[Federal Register Volume 70, Number 44 (Tuesday, March 8, 2005)]
[Rules and Regulations]
[Pages 11502-11525]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-4302]



[[Page 11501]]

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Part IV





Federal Trade Commission





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16 CFR Parts 801, 802, and 803



Premerger Notification; Reporting and Waiting Period Requirements; 
Final Rule and Notice

  Federal Register / Vol. 70, No. 44 / Tuesday, March 8, 2005 / Rules 
and Regulations  

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FEDERAL TRADE COMMISSION

16 CFR Parts 801, 802 and 803


Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Final rules.

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SUMMARY: The Federal Trade Commission is amending the premerger 
notification rules, which require the parties to certain mergers or 
acquisitions to file reports with the Commission and with 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, pursuant to section 7A of the Clayton Act (``the 
Act''). The filing and waiting period requirements enable these 
enforcement agencies to determine whether a proposed merger or 
acquisition may violate the antitrust laws if consummated and, when 
appropriate, to seek a preliminary injunction in federal court to 
prevent consummation. This rulemaking introduces a number of changes 
that attempt to reconcile, as far as is practical, the current 
disparate treatment of corporations, partnerships, limited liability 
companies and other types of non-corporate entities under the rules, 
particularly in the areas of acquisitions of interests in these 
entities; formations of the entities; and the application of certain 
exemptions, including the intraperson exemption. This rulemaking also 
makes technical corrections in other provisions in the rules.

DATES: These final rules are effective April 7, 2005.

FOR FURTHER INFORMATION CONTACT: Marian R. Bruno, Assistant Director; 
Karen E. Berg, Attorney; Malcolm L. Catt, Attorney, B. Michael Verne, 
Compliance Specialist; or Nancy M. Ovuka, Compliance Specialist; 
Premerger Notification Office, Bureau of Competition, Room 303, Federal 
Trade Commission, Washington, DC 20580. Telephone: (202) 326-3100.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

    On April 8, 2004, the Commission published a Notice of Proposed 
Rulemaking and request for Public Comment. The comment period closed on 
June 4, 2004.\1\ The Proposed Rules recommended changes improving and 
updating the HSR rules in 16 CFR parts 801, 802 and 803.
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    \1\ 69 FR 18686 (April 8, 2004).
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    The proposed rules were intended to apply the Act as consistently 
as possible to all forms of legal entities, requiring filings for 
transactions that are likely to present antitrust concerns and 
exempting transactions that are not. The central thrust of these rules 
is that meaningful antitrust review should occur at the point at which 
control of an unincorporated entity changes.
    The proposed changes to the coverage rules include a revision to 
Section 801.1(b) to remove the alternate control test for 
unincorporated entities; an amendment to Section 801.1(f) to define a 
``non-corporate interest''; a revision to Section 801.2(d) to clarify 
the consolidation rule; an amendment to Section 801.2(f) to define when 
acquiring interests in unincorporated entities may constitute an 
acquisition; a new subsection to Section 801.10 to define how to value 
such an acquisition; a new subsection to Section 801.13 to address 
aggregation of non-corporate interests; and a new Section 801.50, which 
makes certain formations of unincorporated entities a reportable event. 
There are also ministerial changes to Sections 801.4, 802.40 and 802.41 
to adapt their application to both corporations and unincorporated 
entities. Additionally, there are minor changes to the Notification and 
Report Form to require that Item 5(d) be completed in connection with 
the formation of an unincorporated entity, to reflect the applicability 
of Items 7 and 8 to unincorporated entities and to change the reporting 
requirement in Items 1, 2 and 7 with regard to the formation of new 
entities.
    Proposed changes to the exemption rules include modifying Section 
802.4 to eliminate the dissimilar treatment of asset and voting 
securities acquisitions that are substantively the same; codifying in 
Section 802.10 a longstanding informal interpretation that pro-rata 
reformations (i.e., reincorporation in a new jurisdiction) are exempt 
transactions; changing Section 802.30 to apply the intraperson 
exemption to entities that are held other than through holdings of 
voting securities; and adding a new Section 802.65 to exempt 
acquisitions of non-corporate interests in entities that are formed in 
connection with financing transactions.
    In addition to amendments concerning unincorporated entities, there 
were technical corrections to Sections 801.13, 801.15 and 802.2.
    The Commission received seven substantive public comments 
addressing the Proposed Rules. In addition to the substantive comments, 
the Commission received several non-substantive comments through the 
http://www.regulations.gov Web site. The comments are published on the 
FTC Web site at http://www.ftc.gov/os/comments/hsr/index.htm.
    The following submitted substantive public comments on the Proposed 
Rules:
    1. Section of Antitrust Law, American Bar Association (Grady, 
Kevin) (06/03/2004).
    2. Bank of America (Wertz, Phillip) (06/03/2004).
    3. Gunderson Dettmer (Caplice, Sean) (06/03/2004).
    4. Howery, Simon, Arnold & White LLP on behalf of its client 
Bertelsmann AG (Grise, Jacqueline) (05/26/2004).
    5. Kirkland & Ellis LLP (Sonda, Jim, et al.) (06/03/2004).
    6. Sony Corporation of America (Kattan, Joseph) (05/27/2004).
    7. Business Law Section, Virginia State Bar (Wheaton, James) (06/
03/2004).

Introduction

    The Act applies to acquisitions of voting securities or assets. 
Whether a transaction must be reported is determined by applying the 
statute, supporting regulations, and formal and informal staff 
interpretations. Neither the Act nor the Hart-Scott-Rodino rules (``HSR 
rules'') specifically addresses whether interests in unincorporated 
entities are deemed to be voting securities or assets. The Premerger 
Notification Office, by informal interpretation, has long taken the 
position that partnership interests, and, by extension, interests in 
other types of unincorporated entities, are neither assets nor voting 
securities. Thus, any acquisition of such interests has not been deemed 
a reportable event unless 100 percent of the interests are acquired, in 
which case the acquisition is deemed to be that of all of the 
underlying assets of the partnership or other unincorporated entity.
    Informal staff interpretations of the current rules with respect to 
unincorporated entities lead to several anomalies that do not occur 
with corporations. These inconsistencies relate primarily to three 
areas: changes of control, intraperson transfers of assets, and 
formations.

(a) Changes of Control

    Section 801.2(a) states ``[a]ny person which, as a result of an 
acquisition, will hold voting securities or assets * * * is an 
acquiring person.'' Section 801.1(c)(8) further states ``* * * in 
addition to its own holding, an entity

[[Page 11503]]

holds all assets and voting securities held by the entities which it 
controls * * *.'' Despite this language, under current application of 
the rules, if a minority interest holder or a person that holds no 
interests at all acquires a controlling, but less than 100 percent 
interest in an existing unincorporated entity, the transaction is never 
reportable because the person that will control the unincorporated 
entity is not deemed to be acquiring the assets of the entity and no 
reportable acquisition occurs. However, under the rules, the person is 
immediately deemed to hold those same assets for purposes of 
determining the size-of-person test, by virtue of having the right to 
50 percent or more of the profits and assets upon dissolution of the 
entity. Further, if the person that now controls the unincorporated 
entity, were to acquire the remaining interests, it would be required 
to file notification to acquire the same assets it is deemed to 
currently hold by virtue of Section 801.1(c)(8), assuming the 
jurisdictional thresholds are met. The intraperson exemption provided 
in Section 802.30 prevents this result in the context of a corporation 
but is not available to unincorporated entities because the exemption 
requires that the acquiring and acquired person be the same by reason 
of holdings of voting securities.
    Thus, under this current application of the rules, if a person 
currently holding no interests, or a minority position, in a non-
corporate entity acquires 100 percent of the interests, the person is 
required to file, but if it acquires 99 percent it is not. A person 
that controls a non-corporate entity and acquires the remainder of the 
interests must also file. Both situations are anomalous: A filing is 
required after control is obtained, yet no filing is required to gain 
control.
    Consistent with the treatment of corporate entities, meaningful 
antitrust review should occur at the time that control of an 
unincorporated entity changes, and not after control is already 
acquired. Currently, if a person that controls a partnership or other 
unincorporated entity is acquiring the remaining interests, that 
interest holder is deemed both an acquiring and acquired person, and 
must file notification to acquire the assets that, according to a 
literal reading of the rules, it already holds.\2\ For example, a 90 
percent partner acquiring the remaining 10 percent of the interest in a 
partnership must file. An HSR filing for this type of transaction 
appears to be of little antitrust significance. The Commission receives 
a significant number of such filings each year and believes that 
additional transactions are not reported as currently required due to 
the counterintuitive nature of the current application of the rules.\3\
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    \2\ 16 CFR 801.1(c)(8).
    \3\ From FY 1997 through FY 2004, the Commission received 259 
filings in which the acquiring person and the acquired person were 
the same.
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(b) Intraperson Transfers

    In the context of corporations, any transfer of assets from a 
corporation to a controlling shareholder, or a transfer of assets from 
one corporate subsidiary of a parent to another corporate subsidiary of 
the same parent is exempt.\4\ However, because partnerships and other 
unincorporated entities are not controlled through the holding of 
voting securities, similar transfers involving such entities are 
reportable. For example, a reportable transaction results when assets 
are transferred from a partnership to a partner that holds a 90 percent 
interest in the partnership, irrespective of the fact that the 
controlling partner is already deemed to hold those assets. Similarly, 
if a person controls two different partnerships and transfers assets 
from one to the other, that person would have a filing requirement 
despite the fact that it holds the assets under the rules both before 
and after the transfer. This result conflicts with the definition in 
Section 801.2 of an acquiring person as ``Any person which, as a result 
of an acquisition will hold voting securities or assets * * *'' 
(emphasis supplied).
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    \4\ ``An acquisition (other than the formation of a joint 
venture or other corporation the voting securities of which will be 
held by two or more persons) in which, by reason of holdings of 
voting securities, the acquiring and acquired persons are (or as a 
result of formation of a wholly owned entity will be) the same 
person, shall be exempt from the requirements of the Act.'' 16 CFR 
802.30.
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(c) Formations

    With the exception of certain limited liability company formations, 
\5\ formations of unincorporated entities are not reportable events. 
This leads to a number of transactions where a de facto change of 
control of assets can occur without notification. For example, A and B 
form a non-corporate entity to which B will contribute a business in 
exchange for a 40 percent interest and A will contribute cash in 
exchange for a 60 percent interest. Although A now holds assets that 
were previously held by B, current application of the rules does not 
require notification because A will not hold 100 percent of the 
interests in the non-corporate entity nor are two pre-existing 
businesses being combined in an LLC. This would not be reportable in an 
LLC or partnership formation but would be reportable in the formation 
of a corporation. While Formal Interpretation 15 was an attempt to 
address this inconsistency in the context of limited liability company 
formations, its application still results in non-reportable 
transactions that could have significant antitrust implications.
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    \5\ Formal Interpretation 15 (64 FR 5808 (February 5, 1999)) 
treats the formation of an LLC as reportable if (1) two or more pre-
existing, separately controlled businesses will be contributed to 
the LLC, and (2) at least one of the members will control the LLC. 
The formation of all other LLCs is treated like the formation of a 
partnership, which is not reportable.
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Public Comments

    The comments received were generally positive. The American Bar 
Association, Section of Antitrust Law stated:

    The Section also supports most of the Commission's proposed rule 
changes. As the first attempt at improved harmonization of the 
treatment for all entities, the proposed rules are grounded in 
improved logic with due regard for administrability and the 
undeniable structural differences between and among entities. The 
proposed rules are therefore better able to serve the goals of 
Section 7 enforcement than the current rules and interpretations. 
Similarly, to the extent that the proposed rules reduce anomalies 
and logical inconsistencies, they can also be said to promote HSR 
Act compliance, for illogical rules can promote inadvertent 
violations.'' \6\
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    \6\ Comment of The Section of Antitrust Law, American Bar 
Association, Kevin E. Grady, Esq., p. 2.

    The suggested changes to the Proposed Rules advanced by the public 
comments fell into three broad categories: (1) Requests for changing 
the control test for unincorporated entities from an equity test to a 
governance test; (2) requests for expansion of proposed exemptions or 
promulgation of additional exemptions; and (3) other requests for 
clarification. Additionally, a number of the comments contained 
observations on the proposed rules but did not ask for any specific 
action. These observations are not addressed in this notice. The 
Commission agreed with a number of the recommendations and has 
incorporated them into these final rules. Other recommendations were 
not adopted for the reasons detailed below.
    In addition to requesting specific modifications to the rules, 
Comments 1 and 2 expressed concern that the estimated number of 
additional filings these rules would entail (as calculated in the 
Paperwork Reduction Act section of the proposed rules) may not reflect 
the actual number that may ultimately be required. The Commission 
agrees

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that it is difficult to project the impact of these changes and will 
monitor the number and types of transactions that require notification 
as a result of these amendments. It will consider revisiting these 
amendments if a significant number of filings for transactions that do 
not raise antitrust issues are received as a result of the changes.
    Four of the new exemptions that were requested by the comments were 
not adopted by the Commission. A discussion of the requested new 
exemptions is found at the end of part 802. The Commission will adopt 
one new exemption requested by the comments and will expand two others. 
Comments 4 and 6 requested a new transitional exemption for previously 
unreportable transactions that become reportable while they are under 
investigation by one of the agencies. The Commission has adopted this 
proposal in new Section 802.80. The Commission agrees with the 
commenters that transactions in this category are unlikely to raise any 
new antitrust issues and do not warrant the burden of notification 
under the Act.
    In addition, the Commission will broaden the scope of two of the 
proposed exemptions. Proposed Section 802.65 will be extended to cover 
existing unincorporated entities, and the prong requiring that the 
acquiring person not be a competitor of the unincorporated entity will 
be eliminated. Second, voting securities will be added to the language 
of Section 802.30(c) so that both contributions of assets and voting 
securities to the formation of a new unincorporated entity will be 
exempt with respect to the contributor.
    Other amendments to the proposed rules are discussed by section. 
Unless specifically modified in this document, all of the analysis 
accompanying the proposed rules in the Notice of Proposed Rulemaking is 
adopted and incorporated into this Statement of Basis and Purpose for 
the final rules.

Part 801--Coverage Rules

Section 801.1 Definitions

    The proposed amendment to Section 801.1(b)(2) would remove the 
alternate test of control for unincorporated entities, which provides 
for control through having the present contractual power to designate 
individuals exercising similar functions to those of directors of a 
corporation. This proposed amendment was intended to ensure that it was 
clear that an acquisition involving an unincorporated entity is 
reportable only when control is acquired through an acquisition of non-
corporate interests that confer the right to profits or assets upon 
dissolution of the entity. However, the proposed amendment had the 
unintended effect of eliminating the test for control of certain 
trusts, defined in Section 801.1(c)(3) through (5), as having the right 
to designate 50 percent or more of the trustees of such a trust. The 
final rule adds back the alternate test of control for these trusts.
    Comments 2 and 7 requested that the Commission change its test of 
control for unincorporated entities from an equity test to a governance 
test, more in line with the test of control for corporations. As the 
Commission noted in its discussion of the proposed amendment to the 
control rule, this option was considered at length but rejected as too 
difficult to apply to unincorporated entities because of the inherent 
differences in legal structure between corporations and unincorporated 
entities. As comment 7 noted: ``By their very nature, unincorporated 
entities tend to be contractual in nature, and their management 
arrangements reflect a broad continuum of contractual options.'' \7\
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    \7\ Comment from Troutman Sanders LLP, on behalf of the Business 
Law Section of the Virginia State Bar, James J. Wheaton, Esq., p.4.
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    When the Commission promulgated the control definition for 
unincorporated entities in 1987, it considered other indicia of control 
of partnerships, including a governance test that would designate 
general partners as controlling persons.

    In formulating the 50% ownership criterion, consideration was 
given to whether other indicators of control should be included. For 
example, the Commission might have proposed treating all general 
partners or the sole general partner of a limited partnership as 
controlling the partnership. While the Commission did not doubt its 
authority to attribute control on the basis of this or other 
criteria, the Commission declined to utilize that authority at this 
time because it might require many unnecessary filings * * * At 
present, a rule requiring all general partners to file seems 
unnecessary and therefore unduly burdensome * * *'' \8\
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    \8\ 52 FR 20061 (May 29, 1987).

    While the Commission agrees that a workable governance test for 
non-corporate entities would align the treatment of such entities even 
more closely with corporations, the Commission continues to believe 
that applying a governance test to partnerships is in practice 
unworkable and is even more difficult to apply to other types of 
unincorporated entities, such as LLCs, which seem to have an endless 
range of different governance structures. Accordingly, the Commission 
declines to change the control rule at this time, but will continue to 
consider alternatives that bring the test for unincorporated entities 
more in line with corporations. It therefore invites continued input 
from interested parties on this subject.
    Comments 1, 2 and 5 raised questions concerning the determination 
of control where the right to profits or assets upon dissolution is 
governed by a formula that is based upon variables that cannot be 
determined at the time of the formation of the entity, or upon an 
acquisition of interests in an existing entity. If an agreement 
designates a fixed percentage of profits and/or assets upon dissolution 
for each person contributing to the formation of the entity or for a 
person acquiring an interest in an existing entity, the analysis is 
straightforward. If, however, the profit distribution or distribution 
of assets upon dissolution is dependent on variables that will be 
determined in the future, the analysis is more complex.
    In order to provide guidance on this issue, the Commission will 
determine whether a controlling interest has been acquired, either in 
the formation of a new unincorporated entity or in the acquisition of 
interests in an existing unincorporated entity when the right to 
profits and/or the right to assets upon dissolution is not fixed in the 
following manner: If the right to profits is variable and the right to 
assets upon dissolution is fixed, the right to 50 percent or more of 
the assets upon dissolution will be deemed to confer control. 
Conversely, if the right to assets upon dissolution is variable and the 
right to profits is fixed, the right to 50 percent or more of the 
profits will be deemed to confer control. In a situation where both the 
right to profits and assets upon dissolution are variable, control will 
be determined by applying the formula for determining rights to assets 
upon dissolution to the total assets of the unincorporated entity at 
the time of the acquisition, as if the entity were being dissolved at 
that time.
    Where rights to both profits and assets are variable, for purposes 
of determining control of a to-be-formed unincorporated entity, a pro 
forma balance sheet should be prepared in the manner prescribed in 
Section 801.11(e)(2)(i). For purposes of determining control of an 
existing unincorporated entity, the last regularly prepared balance 
sheet in existence at the time of the acquisition should be used. If no 
such regularly prepared balance sheet exists, a pro forma balance sheet 
should be prepared in the same manner as prescribed above for a to-be-
formed unincorporated entity. If no

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person has the right to 50 percent or more of the assets of the entity 
using this method, no person has acquired control of the entity as a 
result of the proposed acquisition.
    The Commission realizes that this is not a perfect solution and may 
produce some anomalies, but believes that it is the best methodology 
available at present that will offer a degree of certainty in 
determining when a potentially reportable acquisition of non-corporate 
interests will occur. As always, the Commission encourages additional 
input by interested parties and will give serious consideration to any 
alternative method that appears to be a better solution.
    Proposed new Section 801.1(f)(1)(ii) would define the term ``non-
corporate interest'' as an interest in any unincorporated entity that 
gives the holder the right to any profits of the entity or the right to 
any assets of the entity in the event of dissolution of that entity. 
Comment 5 requested that the proposed definition be clarified to 
indicate that such interests include only equity interests and not debt 
interests. The definition in its final form provides this clarification 
by modifying the definition to include the right to any profits of the 
entity or, in the event of dissolution of that entity, the right to any 
of its assets after payment of its debts.

Section 801.2 Acquiring and Acquired Persons

    The proposed amendments to Section 801.2(d) would codify a 
longstanding informal staff position that the combination of any two 
entities into a new holding company is the functional equivalent of a 
consolidation and should be treated in the same manner, regardless of 
whether the entities are corporations or non-corporate entities. It 
also clarifies that even if the two entities are retaining their 
separate legal identities by becoming subsidiaries of the new holding 
company, the transaction would be treated in the same manner, i.e., as 
a consolidation.
    The proposed amendments to Section 801.2(d) would treat 
arrangements such as dual-listing agreements the same as 
consolidations.\9\ Comment 1 requested that this provision be 
eliminated because it could not distinguish such arrangements from 
other types of contractual agreements that do not fall under the scope 
of the Act. The Commission recognizes that all of these arrangements 
involve foreign entities and to date have occurred fairly rarely. Given 
these facts and because the Commission concurs that it is difficult to 
differentiate dual listing arrangements from other types of non-
reportable contractual combinations of businesses, it agrees that the 
provision covering dual listing company agreements should be removed 
from the final rule defining consolidations. In the future, the 
Commission may consider reexamining this issue should it find that a 
significant number of combinations raising substantial antitrust issues 
use a dual-listing type of arrangement.
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    \9\ See proposed section 801.2(d)(2)(iii).
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    Proposed new Section 801.2(f)(1) provides that an acquisition 
occurs at the time non-corporate interests which confer control of an 
unincorporated entity are acquired. At this point the person who 
controls the entity is deemed to hold all of the assets of the entity. 
Thus the proposed rules would shift reporting from when 100% of the 
interest in an unincorporated entity is received to the more 
significant point when control is obtained.\10\ This change would be 
consistent with Section 801.2(a) which defines an acquiring person as 
``[a]ny person which, as a result of an acquisition, will hold voting 
securities or assets, either directly or indirectly * * * is an 
acquiring person.''
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    \10\ See Sec. 801.1(c)(8), which provides that a ``person holds 
all assets and voting securities held by the entities included 
within it; in addition to its own holdings, an entity holds all 
assets and voting securities held by the entities which it controls 
directly or indirectly.''
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    Proposed new Section 801.2(f)(2) would clarify that a contribution 
of assets or voting securities to an existing unincorporated entity is 
an acquisition by that entity and that such a transaction would not be 
governed by new Section 801.50, even if all or part of the 
consideration is interests in the entity. This differs from Formal 
Interpretation 15 which views the contribution of a business to an 
existing LLC in exchange for membership interests as a new formation of 
that LLC. Note that when a person acquires control of an existing non-
corporate entity as a result of a contribution made to that non-
corporate entity, the acquisition by the non-corporate entity from the 
contributing person is not separately reportable.
    Proposed Section 801.2(f)(3) would also codify a longstanding 
informal position that acquiring the right to designate 50 percent or 
more of the board of directors of a not-for-profit corporation is an 
acquisition of all of the underlying assets of such an entity. This is 
generally accomplished by becoming a member with the right to designate 
50 percent or more of the board of directors.
    There were no comments received on these sections. 801.2(f)(3) will 
be adopted as proposed without change. The final rules incorporate 
minor edits to sections 801.2(f)(1) and (2) to clarify when a 
potentially reportable acquisition of non-corporate interests has 
occurred and who the acquiring and acquired persons are.

Section 801.4 Secondary Acquisitions

    The proposed amendment to Section 801.4 would clarify that any 
indirect acquisition of voting securities of an issuer that is not 
controlled by the acquired entity in the primary acquisition is deemed 
a secondary acquisition and is separately subject to the reporting 
requirements of the Act. This is true whether the primary acquisition 
confers control of a corporation or of an unincorporated entity. There 
were no comments on this section and the proposed rule will be adopted 
without change.

Section 801.10 Value of Voting Securities, Assets and Non-Corporate 
Interests To Be Acquired

    Proposed Section 801.10(d) would specify the method of valuing a 
transaction in which non-corporate interests that confer control of an 
existing unincorporated entity are acquired. Under the current rules, 
in an acquisition of voting securities of a non-publicly traded 
corporation, where a person acquires 50 percent or more of the 
corporation's voting securities, that person is deemed to hold all of 
the assets of the corporation. However, the value of the transaction is 
the value of the percentage interest held in the corporation, not the 
value of 100 percent of the underlying assets. The Commission believes 
that it is appropriate to similarly value an acquisition of non-
corporate interests. Rather than treating such a transaction as a 
stand-alone acquisition of assets, which would be valued in accordance 
with Section 801.10(b), the proposed rule establishes the value of the 
transaction by using the same methodology employed in valuing voting 
securities of a non-publicly traded corporation. Therefore, the value 
of any non-corporate interests which are being acquired is the 
acquisition price if determined or if undetermined, the fair market 
value of those interests. The value of any non-corporate interests in 
the same unincorporated entity which are already held prior to the 
instant acquisition is the fair market value of those interests.

[[Page 11506]]

    There were no comments on this section and the proposed rule will 
be adopted without change.

Section 801.11 Annual Net Sales and Total Assets

    The final rules will include a technical correction to Section 
801.11(b), which states that this section is inapplicable to the 
determination of the size of a newly formed entity, that adds a 
reference to unincorporated entities formed under Section 801.50 to 
make it consistent with the formation of corporations under Section 
801.40.

Section 801.13 Aggregation of Voting Securities, Assets and Non-
Corporate Interests

    The proposed amendment to Section 801.13(b) would correct a 
drafting oversight that has existed since the original rulemaking in 
1978.\11\ Amended Section 801.13(b) would require aggregation if, 
within the 180 days preceding the execution of a letter of intent or 
agreement, (1) a still valid letter of intent or agreement, which has 
not been consummated, was entered into with the same acquired person; 
or (2) assets were acquired from the same acquired person and are still 
held by the acquiring person. No aggregation is required if the earlier 
contemplated or consummated acquisition was subject to the requirements 
of the Act.
    Proposed new Section 801.13(c) would require that any new 
acquisition of non-corporate interests be aggregated with any 
previously acquired non-corporate interests in the same unincorporated 
entity for purposes of determining the value of the transaction in 
accordance with new Section 801.10(d).
    There were no comments on these provisions and the proposed rule 
will be adopted with minor edits for clarification.
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    \11\ The Notice of Proposed Rulemaking explains the problem with 
the current provision. 69 FR 18691 (April 8, 2004).
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Section 801.15 Aggregation of Voting Securities and Assets the 
Acquisition of Which Was Exempt

    As explained in the Notice of Proposed Rulemaking, the proposed 
amendment to Section 801.15 would correct a drafting oversight in the 
rulemaking promulgated in March, 2002.\12\ To correct this earlier 
drafting error, the proposed amendment to Section 801.15 would move 
reference to Sections 802.50 and 802.51 from paragraph (b) to new 
paragraph (d), which requires that sales in or into the U.S. be 
aggregated under both foreign exemptions to determine if the $50 
million limitation is exceeded. There were no comments on this section 
and the proposed rule will be adopted without change.
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    \12\ 67 FR 11898 (March 18, 2002).
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Section 801.21 Securities and Cash Not Considered Assets When Acquired

    The final rules add a technical correction to Section 801.21 to 
include a reference to its use in Section 802.4. The change also 
corrects a potentially misleading statutory reference in the rule.

Section 801.50 Formation of Unincorporated Entities

    Proposed Section 801.50 would govern the reportability of 
formations of new unincorporated entities. Because the formation of an 
entity presents the same potential antitrust concerns regardless of 
whether its legal form is that of a corporation or a non-corporate 
entity, the Commission believes that all such formations should be 
treated as similarly as possible under the rules. Thus, proposed new 
Section 801.50 would mirror Section 801.40, which governs the formation 
of corporations, with two exceptions as discussed in the NPRM. Most 
importantly, like any potentially reportable acquisition of an existing 
unincorporated entity, acquisitions of non-corporate interests which 
confer control must be reported.
    The final rules reorganize Section 801.50 for clarity and add 
language that was inadvertently omitted in the proposed rule. The added 
language clarifies that a newly formed entity is not an acquiring 
person with respect to any contribution to its formation and comports 
with similar language in Section 801.40 governing corporate formations. 
There is also a new example added to illustrate the interplay among 
sections 801.50, 802.4 and 802.30(c). There were no comments on this 
section.

Part 802--Exemption Rules

Section 802.2 Certain Acquisitions of Real Property Assets

    In 2001, the FTC amended the HSR Form and Instructions to require 
reporting of revenue data by NAICS \13\ rather than by SIC \14\ 
code.\15\ At the same time, the two HSR Rules that had referenced SIC 
codes were amended so as to replace those references with ``the 
applicable NAICS sector.'' Accordingly, the parenthetical in the 
agricultural property exemption was amended to read:
---------------------------------------------------------------------------

    \13\ North American Industry Classification System.
    \14\ Standard Industrial Classification System
    \15\ 66 FR 23561 (May 9, 2001) (interim rules); 66 FR 35541 
(July 6, 2001) (finalizing interim rules).

---------------------------------------------------------------------------
``(activities within NAICS sector 11).''

    The agencies have since discovered that timberland, which was in 
SIC major group 08 and thus not originally referenced in the 
parenthetical at issue, is in NAICS sector 11, which is captioned 
``Agriculture, Forestry, Fishing and Hunting.'' Within sector 11 are 
``timber tract operations'', ``forest nurseries and gathering of forest 
products'', and ``logging.'' Thus, the change to NAICS sector 11 could 
be read as expanding the exemption beyond the agricultural property 
originally intended.
    To rectify this ambiguity and clarify that timberland acquisitions 
are not exempted by Section 802.2(g), the proposed amendment to this 
rule would make two changes. First, the parenthetical at issue would be 
revised to make it clear that only real property and assets that 
primarily generate revenues from ``certain'' activities within NAICS 
sector 11, i.e., activities named in the text of the rule (the 
production of crops, fruits, vegetables, livestock, poultry, milk and 
eggs), are exempted. Second, the amendment would add a new subsection 
under the exceptions to the rule providing that timberland and other 
real property that generates revenues from activities within NAICS 
subsector 113 (Forestry and logging) and NAICS industry group 1153 
(Support activities for forestry and logging) do not qualify for the 
agricultural property exemption. There were no comments on this section 
and the proposed rule will be adopted without change.

Section 802.4 Acquisitions of Voting Securities of Issuers or Non-
Corporate Interests in Unincorporated Entities Holding Certain Assets 
the Acquisition of Which Is Exempt

    Proposed Section 802.4 exempts an acquisition of voting securities 
if the acquired issuer or issuers do not, in the aggregate, hold non-
exempt assets exceeding the $50 million notification threshold. The 
proposed rule would expand the current rule in two ways: First, 
consistent with the other proposed amendments to the rules, the 
proposed amendments to this exemption would apply to both acquisitions 
of voting securities and to acquisitions of non-corporate interests. 
Second, the proposed exemption would be broadened to include 
acquisitions of voting securities or of non-corporate interests that 
confer control of an unincorporated entity if the assets of the issuer 
or unincorporated entity are

[[Page 11507]]

exempt under any section of part 802 of the rules or Section 7A(c) of 
the Act, or are specified under Section 801.21 of the rules. There were 
no comments on this section and the proposed rule will be adopted 
without change.

Section 802.10 Stock Dividends and Splits; Reorganizations

    Proposed new Section 802.10(b) would expand the existing exemption 
to codify a longstanding informal staff position that exempts the 
reincorporation or formation of an upstream holding company by an 
existing corporation, as long as two conditions are met: (1) No new 
assets will be introduced as a result of the conversion, and (2) the 
percentage of interests that will be held by an acquiring person in the 
new entity will be, pro-rata, the same or less than the percentage of 
holdings in the original entity. The reorganization will be exempt for 
a person that controlled the original entity regardless of its holdings 
in the new entity as long as the first condition is met. There were no 
comments on this section and the proposed rule will be adopted without 
change.

Section 802.30 Intraperson Transactions

    Section 802.30 in its present form exempts acquisitions in which, 
by reason of holdings of voting securities, the acquiring and acquired 
person are the same person. Current Section 802.30 produces another 
inconsistent application of an exemption dependent on whether a 
corporation or an unincorporated entity is involved in the transaction. 
Because of the qualifying phrase ``by reason of holdings of voting 
securities'', entities that do not issue voting securities are excluded 
from the exemption. For example, if a corporate subsidiary transfers 
assets to its controlling shareholder, no filing is required. If an 
unincorporated subsidiary made the same transfer to a person who 
controlled it, the exemption would not apply. Similarly, if a parent 
controlled two corporations and transferred assets from one to the 
other, no filing is required. If a parent controlled two partnerships 
and made the same transfer between them, the exemption is inapplicable 
and a filing would be required. These scenarios seem at odds with the 
HSR rules' definition of ``control'' and ``hold'' because the parent 
holds the assets of the controlled entities both before and after each 
transaction.
    Proposed Section 802.30(a) would eliminate the requirement that 
control be achieved through the holding of voting securities, and 
instead applies the appropriate control test in Section 801.1(b)(1) to 
any type of entity. This proposed section also adds the provision that 
the exemption would apply if ``at least one of the acquired persons'' 
is the same person. This insures that the proposed exemption would be 
available in an acquisition where there are two acquired ultimate 
parent entities as in proposed Example 1.
    The proposed amendment to Section 802.30(b) would restate the 
existing exemption for formation of wholly-owned subsidiaries, but 
would change the language slightly to exempt the formation of any type 
of wholly-owned entity.
    Proposed new Section 802.30(c) would provide that assets that will 
be contributed to a new entity upon its formation would not be subject 
to the requirements of the Act with respect to the person contributing 
the assets to the formation. This is intended to eliminate a filing 
requirement where the assets contributed to the formation by other 
persons would not on their own be subject to the Act, such as when the 
controlling person contributes assets and the non-controlling person 
contributes only cash. This proposed exemption would be applicable to 
the formations of both unincorporated entities and corporations.
    Comment 1 requested that voting securities be added to the language 
in 802.30(c) so that a contribution of either voting securities or 
assets to the formation of a new entity would be exempt with respect to 
the person contributing them. The Commission will incorporate the 
requested language in the final version of this section. The final rule 
also incorporates minor edits for clarity.

Section 802.40 Exempt Formation of Corporations or Unincorporated 
Entities

    Section 802.40 is intended to exempt the formation of not-for-
profit corporations, but its requirement that the acquisition be of 
voting securities of the not-for-profit is inapposite because the vast 
majority of not-for-profit corporations do not issue voting securities. 
The proposed amendment to Section 802.40 would correct this by removing 
the reference to voting securities, thereby extending the exemption to 
the formation of any not-for-profit entity within the meaning of the 
cited sections of the Internal Revenue Code. There were no comments on 
this section and the proposed rule will be adopted without change.

Section 802.41 Corporations or Unincorporated Entities at the Time of 
Formation

    Section 802.41 states that in a formation of a joint venture or 
other corporation under Section 801.40, only the acquiring persons need 
file notification; the new corporation being formed is not required to 
file as an acquired person. The proposed amendment to Section 802.41 
would extend the same treatment to new unincorporated entities being 
formed under proposed new Section 801.50. There were no comments on 
this section and the proposed rule will be adopted without change.

Section 802.65 Exempt Acquisition of Non-Corporate Interests in 
Financing Transactions

    Proposed new Section 802.65 would exempt certain acquisitions in 
financing transactions involving the formation of unincorporated 
entities. In some financing transactions, a new unincorporated entity 
is formed into which one party contributes assets and another 
contributes only cash. Initially, the cash investor will have a 
preferred return in order to recover its investment. As a result, that 
person may have the right to 50 percent or more of the profits of the 
entity for some period of time following the formation. This type of 
transaction is analogous to a creditor acquiring secured debt in the 
entity, an event that is not subject to the Act. Rather than taking 
back secured debt, however, the investor acquires an equity interest in 
the entity only long enough to obtain its return on investment. For 
these reasons, the Commission believes that such a financing 
arrangement is unlikely to raise antitrust concerns.
    As proposed in the NPRM, the new exemption would be applicable when 
four conditions are met: (a) The acquiring person is contributing only 
cash to the formation of the entity; (b) the formation transaction is 
in the ordinary course of the acquiring person's business; (c) the 
terms of the formation agreement are such that the acquiring person 
will no longer control the entity after it realizes its preferred 
return; and (d) the acquiring person will not be a competitor of the 
new entity.
    Various comments requested changes to proposed Section 802.65. 
Comments 2 and 3 recommended removing proposed paragraph (d) because 
the term ``competitor'' is not defined in the rules and may 
unreasonably narrow the scope of the exemption in certain situations. 
The Commission agrees that this may be ambiguous and that if the other 
three conditions of the exemption

[[Page 11508]]

are satisfied, the need for this fourth condition is diminished. 
Therefore, Section 802.65 in its final form will not contain 
requirement (d).
    Comments 2 and 3 also recommended that the exemption be expanded to 
cover financing transactions that involve acquisitions of interests in 
existing unincorporated entities. The Commission agrees that if an 
interest is acquired in an existing unincorporated entity in a bona 
fide financing transaction that satisfies the other requirements of 
this exemption, there is no reason for the exemption not to be 
available. Therefore, the final rule will incorporate this 
recommendation.
    Comments 1, 3 and 7 requested that paragraph (b), which requires 
that the financing transaction be in the ordinary course of the 
acquiring person's business, be eliminated. The stated concern was that 
this provision might prevent an entity that was not a financial 
institution, such as a bank, from using the exemption in an otherwise 
bona fide financing transaction. A second concern was that a recently 
formed entity that had not yet engaged in previous financing 
transactions would not satisfy this test. The intent of this test was 
not to require that the transaction be in the ordinary course of 
business of the acquiring person, rather that the transaction be for 
the purpose of providing financing. Therefore, paragraph (b) will 
remain in the final rule but will be reworded to clarify its 
application.
    Comments 1, 2, 3 and 7 recommended eliminating paragraph (c), which 
requires that the acquiring person cede control of the unincorporated 
entity once it has recovered its investment. The criticism of this 
provision was that it narrowed the exemption to a specific type of 
financing structure and would exclude transactions where the equity 
return to the investor was fixed for the life of the financing vehicle. 
These final rule amendments will have the result that, in a transaction 
where one party (``A'') contributes cash and takes back a 50 percent or 
greater equity interest in an unincorporated entity, and another party 
(``B'') contributes non-exempt assets, the person acquiring the 
controlling interest must file notification if the statutory thresholds 
are exceeded. This result departs from the methodology of Formal 
Interpretation 15, which makes the formation of a new LLC reportable 
only when it combines two previously separately controlled 
businesses.\16\ Formal Interpretation 15 has proven unsatisfactory in 
capturing a number of LLC transactions that the Commission believes 
should be reported, such as the type of transaction described above. In 
this transaction, A now holds assets that were previously held by B. If 
A directly acquires the assets from B, the acquisition is reportable. 
The Commission sees no reason why a change in beneficial ownership of 
the same assets should be non-reportable because it is effected through 
acquiring for cash a controlling interest in an unincorporated entity. 
A new Formal Interpretation 18 will be issued that revokes Formal 
Interpretation 15.
---------------------------------------------------------------------------

    \16\ 64 FR 5808 (February 5, 1999). The requirement that two 
businesses must be combined to make an LLC formation reportable was 
included in Formal Interpretation 15 to eliminate a filing 
requirement for financing transactions of the type now exempted by 
new Section 802.65.
---------------------------------------------------------------------------

    New Section 802.65 was intended to be a narrow exception to the 
general notion that acquisition of a controlling interest in an 
unincorporated entity should be reportable, limited to instances where 
a cash acquisition is an ordinary course of business mechanism of 
providing financing, and the acquiring person's acquisition of a 
controlling interest is only temporary. The Commission did not intend 
to exempt cash acquisitions of controlling interests in unincorporated 
entities generally. The Commission believes that the exemption is 
workable, especially with the two amendments described above, although 
clearly not as broad as some commenters desire. Therefore, paragraph 
(c) will remain in the final rule. As with this rulemaking generally, 
the Commission will revisit this exemption if experience with the rules 
warrants.

Section 802.80 Transitional Rule for Transactions Investigated by the 
Agencies

    The final rules add a new transitional exemption for transactions 
that are or have been under active investigation by the FTC or the DOJ 
and would otherwise be subject to notification when these rules become 
final. Comments 4 and 6 requested an exemption with regard to formation 
of unincorporated entities, designed to exempt transactions from filing 
requirements if the parties have or are currently providing documents 
regarding the same transaction to one of the agencies under a subpoena 
or CID that is the functional equivalent of a second request. The 
Commission agrees that subjecting the parties to additional filing and 
waiting period requirements, as well as filing fees, would serve no 
useful purpose and would be unduly burdensome and unfair. Therefore, 
the exemption will be included in the final rules, as new Section 
802.80. The Commission notes that a transaction involving an 
acquisition of control of an existing unincorporated entity that meets 
the same criteria should also be exempt from reporting. It has 
therefore added a reference to Section 801.2 to the language suggested 
by the commenters, which requested the exemption only for new 
formations of unincorporated entities under Section 801.50. It should 
be noted, however, that if the transaction materially changes during or 
after the pendency of the investigation, it may be subject to 
notification under these new rules.

Additional Exemptions Requested by the Commenters

    Commenters requested three types of new additional exemptions. 
Comments 2 and 3 requested a new exemption for investments in passive 
investment vehicles, including mutual funds, investment companies, 
hedge funds, and structured finance and securitization vehicles. The 
Commission believes that the recommended new exemption for investments 
in passive investment vehicles goes beyond the scope of the proposed 
exemption for financing transactions that will be adopted in these 
rules. While some acquisitions of interests in these types of entities 
may have no antitrust implications, the Commission is concerned that 
such a broad exemption, particularly without a definition of precisely 
which types of entities are included, could lead to problematic 
acquisitions going unreported to the agencies. Although certain of 
these transactions will fall under new Section 802.65 and other 
existing exemptions, the Commission is concerned that broadening the 
scope of exemptions to the extent requested by the commenters could 
result in potentially anticompetitive combinations.
    Comment 7 asked for a new exemption for acquisitions of non-voting 
interests in unincorporated entities. Similarly, Comment 1 requested a 
new exemption for acquisitions of economic rights in an unincorporated 
entity that is structured to separate economic rights from control 
rights. The requested new exemptions for acquisitions of non-voting 
interests and economic rights are in direct conflict with the control 
test for unincorporated entities, which remains an equity test as 
indicated above in the discussion of Section 801.1(b).
    Comment 2 requested an exemption for transactions entered into 
pursuant to

[[Page 11509]]

the Community Reinvestment Act.\17\ The Community Reinvestment Act 
requires Federal financial supervisory agencies to encourage financial 
institutions to help meet the credit needs of the local communities in 
which they operate, consistent with their safe and sound operation, and 
requires the appropriate federal financial supervisory agency to take 
into account an institution's record of meeting the credit needs of its 
entire community, including low- and moderate-income neighborhoods, in 
evaluating bank expansionary proposals. As part of this review, the 
relevant agency evaluates an institution's record of helping to meet 
the credit needs through qualified investments that benefit the 
relevant assessment areas. These investments can take many forms, 
including project financing, in which an unincorporated entity is 
created and funded for the purpose of building or renovating real 
property, such as low income housing; and equity investments in 
socially conscious private equity funds that invest in businesses that 
hire predominantly low income workers. The project financing entities 
generally are each limited to one project and are highly unlikely to be 
of sufficient size to satisfy the statutory size-of-transaction test 
and would, at any rate, most likely be exempted by expanded Section 
802.4. Even the private equity investments, effected through the bank's 
merchant banking arm, would rarely reach reportable size and the few 
that might reach reportable size would generally be exempted by the 
financing exemption in new Section 802.65, as extended in these Final 
Rules to existing unincorporated entities. Given the availability of 
other exemptions and the rarity of such transactions meeting the 
required size-of-transaction test, the Commission concludes that it is 
unnecessary to promulgate the requested exemption at this time.
---------------------------------------------------------------------------

    \17\ 12 U.S.C. 2901 et seq.
---------------------------------------------------------------------------

    Although the Commission declines to adopt these four exemptions, it 
will continue to monitor the volume of transactions which result from 
these rule changes and will consider reassessing these issues should 
the numbers and types of filings received warrant it.

Part 803--Transmittal Rules

Section 803.2 Instructions Applicable to Notification and Report Form

    The final rules add a new paragraph to Section 803.2 instructing an 
acquired person in an acquisition of non-corporate interests to limit 
its response to Items 5 through 8 of the Notification and Report Form 
to the unincorporated entity whose non-corporate interests are being 
acquired. This addition is consistent with the manner in which 
acquisitions of voting securities and assets are currently treated.

Section 803.10 Running of Time

    The final rules add to Section 803.10(a) a reference to 
unincorporated entities. This paragraph establishes that the waiting 
period in the formation of a new corporation commences when filings 
required from all acquiring persons in the formation are received. The 
added language extends the same treatment to the formation of an 
unincorporated entity.

Appendix: Premerger Notification and Report Form

    Section 7A(d)(1) \18\ authorizes the Commission to determine the 
nature of the notification to be required under the Act and to 
designate for inclusion such ``documentary material and information 
relevant to a proposed acquisition as is necessary and appropriate'' to 
ascertain the potential anticompetitive impact of a proposed 
acquisition. Consequently, in light of this rulemaking, certain items 
to the Premerger Notification and Report Form and its Instructions 
(``the Form and Instructions'') require minor modification and, in two 
cases, new subsections. The Commission proposed changes to three of the 
items on the Form and Instructions (Items 5(d), 7 and 8). There were no 
comments on these items and the proposed amendments will be adopted 
without change. Additionally, the Commission is amending several other 
items on the Form and Instructions to clarify how an acquisition of 
non-corporate interests should be reported. All of these changes are 
described below.
---------------------------------------------------------------------------

    \18\ 15 U.S.C. 18a(d)(1).
---------------------------------------------------------------------------

Item 1(c) Description of the Person Filing Notification
    Current Item 1(c) requires persons to indicate in the appropriate 
box whether the filing person is a corporation, partnership or some 
other type of entity, such as an individual. New Item 1(c) would 
replace the reference to partnership with unincorporated entity.
Item 1(f) Name and Address of Entity Being Acquired
    Current Item 1(f) requires, in part, the name and address of the 
entity whose assets or voting securities are being acquired, if 
different from the person filing. New Item 1(f) would be amended to 
include instances where non-corporate interests are being acquired, as 
well.
Item 2(b) Identification of the Type of Transaction
    Item 2(b) lists various types of acquisitions and requires the 
reporting person to identify those that accurately describe the 
transaction. Amended 2(b) would add non-corporate interests to the list 
of possible transaction types.
Item 2(d) Value of Transaction
    Current Item 2(d) requires the reporting persons to state in 
several subsections (i) the value of the voting securities to be held, 
(ii) the percentage of voting securities, (iii) the value of assets to 
be held and (iv) the aggregate total value of the transaction. Amended 
Item 2(d)(iv) would require parties to disclose the value of the non-
corporate interests to be held as a result of the transaction. Former 
2(d)(iv), the aggregate total value, would become new subsection, Item 
2(d)(v), and would include a reference to non-corporate interests in 
the Instructions.
Item 3(b)(iii) Assets Held by Unincorporated Entities
    Item 3(b)(iii), a new subsection to Item 3 of the Form, would 
require persons acquiring non-corporate interests to identify the 
assets held by the unincorporated entity(ies) being acquired. The 
instructions to Item 3(b)(iii) would read: ``This Item is to be 
completed only to the extent that the transaction is an acquisition of 
non-corporate interests. Describe all general classes of assets (other 
than cash and securities) to be acquired by each party to the 
transaction. For examples of general classes of assets refer to Item 
3(b)(i).''
Item 5(d) Corporations and Unincorporated Entities at the Time of 
Formation
    Current Item 5(d) requires that certain additional information be 
provided when the Notification and Report Form is being submitted in 
connection with the formation of a new corporation. The proposed 
amendment to the Item 5(d) instructions would require that the same 
information be provided in connection with the formation of a new 
unincorporated entity pursuant to new Section 801.50. Item 5(d) on the 
Notification and Report Form would be amended to include reference to 
unincorporated entities as well as corporations. Item 5(d) and the 
Instructions are being amended as proposed.

[[Page 11510]]

Item 7 NAICS Code Overlaps
    The instructions to Item 7 currently require the reporting of any 
NAICS codes in which the person filing notification and any other 
person that is a party to the transaction both derived revenues in the 
most recent year. This language implies that in the formation of a new 
entity, overlaps among the acquiring persons contributing to the 
formation must be reported. The Commission believes that is overly 
burdensome and provides little helpful information because the only 
relevant overlap is between the person filing notification as an 
acquiring person and the newly-formed entity. The proposed new language 
would also clarify that this information should be provided in 
connection with the formation of new corporations and new 
unincorporated entities. These instructions are being amended as 
proposed.
Item 8 Previous Acquisitions
    The instructions to Item 8 are being amended as proposed to include 
reference to newly formed unincorporated entities as well as 
corporations.
Note for Items 5 Through 8 and the Appendix
    This note in the Instructions, which precedes more detailed 
information concerning Items 5-8, advises the acquired person to limit 
its responses pursuant to Sec.  803.2 of the rules to the assets or 
voting securities being sold. The amended note also would include a 
reference to the sale of non-corporate interests.

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that the 
agency conduct an initial and final regulatory analysis of the 
anticipated economic impact of the proposed amendments on small 
businesses, except where the Commission certifies that the regulatory 
action will not have a significant economic impact on a substantial 
number of small entities. 5 U.S.C. 605.
    Because of the size of a transaction necessary to invoke a Hart-
Scott-Rodino filing, the premerger notification rules rarely, if ever, 
affect small businesses. Indeed, the 2000 amendments to the Act were 
intended to reduce the burden of the premerger notification program by 
exempting all transactions valued at $50 million or less. Further, none 
of the proposed rule amendments expands the coverage of the premerger 
notification rules in a way that would affect small business. 
Accordingly, the Commission certifies that these proposed rules will 
not have a significant economic impact on a substantial number of small 
entities. This document serves as the required notice of this 
certification to the Small Business Administration.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act, as amended, 44 
U.S.C. 3501 et seq. (``PRA''), the Commission submitted the proposed 
rule changes to the Office of Management and Budget (``OMB'') for 
review. The OMB has approved the rules' information collection 
requirements.\19\ The Commission did not receive any comments that 
necessitated modifying its original burden estimates for the rules' 
information collection requirements.
---------------------------------------------------------------------------

    \19\ The assigned OMB control number is 3084-0005.
---------------------------------------------------------------------------

    Only two of the comments, Comments 1 and 2, addressed the burden 
estimate. Comment 1 noted that it is difficult, if not impossible, to 
quantify the impact of the proposed rules on filing obligations, but 
that the Commission's effort generated a reasonably sensible 
prediction. It expressed a belief, however, that because the burden 
estimate is based on unverifiable assumptions, the Commission should 
revisit the rules after two years to evaluate the volume and the 
antitrust significance of the filings received, as well as any 
additional burden on businesses.
    Comment 2 disagreed with the methodology used by the Commission in 
calculating the burden, and thereby concluded that the resulting 
estimate was too low. Specifically, the comment stated that 
acquisitions of control in non-corporate entities should represent 
about half of all reportable acquisitions, and that existing and 
proposed exemptions will not winnow out as many of these acquisitions 
as the Commission has projected. This comment also calls for monitoring 
the volume and burden of reportable transactions to see if it becomes 
necessary to revise the new rules.
    The Commission agrees with Comment 1 that it is difficult to 
estimate accurately the number of filings that it is likely to receive 
involving acquisitions of previously unreportable interests. The 
Commission believes that the methodology it chose was based on 
reasonable assumptions and extrapolations from available data. 
Furthermore, it employed fairly conservative estimates of acquisitions 
that would be exempted from filing, either by proposed extensions of 
existing corporate exemptions or by newly-proposed exemptions for non-
corporate entities. Moreover, as previously discussed, the final rules 
expand the scope of the proposed exemptions, which should result in 
even fewer reportable non-corporate filings overall. Thus, the 
Commission declines to revise its estimate as suggested by Comment 2 
because it believes its methodology and estimate are reasonable and 
does not believe another approach would yield a more accurate figure. 
The Commission will, however, as stated earlier, monitor the volume and 
types of transactions that result from these rules changes and will 
consider revisiting these amendments if it finds that these changes 
result in filings being required for a significant number of 
transactions that do not raise antitrust issues.

List of Subjects in 16 CFR Parts 801, 802 and 803

    Antitrust.


0
For the reasons stated in the preamble, the Federal Trade Commission 
amends 16 CFR parts 801, 802 and 803 as set forth below:

PART 801--COVERAGE RULES

0
1. The authority citation for part 801 continues to read as follows:

    Authority: 15 U.S.C. 18a(d).

0
2. Amend Sec.  801.1 by revising paragraphs (b)(1)(ii) and (b)(2), 
redesignating paragraph (f)(1) as (f)(1)(i) and adding paragraph 
(f)(1)(ii) to read as follows:


Sec.  801.1  Definitions.

* * * * *
    (b) * * *
    (1) * * *
    (ii) In the case of an unincorporated entity, having the right to 
50 percent or more of the profits of the entity, or having the right in 
the event of dissolution to 50 percent or more of the assets of the 
entity; or
    (2) Having the contractual power presently to designate 50 percent 
or more of the directors of a for-profit or not-for-profit corporation, 
or in the case of trusts described in paragraphs (c)(3) through (5) of 
this section, the trustees of such a trust.
* * * * *
    (f)(1)(i) Voting securities. * * *
    (ii) Non-corporate interest. The term ``non-corporate interest'' 
means an interest in any unincorporated entity which gives the holder 
the right to any profits of the entity or in the event of dissolution 
of that entity the right to any of its assets after payment of its 
debts. These unincorporated entities include, but are not limited to, 
general

[[Page 11511]]

partnerships, limited partnerships, limited liability partnerships, 
limited liability companies, cooperatives and business trusts; but 
these unincorporated entities do not include trusts described in 
paragraphs (c)(3) through (5) of this section and any interest in such 
a trust is not a non-corporate interest as defined by this rule.
* * * * *

0
3. Amend Sec.  801.2 by revising the introductory text to paragraph 
(d)(2)(iii), adding new Example 5 to the existing examples 1-4 in 
paragraph (d)(2)(iii), and by adding a new paragraph (f) to read as 
follows:


Sec.  801.2  Acquiring and acquired persons.

* * * * *
    (d) * * *
    (2) * * *
    (iii) All persons party to a transaction as a result of which all 
parties will lose their separate pre-acquisition identities or will 
become wholly owned subsidiaries of a newly formed entity shall be both 
acquiring and acquired persons. This includes any combination of 
corporations and unincorporated entities consolidating into any newly 
formed entity. In such transactions, each consolidating entity is 
deemed to be acquiring all of the voting securities (in the case of a 
corporation) or interests (in the case of an unincorporated entity) of 
each of the others.

    Examples: * * *
    5. Partnership A and Corporation B form a new LLC in which they 
combine their businesses. A and B cease to exist and partners of A 
and shareholders of B receive membership interests in the new LLC. 
For purposes of determining reportability, A is deemed to be 
acquiring 100 percent of the voting securities of B and B is deemed 
to be acquiring 100 percent of the interests of A. Pursuant to Sec.  
803.9(b) of this chapter, even if such a transaction consists of two 
reportable acquisitions, only one filing fee is required.
* * * * *
    (f)(1)(i) In an acquisition of non-corporate interests which 
results in an acquiring person controlling the entity, that person is 
deemed to hold all of the assets of the entity as a result of the 
acquisition. The acquiring person is the person acquiring control of 
the entity and the acquired person is the pre-acquisition ultimate 
parent entity of the entity.
    (ii) The value of an acquisition described in paragraph (f)(1)(i) 
of this section is determined in accordance with Sec.  801.10(d).
    (2) Any contribution of assets or voting securities to an existing 
unincorporated entity or to any successor thereof is deemed an 
acquisition of such voting securities or assets by the ultimate parent 
entity of that entity and is not subject to Sec.  801.50.

    Examples: 1. A, B and C each hold 33\1/3\ percent of the 
interests in Partnership X. D contributes assets valued in excess of 
$50 million (as adjusted) to X and as a result D receives 40 percent 
of the interests in X and A, B and C are each reduced to 20 percent. 
Partnership X is deemed to be acquiring the assets from D, in a 
transaction which may be reportable. This is not treated as a 
formation of a new partnership. Because no person will control 
Partnership X, no additional filing is required by any of the four 
partners.
    2. LLC X is its own ultimate parent entity. A contributes a 
manufacturing plant valued in excess of $200 million (as adjusted) 
to X which issues new interests to A resulting in A having a 50% 
interest in X. A is acquiring non-corporate interests which confer 
control of X and therefore will file as an acquiring person. Because 
A held the plant prior to the transaction and continues to hold it 
through its acquisition of control of LLC X after the transaction is 
completed no acquisition of the plant has occurred and LLC X is 
therefore not an acquiring person.

    (3) Any person who acquires control of an existing not-for-profit 
corporation which has no outstanding voting securities is deemed to be 
acquiring all of the assets of that corporation.

    Example: A becomes the sole corporate member of not-for-profit 
corporation B and accordingly has the right to designate all of the 
directors of B. A is deemed to be acquiring all of the assets of B 
as a result.


0
4. Amend Sec.  801.4 by revising paragraph (a) to read as follows:


Sec.  801.4  Secondary acquisitions.

    (a) Whenever as the result of an acquisition (the ``primary 
acquisition'') an acquiring person controls an entity which holds 
voting securities of an issuer that entity does not control, then the 
acquiring person's acquisition of the issuer's voting securities is a 
secondary acquisition and is separately subject to the act and these 
rules.
* * * * *

0
5. Amend Sec.  801.10 by revising the heading and by adding paragraph 
(d) to read as follows:


Sec.  801.10  Value of voting securities, non-corporate interests and 
assets to be acquired.

* * * * *
    (d) Value of interests in an unincorporated entity. In an 
acquisition of non-corporate interests that confers control of either 
an existing or a newly-formed unincorporated entity, the value of the 
non-corporate interests held as a result of the acquisition is the sum 
of the acquisition price of the interests to be acquired (provided the 
acquisition price has been determined), and the fair market value of 
any of the interests in the same unincorporated entity held by the 
acquiring person prior to the acquisition; or, if the acquisition price 
has not been determined, the fair market value of interests held as a 
result of the acquisition.

0
6. Amend Sec.  801.11 by revising the introductory text to paragraph 
(b) to read as follows:


Sec.  801.11  Annual net sales and total assets.

* * * * *
    (b) Except for the total assets of a corporation or unincorporated 
entity at the time of its formation which shall be determined pursuant 
to Sec. 801.40(d) or 801.50(c) the annual net sales and total assets of 
a person shall be as stated on the financial statements specified in 
paragraph (c) of this section: Provided:
* * * * *

0
7. Amend Sec.  801.13 by revising the heading, by revising paragraph 
(b)(2), by removing the Example following paragraph (b)(2) and adding 
four Examples in its place, and adding paragraph (c) and two examples 
to read as follows:


Sec.  801.13  Aggregation of voting securities, assets and non-
corporate interests.

* * * * *
    (b) Assets. * * *
    (2) If the acquiring person signs a letter of intent or agreement 
in principle to acquire assets from an acquired person, and within the 
previous 180 days the acquiring person has
    (i) Signed a letter of intent or agreement in principle to acquire 
assets from the same acquired person, which is still in effect but has 
not been consummated, or has acquired assets from the same acquired 
person which it still holds; and
    (ii) The previous acquisition (whether consummated or still 
contemplated) was not subject to the requirements of the Act; then for 
purposes of the size-of-transaction test of Section 7A(a)(2), both the 
acquiring and the acquired persons shall treat the assets that were the 
subject of the earlier letter of intent or agreement in principal as 
though they are being acquired as part of the present acquisition. The 
value of any assets which are subject to this paragraph is determined 
in accordance with Sec.  801.10(b).

    Examples: 1. On day 1, A enters into an agreement with B to 
acquire assets valued at $45 million. On day 90, A and B sign a 
letter of intent pursuant to which A will acquire additional assets 
from B, valued at $45 million. The original transaction has not 
closed, however, the agreement is still in effect. For purposes of 
the size-of-transaction test in Section 7A(a)(2), A must aggregate 
the

[[Page 11512]]

value of both of its acquisitions and file prior to acquiring the 
assets if the aggregate value exceeds $50 million (as adjusted).
    2. On March 30, A enters into a letter of intent to acquire 
assets of B valued at $45 million. On January 31, earlier the same 
year, A closed on an acquisition of assets of B valued at $45 
million. For purposes of the size-of-transaction test in Section 
7A(a)(2), A must aggregate the value of both of its acquisitions and 
file prior to acquiring the assets of B if the aggregate value 
exceeds $50 million (as adjusted).
    3. On day 1, A enters into an agreement with B to acquire assets 
valued in excess of $50 million (as adjusted). A and B file 
notification and observe the waiting period. On day 60, A signs a 
letter of intent to acquire an additional $40 million of assets from 
B. Because the earlier acquisition was subject to the requirements 
of the Act, A does not aggregate the two acquisitions of assets and 
is free to acquire the additional assets of B without filing an 
additional notification.
    4. On day 1, A consummates an acquisition of assets of B valued 
at $45 million. On day 60, A consummates a sale of the same assets 
to an unrelated third party. On day 120, A enters into an agreement 
to acquire additional assets of B valued at $45 million. Because A 
no longer holds the assets from the previous acquisition, no 
aggregation of the two asset acquisitions is required and A may 
acquire all of the additional assets without filing notification.

    (c)(1) Non-corporate interests. In an acquisition of non-corporate 
interests, any previously acquired non-corporate interests in the same 
unincorporated entity is aggregated with the newly acquired interests. 
The value of such an acquisition is determined in accordance with Sec.  
801.10(d) of these rules.
    (2) Other assets or voting securities of the same acquired person. 
An acquisition of non-corporate interests which does not confer control 
of the unincorporated entity is not aggregated with any other assets or 
voting securities which have been or are currently being acquired from 
the same acquired person.

    Examples: 1. A currently has the right to 30 percent of the 
profits in LLC. B has the right to the remaining 70 percent. A 
acquires an additional 30 percent interest in LLC from B for $90 
million in cash. As a result of the acquisition, A is deemed to now 
have a 60 percent interest in LLC. The current acquisition is valued 
at $90 million, the acquisition price. The value of the 30 percent 
interest that A already holds is the fair market value of that 
interest. The value for size-of-transaction purposes is the sum of 
the two.
    2. A acquires the following from B: (1) All of the assets of a 
subsidiary of B; (2) all of the voting securities of another 
subsidiary of B; and (3) a 30 percent interest in an LLC which is 
currently wholly-owned by B. In determining the size-of-transaction, 
A aggregates the value of the voting securities and assets of the 
subsidiaries that it is acquiring from B, but does not include the 
value of the 30 percent interest in the LLC, pursuant to Sec.  
801.13(c)(2).


0
8. Amend Sec.  801.15 by revising paragraphs (b) and (c), adding 
paragraph (d), designating the Examples as Examples to the entire 
section, and adding Example 9 to read as follows:


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

* * * * *
    (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 Sec. Sec.  802.3, 802.4, and 802.64 
of this chapter 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
    (c) 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)(11)(A) unless additional voting securities of the 
same issuer have been or are being acquired; and
    (d) 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 Sec. Sec.  802.50(a), 802.51(a), 802.51(b) of this 
chapter unless the limitations, in aggregate for Sec. Sec.  802.50(a), 
802.51(a), 802.51(b) , 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.
    Examples: * * *

    9. A acquires assets of B located outside of the U.S. with sales 
into the U.S. of $45 million. It also acquires voting securities of 
B's foreign subsidiary X which has sales into the U.S. of $45 
million. Both the assets and the voting securities of X are exempt 
under Sec. Sec.  802.50 and 802.51 respectively when analyzed 
separately. However, because Sec.  801.15(d) requires that the sales 
into the U.S. for both the assets and the voting securities be 
aggregated to determine whether the $50 million (as adjusted) 
limitation has been exceeded, both are held as a result of the 
acquisition because the aggregate sales into the U.S. total in 
excess of $50 million (as adjusted).



0
9. Amend Sec.  801.21 by revising the introductory text to read as 
follows:


Sec.  801.21  Securities and cash not considered assets when acquired.

    For purposes of determining the aggregate total amount of assets 
under Section 7A(a)(2)(A), Section 7A(a)(2)(B)(i), Sec. 801.13(b), and 
Sec. 802.4:
* * * * *

0
10. Add new Sec.  801.50 to read as follows:


Sec.  801.50  Formation of unincorporated entities.

    (a) In the formation of an unincorporated entity (other than in 
connection with a consolidation), even though the persons contributing 
to the formation of the unincorporated entity and the unincorporated 
entity itself may, in the formation transaction, be both acquiring and 
acquired persons within the meaning of Sec.  801.2, the contributors 
shall be deemed acquiring persons only and the unincorporated entity 
shall be deemed the acquired person only.
    (b) Unless exempted by the Act or any of these rules, upon the 
formation of an unincorporated entity, in a transaction meeting the 
criteria of Section 7A(a)(1) and 7A(a)(2)(A) (other than in connection 
with a consolidation), a person is subject to the requirements of the 
Act if it acquires control of the newly-formed entity. Unless exempted 
by the Act or any of these rules, upon the formation of an 
unincorporated entity, in a transaction meeting the criteria of Section 
7A(a)(1), the criteria of Section 7A(a)(2)(B)(i) (other than in 
connection with a consolidation), a person is subject to the 
requirements of the Act if:
    (1)(i) The acquiring person has annual net sales or total assets of 
$100 million (as adjusted) or more;
    (ii) The newly-formed entity has total assets of $10 million (as 
adjusted) or more; and
    (iii) The acquiring person acquires control of the newly-formed 
entity; or
    (2)(i) The acquiring person has annual net sales or total assets of 
$10 million (as adjusted) or more;
    (ii) The newly-formed entity has total assets of $100 million (as 
adjusted) or more; and
    (iii) The acquiring person acquires control of the newly-formed 
entity.
    (c) For purposes of paragraph (b) of this section, the total assets 
of the newly-formed entity is determined in accordance with Sec.  
801.40(d).
    (d) Any person acquiring control of the newly-formed entity 
determines the value of its acquisition in accordance with Sec.  
801.10(d).
    (e) The commerce criterion of Section 7A(a)(1) is satisfied if 
either the

[[Page 11513]]

Activities of any acquiring person are in or affect commerce, or the 
person filing notification should reasonably believe that the 
Activities of the newly-formed entity will be in or will affect 
commerce.

    Example: A and B form a new partnership (LP) in which each will 
acquire a 50 percent interest. A contributes a plant valued at $250 
million and $100 million in cash. B contributes $350 million in 
cash. Because each is acquiring non-corporate interests, valued in 
excess of $50 million (as adjusted) which confer control of LP both 
A and B are acquiring persons in the formation. Each must now 
determine if the exemption in Sec.  802.4 is applicable to their 
acquisitions of non-corporate interests in LP. For A, LP's exempt 
assets consist of all of the cash contributed by A and B (pursuant 
to Sec.  801.21) and A's contribution of the plant (pursuant to 
Sec.  802.30(c)). Because all of the assets of LP are exempt with 
regard to A, A's acquisition of non-corporate interests in LP is 
exempt under Sec.  802.4. For B, LP's exempt assets include only the 
cash contributions by A and B. The plant contributed by A, valued at 
$250 million is not exempt under Sec.  802.30(c) with regard to B. 
Because LP has non-exempt assets in excess of $50 million (as 
adjusted) with regard to B, B's acquisition of non-corporate 
interests in LP is not exempt under Sec.  802.4. B must now value 
its acquisition of non-corporate interests pursuant to Sec.  
801.10(d) and because the value of the non-corporate interests is 
the same as B's contribution to the formation ($350 million), the 
value exceeds $200 million (as adjusted) and B must file 
notification prior to acquiring non-corporate interests in LP. See 
additional examples following Sec.  802.30(c) and Sec.  802.4.

PART 802--EXEMPTION RULES

0
11. The authority citation for part 802 continues to read as follows:

    Authority: 15 U.S.C. 18a(d).


0
12. Amend Sec.  802.2 by revising the introductory text to paragraph 
(g), by revising (g)(1)(ii), and by adding paragraph (g)(1)(iii) to 
read as follows:


Sec.  802.2  Certain acquisitions of real property assets.

* * * * *
    (g) Agricultural property. An acquisition of agricultural property 
and assets incidental to the ownership of such property shall be exempt 
from the requirements of the Act. Agricultural property is real 
property that primarily generates revenues from the production of 
crops, fruits, vegetables, livestock, poultry, milk and eggs (certain 
activities within NAICS sector 11).
    (1) * * *
    (ii) Any real property and assets either adjacent to or used in 
conjunction with processing facilities that are included in the 
acquisition; or
    (iii) Timberland or other real property that generates revenues 
from activities within NAICS subsector 113 (Forestry and logging) or 
NAICS industry group 1153 (Support activities for forestry and 
logging).
* * * * *

0
13. Amend Sec.  802.4 by revising the heading; by revising paragraph 
(a) and adding an example thereunder; and by revising paragraphs (b) 
and (c) introductory text to read as follows:


Sec.  802.4  Acquisitions of voting securities of issuers or non-
corporate interests in unincorporated entities holding certain assets 
the acquisition of which is exempt.

    (a) An acquisition of voting securities of an issuer or non-
corporate interests in an unincorporated entity whose assets together 
with those of all entities it controls consist or will consist of 
assets whose acquisition is exempt from the requirements of the Act 
pursuant to Section 7A(c) of the Act, this part 802, or pursuant to 
Sec.  801.21 of this chapter, is exempt from the reporting requirements 
if the acquired issuer or unincorporated entity and all entities it 
controls do not hold non-exempt assets with an aggregate fair market 
value of more than $50 million (as adjusted). The value of voting or 
non-voting securities of any other issuer or interests in any non-
corporate entity not included within the acquired issuer does not count 
toward the $50 million (as adjusted) limitation for non-exempt assets.

    Example: A and B form a new corporation as an acquisition 
vehicle to acquire all of the voting securities of C. Each 
contributes $250 million in cash. Because all of the cash is 
considered to be exempt assets pursuant to Sec.  801.21, the new 
corporation does not have non-exempt assets valued in excess of $50 
million (as adjusted), and the acquisition of its voting securities 
by A and B is exempt under Sec.  802.4. Note that the result is the 
same if the acquisition vehicle is formed as an unincorporated 
entity. Also see the examples to Sec.  802.30(c) for additional 
applications of Sec.  802.4.

    (b) For purposes of paragraph (a) of this section, the assets of 
all issuers and unincorporated entities that are being acquired from 
the same acquired person are included in determining if the limitation 
for non-exempt assets is exceeded.
    (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 or an unincorporated entity whose non-corporate interests 
are being acquired pursuant to this section shall be the fair market 
value, determined in accordance with Sec.  801.10(c).
* * * * *

0
14. Revise Sec.  802.10 to read as follows:


Sec.  802.10  Stock dividends and splits; reorganizations.

    (a) The acquisition of voting securities pursuant to a stock split 
or pro rata stock dividend is exempt from the requirements of the Act 
under section 7A(c)(10).
    (b) An acquisition of non-corporate interests or voting securities 
as a result of the conversion of a corporation or unincorporated entity 
into a new entity is exempt from the requirements of the Act if:
    (1) No new assets will be contributed to the new entity as a result 
of the conversion; and
    (2) Either:
    (i) As a result of the transaction the acquiring person does not 
increase its per centum holdings in the new entity relative to its per 
centum holdings in the original entity; or
    (ii) The acquiring person controlled the original entity.

    Examples: 1. Partners A and B hold 60 percent and 40 percent 
respectively of the partnership interests in C. C is converted to a 
corporation in which A and B hold 60 percent and 40 percent 
respectively of the voting securities. No new assets are 
contributed. The conversion to a corporation is exempt from 
notification for both A and B.
    2. Shareholder A holds 55% and B holds 45% of the voting 
securities of corporation C. C is converted to a limited liability 
company in which A holds 60% and B holds 40% of the membership 
interests. No new assets are contributed. The conversion to a 
limited liability company is exempt from notification because A 
controlled the corporation. If however, B holds 55% and A holds 45% 
in the new limited liability company, the conversion is not exempt 
for B and may require notification because control changes.
    3. Shareholders A, B and C each hold one third of the voting 
securities of corporation X. Pursuant to a reorganization agreement, 
A and B each contribute new assets to X and C contributes cash. X is 
then being reincorporated in a new state. Each of A, B and C receive 
one third of the voting securities of newly reincorporated C. The 
reincorporation is not exempt from notification and may be 
reportable for A, B and C because of the contribution of new assets.

0
15. Revise Sec.  802.30 to read as follows:


Sec.  802.30  Intraperson transactions.

    (a) An acquisition (other than the formation of a corporation or 
unincorporated entity under Sec.  801.40 or Sec.  801.50 of this 
chapter) in which the acquiring and at least one of the acquired 
persons are, the same person by reason of Sec.  801.1(b)(1) of this 
chapter, or in the case of a not-for-profit corporation which has no 
outstanding voting securities, by reason of Sec.  801.1(b)(2) of this 
chapter, is exempt from the requirements of the Act.


[[Page 11514]]


    Examples to paragraph (a): 1. A and B each have the right to 50% 
of the profits of partnership X. A also holds 100% of the voting 
securities of corporation Y. A pays B in excess of $50 million in 
cash (as adjusted) and transfers certain assets of X to Y. Because A 
is the acquiring person through its control of Y, pursuant to Sec.  
801.1(b)(1)(i), and one of the acquired persons through its control 
of X pursuant to Sec.  801.1(b)(1)(ii), the acquisition of assets is 
exempt under Sec.  802.30(a).
    2. A and B each have the right to 50% of the profits of 
partnership X. A contributes assets to X valued in excess of $50 
million (as adjusted). B contributes cash to X. Because B is an 
acquiring person but not an acquired person, its acquisition of the 
assets contributed to X by A is not exempt under Sec.  802.30(a). 
However, A is both an acquiring and acquired person, and its 
acquisition of the assets it is contributing to X is exempt under 
Sec.  802.30(a).

    (b) The formation of any wholly owned entity is exempt from the 
requirements of the Act.
    (c) For purposes of applying Sec. 802.4(a) to an acquisition that 
may be reportable under Sec. 801.40 or Sec. 801.50, assets or voting 
securities contributed by the acquiring person to a new entity upon its 
formation are assets or voting securities whose acquisition by that 
acquiring person is exempt from the requirements of the Act.

    Examples to paragraph (c): 1. A and B form a new partnership to 
which A contributes a manufacturing plant valued at $102 million and 
acquires a 51% interest in the partnership. B contributes $98 
million in cash and acquires a 49% interest. B is not acquiring non-
corporate interests which confer control of the partnership and 
therefore is not making a reportable acquisition. A is acquiring 
non-corporate interests which confer control of the partnership, 
however, the manufacturing plant it is contributing to the formation 
is exempt under Sec.  802.30(c) and the cash contributed by B is 
excluded under Sec.  801.21, therefore, the acquisition of non-
corporate interests by A is exempt under Sec.  802.4.
    2. A and B form a new corporation to which A contributes a plant 
valued at $120 million and acquires 60% of the voting securities of 
the new corporation. B contributes a plant valued at $80 million and 
acquires 40% of the voting securities of the new corporation. While 
the assets contributed to the formation are exempted by Sec.  
802.30(c) for each of A and B, the new corporation holds more than 
$50 million (as adjusted) in non-exempt assets (the plant 
contributed by the other person) with respect to both acquisitions. 
A is now acquiring voting securities of an issuer which holds $80 
million in non-exempt assets (the plant contributed by B), and B is 
acquiring voting securities of an issuer which holds $120 million in 
non-exempt assets (the plant contributed by A). Therefore neither 
acquisition of voting securities is exempt under Sec.  802.4. Note 
that in contrast to the formation of the partnership in Example 1, B 
is not required to acquire a controlling interest in the corporation 
in order to have a reportable transaction.
    3. A and B form a 50/50 partnership. A contributes a plant 
valued at $100 million and B contributes a plant valued at $40 
million and $60 million in cash. Because with respect to A, the new 
partnership has non-exempt assets of $40 million (the plant 
contributed by B), A's acquisition of non-corporate interests is 
exempt under Sec.  802.4. With respect to B, the new partnership 
holds in excess of $50 million (as adjusted) in non-exempt assets 
(the plant contributed by A), therefore B's acquisition of non-
corporate interests would not be exempt under Sec.  802.4.


0
16. Revise Sec.  802.40 to read as follows:


Sec.  802.40  Exempt formation of corporations or unincorporated 
entities.

    The formation of an entity is exempt from the requirements of the 
Act if the entity will be not-for-profit within the meaning of sections 
501(c)(1)-(4), (6)-(15), (17)-(20) or (d) of the Internal Revenue Code.

0
17. Amend Sec.  802.41 by revising the heading and the introductory 
text to read as follows:


Sec.  802.41  Corporations or unincorporated entities at time of 
formation.

    Whenever any person(s) contributing to the formation of an entity 
are subject to the requirements of the Act by reason of Sec.  801.40 or 
Sec.  801.50 of this chapter, the new entity need not file the 
notification required by the Act and Sec.  803.1 of this chapter.
* * * * *

0
18. Add new Sec.  802.65 to read as follows:


Sec.  802.65  Exempt acquisition of non-corporate interests in 
financing transactions.

    An acquisition of non-corporate interests that confers control of a 
new or existing unincorporated entity is exempt from the notification 
requirements of the Act if:
    (a) The acquiring person is contributing only cash to the 
unincorporated entity;
    (b) For the purpose of providing financing; and
    (c) The terms of the financing agreement are such that the 
acquiring person will no longer control the entity after it realizes 
its preferred return.

0
19. Add new Sec.  802.80 to read as follows:


Sec.  802.80  Transitional rule for transactions investigated by the 
agencies.

    Sec. Sec.  801.2 and 801.50 shall not apply to any transaction that 
has been the subject of investigation by either the Federal Trade 
Commission or the Antitrust Division of the Department of Justice in 
which, prior to the effective date of that section, the reviewing 
agency obtained documentary material and information under compulsory 
process from all parties that would be required to submit a 
Notification and Report Form for Certain Mergers and Acquisitions under 
Section 801.50 but for this transitional rule.

PART 803--TRANSMITTAL RULES

0
20. The authority citation for part 803 continues to read as follows:


    Authority: 15 U.S.C. 18a(d).


0
21. Amend Sec.  803.2(b)(1) by redesignating existing paragraph 
(b)(1)(iv) as paragraph (b)(1)(v), and by adding new paragraph 
(b)(1)(iv), to read as follows:


Sec.  803.2  Instructions applicable to the Notification and Report 
Form.

* * * * *
    (b) * * *
    (1) * * *
    (iv) By acquired persons, in the case of an acquisition of non-
corporate interests, with respect to the unincorporated entity whose 
non-corporate interests are being acquired, and all entities controlled 
by such unincorporated entity; and
* * * * *

0
22. Amend Sec.  803.10 by revising paragraph (a)(2) to read as follows:


Sec.  803.10  Running of time.

    (a)* * *
    (2) In the case of the formation of a corporation covered by Sec. 
801.40 or an unincorporated entity covered by Sec. 801.50, all persons 
contributing to the formation of the joint venture or other corporation 
that are required by the act and these rules to file notification;
* * * * *

0
23. Revise Pages I through VI of the Instructions in the Appendix to 
part 803, and Pages 1, 2, 4, and 11 of the Notification and Report Form 
for Certain Mergers and Acquisitions in the Appendix to part 803, to 
read as follows:

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    Complete copies of the Instructions and of the Notification and 
Report Form for Certain Mergers and Acquisitions in the Appendix to 
part 803 can also be found at the following address on theWeb site of 
the Commission: http://www.ftc.gov/bc/hsr/hsrform.htm.

    By direction of the Commission.
Donald S. Clark,
Secretary.
[FR Doc. 05-4302 Filed 3-7-05; 8:45 am]
BILLING CODE 6750-01-C