``bonds, 
mortgages, deeds of trust, and other obligations which are not voting 
securities.'' The Commission agrees that the acquisition of these types 
of assets are of little antitrust concern, whether acquired in the form 
of an asset or voting securities acquisition, and has added section 
7A(c)(2) of the act to new Sec. 802.4(a).
    Similarly, an exemption for acquisitions of voting securities of 
issuers holding assets the direct acquisition of which would be exempt 
under Sec. 802.5 is now included in Sec. 802.4(a) as a result of 
revisions to Sec. 802.5 (see discussion, below). Because proposed 
Sec. 802.5 included a limitation on the type of purchaser that 
qualified for the exemption, comparable voting securities acquisitions 
could not be included within Sec. 802.4 and thus were exempted within 
proposed Sec. 802.5. New Sec. 802.5 has been revised to remove the 
limitation, and the exemption for the equivalent voting securities 
acquisition has been moved to Sec. 802.4. Therefore, acquisitions of 
the voting securities of issuers holding investment rental property 
plus non-exempt assets valued at $15 million or less will be exempt 
pursuant to Sec. 802.4(a).
    The addition of Sec. 802.4(b) stems from the rationale underlying 
this exemption that voting securities acquisitions and asset purchases 
be treated similarly for purposes of Sec. 802.4. The first step toward 
achieving similar treatment was to modify proposed Secs. 802.4(a) and 
(b) to include within the exemption the acquisition of issuers that 
hold exempt assets and non-exempt assets valued at $15 million or less. 
The Commission believes that, in addition to this modification, 
purchasers should be required to aggregate acquisitions of voting 
securities of different issuers controlled by the same acquired person. 
Otherwise, the form of the transaction will affect the notification 
requirement. For this reason, new Sec. 802.4(b) defines issuer, for 
purposes of Sec. 802.4, to mean a single issuer or multiple issuers 
controlled by the same acquired person. Thus, when the voting 
securities of more than one issuer controlled by the same person are 
being acquired, aggregation of the non-exempt assets held by these 
issuers and aggregation of the carbon-based mineral reserves for which 
there are threshold limitations is required. For example, if ``A'' 
proposed to acquire the voting securities of three subsidiaries of 
``B'' and each subsidiary held $200 million of oil and gas reserves, 
the acquisition would not be exempt under Sec. 802.4(a) because the 
acquired issuers hold in the aggregate $600 million of oil and gas 
reserves. If the acquisition were structured as an asset acquisition 
with ``A'' purchasing the oil and gas reserves held by ``B's'' three 
subsidiaries, the acquisition would not qualify for exemption under new 
Sec. 802.3(a) since the value of the reserves to be acquired exceeds 
$500 million.
    Similarly, if ``A'' proposed to acquire the voting securities of 
three of ``B's'' subsidiaries and each held, respectively, (1) two 
hotels and $10 million of non-exempt assets, (2) two hotels and $7 
million of non-exempt assets and (3) three hotels and $3 million of 
non-exempt assets, ``A'' would be required to aggregate the value of 
the non-exempt assets to determine whether the acquired issuers hold in 
the aggregate non-exempt assets exceeding $15 million in value. Since 
the value of the non-exempt assets exceeds $15 million, ``A's'' 
proposed acquisition would not be exempt under Sec. 802.4(a). If the 
acquisition were structured as an asset acquisition with ``A'' 
purchasing the hotels and the non-exempt assets directly, ``A's'' 
acquisition of the hotels would be exempt under Sec. 802.2(e) but ``A'' 
would be required to file notification for the acquisition of the non-
exempt assets. The Commission recognizes that in this situation the 
holdings of non-exempt assets exceeding $15 million in the voting 
securities acquisition negated the availability of the exemption for 
the entire acquisition, whereas in the asset acquisition filing would 
be required only for the acquisition of the non-exempt assets. However, 
since voting securities acquisitions are by their nature different than 
asset acquisitions because voting securities represent an interest in 
the undivided totality of the underlying assets, this difference in 
outcome is unavoidable but reasonable.
    New Sec. 802.4(c) has been added to make clear that the value of 
the exempt and non-exempt assets held by the issuer is fair market 
value determined in

[[Page 13681]]
accordance with Sec. 801.10(c)(3). The Commission recognizes that this 
requirement may be difficult to meet when the acquisition is hostile or 
the acquiring person proposes to acquire a minority interest through 
the acquisition of voting securities from third party holders, e.g., 
open market purchases. However, Sec. 801.10(c)(3) requires that the 
acquiring person make a good faith determination of the fair market 
value of the assets of the issuer whose voting securities are to be 
acquired. The acquired person cannot rely on the absence of data to 
make a good faith determination that the fair market value of the 
assets held by the acquired issuer(s) does not exceed threshold 
limitations.
    The modifications that have been made to proposed Sec. 802.3, 
providing different thresholds for oil and gas reserves and coal 
reserves, and proposed Sec. 802.4, expanding the exemption to include 
issuers holding non-exempt assets with a fair market value of $15 
million or less, complicate the application of the rules requiring 
aggregation of acquisitions of voting securities of different issuers 
controlled by the same acquired person. The previous discussion 
addressed the issue of aggregation when the voting securities of 
different issuers are acquired in the same transaction. The following 
discussion addresses some of the intricacies of aggregation involving 
subsequent acquisitions from the same acquired person of voting 
securities of the same issuer (and of different issuers) holding assets 
exempt under Secs. 802.2, 802.3 and 802.5 and section 7A(c)(2) of the 
act.
    To address the issue of aggregation involving subsequent 
acquisitions from the same issuer of voting securities governed by the 
exemptions provided by Sec. 802.4, Sec. 801.15(b) has been revised to 
include Secs. 802.3 and 802.4. Section 801.15(b) provides that voting 
securities, the acquisition of which was exempt under certain 
identified exemptions, are not held as a result of an acquisition 
unless in a subsequent acquisition the limitations contained in those 
specified exemptions are exceeded. For example, ``A'' acquires for $40 
million, in an exempt transaction, 20 percent of the voting stock of B, 
which holds petroleum reserves valued at $300 million and subsequently 
plans to acquire an additional five percent of the B's voting 
securities for $10 million. ``A'' would be required to determine 
whether its subsequent acquisition of B's stock qualifies for the 
exemption under Sec. 802.4(a). If B's holdings of oil and gas reserves 
have increased and the value of its reserves exceeds $500 million, 
``A's'' subsequent acquisition of B's stock would not be exempt under 
Sec. 802.4(a). Under Sec. 801.15(b), ``A'' is considered to hold 20 
percent of the voting stock of B, and ``A's'' subsequent acquisition is 
not exempt under Sec. 802.4(a).
    Another situation in which aggregation is required under 
Sec. 801.15(b) involves an acquisition of a minority interest in the 
voting securities of an issuer exempt under Sec. 802.4(a) followed by a 
subsequent acquisition of either a minority or a controlling interest 
in the voting securities of another issuer included within the same 
acquired person. For example, assume that ``A'' acquired 30 percent of 
the voting securities of C, an issuer controlled by ``B,'' for $40 
million and that the acquisition was exempt under Sec. 802.4(a) because 
C held oil and gas assets valued at $300 million and non-exempt assets 
valued at $7 million. Six months later, ``A'' proposes to acquire from 
``B'' all (or a minority) of the voting securities of D and E, issuers 
controlled by ``B,'' for $20 million each. D has oil and gas reserves 
valued at $150 million and non-exempt assets valued at $2 million, and 
E has oil and gas reserves valued at $150 million and non-exempt assets 
valued at $2 million. Under Sec. 801.15(b), ``A'' is required to 
aggregate its current proposed acquisitions of D and E with its 
previous exempt acquisition of C's voting securities to determine 
whether the limitations set forth in Sec. 802.4(a) will be exceeded as 
a result of the subsequent acquisition. In this situation, since the 
value of the oil and gas reserves held by the C, D, and E exceed $500 
million, the acquisition of the voting securities of D and E is not 
exempt under Sec. 802.4(a).
    Aggregation is not required in a subsequent acquisition of voting 
stock of an issuer included within the same acquired person if the 
acquiring person acquired control of that issuer in an earlier 
transaction, i.e., holds 50 percent or more of the issuer's outstanding 
voting securities. In such case, the issuer is now included within the 
acquiring person, and the aggregation requirements of Sec. 801.13(a) do 
not apply since control has passed to the acquiring person. (In a 
situation in which the acquiring person acquires exactly 50 percent of 
an issuer's voting stock and the acquired person has retained 50 
percent, the Premerger Notification Office has long treated the issuer 
as within the acquiring person alone in applying the aggregation 
requirements of Secs. 801.13 and 801.14 for subsequent voting stock and 
asset purchases from the same acquired person.) Therefore, if an 
acquiring person has acquired 50 percent or more of the voting stock of 
an issuer and proposes to acquire additional voting stock from the same 
issuer or another issuer controlled by the same acquired person, the 
acquiring person is not required to aggregate the assets of the issuer 
in the first acquisition with assets of the issuer in the second 
acquisition to determine if any limitations have been exceeded.
    Section 802.4 contains three examples that illustrate the 
application of the rule, including an example involving simultaneous 
acquisitions. Examples illustrating the aggregation principles of 
Sec. 802.4 in sequential transactions are included in the examples to 
Sec. 801.15. Section 802.4 represents the Commission's first major 
effort to accord the same treatment to asset acquisitions and 
comparable voting securities acquisitions. The aggregation principles, 
though necessary, complicate the application of the exemption. If the 
complexity of the aggregation principles makes applying the Sec. 802.4 
exemption overly burdensome for parties, the Commission will review the 
provision to determine if any changes to the exemption are necessary.

Proposed Section 802.5: Acquisitions of Investment Rental Property 
Assets

    Section 802.5 exempts acquisitions of investment rental property 
assets. It is intended to exempt certain acquisitions of real property 
that are not exempt under new Sec. 802.2. The exemption applies only to 
acquisitions of real property assets that will be held by the acquiring 
person solely for rental or investment purposes and that will be rented 
only to entities not included within the purchaser (except for the sole 
purpose of maintaining, managing or supervising the operation of the 
investment rental property assets). Thus, the intent of the purchaser 
at the time of the acquisition must be considered to determine whether 
the exemption is available. Although the application of new Sec. 802.5, 
unlike proposed Sec. 802.5, is no longer limited to certain types of 
acquiring persons such as institutional investors, the Commission 
believes that this provision will exempt most real property 
acquisitions typically made by institutional investors, real estate 
investment trusts (``REITs''), or real estate development and 
management companies that are not exempted by new Sec. 802.2.
    New Sec. 802.5 is designed to supplement new Sec. 802.2 by 
recognizing that there may be additional categories of real property 
assets, such as industrial parks and multi-purpose sports and 
entertainment facilities, that,

[[Page 13682]]
when acquired as investment rental property, are not likely to violate 
the antitrust laws. Acquisitions of these types of real property are 
often made solely for rental investment purposes. In such instances, 
investors in such property play no active role in the business 
conducted on these properties and seek only to profit from their 
investment in the real estate. Moreover, 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. Given the size and unconcentrated nature of the real 
estate market, such acquisitions are not likely to pose a competitive 
concern. The limitations in new Sec. 802.5 on the intent of the 
acquiring person and the use of the qualifying real property are 
designed to insure that the exemption will not be available for any 
acquisition intended to achieve business objectives that are not 
related to the rental or investment objectives.
    Although the investment rental property exemption may apply to real 
property, such as office or residential property, hotels/motels and 
rental retail space, that is also exempt under Sec. 802.2, there will 
be no need to apply new Sec. 802.5 to the acquisition of these 
categories of real property assets. The important distinction between 
Sec. 802.2 and Sec. 802.5 is that Sec. 802.2 exempts acquisitions of 
specific classes of real property assets and does not incorporate the 
intent-based test of Sec. 802.5, while Sec. 802.5 exempts any type of 
real property assets that meet the rule's requirements for investment 
rental property. 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 while Sec. 802.5 permits the acquiring 
person to use the acquired investment rental property assets only to 
manage or operate the real property assets being acquired.
    Proposed Sec. 802.5 limited the availability of the exemption for 
acquisitions of investment rental property to institutional investors 
as defined by Sec. 802.64 and persons whose sole business is the 
acquisition or management of investment rental property assets. Comment 
2 recommended that the limitation on qualified purchasers be eliminated 
because the definition of investment rental property assets in proposed 
Sec. 802.5(b) would be sufficient to prevent purchasers from conducting 
business on the property being acquired. Comment 31 suggested that the 
exemption should be available to persons other than investors whose 
sole business consists of acquiring or managing investment rental 
property assets. REITs, the commenter pointed out, are permitted to own 
certain assets such as temporary stock and bond investments that are 
not investment rental property and thus, under the proposed rules, may 
not qualify as entities whose sole business is acquiring and managing 
investment rental property assets.
    The Commission has determined that the dual restrictions in 
proposed Sec. 802.5 which made the exemption available only to (1) 
certain types of investors for (2) acquisitions of investment rental 
property were too limiting. The Commission believes that eliminating 
the first restriction will not compromise the efficacy of the 
exemption. Thus, new Sec. 802.5 is available to all types of purchasers 
so long as the acquisition qualifies as investment rental property 
assets.
    New Sec. 802.5 includes a provision, found in other sections of 
Part 802 and omitted from proposed Sec. 802.5, stating that in an 
acquisition that includes investment rental property, the transfer of 
any other property shall be separately subject to the requirements of 
the act. Thus an investor can purchase property, the acquisition of 
which is exempt under Sec. 802.5, and non-exempt assets valued at $15 
million or less and still qualify for the exemption.
    In addition, the provision included in proposed Sec. 802.5 
exempting acquisitions of voting securities of an entity holding assets 
that consist solely of investment rental property assets has been 
modified and moved to new Sec. 802.4. Thus, the exemption for 
acquisitions of voting securities of issuers holding Sec. 802.5 assets 
will be governed by Sec. 802.4. This change results in greater 
comparability between the direct acquisition of Sec. 802.5 assets and 
the acquisition of voting securities of issuers holding these assets.
    Proposed Sec. 802.5 included within the definition of investment 
rental property assets any space occupied by the acquiring person for 
the sole purpose of maintaining, managing or supervising the operation 
of real property and real property rented only to entities not included 
within the acquired person. The proposal incorrectly implied that an 
investor could not lease a portion of the acquired rental property to a 
subsidiary or other affiliated entity which would, in turn, manage the 
property on behalf of the investor. The language in new Sec. 802.5 has 
been changed and explicitly permits the investor to establish this 
arrangement with a subsidiary solely to maintain, manage or supervise 
the purchased property.
    For some acquisitions, in order to determine prior to the 
acquisition whether the buyer will use the investment rental property 
in accordance with the requirements of Sec. 802.5, 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) prior to the acquisition, the property is being leased to or used 
by entities included within the acquiring person; (4) a portion of the 
acquired property is being leased at the time of the acquisition to a 
competitor of the acquiring person; and (5) the purchase price reflects 
the value of a business operated on the property rather than the 
investment rental value of the property.
    Because Sec. 802.5 covers a broad range of non-specific assets and 
places no limits on who may acquire the assets, the Commission has 
declined to adopt the suggestion in Comment 7 to eliminate the 
requirement that the property to be acquired will be rented only to 
entities not included within the acquiring person. The Commission also 
declined to adopt the suggestions in Comments 7 and 9 to eliminate the 
restrictions on the acquiring person's use of any space on the property 
for the sole purpose of maintaining, managing and supervising the 
operation of the property. Limits on the use of the property provide 
additional safeguards to insure that the property is being acquired for 
investment or rental purposes, since other safeguards such as limits on 
the type of investment rental property that can be acquired and the 
type of investor that qualifies for exemption are absent from new 
Sec. 802.5.
    Currently, HSR notifications are not required for acquisitions of 
realty made by REITs under the ordinary course of business exemption. 
REITs acquire real estate in the ordinary course of their business, and 
the fiduciary nature of their investment activities and the 
restrictions imposed upon them by the Internal Revenue Code safeguard 
against improper use of property they acquire.

[[Page 13683]]
New Sec. 802.5 is not intended to narrow the exemption from the 
reporting requirements that is currently available to REITs.
    Comment 9 noted that the language of proposed Sec. 802.5 excluded 
the acquisition of a REIT by a non-REIT, because of the restriction on 
the type of investor that qualified for the exemption. Acquisitions of 
REITs by non-REITs are currently subject to the notification 
requirements, because the fiduciary restraints that govern acquisitions 
by REITs do not generally apply to non-REITs. However, under new 
Sec. 802.5, the acquisition by a non-REIT of all of the assets of a 
REIT may be exempt from the reporting requirements if the transaction 
meets the requirements of the exemption. The acquisition of all of the 
assets of a REIT by another REIT is currently an exempt transaction, 
even though the acquired REIT may hold certain non-real estate assets, 
and new Sec. 802.5 does not supersede this exemption.

VI. Aggregation Rules

    Section 801.15 states that, notwithstanding Sec. 801.13, certain 
assets and voting securities acquired in exempt transactions are not 
considered to be ``held as a result of an acquisition.'' These rules 
and concepts govern whether certain acquisitions must be aggregated to 
determine if a proposed acquisition requires notification. As the 
Statement of Basis and Purpose makes clear (43 FR 33479), Sec. 801.15 
is applicable to simultaneous acquisitions in which both exempt and 
non-exempt assets or voting securities are being acquired from the same 
acquired person and to acquisitions of non-exempt assets or voting 
securities after the person has previously acquired exempt assets or 
voting securities from the same acquired person.
    Section 801.15(a) provides that assets and voting securities exempt 
at the time of acquisition under certain provisions of the act and 
rules are not held as a result of the acquisition. Acquisitions 
exempted by section 7A(c)(1) of the act are among the classes listed. 
As a result, in determining whether an assets acquisition meets the 
more than $15 million size-of-transaction criterion of section 
7A(a)(3), the value of assets acquired in the ordinary course of 
business is not counted. Because Sec. 802.1 declares that certain 
acquisitions are and that others are not considered to be transfers in 
the ordinary course of business under section 7A(c)(1), it is not 
necessary to list Sec. 802.1 separately in Sec. 801.15(a). However, to 
eliminate possible confusion, Sec. 802.1 is listed in Sec. 801.15(a), 
along with section 7A(c)(1), to make clear that assets exempted 
pursuant to Sec. 802.1(b), (c) and (d) are not deemed to be held as the 
result of an acquisition for aggregation purposes. Therefore, an 
acquisition of current supplies valued at $8 million is not aggregated 
with subsequent acquisitions from the same person to determine if a 
proposed acquisition will 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(c).
    New Sec. 802.2, which provides an exemption for the acquisition of 
certain types of real property assets (new facilities, used facilities, 
unproductive real property, office and residential property, hotels and 
motels, recreational land, agricultural property, rental retail space 
and warehouses) is also listed in Sec. 801.15(a) since the exemption 
sets no dollar limit on the amount of exempt assets that may be 
acquired without prior notification. Since new Sec. 802.2 is listed in 
Sec. 801.15(a), assets exempt under this provision are never held as a 
result of an acquisition. Section 802.5, which exempts acquisitions of 
investment rental property also appears in Sec. 801.15(a). However, it 
is important to note that new Secs. 802.2 and 802.5 provide that the 
acquisition of any other assets not exempted by new Secs. 802.2 and 
802.5 are subject to the requirements of the act and the rules as if 
they were being acquired in a separate acquisition. Consequently, in an 
acquisition that includes these exempt assets, the acquisition of other 
non- exempt assets are subject to the aggregation requirements of 
Sec. 801.13(b).
    Sections 802.3 (exempting certain acquisitions of carbon-based 
mineral reserves) and 802.4(exempting acquisitions of voting securities 
of issuers holding exempt assets under section 7A (c)(2) of the act, 
Secs. 802.2, 802.3 and 802.5, plus non-exempt assets valued at $15 
million or less), 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 $500 million limitation for 
oil and gas reserves and the $200 million limitation for coal reserves 
in Sec. 802.3, that were not reached in an earlier acquisition, may be 
exceeded by a subsequent acquisition of reserves.
    Example 4 to 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, 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.
    In response to a suggestion in Comment 9, language has been added 
to Example 5 regarding valuation of assets in sequential acquisitions 
to determine if the limitation in Sec. 802.3 has been exceeded. In such 
acquisitions, the buyer is not required to determine the current fair 
market value of the assets of the first acquisition, but he may use the 
value of those assets at the time of their prior acquisition pursuant 
to Sec. 801.10(b). However, in applying Sec. 802.4, if in the first 
acquisition the buyer had purchased a minority share of the voting 
securities of an issuer that held the exempt oil reserves assets and 
proposed to buy additional voting securities from the same issuer, the 
buyer is required to revalue the total holdings of the issuer at the 
time of the second acquisition to determine if the issuer's holdings of 
oil and gas rights and reserves exceed the limitation in Sec. 802.3.
    In proposed Sec. 801.15, only Sec. 802.4(b) appeared in 
Sec. 801.15(b) because only that provision of Sec. 802.4 exempted 
acquisitions of voting securities of issuers holding assets that, if 
acquired directly, were exempt subject to certain dollar limitations. 
Paragraphs (a) and (b) of proposed Sec. 802.4 have now been 
consolidated into new Sec. 802.4(a) since the exemption has been 
expanded to exempt issuers holding exempt assets and non-exempt valued 
at $15 million or less. New Sec. 802.4 now appears in amended 
Sec. 801.15(b) to reflect the provision contained in Sec. 802.4(a) 
limiting the value of the non-exempt assets that the issuer whose 
voting securities are being acquired can hold. Also, three new examples 
have been added to Sec. 801.15 to illustrate the aggregation principles 
of Sec. 802.4 (see discussion of new Sec. 802.4, above).

List of Subjects in 16 CFR Parts 801 and 802

    Antitrust.

Amended Rules

    The Commission amends Title 16, Chapter 1, Subpart H, of the Code 
of Federal Regulations as follows:

[[Page 13684]]


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, 802.5, 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, 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 Examples 5, 6, 7 and 8 
are 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 into 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, ``B'' would hold assets of X exceeding $15 million in 
value, would not qualify for the exemption in Sec. 802.50(a)(2), and 
must observe the requirements of the act and file notification for 
the acquisition of all three plants before acquiring the third 
plant.
    5. ``A'' acquires producing oil reserves valued at $400 million 
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(b)(2) require aggregating the previously 
exempt acquisition of oil reserves with the second acquisition. If 
the two acquisitions, when aggregated, exceed the $500 million 
limitation on the exemption for oil and gas reserves in 
Sec. 802.3(a), ``A'' and ``B'' will 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 $500 million, 
both acquisitions are exempt from the notification requirements. In 
determining whether the value of the assets in the two acquisitions 
exceed $500 million, ``A'' need not determine the current fair 
market value of the oil reserves acquired in the first transaction, 
since these assets are now within the person of ``A.'' Instead ``A'' 
may use the value of the oil reserves at the time of their prior 
acquisition in accordance with Sec. 801.10(b).
    6. ``X'' acquired 55 percent of the voting securities of M, an 
entity controlled by ``Z,'' six months ago and now proposes to 
acquire 50 percent of the voting stock of N, another entity 
controlled by ``Z.'' M's assets consist of $150 million worth of 
producing coal reserves plus $7 million worth of non-exempt assets 
and N's assets consist of a producing coal mine worth $100 million 
together with non-exempt assets with a fair market value of $6 
million. ``X's'' acquisition of the voting securities of M was 
exempt under Sec. 802.4(a) because M held exempt assets pursuant to 
Sec. 802.3(b) and less than $15 million of non-exempt assets. 
Because ``X'' acquired control of M in the earlier transaction, M is 
now within the person of ``X,'' and the assets of M need not be 
aggregated with those of N to determine if the subsequent 
acquisition of N will exceed the limitation for coal reserves or for 
non-exempt assets. Since the assets of N alone do not exceed these 
limitations, ``X's'' acquisition of N also is not reportable.
    7. In Example 6, above, assume that ``X'' acquired 30 percent of 
the voting securities of M and proposes to acquire 40 percent of the 
voting securities of N, another entity controlled by ``Z.'' Assume 
also that M's assets at the time of ``X's'' acquisition of M's 
voting securities consisted of $90 million worth of producing coal 
reserves and non-exempt assets with a fair market value of $9 
million, and that N's assets currently consist of $60 million worth 
of producing coal reserves and non-exempt assets with a fair market 
value of $8 million. Since ``X'' acquired a minority interest in M 
and intends to acquire a minority interest in N, and since M and N 
are controlled by ``Z,'' the assets of M and N must be aggregated, 
pursuant to Sec. 801.15(b) and Sec. 801.13, to determine whether the 
acquisition of N's voting securities is exempt. ``X'' is required to 
determine the current fair market value of M's assets. If the fair 
market value of M's coal reserves is unchanged, the aggregated 
exempt assets do not exceed the limitation for coal reserves. 
However, if the present fair market value of N's non-exempt assets 
also is unchanged, the present fair market value of the non-exempt 
assets of M and N when aggregated is greater than $15 million. Thus 
the acquisition of the voting securities of N is not exempt. If 
``X'' proposed to acquire 50 percent or more of the voting 
securities of both M and N in the same acquisition, the assets of M 
and N must be aggregated to determine if the acquisition of the 
voting securities of both issuers is exempt. Since the fair market 
value of the aggregated non- exempt assets exceeds $15 million, the 
acquisition would not be exempt.
    8. ``A'' acquired 49 percent of the voting securities of M and 
45 percent of the voting securities of N. Both M and N are 
controlled by ``B.'' At the time of the acquisition M held rights to 
producing coal reserves worth $90 million and N held a producing 
coal mine worth $90 million. This acquisition was exempt since the 
aggregated holdings fell below the $200 million limitation for coal 
in Sec. 802.3(b). A year later, ``A'' proposes to acquire an 
additional 10 percent of the voting securities of both M and N. In 
the intervening year, M has acquired coal reserves so that its 
holdings are now valued at $140 million, and the value of N's assets 
remained unchanged. ``A's'' second acquisition would not be exempt. 
``A'' is required to determine the value of the exempt assets and 
any non-exempt assets held by any issuer whose voting securities it 
intends to acquire before each proposed acquisition (unless ``A'' 
already owns 50 percent or more of the voting securities of the 
issuer) to determine if the value of those holdings of the issuer 
falls below the limitation of the applicable exemption. Here, an 
assessment shows that the holdings of M and N now exceed the $200 
million limitation for coal reserves in Sec. 802.3.

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 and realty in the ordinary course of 
business.

    Pursuant to section 7A(c)(1), acquisitions of goods and realty 
transferred in the ordinary course of business are 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 and realty 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. ``Operating unit'' means assets that are operated 
by the acquired person as a

[[Page 13685]]
business undertaking in a particular location 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 is in the ordinary 
course of business, except when the goods are 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 new or used 
assets:
    (1) Goods acquired and held solely for the purpose of resale or 
leasing to an entity not within the acquiring person (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).
    (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 solely for the purpose of 
resale or leasing to an entity not within the acquiring person; or
    (2) The goods are acquired from an acquired person who acquired and 
has held the goods solely for resale or leasing to an entity not within 
the acquired person; or
    (3) The acquired person has replaced, by acquisition or lease, all 
or substantially all of the productive capacity of the goods being sold 
within six months of that sale, or the acquired person has in good 
faith executed a contract to replace within six months after the sale, 
by acquisition or lease, all or substantially all of the productive 
capacity of the goods being sold; or
    (4) The goods have been used by the acquired person solely to 
provide management and administrative support services for its business 
operations, and the acquired person has in good faith executed a 
contract to obtain substantially similar services as were provided by 
the goods being sold. Management and administrative support services 
include services such as accounting, legal, purchasing, payroll, 
billing and repair and maintenance of the acquired person's own 
equipment. Manufacturing, research and development, testing and 
distribution (i.e., warehousing and transportation) are not considered 
management and administrative support services.

    Examples: 1. Greengrocer Inc. intends to sell to ``A'' all of 
the assets of one of the 12 grocery stores that it owns and operates 
throughout the metropolitan area of City X. Each of Greengrocer's 
stores constitutes an operating unit, i.e., a business undertaking 
in a particular location. Thus ``A's'' acquisition is not exempt as 
an acquisition in the ordinary course of business. However, the 
acquisition will not be subject to the notification requirements if 
the acquisition price or fair market value of the store's assets 
does not exceed $15 million.
    2. ``A,'' a manufacturer of airplane engines, agrees to pay $20 
million to ``B,'' a manufacturer of airplane parts, for certain new 
engine components to be used in the manufacture of airplane engines. 
The acquisition is exempt under Sec. 802.1(b) as new goods as well 
as under Sec. 802.1(c)(3) as current supplies.
    3. ``A,'' a power generation company, proposes to purchase from 
``B,'' a coal company, $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(b) as an acquisition of reserves of 
coal if the requirements of that section are met.
    4. ``A,'' a national producer of canned fruit, preserves, jams 
and jellies, agrees to purchase from ``B'' for $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(g) as an acquisition of agricultural property.
    5. ``A,'' a railcar leasing company, will purchase $20 million 
of new railcars from a railcar manufacturer in order to expand its 
existing fleet of cars available for lease. The transaction is 
exempt under Sec. 802.1(b) as an acquisition of new goods and 
Sec. 802.1(c), as an acquisition of current supplies. If ``A'' 
subsequently sells the railcars to ``C'', a commercial railroad 
company, that acquisition would be exempt under Sec. 802.1(d)(2), 
provided that ``A'' acquired and held the railcars solely for resale 
or leasing to an entity not within itself.
    6. ``A,'' a major oil company, proposes to sell two of its used 
oil tankers for $15.5 million to ``B,'' a dealer who purchases oil 
tankers from the major U.S. oil companies. ``B's'' acquisition of 
the used oil tankers is exempt under Sec. 802.1(d)(1) provided that 
``B'' is actually acquiring beneficial ownership of the used tankers 
and is not acting as an agent of the seller or purchaser.
    7. ``A,'' a cruise ship operator, plans to sell for $18 million 
one of its cruise ships to ``B,'' another cruise ship operator. 
``A'' has, in good faith, executed a contract to acquire a new 
cruise ship with substantially the same capacity from a ship 
builder. The contract specifies that ``A'' will receive the new 
cruise ship within one month after the scheduled date of the sale of 
its used cruise ship to ``B.'' Since ``B''is acquiring a used 
durable good that ``A'' has contracted to replace within six months 
of the sale, the acquisition is exempt under Sec. 802.1(d)(3).
    8. ``A,'' a luxury cruise ship operator, proposes to sell to 
``B,'' a credit company engaged in the ordinary course of its 
business in lease financing transactions, its fleet of six passenger 
ships under a 10-year sale/leaseback arrangement. That acquisition 
is exempt pursuant to Sec. 802.1(d)(1), used durable goods acquired 
for leasing purposes. The acquisition is also exempt under 
Sec. 802.63(a) as a bona fide credit transaction entered into in the 
ordinary course of ``B's'' business. ``B'' now proposes to sell the 
ships, subject to the current lease financing arrangement, to ``C,'' 
another lease financing company. This transaction is exempt under 
Sec. 802.1(d)(1) and Sec. 802.1(d)(2).
    9. Three months ago ``A,'' a manufacturing company, acquired 
several new machines that will replace equipment on one of its 
production lines. ``A's'' capacity to produce the same products 
increased modestly when the integration of the new equipment was 
completed. ``B,'' a manufacturing company that produces products 
similar to those produced by ``A,'' has entered into a contract to 
acquire for $18 million the machinery that ``A'' replaced. Delivery 
of the equipment by ``A'' to ``B'' is scheduled to occur within 
thirty days. Since ``A'' purchased new machinery to replace the 
productive capacity of the used equipment, which it sold within six 
months of the purchase of the new equipment, the acquisition by 
``B'' is exempt under Sec. 802.1(d)(3).
    10. ``A'' will sell to ``B'' for $16 million all of the 
equipment ``A'' uses exclusively to perform its billing 
requirements. ``B'' will use the equipment to provide ``A's'' 
billing needs pursuant to a contract which ``A'' and ``B'' executed 
30 days ago in conjunction with the equipment purchase agreement. 
Although the assets ``B'' will acquire make up essentially all of 
the assets of one of ``A's'' management and administrative support 
services divisions, the acquisition qualifies for the exemption 
under Sec. 802.1(d)(4) because a company's internal management and 
administrative support services, however organized, are not an 
operating unit as defined by Sec. 802.1(a). Management and 
administrative support services are not a ``business undertaking'' 
as that term is used

[[Page 13686]]
in Sec. 802.1(a). Rather, they provide support and benefit to the 
company's operating units and support the company's business 
operations. However, if the assets being sold also derived revenues 
from providing billing services for third parties, then the transfer 
of these assets would not be exempt under Sec. 802.1(d)(4), since 
the equipment is not being used solely to provide management and 
administrative support services to ``A''.
    11. ``A,'' a manufacturer of pharmaceutical products, and ``B'' 
have entered into a contract under which ``B'' will provide all of 
``A's'' research and development needs. Pursuant to the contract, 
``B'' will also purchase all of the equipment that ``A'' formerly 
used to perform its own research and development activities. The 
sale of the equipment is not an exempt transaction under 
Sec. 802.1(d)(3) because ``A'' is not replacing the productive 
capacity of the equipment being sold. The sale is also not exempt 
under Sec. 802.1(d)(4), because functions such as research and 
development and testing are not management and administrative 
support services of a company but are integral to the design, 
development or production of the company's products.
    12. ``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)(3), since ``A'' is not replacing the 
productive capacity of the equipment being sold. The acquisition is 
also not exempt under Sec. 802.1(d)(4). ``A's'' sale of production 
lines is not the transfer of goods that provide management and 
administrative services to support the business operations of''A''; 
this manufacturing equipment is an integral part of ``A's'' 
production operations.

    3. Part 802 is amended by adding Sections 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 shall be 
exempt from the requirements of the act. A new facility is a structure 
that has not produced income and was 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 
incidental to the ownership 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) Used facilities. An acquisition of a used facility shall be 
exempt from the requirements of the act if the facility is acquired 
from a lessor that has held title to the facility for financing 
purposes in the ordinary course of the lessor's business by a lessee 
that has had sole and continuous possession and use of the facility 
since it was first built as a new facility. The used facility may 
include realty, equipment or other assets associated with the operation 
of the facility. In an acquisition that includes a used facility that 
meets the requirements of this paragraph, the transfer of any other 
assets shall be subject to the requirements of the act and these rules 
as if they were acquired in a separate transaction.
    (c) 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) Subject to the limitations of (c)(2), unproductive real 
property is any real property, including raw land, structures or other 
improvements (but excluding equipment), associated production and 
exploration assets as defined in Sec. 802.3(c), natural resources and 
assets incidental to the ownership of the real property, 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 the following:
    (i) Manufacturing or non-manufacturing facilities that have not yet 
begun operation;
    (ii) Manufacturing or non-manufacturing facilities that were in 
operation at any time during the twelve (12) months preceding the 
acquisition; and
    (iii) Real property that is either adjacent to or used in 
conjunction with real property that is not unproductive real property 
and is included in the acquisition.
    (d) 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 that is used 
primarily for office or residential purposes. In determining whether 
real property is used primarily for office or residential purposes, all 
real property, the acquisition of which is exempt under another 
provision of the act and these rules, shall be excluded from the 
determination. Office and residential property 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.
    (e) Hotels and motels.
    (1) An acquisition of a hotel or motel, its improvements such as 
golf, swimming, tennis, restaurant, health club or parking facilities 
(but excluding ski facilities), and assets incidental to the ownership 
and operation of the hotel or motel (e.g., prepaid taxes or insurance, 
management contracts and licenses to use trademarks associated with the 
hotel or motel being acquired) 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, its improvements such as 
golf, swimming, tennis, restaurant, health club or parking facilities 
(but excluding ski facilities) and assets incidental to the ownership 
of the 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) Notwithstanding paragraph (1) of the section, an acquisition of 
a hotel or motel that includes a gambling casino shall be subject to 
the requirements of the act and these rules.
    (f) Recreational land. An acquisition of recreational land shall be 
exempt from the requirements of the act. Recreational land is real 
property used primarily as a golf course or a swimming or tennis club 
facility, and assets incidental to the ownership of such property. In 
an acquisition that includes recreational land, the transfer of any 
property or assets that are not recreational land shall be subject to 
the requirements of the act and these rules as if they were being 
acquired in a separate acquisition.
    (g) Agricultural property. An acquisition of agricultural property, 
assets incidental to the ownership of such property and associated 
agricultural assets shall be exempt from

[[Page 13687]]
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 (activities 
within SIC Major Groups 01 and 02).
    (1) Associated agricultural assets are assets integral to the 
agricultural business activities conducted on the property. Associated 
agricultural assets include, but are not limited to, inventory (e.g., 
livestock, poultry, crops, fruit, vegetables, milk, eggs); structures 
that house livestock raised on the real property; and fertilizer and 
animal feed. Associated agricultural assets do not include processing 
facilities such as poultry and livestock slaughtering, processing and 
packing facilities.
    (2) Agricultural property does not include any real property and 
assets either adjacent to or used in conjunction with processing 
facilities that are included in the acquisition.
    (3) In an acquisition that includes agricultural property, the 
transfer of any assets that are not agricultural property, assets 
incidental to the ownership of such property or associated agricultural 
assets shall be subject to the requirements of the act and these rules 
as if such assets were being transferred in a separate acquisition.
    (h) Retail rental space; warehouses. An acquisition of retail 
rental space (including shopping centers) or warehouses and assets 
incidental to the ownership of retail rental space 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 that 
includes 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, which is fully equipped and 
ready for operation, to ``B,'' another automobile manufacturer. The 
acquisition of this plant, including any equipment and assets 
associated with its operation, is not exempt as an acquisition of a 
new facility, even though the facility has not produced any income, 
since ``A'' did not construct the facility for sale or hold it at 
all times solely for resale. Also, the acquisition is not exempt as 
an acquisition of unproductive property, because manufacturing 
facilities that have not yet begun operations are explicitly 
excluded from that exemption.
    2. B, a subsidiary of ``A,'' a financial institution, acquired a 
newly constructed power plant, which it leased to ``X'' pursuant to 
a lease financing arrangement. ``A's'' acquisition of the plant 
through B was exempt under Sec. 802.63(a) as a bona fide credit 
transaction entered into in the ordinary course of ``A's'' business. 
``X'' operated the plant as sole lessee for the next eight years and 
now proposes to exercise an option to buy the plant for $62 million. 
``X's'' acquisition of the plant is exempt pursuant to 
Sec. 802.2(b). The plant is being acquired from B, the lessor, which 
held title to the plant for financing purposes, and the purchaser, 
``X,'' has had sole and continuous possession and use of the plant 
since its construction.
    3. ``A'' proposes to acquire a $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 two years 
ago. ``A's'' acquisition of the wilderness land from ``B'' is exempt 
as an acquisition of unproductive real property because the property 
did not generate revenues exceeding $5 million during the thirty-six 
months preceding the acquisition. The copper deposits and timber 
reserves are by definition unproductive real property and, thus, are 
not separately subject to the notification requirements.
    4. ``A'' proposes to purchase from ``B'' for $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 assets other than the 
unproductive property is not exempt and is separately subject to the 
notification requirements of the act.
    5. ``A'' proposes to purchase two downtown lots, Parcels 1 and 
2, from ``B'' for $40 million. Parcel 1, located in the southwest 
section, contains no structures or improvements. A hotel is located 
in the northeast section on Parcel 2, and it has generated $9 
million in revenues during the past three years. The purchase of 
Parcel 1 is exempt if it qualifies as unproductive real property, 
i.e., it has not generated annual revenues in excess of $5 million 
in the three fiscal years prior to the acquisition. Parcel 2 is not 
unproductive real property, but its acquisition is exempt under 
Sec. 802.2(e) as the acquisition of a hotel.
    6. ``A'' plans to purchase from ``B,'' a manufacturer, a newly-
constructed building that ``B'' had intended to equip for use in its 
manufacturing operations. ``B'' was unable to secure financing to 
purchase the necessary equipment and ``A'', also a manufacturer, 
will be required to invest approximately $50 million in order to 
equip the building for use in its production operations. This 
building is not a new facility under Sec. 802.2 (a), because it was 
not constructed or held by ``B'' for sale or resale. However, the 
acquisition of the building qualifies for exemption as unproductive 
real property pursuant to Sec. 802.2(c)(1). The building is not yet 
a manufacturing facility since it does not contain equipment and 
requires significant capital investment before it can be used as a 
manufacturing facility.
    7. ``A'' proposes to purchase from ``B,'' for $20 million, a 100 
acre parcel of land that includes a currently operating factory 
occupying 10 acres. The other 90 adjoining acres are vacant and 
unimproved and are used by ``B'' for storage of supplies and 
equipment. The factory and the unimproved acreage have fair market 
values of $12 million and $8 million, respectively. The transaction 
is not exempt under Sec. 802.2(c) because the vacant property is 
adjacent to property occupied by the operating factory. Moreover, if 
the 90 acres were not adjacent to the 10 acres occupied by the 
factory, the transaction would not be exempt because the 90 acres 
are being used in conjunction with the factory being acquired and 
thus is not unproductive property.
    8. ``X'' proposes to buy a five-story building from ``Y.'' The 
ground floor of this building houses a department store, and ``X'' 
currently leases the third floor to operate a medical laboratory. 
The remaining three floors are used for offices. ``X'' is not 
acquiring the business of the department store. Because the ground 
floor is rental retail space, the acquisition of which is exempt 
under Sec. 802.2(h), this part of the building is excluded from the 
determination of whether the building is used primarily for office 
purposes. The laboratory is therefore the only non-office use, and, 
since it makes up 25 percent of the remainder of the building, the 
building is used 75 percent for offices. Thus the building qualifies 
as an office building and its acquisition is therefore exempt under 
Sec. 802.2(d).
    9. ``A'' intends to acquire three shopping centers from ``B'' 
for a total of $80 million. The anchor stores in two of the shopping 
centers are department stores, the businesses of which ``A'' is 
buying from ``B'' as part of the overall transaction. The 
acquisition of the shopping centers is an acquisition of retail 
rental space that is exempt under Sec. 802.2(h). However, ``A's'' 
acquisition of the department store business, including the portion 
of the shopping centers that the two department stores being 
purchased occupy, are separately subject to the notification 
requirements. If the value of these assets exceeds $15 million, 
``A'' must comply with the requirements of the act for this part of 
the transaction.
    10. ``A'' wishes to purchase from ``B'' a parcel of land for $30 
million. The parcel contains a race track and a golf course. The 
golf course qualifies as recreational land pursuant to 
Sec. 802.2(f), but the race track is not included in the exemption. 
Therefore, if the value of the race track is more than $15 million, 
``A'' will have to file notification for the purchase of the race 
track.
    11. ``A'' intends to purchase a poultry farm from ``B.'' The 
acquisition of the poultry farm is a transfer of agricultural 
property that is

[[Page 13688]]
exempt pursuant to Sec. 802.2(g). If, however, ``B'' has a poultry 
slaughtering and processing facility on his farm that is included in 
the acquisition, ``A's'' acquisition of the farm is not exempt as an 
acquisition of agricultural property because agricultural property 
does not include property or assets adjacent to or used in 
conjunction with a processing facility that is included in an 
acquisition.
    12. ``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 
wholesale distribution business, the acquisition of the warehouses 
is not exempt.


Sec. 802.3  Acquisitions of carbon-based mineral reserves.

    (a) An acquisition of reserves of oil, natural gas, shale or tar 
sands, or rights to reserves of oil, natural gas, shale or tar sands 
together with associated exploration or production assets shall be 
exempt from the requirements of the act if the value of the reserves, 
the rights and the associated exploration or production assets to be 
held as a result of the acquisition does not exceed $500 million. In an 
acquisition that includes reserves of oil, natural gas, shale or tar 
sands, or rights to reserves of oil, natural gas, shale or tar sands 
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) An acquisition of reserves of coal, or rights to reserves of 
coal and associated exploration or production assets, shall be exempt 
from the requirements of the act if the value of the 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 reserves of coal, rights to reserves of coal 
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.
    (c) Associated exploration or production assets means equipment, 
machinery, fixtures and other assets that are integral and exclusive 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 the following:
    (1) Any pipeline and pipeline system or processing facility which 
transports or processes oil and gas after it passes through the meters 
of a producing field located within reserves that are being acquired; 
and
    (2) Any pipeline or pipeline system that receives gas directly from 
gas wells for transportation to a natural gas processing facility or 
other destination.

    Examples: 1. ``A'' proposes to purchase from ``B'' for $550 
million gas reserves that are not yet in production and have not 
generated any income. ``A'' will also acquire from ``B'' for $280 
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(c). The acquisition of the oil reserves and associated 
assets is exempt pursuant to Sec. 802.3(a), since the value of the 
reserves and associated assets does not exceed the $500 million 
limitation.
    2. ``A,'' an oil company, proposes to acquire for $180 million 
oil reserves currently in production along with field pipelines and 
treating and metering facilities which serve such reserves 
exclusively. The acquisition of the reserves and the associated 
assets are exempt. ``A'' will also acquire from ``B'' for $16 
million a natural gas processing plant and its associated gathering 
pipeline system. This acquisition is not exempt since Sec. 802.3(c) 
excludes these assets from the exemption in Sec. 802.3 for transfers 
of associated exploration or production assets.
    3. ``A,'' an oil company, proposes to acquire a coal mine 
currently in operation and associated production assets for $90 
million from ``B,'' an oil company. ``A'' will also purchase from 
``B'' producing oil reserves valued at $100 million and an oil 
refinery valued at $13 million. The acquisition of the coal mine and 
the oil reserves is exempt pursuant to Sec. 802.3. Although 
Sec. 802.3(c) excludes the refinery from the exemption in Sec. 802.3 
for transfers of associated exploration and production assets, 
``A's'' acquisition of the refinery is not subject to the 
notification requirements of the act because its value does not 
exceed $15 million.
    4. ``X'' proposes to acquire from ``Z'' coal reserves which, 
together with associated exploration assets, are valued at $230 
million. Since the value of the reserves and the assets exceeds the 
$200 million limitation in Sec. 802.3(b), this transaction is not 
exempt under Sec. 802.3. However, if the coal reserves qualify as 
unproductive property under the requirements of Sec. 802.2(c), their 
acquisition, along with the acquisition of their associated assets, 
would be exempt.


Sec. Section 802.4  Acquisitions of voting securities of issuers 
holding certain assets the direct acquisition of which is exempt.

    (a) An acquisition of voting securities of an issuer whose assets 
together with those of all entities it controls consist or will consist 
of assets whose purchase would be exempt from the requirements of the 
act pursuant to section 7A(c)(2) of the act, Sec. 802.2, Sec. 802.3 or 
Sec. 802.5 of these rules is exempt from the reporting requirements if 
the acquired issuer and all entities it controls do not hold other non-
exempt assets with an aggregate fair market value of more than $15 
million.
    (b) As used in paragraph (a) of this section, ``issuer'' means a 
single issuer, or two or more issuers controlled by the same acquired 
person.
    (c) In connection with paragraph (a) of this section and 
Sec. 801.15 (b), the value of the assets of an issuer whose voting 
securities are being acquired pursuant to this section shall be the 
fair market value, determined in accordance with Sec. 801.10(c).

    Examples: 1. ``A,'' a real estate investment company, proposes 
to purchase 100 percent of the voting securities of C, a wholly-
owned subsidiary of ``B,'' a construction company. C's assets are a 
newly constructed, never occupied hotel, including fixtures, 
furnishings and insurance policies. The acquisition of the hotel 
would be exempt under Sec. 802.2(a) as a new facility and under 
Sec. 802.2(d). Therefore, the acquisition of the voting securities 
of C is exempt pursuant to Sec. 802.4(a) since C holds assets whose 
direct purchase would be exempt under Sec. 802.2 and does not hold 
non-exempt assets exceeding $15 million in value.
    2. ``A'' proposes to acquire 60 percent of the voting securities 
of C from ``B.'' C's assets consist of a portfolio of mortgages 
valued at $20 million and a small manufacturing plant valued at $6 
million. The manufacturing plant is an operating unit for purposes 
of Sec. 802.1(a). Since the acquisition of the mortgages would be 
exempt pursuant to section 7A(c)(2) of the act and since the value 
of the non-exempt manufacturing plant is less than $15 million, this 
acquisition is exempt under Sec. 802.4(a).
    3. ``A'' proposes to acquire from ``B'' 100 percent of the 
voting securities of each of three issuers, M, N and O, 
simultaneously. M's assets consist of oil reserves worth $160 
million and coal reserves worth $40 million. N has assets consisting 
of $130 million of gas reserves and $100 million of coal reserves. 
O's assets are oil shale reserves worth $140 million and a coal mine 
worth $80 million. Since ``A'' is simultaneously acquiring the 
voting securities of three issuers from the same acquired person, it 
must aggregate the assets of the issuers to determine if any of the 
limitations in Sec. 802.3 is exceeded. As a result of aggregating 
the assets of M, N and O, ``A's'' holdings of oil and gas reserves 
are below the $500 limitation for such assets in Sec. 802.3(a). 
However, the aggregated holdings exceed the $200 million limitation 
for coal reserves in Sec. 802.3(b). ``A's'' acquisition therefore is 
not exempt, and it must report the entire transaction.


Sec. 802.5  Acquisitions of investment rental property assets.

    (a) Acquisitions 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 will not be

[[Page 13689]]
rented to entities included within the acquiring person except for the 
sole purpose of maintaining, managing or supervising the operation of 
the real property, and will be held solely for rental or investment 
purposes. In an acquisition that includes investment rental property 
assets, the transfer of any property or assets that are not investment 
rental property assets shall be subject to the requirements of the act 
and these rules as if they were being acquired in a separate 
transaction. Investment rental property assets include:
    (1) Property currently rented,
    (2) Property held for rent but not currently rented,
    (3) Common areas on the property, and
    (4) Assets incidental to the ownership of property, which may 
include cash, prepaid taxes or insurance, rental receivables and the 
like.

    Example: 1. ``X'', a corporation, proposes to purchase a sports/
entertainment complex which it will rent to professional sports 
teams and promoters of special events for concerts, ice shows, 
sporting events and other entertainment activities. ``X'' will 
provide office space in the complex for ``Y'', a management company 
which will maintain and manage the facility for ``X.'' This 
acquisition is an exempt acquisition of investment rental property 
assets since ``X'' intends to rent the facility to third parties and 
is providing space within the facility to a management company 
solely to maintain, manage or supervise the operation of the 
facility on its behalf. If, however, ``X'' controls Z, a concert 
promoter to whom it also intends to rent the complex, the 
acquisition would not be exempt under Sec. 802.5, since the property 
would not meet the requirements of Sec. 802.5(b)(1).
    2. ``X'' intends to buy from ``Y'' a development commonly 
referred to as an industrial park. The industrial park contains a 
warehouse/distribution center, a retail tire and automobile parts 
store, an office building, and a small factory. The industrial park 
also contains several parcels of vacant land. If ``X'' intends to 
acquire this industrial park as investment rental property, the 
acquisition will be exempt pursuant to Sec. 802.5. If, however, 
``X'' intends to use the factory for its own manufacturing 
operations, this exemption would be unavailable. The exemptions in 
Sec. 802.2 for warehouses, rental retail space, office buildings, 
and undeveloped land may still apply and, if the value of the 
factory is $15 million or less, the entire transaction may be 
exempted by that section.

    By direction of the Commission,
Donald S. Clark,
Secretary.
[FR Doc. 96-7529 Filed 3-27-96; 8:45 am]
BILLING CODE 6750-01-P