The two antitrust agencies are enacting some minor changes to the Hart-Scott-Rodino (“HSR”) Notification Rules that impacts all companies that are required to file HSR Notification Forms in connection with their deals.

On December 30, 2005, the FTC, with the concurrence of the Antitrust Division, approved the publication of a Federal Register notice announcing final amendments to the HSR Rules, 16 CFR Parts 801 & 803. Under the amendments, persons filing HSR Forms are to use the 2002 North American Industry Classification System (“NAICS”) rather than the 1997 NAICS data when reporting revenue data by industry and product codes in items 5 and 7 of the Form. The 2002 NAICS update by the Office of Management and Budget includes substantial code revisions within certain sectors and a number of revisions in other sectors. The Form and Instructions for filling out the Form have been updated to reflect these changes. The amendments also require filing person to use 2002 rather than 1997 as the base year for reporting U.S. revenues generated by their business activities. To facilitate the changeover from 1997 to 2002 NAICS data, filers may use either 1997 or 2002 information for 30 days following the effective date, which is December 30, 2005, provided that all filing parties to a transaction use the same year and use the same codes in Item 7 of the HSR Form.

On December 6, the Commission approved the publication of a Federal Register notice concerning final amendments to the HSR Rules, 16 CFR Parts 801 and 803. The Commission is enacting a change to relieve the burden of complying with Items 4(a) and (b) of the HSR Form. Paper copies of annual reports, annual audit reports, and regularly prepared balance sheets and copies of certain documents, such as Form 10 Ks filed with the Securities and Exchange Commission, must be provided in response to Items 4(a) and 4(b). The modification, however, allows filing persons to provide an Internet address linking directly to the documents required by Items 4(a) and (b) in lieu of providing paper copies. The new rules indicate that if the Internet address is inoperative that 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 by 5:00 pm the next business day.

Another change to the rules specifies that an acquiring person’s notification, and an acquired person’s notification in certain types of transactions, will expire after eighteen months if a second request to them remains outstanding. With this change the FTC is seeking to close a loophole regarding stale filings with the expiration of a notification. In the past, some parties received second requests for additional information but made no attempt to comply with the second requests. What normally occurred in those situations is that parties would withdraw their filings. In other instances, parties refused to withdraw their filings meaning that the waiting period was suspended and the agency’s investigation would remain open indefinitely. The new rule specifies that filings will expire after 18 months if second requests to the parties remain outstanding.

Three other technical corrections to certain rules and to the Form and instructions address certain oversights in the final rules promulgated in connection with the treatment of unincorporated entities. First, the definition of voting securities is revised to reflect the changes to the control test for unincorporated entities. Second, the acquisition of non-corporate interests is added to the section on annual net sales and total assets, to allow the exclusion of cash to be sued in the acquisition of non-corporate interests and the value of any securities or assets of the acquired persons already held by an acquiring person with no regularly prepared balance sheet. Third, a reference to non-corporate interests is added to a section on aggregate total amount of voting securities and assets, so that if an acquiring person is acquiring controlling interests in two unincorporated entities from the same acquired person the value of the non-corporate interest in both entities be aggregated to determine the value of the transactions.

Further changes are expected later this month or February of 2006 as the FTC is expected to announce new jurisdictional thresholds for HSR filings. The threshold changes are required under a 2000 amendment to the HSR Act, which requires the FTC to adjust on an annual basis the size of transaction and size of person test.

While all of these changes appear to be minor, they do relieve some of the burden on companies that are required to file HSR Notification Forms in connection with their deals especially with regards to providing paper copies when Internet links are sufficient and providing 2002 revenue data instead of searching for 1997 data.

Authored by:
Andre P. Barlow