[Federal Register Volume 75, Number 180 (Friday, September 17, 2010)]
[Proposed Rules]
[Pages 57110-57144]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-23079]
[[Page 57109]]
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Part II
Federal Trade Commission
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16 CFR Parts 801, 802, and 803
Premerger Notification; Reporting and Waiting Period Requirements;
Proposed Rule
Federal Register / Vol. 75, No. 180 / Friday, September 17, 2010 /
Proposed Rules
[[Page 57110]]
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FEDERAL TRADE COMMISSION
16 CFR Parts 801, 802, and 803
RIN 3084-AA91
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 Hart-Scott-
Rodino (``HSR'') Premerger Notification Rules (the ``Rules''), the
Premerger Notification and Report Form (the ``Form'') and associated
Instructions in order to streamline the Form and capture new
information that will help the Federal Trade Commission (the
``Commission'' or ``FTC'') and the Antitrust Division of the Department
of Justice (the ``Assistant Attorney General'' or the ``Antitrust
Division'') (together the ``Antitrust Agencies'' or ``Agencies'')
conduct their initial review of a proposed transaction's competitive
impact. Section 7A of the Clayton Act (the ``Act'') requires the
parties to certain mergers or acquisitions to file with the Agencies
and to wait a specified period of time before consummating such
transactions. The reporting requirement and the waiting period that it
triggers are intended to enable the Antitrust Agencies to determine
whether a proposed merger or acquisition may violate the antitrust laws
if consummated and, when appropriate, to seek a preliminary injunction
in federal court to prevent consummation, pursuant to section 7 of the
Act.
DATES: Comments must be received on or before October 18, 2010.
ADDRESSES: Interested parties are invited to submit written comments
electronically or in paper form, byfollowing the instructions in the
Invitation To Comment part of the ``SUPPLEMENTARY INFORMATION'' section
below. Comments in electronic form should be submitted by using the
following weblink: (https://ftcpublic.commentworks.com/ftc/hsrformchanges) (and following the instructions on the web-based form).
Comments in paper form should be mailed or delivered to the following
address: Federal Trade Commission, Office of the Secretary, Room H-135
(Annex Q), 600 Pennsylvania Avenue, NW, Washington, DC 20580, (202)
326-2252.
FOR FURTHER INFORMATION CONTACT: Robert L. Jones, Deputy Assistant
Director, Premerger Notification Office, Bureau of Competition, Room
302, Federal Trade Commission, Washington, DC 20580. Telephone: (202)
326-3100. E-mail: ([email protected]).
SUPPLEMENTARY INFORMATION:
Background
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. 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
Sec. 7A.
Pursuant to that authority, the Commission, with the concurrence of
the Assistant Attorney General, developed the Rules, codified in 16 CFR
Parts 801, 802 and 803, and the Form and its associated Instructions,
codified at Part 803--Appendix. The Form is designed to provide the
Commission and the Assistant Attorney General with the information and
documentary material necessary and appropriate for an initial
evaluation of the potential anticompetitive impact of significant
mergers, acquisitions and certain similar transactions.
Over time, it has become clear to the Commission that certain items
on the Form, intended to provide substantive information to aid the
Agencies' review, are not as helpful as originally anticipated. As
examples, Item 3(c) requires filing parties to provide overly detailed
information regarding the number and classes of voting securities to be
acquired and Item 5(a) requires the reporting of revenues by Department
of Census base year, currently 2002,\1\ which yields information that
is typically too outdated to be of use to the Agencies. The Commission
therefore proposes the deletion of these items on the Form, as well as
the deletion or revision of several other items for similar reasons, as
outlined below. The Commission proposes substantive and ministerial
revisions, deletions and additions to streamline the Form and make it
easier to prepare while focusing the Form on those categories of
information the Agencies consider necessary for their initial review.
The Commission also proposes amending certain Rules and parts of the
Form and Instructions, as well as the addition of Items 4(d) and 7(d),
in order to capture additional information that would significantly
assist the Agencies in their initial review. Finally, minor changes are
proposed to Sec. Sec. 801.1, 801.15, 801.30, 802.4, 802.21, 802.52,
803.2 and 803.5, primarily to address minor omissions from the
Commission's 2005 rulemaking involving unincorporated entities, and an
amendment to Sec. 802.21 is proposed to remove the reference to the
2001 transition period.
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\1\ 70 FR 77312 (December 30, 2005).
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It has also become apparent that the current Form does not solicit
some information that would be useful to the Agencies in making an
initial evaluation of a transaction's competitive impact. For instance,
the Form does not require filing parties to provide current year
revenues by the more detailed 10-digit North American Industry
Classification System (``NAICS'') product code, nor does it require
revenue data for products manufactured outside of, but sold into, the
United States. Moreover, the Form does not elicit sufficient
information about ties between acquiring investment funds and other
entities that are associated with these acquiring entities, which have
holdings in the same line of business as the target. Thus, the
Commission proposes to amend the Rules, the Form and the Instructions
to require this and other helpful information, as discussed more fully
below.
Substantive changes to the Rules, as well as improvements to the
Instructions and Form, have been made on a number of occasions since
the Premerger program began in 1978. For example, in 2001, the Rules
and Form were significantly altered to accommodate the 2000 amendments
to the HSR Act\2\, as well as to implement some administrative changes
that were proposed and that received public comment in 1994.\3\ The
Rules were also amended in 2005 to bring the treatment of non-corporate
entities into line with the treatment of corporate entities.\4\ The
Form was revised in 2006 to accommodate the electronic filing option
and to update some elements to make them more useful to the Agencies'
initial analysis.\5\ The Commission now seeks comment from the public
on its current proposed amendments to the Rules, Form and Instructions.
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\2\ 66 FR 8680 (February 1, 2001).
\3\ 59 FR 30545 (June14, 1994), id. at 46365 (Sept. 8, 1994)
(extending comment period).
\4\ 70 FR 11502 (March 8, 2005).
\5\ 71 FR 35995 (June 23, 2006).
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[[Page 57111]]
Invitation to Comment
All persons are hereby given notice of the opportunity to submit
written data, views, facts, and arguments pertinent to this rule
review. Written comments must be received on or before October 18,
2010, and may be submitted electronically or in paper form. Comments
should refer to ``HSR Form Changes'' to facilitate the organization of
comments. Please note that your comment--including your name and your
state--will be placed on the public record of this proceeding,
including on the publicly accessible FTC website, at (http://www.ftc.gov/os/publiccomments.shtm).
Because comments will be made public, they should not include any
sensitive personal information, such as any individual'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. Comments also
should not include any sensitive health information, such as medical
records or other individually identifiable health information. In
addition, comments should not include any ``[t]rade secret or any
commercial or financial information which is obtained from any person
and which is privileged or confidential. . . ,'' as provided in Section
6(f) of the Federal Trade Commission Act (``FTC Act''), 15 U.S.C.
46(f), and FTC Rule 4.10(a)(2), 16 C.F.R. 4.10(a)(2). 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), 16 C.F.R. 4.9(c).\6\
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\6\ The comment must be accompanied by an explicit request for
confidential treatment, including the factual and legal basis for
the request, and must identify the specific portions of the comment
to be withheld from the public record. The request will be granted
or denied by the Commission's General Counsel, consistent with
applicable law and the public interest. See FTC Rule 4.9(c), 16
C.F.R. 4.9(c).
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Because paper mail addressed to the FTC is subject to delay due to
heightened security screening, please consider submitting your comments
in electronic form. Comments filed in electronic form should be
submitted by using the following weblink: (https://ftcpublic.commentworks.com/ftc/hsrformchanges) (and following the
instructions on the web-based form). To ensure that the Commission
considers an electronic comment, you must file it at (https://ftcpublic.commentworks.com/ftc/hsrformchanges) . If this document
appears at (http://www.regulations.gov/search/Regs/home.html#home), you
may also file an electronic comment through that website. The
Commission will consider all comments that regulations.gov forwards to
it. You may also visit the FTC website at (http://www.ftc.gov) to read
the document and the news release describing it.
A comment filed in paper form should include the ``HSR Form
Changes'' reference both in the text and on the envelope, and should be
mailed or delivered to the following address: Federal Trade Commission,
Office of the Secretary, Room H-135 (Annex Q), 600 Pennsylvania Avenue,
NW, Washington, DC 20580. The FTC is requesting that any comment filed
in paper form be sent by courier or overnight service, if possible,
because U.S. postal mail in the Washington area and at the Commission
is subject to delay due to heightened security precautions.
The FTC Act and other laws 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, whether filed in paper or electronic
form. Comments received will be available to the public on the FTC
website, to the extent practicable, at (http://www.ftc.gov/os/publiccomments.shtm). As a matter of discretion, the Commission makes
every effort to remove home contact information for individuals from
the public comments it receives before placing those comments on the
FTC website. More information, including routine uses permitted by the
Privacy Act may be found in the FTC's privacy policy, at (http://www.ftc.gov/ftc/privacy.shtm).
Statement of Basis and Purpose of the Proposed Amendments to the Rules
and the Form
The Commission proposes ministerial changes in Items 1 through 3 in
order to make the Form easier to use, as well as the revision or
deletion of many items, such as Items 2(e), 3(b), 3(c), 4(a), 4(b),
5(a), 5(b)(i), 5(b)(ii), 5(d), 6(a), and 6(b), which currently ask for
information that the Agencies no longer consider necessary for their
initial review. The Commission also proposes amending certain Rules and
parts of the Form and Instructions, such as Items 2(d), 5(b)(iii),
5(c), 6(c), 7 and 8 in order to capture additional information (such as
current year revenues by 10 digit NAICS product code, including
products manufactured outside of and sold into the United States, and
entities associated with the acquiring person) that would significantly
assist the Agencies in their review. The Commission also proposes the
addition of Item 4(d), which would require filing parties to submit
certain documents useful to the Agencies' substantive review of
transactions, and Item 7(d), which would require filing parties to
provide information on overlapping NAICS codes between associates of
the acquiring person and the acquired entity(s) or assets.
The proposed changes will eliminate the least helpful information
requests in the Form and add requests for information that will greatly
enhance the Agencies' review. The Commission believes the proposed
changes will make the premerger notification process more efficient,
and will, on balance, reduce the overall burden of completing the Form.
The modifications to the relevant Rules, as well as the changes to the
Form and Instructions, are described more fully below.
Part 801--Coverage Rules
801.1(d)(ii) Associate
``Associate'' in Item 7 Overlapping NAICS Codes and in Item 6(c)
Minority Holdings
At present, an acquiring person is required to provide information
in its notification with respect to all entities included within it at
the time of filing. In some instances, particularly with families of
investment funds, entities that are commonly managed with the acquiring
person are not included because these ``associated'' entities are not
controlled, as defined in Sec. 801.1(b) of the Rules, by the acquiring
Ultimate Parent Entity (``UPE''). As a result, the Agencies do not
receive the information they need to get a complete picture of
potential antitrust ramifications of an acquisition.
In particular, Item 7 currently requires the person filing
notification to identify, to its knowledge or belief, any 6-digit NAICS
industry code in which it derives revenues and in which any other party
to the acquisition also derives revenues (a NAICS ``overlap''). The
information provided in response to Item 7 enables the Agencies to
compare the products and services in which the acquired entity(s) or
assets derive revenues with the products and services in which the
acquiring person and any entity it controls derives revenues.
Item 7 does not currently capture all relevant overlap information
when an acquisition is being made by a limited partnership (``LP'')
that is one of a number of LPs managed by the same general partner.
Even though the general partner typically manages the LP, that
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general partner often has the right to only a small percentage of the
profits of the LP. The definition of control of any unincorporated
entity\7\ requires the right to 50 percent or more of the profits or 50
percent or more of the assets upon dissolution. Thus, the general
partner often does not control the LP for HSR purposes, making the LP
its own UPE. Yet, that same general partner often manages other LPs
with holdings that derive revenues in the same NAICS code as the
acquired entity(s) or assets. Because the general partner does not have
HSR control over the acquiring LP and any other LPs of which it is the
general partner, overlaps across entities under the effective control
of the general partner are not currently captured in Item 7. This
scenario frequently arises in the energy industry with Master Limited
Partnerships, where potentially crucial overlaps among LPs with the
same general partner may go undetected.
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\7\ 16 CFR Sec. 801.1(b)(1)(ii).
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Current Item 7 also falls short when an acquisition is being made
by an investment fund that is one of a family of investment funds under
common management. The acquiring investment fund is generally either
its own UPE or possibly controlled by a limited partner that, by law,
cannot have an active role in the management of the fund. It is not
unusual for another investment fund under common management with the
acquiring investment fund to have holdings that derive revenues in the
same NAICS code as the acquired entity(s) or assets.
The current Form may also fail to detect instances in which
entities that are under common management with the acquiring person,
but are not part of the same UPE (e.g., funds that are part of a family
of investment funds), already have minority holdings of the acquired
entity(s) or assets. While holders of five percent or greater minority
interests in the acquired entity(s) are disclosed in response to Item
6(b), the Agencies may not be aware that one or more of such holders is
under common management with the acquiring person.
In these instances, because the entities are under common
management, requiring reporting of where these entities' holdings
overlap with the acquired entity(s) or assets would provide a more
complete and accurate picture of the competitive impact of the
acquisition. The Commission believes that capturing this information in
the manner proposed herein would allow for a more complete analysis of
the competitive impact of these types of transactions without imposing
substantial additional burden on the acquiring person. Based on past
experience, only a relatively small percentage of all acquiring persons
will fall into the categories that would cause this additional
notification requirement.\8\
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\8\ Investment funds often form limited partnerships to make
acquisitions. For FY07, 445 of the 2,201 total transactions (20.2%)
featured a limited partnership as an acquiring person that
potentially would have had to report information on associates.
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To capture this information on associated entities, the Commission
proposes three changes. First, the term ``associate'' would be added in
new Sec. 801.1(d)(2) to define entities that are under common
management with the acquiring person, but are not under common HSR
control with the acquiring person. Examples of such associates include,
but are not limited to, general partners of a limited partnership,
other partnerships with the same general partner, other investment
funds whose investments are managed by a common entity or under a
common investment management agreement, and investment advisers of a
fund.
Second, the instructions to Item 7 would be amended as follows:
Item 7(a) would require reporting any 6-digit NAICS industry code in
which the acquiring person, or any associate of the acquiring person,
derives revenues and in which the acquired entity(s) or assets also
derive revenues;
Item 7(b)(i) would require reporting the name of any entity(s)
controlled by the acquiring person that derived revenues in the
overlapping NAICS code in the most recent fiscal year and Item 7(b)(ii)
would require reporting the name of any entity(s) controlled by an
associate of the acquiring person that derived revenues in the
overlapping NAICS code in the most recent fiscal year; and
Item 7(c) would require reporting the geographic information for any
entity(s) controlled by the acquiring person that derived revenues in
the overlapping NAICS code in the most recent fiscal year and Item 7(d)
would require reporting the geographic information for any entity(s)
controlled by an associate of the acquiring person that derived
revenues in the overlapping NAICS code in the most recent fiscal year.
Third, the Commission also proposes amending Item 6(c) to require
an acquiring person to report, based on its knowledge or belief, all
its associates' holdings of voting securities and non-corporate
interests of 5 percent or more and less than 50 percent in entities
having 6-digit NAICS industry code overlaps with the acquired entity(s)
or assets. The proposed changes to Item 6(c), as well as more details
on the proposed changes to Item 7, are discussed more fully below.
Part 803-Transmittal Rules
As a result of the proposed changes to the Notification and Report
Form and its Instructions, certain sections of Part 803 need to be
amended in order to be consistent with the Form. Specifically, minor
ministerial changes are required to Sec. 803.2.
Part 803--Appendix: Premerger Notification and Report Form
General Instructions
Item by Item
* * *
Fee Information
The 2001 revisions to the Form\9\ expanded the Fee Information Item
to obtain more information concerning electronic wire transfers
(``EWT''), the preferred method of paying the HSR filing fee. The
additional information concerning this method of payment, such as the
Taxpayer Identification Number (or Social Security number for Natural
Persons), is necessary under 31 U.S.C. Sec. 7701. Purely ministerial
changes, such as repositioning and reformatting, are proposed in this
section of the Form to make it easier to complete.
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\9\ 66 FR 8680 (February 1, 2001).
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* * *
Privacy Act Statement
The Privacy Act Statement on the Form has been amended to reflect
the change in civil penalties, effective on February 9, 2009, from a
maximum of $11,000 per day to a maximum of $16,000 per day.\10\
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\10\ 74 FR 857 (January 9, 2009).
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Items 1-3
Items 1 through 3 require filing parties to supply basic
information about the transaction and the parties to the transaction.
The Commission proposes both ministerial and substantive changes to
these items.
Item 1
Item 1 of the Form seeks information about the identity of the
filing party, its contact information, whether it is an acquiring or
acquired person or both, the definition of its fiscal year and what
type of entity it is.
[[Page 57113]]
The Commission proposes to reorganize Item 1 so that it is easier
to complete. Item 1(a), for example, which currently asks for ``Name
and Headquarters address of person filing'' would be amended to be
consistent with Items 1(g) and 1(h) in specifically requesting line by
line address information. In addition, Item 1(a) would ask for a
website address to make it easier for the Agencies to learn more about
the filing person, as well as to find information that might relate to
the structure of the transaction described in Item 3(a). If a filer has
several websites, it should use its best judgment as to which website
would be the most relevant for Agency staff. It is understood that some
parties may not have a relevant website to reference.
The Commission also proposes to revise Item 1(g), which currently
asks for a contact person in case of questions or problems with the
Form. PNO staff frequently finds it difficult to quickly reach the
contact person to resolve any outstanding issues with a filing. To
avoid unnecessary delay in processing the filing, the Commission
proposes that filers provide a secondary contact person. The secondary
contact information will only be used in the event the primary contact
is unavailable or if the Agencies are specifically instructed by the
parties to contact the secondary person. Given the time-sensitive
nature of HSR filings and the problems that arise when information is
incorrect or missing from the filing, having a second contact person is
a reasonable safeguard that imposes minimal additional burden on the
parties.
Item 2
Item 2 requires the reporting person to identify the ultimate
parent entities of the parties in the transaction as well as to
identify the type and value of the transaction. The Commission proposes
minor, non-substantive format changes, such as repositioning and
reformatting text, to Items 2(a), (b) and (c) to improve the
readability of the Form. There are no proposed substantive changes to
Items 2(a), (b) and (c).
Item 2(d)
As discussed below, the Commission proposes removing the obligation
of parties to provide certain details pertaining to assets, non-
corporate interests and voting securities of the acquired person held
by the acquiring party prior and subsequent to the acquisition,
including, for example, the classes of shares to be acquired. The
percentage of voting securities and non-corporate interests held both
prior to, and as a result of, the acquisition are necessary, however,
for the Agencies to determine that the parties are correctly adhering
to the Act and to conduct a substantive review of the transaction.
Thus, the Commission proposes to modify Item 2(d) to include the
percentage and value of voting securities and non-corporate interests
of the acquired person held prior to and as a result of the
acquisition.\11\ Item 2(d) will continue to require parties to identify
the value of assets to be held as a result of the acquisition, and to
provide the aggregate total value of the acquisition. Additionally, the
Commission proposes reformatting Item 2(d) into an expanded table
format for ease of use by the filer and the Agencies.
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\11\ The revised Item 2(d) contemplates an overall percentage of
all classes of voting securities held in the target. Filing parties
should use 16 C.F.R. Sec. 801.12 as necessary to calculate the
appropriate percentage of all classes of voting securities. The
percentage of non-corporate interests should reflect economic
interests.
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This approach is in line with the 2005 amendments to the Rules
which require the reporting of acquisitions of control of
unincorporated entities and reconcile, as much as possible, the Rules'
treatment of unincorporated and incorporated entities. Several changes
were made to the Form at that time to reflect the new reportability of
these acquisitions.\12\ The Commission inadvertently failed to amend
Item 2(d) at that time to include a reference to non-corporate
interests and proposes to do so now.
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\12\ 70 FR 11502 (March 8, 2005).
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Item 2(e)
Item 2(e) was added to the Form in 2001 to request the name of the
person(s) who performed any fair market valuation used to determine the
total value of the transaction.\13\ The reasoning was that the new
tiered filing fee structure made the determination of the fair market
value more important than had previously been the case, and identifying
a contact person familiar with the fair market valuation methodology
would benefit the Agencies in the event that a valuation question
arose.
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\13\ 66 FR 8680 (February 1, 2001).
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The 2001 rulemaking acknowledges that in the event of questions,
the Agencies will likely contact the Item 1(g) contact person first.
``Although the agencies would initially contact the person listed for
that purpose in Items 1(g) and (h) should any questions arise regarding
information supplied on the Form, this addition should help the parties
and the agencies pinpoint who would be most knowledgeable on the issue
of valuation.''\14\
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\14\ Id.
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The additional information obtained by Item 2(e) has not proven to
be useful. In all cases, the contact person in Item 1(g) and (h) has
been the person contacted. The contact person, of course, can point the
Agencies to the person who prepared the valuation, thus making the
direct contact information in Item 2(e) unnecessary. In the interest of
reducing the burden on the parties, as small as it may be in this
instance, the Commission proposes to delete Item 2(e).
Item 3(a)
In Item 3(a), filing parties are required to provide information on
the filing parties, the contours of the transaction, the amount and
form of consideration, and the time line for closing. The Commission
proposes to amend Item 3(a) to require that, in the case of
acquisitions of voting securities or non-corporate interests, filing
parties list the names of all issuers and non-corporate entities whose
shares or interests are being acquired. In the case of asset
acquisitions, filing parties would be required to describe the business
the assets being acquired comprise. If there are additional filings,
such as shareholder backside filings, associated with the transaction,
filing parties would be required to list those, as well as any special
circumstances that apply to the filing, such as whether part of the
transaction is exempt under one of the exemptions found in Section 802.
These amendments to Item 3(a) will facilitate the Agencies' review and,
on balance, reduce the burden on filers because they will allow Items
3(b) and 3(c) to be eliminated as discussed below.
Item 3(b)
Item 3(b) requests a description of the assets to be acquired, a
description of any assets previously acquired from the acquired person
and currently held by the acquiring person, and a description of assets
held by any unincorporated entities that are being acquired. The
Agencies have found that much of this level of detail is not helpful in
the initial review of the transaction. Given the proposed amendment to
Item 3(a) to include a description of the assets being acquired in a
transaction, the Commission proposes to delete Item 3(b).
Item 3(c)
Item 3(c) requires parties to provide a list and description of
voting and non-voting securities to be acquired,
[[Page 57114]]
including the classes, the rights of each class, the total number of
outstanding shares post-acquisition, the shares to be acquired, each
class of share to be held by each acquiring person, and the dollar
value of the shares to be acquired. First added in 1978,\15\ this item
was amended in 1987 to eliminate the need for a detailed response when
100% of the voting securities of the acquired entity are being
acquired, requiring only that parties provide the total dollar value of
the transaction in these instances.\16\
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\15\ 43 FR 33450 (July 31, 1978).
\16\ 52 FR 7066 (March 6, 1987). Note this was Item 2(c) at the
time.
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The Commission has further determined that obtaining the detailed
information currently required in Item 3(c) for acquisitions of less
than 100% does not significantly aid the Agencies in their initial
review. It has determined that it is sufficient for initial review
purposes that the parties provide information as to the names of all
issuers and non-corporate entities whose shares or interests are being
acquired, and the percentage and value of voting securities of the
acquired entity or interests in the non-corporate entity held by the
acquiring person prior and subsequent to the transaction. As discussed
above, such information will be required under the proposed revisions
to Item 2(d) and Item 3(a) of the Form. The Commission thus proposes
deleting Item 3(c).
Item 3(d)
The Commission proposes redesignating Item 3(d), which requires
copies of all documents that constitute the agreement(s) between the
parties, to Item 3(b) to reflect the proposed elimination of former
Items 3(b) and 3(c). Further, the Commission proposes amending the
Instructions to the Form for the new Item 3(b) to make clear that all
Agreements Not to Compete are required to be submitted with the Form.
The Instructions would specify that documents that constitute the
agreement(s) (e.g., a Letter of Intent, Merger Agreement or Purchase
and Sale Agreement) must be executed, while Agreements Not to Compete
may be provided in draft form if that is the most recent version.\17\
There are no proposed substantive changes to Item 3(d).
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\17\ If parties are filing on an executed Letter of Intent, they
may also submit a draft of the definitive agreement. Note that
transactions subject to Sec. 801.30 and bankruptcies under 11 USC
Sec. 363 do not require an executed agreement or letter of intent.
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Items 4-6
Item 4
Item 4 seeks various documents, including some created in the
ordinary course of business and some produced by the parties in
connection with the current transaction. The Commission is proposing
changes to reduce the burden of producing documents in response to
Items 4(a) and (b). The Commission also proposes the addition of new
Item 4(d) which would require filing parties to submit certain
documents useful to the Agencies' substantive review of transactions.
Item 4(a) Documents filed with the United States Securities and
Exchange Commission (``SEC'')
Item 4(a) seeks materials submitted to the SEC, including a
company's most recent proxy statement, its most recent 10-K filing, all
10-Q and 8-K filings made since the end of the period reflected in the
most recent 10-K, any registration statement filed in connection with
the transaction, and, if the acquisition is a tender offer, the
Schedule TO. Inclusion of these documents under Item 4(a) was
``intended to provide financial information about the reporting person,
information about its operations and those of its subsidiaries, and
occasionally about the reported transaction itself.''\18\
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\18\ 46 FR 38710 (July 29, 1981).
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The Commission initially required parties to provide paper copies
of the required SEC filings. In doing so, the Commission stated that
although the documents were available from the SEC, the Agency staff
would be under severe time constraints in reviewing filings under the
Act and that obtaining the required documents for each reporting person
would be extremely time-consuming.\19\ However, with the advent of the
Internet and the SEC's EDGAR database, the Commission determined that
staff could quickly and easily obtain the relevant information and that
the provision by the parties of electronic links to the documents would
be sufficient. Therefore, in 2005, the Commission amended the Form to
allow filers to provide Internet links to the documents required in
Item 4(a) and Item 4(b).\20\
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\19\ 43 FR 33450 (July 31, 1978).
\20\ 70 FR 73369 (December 12, 2005).
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A number of filers have taken advantage of this change and provide
Internet links in Item 4(a). Because virtually all filings are still
made in paper form, however, Agency staff cannot simply click on the
link and be directed to the document. Rather, to use these links, staff
must type out long web addresses. The length of these addresses
increases the chance that either the filer or the Agency staff might
enter an incorrect address and delay the processing of the filing.
In the meantime, the sophistication of the SEC website has
increased and now provides for immediate access to all filed materials.
Thus, the Commission now proposes further simplifying Item 4(a) by only
requiring filers to provide a list of all entities within the person
filing notification, including the UPE, that file annual reports (10-K
or 20-F filings) with the SEC, and to provide the Central Index Key
number (CIK)\21\ for each entity. Such information will provide staff
with sufficient information to find and review these documents easily.
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\21\ A Central Index Key or CIK number is a number given to an
individual or company by the United States Securities and Exchange
Commission. The number is used to identify the filings of a company,
person or entity in several online databases, including EDGAR.
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Item 4(b) Annual Reports, Annual Audit Reports, and Regularly Prepared
Balance Sheets
Item 4(b) requires parties to provide the most recent annual
reports and annual audit reports of the person filing notification and
of each unconsolidated United States issuer included within the person.
The person filing must also provide, if different, the most recent
regularly prepared balance sheet of the person filing notification and
of each unconsolidated United States issuer included within the person.
It is often challenging for filing parties to provide balance
sheets, particularly where the filing person is a natural person or a
foreign entity, as these balance sheets are not readily available.
Typically, these balance sheets contain no substantive information on
the filing party, and are merely a snapshot of the party's assets and
liabilities. The Commission has determined, based on the Agencies'
experience, that the information contained in the most recently
prepared balance sheet is not useful beyond providing evidence, where
necessary, that the party has sufficient assets to meet the size of
person test.
Thus, the Commission proposes the elimination of Item 4(b)'s
requirement to submit a company's most recent regularly prepared
balance sheet. Parties must continue to provide the most recent annual
report and/or audit report for the filing person and any unconsolidated
U.S. issuers, because these reports are often quite useful in
understanding the business of the filing person. In addition, the
Commission proposes expanding the requirement to submit annual reports
and/or audit reports to include any unconsolidated
[[Page 57115]]
non-corporate U.S. entities. This proposed change will bring this item
in line with other changes that attempt to reconcile the treatment of
corporations and unincorporated entities.\22\ For natural persons, the
Commission proposes requiring the person to submit only the most recent
annual report and/or audit report from the highest level entity(s) that
the person controls. Personal balance sheets from natural persons would
thus no longer be required.
---------------------------------------------------------------------------
\22\ 70 FR 11502 (March 8, 2005).
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As balance sheets will no longer be required, filing parties will
have to be more cognizant of demonstrating that they meet the size of
person test when applicable. If the annual report or annual audit
report does not show sales or assets sufficient to meet the size of
person test, and the size of person test is relevant given the size of
the transaction, the parties must stipulate in Item 4(b) that the
filing person meets the test.
The Commission believes that the proposed changes to Items 4(a) and
4(b) will reduce the burden of producing documents for filing parties.
Proposed Item 4(d): Additional Documents
Certain categories of documents typically created in the course of
a transaction are quite useful for the Agencies' initial substantive
analysis of transactions but are not always provided because parties
have differing interpretations as to whether they are called for under
current Item 4(c). The Commission thus proposes new Item 4(d) to
enumerate these documents and require their submission with the Form.
Item 4(d)(i): Offering Memoranda
When a company is preparing to put itself up for sale, it will
often draft or hire a third party to draft a confidential information
memorandum that lays out the details of the company for prospective
buyers. Such offering memoranda are extremely valuable to the Agencies
in their initial review. Most parties already submit these along with
their HSR Filings and proposed Item 4(d)(i), which would require filing
parties to do so, should not create any additional burden for them or
substantial additional burden for others. Under proposed Item 4(d)(i),
offering memoranda must be submitted regardless of whether they were
prepared by or for any officer(s) or director(s) (or, in the case of
unincorporated entities, individuals exercising similar functions) for
the purpose of evaluating or analyzing the acquisition with respect to
market shares, competition, competitors, markets, potential for sales
growth or expansion into product or geographic markets. Any such study,
survey, analysis or report will only be responsive to Item 4(d)(i) if
it also contains some reference to the acquired entity(s) or
assets.\23\ If the seller circulates an existing presentation to
provide an overview of the company to a prospective buyer(s), this type
of document would be the equivalent of an offering memorandum for the
purposes of Item 4(d)(i) and must be submitted. The Commission
recognizes that without a date cutoff, a search for these documents
could be extremely burdensome. Accordingly, the Commission proposes a
limit of two years before the date of filing for documents responsive
to this item. This proposed time frame is consistent with the specified
``relevant time period''of two years as applicable to second requests
in the 2006 merger process reforms.\24\
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\23\ This requirement is intended to capture documents from both
the buyer and the seller.
\24\ See REFORMS TO THE MERGER REVIEW PROCESS (p.19) announced
by then Chairman Deborah Platt Majoras on February 16, 2006. (http://www.ftc.gov/os/2006/02/mergerreviewprocess.pdf)
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Item 4(d)(ii): Materials Prepared by Investment Bankers, Consultants or
Other Third Party Advisors
Investment bankers, consultants or other third party advisors are
often active at all stages of a transaction, generating due diligence,
valuation and other broad categories of materials. Some of these
materials contain competition-related content and can be invaluable to
the Agencies in their initial review of the potential competitive
impact of a transaction. Many parties already submit such competition-
related third party materials along with their HSR Filings and proposed
Item 4(d)(ii), which would require filing parties to do so, should not
create substantial additional burden for them or substantial additional
burden for others. Under proposed Item 4(d)(ii), studies, surveys,
analyses and reports prepared by investment bankers, consultants or
other third party advisors must be submitted if they were prepared for
any officer(s) or director(s) (or, in the case of unincorporated
entities, individuals exercising similar functions) for the purpose of
evaluating or analyzing market shares, competition, competitors,
markets, potential for sales growth or expansion into product or
geographic markets. Any such study, survey, analysis or report will
only be responsive to Item 4(d)(ii) if it also contains some reference
to the acquired entity(s) or assets.\25\ If such studies, surveys,
analyses and reports are found in the files of any officer(s) or
director(s) (or, in the case of unincorporated entities, individuals
exercising similar functions), they should be deemed to have been
prepared for that individual. For the reasons state above, the
Commission also proposes a limit of two years before the date of filing
for documents responsive to this item.
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\25\ This requirement is intended to capture documents from both
the buyer and the seller.
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Item 4(d)(iii): Documents Discussing Synergies and/or Efficiencies
Documents that discuss synergies and/or efficiencies likely to
result from a transaction can be very useful in the Agencies' initial
review. Proposed Item 4(d)(iii) would require filing parties to submit
studies, surveys, analyses and reports evaluating or analyzing such
synergies and/or efficiencies if they were prepared by or for any
officer(s) or director(s) (or, in the case of unincorporated entities,
individuals exercising similar functions) for the purpose of evaluating
or analyzing the acquisition. Financial models without stated
assumptions need not be provided in response to this item. As many
filing parties already submit such documents, this item should present
little additional burden for them or substantial additional burden for
others.
The proposed instructions to Item 4(d) would read as follows:
Item 4(d) - Additional Documents
For each category below, indicate (if not contained in the document
itself) the date of preparation, and the name of the company or
organization that prepared each such document.
Item 4(d)(i): Provide all offering memoranda (or documents that served
that function) that reference the acquired entity(s) or assets.
Documents responsive to this item are limited to those produced up to
two years before the date of filing.
Item 4(d)(ii): Provide all studies, surveys, analyses and reports
prepared by investment bankers, consultants or other third party
advisors if they were prepared for any officer(s) or director(s) (or,
in the case of unincorporated entities, individuals exercising similar
functions) for the purpose of evaluating or analyzing market shares,
competition, competitors, markets, potential for sales growth or
expansion into product or geographic markets, and that also reference
the
[[Page 57116]]
acquired entity(s) or assets. Documents responsive to this item are
limited to those produced up to two years before the date of filing.
Item 4(d)(iii): Provide all studies, surveys, analyses and reports
evaluating or analyzing synergies and/or efficiencies if they were
prepared by or for any officer(s) or director(s) (or, in the case of
unincorporated entities, individuals exercising similar functions) for
the purpose of evaluating or analyzing the acquisition. Financial
models without stated assumptions need not be provided in response to
this item.
Item 5
Item 5 requires persons to submit information regarding dollar
revenues and lines of commerce with respect to operations conducted
within the United States during a company's most recently completed
year and the base year, currently 2002.\26\ All filing persons must
submit certain data at the 6-digit NAICS industry code level. To the
extent that dollar revenues are derived from manufacturing operations
(NAICS Sectors 31-33), data must also be provided at the 7-digit
product code level for the most recent year and at the 10-digit product
code level for the base year.
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\26\ 70 FR 77312 (December 30, 2005).
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The Item 5 reporting requirement was first based on Standard
Industrial Classification (``SIC'') codes, and at the time it was
contemplated that such a reporting requirement would not be unduly
burdensome. Reporting persons were presumed to compile yearly SIC-based
data for submission to the Bureau of Census and, thus, would have such
information readily available.\27\ This presumption remained in place
when SIC codes were supplanted by NAICS codes in 2001.\28\
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\27\ 43 FR 33450 (July 31, 1978).
\28\ 66 FR 35541 (July 6, 2001).
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Based on informal input from practitioners, it appears that filing
parties generally do not rely on data compiled for previous Census
requirements in responding to Item 5, either because they were never
compiled or are no longer available. In fact, the appropriate NAICS
codes and underlying revenues generally are determined by the parties
when preparing the filing. Because the parties do not, as the
Commission believed they would, reference previously compiled data, the
burden of gathering this information is not as minimal as the
Commission originally believed. This is particularly true for the base
year requirement in Items 5(a) and 5(b)(i).
The incorporation of a base year in the Form was intended to
provide context for the company's most recent year's revenues. The
reasoning was that the Agencies would be able to see how much a given
industry had grown in the span of time between the base year and the
most current year. The base year was intended to coincide with the
publication schedules of the quinquennial economic censuses and the
Annual Survey of Manufacturers, publications that serve as the most
readily available and reliable statistical sources of industry
components and market universe to which individual company product and
revenue data can be compared.
Even though the U.S. Economic Census occurs every five years, it
can take as long as three years for the results to be published.
Consequently, new base years are not adopted by the Commission until
well after the relevant census occurred. For example, the current 2002
base year was not adopted by the Commission until the end of 2005.\29\
The result is that parties are required to assemble data that may be as
much as eight years old. This is often a difficult task, particularly
in the case of assets acquired since the base year. Moreover, comparing
current revenues of the parties to an economic universe that is at a
minimum three and at a maximum eight years old is of minimal value to
the Agencies in analyzing the potential competitive impact of a
transaction. The Commission, therefore, proposes eliminating the base
year reporting requirements in Items 5(a) and 5(b)(i).
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\29\ 70 FR 77312 (December 30, 2005).
---------------------------------------------------------------------------
Once the base year requirements are removed, Item 5(b)(ii), which
requires a listing of revenues for products added or deleted between
the base year and the most recent year, becomes moot. The Commission,
therefore, also proposes deleting Item 5(b)(ii).
Item 5(b)(iii) requires parties to list dollar revenues by
manufactured product class (7-digit) for the most recent year and Item
5(c) requires parties to submit revenues by non-manufacturing industry
code (6-digit) for the most recent year. To provide the Agencies with a
more accurate view of recent revenues, the Commission proposes to
revise Item 5(b)(iii) by substituting the reporting of the more precise
10-digit product codes for manufactured products for the most recent
year in place of the currently required 7-digit product classes. Based
on informal input from practitioners, filing parties generally find
these revenues to be far less burdensome to compile than base year
revenues, and 10-digit product codes are typically prepared by the
parties as part of the analysis of the transaction to identify
potentially problematic overlaps. The Commission thus proposes that
Item 5 be revised to have only one reporting section, proposed Item
5(a), where filing parties will list manufacturing revenues by 10-digit
product codes and non-manufacturing revenues by 6-digit industry codes
for the most recent year. The Commission believes this change will
result in the Agencies getting more useful NAICS code information in
Item 5 than they currently receive.
In addition, the Commission proposes the elimination of the million
dollar minimum applicable to current Item 5(c). The million dollar
minimum was based on the way filing persons reported non-manufacturing
data to the Bureau of Census. As discussed above, filing parties may
not rely on data compiled for Census in responding to Item 5, and, in
fact, generally determine the appropriate NAICS codes in response to
Item 5 at the time of filing. In addition, this million dollar minimum
often creates confusion about whether there is a need to report an
overlap in Item 7. For instance, if an acquiring person has less than
$1 million in sales in a non-manufacturing NAICS industry code and does
not report that code in the current Item 5(c), it still is required to
report an overlap in Item 7 if the acquired person also derives revenue
in that same non-manufacturing NAICS industry code; however, most
filing parties do not indicate an overlap in Item 7 in this instance,
assuming the million dollar minimum in Item 5(c) means there are
essentially no revenues to report in that code. The elimination of the
million dollar minimum would thus eliminate confusion for filing
parties and ensure that the Agencies get this overlap information.
Occasionally a filing party will not have revenue to report in
proposed Item 5. To speed review of the Form, the Commission proposes
inserting a checkbox indicating ``None'' into the Form at Item 5 in the
event the filing party has no Item 5 information to report. Parties
checking the box will be required to provide a brief explanation for
the lack of reportable Item 5 information. Explanations may include,
but are not limited to, situations where:
1. An acquiring person is newly-formed in a transaction valued in
excess of $200 million (as adjusted);
2. An acquiring person is foreign and has no sales in or into the
U.S;
3. A filing person is a development stage company that has not yet
generated sales; or
[[Page 57117]]
4. A filing person's holding is an exclusive license for
intellectual property related to a product that has not yet gone into
production.
Item 5 Foreign Manufactured Products
Section 803.2(c)(1) of the Rules instructs filing persons to
provide information in response to Items 5, 7, and 8 ``with respect to
operations conducted within the United States.'' Filing persons are not
required to submit NAICS code information on a detailed manufacturing
basis for products they manufacture outside the United States even if
they sell the products in the United States. For example, if a filing
person manufactured a product in Canada, imported it into the United
States, and sold that product at the wholesale or retail level, the
filing person would report revenues derived from those sales in current
Item 5(c) using a wholesale or retail 6-digit NAICS industry code. The
filing person would not be required to identify the product it
manufactured in Canada using the more detailed 10-digit manufacturing
product codes that would have been required had the product been
manufactured in the United States.
Absent NAICS code information at the manufacturing level, the
Agencies have found it very difficult to determine whether a filing
person that manufactures products outside the United States but sells
them in the U.S. may be involved in manufacturing activities similar to
those of another party to the transaction. As foreign imports and their
effect on the nation's economy have increased, this information has
become more important. Accordingly, the Commission believes that 10-
digit NAICS product code information concerning products manufactured
outside the U.S. that are sold in or into the U.S. at the wholesale or
retail level would provide a more complete picture of the impact of the
transaction at the initial review stage.
Consistent with other proposed changes to Item 5, the Commission
proposes to modify the Form to require filing persons to identify the
10-digit NAICS product codes and revenues for each product they
manufacture outside the U.S. and sell in the U.S. at the wholesale or
retail level, or that they sell directly to customers in the U.S.
Filing parties would include 10-digit NAICS product codes and revenues
for such foreign manufactured products only for the most recent year in
proposed Item 5(a). Sales made directly into the U.S. would be reported
in a manufacturing code while sales made in to the U.S. through a
wholesale operation within the same person would be reported in both
manufacturing (transfer price) and wholesale or retail (sales price)
codes.\30\ This information will aid the Agencies in their initial
review and, as the provision of the 10-digit NAICS information is based
on the most recent year, it should not impose a significant additional
burden on filing persons.
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\30\ Reporting in this manner is in line with current practice
when companies have both domestic manufacturing and wholesale or
retail operations.
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The Commission therefore proposes to revise the instructions to new
Item 5(a) to read as follows:
Item 5(a): Provide 6-digit NAICS industry data concerning the
aggregate operations of the person filing notification for the most
recent year in NAICS Sectors other than 31-33 (non-manufacturing
industries) in which the person engaged and 10-digit NAICS product code
data for each product code within NAICS Sectors 31-33 (manufacturing
industries) in which the person engaged, including revenues for each
product manufactured outside the U.S. but sold in or into the U.S.
Sales made directly into the U.S. should be reported in a manufacturing
code. Sales made into the U.S. through a wholesale or retail operation
within the same person should be reported in both manufacturing
(transfer price) and wholesale or retail (sales price) codes. If such
data have not been compiled for the most recent year, estimates of
dollar revenues by 6-digit NAICS industry codes and 10-digit NAICS
product codes may be provided if a statement describing the method of
estimation is furnished.
In conjunction with this proposed change to Item 5, the Commission
proposes deleting Sec. 803.2(c)(1) to remove the limitation to
operations conducted within the U.S.
Item 5(d)
Item 5(d) requires filing parties to provide certain information
with regard to the formation of a joint venture (``JV''), including the
name and address of the JV in Item 5(d)(i); a description of the
contributions that each person forming the JV has agreed to make in
Item 5(d)(ii)(A); a description of any contracts or agreements related
to the JV and a description of any credit guarantees or obligations
applicable to the JV in Items 5(d)(ii)(B) and (C); the consideration
which each person forming the JV will receive in Item 5(d)(ii)(D); the
business in which the JV will engage in Item 5(d)(iii); and the
expected source of the JV's revenues by NAICS code in Item 5(d)(iv).
Informal discussions with FTC and Antitrust Division staff have
revealed that some of this information, such as the description of the
contributions that each person forming the JV has agreed to make, the
consideration which each forming person will receive, the business in
which the JV will engage, and the source of the JV's revenues by NAICS
code, is crucial to the Agencies' initial analysis of the joint
venture's competitive impact; however, other parts of Item 5(d) are not
as important to staff's substantive analysis of the JV. The name and
the address of the JV, a description of any contracts or agreements
whereby the JV will obtain assets or capital from sources other than
the persons forming it (as opposed to the formation agreement), and a
description of any credit guarantees or obligations applicable to the
JV provide the Agencies with little helpful information for their
initial review. The Commission therefore proposes to delete Item
5(d)(i) and Items 5(d)(ii)(B) and (C) from the Form.
The Commission also proposes to revise Item 5(d)(iv) to require
information on the expected source of the JV's dollar revenues by 6-
digit NAICS industry codes (non-manufacturing) and 10-digit NAICS
product codes (manufacturing) to be consistent with the proposal to
require 10-digit NAICS product codes for the most recent year in Item
5(a) as discussed above.
Finally, the Commission proposes redesignating Item 5(d) to Item
5(b) to reflect the proposed changes to this item and renumbering the
subsections within Item 5(b).
Item 6(a) Entities within person filing notification
Item 6(a) requires information concerning entities within the party
filing notification: the acquiring person must list all entities within
it having total assets of $10 million or more, including foreign
entities, and the acquired person must list all entities within the
acquired entity, including foreign entities.
Over the course of thirty years, it has become clear that the value
of such detailed information in Item 6(a) is limited. Compiling a list
of the name and street address of every entity within a person,
regardless of whether the entity has a nexus with the U.S., can be
often quite burdensome for filing parties, particularly with respect to
foreign addresses. The Commission thus proposes to limit the entities
that must
[[Page 57118]]
be listed in Item 6(a) to those located in the U.S. and those foreign
entities that have sales in or into the U.S.\31\ In addition, the
Commission believes that identifying the street addresses of these
entities is not necessary to the Agencies' initial premerger review and
proposes limiting responses in Item 6(a) to a list of responsive
entities with only city and state or city and foreign country
designations.
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\31\ Under the proposal, it is permissible for a filing person
to report all entities within it in response to Item 6(a).
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Item 6(b) Shareholders of Person Filing Notification and Item 6(c)
Holdings of Person Filing Notification
Item 6(b) of the Form currently requires the filing person to
identify shareholders holding five percent or more of the voting
securities of any entity included within the filing person (including
the ultimate parent entity) having total assets of $10 million or more.
For each shareholder, the filing person must list the issuer, the
class, the number and the percentage of each class of voting securities
held. Item 6(c) requires the filing person to list its minority voting
stock holdings of five percent or more in any issuer having total
assets of $10 million or more.
Items 6(b) and 6(c) are designed to obtain information to ``alert
the enforcement agencies to situations in which the potential antitrust
impact of the reported transaction does not result solely or directly
from the acquisition, but may arise from direct or indirect shareholder
relationships between the parties to the transaction.''\32\ For
example, Items 6(b) and 6(c) may reveal situations in which ``a person
known to be a competitor, customer or supplier of one of the parties is
also a significant shareholder of the other party, or when the
acquiring party holds stock in a competitor, customer or supplier of
the acquired company, or vice versa.''\33\ Responses to these two items
are very useful to the Agencies in their initial review and the
Commission proposes several changes to them to give the Agencies an
even clearer picture of the competitive impact of a given transaction,
while in some ways reducing the scope of the required responses.
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\32\ 43 FR 33450 (July 31, 1978).
\33\ Id.
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As noted above, the Commission amended the rules in 2005\34\ to
more closely align the treatment of unincorporated entities with the
treatment of corporations, and the Commission now proposes amending
Items 6(b) and 6(c) to include non-corporate interests to reflect this
earlier change. Item 6(b) will not require a list of limited partners,
as the limited partners have no control over the operations of the fund
or the portfolio companies and the identity and investment level of
limited partners is often highly confidential. Any general partner(s)
would have to be listed in proposed Item 6(b), regardless of the
percentage held, as these are entities that typically manage the
limited partnership.
---------------------------------------------------------------------------
\34\ 70 FR 11502 (March 8, 2005).
---------------------------------------------------------------------------
The Commission also proposes to limit the response to Item 6(b) to
the acquired entity(s) and the acquiring entity(s) and its UPE (or in
the case of natural persons, the top-level corporate or non-corporate
entity(s) within that UPE), and not to require a response to Item 6(b)
for any other entities included within, but not wholly owned by, the
UPE. The additional detail regarding other included entities that is
required in current Item 6(b) is not essential to the Agencies' initial
review. Finally, the Commission proposes to eliminate the $10 million
asset threshold from Item 6(b). This would require filing parties to
provide the identities of shareholders or interest holders of the UPE
and acquiring entity(s) regardless of the amount of assets held. This
change will be of significant use to the Agencies in their initial
review, especially in the case of newly formed entities. To know which
investment funds hold interests in a newly formed entity, particularly
when these funds are not associates of the filing person, will give the
Agencies a better picture of the competitive impact of a given
transaction.
Proposed Item 6(c)(i) would require filing parties to report their
holdings of 5 percent or greater, but less than 50 percent, of the
voting securities or non-corporate interests of an issuer or
unincorporated entity. For the acquiring person, the response would be
limited, based on its knowledge or belief, to entities that derive
revenues in the same 6-digit NAICS industry code as the acquired
entity(s) or assets. For the acquired entity, the response would be
limited, based on its knowledge or belief, to entities that derive
revenues in the same 6-digit NAICS industry code as the acquiring
person. The Commission recognizes that it may be difficult for a filing
person to determine in what NAICS codes an entity derives revenues if
it does not control the entity. Therefore, the Commission proposes that
if NAICS codes are unavailable, the filing person may report, based on
its knowledge or belief, holdings in entities that have operations in
the same industry as the acquired entity(s) or assets.\35\ Furthermore,
in Item 6(c), the Commission proposes the deletion of the seldom-
exercised option to list the entity within the person filing that holds
the securities.
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\35\ Under the proposal, it would be permissible for a filing
person to list all entities in which it has a reportable minority
interest in response to Item 6(c)(i).
---------------------------------------------------------------------------
Consistent with the other changes related to associated entities,
the Commission also proposes amending Item 6(c) to require the
acquiring person to include, based on its knowledge or belief, the
minority holdings of its associates. Proposed Item 6(c)(ii) would
require the filing person, based on its knowledge or belief, to report
the holdings of its associates of 5 percent or greater, but less than
50 percent, of the voting securities or non-corporate interests of an
issuer or unincorporated entity that derives revenues in the same 6-
digit NAICS industry code as the acquired entity(s) or assets. The
Commission recognizes that it may be difficult for an acquiring person
to determine in what NAICS codes an entity derives revenues if it does
not control the entity. Therefore, the Commission proposes that if
NAICS codes are unavailable, the acquiring person may report, based on
its knowledge or belief, holdings in entities that have operations in
the same industry as the acquired entity(s) or assets.\36\
---------------------------------------------------------------------------
\36\ Under the proposal, it would be permissible for an
acquiring person to list all entities in which its associate(s) has
a reportable minority interest in response to Item 6(c)(i)(ii).
---------------------------------------------------------------------------
Accordingly, the Commission proposes to revise Items 6(b) and 6(c)
of the Instructions to the Form to read as follows:
Item 6(b) For the acquired entity(s) and for the acquiring entity(s)
and its UPE or, in the case of natural persons, the top-level corporate
or non-corporate entity(s) within that UPE, list the name and
headquarters mailing address of each other person that holds (See
Sec. 801.1(c)) five percent or more of the outstanding voting
securities or non-corporate interests of the entity, and the percentage
of voting securities or non-corporate interests held by that person.
For limited partnerships, only the general partner(s), regardless of
percentage held, should be listed.
Item 6(c)(i) If the person filing notification holds five percent or
more but less than fifty percent of the voting securities of any issuer
or non-corporate interests of any unincorporated entity, list the
issuer and percentage of voting securities held, or in the case of an
[[Page 57119]]
unincorporated entity, the unincorporated entity and the percentage of
non-corporate interests held.
The acquiring person should limit its response, based on its knowledge
or belief, to entities that derived dollar revenues in the most recent
year from operations in industries within any 6-digit NAICS industry
code in which the acquired entity(s) or assets also derived dollar
revenues in the most recent year. The acquired entity should limit its
response, based on its knowledge or belief, to entities that derive
revenues in the same 6-digit NAICS industry code as the acquiring
person. If NAICS codes are unavailable, holdings in entities that have
operations in the same industry, based on the knowledge or belief of
the filing person, should be listed. Holdings of issuers or
unincorporated entities with total assets of less than $10 million, may
be omitted. In responding to Item 6(c)(i), it is permissible for a
filing person to list all entities in which it has a reportable
minority interest.
Item 6(c)(ii) - (Acquiring person only) For each associate (see
Sec. 801.1(d)(2)) of the person filing notification holding five
percent or more but less than fifty percent of the voting securities of
any issuer or non-corporate interests of any unincorporated entity that
derived dollar revenues in the most recent year from operations in
industries within any 6-digit NAICS industry code in which the acquired
entity(s) or assets also derived dollar revenues in the most recent
year, list, based on the knowledge or belief of the acquiring person,
the top level associate, the issuer or unincorporated entity and
percentage held. If NAICS codes are unavailable, holdings in entities
that have operations in the same industry, based on the knowledge or
belief of the acquiring person, should be listed. Holdings of entities
with total assets of less than $10 million may be omitted. In
responding to Item 6(c)(ii), it is permissible for the acquiring person
to list all entities in which its associate(s) has a reportable
minority interest.
Items 7-8
Item 7
The Commission proposes reorganizing Item 7 to make it more
consistent with other items in the Form. The only proposed change to
the substance of Items 7(a) and 7(b) is the requiring of information
for associates, as discussed above.
In Item 7(b)(i) the Commission proposes that filing parties not
only be required to list the name of each person that is a party to the
acquisition that also derived dollar revenues in the 6-digit NAICS
industry code but also, if different, the name of the entity(s) that
actually derived those revenues. In Item 7(b)(ii), the acquiring person
would be required to list the name of each associate of the acquiring
person that also derived dollar revenues in the 6-digit industry and,
if different, the name of the entity(s) that actually derived those
revenues. Having the name of the entity(s), instead of just the UPE or
associate, will be very useful to the Agencies and, as many filing
parties already submit such information, this item should present
little additional burden for them or substantial additional burden for
others.
There are also some proposed changes to Items 7(c)(iv) and (v) and
a proposed new Item 7(d).
Items 7(c)(iv) and (v) Geographic Market Information
For each overlap listed in Item 7(a) that falls within certain 6-
digit NAICS industry codes, the parties are required to provide in Item
7(c)(iv) the address, arranged by state, county and city or town, of
each establishment from which dollar revenues were derived in the most
recent year by the person filing notification.
Based on the Agencies' review of past transactions, the Commission
has determined that the list of NAICS codes in Item 7(c)(iv) should be
updated to include more detailed geographic market information for some
industries not currently captured in Item 7(c)(iv) and to delete
certain industries currently included in Item 7(c)(iv) for which this
detailed geographic market information is not necessary. The Commission
therefore proposes amending the list included in Item 7(c)(iv) to add
the following NAICS codes.
Nonmetallic mineral mining and quarrying (2123)
Concrete (32732)
Concrete products (32733)
Industrial gases (32512)
The Commission proposes moving the following NAICS codes to Item
7(c)(v), which requires listing only the states in which establishments
are located:
Furniture and home furnishings stores (442)
Electronics and appliance stores (443)
Recreational vehicle parks and recreational camps (7212)
Rooming and boarding houses (7213)
Personal and household goods repair and maintenance (8114)
Item 7 Overlaps
As discussed above, the Commission proposes to require the
acquiring person to provide information in Item 7, based on its
knowledge or belief, for any associates that derive revenues in the
same 6-digit NAICS industry code as the acquired entity in Item 7.
Accordingly, the Commission proposes to add new Item 7(d) in order to
capture geographic market information regarding associates in the same
manner as for the person filing notification. Within this item, the
Commission proposes that the acquiring person be required to list
separately the geographic information for each of its associates and,
if different, for the entity(s) that actually derived the revenues.
Having the geographic information broken out in this specific manner
will be very useful to the Agencies as they conduct their initial
review.
Item 8 Previous acquisitions
Item 8 requires the parties to identify certain previous
acquisitions in each 6-digit industry code identified in Item 7(a). As
noted above, the Commission amended the rules in 2005\37\ to more
closely align the treatment of unincorporated entities with the
treatment of corporations, and the Commission now proposes amending
Item 8 to include non-corporate interests to reflect this earlier
change.
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\37\ 70 FR 11502 (March 8, 2005).
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Other Proposed Ministerial Revisions to the Rules
Additionally, the Commission proposes revisions to certain rules
that should have been included in the 2005 non-corporate rulemaking
that sought to apply the Act as consistently as possible to all forms
of legal entities\38\ and other minor ministerial changes.
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\38\ Id.
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Sec. 801.1 Definitions
Sec. 801.1(a)(2) Entity
The proposed revision to Sec. 801.1(a)(2) would add ``non-corporate
entity'' after ``corporation'' in the two parentheticals in its last
sentence of this paragraph. The omission of this change from the non-
corporate rulemaking meant that corporations controlled by foreign,
federal, state or local governments, that are not themselves agencies
of a government, are required to file notification in an acquisition
that satisfies the jurisdictional requirements of the Act, while non-
corporate entities
[[Page 57120]]
making the same acquisition are not. This proposed amendment would
correct this oversight by treating similarly all types of legal
entities controlled by a government.
Sec. 801.1(b)(2) Control
Sec. 801.1(f)(1)(ii) Non-corporate interest
The proposed revision to Sec. 801.1(b)(2) would change the
reference to ``trusts described in paragraphs (c)(3) through (5) of
this section'' to ``trusts that are irrevocable and/or in which the
settlor does not retain a reversionary interest''. An example would be
added to clarify that such trusts do not include business trusts in
which persons have an equity interest that entitles them to profits or
assets upon dissolution of the trust. In the change to the definition
of control in the non-corporate rulemaking, the reference to paragraphs
(c)(3) through (c)(5) inadvertently eliminated a class of trusts (e.g.,
family trusts) from the control rule. The intent of the change was to
differentiate between traditional trusts that have beneficiaries, and
business trusts that have unit holders with equity interests. What was
intended was to classify the business trusts as non-corporate entities
whose control is determined by rights to profits and assets upon
dissolution of the business trust, as opposed to traditional trusts
whose control is determined by the right to designate a majority of the
trustees. By referencing paragraphs (c)(3) through (5), traditional
trusts that are irrevocable and/or in which the settlor does not retain
a reversionary interest are not included in the definition of control.
The trusts described in paragraphs (c)(3) through (5) are revocable
and/or the settlor retains a reversionary interest in the trust. These
trusts do not require a control definition because the settlor is
already deemed to hold the assets of the trust. For the same reason,
this change is also being applied to the definition of non-corporate
interests in Sec. 801.1(f)(1)(ii).
Additionally, in 2005 the Commission amended the definition of
control for an unincorporated entity to remove the reference to an
individual exercising similar functions to a corporate director.
However, it inadvertently failed to remove the same reference in
Example 2 of Sec. 801.1(b)(2). This revision eliminates the reference
to that alternative test of control for unincorporated entities from
that example.
Sec. 801.10 Value of voting securities, non-corporate interests and
assets to be acquired.
In 2005\39\ , the Commission stated that the value of an
acquisition of non-corporate interests is determined in the same manner
as determining the value of non-publicly traded voting securities. In
order to clarify that acquisition price for non-corporate interests is
the same as for voting securities, the Commission proposes to add non-
corporate interests to paragraph (c)(2) of the rule.
---------------------------------------------------------------------------
\39\ 70 FR 11502 (March 8, 2005).
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Sec. 801.15 Aggregation of voting securities and assets the
acquisition of which was exempt
The Commission also proposes revising Sec. 801.15, which specifies
the circumstances in which certain classes of assets and voting
securities are held as a result of an acquisition. The change would add
references to Sec. 7A(c)(3) and Sec. 802.30 to paragraph (a), in order
to allow the intraperson exemption to have its intended effect. The
Statement of Basis and Purpose for the original HSR rules explained the
omission of Sec. 7A(c)(3) as follows:
While voting securities acquired under a section 7A(c)(3) exemption
are deemed held for purposes of later acquisitions of the same person's
securities the later acquisitions are themselves exempt if prior to
that transaction the acquiring person holds at least 50 percent of the
outstanding voting securities of the acquired person. So long as the
later acquisitions are exempt, it is not significant whether the voting
securities acquired under the section 7A(c)(3) exemption are held.\40\
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\40\ 43 FR 33450 (July 31, 1978).
While this is true for acquisitions of voting securities of a
parent issuer, it does not take into account the acquisition of voting
securities of multiple subsidiaries of the same parent. For example, A
already holds 50 percent of the voting securities of B1, while parent B
holds the other 50 percent. A now intends to acquire the other 50
percent of B1 from B as well as 100 percent of the voting securities of
B2, a wholly owned subsidiary of B. Neither acquisition satisfies the
size of transaction test on its own, but the two acquisitions do if
aggregated. The acquisition of the remaining 50 percent of B1's voting
securities is exempt under Sec. 7A(c)(3); however, because that
exemption is not referenced in Sec. 801.15, the exempt voting
securities are deemed to be held as a result of the acquisition of B2's
voting securities. Therefore, an acquisition is made reportable because
of the aggregation of an exempt acquisition. This is certainly not the
result that was intended.
The proposed addition of Sec. 7A(c)(3) to Sec. 801.15(a)(1)
corrects this problem. The proposed addition of Sec. 802.30 to
Sec. 801.15(a)(2) eliminates the same potential problem in an
acquisition of non-corporate interests. Also, because acquisitions of
non-corporate interests are exempted under Sec. 802.4 and Sec. 802.30,
and will be exempt under Sec. 802.52 if these proposed rules are
finalized, a reference to non-corporate interests is proposed in both
paragraphs (a) and (b) of this section.
Sec. 801.30 Tender offers and acquisitions of voting securities from
third parties
Two scenarios have come to light involving acquisitions of non-
corporate interests that should invoke Sec. 801.30. In one case, the
interests in an unincorporated entity were being acquired from its
members where the entity was hostile to the acquisition and refused to
file notification. Because Sec. 801.30 currently only covers voting
securities acquisitions, the waiting period did not begin upon
notification by the acquiring person and the unincorporated entity was
able to block the acquisition indefinitely. This clearly thwarts the
intent of Sec. 801.30, which prevents a hostile target from holding up
a transaction by not filing. Even if the unincorporated entity had been
willing to file notification, it is unclear how it could profess its
good faith intent to consummate the acquisition in the affidavit
required of non-Sec. 801.30 filers, since it was not a party to any
agreement with the acquiror.
In the second scenario, publicly traded master limited partnership
interests conferring control were being acquired on the open market.
Because non-corporate interests are not included in Sec. 801.30, the
partnership was at risk of failing to file and thereby delaying the
deal because it did not receive the notification letter required by
Sec. 803.5(a) in Sec. 801.30 transactions. Also, because there is no
agreement in an open market purchase, the parties would be unable to
attest to the execution of an agreement or letter of intent in the
affidavit required of non-Sec. 801.30 filers. The proposed addition to
Sec. 801.30 of a reference to non-corporate interests addresses both of
these potential problems.
[[Page 57121]]
Sec. 802.4 Acquisitions of voting securities of issuers or non-
corporate interests in unincorporated entities holding certain assets
the acquisition of which is exempt
The last sentence in paragraph (a) of this exemption is intended to
exclude the value of any non-controlling interest in a corporation or
unincorporated entity, held by the acquired entity, in determining
whether the $50 million (as adjusted) limitation on non-exempt assets
is exceeded. This is intended to apply to acquisitions of both voting
securities and non-corporate interests, as the title of the rule and
the Statement of Basis and Purpose accompanying its introduction made
clear.\41\ However, the phrase ``not included within the acquired
issuer'' could be interpreted to mean that the exemption only applies
to acquisitions of voting securities because unincorporated entities
are not issuers. Although the PNO informally interprets this language
to apply the intent of the rule to non-corporate entities, this
proposed amendment adds unincorporated entities to the language of the
rule to make it clear.
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\41\ Id.
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Sec. 802.21 Acquisitions of voting securities not meeting or exceeding
greater notification threshold (as adjusted)
Section 802.21 permits an acquiring person that filed for an
acquisition at a given threshold, to make additional acquisitions up
to, but not exceeding, the next threshold, for five years, without a
further filing. When the Commission changed from percentage-based
notification thresholds to notification thresholds that matched the
tiered filing fee thresholds, a new paragraph was added to this section
to advise how to address transactions where the original acquisition
was made under the old thresholds and the acquiring person was now
acquiring additional voting securities after the effective date of the
rule change introducing the new thresholds, but within five years of
the termination of the waiting period for the original acquisition.\42\
As it has now been over five years from the end of the waiting period
on any filing made using the old notification thresholds, this
paragraph is unnecessary and is accordingly removed.
---------------------------------------------------------------------------
\42\ 66 FR 8680 (February 1, 2001).
---------------------------------------------------------------------------
Sec. 802.52 Acquisitions by or from foreign governmental corporations
Section 802.52 exempts acquisitions if the ultimate parent entity
of either the acquiring person or the acquired person is controlled by
a foreign state, foreign government, or agency thereof; and the
acquisition is of assets located within that foreign state or of voting
securities of an issuer organized under the laws of that state. This
means that an acquisition of non-corporate interests of an entity
organized under the laws of the foreign state but with assets outside
that foreign state would not be exempted. In order to treat
acquisitions of corporate and unincorporated entities consistently, the
Commission proposes to change the title of the rule to ``Acquisitions
by or from foreign governmental entities'', and to add non-corporate
interests to paragraph (b) of the rule.
Sec. 803.2 Instructions applicable to Notification and Report Form
Section 803.2(b) provides guidance on how the Form is to be
completed by acquiring and acquired persons. In the case of acquired
persons, the response is limited, as laid out in
Sec. Sec. 803.2(b)(1)(ii), (iii), and (iv), to assets, voting
securities or non-corporate interests being acquired in the
transaction. Sec. 803.2(b)(2) provides further guidance on completing
the Form and refers to Sec. Sec. 803.2(b)(1)(ii) and (iii). This part
of Sec. 803.2(b) should also include a reference to paragraph (b)(1)
(iv). The Commission proposes to correct this omission in
Sec. 803.2(b)(2) accordingly.
Section 803.2(c)(1) limits the responses to Items 5, 7 and 8 to
information with respect to operations conducted within the United
States. Because the proposed changes to these Items would now require
some reporting with respect to operations conducted outside of the
United States, it is proposed that Sec. 803.2(c)(1) be removed.
Additionally, minor ministerial changes to Sec. 803.2(e) are
required to conform to the proposed changes discussed above.
Sec. 803.5 Affidavits required
With the proposed change to Sec. 801.30 adding non-corporate
interests, Sec. 803.5(a) needs to be revised to incorporate a reference
to non-corporate interests as well. The proposed revision to
Sec. 803.5(a) would add the terms ``non-corporate interests'' and
``unincorporated entity'' where applicable.
Regulatory Flexibility Act
The Regulatory Flexibility Act, 5 U.S.C. 601-612, requires that the
agency conduct an initial and final regulatory analysis of the
anticipated economic impact of the proposed amendments on small
businesses, except where the Commission certifies that the regulatory
action will not have a significant economic impact on a substantial
number of small entities. 5 U.S.C. 605. Because of the size of the
transactions necessary to trigger a Hart-Scott-Rodino filing, the
premerger notification rules rarely, if ever, affect small businesses.
Indeed, these proposed amendments are intended to reduce the burden of
the premerger notification program. Further, none of the proposed rule
amendments expands the coverage of the premerger notification rules in
a way that would affect small business. Accordingly, the Commission
certifies that these proposed rules will not have a significant
economic impact on a substantial number of small entities. This
document serves as the required notice of this certification to the
Small Business Administration.
Paperwork Reduction Act
The Paperwork Reduction Act, 44 U.S.C. 3501-3521, requires agencies
to submit ``collections of information'' to the Office of Management
and Budget (``OMB'') and obtain clearance before instituting them. Such
collections of information include reporting, recordkeeping, or
disclosure requirements contained in regulations. The existing
information collection requirements in the HSR rules and Form have been
reviewed and approved by OMB under OMB Control No. 3084-0005. The
current clearance expires on May 31, 2013. Because the rule amendments
proposed in this NPR would change existing reporting requirements, the
Commission is submitting a Supporting Statement for Information
Collection Provisions (``Supporting Statement'') to OMB.
Increase or decrease in filings due to proposed ministerial changes in
filing requirements
The proposed amendments are primarily changes to the information
reported on the Notification and Report Form and do not affect the
reportability of a transaction. Most of the proposed ministerial
changes to the rules are clarifications (e.g., the change to
Sec. 802.4) or new procedures (e.g., the change to Sec. 801.30), which
also would have no effect on reporting obligations. One proposed
amendment could theoretically produce an increase in filings. The
definition of ``entity'' in Sec. 801.1(a)(2) is being modified to
include non-corporate entities engaged in commerce that are controlled
by a government. The definition currently includes only corporations
engaged in commerce. Another proposed amendment could theoretically
produce
[[Page 57122]]
a decrease in filings. The proposed amendment to the aggregation rules
in Sec. 801.15 would eliminate the unintended effect of requiring
aggregation when exactly 50 percent of multiple subsidiaries have been
acquired and additional voting securities of the same person are newly
being acquired. The Commission believes that any increase or decrease
in filings as a result of the proposed ministerial amendments would be
negligible. Thus, the same number of filings projected for fiscal year
2010 in the prior Supporting Statement submitted to OMB and appearing
in the associated Federal Register notice\43\ will be used in the
instant burden hour calculations.
---------------------------------------------------------------------------
\43\ 75 FR 27558 (May 17, 2010).
---------------------------------------------------------------------------
Reduced time collecting data for and preparing the Form
Premerger Notification Office staff canvassed eight practitioners
from the private bar to estimate the projected change in burden due to
the proposed amendments to the Form. All are considered HSR experts and
have extensive experience with preparing HSR filings for the types of
transactions that are most likely to be affected by the proposed
changes.
Many of the proposed changes would significantly reduce burden for
all filers. Others would increase burden, particularly for acquiring
persons that are private equity funds and master limited partnerships.
The consensus of those canvassed was that, on average, burden for
collecting and reporting would decrease approximately five percent.
Thus, 37 hours (rounded to the nearest hour) will be allocated to non-
index filings.\44\ [(Current estimate, 39 hours\45\ ) x (1-.05) = 37.05
hours.]
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\44\ Id. Clayton Act sections 7A(c)(6) and (c)(8) exempt from
the requirements of the premerger notification program certain
transactions that are subject to the approval of other agencies, but
only if copies of the information submitted to these other agencies
are also submitted to the FTC and the Assistant Attorney General.
Thus, parties must submit copies of these ``index'' filings, but
completing the task requires significantly less time than non-exempt
transactions that require ``non-index'' filings.
\45\ Id.
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Net Effect
The proposed Form changes only affect non-index filings which, for
FY 2010, the FTC projects will total 841. Assuming an average of 37
hours per filer, and combining this revised calculation with the
preceding calculations for index filings and estimates of transactions
requiring more precise valuations results in a revised cumulative total
of 32,037 hours.\46\ This is a decrease of 1,261 hours from the prior
estimate of 33,298 hours\47\ for the current rules. Applying the
revised estimated hours, 32,037, to the previous assumed hourly wage of
$460 for executive and attorney compensation,\48\ yields $14,737,000
(rounded to the nearest thousand) in labor costs, a decrease of
$580,000 from the prior estimate of $15,317,000. The proposed
amendments presumably will impose minimal or no additional capital or
other non-labor costs, as businesses subject to the HSR Rules generally
have or obtain necessary equipment for other business purposes. Staff
believes that the above requirements necessitate ongoing, regular
training so that covered entities stay current and have a clear
understanding of federal mandates, but that this would be a small
portion of and subsumed within the ordinary training that employees
receive apart from that associated with the information collected under
the HSR Rules and the corresponding Notification and Report Form.
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\46\ This is determined as follows: [(841 non-index filings x 37
hours) + (22 transactions requiring more precise valuation x 40
hours) + (20 index filings x 2 hours)]
\47\ The preceding estimate, detailed further at 75 FR 8992 -
8993, was calculated as follows: [(841 non-index filings x 1/2
incorporating Item 4(a) and Item 4(b) documents by reference to an
Internet link) x (39 hours less one hour saved this way)] + [(841
non-index filings x 1/2 at 39 hours)] + (22 transactions requiring
more precise valuation x 40 hours) + (20 index filings x 2 hours)] =
33,298 hours. The reduction within this prior calculation for time
saved when incorporating Item 4(a) and Item 4(b) documents by
reference to an Internet link would be mooted by the proposed
changes. The proposals would further reduce time to complete the
Form, and are factored into the estimated five percent reduction
stated above.
\48\ Id.
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The Commission invites comments that will enable it to: (1)
evaluate whether the proposed collections of information are necessary
for the proper performance of the functions of the Commission,
including whether the information will have practical utility; (2)
evaluate the accuracy of the Commission's estimate of the burden of the
proposed collections of information, including the validity of the
methodology and assumptions used; (3) enhance the quality, utility, and
clarity of the information to be collected; and (4) minimize the burden
of the collections of information on those who must comply, including
through the use of appropriate automated, electronic, mechanical, or
other technological techniques or other forms of information
technology.
Comments on the proposed reporting requirements subject to
Paperwork Reduction Act review by OMB should additionally be submitted
to: Office of Information and Regulatory Affairs, Office of Management
and Budget, Attention: Desk Officer for Federal Trade Commission.
Comments should be submitted via facsimile to (202) 395-5167 because
U.S. postal mail at OMB is subject to delay due to heightened security
precautions.
List of Subjects in 16 CFR Parts 801, 802 and 803
Antitrust.
0
For the reasons stated in the preamble, the Federal Trade Commission
proposes to amend 16 CFR parts 801, 802 and 803 as set forth below:
PART 801--COVERAGE RULES
0
1. The authority citation for part 801 continues to read as follows:
Authority: 15 U.S.C. 18a(d).
0
2. Amend Sec. 801.1 by revising paragraphs (a)(2) and (b)(2), revising
example 2 to paragraph (b), adding example 5 to paragraph (b),
redesignating paragraph (d) as (d)(1), revising newly designated
(d)(1), adding new paragraph (d)(2), and revising paragraph (f)(1)(ii)
to read as follows:
Sec. 801.1 Definitions.
* * * * *
(a) * * *
(2) Entity. The term entity means any natural person, corporation,
company, partnership, joint venture, association, joint-stock company,
trust, estate of a deceased natural person, foundation, fund,
institution, society, union, or club, whether incorporated or not,
wherever located and of whatever citizenship, or any receiver, trustee
in bankruptcy or similar official or any liquidating agent for any of
the foregoing, in his or her capacity as such; or any joint venture or
other corporation which has not been formed but the acquisition of the
voting securities or other interest in which, if already formed, would
require notification under the act and these rules: Provided, however,
that the term entity shall not include any foreign state, foreign
government, or agency thereof (other than a corporation or non-
corporate entity engaged in commerce), nor the United States, any of
the States thereof, or any political subdivision or agency of either
(other than a corporation or non-corporate entity engaged in commerce).
(b) * * *
(2) Having the contractual power presently to designate 50 percent
or more of the directors of a for-profit or not-for-profit corporation,
or in the case of trusts that are irrevocable and/or in
[[Page 57123]]
which the settlor does not retain a reversionary interest, the trustees
of such a trust.
Examples: * * *
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
paragraph (b)(1)(ii) of this section. 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'' as required by Sec. 801.1(f)(1) of this section. Thus
control of a partnership is not determined on the basis of either
paragraph (b)(1)(i) or (2) of this section. 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.
* * *
5. A is the settlor of an irrevocable trust in which it does not
retain a reversionary interest in the corpus of the trust. A is
entitled under the trust indenture to designate four of the eight
trustees of the trust. A controls the trust pursuant to Sec.
801.1(b)(2) and is deemed to hold the assets that constitute the corpus
of the trust. Note that the right to designate 50 percent or more of
the trustees of a business trust that has equity holders entitled to
profits or assets upon dissolution of the business trust does not
constitute control. Such business trusts are treated as non-corporate
entities and control is determined pursuant to Sec. 801.1(b)(1)(ii).
(d)(1) Affiliate. An entity is an affiliate of a person if it is
controlled, directly or indirectly, by the ultimate parent entity of
such person.
(2) Associate. For purposes of Items 6(c) and 7 on the Form, an
associate of an acquiring person shall be an entity that is not an
affiliate of such person but:
(i) Has the right, directly or indirectly, to manage, direct or
oversee the affairs and/or the investments of an acquiring entity (a
``managing entity''); or
(ii) Has its affairs and/or investments, directly or indirectly,
managed, directed or overseen by the acquiring person; or
(iii) Directly or indirectly, controls, is controlled by, or is
under common control with a managing entity; or
(iv) Directly or indirectly, manages, directs or oversees, is
managed by, directed by or overseen by, or is under common management
with a managing entity.
Examples to Sec. 801.1(d):
1. ABC Investment Group has organized a number of investment
partnerships. Each of the partnerships is its own ultimate parent, but
ABC makes the investment decisions for all of the partnerships. One of
the partnerships intends to make a reportable acquisition. For purposes
of Items 6(c) and 7, each of the other investment partnerships, and ABC
Investment Group itself are associates of the partnership that is the
acquiring person. In response to Item 6(c), the acquiring person will
disclose any minority holdings of its own, or of any of these
associates, in any other entity that generates revenues in any of the
same codes as the acquired entity in the reportable transaction. In
Item 7, the acquiring person will indicate whether there are any NAICS
code overlaps between the acquired entity in the reportable
transaction, on the one hand, and the acquiring person and all of its
associates, on the other.
2. XYZ Corporation is its own ultimate parent and intends to make a
reportable acquisition. Pursuant to a management contract, Fund MNO has
the right to manage the affairs of XYZ Corporation. For the HSR filing
by XYZ Corporation, Fund MNO is an associate of XYZ, as is any other
entity that either controls, or is controlled by, or manages or is
managed by Fund MNO or is under common control or common management
with Fund MNO.
3. EFG Investment Group has the contractual power to determine the
investments of PRS Corporation, which is its own ultimate parent.
Natural person Mr. X, who is not an employee of EFG Investment Group,
has been contracted by EFG Investment Group as its investment advisor.
When PRS Corporation makes an acquisition, its associates include (i)
EFG Investment Group, (ii) any entity over which EFG Investment Group
has investment authority, (iii) any entity that controls, or is
controlled by, EFG Investment Group, (iv) Natural person Mr. X, (v) any
entity over which Natural person Mr. X has management authority, and
(vi) any entity which is controlled by Natural person Mr. X, directly
or indirectly.
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4. CORP1 controls GP1 and GP2, the sole general partners of private
equity funds LP1 and LP2 respectively. LP1 controls GP3, the sole
general partner of MLP1, a newly formed master limited partnership
which is its own ultimate
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parent entity. LP2 controls GP4, the sole general partner of MLP2,
another master limited partnership that is its own ultimate parent
entity and owns and operates a natural gas pipeline. In addition, GP4
holds 25% of the voting securities of CORP2, which also owns and
operates a natural gas pipeline.
MLP1 is acquiring 100% of the membership interests of LLC1, also
the owner and operator of a natural gas pipeline. MLP2, CORP2 and LLC1
all derive revenues in the same NAICS code (Pipeline Transportation of
Natural Gas). All of the entities under common management of CORP1,
including GP4 and MLP2, are associates of MLP1, the acquiring person.
In Item 7 of its HSR filing, MLP1 would identify MLP2 as an
associate that has an overlap in pipeline transportation of natural gas
with LLC1, the acquired person. Because GP4 does not control CORP2 it
would not be listed in Item 7, however, it would be listed in Item
6(c)(ii) as an associate that holds 25% of the voting securities of
CORP2. In this example, even though there is no direct overlap between
the acquiring person (MLP1) and the acquired person (LLC1), there is an
overlap reported for an associate (MLP2) of the acquiring person in
Item 7. Also, while the acquiring person (MLP1) has no holdings, the
holdings of an associate (GP4) of the acquiring person is reported in
Item 6(c)(ii).
5. LLC is the investment manager for and ultimate parent entity of
general partnerships GP1 and GP2. GP1 is the general partner of LP1, a
limited partnership that holds 30% the voting securities of CORP1. GP2
is the general partner of LP2, which holds 55% of the voting securities
of CORP1. GP2 also directly holds 2% of the voting securities of CORP1.
LP1 is acquiring 100% of the voting securities of CORP2. CORP1 and
CORP2 both derive revenues in the same NAICS code (Industrial Gas
Manufacturing).
All of the entities under common management of the managing entity
LLC, including GP1, GP2, LP2 and CORP1 are associates of LP1. In Item
6(c)(i) of its HSR filing, LP1 would report its own holding of 30% of
the voting securities of CORP1. It would not report the 55% holding of
LP2 in Item 6(c)(ii) because it is greater than 50%. It also would not
report GP2's 2% holding because it is less than 5%. In Item 7, LP1
would identify both LP2 and CORP1 as associates that derive revenues in
the same NAICS code as CORP2.
6. LLC is the investment manager for GP1 and GP2 which are the
general partners of limited partnerships LP1 and LP2, respectively. LLC
holds no equity interests in either general partnership but manages
their investments and the investments of the limited partnership by
contract. LP1 is newly formed and its own ultimate parent entity. It
plans to acquire 100% of the voting securities of CORP1, which derives
revenues in the NAICS code for Consumer Lending. LP2 controls CORP2,
which derives revenues in the same NAICS code. All of the entities
under the common management of LLC, including LP2 and CORP2, are
associates of LP1. For purposes of Item 7, LP1 would report LP2 and
CORP2 as associates that derive revenues in the NAICS code that
overlaps with CORP1. Even though the investment manager (LLC) holds no
equity interest in GP1 or GP2, the contractual arrangement with them
makes them associates of LP1 through common management.
7. Corporation A is its own ultimate parent entity and is making an
acquisition of Corporation B. Although Corporation A is operationally
managed by its officers and its investments, including the acquisition
of Corporation B, are managed by its directors, neither the officers
nor directors are considered associates of A.
8. Limited partnership A is an investment partnership that is
making an acquisition. LLC B has no equity interest in A, but has a
contract to manage its investments for a fee. LLC B has an investment
committee comprised of twelve of its employees that makes the actual
investment decisions. LLC B is an associate of A but none of the twelve
employees are associates of A, as LLC B is a managing entity and the
twelve individuals are merely its employees. Contrast this with example
3 where a managing entity, EFG, is itself managed by another entity,
Mr. X, who is thus an associate.
(f) * * *
(1) * * *
(ii) Non-corporate interest. The term ``non-corporate interest''
means an interest in any unincorporated entity which gives the holder
the right to any profits of the entity or in the event of dissolution
of that entity the right to any of its assets after payment of its
debts. These unincorporated entities include, but are not limited to,
general partnerships, limited partnerships, limited liability
partnerships, limited liability companies, cooperatives and business
trusts; but these unincorporated entities do not include trusts that
are irrevocable and/or in which the settlor does not retain a
reversionary interest and any interest in such a trust is not a non-
corporate interest as defined by this rule.
* * * * *
0
3. Amend Sec. 801.10 by revising paragraph (c)(2) to read as follows:
Sec. 801.10 Value of voting securities, non-corporate interests and
assets to be acquired.
* * *
(c) * * *
(2) Acquisition price. The acquisition price shall include the
value of all consideration for such voting securities, non-corporate
interests or assets to be acquired.
* * * * *
0
4. Amend Sec. 801.15 by revising the heading, introductory text, and
paragraphs (a) and (b) to read as follows:
Sec. 801.15 Aggregation of voting securities, non-corporate
interests and assets the acquisition of which was exempt.
Notwithstanding Sec. 801.13, for purposes of determining the
aggregate total amount of voting securities, non-corporate interests
and assets of the acquired person held by the acquiring person under
Section 7A(a)(2) and Sec. 801.1(h), none of the following will be held
as a result of an acquisition: a) Assets, non-corporate interests or
voting securities the acquisition of which was exempt at the time of
acquisition (or would have been exempt, had the act and these rules
been in effect), or the present acquisition of which is exempt, under--
(1) Sections 7A(c) (1), (3), (5), (6), (7), (8), and (11)(B);
(2) Sections 802.1, 802.2, 802.5, 802.6(b)(1), 802.8, 802.30,
802.31, 802.35, 802.52, 802.53, 802.63, and 802.70 of this chapter;
(b) Assets, non-corporate interests or voting securities the
acquisition of which was exempt at the time of acquisition (or would
have been exempt, had the Act and these rules been in effect), or the
present acquisition of which is exempt, under Section 7A(c)(9) and
Sec. Sec. 802.3, 802.4, and 802.64 of this chapter unless the
limitations contained in Section 7A(c)(9) or those sections do not
apply or as a result of the acquisition would be exceeded, in which
case the assets or voting securities so acquired will be held; and
* * * * *
0
5. Amend Sec. 801.30 by revising the heading and paragraph (a)(5) to
read as follows:
Sec. 801.30 Tender offers and acquisitions of voting securities and
non-corporate interests from third parties.
(a) * * *
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(5) All acquisitions (other than mergers and consolidations) in
which voting securities or non-corporate interests are to be acquired
from a holder or holders other than the issuer or unincorporated entity
or an entity included within the same person as the issuer or
unincorporated entity;
* * * * *
PART 802-EXEMPTION RULES
0
6. The authority citation for part 802 continues to read as follows:
Authority: 15 U.S.C. 18a(d).
0
7. Amend Sec. 802.4 by revising paragraph (a) introductory text to
read as follows:
Sec. 802.4 Acquisitions of voting securities of issuers or non-
corporate interests in unincorporated entities holding certain assets
the acquisition of which is exempt.
(a) An acquisition of voting securities of an issuer or non-
corporate interests in an unincorporated entity whose assets together
with those of all entities it controls consist or will consist of
assets whose acquisition is exempt from the requirements of the Act
pursuant to Sec. 7A(c) of the Act, this part 802, or pursuant to Sec.
801.21, is exempt from the reporting requirements if the acquired
issuer or unincorporated entity and all entities it controls do not
hold non-exempt assets with an aggregate fair market value of more than
$50 million (as adjusted). The value of voting or non-voting securities
of any other issuer or interests in any non-corporate entity not
included within the acquired issuer or unincorporated entity does not
count toward the $50 million (as adjusted) limitation for non-exempt
assets.
* * * * *
0
8. Amend Sec. 802.21 by removing paragraph (b) and its three examples.
0
9. Amend Sec. 802.52 by revising the heading and paragraph (b)
introductory text to read as follows:
Sec. 802.52 Acquisitions by or from foreign governmental entities.
(b) The acquisition is of assets located within that foreign state
or of voting securities or non-corporate interests of an entity
organized under the laws of that state.
* * * * *
PART 803-TRANSMITTAL RULES
0
10. The authority citation for part 803 continues to read as follows:
Authority: 15 U.S.C. 18a(d).
0
11. Amend Sec. 803.2 by revising paragraph (b)(2) introductory text,
removing paragraph (c)(1), redesignating paragraph (c)(2) as (c), and
revising paragraph (e) to read as follows:
Sec. 803.2 Instructions applicable to Notification and Report Form.
* * *
(b) * * *
(2) For purposes of item 7 of the Notification and Report Form, the
acquiring person shall regard the acquired person in the manner
described in paragraphs (b)(1) (ii), (iii) and (iv) of this section.
* * *
(e) A person filing notification may instead provide:
(1) A cite to a previous filing containing documentary materials
required to be filed in response to item 4(b) of the Notification and
Report Form, which were previously filed by the same person and which
are the most recent versions available; except that when the same
parties file for a higher threshold no more than 90 days after having
made filings with respect to a lower threshold, each party may instead
provide a cite to any documents or information in its earlier filing
provided that the documents and information are the most recent
available;
(2) A cite to an Internet address directly linking to the document,
only documents required to be filed in response to item 4(b) of the
Notification and Report Form. If an Internet address is inoperative or
becomes inoperative during the waiting period, or the document that is
linked to it is incomplete, or the link requires payment to access the
document, upon notification by the Commission or Assistant Attorney
General, the parties must make these documents available to the
agencies by either referencing an operative Internet address or by
providing paper copies to the agencies as provided in Sec.
803.10(c)(1) by 5 p.m. on the next regular business day. Failure to
make the documents available, by the Internet or by providing paper
copies, by 5 p.m. on the next regular business day, will result in
notice of a deficient filing pursuant to Sec. 803.10(c)(2).
* * * * *
0
12. Amend Sec. 803.5 by revising paragraphs (a)(1) introductory text,
(a)(1)(ii), (a)(1)(iii), and (a)(1)(vi) 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 attached as part of the electronic submission,
attesting that the issuer or unincorporated entity whose voting
securities or non-corporate interests are to be acquired has received
notice in writing by certified or registered mail, by wire or by hand
delivery, at its principal executive offices, of:
* * *
(ii) The fact that the acquiring person intends to acquire voting
securities or non-corporate interests of the issuer or unincorporated
entity;
(iii) The specific classes of voting securities or non-corporate
interests of the issuer or unincorporated entity sought to be acquired;
and if known, the number of voting securities or unincorporated
interests of each such class that would be held by the acquiring person
as a result of the acquisition or, if the number of voting securities
is not known in the case of an issuer, the specific notification
threshold that the acquiring person intends to meet or exceed; and, if
designated by the acquiring person, a higher threshold for additional
voting securities it may hold in the year following the expiration of
the waiting period;
* * *
(vi) The fact that the person within which the issuer or
unincorporated entity is included may be required to file notification
under the act.
* * * * *
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By direction of the Commission.
Donald S. Clark
Secretary
[FR Doc. 2010-23079 Filed 9-16-10; 8:45 am]
BILLING CODE 6750-01-C