Federal Register / Vol. 76, No. 138 / Tuesday, July 19, 2011 / Rules and Regulations

Federal Register / Vol. 76, No. 138 / Tuesday, July 19, 2011 / Rules and Regulations

FOR FURTHER INFORMATION CONTACT:

FEDERAL TRADE COMMISSION

Mark L. Johansen, Senior Policy

Analyst, Office of Regulatory Policy,

Farm Credit Administration, McLean,

Virginia 22102–5090, (703) 883–4498,

TTY (703) 883–4434, or

Mary Alice Donner, Senior Counsel,

Office of General Counsel, Farm

Credit Administration, McLean,

Virginia 22102–5090, (703) 883–4020,

TTY (703) 883–4020.

(12 U.S.C. 2252(a)(9) and (10))

Dated: July 14, 2011.

Dale L. Aultman,

Secretary, Farm Credit Administration Board.

[FR Doc. 2011–18192 Filed 7–18–11; 8:45 am]

BILLING CODE 6705–01–P

DEPARTMENT OF TRANSPORTATION

Federal Aviation Administration

14 CFR Part 71

[Docket No. FAA–2011–0116; Airspace

Docket No. 11–ANE–1]

Establishment of Class E Airspace;

Brunswick, ME

AGENCY: Federal Aviation

Administration (FAA) DOT.

ACTION: Final rule; correction.

SUMMARY: This action corrects the

effective date of a final rule correction,

that was published in the Federal

Register on July 6, 2011. The effective

date in that Final Rule; Correction.

inadvertently listed the wrong effective

date in the Correction to Final Rule

section.

DATES: Effective Date: 0901 UTC, July

28, 2011.

FOR FURTHER INFORMATION CONTACT: John

Fornito; telephone (404) 305–6364.

wwoods2 on DSK1DXX6B1PROD with RULES_PART 1

Correction to Final Rule; Correction

In final rule FR Doc 2011–16783, on

page 39259 in the Federal Register of

July 6, 2011 (76 FR 39259), make the

following correction:

On page 39259, in the second column,

in the Correction to Final Rule section,

in the second paragraph, remove the

dates August 28, 2011, and July 25,

2011, and replace them with the dates

August 25, 2011, and July 28, 2011.

Issued in Washington, DC on July 8, 2011.

Rebecca B. MacPherson,

Assistant Chief Counsel for Regulations.

[FR Doc. 2011–17978 Filed 7–18–11; 8:45 am]

BILLING CODE 4910–13–P

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16 CFR Parts 801, 802 and 803

RIN 3084–AA91

Premerger Notification; Reporting and

Waiting Period Requirements

AGENCY: Federal Trade Commission.

ACTION: Final rule.

SUMMARY: The Federal Trade

Commission (‘‘Commission’’ or ‘‘FTC’’)

is amending the Hart-Scott-Rodino

(‘‘HSR’’) Premerger Notification Rules

(the ‘‘Rules’’), the Premerger

Notification and Report Form (the

‘‘Form’’) and associated Instructions in

order to streamline the Form and

capture new information that will help

the FTC and the Antitrust Division,

Department of Justice (together the

‘‘Agencies’’) conduct their initial review

of a proposed transaction’s competitive

impact. The FTC is making substantive

and ministerial revisions, deletions and

additions to streamline the Form and

make it easier to prepare while focusing

the Form on those categories of

information the Agencies consider

necessary for their initial review. The

FTC is also amending certain Rules and

parts of the Form and Instructions, as

well as adding Items 4(d), 6(c)(ii) and

7(d), in order to capture additional

information that would significantly

assist the Agencies in their initial

review. Finally, minor changes are being

made to address minor omissions from

the FTC’s 2005 rulemaking involving

unincorporated entities and to remove

the reference to the 2001 transition

period.

DATES: These final rules are effective

August 18, 2011.

FOR FURTHER INFORMATION CONTACT:

Robert L. Jones, Deputy Assistant

Director, Premerger Notification Office,

Bureau of Competition, Room H–303,

Federal Trade Commission,

Washington, DC 20580, (202) 326–3100,

rjones@ftc.gov.

SUPPLEMENTARY INFORMATION:

Statement of Basis and Purpose

Section 7A of the Clayton Act (the

‘‘Act’’) requires the parties to certain

mergers or acquisitions to file with the

Agencies and to wait a specified period

of time before consummating such

transactions. The reporting requirement

and the waiting period that it triggers

are intended to enable the Agencies to

determine whether a proposed merger

or acquisition may violate the antitrust

laws if consummated and, when

appropriate, to seek a preliminary

injunction in federal court to prevent

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consummation, pursuant to Section 7 of

the Act.

On August 13, 2010, the Commission

made a Notice of Proposed Rulemaking

and Request for Public Comment

available on its Web site, and it was

published in the Federal Register on

September 17, 2010.1 The comment

period closed on October 18, 2010. The

Proposed Rules recommended

improvements and updates to the HSR

Form and associated Instructions as

well as amendments in 16 CFR parts

801, 802 and 803 of the Rules.

The Commission received eleven

public comments addressing the

Proposed Rules. The comments are

published on the FTC Web site at

http://www.ftc.gov/os/comments/hsr/

index.htm.

The following submitted public

comments on the Proposed Rules:

1. Caterpillar, Inc. (Howrey LLP, Paul C.

Cuomo) (10/18/2010)

2. The Private Equity Growth Capital

Council (10/18/2010)

3. Willkie Farr & Gallagher LLP

(Theodore C. Whitehouse) (10/18/

2010)

4. Cooley LLP (Francis M. Fryscak and

M. Howard Morse) (10/18/2010)

5. Skadden, Arps, Slate, Meagher &

Flom LLP (Neal R. Stoll, Steven C.

Sunshine and Matthew P.

Hendrickson) (10/18/2010)

6. Howrey LLP (Jacqueline I. Grise,

Michael W. Jahnke, Paul C. Cuomo,

Chris P. Cooper and Victor Cohen)

(10/18/2010)

7. International Chamber of Commerce

Commission on Competition (10/

18/2010)

8. Securities Industry and Financial

Markets Association (Sean C. Davy)

(10/18/2010)

9. BUSINESSEUROPE, Grocery

Manufacturers Association,

National Association of

Manufacturers, The Pharmaceutical

Research and Manufacturers of

America, U.S. Chamber of

Commerce (10/18/2010)

10. Wachtell, Lipton, Rosen & Katz on

behalf of Alcoa Inc., Bank of

America Corporation, BB&T

Corporation, ConocoPhillips,

Harmon International Industries,

Incorporated, IAC/Interactive

Corporation, JPMorgan Chase & Co.,

Nustar Energy L.P., NYSE Euronext,

PPG Industries, Inc., Qwest

Communications International, Inc.,

Sigma-Aldrich Corporation, The

Valspar Corporation, United

Rentals, Inc., Valero Energy

Corporation, Wells Fargo &

Company (10/18/2010)

1 75 FR 57110 (September 17, 2010).

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11. Sections of Antitrust Law and

International Law, American Bar

Association (10/15/10)

The Commission proposed ministerial

changes in Items 1 through 3 in order to

make the Form easier to use, as well as

the revision or deletion of many items,

such as Items 2(e), 3(b), 3(c), 4(a), 4(b),

5(a), 5(b)(i), 5(b)(ii), 5(d), 6(a), and 6(b),

which currently ask for information that

the Agencies no longer consider

necessary for their initial review. There

were no adverse comments received on

these amendments, therefore, the

Commission adopts the changes as

proposed. The Commission also

proposed amending certain Rules and

parts of the Form and Instructions, such

as Items 2(d), 5(c) and 8 in order to

capture additional information (such as

current year revenues by 10 digit NAICS

product code) that would significantly

assist the Agencies in their review.

There were also no adverse comments

received on these revisions and they are

adopted as proposed. In addition, there

were no adverse comments received on

the proposed minor changes to

§§ 801.1,2 801.15, 801.30, 802.4, 802.21,

802.52, 803.2 and 803.5, and these

changes are also adopted as proposed.

The Commission did, however,

receive substantive objections or

criticisms regarding three proposed

changes that commenters found to be

overly burdensome additions: Item 4(d),

which requires the submission of

certain documents separate from those

required by Item 4(c); changes to Item 5

requiring the reporting of North

American Industry Classification

System (‘‘NAICS’’) product code

information for products manufactured

outside of the U.S. and sold into the

U.S.; and changes to Items 6(c) and 7 to

require the submission of information

on the holdings of associates that

overlap with the entity(s) or assets that

are being acquired. These comments

and the Commission’s response to them

are discussed more fully below.

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Part 801—Coverage Rules

801.1(d)(2) Associate

An acquiring person is required to

provide information in its notification

with respect to all entities included

within it at the time of filing. In some

instances, particularly with families of

investment funds, entities that are

commonly managed with the acquiring

person are not included because these

‘‘associated’’ entities are not controlled,

as defined in § 801.1(b) of the Rules, by

the acquiring Ultimate Parent Entity

2 These minor changes to § 801.1 do not relate to

the definition of associate.

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(‘‘UPE’’). As a result, the Agencies do

not receive the information they need to

get a complete picture of potential

antitrust ramifications of an acquisition.

This scenario arises frequently in the

energy industry with Master Limited

Partnerships, where competitive

overlaps among limited partnerships

(‘‘LPs’’) with the same general partner

may go undetected.

To capture information on overlaps

between entities commonly managed

with the acquirer and the target, the

Commission proposed three changes:

introducing and defining the term

associate, creating Item 6(c)(ii), and

revising Item 7 to require the

submission of information on minority

and controlling interests of associates

that overlap with the entity(s) or assets

that are being acquired.

The Commission received six

comments regarding the proposed

definition of associate and its

application to proposed Items 6(c)(ii)

and 7. The comments generally focused

on two concerns: the definition of

associate as too vague and overly broad,

and the burden of compiling the

information required by Items 6(c)(ii)

and 7 regarding the holdings of

associates that overlap with the target,

particularly minority holdings. Both

will be discussed below.

Section 801.1(d)(2): Definition of

Associate

The Commission proposed the term

‘‘associate’’ in new § 801.1(d)(2) to

define entities under common

management with the acquiring person,

but not controlled by the acquiring

person. The proposed definition reads:

Associate. For purposes of Items 6(c) and

7 on the Form, an associate of an acquiring

person shall be an entity that is not an

affiliate of such person but: (A) Has the right,

directly or indirectly, to manage, direct or

oversee the affairs and/or the investments of

an acquiring entity (a ‘‘managing entity’’); or

(B) has its affairs and/or investments, directly

or indirectly, managed, directed or overseen

by the acquiring person; or (C) directly or

indirectly, controls, is controlled by, or is

under common control with a managing

entity; or (D) directly or indirectly, manages,

directs or oversees, is managed by, directed

by or overseen by, or is under common

management with a managing entity.

Comments 2, 6, 9 and 11 stated that

the definition of associate as proposed

was not only overly broad, but was also

unduly complex and confusing.

Comment 2 stated that the phrase ‘‘the

right, directly or indirectly, to manage,

direct or oversee’’ affairs of the

acquiring entity was so expansive as to

provide little guidance regarding the

relationships to be covered. Comment 6

noted that the definition as proposed

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was not limited to entities subject to

common investment management, but

also included entities that were subject

to a common ability to ‘‘direct and

oversee the affairs’’ of other entities.

Comment 9 also addressed the

potentially broad scope of the term

‘‘oversee.’’ Comment 11 recommended

that the Commission consider limiting

associates to master limited

partnerships and private equity funds.

Comments 7 and 9 stated that the

control rules provided well understood

and easily applied guidance as to the

scope of HSR filings. Comment 7 stated

that requiring filers to determine which

entity might be an associate would

increase the complexity, burden and

expense of HSR filings. Both

recommended that the Commission

reconsider requiring information on

associates.

To address these concerns, the

Commission has refined the definition

of associate. The Commission’s purpose

in requiring information on associates is

to be able to analyze the holdings of

entities that are under common

investment or operational management

with the person filing notification. The

term is not intended to include entities

that are under other forms of common

management or direction. To clarify

this, the definition of associate has been

revised to eliminate the terms ‘‘direct’’,

‘‘oversee’’ and ‘‘affairs’’ from the rule.

Any examples that contain these terms

have also been revised. Additional

examples have also been added to

clarify the definition.

The Commission is unwilling to limit

the definition to master limited

partnerships and private equity funds,

as suggested by Comment 11. New types

of entities that are not master limited

partnerships or private equity funds

may emerge in the future, and the

Commission does not want to limit the

information it would receive about these

entities as a result. The Commission

believes that the changes to the

definition of associate clarify its intent

and reduce the burden of identifying

associates.

The new definition of associate reads

as follows:

Associate. For purposes of Items 6 and 7

of the Form, an associate of an acquiring

person shall be an entity that is not an

affiliate of such person but: (A) has the right,

directly or indirectly, to manage the

operations or investment decisions of an

acquiring entity (a ‘‘managing entity’’); or (B)

has its operations or investment decisions,

directly or indirectly, managed by the

acquiring person; or (C) directly or indirectly

controls, is controlled by, or is under

common control with a managing entity; or

(D) directly or indirectly manages, is

managed by, or is under common operational

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Federal Register / Vol. 76, No. 138 / Tuesday, July 19, 2011 / Rules and Regulations

or investment management with a managing

entity.

Items 6(c) and 7

The Commission proposed adding

Item 6(c)(ii) to require an acquiring

person to report, based on its knowledge

or belief, all of its associates’ holdings

of voting securities and non-corporate

interests of 5 percent or more but less

than 50 percent in the acquired entity(s)

and in entities having 6-digit NAICS

industry code overlaps with the

acquired entity(s) or assets.

The Commission also proposed

amending the instructions to Item 7 as

follows:

wwoods2 on DSK1DXX6B1PROD with RULES_PART 1

Item 7(a) to require reporting any 6-digit

NAICS industry code in which the acquiring

person, or any associate of the acquiring

person, derives revenues and in which the

acquired entity(s) or assets also derive

revenues;

Item 7(b)(i) to require reporting the name

of any entity(s) controlled by the acquiring

person that derived revenues in the

overlapping 6-digit NAICS code in the most

recent fiscal year and Item 7(b)(ii) to require

reporting the name of any entity(s) controlled

by an associate of the acquiring person that

derived revenues in the overlapping 6-digit

NAICS code in the most recent fiscal year;

and

Item 7(c) to require reporting the

geographic information for any entity(s)

controlled by the acquiring person that

derived revenues in the overlapping NAICS

code in the most recent fiscal year.

Item 7(d) to require reporting the

geographic information for any entity(s)

controlled by an associate of the acquiring

person that derived revenues in the

overlapping NAICS code in the most recent

fiscal year.

The comments focused on Item

6(c)(ii), citing Item 7 only in reference

to Item 6(c)(ii), and addressed the

burden of gathering the information

required by Item 6(c)(ii).3 Comment 5

stated that the request in Item 6(c)(ii) to

provide information on minority

holdings of associates that overlap with

the acquired assets or entity(s) exceeded

reasonable expectations about the type

of information that an acquiring person

can obtain when it does not have

possession or control of the requested

data and does not maintain the data in

the ordinary course of its business. In

the same vein, Comment 6 contended

that the specific requirements of Item

6(c)(ii) imposed a disproportionate

burden on filing parties regardless of the

benefit to the Agencies. Comment 11

stated that the breadth of Item 6(c)(ii)

could create a significant additional

burden on a filing party, while

3 Comment 5 stated that the problems with

collecting information for associates that are

identified for Item 6(c)(ii) are equally applicable to

Item 7.

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providing the Agencies with little

additional useful information. It

claimed that, as written, this item

required a filing party to report minority

holdings of minority holdings, and

suggested limiting Item 6(c)(ii) to

holdings of associates of interests in the

target company rather than including

holdings of other entities that overlap

with the target.

The purpose of Item 6(c)(ii) is not to

obtain information on ‘‘minority

holdings of minority holdings’’ as

Comment 11 suggested, but to receive

information on competitively relevant

minority holdings of entities that are

under common investment or

operational management with the

acquiring person. For the Agencies,

there is clear utility to having the HSR

filing contain information regarding the

acquiring person’s associates’ minority

holdings in competitors of the target. As

such, limiting the response for Item

6(c)(ii) only to holdings of associates in

the acquired entity(s), as suggested by

Comment 11, is too narrow. Take, for

instance, a transaction in which Pharma

Fund A is acquiring 100 percent of the

voting securities of Acquired Pharma

Corp. Pharma Fund A does not have

holdings in any competitors of Acquired

Pharma Corp, but four associates of

Pharma Fund A (Pharma Funds B–E)

each hold 15 percent of Pharma

Competitor. The Agencies would

certainly benefit from knowing that the

funds under common management hold

an aggregate controlling interest in a

competitor. The Agencies, however,

may have no other realistic means of

learning about the holdings of Pharma

Funds B–E, particularly if Pharma

Competitor is not publicly traded,

making it very difficult to find this

information through public sources.

Item 6(c)(ii) as proposed requires the

disclosure of the holdings of Pharma

Funds B–E.

Item 6(c)(ii) would also provide very

useful information to the Agencies in

transactions involving the intricate

structures that often characterize Master

Limited Partnerships. For example,

consider a transaction in which Pipeline

MLP A is acquiring 100 percent of

Acquired Pipeline Corp., and Pipeline

MLP A’s general partner is Pipeline GP,

which is also the general partner of

Pipeline MLP B and Pipeline MLP C,

neither of which holds a minority

interest in Acquired Pipeline Corp. or a

controlling interest in a competitor of

Acquired Pipeline Corp. Thus, Pipeline

MLP B and Pipeline MLP C would not

be identified in either Item 6(c)(ii) or

Item 7 under Comment 11’s proposal.

Pipeline MLP B and Pipeline MLP C

each indirectly hold a 45 percent

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interest in Competing Pipeline Co., a

direct competitor of Acquired Pipeline

Corp., through a number of intermediate

entities. The Agencies clearly would be

interested in these minority holdings in

this fairly typical scenario in the oil and

gas industry, but might have trouble

identifying the relationship as a result of

the number of layers between the top

level entity and the competitor at the

bottom of the structure. Item 6(c)(ii)

requires the disclosure of the holdings

of Pipeline MLP B and Pipeline MLP C.

As these examples illustrate, Item

6(c)(ii) provides the Agencies with a

much clearer picture of the competitive

impact in transactions involving

families of private equity funds or

master limited partnerships.

The Commission acknowledges that

some filing parties may face an increase

in burden the first time they respond to

Item 6(c)(ii) but believes that thereafter,

the burden should be largely limited to

keeping responsive information current.

Further, it believes the burden of

responding to Item 6(c)(ii) does not

outweigh the benefit to the Agencies.

An acquiring person must look beyond

the concept of control to determine

whether it has entities that are under

common investment or operational

management with the acquiring person.

The general partner makes investment

or operational decisions for its managed

limited partnerships and should

therefore have access to information on

the holdings of the other managed

limited partnerships for the purposes of

responding to Item 6(c)(ii).

Further, the Commission notes that

Item 6(c)(ii) provides mechanisms for

limiting the potential burden. For

instance, if an acquiring person cannot

provide information on the minority

holdings of its associates in response to

Item 6(c)(ii) at the NAICS-code level, it

could opt to respond on the basis of

industry. That is, instead of providing a

list of its associates’ minority holdings

based on an overlapping NAICS code

with the target, the acquiring person

could provide a list of its associates’

minority holdings that fall into the same

industry as the target, such as

pharmaceuticals, mining, healthcare,

etc.

Item 6(c)(ii) also allows the acquiring

person to respond to Item 6(c)(ii) by

listing all the minority holdings of its

associates. This is intended to provide

an option for an acquiring person that,

despite its best efforts, cannot obtain

more granular information about the

minority holdings of its associates. The

Commission notes that if an acquiring

person responds by listing all holdings

in Item 6(c)(ii), whether overlapping or

not, the review of the filing could be

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Federal Register / Vol. 76, No. 138 / Tuesday, July 19, 2011 / Rules and Regulations

delayed and the parties may be more

likely to receive follow up requests from

staff to obtain the information. It is thus

in the best interests of the acquiring

person to limit the list of minority

holdings in Item 6(c)(ii) to those that

overlap with the acquired entity(s) or

assets, even if only by industry, to allow

the Agencies to conclude quickly

whether the acquisition may be

competitively problematic because of

these holdings.

The Commission has made one

additional change to Item 6(c) to attempt

to mitigate further the burden on

persons who must respond to this item.

The person filing notification may rely

on its regularly prepared financials that

list investments and the regularly

prepared financials of its associates that

list investments to respond to Items

6(c)(i) and (ii), provided the financials

are no more than three months old.4

Many investment funds routinely

prepare such documents on a quarterly

basis, and this change allows acquiring

persons to rely on documents prepared

in the ordinary course to gather the

information necessary to respond to

Items 6(c)(i) and (ii). If the acquiring

person and its associates make quarterly

filings concerning their investments in

publicly traded companies with the

Securities and Exchange Commission

(‘‘SEC’’), those lists can be relied on to

gather the information necessary to

respond to Items 6(c)(i) and (ii) with

respect to publicly traded companies, as

long as they are no more than three

months old. Of course, acquiring

persons must still report in Items 6(c)(i)

and (ii) their holdings of non-publicly

traded companies.

In summary, the Commission believes

that the benefits of Item 6(c) and Item

7, as revised, to the Agencies with

regard to information on associates

outweigh the additional burden on

certain acquiring persons of providing

the information. Consequently, the

Commission promulgates Items 6(c)(i)

and 6(c)(ii), with the aforementioned

allowance for relying on financial

statements and SEC documents, and

Item 7, as proposed. The caveats in the

language in the instructions to Items

6(c)(i) and 6(c)(ii) that the information

be provided based on the knowledge or

belief of the acquiring person should

ease concerns on certification of the

Form. If the information is completely

unobtainable the acquiring person can

4 This approach does not apply to the response

required with regard to associates in Item 7. Item

7 deals with controlled entities and the information

required by Item 7 should therefore be easier to

obtain.

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rely on a statement of reasons for

noncompliance.5

Item 4

Item 4(d): Additional Documents

In proposing Item 4(d), the

Commission noted that certain

categories of documents are quite useful

for the Agencies’ initial substantive

analysis of transactions but were not

always provided because parties have

differing interpretations as to whether

they were called for under current Item

4(c). The Commission proposed new

Item 4(d) to enumerate these discrete

categories of documents and require

their submission with the Form.

In expressing concerns regarding

proposed Item 4(d), all of the comments

raised the overarching issue of the

relationship of proposed Item 4(d) to

Item 4(c). Item 4(d) is indeed closely

related to Item 4(c), as is evident in the

language of Item 4(d) which closely

parallels the language of Item 4(c). But

Item 4(d) seeks different documents

from those covered by the language of

Item 4(c) as will be more fully discussed

below.

Item 4(d)(i): Offering Memoranda

Proposed Item 4(d)(i) required filing

parties to provide all offering

memoranda (or documents that served

that function) that reference the

acquired entity(s) or assets produced up

to two years before the date of filing.

With the exception of Comments 5

and 8, the comments suggested that

proposed Item 4(d)(i) uses, in the words

of Comment 3, ‘‘ambiguous and

overbroad language.’’ For instance, the

requirement that materials responsive to

Item 4(d)(i) ‘‘reference’’ the acquired

entity(s) or assets and documents that

‘‘serve the function of’’an offering

memorandum were imprecise and as

drafted could lead to the production of

a large of amount of documents in

response to Item 4(d)(i). Comments 1, 2,

6, 7, 10, and 11 expressed concern that

the Item 4(d)(i) requirement was not

limited to the evaluation or analysis of

the acquisition, as is the language of

Item 4(c). Comments 1, 2, 3, 6, 10 and

11 suggested that a limitation such as

the one in Item 4(c) involving only

materials prepared by or for any

officer(s) or director(s) (or, in the case of

unincorporated entities, individuals

exercising similar functions) would be

helpful in guiding responses to Item

4(d)(i). Comments 1, 2, 3, 4, 6, 7 and 11

expressed the related concern that

searching beyond the team of people

aware of the transaction would

compromise the confidentiality of the

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transaction. Finally, Comments 1, 2, 9

and 11 stated that the 2-year time frame

in Item 4(d)(i) was too long to provide

a useful limitation on this item.

In proposing Item 4(d)(i), the

Commission intended to capture

offering memoranda. These are formal

documents created in-house or by a

third party that lay out the details of a

company, or a part of a company, that

is for sale. The Commission intends to

reach in Item 4(d)(i) what comment 10

termed ‘‘transaction-specific marketing

presentation[s]’’ because they are

invaluable to staff in their initial

analysis. In order to make the

parameters of this item more clear, the

Commission uses the term ‘‘Confidential

Information Memoranda’’ instead of the

broader term ‘‘offering memoranda.’’

Many filing parties already submit

Confidential Information Memoranda

because these documents often contain

a section on the industry or competitive

landscape and thus fall within the

requirements of Item 4(c). But, in cases

where they do not, the in-depth

overview of the business, even without

competition-related content, is still

immensely helpful to staff in

understanding the companies and

products involved in a transaction.

Confidential Information Memoranda

are useful even though, arguably, there

may be no ‘‘acquisition’’ at the time they

are prepared. Item 4(c) requires the

submission of all studies, surveys,

analyses and reports prepared by or for

any officer(s) or director(s) (or, in the

case of unincorporated entities,

individuals exercising similar functions)

for the purpose of evaluating or

analyzing the transaction with respect

to market shares, competition,

competitors, markets, potential for sales

growth or expansion into product or

geographic markets. Leaving out of the

language of Item 4(d)(i) the Item 4(c)

requirement that responsive materials

evaluate or analyze ‘‘the acquisition’’

addresses the fact that some parties have

relied on the transaction-specific

language of Item 4(c) when not

submitting Confidential Information

Memoranda.

The comments expressed concern that

without the requirement that responsive

materials evaluate or analyze the

transaction, the scope of what was

required by Item 4(d)(i) was too broad.

In response to this concern, the

Commission can provide a more precise

parameter than ‘‘some reference to the

acquired entity(s) or assets.’’ The

Commission intends to capture

materials that provide an in-depth

overview or analysis of the entities or

assets that are for sale, not just those

materials that contain a passing

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reference to them. To make this intent

clear, the language in Item 4(d)(i) has

been changed to adopt in part the

language proposed by Comment 4,

namely to capture those Confidential

Information Memoranda that

‘‘specifically relate to the sale of the

acquired entity(s) or assets.’’

Comment 4 also suggested narrowing

proposed Item 4(d)(i) to ‘‘those separate

presentations [that] would have been

responsive to Item 4(c) if they had been

prepared for the filed-for transaction.’’

The problem with this language is that

it requires competition-related content.

As discussed above, the underlying

rationale behind Item 4(d)(i) is that

Confidential Information Memoranda

are always helpful, and so Item 4(d)(i)

requires their submission regardless of

the presence of competition-related

content.

Comments 1, 2, 3, 4, 5, 10 and 11

expressed concern that proposed Item

4(d)(i) was not limited to officers and

directors. The Commission does not

intend to reach those Confidential

Information Memoranda, as stated in

Comment 1, received by ‘‘any employee

within the company regardless of their

location or involvement in a particular

transaction.’’ Instead, the Commission

intends to reach those Confidential

Information Memoranda prepared in the

specific contemplation of a sale. In

reality, an officer or director would

likely be informed of the internal or

external drafting of such a

memorandum. The easiest way to clarify

the Commission’s intent is by adopting

the suggestion in the comments that a

limitation involving officer(s) or

director(s) be added to Item 4(d)(i). As

such, the Commission is promulgating

Item 4(d)(i) with a requirement that

responsive documents must have been

prepared by or for any officer(s) or

director(s) or, in the case of

unincorporated entities, individuals

exercising similar functions. Further,

the Commission limits this requirement

to any officer(s) or director(s) or, in the

case of unincorporated entities,

individuals exercising similar functions,

of the Ultimate Parent Entity of the

Acquiring or Acquired Person and/or

any officer(s) or director(s) or, in the

case of unincorporated entities,

individuals exercising similar functions,

of the Acquiring or Acquired Entity(s).

These changes also address the concerns

raised by many of the comments that

gathering documents responsive to Item

4(d)(i) could compromise the

confidentiality of the transaction.

Comment 10 suggested that this item

be limited to ‘‘offering memoranda

prepared for the purpose of evaluating

or analyzing the transaction and which

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were shared with prospective buyers.’’

Sellers will sometimes create a

Confidential Information Memorandum

and, for one reason or another, it does

not end up being shared with the

eventual buyer. This, if the Commission

limited Item 4(d)(i)’s requirement to

submit Confidential Information

Memoranda to only those given to the

buyer, in some cases, no Confidential

Information Memorandum would be

submitted even though one was created.

This is counter to the rationale behind

Item 4(d)(i). Under Item 4(d)(i), if the

eventual buyer did not receive a copy of

the Confidential Information

Memorandum, but one was prepared,

that Confidential Information

Memorandum must be submitted with

the Acquired Person’s filing.

Comments 1, 2, 3, 6, 7, 9, 10, and 11,

expressed concern about the exact

definition of ‘‘documents serving the

same function as an offering

memorandum.’’ As a starting point, if

there was a Confidential Information

Memorandum prepared, filing parties

do not need under Item 4(d)(i) to supply

documents that served the purpose of a

Confidential Information Memorandum.

The Commission intends to capture

only those situations in which no

Confidential Information Memorandum

was prepared, but the seller has a preexisting presentation containing an

overview of the company that was given

to any officer(s) or director(s) of the

buyer as an introduction to the

company. In this case, the presentation

effectively serves the purpose of a

Confidential Information Memorandum

in an instance in which no Confidential

Information Memorandum was

prepared. Filing parties often submit

such documents when no Confidential

Information Memorandum was

prepared, and the Commission does not

seek any other category of materials in

response to this item. For instance, the

Commission does not intend this item to

require ordinary course documents and/

or financial data shared in the course of

due diligence, except to the extent that

such materials are shared with the buyer

specifically to serve the purpose of a

Confidential Information Memorandum

when no Confidential Information

Memorandum was prepared. Unlike the

case of Confidential Information

Memoranda, a document that served the

purpose of a Confidential Information

Memorandum will only be responsive to

Item 4(d)(i) if it was given to the buyer

(and a Confidential Information

Memorandum was not). The

instructions to Item 4(d)(i) outline these

specifics.

Many filing parties already submit

materials responsive to Item 4(d)(i)

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based on longstanding informal

interpretations that Confidential

Information Memoranda should be

submitted as Item 4(c) documents.

However, parties have sometimes

excluded these documents on the

grounds that they were not prepared for

the purpose of evaluating or analyzing

the acquisition or did not contain

competition-related content. Item 4(d)(i)

is intended to make clear that

Confidential Information Memoranda

must be submitted in response to Item

4(d)(i). The Commission intends Items

4(c) and 4(d) to complement one

another. For instance, if a filing party

includes a document responsive to Item

4(d)(i) with its HSR filing, it need not

submit that document separately in

response to Item 4(c).

The comments raised concerns about

the length of the proposed two year time

period applicable to proposed Item

4(d)(i). Although such a timeframe is

consistent with the specified ‘‘relevant

time period’’ of two years as applicable

to second requests in the 2006 merger

process reforms,6 the Commission

believes that, as applied to the

documents required by Item 4(d)(i), a

period of one year is more appropriate.

Confidential Information Memoranda

are typically drafted within this shorter

timeframe and arguably are more useful

to staff if they are more recent. The

instructions to Item 4(d)(i) have been

changed to reflect the one year time

period.7

In summary, the Commission is

promulgating Item 4(d)(i) using the term

‘‘Confidential Information Memoranda’’

instead of ‘‘Offering Memoranda’’ and

with the clarification that this item

requires only those Confidential

Information Memoranda that

‘‘specifically relate to the sale of the

acquired entity(s) or assets’’ and that

were prepared by or for any officer(s) or

director(s) or, in the case of

unincorporated entities, individuals

exercising similar functions, of the

Ultimate Parent Entity of the Acquiring

or Acquired Person and/or any officer(s)

or director(s) or, in the case of

unincorporated entities, individuals

exercising similar functions, of the

Acquiring or Acquired Entity(s) within

one year of filing. In addition, the

Commission requires the submission of

6 See REFORMS TO THE MERGER REVIEW

PROCESS (p.19) announced by then Chairman

Deborah Platt Majoras on February 16, 2006. http://

www.ftc.gov/os/2006/02/mergerreviewprocess.pdf

and http://www.justice.gov/atr/public/

press_releases/2006/220302.htm.

7 The one year time limit applicable to materials

responsive to Items 4(d)(i) and 4(d)(ii) does not

apply to materials responsive to Item 4(c); Item 4(c)

has no specific timeframe.

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documents that served the function of a

Confidential Information Memorandum

only when given to the buyer in

situations in which no such

Confidential Information Memorandum

exists.

Item 4(d)(ii): Materials Prepared by

Investment Bankers, Consultants or

Other Third Party Advisors

Proposed Item 4(d)(ii) required filing

parties to provide all studies, surveys,

analyses and reports prepared by

investment bankers, consultants or other

third party advisors if they were

prepared for any officer(s) or director(s)

(or, in the case of unincorporated

entities, individuals exercising similar

functions) for the purpose of evaluating

or analyzing market shares, competition,

competitors, markets, potential for sales

growth or expansion into product or

geographic markets, and that also

reference the acquired entity(s) or assets

produced up to two years before the

date of filing.

In response to proposed Item 4(d)(ii),

the comments expressed concern that

this item as drafted was too broad and

would capture many documents

immaterial to staff’s initial analysis.

Each comment stated that Item 4(d)(ii)

as drafted would pull in ordinary course

documents because it was not limited to

materials that evaluated or analyzed the

acquisition. Comments 2, 3, 5, 6, 7, 9,

10, and 11 raised the issue that

searching beyond the team of people

aware of the transaction would lead to

confidentiality concerns. Finally,

Comments 1, 5, 7, 8, 9, and 11

contended that the 2 year time frame in

Item 4(d)(ii) was too long to provide a

useful limitation on this item.

Item 4(d)(ii) is intended to reach

materials prepared by investment

bankers, consultants or other third party

advisors (‘‘third party advisors’’) that

contain competition-related content

pertaining to the transaction. The most

typical example of this kind of

document is, as defined by Comment 8,

‘‘pitch books,’’ which are ‘‘developed by

investment banking firms for the

purpose of seeking an engagement.’’

These materials are sometimes also

known informally as ‘‘bankers’ books.’’

In the Commission’s experience, these

are typically presentations that contain

an overview of several potential courses

of action available to a company (e.g.,

whether to buy another business or sell

a particular business) and that also

contain several pages analyzing the

specific industry at issue.

Item 4(d)(ii) also seeks documents

prepared by third party advisors who

have been hired by a particular

company to develop and analyze a

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variety of strategic options, one of

which is a merger that requires an

eventual HSR filing. These materials are

different from bankers’ books in that the

third party advisor has been hired and

is already working with the company in

detail, but they contain information that

is just as valuable to staff. Whether

developed by a third party for the

purpose of seeking an engagement or

after having been engaged, these

materials often provide staff with a

useful overview of the relevant industry

and/or competitive landscape.

Sometimes such materials fall within

the requirements of Item 4(c). In some

cases, however, they may not, as there

is arguably no ‘‘acquisition’’ at the time

they are prepared.

The most strenuous objection we

received to proposed Item 4(d)(ii) was

that leaving out the Item 4(c)

requirement that responsive materials

evaluate or analyze the acquisition

made the language of proposed Item

4(d)(ii) too broad. As noted above,

leaving this language out of Item 4(d)(ii)

addresses the fact that some parties have

relied on this language when not

submitting this category of documents.

As documents responsive to Item

4(d)(ii) must meet all the other

requirements of Item 4(c), one approach

would be to rely on the language

proposed by Comment 4 in reference to

Item 4(d)(i) to require only those

materials that ‘‘would have been

responsive to Item 4(c) had they been

prepared for the acquisition.’’ While this

language narrows the scope of this item

and better reflects the Commission’s

intent, it leaves Item 4(d)(ii) without the

limiting language on the entity(s) or

assets for sale and officer(s) and

director(s) the Commission has adopted

in Item 4(d)(i).

To further clarify the intent of Item

4(d)(ii), the Commission limits materials

responsive to Item 4(d)(ii) to those

prepared by third party advisors during

an engagement or for the purpose of

seeking an engagement and, as has been

done in Item 4(d)(i), that specifically

relate to the sale of the acquired

entity(s) or assets. In addition, the

Commission similarly limits the

officer(s) and director(s) encompassed

in Item 4(d)(ii) to any officer(s) or

director(s) or, in the case of

unincorporated entities, individuals

exercising similar functions, of the

Ultimate Parent Entity of the Acquiring

or Acquired Person and/or any officer(s)

or director(s) or, in the case of

unincorporated entities, individuals

exercising similar functions, of the

Acquiring or Acquired Entity(s). These

clarifications, included in the

instructions to Item 4(d)(ii), also address

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the confidentiality concerns raised by

many of the comments.

Item 4(d)(ii) seeks materials

developed by third party advisors

during an engagement or for the purpose

of seeking an engagement prepared by

or for certain officers and directors (as

discussed above) that contain

competition-related content specifically

related to the sale of the acquired

entity(s) or assets, and the instructions

specify this. Item 4(d)(ii) is not intended

to capture many of the broad categories

of materials envisioned by the

comments; the language of Item 4(d)(ii)

is drafted in recognition of the fact that

there are numerous kinds of consultants

who create responsive materials during

an engagement or for the purpose of

seeking an engagement. We note that

Item 4(d)(ii) does not require, as

enumerated in Comment 11, the

submission of corporate subscriptions to

market studies, information or

periodicals; industry reference materials

and databases; routine market research;

information received by financial

investors; unsolicited financial and

market analyses from investment

bankers and consultants; and reports

prepared in the course of patent,

securities, antitrust or other forms of

litigation. Some unsolicited materials

developed by investment banking firms

or other third parties for the purpose of

seeking an engagement may appear in

the files of officers or directors covered

by Item 4(d)(ii). Item 4(d)(ii) requires the

submission of such unsolicited

materials only if they specifically relate

to the sale of the acquired entity(s) or

assets and contain competition related

content as specified in the instructions.8

Many filing parties already submit

materials responsive to Item 4(d)(ii)

based on longstanding informal

interpretations that materials developed

by third party advisors during an

engagement or for the purpose of

seeking an engagement should be

submitted as Item 4(c) documents.

However, parties have sometimes

excluded these documents on the

grounds that they were not prepared for

the purpose of evaluating or analyzing

the acquisition. Item 4(d)(ii) is intended

to make clear that materials developed

by third party advisors during an

engagement or for the purpose of

seeking an engagement must be

submitted in response to Item 4(d)(ii).

The Commission intends Items 4(c) and

4(d) to complement one another. For

instance, if a filing party includes a

document responsive to Item 4(d)(ii)

8 Item 4(d)(ii) does not require the inclusion of

unsolicited materials received from third party

advisors as a separate category.

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with its HSR filing, it need not submit

that document separately in response to

Item 4(c).

The comments raised concerns about

the length of the proposed two-year time

period applicable to proposed Item

4(d)(ii). Consistent with the

modification to Item 4(d)(i), the time

period for this item has been changed to

one year.9

In summary, the Commission is

promulgating Item 4(d)(ii) with the

clarification that this item seeks

materials developed by third party

advisors during an engagement or for

the purpose of seeking an engagement

that ‘‘specifically relate to the sale of the

acquired entity(s) or assets’’ and that

were prepared by or for any officer(s) or

director(s) or, in the case of

unincorporated entities, individuals

exercising similar functions, of the

Ultimate Parent Entity of the Acquiring

or Acquired Person and/or any officer(s)

or director(s) or, in the case of

unincorporated entities, individuals

exercising similar functions, of the

Acquiring or Acquired Entity(s) within

one year of filing.

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Item 4(d)(iii): Materials Evaluating or

Analyzing Synergies and/or Efficiencies

Proposed Item 4(d)(iii) required filing

parties to provide all studies, surveys,

analysis and reports evaluating or

analyzing synergies and/or efficiencies

if they were prepared by or for any

officer(s) or director(s) (or, in the case of

unincorporated entities, individuals

exercising similar functions) for the

purpose of evaluating or analyzing the

acquisition.

Although proposed Item 4(d)(iii) did

not receive as many comments as the

other parts of proposed Item 4(d),

Comments 2 and 6 questioned staff’s

need to review these documents in

every transaction, suggesting that staff

could seek these documents from the

parties at a later time if relevant in a

specific transaction. Comments 1, 6, and

11 stated that even if filers did not

submit synergies documents at the time

of filing, they should not be precluded

from being able to make arguments

concerning applicable synergies at a

later time.

Item 4(d)(iii) requires the submission

of documents that evaluate or analyze

the synergies related to a particular

acquisition. Although many filing

parties do submit documents discussing

synergies in response to Item 4(c), the

PNO has long provided the informal

9 The one-year time limit applicable to materials

responsive to Items 4(d)(i) and 4(d)(ii) does not

apply to materials responsive to Item 4(c); Item 4(c)

has no specific timeframe.

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advice that this category of documents,

without separate competition-related

content, is not caught by the language in

Item 4(c). At the same time, these kinds

of documents are very useful to staff in

many transactions. Thus, Item 4(d)(iii)

requires that these documents be

submitted. The Commission believes

that the benefits to the Agencies from

receiving this discrete set of documents

outweighs the burden to parties of

producing them. Filing parties can

assert synergies arguments at any time,

but there is the possibility that

documents submitted with an HSR

filing in response to Item 4(d)(iii) may

carry greater weight with the Agencies

than materials claiming synergies

created and submitted at a later time

during an investigation.

Instructions to Item 4(d)

Incorporating many of the comments

as described above, the instructions to

Item 4(d) will read as follows:

Item 4(d)

For each category below, indicate (if not

contained in the document itself) the date of

preparation, and the name of the company or

organization that prepared each such

document.

Item 4(d)(i): Provide all Confidential

Information Memoranda prepared by or for

any officer(s) or director(s) (or, in the case of

unincorporated entities, individuals

exercising similar functions) of the Ultimate

Parent Entity of the Acquiring or Acquired

Person or of the Acquiring or Acquired

Entity(s) that specifically relate to the sale of

the acquired entity(s) or assets. If no such

Confidential Information Memorandum

exists, submit any document(s) given to any

officer(s) or director(s) of the buyer meant to

serve the function of a Confidential

Information Memorandum. This does not

include ordinary course documents and/or

financial data shared in the course of due

diligence, except to the extent that such

materials served the purpose of a

Confidential Information Memorandum

when no such Confidential Information

Memorandum exists. Documents responsive

to this item are limited to those produced up

to one year before the date of filing.

Item 4(d)(ii): Provide all studies, surveys,

analyses and reports prepared by investment

bankers, consultants or other third party

advisors (‘‘third party advisors’’) for any

officer(s) or director(s) (or, in the case of

unincorporated entities, individuals

exercising similar functions) of the Ultimate

Parent Entity of the Acquiring or Acquired

Person or of the Acquiring or Acquired

Entity(s) for the purpose of evaluating or

analyzing market shares, competition,

competitors, markets, potential for sales

growth or expansion into product or

geographic markets that specifically relate to

the sale of the acquired entity(s) or assets.

This item requires only materials developed

by third party advisors during an engagement

or for the purpose of seeking an engagement.

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Documents responsive to this item are

limited to those produced up to one year

before the date of filing.

Item 4(d)(iii): Provide all studies, surveys,

analyses and reports evaluating or analyzing

synergies and/or efficiencies prepared by or

for any officer(s) or director(s) (or, in the case

of unincorporated entities, individuals

exercising similar functions) for the purpose

of evaluating or analyzing the acquisition.

Financial models without stated assumptions

need not be provided in response to this

item.

Item 5

Item 5(a) and Foreign Manufactured

Products

The Commission proposed changes to

Item 5 of the Form to make it easier for

filing parties to complete, and to obtain

information more useful to the

Agencies. In this vein, the Commission

proposed modifying the Form to require

filing persons to identify the 10-digit

NAICS product codes and revenues for

each product they manufacture outside

the U.S. and sell in the U.S. at the

wholesale or retail level, or that they

sell directly to customers in the U.S.

This would give the Agencies a more

accurate understanding of products in

the U.S. Filing parties would include

10-digit NAICS product codes and

revenues for such foreign manufactured

products only for the most recent year

in proposed Item 5(a). As proposed,

sales made directly to customers in the

U.S. would be reported in a

manufacturing code while sales made

into the U.S. through a wholesale

operation within the same person would

be reported in both manufacturing

(transfer price) and wholesale or retail

(sales price) codes, to be consistent with

current practice when companies have

both domestic manufacturing and

wholesale or retail operations.

Comment 1 objected to the proposed

reporting of revenues for products

manufactured outside the U.S. on the

grounds that compiling NAICS code

information would be a substantial

burden for foreign manufacturers who

do not currently use NAICS. Comment

2 objected on the same grounds, and

also stated that the double listing of

foreign manufacturing and importing

revenues was confusing. Comment 6

stated that the Commission specifically

declined to require foreign

manufactured product data by U.S.

census code in the 1978 final rules, and

that the burden of providing such data

is not significantly smaller today.

Comment 7 also stated that finding

NAICS information would be

burdensome for foreign filers and that

only U.S. operations should be reported.

Comment 9 also raised this concern and

cited to International Competition

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Network principles that unnecessary

costs on transactions should be avoided.

After considering these comments, the

Commission is not persuaded that

NAICS reporting would be significantly

more difficult for foreign manufacturers

than it is for domestic manufacturers.

One of the reasons the Commission

decided to propose the elimination of

base year reporting was that HSR

practitioners have told the PNO that

filers generally do not rely on previous

NAICS data compiled for submission to

the Bureau of Census, as the

Commission previously understood, but

rather that the parties determine the

appropriate NAICS codes and

underlying revenues as they are

preparing their filings. That being the

case, foreign manufacturers should be

able to identify appropriate NAICS

codes as readily as domestic

manufacturers can; in fact, foreign

entities with U.S. wholesale or retail

operations already use the NAICS

system to report revenues from those

operations. Finally, the Commission

believes that whatever additional

burden may be initially experienced by

foreign manufacturers because of their

unfamiliarity with NAICS

manufacturing codes is outweighed by

the usefulness of the information to the

Agencies.

Comments 6 and 11 also objected to

the double-counting effect that would

result from the proposed requirement

that foreign manufacturers report

revenues under both manufacturing

codes (at transfer price) and wholesaling

codes (sales revenues) if their products

are manufactured outside the U.S. and

sold in the U.S. Indeed, Comment 11

stated that this is a long-standing

problem with Item 5 in its current form

as it relates to domestic manufacturers

who sell their product from a separate

establishment and must then report

manufacturing and wholesaling

revenues.

The Commission agrees that doublecounting can distort revenues reported

in Item 5 and therefore will amend the

instruction for Item 5(a) to require that

any manufacturer, whether foreign or

domestic, report revenues from the sale

of its manufactured products only under

10-digit NAICS manufacturing product

codes. Sales of products that are not

manufactured by the parties but only

sold by them would, of course, continue

to be reported under 6-digit wholesaling

or retailing codes. Comment 6

advocated eliminating the doublecounting problem by requiring the

listing of revenues from manufactured

products by 6-digit wholesaling code

only, but this solution would not

provide the Agencies with sufficient

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information about the products being

manufactured and sold.

Item 5 De Minimis Exception

The proposed changes to Item 5 also

included a proposal to eliminate the

million dollar minimum that currently

applies to reporting revenues for nonmanufacturing operations in the most

recent year. As discussed in the

Proposed Rule, the minimum was based

on the way filing persons reported nonmanufacturing data to the Census

Bureau, but given that there appears to

be little or no reliance on the part of

filers on previously assembled census

data for HSR reporting, there seemed to

be little reason to retain it. In addition,

the minimum was sometimes

misconstrued as a minimum for the

reporting of overlaps in Item 7, which

it is not. Comments 6 and 11 objected

to the proposed elimination of the

million dollar minimum, stating that the

minimum reduces the burden of

characterizing minor operations by

NAICS code and allocating revenues to

those codes; further, the comments

suggested that instead of eliminating the

minimum, an instruction could be

added to clarify that an Item 7 overlap

can still exist for operations that

generate less than $1 million in

revenues in the most recent year.

The Commission accepts that the

million dollar minimum is helpful to

filers and agrees that amending the

instruction to Item 7 to state that the

item is applicable to an overlap of

operations generating any amount of

revenue is a reasonable approach.

Therefore, the million dollar minimum

will remain for Item 5, and the Item 7

instruction has been amended, as below:

If, to the knowledge or belief of the person

filing notification, the acquiring person, or

any associate (see § 801.1(d)(2)) of the

acquiring person, derived any amount of

dollar revenues in the most recent year from

operations in industries within any 6-digit

NAICS industry code in which any acquired

entity that is a party to the acquisition also

derived any amount of dollar revenues in the

most recent year, or in which a joint venture

corporation or unincorporated entity will

derive dollar revenues (note that if the

acquired entity is a joint venture the only

overlaps will be between the assets to be held

by the joint venture and any assets of the

acquiring person or its associates not

contributed to the joint venture), then for

each such 6-digit NAICS industry code:

* * *

Regulatory Flexibility Act

The Regulatory Flexibility Act, 5

U.S.C. 601–612, requires that the agency

conduct an initial and final regulatory

analysis of the anticipated economic

impact of the amendments on small

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businesses, except where the

Commission certifies that the regulatory

action will not have a significant

economic impact on a substantial

number of small entities. 5 U.S.C. 605.

Because of the size of the transactions

necessary to trigger a Hart-Scott-Rodino

filing, the premerger notification rules

rarely, if ever, affect small businesses.

Indeed, these amendments are intended

to reduce the burden of the premerger

notification program. Further, none of

the rule amendments expands the

coverage of the premerger notification

rules in a way that would affect small

business. Accordingly, the Commission

certifies that these rules will not have a

significant economic impact on a

substantial number of small entities.

This document serves as the required

notice of this certification to the Small

Business Administration.

Paperwork Reduction Act

The Paperwork Reduction Act, 44

U.S.C. 3501–3521, requires agencies to

submit ‘‘collections of information’’ to

the Office of Management and Budget

(‘‘OMB’’) and obtain clearance before

instituting them. Such collections of

information include reporting,

recordkeeping, or disclosure

requirements contained in regulations.

The existing information collection

requirements in the HSR Rules and

Form have been reviewed and approved

by OMB under OMB Control No. 3084–

0005. The current clearance expires on

June 30, 2013. On September 23, 2010,

the Commission submitted a clearance

request to OMB regarding the then

proposed amendments to the reporting

requirements in the Rules and Form. On

November 8, 2010, OMB filed a

comment, requesting that the FTC

consider public comments on the

proposed amendments and to respond

to them and make any necessary

adjustments in its ensuing submission

to OMB for the final amendments.

Consistent with the analysis shown

here, the Commission is submitting a

supplemental response to OMB as a

follow-up to its prior clearance request.

Increase or Decrease in Filings Due to

Ministerial Changes in Filing

Requirements

The final amendments are primarily

changes to the information reported on

the Notification and Report Form and

do not affect the reportability of a

transaction. Most of the ministerial

changes to the Rules are clarifications

(e.g., the change to § 802.4) or new

procedures (e.g., the change to § 801.30),

which also would have no effect on

reporting obligations. One amendment

could theoretically produce an increase

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in filings. The definition of ‘‘entity’’ in

§ 801.1(a)(2) is being modified to

include unincorporated entities engaged

in commerce that are controlled by a

government. The definition currently

includes only corporations engaged in

commerce. Another amendment could

theoretically produce a decrease in

filings. The amendment to the

aggregation rules in § 801.15 would

eliminate the unintended effect of

requiring aggregation when exactly 50

percent of multiple subsidiaries have

been acquired and additional voting

securities of the same person are newly

being acquired. The Commission

believes that any increase or decrease in

filings as a result of the final ministerial

amendments would be negligible.

Reduced Time Collecting Data for and

Preparing the Form

Premerger Notification Office staff

canvassed eight practitioners from the

private bar to estimate the projected

change in burden due to the then

proposed, now final, amendments to the

Form. All those consulted are

considered HSR experts and have

extensive experience with preparing

HSR filings for the types of transactions

that are most likely to be affected by the

amendments.

Many of the final amendments would

significantly reduce burden for all filers.

Others would increase burden,

particularly for acquiring persons that

are private equity funds and master

limited partnerships. The consensus of

those canvassed was that, on average,

burden for collecting and reporting

would decrease by approximately five

percent. Thus, 37 hours (rounded to the

nearest hour) will be allocated to nonindex filings.10 [(Current estimate, 39

hours 11) × (1 ¥ .05) = 37.05 hours.]

wwoods2 on DSK1DXX6B1PROD with RULES_PART 1

Net Effect

The Form changes only affect nonindex filings which, for FY 2011, the

FTC projects will total 1,428. The

amendments to the HSR Rules and

Notification and Report Form should

reduce the time required to prepare

responses for non-index filings, with an

estimated net reduction of 2 hours per

filing (39 hours to 37 hours).

Cumulatively, however, owing to a

10 Id. Clayton Act sections 7A(c)(6) and (c)(8)

exempt from the requirements of the premerger

notification program certain transactions that are

subject to the approval of other agencies, but only

if copies of the information submitted to these other

agencies are also submitted to the FTC and the

Assistant Attorney General. Thus, parties must

submit copies of these ‘‘index’’ filings, but

completing the task requires significantly less time

than non-exempt transactions that require ‘‘nonindex’’ filings.

11 Id.

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projected increase from 841 such filings

to 1,428 (independent of the

amendments’ effects), total burden will

increase from the currently cleared

estimate of 33,298 hours 12 to 53,756

hours.13

Applying the revised estimated hours,

53,756, to the previous assumed hourly

wage of $460 for executive and attorney

compensation,14 yields $24,728,000

(rounded to the nearest thousand) in

labor costs.15 The amendments

presumably will impose minimal or no

additional capital or other non-labor

costs, as businesses subject to the HSR

Rules generally have or obtain necessary

equipment for other business purposes.

Staff believes that the above

requirements necessitate ongoing,

regular training so that covered entities

stay current and have a clear

understanding of federal mandates, but

that this would be a small portion of

and subsumed within the ordinary

training that employees receive apart

from that associated with the

information collected under the HSR

Rules and the corresponding

Notification and Report Form.

List of Subjects in 16 CFR Parts 801,

802 and 803

Antitrust.

For the reasons stated in the

preamble, the Federal Trade

Commission amends 16 CFR parts 801,

802 and 803 as set forth below:

PART 801—COVERAGE RULES

■ 1. The authority citation for part 801

continues to read as follows:

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

12 The preceding estimate, detailed further at 75

FR 27558, 27559–27560 (May 17, 2010), was

calculated as follows: [(841 non-index filings × 39

hours) + (22 transactions requiring more precise

valuation × 40 hours) + (20 index filings × 2

hours)]¥[841 non-index filings × 1⁄2 of these filings

incorporating Item 4(a) and Item 4(b) documents by

reference to an Internet link × 1 hour savings) =

33,298 hours. The reduction within this prior

calculation for time saved when incorporating Item

4(a) and Item 4(b) documents by reference to an

Internet link would be mooted by the final

amendments. The amendments would further

reduce time to complete the Form, and are factored

into the estimated five percent reduction stated

above.

13 This is determined as follows: [(1428 non-index

filings × 37 hours) + (22 transactions requiring more

precise valuation × 40 hours) + (20 index filings ×

2 hours)].

14 See 75 FR at 57122 n. 48 and accompanying

text.

15 Though the filing time and associated labor per

respondent is reduced as a result of these

amendments, the cumulative dollar total is higher

than previously stated ($15,317,000) at the time of

the proposed rulemaking. This is attributable solely

to a projected increase in the number of related

filings for fiscal year 2011, as compared to the prior

estimated filings for fiscal year 2010.

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42479

■ 2. Amend § 801.1 by revising

paragraphs (a)(2) and (b)(2), revising

example 2 to paragraph (b), adding

example 5 to paragraph (b), revising

paragraph (d), and revising paragraph

(f)(1)(ii) to read as follows:

§ 801.1

Definitions.

*

*

*

*

*

(a) * * *

(2) Entity. The term entity means any

natural person, corporation, company,

partnership, joint venture, association,

joint-stock company, trust, estate of a

deceased natural person, foundation,

fund, institution, society, union, or club,

whether incorporated or not, wherever

located and of whatever citizenship, or

any receiver, trustee in bankruptcy or

similar official or any liquidating agent

for any of the foregoing, in his or her

capacity as such; or any joint venture or

other corporation which has not been

formed but the acquisition of the voting

securities or other interest in which, if

already formed, would require

notification under the act and these

rules:

Provided, however, that the term

entity shall not include any foreign

state, foreign government, or agency

thereof (other than a corporation or

unincorporated entity engaged in

commerce), nor the United States, any

of the States thereof, or any political

subdivision or agency of either (other

than a corporation or unincorporated

entity engaged in commerce).

*

*

*

*

*

(b) * * *

(2) Having the contractual power

presently to designate 50 percent or

more of the directors of a for-profit or

not-for-profit corporation, or in the case

of trusts that are irrevocable and/or in

which the settlor does not retain a

reversionary interest, the trustees of

such a trust.

*

*

*

*

*

Examples: * * *

2. A statutory limited partnership

agreement provides as follows: The

general partner ‘‘A’’ is entitled to 50

percent of the partnership profits, ‘‘B’’ is

entitled to 40 percent of the profits and

‘‘C’’ is entitled to 10 percent of the

profits. Upon dissolution, ‘‘B’’ is

entitled to 75 percent of the partnership

assets and ‘‘C’’ is entitled to 25 percent

of those assets. All limited and general

partners are entitled to vote on the

following matters: the dissolution of the

partnership, the transfer of assets not in

the ordinary course of business, any

change in the nature of the business,

and the removal of the general partner.

The interest of each partner is

evidenced by an ownership certificate

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that is transferable under the terms of

the partnership agreement and is subject

to the Securities Act of 1933. For

purposes of these rules, control of this

partnership is determined by paragraph

(1)(ii) of this section. Although

partnership interests may be securities

and have some voting rights attached to

them, they do not entitle the owner of

that interest to vote for a corporate

‘‘director’’ as required by § 801.1(f)(1).

Thus control of a partnership is not

determined on the basis of either

paragraph (1)(i) or (2) of this section.

Consequently, ‘‘A’’ is deemed to control

the partnership because of its right to 50

percent of the partnership’s profits. ‘‘B’’

is also deemed to control the

partnership because it is entitled to 75

percent of the partnership’s assets upon

dissolution.

*

*

*

*

*

5. A is the settlor of an irrevocable

trust in which it does not retain a

reversionary interest in the corpus of the

trust. A is entitled under the trust

indenture to designate four of the eight

trustees of the trust. A controls the trust

pursuant to § 801.1(b)(2) and is deemed

to hold the assets that constitute the

corpus of the trust. Note that the right

to designate 50 percent or more of the

trustees of a business trust that has

equity holders entitled to profits or

assets upon dissolution of the business

trust does not constitute control. Such

business trusts are treated as

unincorporated entities and control is

determined pursuant to § 801.1(b)(1)(ii).

*

*

*

*

*

(d)(1) Affiliate. An entity is an affiliate

of a person if it is controlled, directly or

indirectly, by the ultimate parent entity

of such person.

(2) Associate. For purposes of Items 6

and 7 of the Form, an associate of an

acquiring person shall be an entity that

is not an affiliate of such person but:

(A) Has the right, directly or

indirectly, to manage the operations or

investment decisions of an acquiring

entity (a ‘‘managing entity’’); or

(B) Has its operations or investment

decisions, directly or indirectly,

managed by the acquiring person; or

(C) Directly or indirectly controls, is

controlled by, or is under common

control with a managing entity; or

(D) Directly or indirectly manages, is

managed by, or is under common

operational or investment decision

management with a managing entity.

Examples:

1. ABC Investment Group has

organized a number of investment

partnerships. Each of the partnerships is

its own ultimate parent, but ABC makes

the investment decisions for all of the

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partnerships. One of the partnerships

intends to make a reportable

acquisition. For purposes of Items 6(c)

and 7, each of the other investment

partnerships, and ABC Investment

Group itself are associates of the

partnership that is the acquiring person.

In response to Item 6(c)(i), the acquiring

person will disclose any of its 5 percent

or greater minority holdings that

generate revenues in any of the same

NAICS codes as the acquired entity(s) in

the reportable transaction. In Item

6(c)(ii) it would report any 5 percent or

greater minority holdings of its

associates in the acquired entity(s) and

in any entities that generate revenues in

any of the same NAICS codes as the

acquired entity(s). In Item 7, the

acquiring person will indicate whether

there are any NAICS code overlaps

between the acquired entity(s) in the

reportable transaction, on the one hand,

and the acquiring person and all of its

associates, on the other.

2. XYZ Corporation is its own

ultimate parent and intends to make a

reportable acquisition. Pursuant to a

management contract, Fund MNO has

the right to manage the investments of

XYZ Corporation. For the HSR filing by

XYZ Corporation, Fund MNO is an

associate of XYZ, as is any other entity

that either controls, or is controlled by,

or manages or is managed by Fund

MNO or is under common control or

common investment management with

Fund MNO.

3. EFG Investment Group has the

contractual power to determine the

investments of PRS Corporation, which

is its own ultimate parent. Natural

person Mr. X, who is not an employee

of EFG Investment Group, has been

contracted by EFG Investment Group as

its investment manager. When PRS

Corporation makes an acquisition, its

associates include (i) EFG Investment

Group, (ii) any entity over which EFG

Investment Group has investment

authority, (iii) any entity that controls,

or is controlled by, EFG Investment

Group, (iv) Natural person Mr. X, (v)

any entity over which Natural person

Mr. X has investment management

authority, and (vi) any entity which is

controlled by Natural person Mr. X,

directly or indirectly.

4. CORP1 controls GP1 and GP2, the

sole general partners of private equity

funds LP1 and LP2 respectively. LP1

controls GP3, the sole general partner of

MLP1, a newly formed master limited

partnership which is its own ultimate

parent entity. LP2 controls GP4, the sole

general partner of MLP2, another master

limited partnership that is its own

ultimate parent entity and which owns

and operates a natural gas pipeline. In

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addition, GP4 holds 25 percent of the

voting securities of CORP2, which also

owns and operates a natural gas

pipeline.

MLP1 is acquiring 100 percent of the

membership interests of LLC1, also the

owner and operator of a natural gas

pipeline. MLP2, CORP2 and LLC1 all

derive revenues in the same NAICS

code (Pipeline Transportation of Natural

Gas). All of the entities under common

investment management of CORP1,

including GP4 and MLP2, are associates

of MLP1, the acquiring person.

In Item 7 of its HSR filing, MLP1

would identify MLP2 as an associate

that has an overlap in pipeline

transportation of natural gas with LLC1,

the acquired person. Because GP4 does

not control CORP2 it would not be

listed in Item 7, however, GP4 would be

listed in Item 6(c)(ii) as an associate that

holds 25 percent of the voting securities

of CORP2. In this example, even though

there is no direct overlap between the

acquiring person (MLP1) and the

acquired person (LLC1), there is an

overlap reported for an associate (MLP2)

of the acquiring person in Item 7. 5. LLC

is the investment manager for and

ultimate parent entity of general

partnerships GP1 and GP2. GP1 is the

general partner of LP1, a limited

partnership that holds 30 percent of the

voting securities of CORP1. GP2 is the

general partner of LP2, which holds 55

percent of the voting securities of

CORP1. GP2 also directly holds 2

percent of the voting securities of

CORP1. LP1 is acquiring 100 percent of

the voting securities of CORP2. CORP1

and CORP2 both derive revenues in the

same NAICS code (Industrial Gas

Manufacturing).

All of the entities under common

investment management of the

managing entity LLC, including GP1,

GP2, LP2 and CORP1 are associates of

LP1. In Item 6(c)(i) of its HSR filing, LP1

would report its own holding of 30

percent of the voting securities of

CORP1. It would not report the 55

percent holding of LP2 in Item 6(c)(ii)

because it is greater than 50 percent. It

also would not report GP2’s 2 percent

holding because it is less than 5 percent.

In Item 7, LP1 would identify both LP2

and CORP1 as associates that derive

revenues in the same NAICS code as

CORP2.

6. LLC is the investment manager for

GP1 and GP2 which are the general

partners of limited partnerships LP1 and

LP2, respectively. LLC holds no equity

interests in either general partnership

but manages their investments and the

investments of the limited partnerships

by contract. LP1 is newly formed and its

own ultimate parent entity. It plans to

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42481

acquire 100 percent of the voting

securities of CORP1, which derives

revenues in the NAICS code for

Consumer Lending. LP2 controls

CORP2, which derives revenues in the

same NAICS code. All of the entities

under the common management of LLC,

including LP2 and CORP2, are

associates of LP1. For purposes of Item

7, LP1 would report LP2 and CORP2 as

associates that derive revenues in the

NAICS code that overlaps with CORP1.

Even though the investment manager

(LLC) holds no equity interest in GP1 or

GP2, the contractual arrangement with

them makes them associates of LP1

through common management.

7. Corporation A is its own ultimate

parent entity and is making an

acquisition of Corporation B. Although

Corporation A is operationally managed

by its officers and its investments,

including the acquisition of Corporation

B, are managed by its directors, neither

the officers nor directors are considered

associates of A.

8. Limited partnership A is an

investment partnership that is making

an acquisition. LLC B has no equity

interest in A, but has a contract to

manage its investments for a fee. LLC B

has an investment committee comprised

of twelve of its employees that makes

the actual investment decisions. LLC B

is an associate of A but none of the

twelve employees are associates of A, as

LLC B is a managing entity and the

twelve individuals are merely its

employees. Contrast this with example

3 where a managing entity, EFG, is itself

managed by another entity, Mr. X, who

is thus an associate.

9. GP is the general partner of FUND.

GP has contracted with LLC to act as an

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investment advisor with respect to

FUND’s investments. In this role, LLC

acts as a consultant who makes

recommendations to GP on what

portfolio companies FUND should

invest in. The recommendations are

non-binding and GP is the only entity

that has the authority to exercise

investment discretion over FUND’s

acquisitions of interests in portfolio

companies. In this example, GP is an

associate of FUND, while LLC is not.

10. GP A is the general partner and

investment manager of FUND A1. Mr. X

is a principal in the A family of private

equity funds and has the contractual

right to veto certain proposed actions of

GP A and FUND A1, for example,

divestitures of stock that would result in

a change of control in a portfolio

company. His contractual right to veto

certain proposed actions does not

constitute managing operations. Mr. X

does not have the authority under the

contract to veto proposed investments of

FUND A1 directed by GP A or to direct

GP A to authorize investments by FUND

A1. In this example, GP A is an

associate of FUND A1, while Mr. X is

not.

11. LLC is the general partner of LP

and has entered into a management

contract to exercise investment

discretion over LP’s investments in

portfolio companies as well as to

provide certain other administrative

services for LP. Mr. Y is the managing

member of LLC and as such is the

person who actually makes the

investment decisions on behalf of LLC.

Mr. Y has no management contract with

either LLC or LP. In this example, LLC

is an associate of LP, while Mr. Y is not.

Compare with Example 7 where officers

and directors of a corporation are not

associates of the corporation.

12. GP is the general partner of LP and

has entered into a management contract

to exercise investment discretion over

LP’s investments in portfolio

companies. GP has entered into a

contract with CORP, under which CORP

will manage building maintenance and

certain back office functions (e.g.,

maintenance of phones and computers,

accounting, IT and human resources) for

LP. GP is an associate of LP because it

manages LP’s investments. However, the

management services provided by CORP

do not constitute operational

management, therefore, CORP is not an

associate of LP.

*

*

*

*

*

(f) * * *

(1) * * *

(ii) Non-corporate interest. The term

‘‘non-corporate interest’’ means an

interest in any unincorporated entity

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which gives the holder the right to any

profits of the entity or in the event of

dissolution of that entity the right to any

of its assets after payment of its debts.

These unincorporated entities include,

but are not limited to, general

partnerships, limited partnerships,

limited liability partnerships, limited

liability companies, cooperatives and

business trusts; but these

unincorporated entities do not include

trusts that are irrevocable and/or in

which the settlor does not retain a

reversionary interest and any interest in

such a trust is not a non-corporate

interest as defined by this rule.

*

*

*

*

*

■ 3. Amend § 801.10 by revising

paragraph (c)(2) to read as follows:

§ 801.10 Value of voting securities, noncorporate interests and assets to be

aquired.

*

*

*

*

*

(c) * * *

(2) Acquisition price. The acquisition

price shall include the value of all

consideration for such voting securities,

non-corporate interests or assets to be

acquired.

*

*

*

*

*

■ 4. Amend § 801.15 by revising its

section heading, introductory text and

paragraphs (a) and (b) to read as follows:

§ 801.15 Aggregation of voting securities,

non-corporate interests and assets the

acquisition of which was exempt.

Notwithstanding § 801.13, for

purposes of determining the aggregate

total amount of voting securities, noncorporate interests and assets of the

acquired person held by the acquiring

person under Section 7A(a)(2) and

§ 801.1(h), none of the following will be

held as a result of an acquisition:

(a) Assets, non-corporate interests or

voting securities the acquisition of

which was exempt at the time of

acquisition (or would have been

exempt, had the act and these rules been

in effect), or the present acquisition of

which is exempt, under—

(1) Sections 7A(c)(1), (3), (5), (6), (7),

(8), and (11)(B);

(2) Sections 802.1, 802.2, 802.5,

802.6(b)(1), 802.8, 802.30, 802.31,

802.35, 802.52, 802.53, 802.63, and

802.70 of this chapter;

(b) Assets, non-corporate interests or

voting securities the acquisition of

which was exempt at the time of

acquisition (or would have been

exempt, had the Act and these rules

been in effect), or the present

acquisition of which is exempt, under

Section 7A(c)(9) and §§ 802.3, 802.4,

and 802.64 of this chapter unless the

limitations contained in Section

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7A(c)(9) or those sections do not apply

or as a result of the acquisition would

be exceeded, in which case the assets or

voting securities so acquired will be

held; and

*

*

*

*

*

■ 5. Amend § 801.30 by revising its

section heading and paragraph (a)(5) to

read as follows:

§ 801.30 Tender offers and acquisitions of

voting securities and non-corporate

interests from third parties.

(a) * * *

(5) All acquisitions (other than

mergers and consolidations) in which

voting securities or non-corporate

interests are to be acquired from a

holder or holders other than the issuer

or unincorporated entity or an entity

included within the same person as the

issuer or unincorporated entity;

*

*

*

*

*

PART 802—EXEMPTION RULES

■ 6. The authority citation for part 802

continues to read as follows:

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

■ 7. Amend § 802.4 by revising

paragraph (a) to read as follows:

§ 802.4 Acquisitions of voting securities of

issuers or non-corporate interests in

unincorporated entities holding certain

assets the acquisition of which is exempt.

(a) An acquisition of voting securities

of an issuer or non-corporate interests in

an unincorporated entity whose assets

together with those of all entities it

controls consist or will consist of assets

whose acquisition is exempt from the

requirements of the Act pursuant to

section 7A(c) of the Act, this part 802,

or pursuant to § 801.21, is exempt from

the reporting requirements if the

acquired issuer or unincorporated entity

and all entities it controls do not hold

non-exempt assets with an aggregate fair

market value of more than $50 million

(as adjusted). The value of voting or

non-voting securities of any other issuer

or interests in any unincorporated entity

not included within the acquired issuer

or unincorporated entity does not count

toward the $50 million (as adjusted)

limitation for non-exempt assets.

*

*

*

*

*

§ 802.21

[Amended]

■ 8. Amend § 802.21 by removing

paragraph (b) and its three examples.

■ 9. Amend § 802.52 by revising its

section heading and paragraph (b) to

read as follows:

§ 802.52 Acquisitions by or from foreign

governmental entities.

*

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(b) The acquisition is of assets located

within that foreign state or of voting

securities or non-corporate interests of

an entity organized under the laws of

that state.

*

*

*

*

*

PART 803—TRANSMITTAL RULES

■ 10. The authority citation for part 803

continues to read as follows:

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

■ 11. Amend § 803.2 by revising

paragraphs (b)(2), (c), and (e) to read as

follows:

§ 803.2 Instructions applicable to

Notification and Report Form.

*

*

*

*

(b) * * *

(2) For purposes of item 7 of the

Notification and Report Form, the

acquiring person shall regard the

acquired person in the manner

described in paragraphs (b)(1)(ii), (iii)

and (iv) of this section.

*

*

*

*

*

(c) In response to items 5, 7, and 8 of

the Notification and Report Form—

Information need not be supplied with

respect to assets or voting securities to

be acquired, the acquisition of which is

exempt from the requirements of the act.

*

*

*

*

*

(e) A person filing notification may

instead provide:

(1) A cite to a previous filing

containing documentary materials

required to be filed in response to item

4(b) of the Notification and Report

Form, which were previously filed by

the same person and which are the most

recent versions available; except that

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*

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when the same parties file for a higher

threshold no more than 90 days after

having made filings with respect to a

lower threshold, each party may instead

provide a cite to any documents or

information in its earlier filing provided

that the documents and information are

the most recent available;

(2) A cite to an Internet address

directly linking to the document, only

documents required to be filed in

response to item 4(b) of the Notification

and Report Form. If an Internet address

is inoperative or becomes inoperative

during the waiting period, or the

document that is linked to it is

incomplete, or the link requires

payment to access the document, upon

notification by the Commission or

Assistant Attorney General, the parties

must make these documents available to

the agencies by either referencing an

operative Internet address or by

providing paper copies to the agencies

as provided in § 803.10(c)(1) by 5 p.m.

on the next regular business day. Failure

to make the documents available, by the

Internet or by providing paper copies,

by 5 p.m. on the next regular business

day, will result in notice of a deficient

filing pursuant to § 803.10(c)(2).

*

*

*

*

*

■ 12. Amend § 803.5 by revising

paragraphs (a)(1) introductory text,

(a)(1)(ii), (a)(1)(iii), and (a)(1)(vi) to read

as follows.

§ 803.5

Affidavits required.

(a)(1) Section 801.30 acquisitions. For

acquisitions to which § 801.30 applies,

the notification required by the act from

each acquiring person shall contain an

affidavit, attached to the front of the

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notification, or attached as part of the

electronic submission, attesting that the

issuer or unincorporated entity whose

voting securities or non-corporate

interests are to be acquired has received

notice in writing by certified or

registered mail, by wire or by hand

delivery, at its principal executive

offices, of:

*

*

*

*

*

(ii) The fact that the acquiring person

intends to acquire voting securities or

non-corporate interests of the issuer or

unincorporated entity;

(iii) The specific classes of voting

securities or non-corporate interests of

the issuer or unincorporated entity

sought to be acquired; and if known, the

number of voting securities or noncorporate interests of each such class

that would be held by the acquiring

person as a result of the acquisition or,

if the number of voting securities is not

known in the case of an issuer, the

specific notification threshold that the

acquiring person intends to meet or

exceed; and, if designated by the

acquiring person, a higher threshold for

additional voting securities it may hold

in the year following the expiration of

the waiting period;

* * *

(vi) The fact that the person within

which the issuer or unincorporated

entity is included may be required to

file notification under the act.

*

*

*

*

*

■ 13. Appendix to Part 803 is revised to

read as follows:

Appendix to Part 803—Notification and

Report Form

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Federal Register / Vol. 76, No. 138 / Tuesday, July 19, 2011 / Rules and Regulations

By direction of the Commission.

Donald S. Clark,

Secretary.

[FR Doc. 2011–17822 Filed 7–18–11; 8:45 am]

BILLING CODE 6750–01–C

CONSUMER PRODUCT SAFETY

COMMISSION

16 CFR Part 1120

Substantial Product Hazard List:

Children’s Upper Outerwear in Sizes

2T to 12 With Neck or Hood

Drawstrings and Children’s Upper

Outerwear in Sizes 2T to 16 With

Certain Waist or Bottom Drawstrings

AGENCY: U.S. Consumer Product Safety

Commission.

ACTION: Final rule.

wwoods2 on DSK1DXX6B1PROD with RULES_PART 1

SUMMARY: The Consumer Product Safety

Improvement Act of 2008 (‘‘CPSIA’’),

authorizes the U.S. Consumer Product

Safety Commission (‘‘Commission,’’

‘‘CPSC,’’ or ‘‘we’’) to specify, by rule, for

any consumer product or class of

consumer products, characteristics

whose existence or absence shall be

deemed a substantial product hazard

under certain circumstances. We are

issuing a final rule to determine that

children’s upper outerwear garments in

sizes 2T to 12 or the equivalent, which

have neck or hood drawstrings, and in

sizes 2T to 16 or the equivalent, which

have waist or bottom drawstrings that

do not meet specified criteria, present

substantial product hazards.

DATES: The rule takes effect August 18,

2011. The incorporation by reference of

the publication listed in this rule is

approved by the Director of the Federal

Register as of August 18, 2011.

FOR FURTHER INFORMATION CONTACT:

Tanya Topka, Office of Compliance and

Field Operations, U.S. Consumer

Product Safety Commission, 4330 East

West Highway, Bethesda, MD 20814;

telephone (301) 504–7594,

ttopka@cpsc.gov.

SUPPLEMENTARY INFORMATION:

A. Background and Statutory Authority

The Consumer Product Safety

Improvement Act of 2008 (‘‘CPSIA’’)

was enacted on August 14, 2008. Public

Law 110–314, 122 Stat. 3016 (August

14, 2008). The CPSIA amends statutes

that the Commission administers and

adds certain new requirements.

Section 223 of the CPSIA expands

section 15 of the Consumer Product

Safety Act (‘‘CPSA’’) to add a new

subsection (j). That subsection delegates

authority to the Commission to specify

by rule, for a consumer product or class

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of consumer products, characteristics

whose presence or absence the

Commission considers a substantial

product hazard. To issue such a rule,

the Commission must determine that

those characteristics are readily

observable and have been addressed by

an applicable voluntary standard. The

Commission also must find that the

standard has been effective in reducing

the risk of injury and that there has been

substantial compliance with it. 15

U.S.C. 2064(j).

Drawstrings in children’s upper

outerwear can present a hazard if they

become entangled with other objects.

Drawstrings in the neck and hood areas

of children’s upper outerwear present a

strangulation hazard when the

drawstring becomes caught in objects,

such as playground slides. Drawstrings

in the waist or bottom areas of

children’s upper outerwear can catch in

the doors or other parts of a motor

vehicle, thereby presenting a ‘‘dragging’’

hazard when the operator of the vehicle

drives off without realizing that

someone is attached to the vehicle by

the drawstring. The injury data

associated with drawstrings is discussed

below in section C of this preamble.

In 1994, at the urging of the CPSC, a

number of manufacturers and retailers

agreed to modify or eliminate

drawstrings from hoods and necks of

children’s clothing. In 1997, the

American Society for Testing and

Materials (now ASTM International)

addressed the hazards presented by

drawstrings on upper outerwear by

creating a voluntary consensus

standard, ASTM F 1816–97, Standard

Safety Specification for Drawstrings on

Children’s Upper Outerwear, to prohibit

drawstrings around the hood and neck

area of children’s upper outerwear in

sizes 2T to 12, and also to limit the

length of drawstrings around the waist

and bottom of children’s upper

outerwear in sizes 2T to 16 to 3 inches

outside the drawstring channel when

the garment is expanded to its fullest

width. For waist and bottom

drawstrings in upper outerwear sizes 2T

to 16, the Standard prohibited toggles,

knots, and other attachments at the free

ends of drawstrings. The Standard

further required that waist and bottom

drawstrings in upper outerwear sizes 2T

to 16 that are one continuous string be

bartacked (i.e., stitched through to

prevent the drawstring from being

pulled through its channel).

We have estimated that the age range

of children likely to wear garments in

sizes 2T to 12 is 18 months to 10 years.

The age range of children likely to wear

garments in sizes 2T to 16 is 18 months

to 14 years.

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On July 12, 1994, we announced a

cooperative effort with a number of

manufacturers and retailers who agreed

to eliminate or modify drawstrings on

the hoods and necks of children’s

clothing.

In February 1996, we issued

guidelines for consumers,

manufacturers, and retailers that

incorporated the requirements that

became ASTM F 1816–97.

On May 12, 2006, the CPSC’s Office

of Compliance posted a letter on CPSC’s

website to the manufacturers, importers,

and retailers of children’s upper

outerwear, citing the fatalities that had

occurred and urging compliance with

the industry standard, ASTM F 1816–

97. The letter explained that we

consider children’s upper outerwear

with drawstrings at the hood or neck

area to be defective and to present a

substantial risk of injury under section

15(c) of the Federal Hazardous

Substances Act (FHSA), 15 U.S.C.

1274(c).

The 2006 letter also indicated that we

would seek civil penalties if a

manufacturer, importer, distributor, or

retailer distributed noncomplying

children’s upper outerwear in

commerce and/or failed to report that

fact to the Commission as required by

section 15(b) of the CPSA, 15 U.S.C.

2064(b). From 2006 through 2010, we

participated in 115 recalls of

noncomplying products with

drawstrings and obtained a number of

civil penalties based on the failure of

firms to report the defective products to

CPSC, as required by section 15(b) of the

CPSA.

On May 17, 2010, we published a

proposed rule (75 FR 27497) that would

deem children’s upper outerwear

garments in sizes 2T to 12, or the

equivalent that have neck or hood

drawstrings, and in sizes 2T to 16 or the

equivalent that have waist or bottom

drawstrings that do not meet specified

criteria, substantial product hazards. We

received seven comments in response to

the proposed rule. We describe and

respond to the comments in section E of

this preamble.

B. Readily Observable Characteristics

That Have Been Addressed by a

Voluntary Standard

As mentioned in section A of this

preamble, ASTM F 1816–97 addresses

upper outerwear garments in sizes 2T to

12 that have neck or hood drawstrings,

and in sizes 2T to 16 that have waist or

bottom drawstrings that do not meet

specified criteria. All of the

requirements of the ASTM voluntary

standard can be evaluated with simple

physical manipulations of the garment,

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