[Federal Register Volume 84, Number 211 (Thursday, October 31, 2019)]
[Proposed Rules]
[Pages 58348-58353]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2019-23560]


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FEDERAL TRADE COMMISSION

16 CFR Parts 801 and 803


Premerger Notification; Reporting and Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Notice of proposed rulemaking.

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SUMMARY: The Commission is proposing amendments to the premerger 
notification rules (``the Rules'') to clarify how to determine if an 
entity is a United States or foreign person or issuer for purposes of 
determining reportability under the Hart Scott Rodino Act (``the Act'' 
or ``HSR'').

DATES: Comments must be received on or before December 30, 2019.

ADDRESSES: Interested parties may file a comment online or on paper, by 
following the instructions in the Invitation to Comment part of the 
SUPPLEMENTARY INFORMATION section below. Write ``16 CFR parts 801 and 
803: Amendments to the Premerger Notification Rules, Matter No. 
P989316'' on your comment. File your comment online at https://www.regulations.gov by following the instructions on the web-based 
form. If you prefer to file your comment on paper, mail your comment to 
the following address: Federal Trade Commission, Office of the 
Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 (Annex J), 
Washington, DC 20580, or deliver your comment to the following address: 
Federal Trade Commission, Office of the Secretary, Constitution Center, 
400 7th Street SW, 5th Floor, Suite 5610 (Annex J), Washington, DC 
20024.

FOR FURTHER INFORMATION CONTACT: Robert L. Jones (202-326-3100), 
Assistant Director, Premerger Notification Office, Bureau of 
Competition, Federal Trade Commission, 400 7th Street SW, Room CC-5301, 
Washington, DC 20024.

SUPPLEMENTARY INFORMATION: 

Invitation to Comment

    You can file a comment online or on paper. For the Commission to 
consider your comment, we must receive it on or before December 30, 
2019. Write ``16 CFR parts 801 and 803: Amendments to the Premerger 
Notification Rules, Matter No. P989316'' on your comment. Your 
comment--including your name and your state--will be placed on the 
public record of this proceeding, including, to the extent practicable, 
on the https://www.regulations.gov website.
    Postal mail addressed to the Commission is subject to delay due to 
heightened security screening. As a result, we encourage you to submit 
your comments online. To make sure that the Commission considers your 
online comment, you must file it at https://www.regulations.gov by 
following the instructions on the web-based form.
    If you file your comment on paper, write ``16 CFR parts 801 and 
803: Amendments to the Premerger Notification Rules, Matter No. 
P989316'' on your comment and on the envelope, and mail your comment to 
the following address: Federal Trade Commission,

[[Page 58349]]

Office of the Secretary, 600 Pennsylvania Avenue NW, Suite CC-5610 
(Annex J), Washington, DC 20580, or deliver your comment to the 
following address: Federal Trade Commission, Office of the Secretary, 
Constitution Center, 400 7th Street SW, 5th Floor, Suite 5610 (Annex 
J), Washington, DC 20024. If possible, please submit your paper comment 
to the Commission by courier or overnight service.
    Because your comment will be placed on the publicly accessible 
website, https://www.regulations.gov, you are solely responsible for 
making sure that your comment does not include any sensitive or 
confidential information. In particular, your comment should not 
include any sensitive personal information, such as your or anyone 
else's Social Security number; date of birth; driver's license number 
or other state identification number, or foreign country equivalent; 
passport number; financial account number; or credit or debit card 
number. You are also solely responsible for making sure that your 
comment does not include any sensitive health information, such as 
medical records or other individually identifiable health information. 
In addition, your comment should not include any ``trade secret or any 
commercial or financial information which . . . is privileged or 
confidential,''--as provided by Section 6(f) of the FTC Act, 15 U.S.C. 
46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2)--including in 
particular competitively sensitive information such as costs, sales 
statistics, inventories, formulas, patterns, devices, manufacturing 
processes, or customer names.
    Comments containing material for which confidential treatment is 
requested must be filed in paper form, must be clearly labeled 
``Confidential,'' and must comply with FTC Rule 4.9(c). In particular, 
the written request for confidential treatment that accompanies the 
comment must include the factual and legal basis for the request, and 
must identify the specific portions of the comment to be withheld from 
the public record. See FTC Rule 4.9(c). Your comment will be kept 
confidential only if the FTC General Counsel grants your request in 
accordance with the law and the public interest. Once your comment has 
been posted publicly at https://www.regulations.gov--as legally 
required by FTC Rule 4.9(b)--we cannot redact or remove your comment, 
unless you submit a confidentiality request that meets the requirements 
for such treatment under FTC Rule 4.9(c), and the General Counsel 
grants that request.
    Visit the FTC website to read this Notice and the news release 
describing it. The FTC Act and other laws that the Commission 
administers permit the collection of public comments to consider and 
use in this proceeding as appropriate. The Commission will consider all 
timely and responsive public comments that it receives on or before 
December 30, 2019. For information on the Commission's privacy policy, 
including routine uses permitted by the Privacy Act, see https://www.ftc.gov/site-information/privacy-policy.

Overview

    The Act and Rules require the parties to certain mergers and 
acquisitions to file notifications with the Federal Trade Commission 
(``the FTC'' or ``the Commission'') and the Assistant Attorney General 
in charge of the Antitrust Division of the Department of Justice (``the 
Assistant Attorney General'') (collectively, ``the Agencies'') and to 
wait a specified period of time before consummating such transactions. 
The reporting and waiting period requirements are intended to enable 
the 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 in order to successfully 
enjoin anticompetitive mergers prior to consummation.
    Section 7A(d)(1) of the Act, 15 U.S.C. 18a(d)(1), directs the 
Commission, with the concurrence of the Assistant Attorney General, in 
accordance with the Administrative Procedure Act, 5 U.S.C. 553, to 
require that premerger notification be in such form and contain such 
information and documentary material as may be necessary and 
appropriate to determine whether the proposed transaction may, if 
consummated, violate the antitrust laws. In addition, Section 7A(d)(2) 
of the Act, 15 U.S.C. 18a(d)(2), grants the Commission, with the 
concurrence of the Assistant Attorney General, in accordance with 5 
U.S.C. 553, the authority to define the terms used in the Act and 
prescribe such other rules as may be necessary and appropriate to carry 
out the purposes of Section 7A.
    In this proposed rulemaking, the Commission proposes amending Sec.  
801.1(e)(1) of the Rules to define the term ``principal offices'' in 
order to provide clarity in determining whether an entity is a ``U.S. 
person'' and/or a ``U.S. issuer.'' In addition, the Commission proposes 
amending Sec.  801.1(e)(2) to simplify the definitions of ``foreign 
person'' and ``foreign issuer'' to include entities that are not ``U.S. 
persons'' or ``U.S. issuers'' under Sec.  801.1(e)(1). The Commission 
also proposes eliminating the phrase ``principal executive offices'' 
from the Sec.  803.5(a) notice requirement to avoid confusion with the 
proposed definition of ``principal offices.''

Part 801--Coverage Rules

Section 801.1(e) Definitions

A. Background
    Whether an entity is a U.S. person or issuer or, instead, a foreign 
person or issuer determines the availability of two exemptions found in 
the Rules, Sec. Sec.  802.50 and 802.51 (the ``foreign exemptions''), 
which exclude certain foreign transactions from the Act's requirements. 
In general, acquisitions of foreign assets and voting securities of 
foreign issuers may be exempt from the HSR filing requirements when 
there is only a limited nexus with United States commerce. For 
instance, Sec.  802.50(b) exempts certain acquisitions of foreign 
assets where both the acquiring and acquired persons are foreign 
persons and only have limited sales and assets in the United States. In 
addition, Sec.  802.51 exempts certain acquisitions of voting 
securities of foreign issuers where the acquiring person is a U.S. 
person (Sec.  802.51(a)) or a foreign person (Sec.  802.51(b)), and the 
issuer has only limited sales and assets in the U.S., or both the 
acquiring and acquired persons are foreign persons with limited U.S. 
sales and assets (Sec.  802.51(c)).
    As specified in the original Statement of Basis and Purpose 
published in 1978 (``1978 SBP''), the foreign exemptions were meant to 
exclude from the premerger notification requirements those transactions 
with ``only a limited nexus with United States commerce.'' 43 FR 33450, 
33497 (July 31, 1978), see also id. at 33498. Determining whether an 
entity is a U.S. or foreign person or issuer is often a necessary first 
step in analyzing whether the foreign exemptions may be available.
    The definitions for a ``United States person,'' ``United States 
issuer,'' ``foreign person,'' and ``foreign issuer'' are provided in 
Sec.  801.1(e). Sections 801.1(e)(1)(i)(A) and (ii) articulate three 
tests to determine whether an entity is a U.S. person or a U.S. issuer, 
and Sec. Sec.  801.1(e)(2)(i)(A) and (ii) mirror these tests for a 
foreign person and foreign issuer. In both Sec. Sec.  801.1(e)(1) and 
(2), the first test focuses on where the entity is incorporated, and 
this is unambiguous. The second, which asks under which laws the entity 
is organized, is also unambiguous. The third test focuses on the 
location of the entity's ``principal

[[Page 58350]]

offices.'' The Rules do not currently define this term, creating 
ambiguity when determining whether persons or issuers are U.S. or 
foreign.
    The 1978 SBP, the only source of formal Commission guidance on the 
meaning of ``principal offices,'' provided that the term should include 
``that single location which the person regards as the headquarters 
office of the ultimate parent entity. This location may or may not 
coincide with the location of its principal operations.'' 43 FR 33461. 
Despite this guidance from the 1978 SBP, the FTC's Premerger 
Notification Office (``PNO'') and outside parties have found this third 
prong hard to define and difficult to apply to modern globalized 
businesses. The Commission now believes that ``principal offices'' 
should, in fact, relate to the location of an entity's principal 
operations. Thus, the Commission proposes clarifying the meaning of 
``principal offices'' to more accurately reflect where an entity 
principally operates and, therefore, make the test in Sec. Sec.  
801.1(e)(1)(i)(A) easier to apply.
B. Principal Offices
    Since the 1978 SBP was published, the number of multinational 
business organizations has increased. While the ``single location'' of 
the ``principal offices'' may have been a straightforward question of 
the entity's headquarters location at that time, today it is quite 
common for an entity to have multiple headquarters. This makes 
determining the ``single location'' of the ``principal offices'' 
challenging. In response to questions from practitioners, the PNO's 
informal guidance has focused largely on the business location of 
officers as a proxy for the location of the ``principal offices.'' This 
approach, however, still assumes that officers operate out of a single 
location. In today's modern globalized world, with capabilities to work 
from numerous locations, the 1978 SBP's emphasis on a ``single 
location'' is no longer appropriate.
    The Commission recognizes the need to provide a clearer way to 
determine the location of an entity's principal offices. In undertaking 
this analysis, the Commission looks to the purpose of the foreign 
exemptions, which is to provide a mechanism for exempting transactions 
with a limited nexus with the United States. Despite the Commission's 
determination in 1978 that principal offices ``may or may not 
coincide'' with principal operations, in today's era of multinational 
organizations, the location where an entity conducts its principal 
operations is key to determining whether the entity is a U.S. person or 
issuer and whether the foreign exemptions should apply. Principal 
operations within the U.S. demonstrate sufficient ties to the U.S. to 
be considered a U.S., rather than foreign, person or issuer. The 
Commission proposes moving away from the 1978 SBP's construction of the 
term ``principal offices,'' which focused solely on the headquarters 
location, and instead looking more broadly at where an entity's 
principal operations take place.
    To accomplish this, the Commission proposes amending the Rules to 
provide that ``principal offices'' should be determined based on the 
location of the applicable ultimate parent entity's (``UPE,'' see Sec.  
801.1(a)(3) of the Rules) or issuer's executives or assets. 
Specifically, the Commission proposes amending Sec.  801.1(e)(1) to 
provide that the relevant entity has ``principal offices'' in the 
United States if (1) 50% or more of the officers reside in the U.S., or 
(2) 50% or more of the directors reside in the U.S., or (3) 50% or more 
of its assets (including assets of all entities it controls) are 
located in the U.S., based on a fair market value determination of the 
assets. Thus, filers will evaluate whether the relevant entity is 
incorporated in the U.S., or organized under the laws of the U.S., or 
has its ``principal offices'' located in the U.S., per the proposed 
amendments to Sec.  801.1(e)(1), to determine whether the entity has a 
sufficient nexus to the U.S. to be a U.S. person and/or a U.S. issuer.
    Proposed Sec. Sec.  801.1(e)(1)(iii)(A) and 801.1(e)(1)(iii)(B) 
focus on where the officers or directors reside. ``Officers'' are 
individuals in positions that are either (1) provided for in the 
entity's articles of incorporation or by-laws, or (2) appointed by the 
board of directors. In determining whether an entity is a ``U.S. 
person,'' the proposed rule looks to the officers and directors of the 
entity's ultimate parent. For a ``U.S. issuer,'' the proposed rule 
looks to the officers and directors of the issuer itself. Whether 
within the UPE or issuer (which may be the same), these executives are 
charged with overall responsibility for the operation of the entity. In 
the Commission's view, if half or more of these business executives 
reside in the U.S., that is a viable proxy for concluding that the 
entity is principally operating in the U.S. and should be considered a 
U.S. person and/or a U.S. issuer.
    The Commission invites comments on whether clarification is needed 
on the question of how an individual's residency is to be determined 
and, if so, what factors should be used in that determination. Factors 
could include the location of an individual's primary residence, based 
on the individual's primary tax residence or the country where he or 
she resides for at least half of the calendar year; or the location of 
at least half of the total real property owned by the individual. As 
discussed below, non-corporate entities without officers and directors 
would analyze the residency of those ``individuals exercising similar 
functions as officers and directors.'' Sometimes these individuals are 
based within third parties because a third-party entity serves as the 
equivalent of an office or director. In such cases, the residency 
analysis will focus on the locations where the third-party entities are 
incorporated and the laws under which they are organized. The analysis 
will not require looking through the third-party entities to analyze 
the specific individuals within the third-party entities serving as 
officers and directors for the non-corporate entity in question.
    Although the test for a natural person in Sec.  801.1(e)(1)(i)(B) 
considers citizenship as well as residency, the citizenship of officers 
and directors does not necessarily reflect whether an entity operates 
in the U.S. and consequently has ``principal offices'' in the U.S. For 
example, consider a corporation that is incorporated abroad where all 
of its assets are also located abroad. It has six officers (all of whom 
reside abroad), and three of these officers are U.S. citizens. Despite 
the U.S. citizenship of three of its officers, this corporation 
operates abroad and thus would not be a U.S. person or a U.S. issuer.
    Secondly, proposed Sec. Sec.  801.1(e)(1)(iii)(A) and 
801.1(e)(1)(iii)(B) also consider an entity's assets to determine 
whether that entity is physically based in the U.S. For a ``U.S. 
person,'' the assets prong of the test looks not only at the entity's 
UPE, but also at all entities that the UPE controls, directly or 
indirectly. Likewise, for a ``U.S. issuer,'' the test looks to all 
assets of the issuer and all entities it controls. The broader focus on 
the UPE or issuer (which may be the same) and all entities it controls, 
directly or indirectly, will capture holding companies and other 
organizational structures where the assets and operations are located 
within subsidiaries below the UPE or issuer. As with the location of 
business executives, the Commission believes that if 50% or more of the 
relevant entity's assets are located in the U.S., that fact is an 
adequate proxy to establish that the entity is principally operating in 
the U.S. and should be considered a U.S. person and/or a U.S. issuer.

[[Page 58351]]

    In determining whether 50% or more of the UPE's or issuer's assets 
are located in the U.S., the proposed amendments rely on the fair 
market value of the relevant entity's assets, determined in accordance 
with Sec.  801.10(c)(3) of the Rules. This includes both tangible and 
intangible assets. For example, if the entity's total assets have a 
fair market value of $500 million, and $250 million or more of that 
fair market value is attributable to U.S. assets, then 50% of the 
entity's assets are deemed to be in the United States and its principal 
offices are in the United States. Therefore, the entity is a U.S. 
person and/or a U.S. issuer.
    For entities without officers or directors, the analysis under the 
proposed amendments would focus on individuals exercising similar 
functions as officers and directors. If, for example, a limited 
partnership is not organized under U.S. law and does not have officers 
and directors, it must look to individuals exercising similar functions 
for the partnership. Serving as the equivalent of an officer or 
director includes making decisions regarding, and overseeing, the day-
to-day affairs of the partnership. For example, those ``exercising 
similar functions'' for an investment fund partnership may include the 
general partner of the partnership, and/or any investment manager, if 
one exists. The general partner and investment manager need not be 
under common control, for HSR purposes, with the partnership for the 
``exercising similar functions'' concept to apply. In applying the 
officers and directors prongs of the test, if the investment manager or 
general partner is a third-party entity (rather than an individual), 
then for purposes of determining ``residency,'' the analysis will focus 
on the locations where the investment manager and general partner are 
incorporated and the laws under which they are organized.
    For example, Investment Fund LP is not organized under U.S. law, 
does not have any officers and directors, and does not have 50% or more 
of its assets in the United States. For purposes of the officers and 
directors analysis, Investment Fund LP must focus on individuals or 
entities exercising similar functions as officers and directors. In 
this case, the entities that exercise similar functions as officers and 
directors for Investment Fund LP are its General Partner, as well as 
its Investment Manager, even though General Partner and Investment 
Manager are not under common HSR control with Investment Fund LP. In 
this instance, given the lack of HSR control, a viable proxy for 
determining Investment Fund LP's nexus to the U.S., for purposes of the 
officers and directors prongs of the proposed principal offices test, 
is whether the Investment Manager or General Partner is organized or 
incorporated under U.S. law. If General Partner is not incorporated in 
the U.S. or organized under U.S. law, but Investment Manager is 
organized under U.S. law, Investment Fund LP would be operated out of 
the United States, making it a U.S. person.
    The proposed definitions of ``principal offices'' in Sec.  
801.1(e)(1)(iii) retain the intent of the 1978 SBP to exempt 
transactions with a limited connection with U.S. commerce, while 
recognizing that the 1978 SBP's focus on a ``single location,'' which 
may not be connected with principal operations, is no longer 
appropriate. An entity's principal operations are relevant to 
determining whether there is a connection with U.S. commerce, and the 
Commission proposes focusing on director and officer residency and the 
location of assets as proxies for these operations. This proposed rule 
will mean that all three tests for determining principal offices will 
be straightforward, and it should therefore be easier for an entity to 
evaluate whether it satisfies any of the prongs of Sec.  
801.1(e)(1)(i)(A) and (ii), and whether it is a U.S. person and/or a 
U.S. issuer or, instead, a foreign person and/or a foreign issuer under 
the proposed changes to Sec.  801.1(e)(2) discussed below.
    The proposed definitions of ``principal offices'' will benefit 
parties analyzing premerger notification requirements by reducing the 
ambiguity and uncertainty in the current Rules and making it easier to 
determine whether an entity is a U.S. person and/or U.S. issuer. The 
Agencies will also benefit by having Rules that more accurately 
identify and exclude from the filing requirements those transactions 
that have only a limited nexus with U.S. commerce, as intended by the 
1978 SBP. The Commission does not anticipate that the proposed 
definitions will increase the burden on parties, because identifying 
both where officers and directors reside, and whether half of an 
entity's assets are located in the U.S. or abroad, should not be overly 
complicated or onerous.
C. Foreign Person and Issuer
    With the proposed amendments to the definitions of a U.S. person 
and a U.S. issuer in Sec.  801.1(e)(1), the three-part test to 
determine whether an entity is a foreign person and/or a foreign issuer 
in Sec.  801.1(e)(2) is no longer necessary. Any person or issuer that 
is not a U.S. person or a U.S. issuer is necessarily a foreign person 
or a foreign issuer. Therefore, the Commission proposes simplifying the 
definitions for ``foreign person'' and ``foreign issuer'' to reflect 
this approach.
    The proposed amendment will benefit parties analyzing premerger 
notification requirements because it will simplify and clarify the 
analysis for determining whether an entity is a foreign person and/or a 
foreign issuer.

Part 803--Transmittal Rules

Section 803.5 Affidavits Required

A. Background
    The purpose of the notice provision in Sec.  803.5(a)(1) is to 
inform the acquired issuer or unincorporated entity, and its UPE, of 
the obligation to make a premerger notification filing under the Act. 
There are certain categories of transactions, captured by Sec.  801.30 
of the Rules, that do not necessarily involve an agreement between the 
acquiring and acquired persons. In such circumstances, the Sec.  
803.5(a)(1) notice requirement is necessary because the acquired issuer 
or unincorporated entity may not otherwise be aware of the transaction 
and any premerger notification obligations. See 43 FR 33497, 33510 
(July 31, 1978). Section 803.5(a)(1) currently requires that the notice 
be received at the ``principal executive offices'' of the issuer or 
unincorporated entity whose voting securities or non-corporate 
interests are to be acquired. Given the use of ``principal offices'' in 
Sec.  801.1(e)(1), the Commission proposes removing the phrase 
``principal executive offices'' from Sec.  803.5(a)(1). This will 
benefit filing parties by avoiding confusion. Section 803.5(a)(1) 
specifies to whom notice must be sent.

Communications by Outside Parties to Commissioners and Their Advisors

    Written communications and summaries or transcripts of oral 
communications respecting the merits of this proceeding from any 
outside party to any Commissioner or Commissioner's advisor will be 
placed on the public record. 16 CFR 1.26(b)(5).

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 
entities, 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 the 
transactions necessary to invoke an HSR filing, the

[[Page 58352]]

premerger notification rules rarely, if ever, affect small entities.\1\ 
The 2000 amendments to the Act exempted all transactions valued at $50 
million or less, with subsequent automatic adjustments to take account 
of changes in Gross National Product resulting in a current threshold 
of $84.4 million. Further, none of the proposed amendments expands the 
coverage of the premerger notification rules in a way that would affect 
small entities. Accordingly, the Commission certifies that these 
proposed amendments 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.
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    \1\ See 13 CFR part 121 (regulations defining small business 
size).
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Paperwork Reduction Act

    As noted above, the proposed amendments should make it easier for 
entities to evaluate whether a given transaction will qualify for the 
foreign exemptions to reporting obligations under the HSR Act. As such, 
Commission staff believes that the proposed amendments will not 
increase, and may even reduce, PRA burden.

List of Subjects in 16 CFR Parts 801 and 803

    Antitrust.

    For the reasons stated in the preamble, the Federal Trade 
Commission proposes to amend 16 CFR parts 801 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 paragraph (e) to read as follows:


Sec.  801.1   Definitions.

* * * * *
    (e)(1)(i) United States person. The term United States person means 
a person the ultimate parent entity of which--
    (A) Is incorporated in the United States, is organized under the 
laws of the United States or has its principal offices within the 
United States; or
    (B) If a natural person, either is a citizen of the United States 
or resides in the United States.
    (ii) United States issuer. The term United States issuer means an 
issuer which is incorporated in the United States, is organized under 
the laws of the United States or has its principal offices within the 
United States.
    (iii) Principal offices. Principal offices are within the United 
States--
    (A) For purposes of paragraph (e)(1)(i)(A) of this section, if 50% 
or more of the ultimate parent entity's officers reside in the United 
States; or 50% or more of the ultimate parent entity's directors reside 
in the United States; or 50% or more of the ultimate parent entity's 
assets (including the assets of all entities that the ultimate parent 
entity controls directly or indirectly), based on a fair market value 
that is determined in accordance with Sec.  801.10(c), are located 
within the United States. In the case of an entity lacking officers and 
directors, the analysis is based on individuals exercising similar 
functions.
    (B) For purposes of paragraph (e)(1)(ii) of this section, if 50% or 
more of the issuer's officers reside in the United States; or 50% or 
more of the issuer's directors reside in the United States; or 50% or 
more of the issuer's assets (including the assets of all entities that 
the issuer controls directly or indirectly), based on a fair market 
value that is determined in accordance with Sec.  801.10(c), are 
located within the United States. In the case of an entity lacking 
officers and directors, the analysis is based on individuals exercising 
similar functions.
    Example 1 to paragraph (e)(1). X Corporation, the ultimate parent 
entity, is not incorporated in the U.S. or organized under U.S. law. 
The members of its Board of Directors do not reside in the U.S. Of its 
``officers''--the individuals in positions that are either (a) provided 
for in the entity's articles of incorporation or by-laws, or (b) 
appointed by the board of directors--5 reside in the U.S. and 5 do not 
reside in the U.S. X Corporation is a U.S. person because 50% of its 
officers reside in the U.S.
    Example 2 to paragraph (e(1)). Fund LP is not incorporated in the 
U.S. nor organized under U.S. law and does not have officers or 
directors. Fund LP has a General Partner and Investment Manager, both 
of which exercise similar functions as officers for Fund LP. Neither 
the General Partner nor Investment Manager are individuals, but are 
third-party entities. Because the individuals exercising similar 
functions as officers and directors are based within third-party 
entities, the residency analysis will focus on the locations where 
these third-party entities are incorporated and the laws under which 
they are organized. The analysis will not require looking through the 
Investment Manager LP and General Partner to analyze the specific 
individuals within these third-party entities serving as officers and 
directors for Fund LP. The General Partner of Fund LP is a corporation 
that is not incorporated in the U.S. or organized under U.S. law. Fund 
LP's investment decisions are made by Investment Manager LP, pursuant 
to an investment management agreement. Investment Manager LP is 
organized under U.S. law, and therefore Fund LP is operated out of the 
U.S. and a United States person.
    Example 3 to paragraph (e)(1). X Corporation, the ultimate parent 
entity, is not incorporated in the U.S. or organized under U.S. law. 
Four of the seven members of its Board of Directors reside outside of 
the U.S., and seven of the ten officers of X Corporation reside outside 
of the U.S. X Corporation and its directly and indirectly controlled 
subsidiaries have assets, including offices, manufacturing facilities, 
and intellectual property, among others, both in the U.S. and outside 
of the U.S. Based upon a fair market valuation, X Corporation 
determines that 75% of its total assets are in the U.S. X Corporation 
is therefore a U.S. person.
    (2)(i) Foreign person. The term foreign person means a person the 
ultimate parent entity of which is not a United States person under 
paragraph (e)(1)(i) of this section.
    (ii) Foreign issuer. The term foreign issuer means an issuer which 
is not a United States issuer under paragraph (e)(1)(ii) of this 
section.
* * * * *

PART 803--TRANSMITTAL RULES

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

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

0
4. Amend Sec.  803.5 by revising paragraph (a)(1) introductory text to 
read as follows:


Sec.  803.5   Affidavits Required.

    (a)(1) Section 801.30 acquisitions. For acquisitions to which Sec.  
801.30 applies, the notification required by the Act from each 
acquiring person shall contain an affidavit, attached to the front of 
the notification, or with the DVD submission, attesting that the issuer 
or unincorporated entity whose voting securities or non-corporate 
interests are to be acquired has received written notice delivered to 
an officer (or a person exercising similar functions in the case of an 
entity without officers) by email or by certified or registered mail, 
wire, or hand delivery, of:
* * * * *


[[Page 58353]]


    By direction of the Commission.
April Tabor,
Acting Secretary.
[FR Doc. 2019-23560 Filed 10-30-19; 8:45 am]
 BILLING CODE 6750-01-P