13666 Federal Register /Vol. 61, No. 61/Thursday, March 28 ... · 13666 Federal Register/Vol. 61, No. 61/Thursday, March 28, 1996/Rules and Regulations Copies may be inspected at

13666 Federal Register / Vol. 61, No. 61 / Thursday, March 28, 1996 / Rules and Regulations

Copies may be inspected at the FederalTrade Commission, Public ReferenceRoom, Room 130, Sixth Street andPennsylvania Ave., NW, Washington,DC, or at the Office of the FederalRegister, 800 North Capital St., NW,suite 700, Washington, DC.

(1) * * *(2) For loose-fill cellulose, the tests

must be done at the settled densitydetermined under paragraph 8 of ASTMC 739–91, ‘‘Standard Specification forCellulosic Fiber (Wood-Base) Loose-FillThermal Insulation.’’ This incorporationby reference was approved by theDirector of the Federal Register inaccordance with 5 U.S.C. 552(a) and 1CFR Part 51. Copies of the testprocedure may be obtained from theAmerican Society of Testing andMaterials, 1916 Race Street,Philadelphia, PA 19103. Copies may beinspected at the Federal TradeCommission, Public Reference Room,Room 130, Sixth Street andPennsylvania Ave., NW, Washington,DC, or at the Office of the FederalRegister, 800 North Capital St., NW,suite 700, Washington, DC.* * * * *

(b) Aluminum foil systems with morethan one sheet must be tested withASTM C 236–89 (Reapproved 1993) orASTM C 976–90, which areincorporated by reference in paragraph(a) of this section. The tests must bedone at a mean temperature of 75°Fahrenheit, with a temperaturedifferential of 30° Fahrenheit.* * * * *

(d) For insulation materials with foilfacings, you must test the R-value of thematerial alone (excluding any airspaces) under the methods listed inparagraph (a) of this section. You canalso determine the R-value of thematerial in conjunction with an airspace. You can use one of two methodsto do this:

(1) You can test the system, with itsair space, under ASTM C 236–89(Reapproved 1993) or ASTM C 976–90,which are incorporated by reference inparagraph (a) of this section. If you dothis, you must follow the rules inparagraph (a) of this section ontemperature, aging and settled density.* * * * *

3. Section 460.10 is revised to read asfollows:

§ 460.10 How statements must be made.All statements called for by this

regulation must be made clearly andconspicuously. Among other things, youmust follow the Commission’senforcement policy statement for clearand conspicuous disclosures in foreign

language advertising and salesmaterials, 16 CFR 14.9.

4. The ‘‘Appendix to Part 460—Enforcement Policy Statement forForeign Language Advertising’’ isremoved.

5. A new Appendix is added, to readas follows:

Appendix to Part 460—Exemptions

Section 18(g)(2) of the Federal TradeCommission Act, 15 U.S.C. 57a(g)(2),authorizes the Commission to exempt aperson or class of persons from all or part ofa trade regulation rule if the Commissionfinds that application of the rule is notnecessary to prevent the unfair or deceptiveacts or practices to which the rule relates. Inresponse to petitions from industryrepresentatives, the Commission has grantedexemptions from specific requirements of 16CFR Part 460 to certain classes of sellers.Some of these exemptions are conditionedupon the performance of alternative actions.The exemptions are limited to specificsections of Part 460. All other requirementsof Part 460 apply to these sellers. Theexemptions are summarized below. For anexplanation of the scope and application ofthe exemptions, see the formal Commissiondecisions in the Federal Register cited at theend of each exemption.

(a) Manufacturers of perlite insulationproducts that have an inverse relationshipbetween R-value and density or weight persquare foot are exempted from therequirements in sections 460.12(b)(2) and460.13(c)(1) that they disclose minimumweight per square foot for R-values listed onlabels and fact sheets. This exemption isconditioned upon the alternative disclosurein labels and fact sheets of the maximumweight per square foot for each R-valuerequired to be listed. 46 FR 22179 (1981).

(b) Manufacturers of rigid, flat-roofinsulation products used in flat, built-uproofs are exempted from the requirements insection 460.12 that they label these homeinsulation products. 46 FR 22180 (1981).

(c) New home sellers are exempted from:(1) the requirement in section 460.18(a)

that they disclose the type and thickness ofthe insulation when they make arepresentation in an advertisement or otherpromotional material about the R-value of theinsulation in a new home;

(2) the requirement that they disclose in anadvertisement or other promotional materialthe R-value explanatory statement specifiedin section 460.18(a) or the savingsexplanatory statement specified in section460.19(b), conditioned upon the new homesellers alternatively disclosing theappropriate explanatory statement in thesales contract along with the disclosuresrequired by section 460.16;

(3) the requirement that they make thedisclosures specified in section 460.19(c) ifthey claim that insulation, along with otherproducts in a new home, will cut fuel billsor fuel use; and

(4) the requirement that they include thereference to fact sheets when they mustdisclose the R-value explanatory statement orthe savings claim explanatory statement

under sections 460.18(a) or 460.19(b),respectively.

The exemptions for new home sellers alsoapply to home insulation sellers other thannew home sellers when they participate witha new home seller to advertise and promotethe sale of new homes, provided that theprimary thrust of the advertisement or otherpromotional material is the promotion of newhomes, and not the promotion of theinsulation product. 48 FR 31192 (1983).

By direction of the Commission.Donald S. Clark,Secretary.[FR Doc. 96–7528 Filed 3–27–96; 8:45 am]BILLING CODE 6750–01–P

16 CFR Parts 801 and 802

Premerger Notification; Reporting andWaiting Period Requirements

AGENCY: Federal Trade Commission.ACTION: Final rule.

SUMMARY: The Commission amends thepremerger notification rules that requirethe parties to certain mergers oracquisitions to file reports with theFederal Trade Commission and theAssistant Attorney General in charge ofthe Antitrust Division of the Departmentof Justice and to wait a specified periodof time before consummating suchtransactions. The reporting and waitingperiod requirements are intended toenable these enforcement agencies todetermine whether a proposed mergeror acquisition may violate the antitrustlaws if consummated and, whenappropriate, to seek a preliminaryinjunction in federal court to preventconsummation.

These amendments consist of fiverules that define or create exemptions tothe requirements imposed by the Hart-Scott-Rodino Act. These rules clarify thetypes of transactions that are in theordinary course of business of theparties to the transaction and areexempt under section 7A(c)(1) of theHart-Scott-Rodino Act. They alsoprovide several new exemptions undersection 7A(d)(2)(B) for certain types ofacquisitions of realty and carbon-basedmineral reserves that are not likely toviolate the antitrust laws. These rulesare designed to reduce the complianceburden on the business community byeliminating the application of thenotification and waiting requirements toa significant number of transactions thatare unlikely to violate the antitrust laws.They will also allow the enforcementagencies to focus their resources moreeffectively on those transactions thatpresent the potential for competitiveharm.EFFECTIVE DATE: April 29, 1996.

13667Federal Register / Vol. 61, No. 61 / Thursday, March 28, 1996 / Rules and Regulations

FOR FURTHER INFORMATION CONTACT: JohnM. Sipple, Jr., Assistant Director, orMelea R. Epps, Attorney, PremergerNotification Office, Bureau ofCompetition, Room 303, Federal TradeCommission, Washington, DC 20580.Telephone: (202) 326–3100.

SUPPLEMENTARY INFORMATION:

Regulatory Flexibility Act

These amendments to the Hart-Scott-Rodino premerger notification rules aredesigned to reduce the burden ofreporting on the public. TheCommission has determined that noneof the rules is a major rule, as that termis defined in Executive Order 12291.The amendments will not result in anyof the following: an annual effect on theeconomy of $100 million or more; amajor increase in costs or prices forconsumers, individual industries,Federal, State, or local governmentagencies, or geographic regions; orsignificant adverse effects oncompetition, employment, investment,productivity, innovation, or on theability of United States-basedenterprises to compete with foreign-based enterprises in the domesticmarket. None of the amendmentsexpands the coverage of the premergernotification rules in a way that wouldaffect small business. Therefore,pursuant to § 605(b) of theAdministrative Procedure Act, 5 U.S.C.605(b), as added by the RegulatoryFlexibility Act, Pub. L. 96–354(September 19, 1980), the Federal TradeCommission has certified that theserules will not have a significanteconomic impact on a substantialnumber of small entities. Section 603 ofthe Administrative Procedure Act, 5U.S.C. 603, requiring a final regulatoryflexibility analysis of these rules, istherefore inapplicable.

Background

Section 7A of the Clayton Act (‘‘theact’’), 15 U.S.C. 18a, as added bysections 201 and 202 of the Hart-Scott-Rodino Antitrust Improvements Act of1976, requires parties to certainacquisitions of assets or votingsecurities to give advance notice to theFederal Trade Commission (hereafterreferred to as ‘‘the Commission’’) andthe Assistant Attorney General in chargeof the Antitrust Division of theDepartment of Justice (hereafter referredto as ‘‘the Assistant Attorney General’’).The parties must then wait certaindesignated periods before theconsummation of such acquisitions. Thetransactions to which the advancenotice requirement is applicable and thelength of the waiting period required are

set out respectively in subsections (a)and (b) of section 7A. This amendmentto the Clayton Act does not change thestandards used in determining thelegality of mergers and acquisitionsunder the antitrust laws.

The legislative history suggestsseveral purposes underlying the act.Congress wanted to ensure that certainacquisitions were subjected tomeaningful scrutiny under the antitrustlaws prior to consummation. To thisend, Congress intended to eliminate the‘‘midnight merger’’ that is negotiated insecret and announced just before, orsometimes only after, the closing takesplace. Congress also provided anopportunity for the Commission or theAssistant Attorney General (who aresometimes hereafter referred to as the‘‘antitrust agencies’’ or the ‘‘enforcementagencies’’) to seek a court orderenjoining the completion of thosetransactions that either agency hasreason to believe would presentsignificant antitrust problems. Finally,Congress sought to facilitate an effectiveremedy when a challenge by one of theenforcement agencies proved successful.Thus, the act requires that the antitrustagencies receive prior notification ofcertain acquisitions, provides tools tofacilitate a prompt, thoroughinvestigation of the competitiveimplications of these acquisitions, andassures the enforcement agencies anopportunity to seek a preliminaryinjunction before the parties to anacquisition are legally free toconsummate it. The problem ofunscrambling the assets after thetransaction has taken place is therebyreduced.

Subsection 7A(d)(1) of the act, 15U.S.C. 18a(d)(1), directs theCommission, with the concurrence ofthe Assistant Attorney General and inaccordance with 5 U.S.C. 553, to requirethat the notification be in such form andcontain such information anddocumentary material as may benecessary and appropriate to determinewhether the proposed transaction may,if consummated, violate the antitrustlaws. Subsection 7A(d)(2) of the act, 15U.S.C. 18a(d)(2), grants the Commission,with the concurrence of the AssistantAttorney General and in accordancewith 5 U.S.C. 553, the authority to (a)define the terms used in the act, (b)exempt from the act’s notification andwaiting period requirements additionalclasses of persons or transactions whichare not likely to violate the antitrustlaws, and (c) prescribe such other rulesas may be necessary and appropriate tocarry out the purposes of section 7A.

The Commission, with theconcurrence of the Assistant Attorney

General, promulgated implementingrules (‘‘the rules’’) and the Notificationand Report Form (the ‘‘Form’’) andissued an accompanying Statement ofBasis and Purpose, all of which werepublished in the Federal Register ofJuly 31, 1978, 43 FR 33451, and becameeffective on September 5, 1978.

The rules are divided into three partswhich appear at 16 CFR Parts 801, 802,and 803. Part 801 defines a number ofthe terms used in the act and rules, andexplains which acquisitions are subjectto the reporting and waiting periodrequirements. Part 802 contains anumber of exemptions from theserequirements. Part 803 explains theprocedures for complying with the act.The Form, which is completed bypersons required to file notification, isan appendix to Part 803 of the rules.

Changes of a substantive nature havebeen made to the premerger notificationrules or Form on eleven occasions sincethey were first promulgated: 44 FR66781 (November 21, 1979); 45 FR14205 (March 5, 1980); 46 FR 38710(July 29, 1981); 48 FR 34427 (July 29,1983); 50 FR 38742 (September 24,1985); 51 FR 10368 (March 28, 1986); 52FR 7066 (March 6, 1987); 52 FR 20058(May 29, 1987); 54 FR 21425 (May 18,1989); 55 FR 31371 (August 2, 1990);and 60 FR 40704 (August 9, 1995). Thecurrent amendments interpret the actand expand the current policies of theCommission’s Premerger NotificationOffice regarding transactions in theordinary course of business that areexempt from the notification andwaiting requirements of the act. Theyalso include several new exemptions foracquisitions of certain types of realproperty assets and carbon-basedmineral reserves.

Comments

These amendments reflect extensiveanalysis of comments received inresponse to the notice of proposedrulemaking published by the FederalTrade Commission, in consultation withthe Assistant Attorney General, in theFederal Register of July 28, 1995, 60 FR38930. The notice contained the currentamendments in a proposed form andprovided 60 days for interested personsto submit comments on the proposedrules. During the 60-day period 29comments were received. In addition,three new comments and onesupplemental comment were receivedafter the expiration of the commentperiod. The commenters are identifiedbelow.


Num-ber ofcom-ment

Commenter Date ofcomment

1 American Council of LifeInsurance.

9/7/95

2 Heller Ehrman White &McAuliffe.

9/15/95

3 Pillsbury, Madison &Sutro on behalf ofChevron Corporation.

9/26/95

4 The Perkin-Elmer Cor-poration.

9/21/95

5 Atlantic Richfield Com-pany.

9/27/95

6 Pillsbury, Madison &Sutro.

9/25/95

7 General Motors Corpora-tion.

9/28/95

8 Boult, Cummings,Conners & Berry.

9/28/95

9 Section of Antitrust Lawof the American BarAssociation.

9/29/95

10 Federal Express ............ 9/28/9511 Ford Motor Company .... 9/28/9512 BellSouth Corporation ... 9/28/9513 Equipment Leasing As-

sociation of America.9/29/95

14 Ronald A. Bloch ofMcDermott, Will &Emery.

9/29/95

15 Arter & Hadden on be-half of Kennecott Cor-poration.

9/29/95

16 U.S. Chamber of Com-merce.

9/29/95

16A U.S. Chamber of Com-merce (SupplementalComments).

11/9/95

17 Rinehart & Associates,Investment Forestry.

9/28/95

18 Timberland InvestmentServices, LLC.

9/28/95

19 O’Melveny & Myers onbehalf of MarriottInternational, Inc..

9/29/95

20 American Hospital Asso-ciation.

9/29/95

21 Weil, Gotschal &Manges.

9/29/95

22 Latham & Watkins ......... 9/29/9523 International Council of

Shopping Centers.9/29/95

24 Colorado Oil & Gas As-sociation.

9/29/95

25 ITT Corporation ............. 9/27/9526 American Hotel & Motel

Corporation.9/29/95

27 American Transport As-sociation of America.

9/29/95

28 National IndependentEnergy Producers.

9/29/95

29 Latham & Watkins onbehalf of Host MarriottCorporation.

10/6/95

30 Forest Investment Asso-ciates.

9/28/95

31 National Association ofReal Estate Invest-ment Trusts.

11/2/95

32 Association of PrivatePension and WelfarePlans.

2/1/96

The commenters generally favored theadoption of the exemptions but alsoadvocated the expansion of certain ofthe proposals to include exemptions forother types of transactions which, theyargued, raise few competitive concerns.The final amendments contain revisionsto the proposed rule that address certaincommenters’ concerns and exclude fromthe reporting requirements additionaltransactions that the Commission andthe Assistant Attorney General foundwere unlikely to violate the antitrustlaws. A few of the comments containedsuggestions that were outside the scopeof the proposed rulemaking; thesesuggestions may be considered by theCommission in future rulemakingefforts.

Statement of Basis and Purpose for theCommission’s Revisions to thePremerger Notification Rules

Authority: The Federal Trade Commission,with the concurrence of the AssistantAttorney General, promulgates theseamendments to the premerger notificationrules pursuant to section 7A(d) of the ClaytonAct, 15 U.S.C. 18a(d), as added by section201 of the Hart-Scott-Rodino AntitrustImprovements Act of 1976, Pub. L. 94–435,90 Stat. 1390.

The five amendments to thepremerger notification rules—§§ 802.1,802.2, 802.3, 802.4, and 802.5—describecertain types of acquisitions that areexempt or are not exempt from thenotification requirements of the act.They replace and expand existing§ 802.1, which describes certainapplications of the exemption grantedby section 7A(c)(1) of the act foracquisitions of goods or realtytransferred in the ordinary course ofbusiness. Revisions to § 801.15 definewhen the aggregation rules apply toacquisitions covered by these rules.

Criteria for the Rules. Section 7A(c)(1)of the act exempts ‘‘acquisitions ofgoods or realty transferred in theordinary course of business.’’ Existing§ 802.1(a) interprets this statutorylanguage to apply the exemption toacquisitions of voting securities ofentities holding only realty. Existing§ 802.1(b) denies the exemption to thesale of goods or real property of anentity if they constitute ‘‘all orsubstantially all of the assets of thatentity or an operating division thereof’’unless the entity qualifies for theexemption under existing § 802.1(a)because its assets consist solely of realproperty and assets incidental to theownership of real property.

The reportability of transfers in theordinary course of business has longbeen a frequent source of questions fromthe public to the Premerger Notification

Office. Amended § 802.1 representsinterpretations of section 7A(c)(1) madeby the Premerger Notification Officeover the years, and it also broadensthese interpretations to exemptadditional classes of acquisitions ofgoods that qualify as transfers in theordinary course of business and thus areunlikely to violate the antitrust laws.

Amended § 802.1(a) preserves theconcept of existing § 802.1(b) and makesthe exemption unavailable foracquisitions of all or substantially all ofthe assets of an operating unit.Operating unit is defined as ‘‘assets thatare operated by the acquired person asa business undertaking in a particularlocation or for particular products orservices.’’ The sale of all or substantiallyall of the assets of a businessundertaking is generally equivalent tothe sale of a business. Amended§ 802.1(a) recognizes that acquisitionsthat transfer the equivalent of a businessare not in the ordinary course and thusare not exempt from the priornotification obligations of the act.

Amended § 802.1 also definescategories of acquisitions of goods thatare deemed to be in the ordinary courseof business and are therefore exemptfrom the notification requirements.Individual review of transactions suchas typical acquisitions of new goods andcurrent supplies is generallyunnecessary because buying and sellinggoods is the essence of manufacturing,wholesaling, and retailing businesses.Sales in the ordinary course of businessshould not in any way diminish thecapacity of the selling firm to compete.

Amended § 802.1 provides thatcertain acquisitions of used durablegoods qualify for exemption from thereporting requirements as transfers ofgoods in the ordinary course ofbusiness. These exemptions for specifictypes of acquisitions of used durablegoods acknowledge that certain transfersof productive assets that are not the saleof an operating unit are made in theordinary course of business. Forexample, an equipment leasingcompany may be acquiring used durablegoods as current supplies, or the sellermay be replacing these assets to increaseor upgrade capacity and to improveefficiencies. However, many useddurable goods acquisitions involvingproductive assets are not within theordinary course of business and thus arenot exempt under § 802.1.

New §§ 802.2 (concerning realproperty assets) and 802.3 (concerningcarbon-based mineral reserves) arebased on the Commission’s authority insection 7A(d)(2)(B) of the act to exempttransactions that are unlikely to violatethe antitrust laws. These sections


provide exemptions for certainacquisitions of assets that are abundantand are used in markets that aregenerally unconcentrated. These twofactors make it unlikely that a transferof these types of assets will haveanticompetitive effects. It is thus notnecessary to examine each individualtransaction to determine if it will violatethe antitrust laws.

To accommodate parties who chooseto structure their transactions asacquisitions of voting securities ratherthan as acquisitions of the underlyingassets, new § 802.4 exempts acquisitionsof voting securities of issuers holdingassets of two types: (1) assets, the directacquisition of which is exempted bysection 7A(c)(2) of the act or §§ 802.2,802.3 or 802.5 of the rules, and (2)assets, the direct acquisition of which isnot exempt by section 7A(c)(2) of the actor §§ 802.2, 802.3 or 802.5 of the rules,that are valued at $15 million or less.The exemption for the acquisition of thevoting securities of an issuer holdingassets, the acquisition of which isexempt under section 7A(c)(2)—bonds,mortgages, deeds of trust and otherobligations that are not votingsecurities—is designed to provide thesame treatment for the direct acquisitionof such assets ( a transaction which isalready exempt from the reportingrequirements) and the acquisition of thevoting securities of an issuer holdingthese assets.

New § 802.5 exempts acquisitions ofinvestment rental property assets, theacquisition of which is not alreadyexempted by § 802.2. Section 802.5 isbased on the use to which buyers willput the acquired assets. TheCommission believes that theacquisition of investment rentalproperty assets—defined in § 802.5(b) asreal property that, except for limitedcircumstances, will be rented only toentities not included within theacquiring person and will be held solelyfor rental or investment purposes—isunlikely to violate the antitrust laws.

Sections 802.1 through 802.5 arebased on the Commission’s authority insection 7A(d)(2)(A) of the act to ‘‘definethe terms used in [section 7A]’’ andsections 7A(d)(2) (B) and (C) to ‘‘exempt. . . transactions which are not likely toviolate the antitrust laws’’ and to‘‘prescribe such other rules as may benecessary and appropriate to carry outthe purposes of [section 7A].’’ Theseexemptions, of course, relate only topremerger reporting, and transactionsexempted from the reportingrequirements by the new rules remainsubject to the antitrust laws.

The Commission is aware that evenwith the significant coverage of the new

rules, the exempt status of manytransactions will remain unaddressed.These rules do not and are not intendedto interpret or apply to the entirestatutory exemption created by section7A(c)(1). For example, certainacquisitions of credit card receivablesmay qualify for exemption as transfersin the ordinary course of business.Persons who desire advice on theexempt status of any transfer of goods,realty or other assets may contact thePremerger Notification Office, Bureau ofCompetition, Room 303, Federal TradeCommission, Washington, DC 20580, orphone (202) 326–3100.

I. Section 802.1: Acquisitions of Goodsand Realty in the Ordinary Course ofBusiness

Section 7A(c)(1) of the act exempts‘‘acquisitions of goods or realtytransferred in the ordinary course ofbusiness.’’ Amended § 802.1 providesthat an acquisition of all the assets of anoperating unit is not an acquisition inthe ordinary course of business. It alsodefines certain acquisitions of goodsthat are in the ordinary course ofbusiness and therefore exempt from thereporting requirements. This sectionprimarily covers exemptions for certainacquisitions of goods. Exemptions forthe acquisition of certain types of realtyare set out in new § 802.2. The realtyexemptions are not subject to theexclusion for acquisitions of anoperating unit.

Amended § 802.1 defines fourcategories of acquisitions of goods:acquisitions of an operating unit,acquisitions of new goods, acquisitionsof current supplies, and acquisitions ofused durable goods. The section stateswhether and under what circumstanceseach type of acquisition is exempt.These four categories of assetacquisitions are not comprehensive. Asnoted above, some asset acquisitionsmay not fit neatly into any of thesedefined categories.

Amended § 802.1 has four paragraphs:Paragraph (a) denies the ordinary courseof business exemption to any transfer ofgoods and realty that is equivalent to thesale of a business. The next threeparagraphs define acquisitions of goodsthat may be exempt. Paragraph (b)exempts the acquisition of new goods,and paragraph (c) exempts theacquisition of current supplies.Paragraph (d) defines certain transfers ofused durable goods that are within theordinary course of business. Theseinclude: (1) transfers to and from bonafide dealers, resellers or lessors; (2)transfers by an acquired person that hasreplaced the productive capacity of theassets being sold; and (3) transfers by an

acquired person that has outsourced themanagement and administrative supportservices provided by the goods beingsold.

In determining whether a givenacquisition of goods and realty is in theordinary course of business and istherefore exempt under a provision ofamended § 802.1, one must firstdetermine if the assets are substantiallyall of the assets of an operating unit. Ifthe assets being sold comprise all orsubstantially all of the assets of anoperating unit of the seller, the inquiryends there, and the acquisition is notexempt as a transfer of goods or realtyin the ordinary course of business. If theassets do not constitute all orsubstantially all of the assets of anoperating unit, then the goods should beclassified as either new goods, currentsupplies or used durable goods.

The organization of § 802.1 isintended to make it easier to identifyroutine acquisitions that meet thecriteria of section 7A(c)(1) for anexemption as an acquisition of goodstransferred in the ordinary course ofbusiness. Sales of new goods andpurchases of current supplies arefrequent. The objective of the businessescovered by paragraphs (b) and (c) is tobuy, sell or lease such goods andsupplies; thus such transactions meetthe common meaning of transfers in theordinary course of business. Exemptingthese transactions facilitatesacquisitions of new goods that normallyexpand the supply of products orexpand productive capacity andtherefore do not tend to lessencompetition. In contrast, acquisitions ofentire operating units are not within thecommon meaning of ‘‘ordinary course’’and have the potential to concentrateproductive capacity and therebydiminish competition.

Proposed § 802.1 addressed onlyexemptions for acquisitions of goods inthe ordinary course of business.Acquisitions of realty in the ordinarycourse of business are also exempted,pursuant to section 7A(c)(1) of the act.Section 802.2 covers certain exemptionsfor acquisitions of realty, and it ispossible that acquisitions of realty otherthan those identified in § 802.2 aretransfers of real property in the ordinarycourse of business that are exempt.Language added to § 802.1 concerningrealty makes the provision consistentwith the exemption provided in section7A(c)(1).

A. Operating Unit. Amended§ 802.1(a) excludes from the ordinarycourse of business exemption anyacquisition of all or substantially all ofthe assets of an ‘‘operating unit.’’ Asdefined by the amended provision, an


operating unit is a collection of assetsthat has been operated as a businessundertaking and that may includegoods, realty and other types ofproperty. Amended § 802.1(a) alsoindicates that operating units are notnecessarily separate legal entities. Adetermination of which groups of assetsconstitute an operating unit within acompany will vary significantly amongbusinesses, because the manner inwhich businesses are organized iscompany-specific. Thus, examples ofoperating units include, but are notlimited to, regional divisions, companybranches, international operations, ahospital, a retail store, a factory or aprocessing facility.

The definition of operating unitindicates that the assets that comprisethe unit are operated ‘‘in a particularlocation or for particular products orservices.’’ Proposed § 802.1(a) definedan operating unit as assets operated ‘‘ina particular geographic area or forparticular products or services.’’ Theword ‘‘location’’ was substituted for‘‘geographic area’’ since a singlelocation of a company’s business, i.e., amanufacturing plant, a retail store, afuneral home, constitutes an operatingunit. Each location of a company’soperations is viewed as a separatebusiness undertaking, and the purchaseof all of the assets of one of a company’sstores or production facilities is not atransaction within the ordinary courseof business. Because amended § 802.1(a)no longer uses the term ‘‘geographicarea,’’ the determination of which of theseller’s operations comprise anoperating unit is no longer dependent inpart upon whether certain locations aresufficiently proximate to comprise abusiness undertaking in a particulargeographic area. Example 1 to § 802.1illustrates that an operating unitconsists of one grocery store within acompany’s chain of stores.

A key factor in determining whethera group of assets being sold constitutesan operating unit is whether the seller,as a result of the sale, will cease to sellparticular products or provide particularservices from a specific location or willexit the business of selling particularproducts or providing particularservices. The operating unit definitionspecifically excludes references torelevant product markets and relevantgeographic markets. Thus, a section 7antitrust analysis is unnecessary andinappropriate in determining whetherassets being sold comprise an operatingunit for purposes of determiningwhether notification is required.

Another probative factor indetermining whether a group of assetsconstitutes an operating unit is whether

the seller derived third party revenuesfrom the use of the assets. In certaincases, this factor may distinguish anoperating unit from a set of assets thathave been used solely to providemanagement and administrative supportservices, such as in-house accounting orbilling services, that generate no thirdparty revenues directly but support theseller’s business operations.

Amended § 802.1(a) uses the term‘‘operating unit’’ rather than the term‘‘operating division’’ used in existing§ 802.1(b). The latter term has createdsome uncertainty because certainbusiness entities use the term‘‘division’’ in a manner that may not beconsistent with this rule. For example,a business might use the term‘‘division’’ to designate anunincorporated administrative segmentof its enterprise, such as the ‘‘East CoastDivision’’ or the ‘‘Tri-State Division,’’that provides support functions to thebusiness’’ manufacturing activities.Such usage is designed to serve theneeds of the business. The term‘‘operating unit’’ has been adopted inorder to make clear that the applicationof the rule is not dependent on theterminology used by a business.

Comment 11 suggested that § 802.1(a)be revised to focus on whether the selleris exiting a line of business or ageographic area. However, the wordingof amended § 802.1(a) makes no explicitreference to the seller’s exit from a lineof business or geographic area. Asdiscussed above, this provision nolonger emphasizes the operation of abusiness undertaking in a particulargeographic area; instead, the focus is onthe location of a specific businessundertaking. Also, while the seller’s exitfrom a business segment can be a majorindication that certain assets constitutean operating unit, it is not that onlypossible indication. The extent to whichthe assets are used to generate thirdparty revenues is also an importantfactor and may determine that a groupof assets comprises an operating unit,even though there may be disagreementas to whether the seller is actuallyexiting a business segment. Forexample, the sale of revenue generatingassets at a specific location can be thesale of an operating unit even if theseller is continuing in that line ofbusiness at other locations.

Comment 11 also suggested that theoperating unit should be defined asassets operated by the acquired personas a business undertaking including allsimilar products or services offered bythe acquired person, or all operations ina geographic area. Interpretation of theterminology ‘‘similar products orservices’’ could require a complicated

analysis of the seller’s products todetermine whether the assets being soldwere used to manufacture thoseproducts of the seller that weresufficiently different from the seller’sother products to deem that anoperating unit was being transferred.Thus, the suggested language was notadopted in order to avoid the necessityof such an analysis.

B. New Goods. Amended § 802.1(b)describes the type of acquisitions ofgoods that are most commonly referredto as acquisitions ‘‘in the ordinarycourse of business.’’ This paragraphexempts acquisitions of new goods,which are typically routine sales ofinventory by manufacturers,wholesalers or retailers conducted inthe ordinary course of business.

Proposed § 802.1(b) exemptedacquisitions of new goods ‘‘produced bythe acquired person for sale, or * * *held by the acquired person solely forresale.’’ The proposed rule did notexempt any acquisitions of goods froma seller that purchased or produced thegoods for his own use but decided tosell the goods without using them. Thislanguage was eliminated from amended§ 802.1(b) in order to simplify the rule.Further, the change addresses a concernraised by Comment 21 that the proposedrule would not exempt acquisitions ofnew equipment from companies thatordered the equipment for their own usebut discovered before or upon deliverythat they could not use the equipment.The Commission has concluded thatsuch sales should be exempt becausesales of new equipment that are not partof the sale of an operating unit are notlikely to raise an antitrust concern, eventhough the equipment may have beenpurchased by the seller for use. As aresult of the deletion of this language,the rule no longer focuses on thepurpose for which the acquired personholds the new goods. The exemption isalso available for acquisitions of goodsthat the seller in good faith considers tobe new, even though he may have usedthe goods for demonstration purposes,customer trials or other purposes thatare incidental to the sale of the goods.The term ‘‘new’’ implies that the goodshave not been used to generate income.

Comments 9, 13 and 21 suggested thatan exemption be included foracquisitions of new goods produced orheld for lease. Amended § 802.1(b)adopts this suggestion by exemptingacquisitions of new goods regardless ofthe purpose for which the goods wereproduced or acquired. As a result, anequipment leasing company that sellsnew inventory that it has been unable tolease may avail itself of the exemptionas long as the inventory of new goods


does not constitute an operating unit ofthe company.

The exemption set forth in paragraph(b) does not apply to any acquisition ofnew goods which are sold as part of atransaction that includes all orsubstantially all of the assets of anoperating unit. This limitation on theexemption of new goods would applyeven if all the assets transferred werenew goods held solely for the purposeof resale. For example, if a marinesupply wholesaler purchased the entireinventory of another marine supplywholesaler which owned only anextensive inventory of hundreds ofitems from different manufacturers, theacquisition would not be exempt, eventhough the sale is composed entirely ofnew goods. The sale of all of itsinventory would be considered the saleof all or substantially all of its businesssince the primary assets of such awholesaling business are inventory.

C. Current Supplies. Amended§ 802.1(c) describes another category ofasset acquisitions—the acquisition of‘‘current supplies’’—that qualifies forthe ordinary course exemption.‘‘Current supplies’’ is a new term to therules and is described in subparagraphs(1), (2) and (3). Current supplies includegoods bought solely for the purpose ofresale or leasing to an entity notincluded within the acquiring person,raw materials, components,maintenance supplies and the like.Current supplies are generallypurchased frequently and are used forinventory by the purchaser, consumedin the daily conduct of business orincorporated into a final product.Current supplies may also consist ofused durable goods, discussed in new§ 802.1(d), which, for example, may bepurchased as inventory by equipmentleasing companies or used equipmentdealers. However, acquisitions ofcurrent supplies are not in the ordinarycourse of business if they are acquiredas part of an acquisition of all orsubstantially all the assets of anoperating unit.

In proposed § 802.1(c), the term‘‘current supplies’’ explicitly excludedused durable goods. Amended § 802.1(c)now redefines ‘‘current supplies’’ toeliminate this exclusion, as suggested byComments 9 and 21. Although ‘‘useddurable goods’’ are addressed explicitlyin § 802.1(d), the Commissionrecognizes that used assets, as well asnew assets, may meet the definition of‘‘current supplies’’ in § 802.1(c). Partiesare permitted to claim the exemptioneven if the goods purchased are notnew, so long as the acquired goods areto be held for third-party resale or lease,are to be consumed by the buyer, or are

otherwise incorporated in the acquiringperson’s final product.

Amended § 802.1(c)(1) includesadditional language to make clear thatthe exemption does not apply unless thegoods being acquired will be resold orleased to an entity that is not within theacquiring person. The addition preventsa buyer from claiming the exemption forthe acquisition from a competitor ofused productive equipment which thebuyer in turn resells or leases to asubsidiary.

The used durable goods provision,§ 802.1(d), contains a provisionexempting the acquisition of thecategory of goods described in proposed§ 802.1(c)(1) as goods acquired for thepurpose of resale or leasing. Thelanguage of amended § 802.1(c)(1) hasbeen changed largely to mirror thelanguage of the comparable provision inthe used durable goods exemption,§ 802.1(d)(1). Read together, theamended provisions exempt, withcertain exceptions, acquisition of newgoods and used durable and non-durable goods that are acquired andheld solely for the purpose of resale orleasing to entities not within theacquiring person.

Amended § 802.1(c) also adds goodsacquired for lease to the categories ofassets comprising current supplies.These changes, also suggested inComments 9 and 21, make theexemption available for inventorypurchases of equipment by leasingcompanies.

The acquisition of current supplies isunlikely to create or extinguish acompetitive entity and is thereforeexempt unless acquired as part of anacquisition of an operating unit. Inapplying paragraph (c), the focus is onthe business of the acquiring person todetermine if the exemption is available.

D. Used Durable Goods. Amended§ 802.1(d) provides that certainacquisitions of used durable goodsqualify for the ordinary course ofbusiness exemption. The term ‘‘useddurable good’’ is new to the rulescurrently in force. It is defined as a usedgood which was ‘‘designed to be usedrepeatedly and has a useful life greaterthan one year.’’ The Commissionrecognizes that sales of used durablegoods often meet a common sensedefinition of transfers of goods in theordinary course of business and thatsome categories of used durable goodsacquisitions lack competitivesignificance. Sales of such used durablegoods may be routine and considered byparties to be in the ordinary course oftheir businesses. Sales of used durablegoods may also facilitate the purchase ofa new generation of equipment that will

increase the productive capacity of abusiness.

Paragraph (d) represents an attempt toidentify certain categories of transfers ofused durable goods that meet a commonsense definition of ‘‘ordinary course’’and appear unlikely to violate theantitrust laws: (1) when the goods arebeing acquired and held solely for thepurpose of resale or leasing to an entitynot within the acquired person; (2)when the goods are being acquired froman acquired person holding the goodssolely for resale or leasing to an entitynot within the acquired person; (3)when the acquired person is replacingor upgrading the productive capacityprovided by the goods being sold; and(4) when the acquired person isoutsourcing the management andadministrative support servicesprovided by the goods being sold.

An acquisition of used durable goodsis exempt as within the ordinary courseof business if two requirements aresatisfied. The first requirement is thatthey must not be acquired as part of anacquisition of an operating unit asdefined in § 802.1(a). Thus, if the useddurable goods constitute, or are beingacquired as part of a group of assets thatconstitute, a business undertaking in aparticular location or for particularproducts or services, the ordinarycourse exemption does not apply.

The second requirement forexempting an acquisition of a useddurable good is that any one of fourcriteria set forth in the amended rulemust be satisfied. The first criterion,that the goods must be acquired andheld solely for the purpose of resale orleasing to an entity not within theacquiring person (i.e., current suppliesas the term is used in § 802.1(c)(1)), andthe second, that the acquired personmust have held the goods at all timessolely for resale or leasing to an entitynot within the acquired person,represent an exemption for dealerswhose business is to purchase and sellused goods and for equipment leasingcompanies which buy used goods forleasing purposes. After considerableassessment of the necessity andapplicability of § 802.1(d)(1) and (2), theCommission believes that the exemptionshould be included to allow dealers tomake transfers within the ordinarycourse of their business, in good faithtransactions conducted on their ownbehalf, without having to observe thereporting and waiting requirements.However, the Commission will closelymonitor such transactions to ensure thatthe exemption is not being used as aploy by two or more parties acting inconcert to circumvent the notificationrequirements of the act.


Comment 9 recommended thatproposed § 802.1(d)(1) and (2) applyeven when the acquiring person is anintermediary, since dealers often searchfor used equipment at the request of theultimate buyer. The Commissiondeclines to adopt this recommendation,which would permit potentiallyanticompetitive transfers of usedequipment to occur without a reportingrequirement if the dealer brokers thetransaction for the seller or the ultimatebuyer. Thus, the exemption isunavailable if the person making theacquisition is in reality an intermediaryfor either the seller or another personwho intends to hold the goods (seeExample 6 to § 802.1). This limitationattempts to forestall abuse of the dealerexemption by requiring notification incircumstances where the dealer is actingas a broker or an agent for a purchaseror a seller. In these instances, the dealergenerally does not take beneficialownership of the goods and thus is notactually acquiring the goods. The trueparties to the acquisition—the seller andthe person that will have beneficialownership of the goods as a result of theacquisition—should be subject to thenotification requirements.

In proposed § 802.1(d), the firstcriterion, (d)(1), limited the exemptionto purchases of goods acquired and heldsolely for resale, and the secondcriterion, (d)(2), exempted acquisitionsof goods purchased from a seller whohad acquired and held the goods solelyfor resale. Amended § 802.1(d) exemptsacquisitions of goods acquired and heldsolely for the purpose of resale orleasing and acquisitions of goods froma seller who had acquired and held thegoods solely for resale or leasing. Theprovision now exempts inventorypurchases and sales by leasingcompanies of used durable goods thatthey have leased or held for lease tothird parties, as long as the goods arenot being purchased or sold as part ofthe transfer of an operating unit. Suchtransactions are within the ordinarycourse of business of leasing companies,which typically acquire goods forleasing and sell goods which they haveheld for leasing. The revisions addressconcerns raised in Comments 6, 11, 13,16 and 21 about the inclusion in theused durable goods provisions ofexemptions for sales and purchases ofleased goods.

Amended § 802.1 (d)(1) and (d)(2)change the language of the proposals toclarify that the exemptions within theseprovisions are available only if (1) thebuyer acquires the goods to resell orlease to an entity that is not within it,or (2) the buyer acquires goods that theseller has held only to resell or lease to

entities not within it. As noted above,this change was also made to§ 802.1(c)(1), one of the current suppliesprovisions.

In proposed and amended§ 802.1(d)(2), the exemption appliesonly if the goods are acquired from anacquired person who held the goodssolely for resale or leasing. Thelimitation that the goods be held solelyfor resale or lease is designed to guardagainst transfers by a seller who hasused the goods to maintain acompetitive presence and is now sellingproductive capacity.

The third criterion in § 802.1(d)recognizes that it is in the ordinarycourse of business for a company toreplace or upgrade productive capacityand to sell the capacity it is replacing.Thus, an exemption is permitted for thesale of used durable goods if all orsubstantially all of the productivecapacity of these goods is beingreplaced. Such replacements may resultin an increase in the acquired person’sproductive capacity or manufacturingefficiencies. The exemption will notapply unless the acquired person hasalready replaced the capacity or takendefinitive steps to replace the capacityof the goods being sold. In addition,these steps must have been taken ingood faith; this requirement preventssham contracts that the acquired personcancels after transferring the productivecapacity without observing thenotification requirements and withoutreplacing the capacity.

Proposed § 802.1(d)(3) imposed notime limit between the replacement ofthe capacity and the sale of the capacitybeing replaced. However, a key factor indetermining whether the goods beingsold represent productive capacity thathas been or will be replaced is whetherthe sale is sufficiently contemporaneouswith the past or future purchase ofreplacement goods such that the goodsbeing sold represent a bona fide sale ofreplaced capacity. To insure that thereplacement of capacity is sufficientlycontemporaneous, § 802.1(d)(3) hasbeen modified to require either that thecapacity has been replaced within thesix months prior to the sale of the goodsbeing replaced, or that a contract hasbeen executed in good faith to replacethe capacity within six months.

Proposed § 802.1(d)(3) allowed use ofthe exemption if the acquired personhad executed either a contract,agreement in principle or letter of intentto replace the capacity of the goodsbeing sold. The exemption now requiresan executed contract for the purchase ofthe replacement equipment, since onlythe contract imposes a bindingobligation on the seller to acquire the

equipment to replace the capacity of thegoods being sold.

Normally companies that intend toremain in a particular business do notsell capacity prior to replacing thatcapacity or making contractualarrangements to replace the capacity. Ifthe replacement of capacity is notsufficiently proximate to the sale of thegoods representing the capacityreplaced, a firm could experience anabsence from the market that wouldhave a detrimental effect on itscompetitive position. The six-monthwindows will permit firms to integratethe new replacement equipment into itsoperations for a reasonable period oftime before selling the used equipment.The six-month windows will also allowa company to operate without thereplacement capacity but only for a briefperiod of time so as not to affectadversely its competitive presence inthe market.

The rule allows replacement of theproductive capacity of the used durablegoods being sold by acquisition or bylease. No minimum lease term isspecified; however, in order for anacquisition of the goods being replacedto be in the ordinary course of business,the replacement goods must be leasedfor a period that is substantially longenough to maintain or increase thecompany’s productive capacity. Such aperiod is industry specific and must bedetermined in good faith by theacquired person. Because this provisionrequires that all or substantially all ofthe productive capacity be replaced, theexemption is lost if the replacementgoods result or will result in more thana de minimis decrease in the acquiredperson’s capacity or an exit from a lineof business in which the acquiredperson currently operates.

The fourth criterion permits anexemption for sales of used durablegoods if (1) the goods are used by theacquired person solely to providemanagement and administrative supportservices for the acquired person’sbusiness operations, and (2) theacquired person has in good faithexecuted a contract to outsource themanagement and administrative supportservices provided by the goods beingsold. Management and administrativesupport services include services suchas accounting, legal, purchasing,payroll, billing and repair andmaintenance of the acquired person’sown equipment. For example, acompany that has equipment in-houseto provide its administrative dataprocessing needs may decide that itwould be more cost effective to have athird party provide these services. Toaccomplish this objective, the company


may enter into a contract with a thirdparty for these services and sell all ofthe equipment it used internally toprovide this function. Such transfersappear unlikely to pose any competitiveconcern.

Proposed § 802.1(d)(4) used the term‘‘auxiliary functions’’ to describe theservices provided by the goods beingsold. That term has been changed innew § 802.1(d)(4) to ‘‘management andadministrative support services.’’ Thisterm is more descriptive and conveysmore clearly that these services supportthe business operations of the acquiredperson and are not integral to theperson’s business operations.

The rule does not define‘‘management and administrativesupport services’’ but instead listscertain services that are included withinthat term and other services that are notincluded.

Although companies will sometimesoutsource the manufacturing of someproducts they market, the sale of useddurable goods that were used tomanufacture those products does notqualify for exemption under thisprovision. Manufacturing, including themanufacturing of inputs for otherproducts produced by the acquiredperson, is not a management andadministrative support service withinthe meaning of this exemption. Thus, ifa company decides to sell theequipment it had used to manufacture aproduct, even if it had entered into acontract for a third party to manufacturethe product, the sale of that equipmentis not exempt under § 802.1(d)(4). Theloss of the company’s control over themanufacturing of the product may raisecompetitive concerns warrantinginvestigation by the enforcementagencies.

In the Statement of Basis and Purposeto the proposed rules, research anddevelopment, testing and warehousingwere listed as auxiliary supportfunctions. The Commission does notconsider these activities to bemanagement and administrative supportservices; they are integral to acompany’s product design,development, production anddistribution and thus are tied directly tothe competitive business activities ofthe company. In an analysis of a givenindustry, these activities may have asignificant impact on issues involvinginnovation, entry and productdistribution.

The exemption requires that the goodshave been used ‘‘solely’’ to provide theacquired person with management andsupport services for its businessoperations. The transfer of goods thatsolely provide internal management and

administrative support services does notconstitute the acquisition of anoperating unit. A company division thatonly provides management andadministrative support services to thecompany’s operating units is not itselfan operating unit; it supports or benefitsthe company’s operating units. Forexample, in a company containing adivision that only provides thecompany’s internal data processingneeds, that division would be deemed toprovide management and administrativesupport services. The limitation on thesale of an operating unit contained in§ 802.1(a) would not exclude from theexemption under § 802.1(d)(4) the saleof all of the equipment from thatdivision. However, if that divisionderived revenues from providing dataprocessing services to third parties, thenthe unit would be considered to be anoperating unit. Further, equipment usedto derive third party revenues would nothave been used solely to providemanagement and administrative supportservices for the business operations ofthe acquired person.

Proposed § 802.1(d)(4), like proposed§ 802.1(d)(3), permitted the use of theexemption if the acquired person had acontract, agreement in principle or letterof intent to obtain the administrativeand management support servicesprovided by the goods being sold. New§ 802.1(d)(4) requires that the acquiredperson execute in good faith a contractfor the services to be outsourced. Thecontract gives rise to a bindingobligation on the acquired person tooutsource the services provided by thegoods being sold.

Comment 14 suggested that a sale ofgoods pursuant to the decision todownsize or discontinue a managementand administrative support serviceshould also be included within theexemption. The recommendation wasnot adopted because the Commissiondoes not have sufficient information andknowledge at this time to conclude thatthe elimination—as opposed to theoutsourcing—of management andadministrative support services in everybusiness setting is unlikely to raisecompetitive concerns.

Comment 7 suggested that examplesto § 802.1(d)(4) that distinguish betweengoods that perform a management andadministrative support service andgoods that are an integral part ofoperations that affect competition bechanged to reflect a more objectivestandard, such as goods that generatethird party revenues. This suggestionwas not adopted because of thevariation among industries of the factorsthat distinguish goods that performmanagement and administrative support

services from goods that are integral tothe business operations of the company.In a vertically integrated company, forexample, equipment it used forcomponentry manufacture would not beconsidered goods that perform amanagement and administrative supportservice, even though the companyderived no third party revenues fromthe sale of the components, but used thecomponents in the manufacture of itsfinal products. Example 12 illustrates asimilar application of § 802.1(d)(4).Therefore, if a company has an internaloperation that also derives third partyrevenues, that operation will not beconsidered a management andadministrative support service;however, the fact that a company’sinternal operation does not derive thirdparty revenues does not automaticallymake the operation a management andadministrative support service.

Comments 10 and 27 recommendedan exemption for transfers of usedairplanes that do not qualify for theexemption in § 802.1(d)(3). Comment 27presented statistics showing that theremay be little correlation between usedequipment sold by air carriers and newequipment that they purchase. Thecommenter stated that this absence ofcorrelation would make the exemptionin § 802.1(d)(3) unavailable for mostpotentially reportable sales of usedaircraft. Comment 10 suggested anexemption for acquisitions of less than15 percent of an air carrier’s totalproductive capacity, while Comment 27stated that exempt acquisitions of usedaircraft and spare parts should belimited to less than 15 percent of an aircarrier’s total productive assets.

Although a specific exemption foracquisitions of used aircraft has notbeen added to the final rules, therecommendations and concerns raisedby Comments 10 and 27 are still underconsideration. In providing certainlimited exemptions for transfers of useddurable goods in this rulemaking, theCommission’s primary concern is thatthe acquisitions that qualify for theseexemptions are ordinary course ofbusiness transactions and do notconstitute either significant downsizingor substantial transfers of productivecapacity without replacement. Therecommendations made by Comments10 and 27 suggest a less restrictiveexemption for sales of aircraft thatwould not require replacement andwould permit limited downsizing. TheCommission has no experience inimplementing HSR exemptions basedon the sale of a limited percentage of theacquired person’s capacity or assets ora basis to conclude that suchacquisitions do not pose competitive


concerns. Moreover, an exemptionbased on the sale of capacity wouldpresent difficulties in determining theappropriate measure to use in applyingthe exemption. However, Comments 10and 27 have raised issues that may beunique to the airline industry, and theCommission believes that furtherconsideration is needed.

Other additions to § 802.1(d) thatwere suggested by commenters includea recommendation in Comment 3 toexempt purchases of goods for thepurpose of demolition, disassembly andsale of usable parts (e.g., an oil tankerbeing sold for scrap and parts) andgoods that can no longer lawfully beused for the purpose for which theywere used by the acquired person (e.g.,oil tankers no longer allowed to call onU.S. ports because of hull restrictionsthat are sold for other lawful uses).Specific provisions to address thesetypes of transactions were not adopted.Most purchases of used equipment forscrap and parts should be exempt as anacquisition of current supplies under§§ 802.1(c)(1) and 802.1(d)(1). Withregard to the second exemptionsuggested, the Commission does nothave evidence to show that suchtransactions occur with sufficientfrequency to warrant the addition of theexemption, and it is not confident thata clearly-bounded exemption could becreated to cover a category oftransactions not likely to violate theantitrust laws.

II. Section 802.2: Certain Acquisitions ofReal Property Assets

New § 802.2 exempts eight categoriesof real property acquisitions from thereporting requirements of the act. Theseinclude acquisitions of new facilities,certain used facilities by the originallessee in a lease financing arrangement,unproductive real property, office andresidential property, hotels and motels,recreational property, agriculturalproperty, and rental retail space andwarehouses.

This new rule creates new exemptionsfor several categories of real propertyacquisitions that the enforcementagencies, after extensive review, haveconcluded ‘‘are not likely to violate theantitrust laws.’’ Section 7A(d)(2)(B) ofthe act. For the most part, the types ofreal property assets that are includedwithin this exemption are abundant,and their holdings are widely dispersed.Transfers of these categories of realproperty are generally small relative tothe total amount of holdings, and entryinto regional and local markets for thesetypes of real property assets is usuallyeasy.

Previously, the Premerger NotificationOffice had interpreted section 7A(c)(1)of the act as exempting certainacquisitions of new facilities,undeveloped realty, office buildings andresidential property as transfers of realtyin the ordinary course of business.Although new § 802.2 is not based onsection 7A(c)(1) of the act, certainacquisitions of realty exempted by thisnew exemption may also qualify forexemption as transfers of realty in theordinary course of business. Theprimary difference between new § 802.2,that exempts the acquisition of certaintypes of realty, and amended § 802.1,that exempts the acquisition of goodsand realty in the ordinary course ofbusiness, is that the former—because itis not based on the ‘‘ordinary course’’concept—does not limit the exemptionto acquisitions that are not acquisitionsof operating units. In fact, severalcategories of realty exempted by new§ 802.2, e.g., hotels, motels andagricultural land, may qualify asoperating units, but they are exemptunder this provision.

The exemptions for new facilities,certain used facilities, unproductive realproperty, office and residentialproperty, hotels and motels, certainrecreational land, agricultural property,rental retail space and warehouses statethat any non-exempt assets that arebeing transferred as part of anacquisition of the exempt assets areseparately subject to the requirements ofthe act and the rules. This approach tonon-exempt portions of acquisitions isalso used in § 802.3. The Commissionrecognizes that this approach mayresult, as Comment 9 has pointed out,in ‘‘a more fragmented analysis * * *generating value allocation issues.’’However, the Commission believes thatthis inconvenience is offset by anapproach that results in an expandedexemption for realty acquisitions.

A. New Facilities. New § 802.2(a)exempts the acquisition of newfacilities, which may include real estate,equipment and assets incidental to theownership of the new facility. The term‘‘new facility’’ is new to the rules, andthe Commission has concluded thatacquisitions of new facilities are notlikely to violate the antitrust laws.Although the provision is intendedprimarily to exempt ‘‘turnkey’’ facilities,i.e., new facilities capable ofcommencing operations immediatelywith minimal additional capitalinvestment, it does not require that thefacility be ready for immediateoccupancy. The facility may needadditional construction or outfitting atthe time it is purchased and still qualifyfor the exemption. However, if the

facility requires a substantial amount ofadditional construction or outfitting, itmay not be classified as a new facilitybut may qualify as unproductive realproperty as defined in new § 802.2(c).

The new exemption is unchangedfrom proposed § 802.2(a), and it appliesonly to new structures that have notproduced income. It also applies only ifthe acquired person has held the facilityat all times solely for sale. The languageof the exemption allows the holder ofthe new facility to be either a builder ofthe facility (‘‘constructed by theacquired person for sale’’) or otherpersons, such as a creditor, who takepossession of a new facility with theintention of selling it (‘‘held at all timesby the acquired person solely forresale’’). These limitations prevent thesale by an acquired person of capacityconstructed for the acquired person’suse, as Example 1 to § 802.2 illustrates.

New § 802.2(a) requires separatevaluation of non-exempt assets beingpurchased in an acquisition of a newfacility. If the value of the non-exemptassets exceeds $15 million, and no otherexemptions apply, then the purchase ofthese non-exempt assets is separatelysubject to the notification requirements.

B. Used facilities. New § 802.2(b)exempts the acquisition of a usedfacility by a lessee that has had sole andcontinuous possession and use of thefacility since it was first built, from alessor that holds title to the facility forfinancing purposes in the ordinarycourse of its business. This provisionwas not contained in the proposedrules. It is being adopted in response toComment 6.

New facilities are often acquiredthrough lease financing arrangements.In a lease financing arrangement acreditor, in a bona fide credittransaction entered into in the ordinarycourse of its business, acquires a newfacility and immediately leases it to alessee that will have sole andcontinuous use and possession of thefacility, usually under a long-term lease.The lessee generally has the option topurchase the facility from the lessor ator before the end of the lease term.Currently, there is no exemption for thisacquisition even though the acquisitionof the new facility may have beenexempt under § 802.2(a) if the lesseehad acquired the facility directly whenit first began operation and had financedthe purchase through an installmentsales arrangement.

New § 802.2(b) will effectively treatthe subsequent acquisition by theoriginal lessee of a used facility that thelessee originally took possession of as anew facility through a lease financingarrangement the same as the direct


purchase of a new facility through amore traditional credit arrangement.This new exemption also willeffectively treat this category ofacquisitions the same as an acquisitionof a leased facility by a lessee subject toa sale/leaseback arrangement. In a sale/leaseback arrangement the owner of afacility sells the facility to a creditor thatacquires it in a bona fide credittransaction in the ordinary course of itsbusiness. The creditor immediatelyleases the facility back to the owner,now lessee, under a long-term lease. Thearrangement is often used as method ofraising capital. Since the originalowner/lessee held beneficial ownershipof the facility prior to the sale/leasebackarrangement and the lessor typicallyreceives only title and a security interestin the facility, the PremergerNotification Office generally hasinformally interpreted the rules torequire no notification for thesubsequent repurchase because theoriginal owner/lessee did not relinquishbeneficial ownership when it enteredinto the sale/leaseback arrangement.

C. Unproductive real property. New§ 802.2(c) exempts acquisitions ofunproductive real property. Subject tothe limitations of § 802.2(c)(2),unproductive real property is realproperty, including raw land, structuresor other improvements, associatedproduction and exploration assets asdefined in § 802.3(c), natural resourcesand assets incidental to the ownershipof the real property, that has notproduced revenues of more than $5million during the 36 months precedingthe transaction. Structures andimprovements are additions to the realproperty that add value and include, forexample, buildings and parking lots.Production machinery and equipmentare not included in the definition ofstructures and improvements, and theiracquisition must be analyzed separatelyto determine whether notification isrequired. Natural resources refers to anyassets growing or appearing naturally onthe land, such as timber and mineraldeposits.

New § 802.2(c)(2) excludes from theexemption acquisitions ofmanufacturing and non-manufacturingfacilities that have not yet begunoperations as well as facilities that havebeen in operation at any time during thetwelve months preceding theacquisition. The exclusion formanufacturing and non-manufacturingfacilities that have not begun operationsis narrow and applies to facilities thatare held by a person who neitherconstructed the facility for sale nor heldthe facility at all times for resale. Theacquisition of a new structure from a

person who built the facility to sell orheld it solely for resale is exempt undernew § 802.2(a), the exemption for newfacilities. The exclusion in§ 802.2(c)(2)(i) is also intended to applyto ‘‘turnkey’’ facilities, i.e., newfacilities capable of commencingoperations immediately with minimaladditional capital investment; whetheracquisition of a ‘‘turnkey’’ facility isexempt is determined under § 802.2(a).A new facility that is partially complete,is not ready to commence operation inthe immediate future and requiressubstantial additional capitalinvestment is not yet a manufacturing ornon-manufacturing facility within themeaning of § 802.2(c)(2)(i). Such afacility may qualify as unproductive realproperty.

New § 802.2(c)(2)(iii) also excludesreal property that is either adjacent to orused in conjunction with real propertythat does not qualify as unproductivereal property and is part of theacquisition. This exclusion is intendedto make § 802.2(c) unavailable for theacquisition of vacant land adjoiningproductive property, such as a factory,a poultry processing facility or a meatpacking plant, which is also part of theacquisition. This exclusion was not inthe proposed rule. Without thisexclusion, it might have been arguedthat the acquisition of the vacant landshould be exempt under § 802.2 ifincome has been derived only from thefactory and not from activities takingplace on the vacant land. However, thisexemption is not permitted under§ 802.2(c) because the vacant land, dueto its adjacency to the factory, isconsidered to be part of the productiveproperty that is being acquired. If thevacant land were not adjoining thefactory but were used in connectionwith the factory operations, the§ 802.2(c) exemption would still beunavailable for the acquisition of thevacant land because it was used inconjunction with the factory. Example 7illustrates this exclusion from § 802.2(c).

The primary purpose of new§ 802.2(c) is to eliminate filingrequirements for acquisitions offormerly productive property, which isno longer used to generate revenues,and undeveloped, non-incomeproducing property. New § 802.2(c) willexempt most wilderness and rural landthat is not used commercially, andurban land that is vacant or containsfacilities that have ceased operationsmore than twelve months prior to theacquisition and that have generated aminimal amount of income during themost recent three-year period.

‘‘Associated production andexploration assets as defined in

§ 802.3(c),’’ was added to the definitionof unproductive real property inresponse to Comments 15 and 24. Thisaddition will include within theexemption for acquisitions ofunproductive real property anymachinery or equipment associatedwith a formerly productive coal mine oroil and gas reserve that has not been inoperation for twelve months prior to theacquisition and has not generatedrevenues of more than $5 million duringthe thirty-six months prior to theacquisition.

New § 802.2(c)(2) incorporates asuggestion made by Comment 14 thatthe language of the proposed rule’sexclusion for manufacturing and non-manufacturing facilities ‘‘that beganoperation within the twelve (12) monthspreceding the acquisition’’ be modified.Comment 14 pointed out that theproposed exemption excludes from thedefinition of unproductive real propertyfacilities that began operation during thetwelve-month period prior to theacquisition but includes operations thatwere commenced more than twelvemonths before the acquisition. One ofthe concepts underlying this exemptionis to exclude from the reportingrequirements formerly productivefacilities, i.e., facilities whoseoperations have ceased and are nolonger being used to generate revenues.The exemption was not intended toapply to manufacturing and non-manufacturing operations begun morethan twelve months prior to theacquisition and continuing to operateduring the twelve-month period prior tothe acquisition. The language suggestedby Comment 14 excludes from theexemption manufacturing and non-manufacturing facilities that were inoperation at any time during the twelvemonths preceding the acquisition.Because this language is more consistentwith the ‘‘formerly used/abandonedfacilities concept’’ underlying thisexemption, the Commission has decidedto adopt this suggestion in the final rule.

Comment 14 also suggested thatlanguage be added to § 802.2(c) that, forpurposes of this provision, no revenuesbe deemed generated by any realproperty used solely to providemanagement and administrative supportservices (formerly ‘‘auxiliary supportfunctions’’) for the business operationsof the acquired person. The commenterexpressed concern that while theacquisition of goods used by the sellerto provide these support services wouldbe exempt under § 802.1(d)(4), theacquisition of a facility used only tohouse equipment that provides thesesupport services may not be exemptfrom the notification requirements. The


Commission agrees that if theacquisition of the equipment providingthe management and administrativesupport service is exempt under§ 802.1(d)(4), then the acquisition of afacility used solely to house theequipment should be exempt. However,in most cases this type of facility can beclassified as office property, theacquisition of which is exempt under§ 802.2(d).

D. Office and residential property.New § 802.2(d) exempts acquisitions ofoffice and residential property. ‘‘Officeor residential property’’ is defined asreal property that is used primarily foroffice or residential purposes.

The rule specifies that in determiningwhether real property is used primarilyfor office or residential purposes, thetotal space being measured shouldconsist of real property, the acquisitionof which is not exempted by otherprovisions of the act or rules. Therefore,in making this determination, anyportion of the building consisting of, forexample, rental retail space, theacquisition of which is exempt under§ 802.2(f), should be excluded.

The language of new § 802.2(d)(2)differs somewhat from the language inthe proposed rule in order to makeclearer the procedure for determiningwhether real property is used primarilyfor office and residential purposes.Although new § 802.2(d) does notspecify the meaning of ‘‘primarily,’’ it iscontemplated that at least 75 percent ofthe space in the qualifying property isused for office or residential purposes.Example 8 applies this threshold toexempt the acquisition of a multi-usebuilding.

If the acquisition includes assets otherthan office or residential property, theacquisition of those assets is separatelysubject to the notification requirements.For example, if the acquiring person isalso purchasing a factory for $20million, the acquisition of the factory isseparately subject to the reportingrequirements.

New § 802.2(d)(3) also specifies that ifthe purchaser is acquiring a businessthat is conducted on the office orresidential property, the acquisition ofthe business, including the space inwhich the business is conducted, isseparately subject to the notificationrequirements of the act. For example, ifa company owns an office building inwhich it operates a department storeand the purchaser of that building isacquiring not only the space that thestore occupies but also the retailoperations of the department store, theacquisition of the department storebusiness as well as the space that thestore occupies is subject to the

notification requirements of the act. Ifthe value of the business and the spacein which the business is conductedexceeds $15 million, the acquisition ofthe department store business isreportable.

The inclusion of ‘‘assets incidental tothe ownership of office and residentialproperty’’ is derived from the languageof existing § 802.1. Although incidentalassets may have value apart from thereal property, they are often necessaryfor the continued and uninterrupted useof the property. Therefore, incidentalassets are included in the description innew § 802.2(d) of office and residentialproperty and are exempt assets.

Comment 14 suggested that languagebe added to new § 802.2(d) to exemptstructures that house equipment thatprovide management and administrativesupport services to the seller and ownerof the structure. As mentioned above,the Commission believes that thecommon meaning of office spaceincludes space used solely to providemanagement and administrative supportservices to the acquired person. Forexample, if an acquired person owns abuilding that primarily houses thecomputer equipment used to provide itsadministrative data processing needs,and the acquired person, in good faith,executed a contract for substantially thesame services, the sale of the equipmentwould be exempt pursuant to§ 802.1(d)(4). The sale of the buildingalso would qualify for exemption as anacquisition of office property, since thebuilding is not housing a ‘‘business’’that is being transferred but officeequipment that is being sold.

E. Hotels and motels. New § 802.2(e)exempts from the reportingrequirements acquisitions of hotels andmotels, and improvements to thosefacilities, such as golf, swimming,tennis, restaurant, health club orparking facilities (but excluding skifacilities), and assets incidental to theownership of those facilities. Theexemption, however, excludes theacquisition of a hotel or motel thatincludes a gambling casino.

The exemption is based on theCommission’s review of past HSRnotifications and observation thatacquisitions of hotels and motels, exceptfor those excluded from the exemption,are unlikely to violate the antitrust laws.Several commenters affirmed theCommission’s understanding that thesetypes of assets are plentiful and widelyheld, and often they are owned byinvestor groups that hire managementfirms or national chains to operate thefacilities. Even in local markets entryappears to be relatively easy.

The proposed exemption for theacquisition of hotels and motelsexcluded hotels ‘‘acquired as part of theacquisition of a ski resort.’’ Thisexclusion raised questions concerningthe treatment of a ski resort containinga hotel versus a hotel that has skifacilities along with other recreationalimprovements. The wording of the newexemption excludes ski facilities fromimprovements included with a hotel ormotel which may be acquired withoutobserving the reporting requirements.As a result, in an acquisition of a hotelwith ski facilities, the acquisition of thehotel is exempt, but the ski facilitiesmust be valued separately to determineif their acquisition is subject to thenotification requirements.

Ski facilities are not included withinthe exemption for acquisitions of hotelsand motels because the Commissiondoes not have a basis for concludingthat the acquisition of a ski facility isnot likely to violate the antitrust laws.In addition, ski facilities do not appearto be characterized by the same ease ofentry as hotels generally. Gamblingcasinos are also excluded from theexemption because they involveservices other than lodging, and theiracquisition may affect competition incertain local markets. Also, certain areasmay have licensing requirements forgambling casinos that serve as animpediment to entry.

Comments 9 and 14 suggested that theexemption for hotels and motels beexpanded to included the acquisition ofrelated improvements, such as golfcourses, swimming and tennis facilitiesand restaurants. The Commission agreesthat the inclusion of theseimprovements, as well as health clubsand parking facilities, does not raiseantitrust concerns and, thus, hasincluded such related improvements asqualifying for the exemption. TheCommission also has added languageexempting the acquisition of assetsincidental to the ownership of the hotelor motel being acquired to make clearthat all related permits and tangiblepersonal property used directly in theoperation of the facility are includedwithin the exemption.

In the Statement of Basis and Purposeaccompanying the proposed rule, theCommission made clear that ‘‘thisexemption would include theacquisition by a national hotel chain ofhotel assets of another hotel chain.’’ TheStatement of Basis and Purpose went onto say that ‘‘if the acquisition includesassets other than hotels and motels, e.g.,the selling firm’s trademark or its hotelmanagement business, these assets mustbe separately valued to determinewhether their acquisition is subject to


the notification requirements.’’Comments 19, 26 and 29 suggested thatthe exemption for hotels and motels beexpanded to included the acquisition oftrademarks and hotel managementbusinesses. These comments assert thathotel and motel assets are plentiful andthat entry into the hotel/motel businessis relatively easy, justifying a broaderexemption to cover all hotel and motelasset acquisitions. The Commission haslearned that acquisitions of hotel andmotel assets typically include thetransfer of the hotel managementcontracts in effect at the time of theacquisition as well as licenses to use thetrademarks associated with the hotel ormotel being acquired. Thus new§ 802.2(e) explicitly includes thesecontracts and licenses among the list ofassets incidental to the operation of thehotel or motel. However, the exemptiondoes not include the acquisition of hotelmanagement businesses or the purchaseof a hotel trademark. Such acquisitions,even if made in connection with thepurchase of a hotel or motel, are notconsidered to be transfers of incidentalassets associated with a hotel or moteland are therefore separately subject tothe requirements of the act.

F. Recreational Land. New § 802.2(f)exempts the acquisition of recreationalland, which is defined as real propertyused primarily as golf, swimming, ortennis club facilities and assetsincidental to the ownership of suchproperty. If an acquisition includes anyproperty or assets other thanrecreational land, the acquisition ofthese other assets is separately subject tothe notification requirements.

This exemption was not originallyincluded in proposed § 802.2 and isbeing added to the final rule in responseto Comment 14 that suggested anexemption for certain types ofrecreational land. The Commission hasreceived HSR filings for a very smallnumber of acquisitions of recreationalland, primarily golf courses. Based onthis experience, the Commissionbelieves that the acquisition of certaintypes of recreational land is not likelyto violate the antitrust laws. Thisexemption is limited to the types ofrecreational realty the acquisition ofwhich is exempt as improvements whenacquired as part of a hotel or motelunder § 802.2(e). Recreational landunder § 802.2(f) does not include, forexample, ski facilities, multi-purposearenas, stadia, racetracks andamusement parks.

G. Agricultural property. New§ 802.2(g) exempts acquisitions ofagricultural property, assets incidentalto the ownership of the property andassociated assets integral to the

agricultural business activitiesconducted on the property. Agriculturalproperty that is covered by thisexemption is real property thatprimarily derives revenues under MajorGroups 01 and 02 of the 1987 StandardIndustrial Classification (SIC) Manual.Associated assets integral to theagricultural business activitiesconducted on the property to beacquired include structures (e.g., barnsused to house livestock), fertilizer,animal feed and inventory (e.g.,livestock, poultry, crops, fruits,vegetables, milk, and eggs). In anacquisition that includes assets that arecovered by this exemption, the transferof any other assets is separately subjectto the notification requirements.

Associated agricultural assets do notinclude processing equipment orfacilities. If a meat packing or poultryprocessing market is concentrated in agiven local area, the transfer of in- houseprocessing capacity may have asignificant effect on the market. For thisreason, the Commission believes thatsuch transfers should be reviewed priorto consummation so the agencies candetermine whether the proposedacquisition will affect competitionadversely.

The proposed rule exemptingacquisitions of agricultural propertyincluded within the definition ofassociated agricultural assets‘‘equipment dedicated to the income-generating activities conducted on thereal property.’’ New § 802.2(g) omits thisequipment from the definition ofassociated agricultural assets because incertain cases the equipment may be partof a processing facility, the acquisitionof which is not exempt under § 802.2(g).

The final rule also changes theproposed rule by including aparenthetical reference to SIC MajorGroups 01 and 02 in the definition ofagricultural property. This inclusion isintended to make clear that acquisitionsof agricultural land on which otheractivities involving farm products areconducted, e.g., activities includedwithin SIC Major Groups 20 (e.g., meatpacking plants, poultry slaughtering andprocessing, milk processing, and cornwet milling), 42 (farm product storageand warehousing) and 51 (buying andmarketing of farm products) are notincluded within the exemption.

New § 802.2(g)(2), which has beenadded to the proposed rule, providesthat ‘‘agricultural property does notinclude any real property and assetseither adjacent to or used in conjunctionwith facilities that are not associatedagricultural assets and that are includedin the acquisition.’’ This provisionexcludes from the exemption, for

example, acquisitions of any realproperty and assets that are eitheradjacent to or used in conjunction withpoultry or livestock slaughtering,processing or packing facilities that arealso being acquired. Thus, if a meatpacking plant is surrounded by vacantland that serves as a buffer zone forenvironmental purposes or as an areafor grazing cattle in connection with theplant operations, and an acquiringperson intends to purchase the plantand the surrounding property, theacquisition of the vacant land is notexempt either as an acquisition ofagricultural land or an acquisition ofunproductive real property [seediscussion of § 802.2(c)(2)]. The vacantland is considered to be part of thebusiness of the plant, and itsacquisition, along with that of the plant,is subject to the reporting requirements.

H. Rental retail space; warehouses.New § 802.2(h) exempts acquisitions oftwo other categories of real property,rental retail space and warehouses.Rental retail space includes structuresthat house and are rented to retailestablishments and include realproperty assets such as shoppingcenters, strip malls, and stand alonebuildings. These types of assets areabundant and widely held by insurancecompanies, banks, other institutionalinvestors and individual investors asinvestments and rental property. TheCommission believes that acquisitionsof these types of real property assets areunlikely to violate the antitrust laws.

However, the new rule provides thatif the retail rental space or warehousesare to be acquired in an acquisition ofa business conducted on the realproperty, the acquisition of the retailrental space or warehouses is notexempt. Thus, if an acquiring person isalso acquiring a business that isconducted on the real property, theacquisition of that business, includingthe portion of the real property onwhich the business is conducted, isseparately subject to the notificationrequirement of the act. For example, ifa department store chain proposed toacquire from another department storechain several shopping centers and thedepartment store business conducted bythe seller in several stores located inthese shopping centers, the acquisitionof the seller’s department store businessand the portion of the shopping centersin which the stores are located would besubject to the notification requirements.The acquisition of the portion of theshopping centers that housed otherretail establishments would be exemptunder this rule. Similarly, as illustratedin Example 12, the exemption for theacquisition of warehouses is lost if


warehouses are being acquired inconnection with the acquisition of awholesale distribution business.

The new rule also provides that if anacquisition of rental retail space or awarehouse includes other assets, thoseother assets are separately subject to thereporting requirements of the act. New§ 802.2(h) differs from the proposed ruleonly in the addition to the exemption ofassets incidental to the ownership ofretail rental space or warehouses.Without this addition, it would benecessary to value separately anyincidental assets associated with theownership of the property, contrary tothe treatment of real property assetsincluded in other provisions of § 802.2.

III. Section 802.3: Acquisitions ofCarbon-Based Mineral Reserves

New § 802.3 adds exemptions forcertain acquisitions of carbon-basedmineral reserves. Specifically, § 802.3(a)exempts the acquisition of reserves ofoil, natural gas, shale and tar sands orthe rights to such assets if the value ofthe reserves, the rights and associatedexploration and production assets to beheld as a result of the acquisition do notexceed $500 million. Similarly,§ 802.3(b) exempts the acquisition ofreserves of coal or rights to coal reservesif the value of the reserves, the rightsand associated exploration andproduction assets to be held as a resultof the acquisition do not exceed $200million. Associated exploration andproduction assets are defined in new§ 802.3(c) to mean, with certainspecified exceptions, equipment,machinery, fixtures, and other assetsthat are integral and exclusive to currentor future exploration or productionactivities associated with the carbon-based mineral reserves that are beingacquired.

The Commission’s studies of the coaland oil and gas industries have shownthat the values of the reserves in theseindustries are substantial comparedwith asset holdings in other industries.The holdings of reserves in theseindustries are widely dispersed, andindividual acquisitions have hadminimal effect on concentration.However, the Commission believes thatan unlimited exemption for reserves ofcoal and oil and gas is inappropriate,because acquisitions of carbon-basedmineral reserves above the newlyestablished thresholds may warrant anexamination of their potential effects oncompetition.

New § 802.3 differs from proposed§ 802.3 in that new § 802.3(a) expandsthe exemption for oil, natural gas, shaleand tar sands by increasing the value ofthe reserves that will be held as a result

of the acquisition that qualify for theexemption from $200 million to $500million. This increase is based onstatistical information provided byComments 5 and 9 indicating that theownership of oil and gas reserves in theUnited States and worldwide isrelatively unconcentrated. Moreover,the acquisition of $500 million of crudeoil reserves in the United States wouldamount to about 1/10 of 1 percent ofdomestic oil reserves. Such anacquisition, if made by the leadingcommercial owner of domestic reserves,would result in an increase in the HHIof about 2 points in an unconcentratedmarket. The Commission has concludedthat acquisitions of oil and gas reservesvalued at $500 million or less areunlikely to violate the antitrust laws.However, the $200 million threshold fortransactions involving coal reserves wasretained from proposed § 802.3. TheCommission does not have sufficientinformation to support a higherthreshold for coal reserves acquisitions.Also, because acquisitions of coalreserves may tend to affect local orregional markets, a higher thresholdmay exempt transactions that should bereviewed for their impact on suchmarkets.

Sections 802.3(a) and 802.3(b)primarily are designed to exemptacquisitions of producing reserves, butalso may exempt some acquisitions ofnon-producing reserves that may also beexempt as unproductive real propertyunder § 802.2(c). Because the exemptionis not based on the ‘‘ordinary course’’concept, the exemptions also apply ifthe reserves and associated assets beingtransferred constitute all or substantiallyall of the assets of an operating unit. Ifthe reserves being acquired are not yetproducing, the acquisition also is likelyto be exempt under § 802.2(c) as anacquisition of unproductive realproperty. For formerly producingreserves that have not been inproduction during the twelve monthspreceding the acquisition and have notgenerated revenues in excess of $5million during the 36 months precedingthe acquisition, their acquisition wouldqualify as unproductive real property. Ifthe reserves qualify as unproductiveproperty, their acquisition is exempt,regardless of the value of the reserves.Currently producing reserves aregoverned by the valuation requirementsof § 802.3. Example 1, which involvesan acquisition consisting of non-producing gas reserves, producing oilreserves and assets associated with theproducing reserves, illustrates theapplication of § 802.2(c) and § 802.3 to

the separate components of theacquisition.

The $500 million threshold in§ 802.3(a) and the $200 millionthreshold in § 802.3(b) apply to reserves,rights to the reserves and associatedexploration or production assets. Theacquisition of these associated assets isnot separately reportable because theseassets generally have no competitivesignificance separate from the reserves.In many instances, producing reservescontain dedicated equipment that mayhave a market value exceeding $15million but have no practical valueabsent the reserves. In addition, thewide availability of used equipment inthe oil and gas and coal industriesmakes it unlikely that a servicer of oilfields or coal mines could purchasereserves to restrict supply of availableequipment in a given region. Thus, theCommission believes that the inclusionof associated exploration andproduction assets is necessary tofacilitate meaningful application of theexemption.

Associated exploration or productionassets are defined in § 802.3(c) toinclude equipment, machinery, fixturesand other assets that are integral to theexploration or production activities ofthe reserves. Such assets do not includeany intellectual property rights that maybe transferred with the reserves. In theoil and gas industry, examples ofassociated exploration or productionassets include proprietary or licensedgeological and geophysical data, wells,pumps, compressors, easements,permits and rights of way.

As in the oil and gas industry,exploration or production assetsassociated with coal reserves mayinclude proprietary or licensedgeological and geophysical data,easements, permits and rights of way. Insurface mining in the western U.S.,associated production assets mayconsist of various load out facilities,including storage barns and silos, dryerbarns and railroad spurs, and heavyequipment such as draglines andcrushers. Such assets would alsoinclude the long-term coal contracts andfederal leases related to the reserves.

New § 802.3 also changes thecategories of assets that are excludedfrom the definition of associatedproduction or exploration assets as itrelates to oil and natural gas reserves.Proposed § 802.3 excluded fromassociated production or explorationassets all flow and gathering pipelines,distribution pipelines, interests inpipelines, processing facilities andrefineries, because acquisitions of theseassets in certain local markets have,from time to time, raised competitive


concerns prompting investigations bythe enforcement agencies. However,Comments 3, 5, 9 and 24 recommendedincluding in the definition of associatedexploration or production assetspipeline systems and field treatingfacilities that serve a particularproducing property and have nocompetitive significance apart from theoil and natural gas reserves beingacquired. The Commission hasconcluded that acquisitions of thesesystems and facilities in connectionwith the reserves to which they arededicated are unlikely to violate theantitrust laws because they do not havethe potential for competing in theprovision of services to third parties.Therefore, the definition of associatedexploration or production assets nowclearly delineates dedicated facilitiesfrom facilities serving third parties byexcluding ‘‘any pipeline and pipelinesystem or processing facility whichtransports or processes oil and gas afterit passes through the meters of aproducing field; and any pipeline orpipeline system that receives gasdirectly from gas wells fortransportation to a natural gasprocessing facility or other destination.’’

Comments 17, 18 and 30 proposed anexemption for acquisitions oftimberland, noting that the raw materialsupply and manufacturing resources inthe forestry industry are abundant, andownership of timberland is fragmented.However, because there has beenenforcement interest in a number oftransactions involving timberland in thewestern United States, the Commissiondeclined to include an exemption foracquisitions of timberland to insure thatthe enforcement agencies continue toreceive notification of those acquisitionsof timberland that may presentcompetitive concerns.

Comment 9 noted that theenforcement agencies, as they obtainadditional experience and informationabout other natural resources, willperhaps identify ways of expanding§ 802.3 to include other types ofproducing reserves without posingundue risk to competition. For non-producing reserves of other mineralsand renewable natural resources,§ 802.2(c) will exempt acquisitions ofthese reserves if they qualify asunproductive real property. Regardingproducing reserves, the Commission hasnot included these in § 802.3 at thistime because it does not have anadequate factual basis for determiningthat acquisitions of other types ofmineral reserves and renewable naturalresources should be exempt from therequirements of the act or subject to areporting level higher than the statutory

$15 million threshold. However, theCommission will continue to collectinformation about other minerals andrenewable natural resources anddetermine at a later date if expansion of§ 802.3 to include acquisition ofreserves of these resources is warranted.

IV. Section 802.4: Acquisitions of VotingSecurities of Issuers Holding CertainAssets the Direct Acquisition of WhichIs Exempt

New § 802.4 exempts the acquisitionof voting securities of issuers that holdcertain assets the direct acquisition ofwhich is exempt under the act or therules. New § 802.4(a) exempts theacquisition of voting securities of anissuer whose assets, together with thoseof all entities controlled by the issuer,consist of assets whose direct purchaseis exempt from the notificationrequirements pursuant to section7A(c)(2) of the act or §§ 802.2, 802.3 and802.5 of the rules. New § 802.4(b)defines ‘‘issuer’’ as used in § 802.4 tomean a single issuer, or two or moreissuers controlled by the same person.The exemptions provided by new§ 802.4 are available so long as theacquired issuer or issuers do not in theaggregate hold exempt assets thatexceed the threshold limitations of thecited rules and non-exempt assets witha fair market value of more than $15million. New § 802.4(c) states that fairmarket value as determined inaccordance with § 801.10 (c)(3) of therules is the standard to apply indetermining the value of assets held byan issuer whose voting securities arebeing acquired pursuant to § 802.4. New§ 802.4 applies to acquisitions resultingin the holding of a minority interest aswell as a controlling interest in theacquired issuer’s outstanding votingsecurities.

Section 802.4 derives in part fromoriginal § 802.1(a) which exempted ‘‘anacquisition of the voting securities of anentity whose assets consist solely of realproperty’’ and related assets, if a directacquisition of that real property andthose related assets would be exempt.The rationale for original § 802.1(a) andnew § 802.4 is that the applicability ofan exemption should not depend on theform of the acquisition. The antitrustanalysis would seem to be the samewhether assets or voting securities areacquired. See Statement of Basis andPurpose to § 802.1(a), 43 FR 33488 (July31, 1978).

Proposed § 802.4(a) extended thisapproach by exempting acquisitions ofvoting securities of issuers whose assetsconsist solely of assets exempt underproposed § 802.2: new facilities,unproductive real property, office and

residential property, hotels and motels,agricultural property, rental retail spaceand warehouses. Proposed § 802.4(b)contained a comparable exemption forissuers whose assets consist solely ofcarbon-based mineral reserves exemptunder proposed § 802.3.

New § 802.4 differs in five respectsfrom the proposal. First, new paragraph(a) no longer requires that the issuerwhose voting securities are beingacquired hold solely exempt assets. New§ 802.4(a) provides that the issuer alsomay hold up to $15 million of non-exempt assets in addition to the exemptassets. Second, proposed paragraph (b)has been merged into new paragraph (a).In the proposed exemption, theaggregation principles of § 801.15(b)applied only to § 802.4(b), while§ 801.15(a) applied to § 802.4(a).Because of the new provision that anissuer whose voting securities are beingacquired pursuant to § 802.4 also mayhold up to $15 million of non-exemptassets, § 801.15(b) applies to alltransactions under § 802.4. New§ 802.4(a) now describes all classes ofacquisitions that are exempt pursuant to§ 802.4.

Third, new § 802.4(a) has beenexpanded and now provides anexemption for voting securitiesacquisitions of issuers that hold assetsthe direct acquisition of which areexempt pursuant to section 7A(c)(2) ofthe act and § 802.5 of the rules. Fourth,new § 802.4(b) has been added to therule to make clear that the term ‘‘issuer’’as used in § 802.4(a) means a singleissuer or two or more issuers controlledby the same person. Lastly, new§ 802.4(c) has been added to make clearthat the value of assets held by an issuerwhose voting securities are beingacquired pursuant to § 802.4 is the fairmarket value determined in accordancewith § 801.10(c)(3) of the rules.

The first change responds toComments 2, 5 and 9, which noted thatthe requirement in proposed § 802.4 thatthe acquired issuer could hold solelyassets exempt under §§ 802.2 and 802.3was very limiting and caused theproposed exemption to fall short of thegoal of treating voting securitiesacquisitions the same as assetpurchases. Proposed §§ 802.2 and 802.3provided an exemption for assetacquisitions involving the purchase ofcertain types of realty and carbon-basedmineral reserves and required that theacquisition of any non-exempt assets beseparately analyzed to determinewhether notification was required priorto their purchase. Thus, under proposed§§ 802.2 and 802.3, a person couldacquire certain exempt assets and non-exempt assets valued at $15 million or


less and would not be required to file.However, in contrast, the requirement inproposed § 802.4 that the acquiredissuer hold solely exempt assetsprecluded the exemption if the issuerheld any assets not exempt under§§ 802.2 and 802.3.

The Commission agrees that thislimitation seemed to undercut therationale underlying § 802.4 to reducethe extent to which the form of thetransaction affects the requirement tofile notification. For this reason, asnoted previously, the Commission hasmodified proposed § 802.4 to exemptacquisitions of issuers that hold assetsexempt under section 7A(c)(2) of the actand new §§ 802.2, 802.3, and 802.5, andnon-exempt assets with a fair marketvalue of $15 million or less.

Comment 2 also suggested thatproposed § 802.4 be amended to exemptacquisitions of voting securities ofissuers that hold ‘‘incidental assets,’’i.e., assets incidental to the ownershipof the exempt assets, in addition to theassets that are exempt pursuant toproposed §§ 802.2 and 802.3. Thecommenter pointed out that sinceincidental assets were not included inevery provision of the proposed rules asexempt assets, the ownership ofincidental assets by an acquired issuerwould limit the application of § 802.4.As noted previously, the Commissionhas modified the language of proposed§ 802.4 to include within the exemptionacquisitions of voting securities ofissuers holding assets exempt under thecited rules and non-exempt assets witha fair market value of $15 million orless. The Commission also has includedwithin the various subsections of§§ 802.2 and 802.3 language that willinclude within the exemptions, assetsincidental to the ownership of theexempt assets. The Commission believesthat since the ownership of incidentalassets has little effect on competition,the value of incidental assets should notbe included in the determination ofwhether the acquired issuer holds non-exempt assets with a fair market valueexceeding $15 million. The Commissionbelieves that these modificationsadequately address the concerns raisedby this comment.

The second change was made becausethe provisions of § 801.15(b) thataddress aggregation of previousacquisitions now govern all votingsecurities acquisitions of issuers holdingassets exempt under the sectionsincluded within new § 802.4(a).Proposed § 802.4(a) containedexemptions that did not requireaggregation because the exemptionswere not based on the holding of assetsvalued at less than a set threshold

amount. For instance, the exemption forcertain types of realty provided in§ 802.2 is applicable regardless of thevalue of the exempt assets to beacquired. However, since new § 802.4(a)has eliminated the restriction that anissuer whose voting securities are to beacquired hold solely exempt assets andnow permits the acquired issuer to holdnon-exempt assets valued at $15 millionor less, the principles of § 801.15(b)apply, and aggregation is required todetermine whether this limitation willbe exceeded.

The third change from the proposedrules reflects a suggestion by Comment9 that section 7A(c)(2) of the act beincluded within § 802.4. Section7A(c)(2) exempts acquisitions of‘‘bonds, mortgages, deeds of trust, andother obligations which are not votingsecurities.’’ The Commission agrees thatthe acquisition of these types of assetsare of little antitrust concern, whetheracquired in the form of an asset orvoting securities acquisition, and hasadded section 7A(c)(2) of the act to new§ 802.4(a).

Similarly, an exemption foracquisitions of voting securities ofissuers holding assets the directacquisition of which would be exemptunder § 802.5 is now included in§ 802.4(a) as a result of revisions to§ 802.5 (see discussion, below). Becauseproposed § 802.5 included a limitationon the type of purchaser that qualifiedfor the exemption, comparable votingsecurities acquisitions could not beincluded within § 802.4 and thus wereexempted within proposed § 802.5. New§ 802.5 has been revised to remove thelimitation, and the exemption for theequivalent voting securities acquisitionhas been moved to § 802.4. Therefore,acquisitions of the voting securities ofissuers holding investment rentalproperty plus non-exempt assets valuedat $15 million or less will be exemptpursuant to § 802.4(a).

The addition of § 802.4(b) stems fromthe rationale underlying this exemptionthat voting securities acquisitions andasset purchases be treated similarly forpurposes of § 802.4. The first steptoward achieving similar treatment wasto modify proposed §§ 802.4(a) and (b)to include within the exemption theacquisition of issuers that hold exemptassets and non-exempt assets valued at$15 million or less. The Commissionbelieves that, in addition to thismodification, purchasers should berequired to aggregate acquisitions ofvoting securities of different issuerscontrolled by the same acquired person.Otherwise, the form of the transactionwill affect the notification requirement.For this reason, new § 802.4(b) defines

issuer, for purposes of § 802.4, to meana single issuer or multiple issuerscontrolled by the same acquired person.Thus, when the voting securities ofmore than one issuer controlled by thesame person are being acquired,aggregation of the non-exempt assetsheld by these issuers and aggregation ofthe carbon-based mineral reserves forwhich there are threshold limitations isrequired. For example, if ‘‘A’’ proposedto acquire the voting securities of threesubsidiaries of ‘‘B’’ and each subsidiaryheld $200 million of oil and gasreserves, the acquisition would not beexempt under § 802.4(a) because theacquired issuers hold in the aggregate$600 million of oil and gas reserves. Ifthe acquisition were structured as anasset acquisition with ‘‘A’’ purchasingthe oil and gas reserves held by ‘‘B’s’’three subsidiaries, the acquisitionwould not qualify for exemption undernew § 802.3(a) since the value of thereserves to be acquired exceeds $500million.

Similarly, if ‘‘A’’ proposed to acquirethe voting securities of three of ‘‘B’s’’subsidiaries and each held, respectively,(1) two hotels and $10 million of non-exempt assets, (2) two hotels and $7million of non-exempt assets and (3)three hotels and $3 million of non-exempt assets, ‘‘A’’ would be required toaggregate the value of the non-exemptassets to determine whether theacquired issuers hold in the aggregatenon-exempt assets exceeding $15million in value. Since the value of thenon-exempt assets exceeds $15 million,‘‘A’s’’ proposed acquisition would notbe exempt under § 802.4(a). If theacquisition were structured as an assetacquisition with ‘‘A’’ purchasing thehotels and the non-exempt assetsdirectly, ‘‘A’s’’ acquisition of the hotelswould be exempt under § 802.2(e) but‘‘A’’ would be required to filenotification for the acquisition of thenon-exempt assets. The Commissionrecognizes that in this situation theholdings of non-exempt assetsexceeding $15 million in the votingsecurities acquisition negated theavailability of the exemption for theentire acquisition, whereas in the assetacquisition filing would be requiredonly for the acquisition of the non-exempt assets. However, since votingsecurities acquisitions are by theirnature different than asset acquisitionsbecause voting securities represent aninterest in the undivided totality of theunderlying assets, this difference inoutcome is unavoidable but reasonable.

New § 802.4(c) has been added tomake clear that the value of the exemptand non-exempt assets held by theissuer is fair market value determined in


accordance with § 801.10(c)(3). TheCommission recognizes that thisrequirement may be difficult to meetwhen the acquisition is hostile or theacquiring person proposes to acquire aminority interest through theacquisition of voting securities fromthird party holders, e.g., open marketpurchases. However, § 801.10(c)(3)requires that the acquiring person makea good faith determination of the fairmarket value of the assets of the issuerwhose voting securities are to beacquired. The acquired person cannotrely on the absence of data to make agood faith determination that the fairmarket value of the assets held by theacquired issuer(s) does not exceedthreshold limitations.

The modifications that have beenmade to proposed § 802.3, providingdifferent thresholds for oil and gasreserves and coal reserves, andproposed § 802.4, expanding theexemption to include issuers holdingnon-exempt assets with a fair marketvalue of $15 million or less, complicatethe application of the rules requiringaggregation of acquisitions of votingsecurities of different issuers controlledby the same acquired person. Theprevious discussion addressed the issueof aggregation when the votingsecurities of different issuers areacquired in the same transaction. Thefollowing discussion addresses some ofthe intricacies of aggregation involvingsubsequent acquisitions from the sameacquired person of voting securities ofthe same issuer (and of different issuers)holding assets exempt under §§ 802.2,802.3 and 802.5 and section 7A(c)(2) ofthe act.

To address the issue of aggregationinvolving subsequent acquisitions fromthe same issuer of voting securitiesgoverned by the exemptions providedby § 802.4, § 801.15(b) has been revisedto include §§ 802.3 and 802.4. Section801.15(b) provides that votingsecurities, the acquisition of which wasexempt under certain identifiedexemptions, are not held as a result ofan acquisition unless in a subsequentacquisition the limitations contained inthose specified exemptions areexceeded. For example, ‘‘A’’ acquires for$40 million, in an exempt transaction,20 percent of the voting stock of B,which holds petroleum reserves valuedat $300 million and subsequently plansto acquire an additional five percent ofthe B’s voting securities for $10 million.‘‘A’’ would be required to determinewhether its subsequent acquisition ofB’s stock qualifies for the exemptionunder § 802.4(a). If B’s holdings of oiland gas reserves have increased and thevalue of its reserves exceeds $500

million, ‘‘A’s’’ subsequent acquisition ofB’s stock would not be exempt under§ 802.4(a). Under § 801.15(b), ‘‘A’’ isconsidered to hold 20 percent of thevoting stock of B, and ‘‘A’s’’ subsequentacquisition is not exempt under§ 802.4(a).

Another situation in whichaggregation is required under§ 801.15(b) involves an acquisition of aminority interest in the voting securitiesof an issuer exempt under § 802.4(a)followed by a subsequent acquisition ofeither a minority or a controllinginterest in the voting securities ofanother issuer included within the sameacquired person. For example, assumethat ‘‘A’’ acquired 30 percent of thevoting securities of C, an issuercontrolled by ‘‘B,’’ for $40 million andthat the acquisition was exempt under§ 802.4(a) because C held oil and gasassets valued at $300 million and non-exempt assets valued at $7 million. Sixmonths later, ‘‘A’’ proposes to acquirefrom ‘‘B’’ all (or a minority) of the votingsecurities of D and E, issuers controlledby ‘‘B,’’ for $20 million each. D has oiland gas reserves valued at $150 millionand non-exempt assets valued at $2million, and E has oil and gas reservesvalued at $150 million and non-exemptassets valued at $2 million. Under§ 801.15(b), ‘‘A’’ is required to aggregateits current proposed acquisitions of Dand E with its previous exemptacquisition of C’s voting securities todetermine whether the limitations setforth in § 802.4(a) will be exceeded as aresult of the subsequent acquisition. Inthis situation, since the value of the oiland gas reserves held by the C, D, andE exceed $500 million, the acquisitionof the voting securities of D and E is notexempt under § 802.4(a).

Aggregation is not required in asubsequent acquisition of voting stockof an issuer included within the sameacquired person if the acquiring personacquired control of that issuer in anearlier transaction, i.e., holds 50 percentor more of the issuer’s outstandingvoting securities. In such case, theissuer is now included within theacquiring person, and the aggregationrequirements of § 801.13(a) do not applysince control has passed to the acquiringperson. (In a situation in which theacquiring person acquires exactly 50percent of an issuer’s voting stock andthe acquired person has retained 50percent, the Premerger NotificationOffice has long treated the issuer aswithin the acquiring person alone inapplying the aggregation requirementsof §§ 801.13 and 801.14 for subsequentvoting stock and asset purchases fromthe same acquired person.) Therefore, ifan acquiring person has acquired 50

percent or more of the voting stock ofan issuer and proposes to acquireadditional voting stock from the sameissuer or another issuer controlled bythe same acquired person, the acquiringperson is not required to aggregate theassets of the issuer in the firstacquisition with assets of the issuer inthe second acquisition to determine ifany limitations have been exceeded.

Section 802.4 contains three examplesthat illustrate the application of the rule,including an example involvingsimultaneous acquisitions. Examplesillustrating the aggregation principles of§ 802.4 in sequential transactions areincluded in the examples to § 801.15.Section 802.4 represents theCommission’s first major effort to accordthe same treatment to asset acquisitionsand comparable voting securitiesacquisitions. The aggregation principles,though necessary, complicate theapplication of the exemption. If thecomplexity of the aggregation principlesmakes applying the § 802.4 exemptionoverly burdensome for parties, theCommission will review the provisionto determine if any changes to theexemption are necessary.

Proposed Section 802.5: Acquisitions ofInvestment Rental Property Assets

Section 802.5 exempts acquisitions ofinvestment rental property assets. It isintended to exempt certain acquisitionsof real property that are not exemptunder new § 802.2. The exemptionapplies only to acquisitions of realproperty assets that will be held by theacquiring person solely for rental orinvestment purposes and that will berented only to entities not includedwithin the purchaser (except for the solepurpose of maintaining, managing orsupervising the operation of theinvestment rental property assets).Thus, the intent of the purchaser at thetime of the acquisition must beconsidered to determine whether theexemption is available. Although theapplication of new § 802.5, unlikeproposed § 802.5, is no longer limited tocertain types of acquiring persons suchas institutional investors, theCommission believes that this provisionwill exempt most real propertyacquisitions typically made byinstitutional investors, real estateinvestment trusts (‘‘REITs’’), or realestate development and managementcompanies that are not exempted bynew § 802.2.

New § 802.5 is designed tosupplement new § 802.2 by recognizingthat there may be additional categoriesof real property assets, such asindustrial parks and multi-purposesports and entertainment facilities, that,


when acquired as investment rentalproperty, are not likely to violate theantitrust laws. Acquisitions of thesetypes of real property are often madesolely for rental investment purposes. Insuch instances, investors in suchproperty play no active role in thebusiness conducted on these propertiesand seek only to profit from theirinvestment in the real estate. Moreover,in order to reduce risk of loss in thevalue of the real estate they hold,purchasers of numerous propertiesgenerally do not concentrate theirinvestments in a single geographicmarket. Given the size andunconcentrated nature of the real estatemarket, such acquisitions are not likelyto pose a competitive concern. Thelimitations in new § 802.5 on the intentof the acquiring person and the use ofthe qualifying real property are designedto insure that the exemption will not beavailable for any acquisition intended toachieve business objectives that are notrelated to the rental or investmentobjectives.

Although the investment rentalproperty exemption may apply to realproperty, such as office or residentialproperty, hotels/motels and rental retailspace, that is also exempt under § 802.2,there will be no need to apply new§ 802.5 to the acquisition of thesecategories of real property assets. Theimportant distinction between § 802.2and § 802.5 is that § 802.2 exemptsacquisitions of specific classes of realproperty assets and does not incorporatethe intent-based test of § 802.5, while§ 802.5 exempts any type of realproperty assets that meet the rule’srequirements for investment rentalproperty. In addition, the exemptionsfor acquisition of real property under§ 802.2 apply even if the acquiringperson occupies the property for anypurpose while § 802.5 permits theacquiring person to use the acquiredinvestment rental property assets onlyto manage or operate the real propertyassets being acquired.

Proposed § 802.5 limited theavailability of the exemption foracquisitions of investment rentalproperty to institutional investors asdefined by § 802.64 and persons whosesole business is the acquisition ormanagement of investment rentalproperty assets. Comment 2recommended that the limitation onqualified purchasers be eliminatedbecause the definition of investmentrental property assets in proposed§ 802.5(b) would be sufficient to preventpurchasers from conducting business onthe property being acquired. Comment31 suggested that the exemption shouldbe available to persons other than

investors whose sole business consistsof acquiring or managing investmentrental property assets. REITs, thecommenter pointed out, are permitted toown certain assets such as temporarystock and bond investments that are notinvestment rental property and thus,under the proposed rules, may notqualify as entities whose sole businessis acquiring and managing investmentrental property assets.

The Commission has determined thatthe dual restrictions in proposed § 802.5which made the exemption availableonly to (1) certain types of investors for(2) acquisitions of investment rentalproperty were too limiting. TheCommission believes that eliminatingthe first restriction will not compromisethe efficacy of the exemption. Thus,new § 802.5 is available to all types ofpurchasers so long as the acquisitionqualifies as investment rental propertyassets.

New § 802.5 includes a provision,found in other sections of Part 802 andomitted from proposed § 802.5, statingthat in an acquisition that includesinvestment rental property, the transferof any other property shall be separatelysubject to the requirements of the act.Thus an investor can purchase property,the acquisition of which is exemptunder § 802.5, and non-exempt assetsvalued at $15 million or less and stillqualify for the exemption.

In addition, the provision included inproposed § 802.5 exemptingacquisitions of voting securities of anentity holding assets that consist solelyof investment rental property assets hasbeen modified and moved to new§ 802.4. Thus, the exemption foracquisitions of voting securities ofissuers holding § 802.5 assets will begoverned by § 802.4. This change resultsin greater comparability between thedirect acquisition of § 802.5 assets andthe acquisition of voting securities ofissuers holding these assets.

Proposed § 802.5 included within thedefinition of investment rental propertyassets any space occupied by theacquiring person for the sole purpose ofmaintaining, managing or supervisingthe operation of real property and realproperty rented only to entities notincluded within the acquired person.The proposal incorrectly implied that aninvestor could not lease a portion of theacquired rental property to a subsidiaryor other affiliated entity which would,in turn, manage the property on behalfof the investor. The language in new§ 802.5 has been changed and explicitlypermits the investor to establish thisarrangement with a subsidiary solely tomaintain, manage or supervise thepurchased property.

For some acquisitions, in order todetermine prior to the acquisitionwhether the buyer will use theinvestment rental property inaccordance with the requirements of§ 802.5, it may be necessary to examinethe acquisition intent of the acquiringperson, particularly if that investor iscontrolled by a person that also controlsentities engaged in other businesses.The acquisition intent can be inferredfrom the context of the transaction andfrom actions by the acquiring personbefore the acquisition. Circumstances orconduct such as the following may bescrutinized separately or in combinationto determine whether the acquiringperson has an intent that is fullyconsistent with holding property solelyas investment rental property assets: (1)the acquiring person undertook, prior tothe acquisition, a study of the cost ofconverting the property for use by oneof its businesses; (2) the property is tobe converted for use by the acquiringperson; (3) prior to the acquisition, theproperty is being leased to or used byentities included within the acquiringperson; (4) a portion of the acquiredproperty is being leased at the time ofthe acquisition to a competitor of theacquiring person; and (5) the purchaseprice reflects the value of a businessoperated on the property rather than theinvestment rental value of the property.

Because § 802.5 covers a broad rangeof non-specific assets and places nolimits on who may acquire the assets,the Commission has declined to adoptthe suggestion in Comment 7 toeliminate the requirement that theproperty to be acquired will be rentedonly to entities not included within theacquiring person. The Commission alsodeclined to adopt the suggestions inComments 7 and 9 to eliminate therestrictions on the acquiring person’suse of any space on the property for thesole purpose of maintaining, managingand supervising the operation of theproperty. Limits on the use of theproperty provide additional safeguardsto insure that the property is beingacquired for investment or rentalpurposes, since other safeguards such aslimits on the type of investment rentalproperty that can be acquired and thetype of investor that qualifies forexemption are absent from new § 802.5.

Currently, HSR notifications are notrequired for acquisitions of realty madeby REITs under the ordinary course ofbusiness exemption. REITs acquire realestate in the ordinary course of theirbusiness, and the fiduciary nature oftheir investment activities and therestrictions imposed upon them by theInternal Revenue Code safeguard againstimproper use of property they acquire.


New § 802.5 is not intended to narrowthe exemption from the reportingrequirements that is currently availableto REITs.

Comment 9 noted that the language ofproposed § 802.5 excluded theacquisition of a REIT by a non-REIT,because of the restriction on the type ofinvestor that qualified for theexemption. Acquisitions of REITs bynon-REITs are currently subject to thenotification requirements, because thefiduciary restraints that governacquisitions by REITs do not generallyapply to non-REITs. However, undernew § 802.5, the acquisition by a non-REIT of all of the assets of a REIT maybe exempt from the reportingrequirements if the transaction meetsthe requirements of the exemption. Theacquisition of all of the assets of a REITby another REIT is currently an exempttransaction, even though the acquiredREIT may hold certain non-real estateassets, and new § 802.5 does notsupersede this exemption.

VI. Aggregation RulesSection 801.15 states that,

notwithstanding § 801.13, certain assetsand voting securities acquired inexempt transactions are not consideredto be ‘‘held as a result of anacquisition.’’ These rules and conceptsgovern whether certain acquisitionsmust be aggregated to determine if aproposed acquisition requiresnotification. As the Statement of Basisand Purpose makes clear (43 FR 33479),§ 801.15 is applicable to simultaneousacquisitions in which both exempt andnon-exempt assets or voting securitiesare being acquired from the sameacquired person and to acquisitions ofnon-exempt assets or voting securitiesafter the person has previously acquiredexempt assets or voting securities fromthe same acquired person.

Section 801.15(a) provides that assetsand voting securities exempt at the timeof acquisition under certain provisionsof the act and rules are not held as aresult of the acquisition. Acquisitionsexempted by section 7A(c)(1) of the actare among the classes listed. As a result,in determining whether an assetsacquisition meets the more than $15million size-of-transaction criterion ofsection 7A(a)(3), the value of assetsacquired in the ordinary course ofbusiness is not counted. Because § 802.1declares that certain acquisitions areand that others are not considered to betransfers in the ordinary course ofbusiness under section 7A(c)(1), it is notnecessary to list § 802.1 separately in§ 801.15(a). However, to eliminatepossible confusion, § 802.1 is listed in§ 801.15(a), along with section 7A(c)(1),

to make clear that assets exemptedpursuant to § 802.1(b), (c) and (d) arenot deemed to be held as the result ofan acquisition for aggregation purposes.Therefore, an acquisition of currentsupplies valued at $8 million is notaggregated with subsequent acquisitionsfrom the same person to determine if aproposed acquisition will exceed the$15 million size-of-transactionnotification threshold, since the currentsupplies are exempt pursuant to section7A(c)(1) and § 802.1(c).

New § 802.2, which provides anexemption for the acquisition of certaintypes of real property assets (newfacilities, used facilities, unproductivereal property, office and residentialproperty, hotels and motels, recreationalland, agricultural property, rental retailspace and warehouses) is also listed in§ 801.15(a) since the exemption sets nodollar limit on the amount of exemptassets that may be acquired withoutprior notification. Since new § 802.2 islisted in § 801.15(a), assets exemptunder this provision are never held asa result of an acquisition. Section 802.5,which exempts acquisitions ofinvestment rental property also appearsin § 801.15(a). However, it is importantto note that new §§ 802.2 and 802.5provide that the acquisition of any otherassets not exempted by new §§ 802.2and 802.5 are subject to therequirements of the act and the rules asif they were being acquired in a separateacquisition. Consequently, in anacquisition that includes these exemptassets, the acquisition of other non-exempt assets are subject to theaggregation requirements of § 801.13(b).

Sections 802.3 (exempting certainacquisitions of carbon-based mineralreserves) and 802.4(exemptingacquisitions of voting securities ofissuers holding exempt assets undersection 7A (c)(2) of the act, §§ 802.2,802.3 and 802.5, plus non-exempt assetsvalued at $15 million or less), appear in§ 801.15(b). This provision requiresparties to aggregate the value ofotherwise exempt assets that aretransferred in separate acquisitions.Section 801.15(b) provides that theaggregation rules of § 801.13 are to beapplied if, as a result of a proposedsubsequent transaction, the assets fromthat transaction and an earliertransaction will exceed a quantitativelimitation on the exemption of assets ofthat kind. Thus, the $500 millionlimitation for oil and gas reserves andthe $200 million limitation for coalreserves in § 802.3, that were notreached in an earlier acquisition, may beexceeded by a subsequent acquisition ofreserves.

Example 4 to § 801.15 amends thecurrent Example 4, in which theacquiring person is purchasing twomines. The existing example does notindicate whether the mines containcarbon-based minerals. Based on thevalue of the mines stated in theexample, § 802.3 would exempt theiracquisition if they are carbon-basedmineral reserves. To avoid possibleconfusion, the acquired assets have beenchanged to manufacturing plants.

In response to a suggestion inComment 9, language has been added toExample 5 regarding valuation of assetsin sequential acquisitions to determineif the limitation in § 802.3 has beenexceeded. In such acquisitions, thebuyer is not required to determine thecurrent fair market value of the assets ofthe first acquisition, but he may use thevalue of those assets at the time of theirprior acquisition pursuant to§ 801.10(b). However, in applying§ 802.4, if in the first acquisition thebuyer had purchased a minority share ofthe voting securities of an issuer thatheld the exempt oil reserves assets andproposed to buy additional votingsecurities from the same issuer, thebuyer is required to revalue the totalholdings of the issuer at the time of thesecond acquisition to determine if theissuer’s holdings of oil and gas rightsand reserves exceed the limitation in§ 802.3.

In proposed § 801.15, only § 802.4(b)appeared in § 801.15(b) because onlythat provision of § 802.4 exemptedacquisitions of voting securities ofissuers holding assets that, if acquireddirectly, were exempt subject to certaindollar limitations. Paragraphs (a) and (b)of proposed § 802.4 have now beenconsolidated into new § 802.4(a) sincethe exemption has been expanded toexempt issuers holding exempt assetsand non-exempt valued at $15 millionor less. New § 802.4 now appears inamended § 801.15(b) to reflect theprovision contained in § 802.4(a)limiting the value of the non-exemptassets that the issuer whose votingsecurities are being acquired can hold.Also, three new examples have beenadded to § 801.15 to illustrate theaggregation principles of § 802.4 (seediscussion of new § 802.4, above).

List of Subjects in 16 CFR Parts 801 and802

Antitrust.

Amended Rules

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


PART 801—COVERAGE RULES

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

Authority: Sec. 7A(d), Clayton Act, 15U.S.C. 18a(d), as added by sec. 201, Hart-Scott-Rodino Antitrust Improvements Act of1976, Pub. L. 94–435, 90 Stat. 1390.

2. Section 801.15(a)(2) and (b) arerevised to read as follows:

§ 801.15 Aggregation of voting securitiesand assets the acquisition of which wasexempt.

* * * * *(a) * * *(2) Sections 802.1, 802.2, 802.5,

802.6(b)(1), 802.8, 802.31, 802.35,802.50(a)(1), 802.51(a), 802.52, 802.53,802.63, and 802.70;

(b) Assets or voting securities theacquisition of which was exempt at thetime of acquisition (or would have beenexempt, had the act and these rules beenin effect), or the present acquisition ofwhich is exempt, under section 7A(c)(9)and §§ 802.3, 802.4, 802.50(a)(2),802.50(b), 802.51(b) and 802.64 unlessthe limitations contained in section7A(c)(9) or those sections do not applyor as a result of the acquisition wouldbe exceeded, in which case the assets orvoting securities so acquired will beheld; and* * * * *

3. Section 801.15, Example 4 isrevised, and Examples 5, 6, 7 and 8 areadded to read as follows:

§ 801.15 Aggregation of voting securitiesand assets the acquisition of which wasexempt.

* * * * *Examples: * * *4. Assume that acquiring person ‘‘B,’’ a

United States person, acquired fromcorporation ‘‘X’’ two manufacturing plantslocated abroad, and assume that theacquisition price was $40 million. In themost recent year, sales into the United Statesattributable to the plants were $15 million,and thus the acquisition was exempt under§ 802.50(a)(2). Within 180 days of thatacquisition, ‘‘B’’ seeks to acquire a third plantfrom ‘‘X,’’ to which United States sales of $12million were attributable in the most recentyear. Since under § 801.13(b)(2), as a resultof the acquisition, ‘‘B’’ would hold all threeplants of ‘‘X,’’ and the $25 million limitationin § 802.50(a)(2) would be exceeded, underparagraph (b) of this rule, ‘‘B’’ would holdthe previously acquired assets for purposes ofthe second acquisition. Therefore, as a resultof the second acquisition, ‘‘B’’ would holdassets of X exceeding $15 million in value,would not qualify for the exemption in§ 802.50(a)(2), and must observe therequirements of the act and file notificationfor the acquisition of all three plants beforeacquiring the third plant.

5. ‘‘A’’ acquires producing oil reservesvalued at $400 million from ‘‘B.’’ Two

months later, ‘‘A’’ agrees to acquire oil andgas rights valued at $75 million from ‘‘B.’’Paragraph (b) of this section and§ 801.13(b)(2) require aggregating thepreviously exempt acquisition of oil reserveswith the second acquisition. If the twoacquisitions, when aggregated, exceed the$500 million limitation on the exemption foroil and gas reserves in § 802.3(a), ‘‘A’’ and‘‘B’’ will be required to file notification forthe latter acquisition, including within thefilings the earlier acquisition. Since, in thisexample, the total value of the assets in thetwo acquisitions, when aggregated, is lessthan $500 million, both acquisitions areexempt from the notification requirements. Indetermining whether the value of the assetsin the two acquisitions exceed $500 million,‘‘A’’ need not determine the current fairmarket value of the oil reserves acquired inthe first transaction, since these assets arenow within the person of ‘‘A.’’ Instead ‘‘A’’may use the value of the oil reserves at thetime of their prior acquisition in accordancewith § 801.10(b).

6. ‘‘X’’ acquired 55 percent of the votingsecurities of M, an entity controlled by ‘‘Z,’’six months ago and now proposes to acquire50 percent of the voting stock of N, anotherentity controlled by ‘‘Z.’’ M’s assets consistof $150 million worth of producing coalreserves plus $7 million worth of non-exemptassets and N’s assets consist of a producingcoal mine worth $100 million together withnon-exempt assets with a fair market value of$6 million. ‘‘X’s’’ acquisition of the votingsecurities of M was exempt under § 802.4(a)because M held exempt assets pursuant to§ 802.3(b) and less than $15 million of non-exempt assets. Because ‘‘X’’ acquired controlof M in the earlier transaction, M is nowwithin the person of ‘‘X,’’ and the assets ofM need not be aggregated with those of N todetermine if the subsequent acquisition of Nwill exceed the limitation for coal reserves orfor non-exempt assets. Since the assets of Nalone do not exceed these limitations, ‘‘X’s’’acquisition of N also is not reportable.

7. In Example 6, above, assume that ‘‘X’’acquired 30 percent of the voting securitiesof M and proposes to acquire 40 percent ofthe voting securities of N, another entitycontrolled by ‘‘Z.’’ Assume also that M’sassets at the time of ‘‘X’s’’ acquisition of M’svoting securities consisted of $90 millionworth of producing coal reserves and non-exempt assets with a fair market value of $9million, and that N’s assets currently consistof $60 million worth of producing coalreserves and non-exempt assets with a fairmarket value of $8 million. Since ‘‘X’’acquired a minority interest in M and intendsto acquire a minority interest in N, and sinceM and N are controlled by ‘‘Z,’’ the assets ofM and N must be aggregated, pursuant to§ 801.15(b) and § 801.13, to determinewhether the acquisition of N’s votingsecurities is exempt. ‘‘X’’ is required todetermine the current fair market value ofM’s assets. If the fair market value of M’s coalreserves is unchanged, the aggregated exemptassets do not exceed the limitation for coalreserves. However, if the present fair marketvalue of N’s non-exempt assets also isunchanged, the present fair market value ofthe non-exempt assets of M and N when

aggregated is greater than $15 million. Thusthe acquisition of the voting securities of Nis not exempt. If ‘‘X’’ proposed to acquire 50percent or more of the voting securities ofboth M and N in the same acquisition, theassets of M and N must be aggregated todetermine if the acquisition of the votingsecurities of both issuers is exempt. Since thefair market value of the aggregated non-exempt assets exceeds $15 million, theacquisition would not be exempt.

8. ‘‘A’’ acquired 49 percent of the votingsecurities of M and 45 percent of the votingsecurities of N. Both M and N are controlledby ‘‘B.’’ At the time of the acquisition M heldrights to producing coal reserves worth $90million and N held a producing coal mineworth $90 million. This acquisition wasexempt since the aggregated holdings fellbelow the $200 million limitation for coal in§ 802.3(b). A year later, ‘‘A’’ proposes toacquire an additional 10 percent of the votingsecurities of both M and N. In the interveningyear, M has acquired coal reserves so that itsholdings are now valued at $140 million, andthe value of N’s assets remained unchanged.‘‘A’s’’ second acquisition would not beexempt. ‘‘A’’ is required to determine thevalue of the exempt assets and any non-exempt assets held by any issuer whosevoting securities it intends to acquire beforeeach proposed acquisition (unless ‘‘A’’already owns 50 percent or more of thevoting securities of the issuer) to determineif the value of those holdings of the issuerfalls below the limitation of the applicableexemption. Here, an assessment shows thatthe holdings of M and N now exceed the$200 million limitation for coal reserves in§ 802.3.

PART 802—EXEMPTION RULES

1. The authority citation for Part 802continues to read as follows:

Authority: Sec. 7A(d), Clayton Act, 15U.S.C. 18a(d), as added by sec. 201, Hart-Scott-Rodino Antitrust Improvements Act of1976, Pub. L. 94–435, 90 Stat. 1390.

2. Section 802.1 is revised to read asfollows:

§ 802.1 Acquisitions of goods and realty inthe ordinary course of business.

Pursuant to section 7A(c)(1),acquisitions of goods and realtytransferred in the ordinary course ofbusiness are exempt from thenotification requirements of the act.This section identifies certainacquisitions of goods that are exempt astransfers in the ordinary course ofbusiness. This section also identifiescertain acquisitions of goods and realtythat are not in the ordinary course ofbusiness and, therefore, do not qualifyfor the exemption.

(a) Operating unit. An acquisition ofall or substantially all the assets of anoperating unit is not an acquisition inthe ordinary course of business.‘‘Operating unit’’ means assets that areoperated by the acquired person as a


business undertaking in a particularlocation or for particular products orservices, even though those assets maynot be organized as a separate legalentity.

(b) New goods. An acquisition of newgoods is in the ordinary course ofbusiness, except when the goods areacquired as part of an acquisitiondescribed in paragraph (a) of thissection.

(c) Current supplies. An acquisition ofcurrent supplies is in the ordinarycourse of business, except whenacquired as part of an acquisitiondescribed in paragraph (a) of thissection. The term ‘‘current supplies’’includes the following kinds of new orused assets:

(1) Goods acquired and held solely forthe purpose of resale or leasing to anentity not within the acquiring person(e.g., inventory),

(2) Goods acquired for consumptionin the acquiring person’s business (e.g.,office supplies, maintenance supplies orelectricity), and

(3) Goods acquired to be incorporatedin the final product (e.g., raw materialsand components).

(d) Used durable goods. A good is‘‘durable’’ if it is designed to be usedrepeatedly and has a useful life greaterthan one year. An acquisition of useddurable goods is an acquisition in theordinary course of business if the goodsare not acquired as part of anacquisition described in paragraph (a) ofthis section and any of the followingcriteria are met:

(1) The goods are acquired and heldsolely for the purpose of resale orleasing to an entity not within theacquiring person; or

(2) The goods are acquired from anacquired person who acquired and hasheld the goods solely for resale orleasing to an entity not within theacquired person; or

(3) The acquired person has replaced,by acquisition or lease, all orsubstantially all of the productivecapacity of the goods being sold withinsix months of that sale, or the acquiredperson has in good faith executed acontract to replace within six monthsafter the sale, by acquisition or lease, allor substantially all of the productivecapacity of the goods being sold; or

(4) The goods have been used by theacquired person solely to providemanagement and administrative supportservices for its business operations, andthe acquired person has in good faithexecuted a contract to obtainsubstantially similar services as wereprovided by the goods being sold.Management and administrative supportservices include services such as

accounting, legal, purchasing, payroll,billing and repair and maintenance ofthe acquired person’s own equipment.Manufacturing, research anddevelopment, testing and distribution(i.e., warehousing and transportation)are not considered management andadministrative support services.

Examples: 1. Greengrocer Inc. intends tosell to ‘‘A’’ all of the assets of one of the 12grocery stores that it owns and operatesthroughout the metropolitan area of City X.Each of Greengrocer’s stores constitutes anoperating unit, i.e., a business undertaking ina particular location. Thus ‘‘A’s’’ acquisitionis not exempt as an acquisition in theordinary course of business. However, theacquisition will not be subject to thenotification requirements if the acquisitionprice or fair market value of the store’s assetsdoes not exceed $15 million.

2. ‘‘A,’’ a manufacturer of airplane engines,agrees to pay $20 million to ‘‘B,’’ amanufacturer of airplane parts, for certainnew engine components to be used in themanufacture of airplane engines. Theacquisition is exempt under § 802.1(b) as newgoods as well as under § 802.1(c)(3) ascurrent supplies.

3. ‘‘A,’’ a power generation company,proposes to purchase from ‘‘B,’’ a coalcompany, $25 million of coal under a long-term contract for use in its facilities to supplyelectric power to a regional public utility andsteam to several industrial sites. Thistransaction is exempt under § 802.1(c)(2) asan acquisition of current supplies. However,if ‘‘A’’ proposed to purchase coal reservesrather than enter into a contract to acquireoutput of a coal mine, the acquisition wouldnot be exempt as an acquisition of goods inthe ordinary course of business. Theacquisition may still be exempt pursuant to§ 802.3(b) as an acquisition of reserves of coalif the requirements of that section are met.

4. ‘‘A,’’ a national producer of canned fruit,preserves, jams and jellies, agrees to purchasefrom ‘‘B’’ for $25 million a total of 10,000acres of orchards and vineyards in severallocations throughout the U.S. ‘‘A’’ plans toharvest the fruit from the acreage for use inits canning operations. The acquisition is notexempt under § 802.1 because orchards andvineyards are real property, not ‘‘goods.’’ If,on the other hand, ‘‘A’’ had contracted toacquire from ‘‘B’’ the fruit and grapesharvested from the orchards and vineyards,the acquisition would qualify for theexemption as an acquisition of currentsupplies under § 802.1(c)(3). Although thetransfer of orchards and vineyards is notexempt under § 802.1, the acquisition wouldbe exempt under § 802.2(g) as an acquisitionof agricultural property.

5. ‘‘A,’’ a railcar leasing company, willpurchase $20 million of new railcars from arailcar manufacturer in order to expand itsexisting fleet of cars available for lease. Thetransaction is exempt under § 802.1(b) as anacquisition of new goods and § 802.1(c), as anacquisition of current supplies. If ‘‘A’’subsequently sells the railcars to ‘‘C’’, acommercial railroad company, thatacquisition would be exempt under§ 802.1(d)(2), provided that ‘‘A’’ acquired and

held the railcars solely for resale or leasingto an entity not within itself.

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

7. ‘‘A,’’ a cruise ship operator, plans to sellfor $18 million one of its cruise ships to ‘‘B,’’another cruise ship operator. ‘‘A’’ has, ingood faith, executed a contract to acquire anew cruise ship with substantially the samecapacity from a ship builder. The contractspecifies that ‘‘A’’ will receive the new cruiseship within one month after the scheduleddate of the sale of its used cruise ship to ‘‘B.’’Since ‘‘B’’is acquiring a used durable goodthat ‘‘A’’ has contracted to replace within sixmonths of the sale, the acquisition is exemptunder § 802.1(d)(3).

8. ‘‘A,’’ a luxury cruise ship operator,proposes to sell to ‘‘B,’’ a credit companyengaged in the ordinary course of its businessin lease financing transactions, its fleet of sixpassenger ships under a 10-year sale/leaseback arrangement. That acquisition isexempt pursuant to § 802.1(d)(1), useddurable goods acquired for leasing purposes.The acquisition is also exempt under§ 802.63(a) as a bona fide credit transactionentered into in the ordinary course of ‘‘B’s’’business. ‘‘B’’ now proposes to sell the ships,subject to the current lease financingarrangement, to ‘‘C,’’ another lease financingcompany. This transaction is exempt under§ 802.1(d)(1) and § 802.1(d)(2).

9. Three months ago ‘‘A,’’ a manufacturingcompany, acquired several new machinesthat will replace equipment on one of itsproduction lines. ‘‘A’s’’ capacity to producethe same products increased modestly whenthe integration of the new equipment wascompleted. ‘‘B,’’ a manufacturing companythat produces products similar to thoseproduced by ‘‘A,’’ has entered into a contractto acquire for $18 million the machinery that‘‘A’’ replaced. Delivery of the equipment by‘‘A’’ to ‘‘B’’ is scheduled to occur withinthirty days. Since ‘‘A’’ purchased newmachinery to replace the productive capacityof the used equipment, which it sold withinsix months of the purchase of the newequipment, the acquisition by ‘‘B’’ is exemptunder § 802.1(d)(3).

10. ‘‘A’’ will sell to ‘‘B’’ for $16 million allof the equipment ‘‘A’’ uses exclusively toperform its billing requirements. ‘‘B’’ will usethe equipment to provide ‘‘A’s’’ billing needspursuant to a contract which ‘‘A’’ and ‘‘B’’executed 30 days ago in conjunction with theequipment purchase agreement. Although theassets ‘‘B’’ will acquire make up essentiallyall of the assets of one of ‘‘A’s’’ managementand administrative support servicesdivisions, the acquisition qualifies for theexemption under § 802.1(d)(4) because acompany’s internal management andadministrative support services, howeverorganized, are not an operating unit asdefined by § 802.1(a). Management andadministrative support services are not a‘‘business undertaking’’ as that term is used


in § 802.1(a). Rather, they provide supportand benefit to the company’s operating unitsand support the company’s businessoperations. However, if the assets being soldalso derived revenues from providing billingservices for third parties, then the transfer ofthese assets would not be exempt under§ 802.1(d)(4), since the equipment is notbeing used solely to provide managementand administrative support services to ‘‘A’’.

11. ‘‘A,’’ a manufacturer of pharmaceuticalproducts, and ‘‘B’’ have entered into acontract under which ‘‘B’’ will provide all of‘‘A’s’’ research and development needs.Pursuant to the contract, ‘‘B’’ will alsopurchase all of the equipment that ‘‘A’’formerly used to perform its own researchand development activities. The sale of theequipment is not an exempt transactionunder § 802.1(d)(3) because ‘‘A’’ is notreplacing the productive capacity of theequipment being sold. The sale is also notexempt under § 802.1(d)(4), becausefunctions such as research and developmentand testing are not management andadministrative support services of a companybut are integral to the design, development orproduction of the company’s products.

12. ‘‘A,’’ an automobile manufacturer, isdiscontinuing its manufacture of metal seatframes for its cars. ‘‘A’’ enters into a contractwith ‘‘B,’’ a manufacturer of variousfabricated metal products, to sell its seatframe production lines and to purchase from‘‘B’’ all of its metal seat frame needs for thenext five years. This transfer of productivecapacity by ‘‘A’’ is not exempt pursuant to§ 802.1(d)(3), since ‘‘A’’ is not replacing theproductive capacity of the equipment beingsold. The acquisition is also not exemptunder § 802.1(d)(4). ‘‘A’s’’ sale of productionlines is not the transfer of goods that providemanagement and administrative services tosupport the business operations of’’A’’; thismanufacturing equipment is an integral partof ‘‘A’s’’ production operations.

3. Part 802 is amended by addingSections 802.2, 802.3, 802.4 and 802.5to read as follows:

§ 802.2 Certain acquisitions of realproperty assets.

(a) New facilities. An acquisition of anew facility shall be exempt from therequirements of the act. A new facilityis a structure that has not producedincome and was either constructed bythe acquired person for sale or held atall times by the acquired person solelyfor resale. The new facility may includerealty, equipment or other assetsincidental to the ownership of the newfacility. In an acquisition that includesa new facility, the transfer of any otherassets shall be subject to therequirements of the act and these rulesas if they were being acquired in aseparate acquisition.

(b) Used facilities. An acquisition of aused facility shall be exempt from therequirements of the act if the facility isacquired from a lessor that has held titleto the facility for financing purposes in

the ordinary course of the lessor’sbusiness by a lessee that has had soleand continuous possession and use ofthe facility since it was first built as anew facility. The used facility mayinclude realty, equipment or otherassets associated with the operation ofthe facility. In an acquisition thatincludes a used facility that meets therequirements of this paragraph, thetransfer of any other assets shall besubject to the requirements of the actand these rules as if they were acquiredin a separate transaction.

(c) Unproductive real property. Anacquisition of unproductive realproperty shall be exempt from therequirements of the act. In anacquisition that includes unproductivereal property, the transfer of any assetsthat are not unproductive real propertyshall be subject to the requirements ofthe act and these rules as if they werebeing acquired in a separate acquisition.

(1) Subject to the limitations of (c)(2),unproductive real property is any realproperty, including raw land, structuresor other improvements (but excludingequipment), associated production andexploration assets as defined in§ 802.3(c), natural resources and assetsincidental to the ownership of the realproperty, that has not generated totalrevenues in excess of $5 million duringthe thirty-six (36) months preceding theacquisition.

(2) Unproductive real property doesnot include the following:

(i) Manufacturing or non-manufacturing facilities that have notyet begun operation;

(ii) Manufacturing or non-manufacturing facilities that were inoperation at any time during the twelve(12) months preceding the acquisition;and

(iii) Real property that is eitheradjacent to or used in conjunction withreal property that is not unproductivereal property and is included in theacquisition.

(d) Office and residential property.(1) An acquisition of office or

residential property shall be exemptfrom the requirements of the act. In anacquisition that includes office orresidential property, the transfer of anyassets that are not office or residentialproperty shall be subject to therequirements of the act and these rulesas if such assets were being transferredin a separate acquisition.

(2) Office and residential property isreal property that is used primarily foroffice or residential purposes. Indetermining whether real property isused primarily for office or residentialpurposes, all real property, theacquisition of which is exempt under

another provision of the act and theserules, shall be excluded from thedetermination. Office and residentialproperty includes:

(i) Office buildings,(ii) Residences,(iii) Common areas on the property,

including parking and recreationalfacilities, and

(iv) Assets incidental to theownership of such property, includingcash, prepaid taxes or insurance, rentalreceivables and the like.

(3) If the acquisition includes thepurchase of a business conducted on theoffice and residential property, thetransfer of that business, including thespace in which the business isconducted, shall be subject to therequirements of the act and these rulesas if such business were beingtransferred in a separate acquisition.

(e) Hotels and motels.(1) An acquisition of a hotel or motel,

its improvements such as golf,swimming, tennis, restaurant, healthclub or parking facilities (but excludingski facilities), and assets incidental tothe ownership and operation of thehotel or motel (e.g., prepaid taxes orinsurance, management contracts andlicenses to use trademarks associatedwith the hotel or motel being acquired)shall be exempt from the requirementsof the act. In an acquisition thatincludes a hotel or motel, the transfer ofany assets that are not a hotel or motel,its improvements such as golf,swimming, tennis, restaurant, healthclub or parking facilities (but excludingski facilities) and assets incidental to theownership of the hotel or motel, shall besubject to the requirements of the actand these rules as if they were beingacquired in a separate acquisition.

(2) Notwithstanding paragraph (1) ofthe section, an acquisition of a hotel ormotel that includes a gambling casinoshall be subject to the requirements ofthe act and these rules.

(f) Recreational land. An acquisitionof recreational land shall be exemptfrom the requirements of the act.Recreational land is real property usedprimarily as a golf course or aswimming or tennis club facility, andassets incidental to the ownership ofsuch property. In an acquisition thatincludes recreational land, the transferof any property or assets that are notrecreational land shall be subject to therequirements of the act and these rulesas if they were being acquired in aseparate acquisition.

(g) Agricultural property. Anacquisition of agricultural property,assets incidental to the ownership ofsuch property and associatedagricultural assets shall be exempt from


the requirements of the act. Agriculturalproperty is real property and assets thatprimarily generate revenues from theproduction of crops, fruits, vegetables,livestock, poultry, milk and eggs(activities within SIC Major Groups 01and 02).

(1) Associated agricultural assets areassets integral to the agriculturalbusiness activities conducted on theproperty. Associated agricultural assetsinclude, but are not limited to,inventory (e.g., livestock, poultry, crops,fruit, vegetables, milk, eggs); structuresthat house livestock raised on the realproperty; and fertilizer and animal feed.Associated agricultural assets do notinclude processing facilities such aspoultry and livestock slaughtering,processing and packing facilities.

(2) Agricultural property does notinclude any real property and assetseither adjacent to or used in conjunctionwith processing facilities that areincluded in the acquisition.

(3) In an acquisition that includesagricultural property, the transfer of anyassets that are not agricultural property,assets incidental to the ownership ofsuch property or associated agriculturalassets shall be subject to therequirements of the act and these rulesas if such assets were being transferredin a separate acquisition.

(h) Retail rental space; warehouses.An acquisition of retail rental space(including shopping centers) orwarehouses and assets incidental to theownership of retail rental space orwarehouses shall be exempt from therequirements of the act, except when theretail rental space or warehouse is to beacquired in an acquisition of a businessconducted on the real property. In anacquisition that includes retail rentalspace or warehouses, the transfer of anyassets that are neither retail rental spacenor warehouses shall be subject to therequirements of the act and these rulesas if such assets were being transferredin a separate acquisition.

Examples. 1. ‘‘A,’’ a major automobilemanufacturer, builds a new automobile plantin anticipation of increased demand for itscars. The market does not improve and ‘‘A’’never occupies the facility. ‘‘A’’ then sells thefacility, which is fully equipped and readyfor operation, to ‘‘B,’’ another automobilemanufacturer. The acquisition of this plant,including any equipment and assetsassociated with its operation, is not exemptas an acquisition of a new facility, eventhough the facility has not produced anyincome, since ‘‘A’’ did not construct thefacility for sale or hold it at all times solelyfor resale. Also, the acquisition is not exemptas an acquisition of unproductive property,because manufacturing facilities that havenot yet begun operations are explicitlyexcluded from that exemption.

2. B, a subsidiary of ‘‘A,’’ a financialinstitution, acquired a newly constructedpower plant, which it leased to ‘‘X’’ pursuantto a lease financing arrangement. ‘‘A’s’’acquisition of the plant through B wasexempt under § 802.63(a) as a bona fidecredit transaction entered into in theordinary course of ‘‘A’s’’ business. ‘‘X’’operated the plant as sole lessee for the nexteight years and now proposes to exercise anoption to buy the plant for $62 million. ‘‘X’s’’acquisition of the plant is exempt pursuantto § 802.2(b). The plant is being acquiredfrom B, the lessor, which held title to theplant for financing purposes, and thepurchaser, ‘‘X,’’ has had sole and continuouspossession and use of the plant since itsconstruction.

3. ‘‘A’’ proposes to acquire a $100 milliontract of wilderness land from ‘‘B.’’ Copperdeposits valued at $17 million and timberreserves valued at $20 million are situated onthe land and will be conveyed as part of thistransaction. During the last three fiscal yearspreceding the sale, the property generated$50,000 from the sale of a small amount oftimber cut from the reserves two years ago.‘‘A’s’’ acquisition of the wilderness land from‘‘B’’ is exempt as an acquisition ofunproductive real property because theproperty did not generate revenues exceeding$5 million during the thirty-six monthspreceding the acquisition. The copperdeposits and timber reserves are by definitionunproductive real property and, thus, are notseparately subject to the notificationrequirements.

4. ‘‘A’’ proposes to purchase from ‘‘B’’ for$40 million an old steel mill that is notcurrently operating to add to ‘‘A’s’’ existingsteel production capacity. The mill has notgenerated revenues during the 36 monthspreceding the acquisition but containsequipment valued at $16 million that ‘‘A’’plans to refurbish for use in its operations.‘‘A’s’’ acquisition of the mill and the land onwhich it is located is exempt as unproductivereal property. However, the transfer of theequipment and any assets other than theunproductive property is not exempt and isseparately subject to the notificationrequirements of the act.

5. ‘‘A’’ proposes to purchase twodowntown lots, Parcels 1 and 2, from ‘‘B’’ for$40 million. Parcel 1, located in thesouthwest section, contains no structures orimprovements. A hotel is located in thenortheast section on Parcel 2, and it hasgenerated $9 million in revenues during thepast three years. The purchase of Parcel 1 isexempt if it qualifies as unproductive realproperty, i.e., it has not generated annualrevenues in excess of $5 million in the threefiscal years prior to the acquisition. Parcel 2is not unproductive real property, but itsacquisition is exempt under § 802.2(e) as theacquisition of a hotel.

6. ‘‘A’’ plans to purchase from ‘‘B,’’ amanufacturer, a newly-constructed buildingthat ‘‘B’’ had intended to equip for use in itsmanufacturing operations. ‘‘B’’ was unable tosecure financing to purchase the necessaryequipment and ‘‘A’’, also a manufacturer,will be required to invest approximately $50million in order to equip the building for usein its production operations. This building is

not a new facility under § 802.2 (a), becauseit was not constructed or held by ‘‘B’’ for saleor resale. However, the acquisition of thebuilding qualifies for exemption asunproductive real property pursuant to§ 802.2(c)(1). The building is not yet amanufacturing facility since it does notcontain equipment and requires significantcapital investment before it can be used as amanufacturing facility.

7. ‘‘A’’ proposes to purchase from ‘‘B,’’ for$20 million, a 100 acre parcel of land thatincludes a currently operating factoryoccupying 10 acres. The other 90 adjoiningacres are vacant and unimproved and areused by ‘‘B’’ for storage of supplies andequipment. The factory and the unimprovedacreage have fair market values of $12million and $8 million, respectively. Thetransaction is not exempt under § 802.2(c)because the vacant property is adjacent toproperty occupied by the operating factory.Moreover, if the 90 acres were not adjacentto the 10 acres occupied by the factory, thetransaction would not be exempt because the90 acres are being used in conjunction withthe factory being acquired and thus is notunproductive property.

8. ‘‘X’’ proposes to buy a five-storybuilding from ‘‘Y.’’ The ground floor of thisbuilding houses a department store, and ‘‘X’’currently leases the third floor to operate amedical laboratory. The remaining threefloors are used for offices. ‘‘X’’ is notacquiring the business of the departmentstore. Because the ground floor is rental retailspace, the acquisition of which is exemptunder § 802.2(h), this part of the building isexcluded from the determination of whetherthe building is used primarily for officepurposes. The laboratory is therefore the onlynon-office use, and, since it makes up 25percent of the remainder of the building, thebuilding is used 75 percent for offices. Thusthe building qualifies as an office buildingand its acquisition is therefore exempt under§ 802.2(d).

9. ‘‘A’’ intends to acquire three shoppingcenters from ‘‘B’’ for a total of $80 million.The anchor stores in two of the shoppingcenters are department stores, the businessesof which ‘‘A’’ is buying from ‘‘B’’ as part ofthe overall transaction. The acquisition of theshopping centers is an acquisition of retailrental space that is exempt under § 802.2(h).However, ‘‘A’s’’ acquisition of thedepartment store business, including theportion of the shopping centers that the twodepartment stores being purchased occupy,are separately subject to the notificationrequirements. If the value of these assetsexceeds $15 million, ‘‘A’’ must comply withthe requirements of the act for this part of thetransaction.

10. ‘‘A’’ wishes to purchase from ‘‘B’’ aparcel of land for $30 million. The parcelcontains a race track and a golf course. Thegolf course qualifies as recreational landpursuant to § 802.2(f), but the race track isnot included in the exemption. Therefore, ifthe value of the race track is more than $15million, ‘‘A’’ will have to file notification forthe purchase of the race track.

11. ‘‘A’’ intends to purchase a poultry farmfrom ‘‘B.’’ The acquisition of the poultry farmis a transfer of agricultural property that is


exempt pursuant to § 802.2(g). If, however,‘‘B’’ has a poultry slaughtering andprocessing facility on his farm that isincluded in the acquisition, ‘‘A’s’’ acquisitionof the farm is not exempt as an acquisitionof agricultural property because agriculturalproperty does not include property or assetsadjacent to or used in conjunction with aprocessing facility that is included in anacquisition.

12. ‘‘A’’ proposes to purchase theprescription drug wholesale distributionbusiness of ‘‘B’’ for $50 million. The businessincludes six regional warehouses used for‘‘B’s’’ national wholesale drug distributionbusiness. Since ‘‘A’’ is acquiring thewarehouses in connection with theacquisition of ‘‘B’s’’ prescription drugwholesale distribution business, theacquisition of the warehouses is not exempt.

§ 802.3 Acquisitions of carbon-basedmineral reserves.

(a) An acquisition of reserves of oil,natural gas, shale or tar sands, or rightsto reserves of oil, natural gas, shale ortar sands together with associatedexploration or production assets shall beexempt from the requirements of the actif the value of the reserves, the rightsand the associated exploration orproduction assets to be held as a resultof the acquisition does not exceed $500million. In an acquisition that includesreserves of oil, natural gas, shale or tarsands, or rights to reserves of oil, naturalgas, shale or tar sands and associatedexploration or production assets, thetransfer of any other assets shall besubject to the requirements of the actand these rules as if they were beingacquired in a separate acquisition.

(b) An acquisition of reserves of coal,or rights to reserves of coal andassociated exploration or productionassets, shall be exempt from therequirements of the act if the value ofthe reserves, the rights and theassociated exploration or productionassets to be held as a result of theacquisition does not exceed $200million. In an acquisition that includesreserves of coal, rights to reserves ofcoal and associated exploration orproduction assets, the transfer of anyother assets shall be subject to therequirements of the act and these rulesas if they were being acquired in aseparate acquisition.

(c) Associated exploration orproduction assets means equipment,machinery, fixtures and other assets thatare integral and exclusive to current orfuture exploration or productionactivities associated with the carbon-based mineral reserves that are beingacquired. Associated exploration orproduction assets do not include thefollowing:

(1) Any pipeline and pipeline systemor processing facility which transports

or processes oil and gas after it passesthrough the meters of a producing fieldlocated within reserves that are beingacquired; and

(2) Any pipeline or pipeline systemthat receives gas directly from gas wellsfor transportation to a natural gasprocessing facility or other destination.

Examples: 1. ‘‘A’’ proposes to purchasefrom ‘‘B’’ for $550 million gas reserves thatare not yet in production and have notgenerated any income. ‘‘A’’ will also acquirefrom ‘‘B’’ for $280 million producing oilreserves and associated assets such as wells,compressors, pumps and other equipment.The acquisition of the gas reserves is exemptas a transfer of unproductive property under§ 802.2(c). The acquisition of the oil reservesand associated assets is exempt pursuant to§ 802.3(a), since the value of the reserves andassociated assets does not exceed the $500million limitation.

2. ‘‘A,’’ an oil company, proposes toacquire for $180 million oil reservescurrently in production along with fieldpipelines and treating and metering facilitieswhich serve such reserves exclusively. Theacquisition of the reserves and the associatedassets are exempt. ‘‘A’’ will also acquire from‘‘B’’ for $16 million a natural gas processingplant and its associated gathering pipelinesystem. This acquisition is not exempt since§ 802.3(c) excludes these assets from theexemption in § 802.3 for transfers ofassociated exploration or production assets.

3. ‘‘A,’’ an oil company, proposes toacquire a coal mine currently in operationand associated production assets for $90million from ‘‘B,’’ an oil company. ‘‘A’’ willalso purchase from ‘‘B’’ producing oilreserves valued at $100 million and an oilrefinery valued at $13 million. Theacquisition of the coal mine and the oilreserves is exempt pursuant to § 802.3.Although § 802.3(c) excludes the refineryfrom the exemption in § 802.3 for transfers ofassociated exploration and production assets,‘‘A’s’’ acquisition of the refinery is notsubject to the notification requirements of theact because its value does not exceed $15million.

4. ‘‘X’’ proposes to acquire from ‘‘Z’’ coalreserves which, together with associatedexploration assets, are valued at $230million. Since the value of the reserves andthe assets exceeds the $200 million limitationin § 802.3(b), this transaction is not exemptunder § 802.3. However, if the coal reservesqualify as unproductive property under therequirements of § 802.2(c), their acquisition,along with the acquisition of their associatedassets, would be exempt.

§ Section 802.4 Acquisitions of votingsecurities of issuers holding certain assetsthe direct acquisition of which is exempt.

(a) An acquisition of voting securitiesof an issuer whose assets together withthose of all entities it controls consist orwill consist of assets whose purchasewould be exempt from the requirementsof the act pursuant to section 7A(c)(2) ofthe act, § 802.2, § 802.3 or § 802.5 ofthese rules is exempt from the reporting

requirements if the acquired issuer andall entities it controls do not hold othernon-exempt assets with an aggregate fairmarket value of more than $15 million.

(b) As used in paragraph (a) of thissection, ‘‘issuer’’ means a single issuer,or two or more issuers controlled by thesame acquired person.

(c) In connection with paragraph (a) ofthis section and § 801.15 (b), the valueof the assets of an issuer whose votingsecurities are being acquired pursuant tothis section shall be the fair marketvalue, determined in accordance with§ 801.10(c).

Examples: 1. ‘‘A,’’ a real estate investmentcompany, proposes to purchase 100 percentof the voting securities of C, a wholly-ownedsubsidiary of ‘‘B,’’ a construction company.C’s assets are a newly constructed, neveroccupied hotel, including fixtures,furnishings and insurance policies. Theacquisition of the hotel would be exemptunder § 802.2(a) as a new facility and under§ 802.2(d). Therefore, the acquisition of thevoting securities of C is exempt pursuant to§ 802.4(a) since C holds assets whose directpurchase would be exempt under § 802.2 anddoes not hold non-exempt assets exceeding$15 million in value.

2. ‘‘A’’ proposes to acquire 60 percent ofthe voting securities of C from ‘‘B.’’ C’s assetsconsist of a portfolio of mortgages valued at$20 million and a small manufacturing plantvalued at $6 million. The manufacturingplant is an operating unit for purposes of§ 802.1(a). Since the acquisition of themortgages would be exempt pursuant tosection 7A(c)(2) of the act and since the valueof the non-exempt manufacturing plant isless than $15 million, this acquisition isexempt under § 802.4(a).

3. ‘‘A’’ proposes to acquire from ‘‘B’’ 100percent of the voting securities of each ofthree issuers, M, N and O, simultaneously.M’s assets consist of oil reserves worth $160million and coal reserves worth $40 million.N has assets consisting of $130 million of gasreserves and $100 million of coal reserves.O’s assets are oil shale reserves worth $140million and a coal mine worth $80 million.Since ‘‘A’’ is simultaneously acquiring thevoting securities of three issuers from thesame acquired person, it must aggregate theassets of the issuers to determine if any of thelimitations in § 802.3 is exceeded. As a resultof aggregating the assets of M, N and O, ‘‘A’s’’holdings of oil and gas reserves are below the$500 limitation for such assets in § 802.3(a).However, the aggregated holdings exceed the$200 million limitation for coal reserves in§ 802.3(b). ‘‘A’s’’ acquisition therefore is notexempt, and it must report the entiretransaction.

§ 802.5 Acquisitions of investment rentalproperty assets.

(a) Acquisitions of investment rentalproperty assets shall be exempt from therequirements of the act.

(b) Investment rental property assets.‘‘Investment rental property assets’’means real property that will not be


rented to entities included within theacquiring person except for the solepurpose of maintaining, managing orsupervising the operation of the realproperty, and will be held solely forrental or investment purposes. In anacquisition that includes investmentrental property assets, the transfer ofany property or assets that are notinvestment rental property assets shallbe subject to the requirements of the actand these rules as if they were beingacquired in a separate transaction.Investment rental property assetsinclude:

(1) Property currently rented,(2) Property held for rent but not

currently rented,(3) Common areas on the property,

and(4) Assets incidental to the ownership

of property, which may include cash,prepaid taxes or insurance, rentalreceivables and the like.

Example: 1. ‘‘X’’, a corporation, proposesto purchase a sports/entertainment complexwhich it will rent to professional sportsteams and promoters of special events forconcerts, ice shows, sporting events andother entertainment activities. ‘‘X’’ willprovide office space in the complex for ‘‘Y’’,a management company which will maintainand manage the facility for ‘‘X.’’ Thisacquisition is an exempt acquisition ofinvestment rental property assets since ‘‘X’’intends to rent the facility to third partiesand is providing space within the facility toa management company solely to maintain,manage or supervise the operation of thefacility on its behalf. If, however, ‘‘X’’controls Z, a concert promoter to whom italso intends to rent the complex, theacquisition would not be exempt under§ 802.5, since the property would not meetthe requirements of § 802.5(b)(1).

2. ‘‘X’’ intends to buy from ‘‘Y’’ adevelopment commonly referred to as anindustrial park. The industrial park containsa warehouse/distribution center, a retail tireand automobile parts store, an officebuilding, and a small factory. The industrialpark also contains several parcels of vacantland. If ‘‘X’’ intends to acquire this industrialpark as investment rental property, theacquisition will be exempt pursuant to§ 802.5. If, however, ‘‘X’’ intends to use thefactory for its own manufacturing operations,this exemption would be unavailable. Theexemptions in § 802.2 for warehouses, rentalretail space, office buildings, andundeveloped land may still apply and, if thevalue of the factory is $15 million or less, theentire transaction may be exempted by thatsection.

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

SECURITIES AND EXCHANGECOMMISSION

17 CFR Part 200

[Release No. 34–37022; File No. S7–40–92]

RIN 3235–AF91

Rules of Practice

AGENCY: Securities and ExchangeCommission.ACTION: Final rule; Correction.

SUMMARY: This document contains acorrection to the final regulations whichwere published on June 23, 1995 (60 FR32738). These regulations relate to theCommission’s procedural rules thatgovern administrative proceedings.EFFECTIVE DATE: July 24, 1995.FOR FURTHER INFORMATION CONTACT:Frances R. Sienkiewicz, Office of theSecretary, 202–942–7072.SUPPLEMENTARY INFORMATION: The Rulesof Practice that are the subject of thiscorrection are the procedural rules thatgovern administrative proceedings.

Correction of Publication

Accordingly, the publication on June23, 1995 of the Rules of Practice, whichwere the subject of FR Doc. No. 95–14750, is corrected as follows:

1. On page 32794, in column one,amendment 7 is revised to read:

§ 200.30–7 [Corrected]7. In § 200.30–7, in paragraph (a)(3),

remove the words ‘‘Rule 13 of theCommission’s rules of practice,§ 201.13’’ and in their place, add thewords ‘‘Rule 161 of the Commission’sRules of Practice, § 21.161’’, and inparagraph (a)(4), remove the words‘‘§ 201.13’’ and in their place, add thewords ‘‘Rule 161 of the Commission’sRules of Practice, § 201.161’’.

Dated: March 25, 1996.Jonathan G. Katz,Secretary.[FR Doc. 96–7537 Filed 3–27–96; 8:45 am]BILLING CODE 8010–01–M

DEPARTMENT OF JUSTICE

Drug Enforcement Administration

21 CFR Part 1308

[DEA No. 148-I]

Exempt Chemical Preparations

AGENCY: Drug EnforcementAdministration, Department of Justice.ACTION: Interim Rule and Request forComments.

SUMMARY: This interim rule amends thelist of exempt chemical preparations setforth in section 1308.24(i) of Title 21 ofthe Code of Federal Regulations. Thisaction is in response to DEA’s periodicreview of the exempt chemicalpreparation list and of new applicationsfor exemptions which have beenapproved by DEA. This action is beingdone by interim rule because priornotice is unnecessary. The list containspreparations which have already beenexempted from the application ofspecific provisions of theComprehensive Drug Abuse Preventionand Control Act of 1970, and fromcertain Drug EnforcementAdministration Regulations.EFFECTIVE DATE: March 28, 1996.Comments must be submitted on orbefore May 28, 1996.ADDRESSES: Comments and objectionsshould be submitted to the DeputyAssistant Administrator, Office ofDiversion Control, Drug EnforcementAdministration, Washington, DC 20537;Attention: Federal RegisterRepresentative/CCR.FOR FURTHER INFORMATION CONTACT:Howard McClain, Jr., Chief, Drug &Chemical Evaluation Section, DrugEnforcement Administration,Washington, DC 20537, Telephone:(202) 307-7183.SUPPLEMENTARY INFORMATION: TheControlled Substances Act as amendedby the Dangerous Drug DiversionControl Act of 1984 authorizes theAttorney General in accordance with 21,U.S.C. 811 (g)(3)(B) to exempt fromspecific provisions of the Act, acompound, mixture, or preparationwhich contains any controlledsubstance, which is not foradministration to a human being oranimal and which is packaged in suchform or concentration, or withadulterants or denaturants, so that, aspackaged, it does not present anysignificant potential for abuse. Thisauthority has been delegated to theDeputy Assistant Administrator, Officeof Diversion Control, Drug EnforcementAdministration, 28 CFR 0.104.

The Deputy Assistant Administratorhas received applications pursuant tosection 1308.23 of Title 21 of the Codeof Federal Regulations requestingapproval of exempt status provided forin 21 CFR 1308.24. The DeputyAssistant Administrator has found thateach of the following preparations andmixtures is intended for laboratory,industrial, educational, or specialresearch purposes, is not intended forgeneral administration to man oranimal, and either (a) contains nonarcotic controlled substances and is

13666 Federal Register /Vol. 61, No. 61/Thursday, March 28 ... · 13666 Federal Register/Vol. 61, No. 61/Thursday, March 28, 1996/Rules and Regulations Copies may be inspected at

Documents