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Federal antitrust law requires prior notification to federal antitrust agencies of many prospective acquisitions before the transactions may be closed. This outline is designed to increase awareness of the United States Premerger Notification Program under the Hart-Scott-Rodino Act, including changes which became effective February 1, 2001, and to assist you in identifying issues to be resolved in determining whether a premerger filing may be required under U.S. law. I. Legal References A. Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (“HSR”) (15 U.S.C. � 18a) B. Federal Trade Commission regulations under HSR (16 CFR �� 801 et seq.) II. Basic Statutory Requirements A. Where the parties and the transaction meet certain size tests (see below), no person shall acquire either the voting securities or assets of another person until: 1. both persons have filed premerger reports with the Federal Trade Commission and the Department of Justice; and 2. the HSR waiting period(s) expire. B. Waiting Periods 1. Most Transactions a. 30 days after both parties file their initial premerger reports; b. If government requests additional information (called a “Second Request”), 30 additional days after completing response to Second Request. 2. Cash Tender Offers a. 15 days after filing by the bidder; b. 10 days after completing response to Second Request. 3. Waiting Period Expiration Extended a. Next business day after the 30 or 15 days if the expiration date would fall on a weekend or holiday. 4. Early Termination of Waiting Period can be requested — Requests frequently granted and immediately become matter of public record. C. Penalties for Closing Acquisitions in Violation of HSR: Civil penalty of up to $11,000 per day of noncompliance. This provision is actively enforced, even years after an acquisition has closed. D. Confidentiality of Information Submitted: Information submitted is exempt from public inspection or disclosure. Agencies rigorously protect confidentiality of information. E. Filing Fee: Recent amendments to the HSR Act have established a three-tiered filing fee structure. For transactions valued in excess of $50 million but less than $100 million, the fee is $45,000. For transactions whose value ranges from $100 million but less than $500 million, the filing fee is $125,000. And, for transactions whose value equals or exceeds $500 million, the filing fee is $280,000. The filing fee is to be submitted by electronic wire transfer (the preferred method), or cashiers or certified check and is to be paid by acquiring party with filing of report. III. When must HSR Premerger Report Be Filed: When both Size of Person and Size of Transaction tests are met, or when the transaction is valued in excess of $200 million. A. Size of Person Test (only applicable in transactions valued between $50 million and $200 million) 1. If one party has total assets or annual net sales of $100 million or more; and the other party has total assets or annual net sales of $10 million or more, the Size of Person test is usually met. 2. For purposes of HSR, the appropriate entity for measuring Size of Person is not necessarily the party to the transaction but its “ultimate parent entity” which includes the highest person in the control chain not controlled by another person, and all entities the ultimate parent controls. Ultimate parent entity can be an individual. 3. “Control” means, in the case of: a. Incorporated entities — beneficial ownership of 50 percent or more of voting securities or a contractual right to designate 50 percent or more of the directors. b. Unincorporated entities — right to either 50 percent or more of income or 50 percent or more of assets on dissolution. B. Size of Transaction Test: 1. A premerger report is required if the Size of Person test is met and, as a result of the acquisition, the acquiring person would hold an aggregate total amount of voting securities and assets of the acquired person in excess of $50 million. C. Size of Transaction Test (Large Transactions): 1. A premerger report is required if, as a result of the acquisition, the acquiring person would hold an aggregate total amount of voting securities and assets of the acquired person in excess of $200 million, without regard to whether the Size of Person test is met. D. Valuation of Stock or Assets Acquired: 1. Stock — the greater of the acquisition price or the market value. 2. Assets — fair market value or, if determined and greater than FMV, the acquisition price. a. Acquisition price means all consideration for assets acquired, including deferred payments and assumption of debt. b. Board of Directors of acquiring firm must perform a determination of fair market value of assets acquired in asset acquisitions: (1) Board may delegate to officer or other designee to perform valuation. (2) Valuation must be current as of 60 days before filing premerger report (if one filed) or 60 days before closing (if no premerger report filed). (3) Board remains responsible for valuation. c. Worksheet with Guidelines available at the FTC website. http://www.ftc.gov/bc /hsr/hsrvaluation.htm E. Multiple Acquisitions 1. Stock — Each time purchaser acquires more shares of stock of the same issuer, previously purchased shares must be re-valued. Very technical requirements. Caution advised. 2. Assets — If purchaser made previous acquisition of assets from same ultimate parent entity within 180 days of signing new agreement to acquire assets, both transactions must be aggregated to determine value of assets held as result of pending acquisition. F. Corporate Joint Ventures 1. Contributors to venture are all deemed acquiring persons (each must pay a filing fee). 2. Joint venture entity is acquired person. 3. Special size-of-parties tests apply (automatic filing requirement if a party’s size of transaction exceeds $200 million). G. Partnerships 1. Acquisitions of 100 percent of a partnership are also potentially reportable. H. Exclusive Licenses may be deemed potentially reportable “asset acquisitions” where licensor retains no rights in the licensed field. IV. Exemptions from Making Premerger Reports: Despite meeting both Size of Person and Size of Transaction tests (or the larger Size of Transaction test for transactions valued in excess of $200 million), certain acquisitions are exempt by statute or regulation from making a premerger report. Note: Exemptions are highly technical and narrowly construed. Good faith mistake about availability of exemption is not a defense for failure to report a covered transaction. The list below is illustrative only and is not intended to explain the specific requirements of each exemption. Advice of antitrust counsel should be obtained to determine whether a specific transaction is required to be reported. A. Statutory Exemptions 1. Acquisitions of goods or realty in the ordinary course of business. 2. Acquisition of securities which have no present voting powers or rights (e.g., bonds, mortgages, deeds of trust, warrants, options, securities convertible to voting securities). Note: Exercises of conversion rights, options, warrants, etc., attached to any security are acquisitions covered by HSR. 3. Acquisitions of stock of an already-controlled entity. 4. Transfers to or from a governmental body — federal, state or local. 5. Transactions specifically exempted by statutes or requiring regulatory approval by another federal agency (e.g., airlines, banks). 6. Acquisitions of voting securities solely for investment, if holding totals less than 10% of outstanding stock of issuer. 7. Voting securities acquired via a stock split or pro rata stock dividend which does not increase acquiring person’s percentage share of ownership of issuer. 8. Certain acquisitions by banks in the ordinary course. 9. Other acquisitions exempted by Federal Trade Commission regulations. B. Additional Transactions Exempted by FTC Regulations 1. Intra-person transactions – acquisitions of a person’s own securities or those of a controlled person. 2. Acquisitions of certain foreign assets or stock in foreign issuers — exemptions limited. 3. Certain acquisitions by foreign persons are exempt — exemptions limited. 4. Acquisitions by securities underwriters. 5. Certain acquisitions by creditors or institutional purchasers in the ordinary course of business 6. Acquisitions by gift, intestate succession or devise. Christopher O.B. Wright is a partner in the Palo Alto, Calif., office of Cooley Godward LLP. Mr. Wright is an attorney in the firm’s Antitrust practice group and a member of the firm’s Litigation Department. He may be contacted at [email protected]or (650) 843-5133. This outline has been prepared as a service for counsel as a quick reference tool only. It is not intended to convey legal advice. The provisions of federal merger reporting laws are very technical, and application of those laws requires analysis of the specific facts of each prospective transaction.

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