1. In the case of corporations, “person” encompasses the entire corporate structure, including all parent corporations, subsidiaries and divisions (whether consolidated or unconsolidated, and whether incorporated or unincorporated), and all related corporations under common control with any of the foregoing.

2. Corporations A and B are each directly controlled by the same foreign state. They are not included within the same “person,” although the corporations are under common control, because the foreign state which controls them is not an “entity” (see § 801.1(a)(2)). Corporations A and B* are the ultimate parent entities within persons “A”, and “B” which include any entities each may control.

3. Since a natural person is an entity (see § 801.1(a)(2)), a natural person and a corporation which he or she controls are part of the same “person.” If that natural person controls two otherwise separate corporations, both corporations and the natural person are all part of the same “person.”

4. See the example to § 801.2(a).

1. Corporation A holds 100 percent of the stock of corporation B, 75 percent of the stock of corporation C, 50 percent of the stock of corporation D, and 30 percent of the stock of corporation E. Corporation A controls corporations B, C and D, but not corporation E. Corporation A is the ultimate parent entity of a person comprised of corporations A, B, C and D, and each of these corporations (but not corporation E) is “included within the person.”

2. A statutory limited partnership agreement provides as follows: The general partner “A” is entitled to 50 percent of the partnership profits, “B” is entitled to 40 percent of the profits and “C” is entitled to 10 percent of the profits. Upon dissolution, “B” is entitled to 75 percent of the partnership assets and “C” is entitled to 25 percent of those assets. All limited and general partners are entitled to vote on the following matters: the dissolution of the partnership, the transfer of assets not in the ordinary course of business, any change in the nature of the business, and the removal of the general partner. The interest of each partner is evidenced by an ownership certificate that is transferable under the terms of the partnership agreement and is subject to the Securities Act of 1933. For purposes of these rules, control of this partnership is determined by subparagraph (1)(ii) of this paragraph. Although partnership interests may be securities and have some voting rights attached to them, they do not entitle the owner of that interest to vote for a corporate “director” or “an individual exercising similar functions” as required by § 801.1(f)(1) below. Thus control of a partnership is not determined on the basis of either subparagraph (1)(i) or (2) of this paragraph. Consequently, “A” is deemed to control the partnership because of its right to 50 percent of the partnership's profits. “B” is also deemed to control the partnership because it is entitled to 75 percent of the partnership's assets upon dissolution.

3. “A” is a nonprofit charitable foundation that has formed a partnership joint venture with “B,” a nonprofit university, to establish C, a nonprofit hospital corporation that does not issue voting securities. Pursuant to its charter all surplus revenue from the hospital in excess of expenses and necessary capital investments is to be disbursed evenly to “A” and “B.” In the event of dissolution of the hospital corporation, the assets of the hospital are to be contributed to a local charitable medical facility then in need of financial assistance. Notwithstanding the hospital's designation of its disbursement funds as surplus rather than profits to maintain its charitable image, “A” and “B” would each be deemed to control C, pursuant to § 801.1(b)(1)(ii), because each is entitled to 50 percent of the excess of the hospital's revenues over expenditures.

4. “A” is entitled to 50 percent of the profits of partnership B and 50 percent of the profits of partnership C. B and C form a partnership E with “D” in which each entity has a right to one-third of the profits. When E acquires company X, “A” must report the transaction (assuming it is otherwise reportable). Pursuant to § 801.1(b)(1)(ii), E is deemed to be controlled by “A,” even though “A” ultimately will receive only one-third of the profits of E. Because B and C are considered as part of “A,” the rules attribute all profits to which B and C are entitled (two-thirds of the profits of E in this example) to “A.’

If a stockbroker has stock in “street name” for the account of a natural person, only the natural person (who has beneficial ownership) and not the stockbroker (which may have record title) “holds” that stock.

Under this paragraph the trust—and not the trustee—“holds” the voting securities and assets constituting the corpus of any irrevocable trust (in which the settlor retains no reversionary interest, and which is not a collective investment fund). Therefore, the trustee need not aggregate its holdings of any other assets or voting securities with the holdings of the trust for purposes of determining whether the requirements of the act apply to an acquisition by the trust. Similarly, the trustee, if making an acquisition for its own account, need not aggregate its holdings with those of any trusts for which it serves as trustee. (However, the trustee must aggregate any collective investment funds which it administers; see paragraph (c)(6) of this section.)

Suppose A, a bank or trust company, administers collective investment funds W, X, Y and Z. Whenever person “A” is to make an acquisition, whether of not on behalf of one or more of the funds, it must aggregate the holdings of W, X, Y and Z in determining whether the requirements of the act apply to the acquisition.

1. The acquisition of convertible debentures which are convertible into common stock is an acquisition of “voting securities.” However, § 802.31 exempts the acquisition of such securities from the requirements of the act, provided that they have no present voting rights.

2. Options and warrants are also “voting securities” for purposes of the act, because they can be exchanged for securities with present voting rights. Section 802.31 exempts the acquisition of options and warrants as well, since they do not themselves have present voting rights and hence are convertible voting securities. Notification may be required prior to exercising options and warrants, however.

3. Assume that X has issued preferred shares which presently entitle the holder to vote for directors of X, and that these shares are convertible into common shares of X. Because the preferred shares confer a present right to vote for dirctors of X, they are “voting securities.” (See § 801.1(f)(1).) They are not “convertible voting securities,” however, because the definition of that term excludes securities which confer a present right to vote for directors of any entity. (See § 801.1(f)(2).) Thus, an acquisition of these preferred shares issued by X would not be exempt as an acquisition of “convertible voting securities.” (See § 802.31.) If the criteria in section 7A(a) are met, an acquisition of X's preferred shares would be subject to the reporting and waiting period requirements of the Act. Moreover, the conversion of these preferred shares into common shares of X would also be potentially reportable, since the holder would be exercising a right to exchange particular voting securities for different voting securities having a present right to vote for directors of the issuer. Because this exchange would be a “conversion,” § 801.30 would apply. (See § 801.30(a)(6).)

If a person holds stock “solely for the purpose of investment” and thereafter decides to influence or participate in management of the issuer of that stock, the stock in no longer held “solely for the purpose of investment.”

Assume that corporations A and B, which are each ultimate parent entitles of their respective “persons,” created a joint venture, corporation V, and that each holds half of V's shares. Therefore, A and B each control V (see § 801.1(b)), and V is included within two persons, “A” and “B.” Under this section, if V is to acquire corporation X, both “A” and “B” are acquiring persons.

1. Assume that person “Q” will acquire voting securities of corporation X held by “P” and that X is not included within person “P.” Under this section, the acquired person is the person within which X is included, and is not “P.”

2. In the example to paragraph (a) of this section, if V were to be acquired by X, then both “A” and “B” would be acquired persons.

1. Corporation A (the ultimate parent entity included within person “A”) proposes to acquire Y, a wholly-owned subsidiary of B (the ultimate parent entity included within person “B”). The transaction is to be carried out by merging Y into X, a wholly-owned subsidiary of A, with X surviving, and by distributing the assets of X to B, the only shareholder of Y. The assets of X consist solely of cash and the voting securities of C, an entity unrelated to “A” or “B”. Since X is designated the surviving corporation in the plan or agreement of merger or consolidation and since X will be included in “A” after consummation of the transaction, “A” will be deemed to have made an acquisition of voting securities. In this acquisition, “A” is an acquiring person because it will hold assets or voting securities it did not hold prior to the transaction, and “B” is an acquired person because the assets or the voting securities of an entity previously included within it will be held by A as a result of the acquisition. B will hold the cash and voting securities of C as a result of the transaction, but since § 801.21 applies, this acquisition is not reportable. “A” is therefore an acquiring person only, and “B” is an acquired person only. “B” may, however, have a separate reporting obligation as an acquiring person in a separate transaction involving the voting securities of C.

2. In the above example, suppose the consideration for Y consists of $8 million worth of the voting securities of A, constituting less than 15% of A's outstanding voting securities. With regard to the transfer of this consideration, “B” is an acquiring person because it will hold voting securities it did not previously hold, and “A” is an acquired person because its voting securities will be held by B. Since these voting securities are worth less than $15 million and constitute less than 15% of the outstanding voting securities of A, however, the acquisition of these securities is not reportable. “A” will therefore report as an acquiring person only and “B” as an acquired person only.

3. In the above example, suppose the consideration for Y is 50% of the voting securities of Z, a wholly-owned subsidiary of A which, together with all entities it controls, has annual net sales and total assets of less then $25 million. Suppose also that the value of these securities is less than $15 million. Since the acquisition of the voting securities of Z is exempt under the minimum dollar value exemption in § 802.20, “A” will report in this transaction as an acquiring person only and “B” as an acquired person only.

4. In the above example, suppose that, as consideration for Y, A transfers to B a manufacturing plant valued at $16 million. “B” is thus an acquiring person and “A” an acquired person in a reportable acquisition of assets.“A” and “B” will each report as both an acquiring and an acquired person in this transaction because each occupies each role in a reportable acquisition.

5. Corporations A (the ultimate parent entity in person “A”) and B (the ultimate parent entity in person “B”) propose to consolidate into C, a newly formed corporation. All shareholders of A and B will receive shares of C, and both A and B will lose their separate pre-acquisition identities. “A” and “B” are both acquiring and acquired persons because they are parties to a transaction in which all parties lose their separate pre-acquisition identities.

1. A foreign subsidiary of a U.S. corporation seeks to acquire a foreign business. The acquiring person includes the U.S. parent corporation. If the U.S. corporation, or the foreign subsidiary, or any entity controlled by either one of them, is engaged in commerce or in any activity affecting commerce, section 7A(a)(1) is satisfied. Note, however, that §§ 802.50-802.52 may exempt certain acquisitions of foreign businesses or assets.

2. Even if none of the entities within the acquiring person is engaged in commerce or in any activity affecting commerce, the acquisition nevertheless satisfies section 7A(a)(1) if any entity included within the acquired person is so engaged.

1. Assume that acquiring person “A” proposes to acquire all the voting securities of corporation B. This section provides that the acquisition of voting securities of issuers held but not controlled by B or by any entity which B controls are secondary acquisitions by “A.” Thus, if B holds more than $15 million of the voting securities of corporation X (but does not control X), and “A” and “X” satisfy sections 7A (a)(1) and (a)(2), “A” must file notification separately with respect to its secondary acquisition of voting securities of X. “X” must file notification within fifteen days (or in the case of a cash tender offer, 10 days) after “A” files, pursuant to § 801.30.

2. If in the previous example “A” acquires only 50 percent of the voting securities of B, the result would remain the same. Since “A” would be acquiring control of B, all of B's holdings in X would be attributable to “A.”

3. In the previous examples, if “A's” acquisition of the voting securities of B is exempt, “A” may still be required to file notification with respect to its secondary acquisition of the voting securities of X, unless that acquisition is itself exempt.

4. In the previous examples, assume A's acquisition of B is accomplished by merging B into A's subsidiary, S, and S is designated the surviving corporation. B's voting securities are cancelled, and B's shareholders are to receive cash in return. Since S is designated the surviving corporation and A will control S and also hold assets or voting securities it did not hold previously, “A” is an acquiring person in an acquisition of voting securities by virtue of §§ 801.2 (d)(1)(ii) and (d)(2)(i). A will be deemed to have acquired control of B, and A's resulting acquisition of the voting securities of X is a secondary acquisition. Since cash, the only consideration paid for the voting securities of B, is not considered an asset of the person from which it is acquired, by virtue of § 801.2(d)(2) “A” is an acquiring person only. The acquisition of the minority holding of B in X is therefore a secondary acquisition by “A,” but since “B” is an acquired person only, “B” is not deemed to make any secondary acquisition in this transaction.

5. In example 4 above, suppose the consideration paid by A for the acquisition of B is $20 million worth of the voting securities of A. By virtue of § 801.2(d)(2), “A” and “B” are each both acquiring and acquired persons. A will still be deemed to have acquired control of B, and therefore the resulting acquisition of the voting securities of X is a secondary acquisition. Although “B” is now also an acquiring person, unless B gains control of A in the transaction, B still makes no secondary acquisitions of stock held by A. If the consideration paid by A is the voting securities of one of A's subsidiaries and B thereby gains control of that subsidiary, B will make secondary acquisitions of any minority holdings of that subsidiary.

6. Assume that A and B propose through consolidation to create a new corporation, C, and that both A and B will lose their corporate identities as a result. Since no participating corporation in existence prior to consummation is the designated surviving corporation, “A” and “B” are each both acquiring and acquired persons by virtue of § 801.2(d)(2)(iii). The acquisition of the minority holdings of entities within each are therefore potential secondary acquisitions by the other.

Corporation A, the ultimate parent entity in person “A,” contracts to acquire assets of corporation B, and the contract provides that the acquisition price is not to be determined until after the acquisition is effected. Under paragraph (b) of this section, for purposes of the act the value of the assets is to be the fair market value of the assets. Under paragraph (c)(3), the board of directors of corporation A must in good faith determine the fair market value. That determination will control for 60 days whether “A” and “B” must observe the requirements of the act; that is, “A” and “B” must either file notification or consummate the acquisition within that time. If “A” and “B” neither file nor consummate within 60 days, the parties would no longer be entitled to rely on the determination of fair market value, and, if in doubt about whether required to observe the requirements of the act, would have to make a second determination of fair market value. Note that since item 2(d)(i) of the Notification and Report Form only requests the approximate dollar value of assets, a second formal determination of the fair market value would not be necessary for that purpose.

Person “A” is composed of entity A, subsidiaries B1 and B2 which A controls, subsidiaries C1 and C2 which B1 controls, and subsidiary C3 which B2 controls. Suppose that A's most recent financial statement consolidates the annual net sales and total assets of B1, C1, and C2, but not B2 or C3. In order to determine whether person “A” meets the criteria of section 7A(a)(2), as either an acquiring or an acquired person, A must recompute its annual net sales and total assets to reflect consolidation of the nonduplicative annual net sales and nonduplicative total assets of B2 and C3.

Suppose “A” sells assets to “B” on January 1. “A's” next regularly prepared balance sheet, dated February 1, reflects that sale. On March 1, “A” proposes to sell more assets to “B.” “A's” total assets on March 1 are “A's” total assets as stated on its February 1 balance sheet.

For examples 1-4, assume that A is a newly-formed company which is not controlled by any other entity. Assume also that A has no sales and does not have the balance sheet described in paragraph (c)(2) of this section.

1. A will borrow $105 million in cash and will purchase assets from B for $100 million. In order to establish whether A's acquisition of B's assets is reportable, A's total assets are determined by subtracting the $100 million that it will use to acquire B's assets from the $105 million that A will have at the time of the acquisition. Therefore, A has total assets of $5 million and does not meet the size-of-person test of section 7A(a)(2).

2. Assume that A will acquire assets from B and that, at the time it acquires B's assets, A will have $85 million in cash and a factory valued at $20 million. A will exchange the factory and $80 million cash for B's assets. To determine A's total assets, A should subtract from the $85 million cash the $80 million that will be used to acquire assets from B and add the remainder to the value of the factory. Thus, A has total assets of $25 million. Even though A will use the factory as part of the consideration for the acquisition, the value of the factory must still be included in A's total assets.

Note that A and B may also have to report the acquisition by B of A's non-cash assets (i.e., the factory). For that acquisition, the value of the cash A will use to buy B's assets is not excluded from A's total assets. Thus, in the acquisition by B, A's total assets are $105 million.

3. Assume that company A will make a $200 million acquisition and that it must pay a loan origination fee of $5 million. A borrows $211 million. A does not meet the size-of-person test in section 7A(a)(2) because its total assets are less than $10 million. $200 million is excluded because it will be consideration for the acquisition and $5 million is excluded because it is an expense incidental to the acquisition. Therefore, A is only a $6 million person.

4. Assume that A borrows $150 million to acquire $100 million of assets from person B and $45 million of voting securities of person C. To determine its size for purposes of its acquisition from person B, A subtracts the $100 million that it will use for that acquisition. Therefore, A has total assets of $50 million for purposes of its acquisition from B. To determine its size with respect to its acquisition from person C, A subtracts the $45 million that will be paid for C's voting securities. Thus, for purposes of its acquisition from C, A has total assets of $105 million. In the first acquisition A meets the $10 million size-of-person test and in the second acquisition A meets the $100 million size-of-person test of section 7A(a)(2).

In each of the following examples company X has two classes of voting securities, class A, consisting of 1000 shares with each share having one vote, and class B, consisting of 100 shares with each share having one vote. The class A shares elect four of the ten directors and the class B shares elect six of the ten directors.

In this situation, § 801.12(b) requires calculations of the percentage of voting securities held to be made according to the following formula:

Number of votes of class A held divided by Total votes of class A times Directors elected by class A stock divided by Total number of directors

Number of votes of class B held divided by Total votes of class B times Directors elected by class B stock divided by Total number of directors

1. Assume that company Y holds all 100 shares of class B stock and no shares of class A stock. By virtue of its class B holdings, Y has all 100 of the votes which may be cast by class B stock and can elect six of company X's ten directors. Applying the formula which results from the rule, Y calculates that it holds 100/100 × 6/10 or 60 percent of the voting securities of company X because of its holdings of class B stock and no additional percentage derived from holdings of class A stock. Consequently, Y holds a total of 60 percent of the voting securities of company X.

2. Assume that company Y holds 500 shares of class A stock and no shares of class B stock. By virtue of its class A holdings, Y has 500 of the 1000 votes which may be cast by class A to elect four of company X's ten directors. Applying the formula, Y calculates that it holds 500/1000 × 4/10 or 20 percent of the voting securities of company X from its holdings of class A stock and no additional percentage derived from holdings of class B stock. Consequently, Y holds a total of 20 percent of the voting securities of company X.

3. Assume that company Y holds 500 shares of class A stock and 60 shares of class B stock. Y calculates that it holds 20 percent of the voting securities of company X because of its holdings of class A stock (see example 2). Additionally, as a result of its class B holdings Y has 60 of the 100 votes which may be cast by class B stock to elect six of company X's ten directors. Applying the formula, Y calculates that it holds 60/100 × 6/10 or 36 percent of the voting securities of company X because of its holdings of class B stock. Since the formula requires that a person that holds different classes of voting securities of the same issuer add together the separate percentages calculated for each class, Y holds a total of 56 percent (20 percent plus 36 percent) of the voting securities of company X.

1. In the example to paragraph (a), to determine the percentage of B2's voting securities which will be held by “A” after the transaction, all voting securities of B2 held by “A,” the “acquiring person” (including A2 and all other entities included in person “A”), must be aggregated. If “A” holds convertible securities of B2 which meet the definition of voting securities in § 801.1(f), these securities are to be disregarded in calculating the percentage of voting securities held by “A.”

2. Under this formula, any votes obtained by means of proxies from other persons are also disregarded in calculating the percentage of voting securities to be held or acquired.

In the example to paragraph (a), for purposes of calculating the percentage of assets to be held, the “acquired person” is “A.”

In the example to paragraph (a), the percentage of assets to be acquired by “B” is determined by dividing the book value of A2's assets being acquired, by the total assets of “A,” determined in accordance with § 801.11.

1. Assume that acquiring person “A” holds $19 million of the voting securities of X, and is to acquire another $1 million of the same voting securities. Since under paragraph (a) of this rule all voting securities “A” will hold after the acquisition are held “as a result of” the acquisition, “A” will hold $20 million of the voting securities of X as a result of the acquisition. “A” must therefore observe the requirements of the act before making the acquisition, unless the present acquisition is exempt under section 7A(c), § 802.21 or any other rule.

2. See § 801.15 and the examples to that rule.

3. See § 801.20 and the examples to that rule.

4. On January 1, Company A acquired $30 million of voting securities of Company B. “A” and “B” filed notification and observed the waiting period for that acquisition.

Company A plans to acquire $1 million of assets from company B on May 1 of the same year. Under § 801.13(a)(3), “A” and “B” do not aggregate the value of the earlier acquired voting securities to determine whether the acquisition is subject to the act. Therefore, the value of the acquisition is $1 million and it is not reportable.

Acquiring person “A” proposes to make two acquisitions of assets from acquired person “B,” 90 days apart, and wishes to determine whether notification is necessary prior to the second acquisition. For purposes of the percentage test of section 7A(a)(3)(A), “A” would hold only the assets it acquired in the second acquisition. For purposes of the $15 million test of section 7A(a)(3)(B), however, “A” must aggregate both of its acquisitions and must value each as of the time of its occurrence.

1. Acquiring person “A” previously acquired $6 million of the voting securities (not convertible voting securities) of corporation X. “A” now intends to acquire $8 million of X's assets. Under paragraph (a) of this section, “A” looks to § 801.13(a) and determines that the voting securities are to be held “as a reult of” the acquisition. Section 801.13(a) also provides that “A” must determine the present value of the previously acquired securities. Under paragraph (b) of this section, “A” looks to § 801.13(b)(1) and determines that the assets to be acquired will be held “as a result of” the acquisition, and are valued under § 801.10(b) at $8 million. Therefore, if the voting securities have a present value of more than $7 million, the asset acquisition is subject to the requirements of the act since, as a result of it, “A” would hold an aggregate total amount of the voting securities and assets of “X” in excess of $15 million.

2. In the previous example, assume that the assets acquisition occurred first, and that the acquisition of the voting securities is to occur within 180 days of the first acquisition. “A” now looks to § 801.13(b)(2) and determines that because the second acquisition is of voting securities and not assets, the asset and voting securities acquisitions are not treated as one transaction. Therefore, the second acquisition would not be subject to the requirements of the act by reason of section 7A(a)(3)(B) since the value of the securities to be acquired does not equal or exceed $15 million.

1. Assume that acquiring person “A” is simultaneously to acquire $50 million of the convertible voting securities of X and $12 million (which is less than 15 percent) of the voting common stock of X. Although the acquisition of the convertible voting securities is exempt under § 802.31, since the overall value of the securities to be acquired is greater than $15 million, “A” must determine whether it is obliged to file notification and observe a waiting period before acquiring the common stock. Because § 802.31 is one of the exemptions listed in paragraph (a)(2) of this rule, “A” would not hold the convertible voting securities as a result of the acquisition. Therefore, since as a result of the acquisition “A” would hold only the common stock, the test of section 7A(a)(3) would not be satisfied, and “A” need not observe the requirements of the act before acquiring the common stock.

(Note, however, that the $50 million of convertible voting securities would be reflected in “A's” next regularly prepared balance sheet, for purposes of § 801.11.)

2. In the previous example, the rule was applied to voting securities the present acquisition of which is exempt. Assume instead that “A” had acquired the convertible voting securities prior to its acquisition of the common stock. “A” still would not hold the convertible voting securities as a result of the acquisition of the common stock, because the rule states that voting securities the previous acquisition of which was exempt also fall within the rule. Thus, the test of section 7A(a)(3) would again not be satisfied, and “A” need not observe the requirements of the act before acquiring the common stock.

3. In example 2, assume instead that “A” acquired the convertible voting securities in 1975, before the act and rules went into effect. Since the rule applies to voting securities the acquisition of which would have been exempt had the act and rules been in effect, the result again would be identical. If the rules had been in effect in 1975, the acquisition of the convertible voting securities would have been exempt under § 802.31.

4. Assume that acquiring person “B,” a United States person, acquired from corporation “X” two manufacturing plants located abroad, and assume that the acquisition price was $40 million. In the most recent year, sales into the United States attributable to the plants were $15 million, and thus the acquisition was exempt under § 802.50(a)(2). Within 180 days of that acquisition, “B” seeks to acquire a third plant from “X,” to which United States sales of $12 million were attributable in the most recent year. Since under § 801.13(b)(2), as a result of the acquisition, “B” would hold all three plants of “X,” and the $25 million limitation in § 802.50(a)(2) would be exceeded, under paragraph (b) of this rule, “B” would hold the previously acquired assets for purposes of the second acquisition. Therefore, as a result of the second acquisition, “B” would hold assets of X exceeding $15 million in value, would not qualify for the exemption in § 802.50(a)(2), and must observe the requirements of the act and file notification for the acquisition of all three plants before acquiring the third plant.

5. “A” acquires producing oil reserves valued at $400 million from “B.” Two months later, “A” agrees to acquire oil and gas rights valued at $75 million from “B.” Paragraph (b) of this section and § 801.13(b)(2) require aggregating the previously exempt acquisition of oil reserves with the second acquisition. If the two acquisitions, when aggregated, exceed the $500 million limitation on the exemption for oil and gas reserves in § 802.3(a), “A” and “B” will be required to file notification for the latter acquisition, including within the filings the earlier acquisition. Since, in this example, the total value of the assets in the two acquisitions, when aggregated, is less than $500 million, both acquisitions are exempt from the notification requirements. In determining whether the value of the assets in the two acquisitions exceed $500 million, “A” need not determine the current fair market value of the oil reserves acquired in the first transaction, since these assets are now within the person of “A.” Instead “A” may use the value of the oil reserves at the time of their prior acquisition in accordance with § 801.10(b).

6. “X” acquired 55 percent of the voting securities of M, an entity controlled by “Z,” six months ago and now proposes to acquire 50 percent of the voting stock of N, another entity controlled by “Z.” M's assets consist of $150 million worth of producing coal reserves plus $7 million worth of non-exempt assets and N's assets consist of a producing coal mine worth $100 million together with non-exempt assets with a fair market value of $6 million. “X's” acquisition of the voting securities of M was exempt under § 802.4(a) because M held exempt assets pursuant to § 802.3(b) and less than $15 million of non-exempt assets. Because “X” acquired control of M in the earlier transaction, M is now within the person of “X,” and the assets of M need not be aggregated with those of N to determine if the subsequent acquisition of N will exceed the limitation for coal reserves or for non-exempt assets. Since the assets of N alone do not exceed these limitations, “X's” acquisition of N also is not reportable.

7. In Example 6, above, assume that “X” acquired 30 percent of the voting securities of M and proposes to acquire 40 percent of the voting securities of N, another entity controlled by “Z.” Assume also that M's assets at the time of “X's” acquisition of M's voting securities consisted of $90 million worth of producing coal reserves and non-exempt assets with a fair market value of $9 million, and that N's assets currently consist of $60 million worth of producing coal reserves and non-exempt assets with a fair market value of $8 million. Since “X” acquired a minority interest in M and intends to acquire a minority interest in N, and since M and N are controlled by “Z,” the assets of M and N must be aggregated, pursuant to §§ 801.15(b) and 801.13, to determine whether the acquisition of N's voting securities is exempt. “X” is required to determine the current fair market value of M's assets. If the fair market value of M's coal reserves is unchanged, the aggregated exempt assets do not exceed the limitation for coal reserves. However, if the present fair market value of N's non-exempt assets also is unchanged, the present fair market value of the non-exempt assets of M and N when aggregated is greater than $15 million. Thus the acquisition of the voting securities of N is not exempt. If “X” proposed to acquire 50 percent or more of the voting securities of both M and N in the same acquisition, the assets of M and N must be aggregated to determine if the acquisition of the voting securities of both issuers is exempt. Since the fair market value of the aggregated non- exempt assets exceeds $15 million, the acquisition would not be exempt.

8. “A” acquired 49 percent of the voting securities of M and 45 percent of the voting securities of N. Both M and N are controlled by “B.” At the time of the acquisition M held rights to producing coal reserves worth $90 million and N held a producing coal mine worth $90 million. This acquisition was exempt since the aggregated holdings fell below the $200 million limitation for coal in § 802.3(b). A year later, “A” proposes to acquire an additional 10 percent of the voting securities of both M and N. In the intervening year, M has acquired coal reserves so that its holdings are now valued at $140 million, and the value of N's assets remained unchanged. “A's” second acquisition would not be exempt. “A” is required to determine the value of the exempt assets and any non-exempt assets held by any issuer whose voting securities it intends to acquire before each proposed acquisition (unless “A” already owns 50 percent or more of the voting securities of the issuer) to determine if the value of those holdings of the issuer falls below the limitation of the applicable exemption. Here, an assessment shows that the holdings of M and N now exceed the $200 million limitation for coal reserves in § 802.3.

1. Person “A” acquires $10 million of the voting securities of person “B” before the effective date of these rules. If “A” wishes to acquire an additional $6 million of the voting securities of “B” after the effective date of the rules, notification will be required by reason of section 7A(a)(3)(B).

2. In example 1, assume that the value of the voting securities of “B” originally acquired by “A” has reached a present value exceeding $15 million. If “A” wishes to acquire any additional voting securities or assets of “B,” notification will be required. See § 801.13(a).

1. Assume that acquiring person “A” acquires voting securities of issuer X from “B,” a person unrelated to X. Under this paragraph, the acquisition is treated only as one of voting securities, requiring “A” and “X” to comply with the requirements of the act, rather than one in which “A” acquires the assets of “B,” requiring “A” and “B” to comply. See also example 2 to § 801.30. Note that for purposes of section 7A(a)(2)—that is, for the next regularly prepared balance sheet of “A” referred to in § 801.11—the voting securities of X must be reflected after their acquisition; see § 801.11(c)(2).

2. In the previous example, if “A” acquires nonvoting securities of X from “B,” then under this section the acquisition would be treated only as one of nonvoting securities of X (and would be exempt under section 7A(c)(2)), rather than one in which “A” acquires assets of “B,” requiring “A” and “B” to comply. Again, the nonvoting securities of X would have to be reflected in “A's” next regularly prepared balance sheet for purposes of section 7A(a)(2).

3. In example 1, assume that “B” receives only cash from “A” in exchange for the voting securities of X. Under this section, “B's” acquisition of cash is not an acquisition of the “assets” of “A,” and “B” is not required to file notification as an acquiring person.

1. Acquiring person “A” proposes to acquire from corporation B the voting securities of B's wholly owned subsidiary, corporation S. Since “A” is acquiring the shares of S from its parent, this section does not apply, and the waiting period does not begin until both “A” and “B” file notification.

2. Acquiring person “A” proposes to acquire $20 million of the voting securities of corporation X on a securities exchange. The waiting period begins when “A” files notification. “X” must file notification within 15 calendar days thereafter. The seller of the X shares is not subject to any obligations under the act.

3. Suppose that acquiring person “A” proposes to acquire 50 percent of the voting securities of corporation B which in turn owns 30 percent of the voting securities of corporation C. Thus “A's” acquisition of C's voting securities is a secondary acquisition (see § 801.4) to which this section applies because “A” is acquiring C's voting securities from a third party (B). Therefore, the waiting period with respect to “A's” acquisition of C's voting securities begins when “A” files its separate Notification and Report Form with respect to C, and “C” must file within 15 days (or in the case of a cash tender offer, 10 days) thereafter. “A's” primary and secondary acquisitions of the voting securities of B and C are subject to separate waiting periods; see § 801.4.

Assume that “A,” which has annual net sales exceeding $100 million, makes a tender offer for voting securities of corporation X. The consideration for the tender offer is to be voting securities of A. “S,” a shareholder of X with total assets exceeding $10 million, wishes to tender its holdings of X and in exchange would receive shares of A valued at $16 million. Under this section, “S's” acquisition of the shares of A would be an acquisition separately subject to the requirements of the act. Before “S” may acquire the voting securities of A, “S” must first file notification and observe a waiting period—which is separate from any waiting period that may apply with respect to “A” and “X.” Since § 801.30 applies, the waiting period applicable to “A” and “S” begins upon filing by “S,” and “A” must file with respect to “S's” acquisition within 15 days pursuant to § 801.30(b). Should the waiting period with respect to “A” and “X” expire or be terminated prior to the waiting period with respect to “S” and “A,” “S” may wish to tender its X-shares and place the A-shares into a nonvoting escrow until the expiration or termination of the latter waiting period.

Assume that acquiring person “A” wishes to convert convertible voting securities of issuer X, and is to receive common stock of X valued at $20 million. If “A” and “X” satisfy the criteria of section 7A(a)(1) and section 7A(a)(2), then “A” and “X” must file notification and observe the waiting period before “A” completes the acquisition of the X common stock, unless exempted by section 7A(c) or these rules. Since § 801.30 applies, the waiting period begins upon notification by “A,” and “X” must file notification within 15 days.

Persons “A,” “B,” and “C” agree to create new corporation N, a joint venture. “A,” “B,” and “C” will each hold one third of the shares of N. “A” has more than $100 million in annual net sales. “B” has more than $10 million in total assets but less than $100 million in annual net sales and total assets. Both “C”'s total assets and its annual net sales are less than $10 million. “A,” “B,” and “C” are each engaged in commerce. “A,” “B,” and “C” have agreed to make an aggregate initial contribution to the new entity of $6 million in assets and each to make additional contributions of $6 million in each of the next three years. Under paragraph (c), the assets of the new corporation are $60 million. Under paragraph (b), only “A” must file notification. Note that “A” also meets the criterion of section 7A(a)(3) since it will be acquiring one third of the voting securities of the new entity for $20 million. N need not file notification; see § 802.41.

1. Suppose corporations A and B wish to form a joint venture. A and B contemplate a total investment of $30 million in the joint venture; persons “A” and “B” each have total assets in excess of $100 million. Instead of filing notification pursuant to § 801.40, A creates a new subsidiary, A1, which issues half of its authorized shares to A. Assume that A1 has total assets of $1,000. “A” then sells 50 percent of its A1 stock to “B” for $500. Thereafter, “A” and “B” each contribute $15 million to A1 in exchange for the remaining authorized A1 stock (one-fourth each to “A” and “B”). A's creation of A1 was exempt under § 802.30; its sale of A1 stock to “B” was exempt under § 802.20; and the second acquisition of stock in A1 by “A” and “B” was exempt under § 802.30 and sections 7A(c) (3) and (10). Since this scheme appears to be for the purpose of avoiding the requirements of the act, the sequence of transactions will be disregarded. The transactions will be viewed as the formation of a joint venture corporation by “A” and “B” having over $10 million in assets. Such a transaction would be covered by § 801.40 and “A” and “B” must file notification and observe the waiting period.

2. Suppose “A” wholly owns and operates a chain of twenty retail hardware stores, each of which is separately incorporated and has assets of less than $10 million. The aggregate fair market value of the assets of the twenty store corporations is $60 million. “A” proposes to sell the stores to “B” for $60 million. For various reasons it is decided that “B” will buy the stock of each of the store corporations from “A”. Instead of filing notification and observing the waiting period as contemplated by the act, “A” and “B” enter into a series of five stock purchase-sale agreements for $12 million each. Under the terms of each contract the stock of four stores will pass from “A” to “B”. The five agreements are to be consummated on five successive days. Because, after each of these transactions, the store corporations are no longer part of the acquired person (§ 801.13(a) does not apply because control has passed, see § 801.2), and because § 802.20(b) exempts the acquisition of control of each of the store corporations, none of the contemplated acquisitions would be subject to the requirements of the act. However, if the stock of all of the store corporations were to be purchased in one transaction, no exemption would be applicable, and the act's requirements would have to be met. Because it appears that the purpose of making five separate contracts is to avoid the requirements of the act, this section would ignore the form of the separate transactions and consider the substance to be one transaction requiring compliance with the act.

1. Greengrocer Inc. intends to sell to “A” all of the assets of one of the 12 grocery stores that it owns and operates throughout the metropolitan area of City X. Each of Greengrocer's stores constitutes an operating unit, i.e., a business undertaking in a particular location. Thus “A's” acquisition is not exempt as an acquisition in the ordinary course of business. However, the acquisition will not be subject to the notification requirements if the acquisition price or fair market value of the store's assets does not exceed $15 million.

2. “A,” a manufacturer of airplane engines, agrees to pay $20 million to “B,” a manufacturer of airplane parts, for certain new engine components to be used in the manufacture of airplane engines. The acquisition is exempt under § 802.1(b) as new goods as well as under § 802.1(c)(3) as current supplies.

3. “A,” a power generation company, proposes to purchase from “B,” a coal company, $25 million of coal under a long-term contract for use in its facilities to supply electric power to a regional public utility and steam to several industrial sites. This transaction is exempt under § 802.1(c)(2) as an acquisition of current supplies. However, if “A” proposed to purchase coal reserves rather than enter into a contract to acquire output of a coal mine, the acquisition would not be exempt as an acquisition of goods in the ordinary course of business. The acquisition may still be exempt pursuant to § 802.3(b) as an acquisition of reserves of coal if the requirements of that section are met.

4. “A,” a national producer of canned fruit, preserves, jams and jellies, agrees to purchase from “B” for $25 million a total of 10,000 acres of orchards and vineyards in several locations throughout the U.S. “A” plans to harvest the fruit from the acreage for use in its canning operations. The acquisition is not exempt under § 802.1 because orchards and vineyards are real property, not “goods.” If, on the other hand, “A” had contracted to acquire from “B” the fruit and grapes harvested from the orchards and vineyards, the acquisition would qualify for the exemption as an acquisition of current supplies under § 802.1(c)(3). Although the transfer of orchards and vineyards is not exempt under § 802.1, the acquisition would be exempt under § 802.2(g) as an acquisition of agricultural property.

5. “A,” a railcar leasing company, will purchase $20 million of new railcars from a railcar manufacturer in order to expand its existing fleet of cars available for lease. The transaction is exempt under § 802.1(b) as an acquisition of new goods and § 802.1(c), as an acquisition of current supplies. If “A” subsequently sells the railcars to “C”, a commercial railroad company, that acquisition would be exempt under § 802.1(d)(2), provided that “A” acquired and held the railcars solely for resale or leasing to an entity not within itself.

6. “A,” a major oil company, proposes to sell two of its used oil tankers for $15.5 million to “B,” a dealer who purchases oil tankers from the major U.S. oil companies. “B's” acquisition of the used oil tankers is exempt under § 802.1(d)(1) provided that “B” is actually acquiring beneficial ownership of the used tankers and is not acting as an agent of the seller or purchaser.

7. “A,” a cruise ship operator, plans to sell for $18 million one of its cruise ships to “B,” another cruise ship operator. “A” has, in good faith, executed a contract to acquire a new cruise ship with substantially the same capacity from a ship builder. The contract specifies that “A” will receive the new cruise ship within one month after the scheduled date of the sale of its used cruise ship to “B.” Since “B”is acquiring a used durable good that “A” has contracted to replace within six months of the sale, the acquisition is exempt under § 802.1(d)(3).

8. “A,” a luxury cruise ship operator, proposes to sell to “B,” a credit company engaged in the ordinary course of its business in lease financing transactions, its fleet of six passenger ships under a 10-year sale/leaseback arrangement. That acquisition is exempt pursuant to § 802.1(d)(1), used durable goods acquired for leasing purposes. The acquisition is also exempt under § 802.63(a) as a bona fide credit transaction entered into in the ordinary course of “B's” business. “B” now proposes to sell the ships, subject to the current lease financing arrangement, to “C,” another lease financing company. This transaction is exempt under §§ 802.1(d)(1) and 802.1(d)(2).

9. Three months ago “A,” a manufacturing company, acquired several new machines that will replace equipment on one of its production lines. “A's” capacity to produce the same products increased modestly when the integration of the new equipment was completed. “B,” a manufacturing company that produces products similar to those produced by “A,” has entered into a contract to acquire for $18 million the machinery that “A” replaced. Delivery of the equipment by “A” to “B” is scheduled to occur within thirty days. Since “A” purchased new machinery to replace the productive capacity of the used equipment, which it sold within six months of the purchase of the new equipment, the acquisition by “B” is exempt under § 802.1(d)(3).

10. “A” will sell to “B” for $16 million all of the equipment “A” uses exclusively to perform its billing requirements. “B” will use the equipment to provide “A's” billing needs pursuant to a contract which “A” and “B” executed 30 days ago in conjunction with the equipment purchase agreement. Although the assets “B” will acquire make up essentially all of the assets of one of “A's” management and administrative support services divisions, the acquisition qualifies for the exemption under § 802.1(d)(4) because a company's internal management and administrative support services, however organized, are not an operating unit as defined by § 802.1(a). Management and administrative support services are not a “business undertaking” as that term is used in § 802.1(a). Rather, they provide support and benefit to the company's operating units and support the company's business operations. However, if the assets being sold also derived revenues from providing billing services for third parties, then the transfer of these assets would not be exempt under § 802.1(d)(4), since the equipment is not being used solely to provide management and administrative support services to “A”.

11. “A,” a manufacturer of pharmaceutical products, and “B” have entered into a contract under which “B” will provide all of “A's” research and development needs. Pursuant to the contract, “B” will also purchase all of the equipment that “A” formerly used to perform its own research and development activities. The sale of the equipment is not an exempt transaction under § 802.1(d)(3) because “A” is not replacing the productive capacity of the equipment being sold. The sale is also not exempt under § 802.1(d)(4), because functions such as research and development and testing are not management and administrative support services of a company but are integral to the design, development or production of the company's products.

12. “A,” an automobile manufacturer, is discontinuing its manufacture of metal seat frames for its cars. “A” enters into a contract with “B,” a manufacturer of various fabricated metal products, to sell its seat frame production lines and to purchase from “B” all of its metal seat frame needs for the next five years. This transfer of productive capacity by “A” is not exempt pursuant to § 802.1(d)(3), since “A” is not replacing the productive capacity of the equipment being sold. The acquisition is also not exempt under § 802.1(d)(4). “A's” sale of production lines is not the transfer of goods that provide management and administrative services to support the business operations of”A”; this manufacturing equipment is an integral part of “A's” production operations.

1. “A,” a major automobile manufacturer, builds a new automobile plant in anticipation of increased demand for its cars. The market does not improve and “A” never occupies the facility. “A” then sells the facility, which is fully equipped and ready for operation, to “B,” another automobile manufacturer. The acquisition of this plant, including any equipment and assets associated with its operation, is not exempt as an acquisition of a new facility, even though the facility has not produced any income, since “A” did not construct the facility for sale or hold it at all times solely for resale. Also, the acquisition is not exempt as an acquisition of unproductive property, because manufacturing facilities that have not yet begun operations are explicitly excluded from that exemption.

2. B, a subsidiary of “A,” a financial institution, acquired a newly constructed power plant, which it leased to “X” pursuant to a lease financing arrangement. “A's” acquisition of the plant through B was exempt under § 802.63(a) as a bona fide credit transaction entered into in the ordinary course of “A's” business. “X” operated the plant as sole lessee for the next eight years and now proposes to exercise an option to buy the plant for $62 million. “X's” acquisition of the plant is exempt pursuant to § 802.2(b). The plant is being acquired from B, the lessor, which held title to the plant for financing purposes, and the purchaser, “X,” has had sole and continuous possession and use of the plant since its construction.

3. “A” proposes to acquire a $100 million tract of wilderness land from “B.” Copper deposits valued at $17 million and timber reserves valued at $20 million are situated on the land and will be conveyed as part of this transaction. During the last three fiscal years preceding the sale, the property generated $50,000 from the sale of a small amount of timber cut from the reserves two years ago. “A's” acquisition of the wilderness land from “B” is exempt as an acquisition of unproductive real property because the property did not generate revenues exceeding $5 million during the thirty-six months preceding the acquisition. The copper deposits and timber reserves are by definition unproductive real property and, thus, are not separately subject to the notification requirements.

4. “A” proposes to purchase from “B” for $40 million an old steel mill that is not currently operating to add to “A's” existing steel production capacity. The mill has not generated revenues during the 36 months preceding the acquisition but contains equipment valued at $16 million that “A” plans to refurbish for use in its operations. “A's” acquisition of the mill and the land on which it is located is exempt as unproductive real property. However, the transfer of the equipment and any assets other than the unproductive property is not exempt and is separately subject to the notification requirements of the act.

5. “A” proposes to purchase two downtown lots, Parcels 1 and 2, from “B” for $40 million. Parcel 1, located in the southwest section, contains no structures or improvements. A hotel is located in the northeast section on Parcel 2, and it has generated $9 million in revenues during the past three years. The purchase of Parcel 1 is exempt if it qualifies as unproductive real property, i.e., it has not generated annual revenues in excess of $5 million in the three fiscal years prior to the acquisition. Parcel 2 is not unproductive real property, but its acquisition is exempt under § 802.2(e) as the acquisition of a hotel.

6. “A” plans to purchase from “B,” a manufacturer, a newly-constructed building that “B” had intended to equip for use in its manufacturing operations. “B” was unable to secure financing to purchase the necessary equipment and “A”, also a manufacturer, will be required to invest approximately $50 million in order to equip the building for use in its production operations. This building is not a new facility under § 802.2 (a), because it was not constructed or held by “B” for sale or resale. However, the acquisition of the building qualifies for exemption as unproductive real property pursuant to § 802.2(c)(1). The building is not yet a manufacturing facility since it does not contain equipment and requires significant capital investment before it can be used as a manufacturing facility.

7. “A” proposes to purchase from “B,” for $20 million, a 100 acre parcel of land that includes a currently operating factory occupying 10 acres. The other 90 adjoining acres are vacant and unimproved and are used by “B” for storage of supplies and equipment. The factory and the unimproved acreage have fair market values of $12 million and $8 million, respectively. The transaction is not exempt under § 802.2(c) because the vacant property is adjacent to property occupied by the operating factory. Moreover, if the 90 acres were not adjacent to the 10 acres occupied by the factory, the transaction would not be exempt because the 90 acres are being used in conjunction with the factory being acquired and thus is not unproductive property.

8. “X” proposes to buy a five-story building from “Y.” The ground floor of this building houses a department store, and “X” currently leases the third floor to operate a medical laboratory. The remaining three floors are used for offices. “X” is not acquiring the business of the department store. Because the ground floor is rental retail space, the acquisition of which is exempt under § 802.2(h), this part of the building is excluded from the determination of whether the building is used primarily for office purposes. The laboratory is therefore the only non-office use, and, since it makes up 25 percent of the remainder of the building, the building is used 75 percent for offices. Thus the building qualifies as an office building and its acquisition is therefore exempt under § 802.2(d).

9. “A” intends to acquire three shopping centers from “B” for a total of $80 million. The anchor stores in two of the shopping centers are department stores, the businesses of which “A” is buying from “B” as part of the overall transaction. The acquisition of the shopping centers is an acquisition of retail rental space that is exempt under § 802.2(h). However, “A's” acquisition of the department store business, including the portion of the shopping centers that the two department stores being purchased occupy, are separately subject to the notification requirements. If the value of these assets exceeds $15 million, “A” must comply with the requirements of the act for this part of the transaction.

10. “A” wishes to purchase from “B” a parcel of land for $30 million. The parcel contains a race track and a golf course. The golf course qualifies as recreational land pursuant to § 802.2(f), but the race track is not included in the exemption. Therefore, if the value of the race track is more than $15 million, “A” will have to file notification for the purchase of the race track.

11. “A” intends to purchase a poultry farm from “B.” The acquisition of the poultry farm is a transfer of agricultural property that is exempt pursuant to § 802.2(g). If, however, “B” has a poultry slaughtering and processing facility on his farm that is included in the acquisition, “A's” acquisition of the farm is not exempt as an acquisition of agricultural property because agricultural property does not include property or assets adjacent to or used in conjunction with a processing facility that is included in an acquisition.

12. “A” proposes to purchase the prescription drug wholesale distribution business of “B” for $50 million. The business includes six regional warehouses used for “B's” national wholesale drug distribution business. Since “A” is acquiring the warehouses in connection with the acquisition of “B's” prescription drug wholesale distribution business, the acquisition of the warehouses is not exempt.

1. “A” proposes to purchase from “B” for $550 million gas reserves that are not yet in production and have not generated any income. “A” will also acquire from “B” for $280 million producing oil reserves and associated assets such as wells, compressors, pumps and other equipment. The acquisition of the gas reserves is exempt as a transfer of unproductive property under § 802.2(c). The acquisition of the oil reserves and associated assets is exempt pursuant to § 802.3(a), since the value of the reserves and associated assets does not exceed the $500 million limitation.

2. “A,” an oil company, proposes to acquire for $180 million oil reserves currently in production along with field pipelines and treating and metering facilities which serve such reserves exclusively. The acquisition of the reserves and the associated assets are exempt. “A” will also acquire from “B” for $16 million a natural gas processing plant and its associated gathering pipeline system. This acquisition is not exempt since § 802.3(c) excludes these assets from the exemption in § 802.3 for transfers of associated exploration or production assets.

3. “A,” an oil company, proposes to acquire a coal mine currently in operation and associated production assets for $90 million from “B,” an oil company. “A” will also purchase from “B” producing oil reserves valued at $100 million and an oil refinery valued at $13 million. The acquisition of the coal mine and the oil reserves is exempt pursuant to § 802.3. Although § 802.3(c) excludes the refinery from the exemption in § 802.3 for transfers of associated exploration and production assets, “A's” acquisition of the refinery is not subject to the notification requirements of the act because its value does not exceed $15 million.

4. “X” proposes to acquire from “Z” coal reserves which, together with associated exploration assets, are valued at $230 million. Since the value of the reserves and the assets exceeds the $200 million limitation in § 802.3(b), this transaction is not exempt under § 802.3. However, if the coal reserves qualify as unproductive property under the requirements of § 802.2(c), their acquisition, along with the acquisition of their associated assets, would be exempt.

1. “X”, a corporation, proposes to purchase a sports/entertainment complex which it will rent to professional sports teams and promoters of special events for concerts, ice shows, sporting events and other entertainment activities. “X” will provide office space in the complex for “Y”, a management company which will maintain and manage the facility for “X.” This acquisition is an exempt acquisition of investment rental property assets since “X” intends to rent the facility to third parties and is providing space within the facility to a management company solely to maintain, manage or supervise the operation of the facility on its behalf. If, however, “X” controls Z, a concert promoter to whom it also intends to rent the complex, the acquisition would not be exempt under § 802.5, since the property would not meet the requirements of § 802.5(b)(1).

2. “X” intends to buy from “Y” a development commonly referred to as an industrial park. The industrial park contains a warehouse/distribution center, a retail tire and automobile parts store, an office building, and a small factory. The industrial park also contains several parcels of vacant land. If “X” intends to acquire this industrial park as investment rental property, the acquisition will be exempt pursuant to § 802.5. If, however, “X” intends to use the factory for its own manufacturing operations, this exemption would be unavailable. The exemptions in § 802.2 for warehouses, rental retail space, office buildings, and undeveloped land may still apply and, if the value of the factory is $15 million or less, the entire transaction may be exempted by that section.

Assume that A (an entity included within person “A”) proposes to acquire voting securities of B (an entity included within person “B”) for $100 million. A and B are both air carriers who meet the size-of-person test, but B also owns a commercial data processing business located in the United States with a value of $30 million. Assume that this transaction requires CAB approval under 49 U.S.C. 1378. Since the acquired person has a business other than aeronautics or air transportation, the parties must report under § 802.6(b)(2) because the parties meet the size-of-person test, no other exemption applies to the acquisition of the data processing business, and the acquisition of the non-aeronautic business is deemed to be an acquisition of assets valued at $30 million.

1. Suppose that acquiring person “A” acquires 6 percent of the voting securities of issuer X, valued at $30 million. If the acquisition is solely for the purpose of investment, it is exempt under section 7A(c)(9).

2. After the acquisition in example 1, “A” decides to acquire an additional 7 percent of the voting securities of X. Regardless of “A” 's intentions, the acquisition is not exempt under section 7A(c)(9).

3. After the acquisition in example 1, acquiring person “A” decides to participate in the management of issuer X. Any subsequent acquisitions of X stock by “A” would not be exempt under section 7A(c)(9).

1. Acquiring person “A” intends to acquire 66 percent of the voting securities of corporation X from X's ultimate parent entity, W, and “A” holds no other assets or voting securities of acquired persons “W”. X has no subsidiaries and does not have annual net sales or total assets of $10 million. If the postacquisition value of “A” 's holdings of voting securities of X would be $15 million or less, the acquisition would be exempt under this section.

2. Assume that acquiring person “B” holds voting securities of corporation Q valued at $9 million. “B” now intends to acquire assets of Q valued at $7 million. Since the aggregate total amount of voting securities and assets of “Q” to be held by “B” would exceed $15 million, section 7A(a)(3)(B) would be satisfied, and the acquisition would not be exempt under this section.

3. Assume that acquiring person “C” holds $5 million of the voting securities of corporation R, an entity included within person “T.” “C” now proposes to acquire $8 million of the assets of corporation S, also an entity included within person “T,” representing 20 percent of “T's” total assets. Section 7A(a)(3)(B) is not satisfied because the aggregate total amount of “C's” holdings in acquired person “T” will be less than $15 million. Although section 7A(a)(3)(A) would be satisfied by the asset acquisition, it will nevertheless be exempt under paragraph (a) of this section.

1. Corporation A acquires 15 percent of the voting securities of corporation B and both “A” and “B” file notification as required. Within five years of the expiration of the original waiting period, “A” acquires additional voting securities of B but not in an amount sufficient to meet or exceed 25 percent of the voting securities of B. No additional notification is required.

2. In example 1, “A” continues to acquire B's securities. Before “A's” holdings meet or exceed 25 percent of B's outstanding voting securities, “A” and “B” must file notification and wait the prescribed period, regardless of whether the acquisition occur within five years after the expiration of the earlier waiting period.

3. In example 2, suppose that “A” and “B” file notification at the 25 percent level and that, within 5 years after expiration of the waiting period, “A” continues to acquire voting securities of B. No further notification is required until “A” plans to make the acquisition that will give it 50 percent ownership of B. (Once “A” holds 50 percent, further acquisitions of voting securities are exempt under section 7A(c)(3).

4. Assume that “C” is an institutional investor whose prior acquisitions of corporation D's voting securities were exempt under § 802.64. “C” now proposes to purchase additional voting securities of D which will result in holdings exceeding 15 percent and $25 million. “C” and “D” therefore file notification and observe the waiting period. Under this section within the 5 years following the expiration of the waiting period “C” may further increase its holdings in D to any amount below 25 percent (regardless of dollar value) without again filing notification. Section 802.64 exempted “C” from filing notification at the thresholds defined in subparagraphs (1) or (2) of § 801.1(h); thereafter, since “C” filed notification with respect to an acquisition which resulted in its holding more than 15 percent of D's voting securities valued at more than $25 million, the next notification threshold “greater than the greatest notification threshold met or exceeded in the earlier acquisition” is 25 percent of D's voting securities. (See paragraph (c) of this section and § 801.1(h)(3).)

5. This section also allows a person to recross any of the threshold notification levels—15 percent/$15 million, 15 percent if greater than $15 million, 25 and 50 percent—any number of times within 5 years of the expiration of the waiting period following notification for that level. Thus, if in example 1, “A” had disposed of some voting securities so that it held less than 15 percent of the voting securities of B, and thereafter had increased its holdings to more than 15 percent but less than 25 percent of B, notification would not be required if the increase occurred within 5 years of the expiration of the original waiting period. Similarly, in examples 2 and 3, “A” could decrease its holdings below, and then increase its holdings above, 25 percent and 50 percent, respectively without filing notification, if done within 5 years of the expiration of those respective waiting periods.

1. Assume that corporation A makes a tender offer for 20 percent of the voting securities of corporation B and that “A” files notification. Under this section, if A subsequently amends its tender offer only as to the amount of consideration offered, the waiting period so commenced is not affected, and no new notification need be filed.

2. In the previous example, assume that A makes an amended tender offer for 27 percent of the voting securities of B. Since a new notification threshold will be crossed, this section requires that “A” must again file notification and observe a new waiting period. Paragraph (a) of this section, however, provides that “B” need not file notification again.

3. Assume that “A” makes a tender offer for shares of corporation B. “A” includes its voting securities as part of the consideration. “A” files notification. Five days later, “A” changes its tender offer to a cash tender offer, and on the same day files copies of its amended tender offer with the offices designated in § 803.10(c). Under paragraph (b) of this section, the waiting period expires (unless extended or terminated) 15 days after the receipt of the amended offer (on the 20th day after filing notification), since that occurs earlier than the expiration of the original waiting period (which would occur on the 30th day after filing).

4. Assume that “A” makes a cash tender offer for shares of corporation B and files notification. Six days later, “A” amends the tender offer and adds voting securities as consideration, and on the same day files copies of the amended tender offer with the offices designated in § 803.10(c). Under paragraph (c) of this section, the waiting period expires (unless extended or terminated) on the 30th day following the date of filing of notification (determined under § 803.10(c)), since that occurs later than the 15th day after receipt of the amended tender offer (which would occur on the 21st day).

1. Corporation A merges its two wholly owned subsidiaries S1 and S2. The transaction is exempt under this section.

2. Corporation B creates a new wholly owned subsidiary. The transaction is exempt under this section.

3. Corporation A, which controls corporation B by a contract giving A the power to name a majority of B's directors, but which holds no voting securities of B, proposes to acquire 15 percent of B's voting securities. The transaction is not exempt under this section, since “A” and “B” are not the same person “by reason of holdings of voting securities.”

4. Corporation A repurchases a portion of its voting securities in a series of transactions involving numerous sellers. All of these acquisitions are exempt under this section. The redemption or retirement of securities would likewise be exempt under this section.

5. Corporations A and B (which are not included within the same person) form a new corporation, C. A and B will each hold C's voting securities upon formation. This section is inapplicable, and the acquisitions of C's voting securities by A and B are not exempt.

This section applies regardless of the dollar value of the convertible voting securities held or to be acquired and even though they may be converted into 15 percent or more of the issuer's voting securities. Note, however, that subsequent conversions of convertible voting securities may be subject to the requirements of the act. See § 801.32.

1. Company A establishes a trust for its employees that meets the qualifications of section 401 of the Internal Revenue Code. Company A has the power to designate the trustee of the trust. That trust then acquires 30% of the voting securities of Company A for $30 million. Later, the trust acquires 20% of the stock of Company B, a wholly-owned subsidiary of Company A, for $20 million. Neither acquisition is reportable.

2. Assume that in the example above, “A” has total assets of $100 million. “C” also has total assets of $100 million and is not controlled by Company A. The trust controlled by Company A plans to acquire 40 percent of the voting securities of Company C for $40 million. Since Company C is not included within “A,” “A” must observe the requirements of the act before the trust makes the acquisition of Company C's shares.

1. Corporations A and B, each having sales of $100 million, each propose to contribute $20 million in cash in exchange for 50 percent of the voting securities of a new corporation, N. Under this section, the new corporation need not file notification, although both “A” and “B” must do so and observe the waiting period prior to receiving any voting securities of N.

2. In addition to the facts in example 1 above, A and B have agreed that upon creation N will purchase 100 percent of the voting securities of corporation C for $15 million. Because N's purchase of C is not a transaction in connection with N's formation, and because in any event C is not a contributor to the formation of N, “A,” “B” and “C” must file with respect to the proposed acquisition of C and must observe the waiting period.

1. Assume that “A” and “B” are both U.S. persons. “A” proposes selling to “B” a manufacturing plant located abroad. Sales in or into the United States attributable to the plant totaled $8 million in the most recent fiscal year. The transaction is exempt under this paragraph.

2. Sixty days after the transaction in example 1, “A” proposes to sell to “B” a second manufacturing plant located abroad; sales in or into the United States attributable to this plant totaled $20 million in the most recent fiscal year. Since “B” would be acquiring the second plant within 180 days of the first plant, both plants would be considered assets of “A” now held by “B”. See § 801.13(b)(2). Since the total annual sales in or into the United States exceed $215 million, the acquisition of the second plant would not be exempt under this paragraph.

“A,” a U.S. person, is to acquire the voting securities of C, a foreign issuer. C has no assets in the United States, but made aggregate sales into the United States of $27 million in the most recent fiscal year. The transaction is not exempt under this section.

1. Assume that “A” and “B” are foreign persons with aggregate annual sales in or into the United States of $200 million. If “A” acquires the assets of “B,” and if no assets in the United States or voting securities of U.S. issuers will be acquired, the transaction is exempt under paragraphs (a) and (c).

2. In example 1, assume that “A” is acquiring “B's” stock and that included within “B” is issuer C, a U.S. issuer whose total assets are valued at $27 million. Since C's voting securities will be acquired indirectly, and since “A” thus will be acquiring control of a U.S. issuer with total assets of more than $25 million, the acquisition cannot be exempt under this section.

3. In the previous examples, assume that “A” is a U.S. person. This section does not apply, since the acquiring person must be a foreign person.

The government of foreign country X has decided to sell assets of its wholly owned corporation, B, all of which are located in foreign country X. The buyer is “A,” a U.S. person. Regardless of the aggregate annual sales in or into the United States attributable to the assets of B, the transaction is exempt under this section. (If such aggregate annual sales were less than $10 million, the transaction would also be exempt under § 802.50.)

1. A bank makes a loan and takes actual or constructive possession of collateral in any form. Since the bank is not the beneficial owner of the collateral, the bank's receipt of it is not an acquisition which is subject to the requirements of the act. However, if upon default the bank becomes the beneficial owner of the collateral, that acquisition is exempt under this section.

2. This section exempts only the acquisition by the creditor or insurer, and not the subsequent disposition of the assets or voting securities. If a creditor or insurer sells voting securities or assets that have come into its possession in a transaction which is exempt under this section, the requirements of the act may apply to that disposition.

1. Assume that A and its subsidiary, B, are both institutional investors as defined in paragraph (a) of this section, that X is not, and that the conditions set forth in subparagraphs (2), (3) and (4) of paragraph (b) of this section are satisfied. Either A or B may acquire voting securities of X worth in excess of $25 million as long as the aggregate amount held by person “A” as a result of the acquisition does not equal or exceed 15 percent of X's outstanding voting securities. If the aggregate holdings would equal or exceed 15 percent, “A” may acquire no more than $25 million worth of voting securities without being subject to the requirements of the act.

2. In example 1, assume that B plans to make the acquisition, but that corporation B's parent, corporation A, is not an institutional investor and is engaged in manufacturing. Subparagraph (c)(2) provides that acquisitions by B can never be exempt under this section if A owns any amount of X's voting securities.

3. In example 1, the exemption does not apply if X is also an institutional investor of the same type as either A or B.

4. Assume that H is a holding company which controls a life insurance company, a casualty insurer and a finance company. The life insurance company controls a data processing company which performs services for the two insurers. Any acquisition by any of these entities could qualify for exemption under this section.

5. In example 4, if H also controls a manufacturing entity, H is not an institutional investor, and only the acquisitions made by the two insurance companies, the finance company and the data processing company can qualify for the exemption under this section.