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November 21, 2008

Part II

Department of the
Office of Investment Security

31 CFR Part 800

Regulations Pertaining to Mergers,
Acquisitions, and Takeovers by Foreign
Persons; Final Rule
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Federal Register / Vol. 73, No. 226 / Friday, November 21, 2008 / Rules and Regulations 70723

comparable financial or governance (1) The imminence of conversion; Washington, DC 20220, that includes, in
rights characteristic of an equity (2) Whether conversion depends on English only, the information set out in
investment but not of a typical loan may factors within the control of the § 800.402, including the certification
constitute a covered transaction. acquiring party; and required under paragraph (l) of that
(c) An acquisition of voting interest or (3) Whether the amount of voting section; and
assets of a U.S. business by a foreign interest and the rights that would be (2) One electronic copy of the same
person upon default or other condition acquired upon conversion can be information required in paragraph (a)(1)
involving a loan or a similar financing reasonably determined at the time of of this section. See the Committee’s
arrangement does not constitute a acquisition. section of the Department of the
covered transaction, provided that the (b) When the Committee, applying Treasury Web site, at http://
loan was made by a syndicate of banks paragraph (a) of this section, determines www.treas.gov/offices/international-
in a loan participation where the foreign that the rights that the holder will affairs/cfius/ for electronic submission
lender (or lenders) in the syndicate: acquire upon conversion will not be instructions.
(1) Needs the majority consent of the included in the Committee’s assessment (b) If the Committee determines that
U.S. participants in the syndicate to take of whether a notified transaction is a a transaction for which no voluntary
action, and cannot on its own initiate covered transaction, the Committee will notice has been filed under paragraph
any action vis-à-vis the debtor; or disregard the convertible voting (a) of this section may be a covered
(2) Does not have a lead role in the instruments for purposes of that transaction and may raise national
syndicate, and is subject to a provision transaction except to the extent that security considerations, the Staff
in the loan or financing documents they convey immediate rights to the Chairperson, acting on the
limiting its ability to control the debtor holder with respect to the governance of recommendation of the Committee, may
such that control for purposes of the entity that issued the instruments. request the parties to the transaction to
§ 800.204 could not be acquired. provide to the Committee the
Example 1. Corporation A, a foreign information necessary to determine
Example 1. Corporation A, which is a U.S. person, notifies the Committee that it intends
business, borrows funds from Corporation B, to buy common stock and debentures of
whether the transaction is a covered
a bank organized under the laws of a foreign Corporation X, a U.S. business. By their transaction, and if the Committee
state and controlled by foreign persons. As a terms, the debentures are convertible into determines that the transaction is a
condition of the loan, Corporation A agrees common stock only upon the occurrence of covered transaction, to file a notice
not to sell or pledge its principal assets to an event the timing of which is not in the under paragraph (a) of such covered
any person. Assuming no other relevant facts, control of Corporation A, and the number of transaction.
this lending arrangement does not alone common shares that would be acquired upon (c) Any member of the Committee, or
constitute a covered transaction. conversion cannot now be determined. his designee at or above the Under
Example 2. Same facts as in Example 1, Assuming no other relevant facts, the Secretary or equivalent level, may file
except that Corporation A defaults on its loan Committee will disregard the debentures in an agency notice to the Committee
from Corporation B and seeks bankruptcy the course of its covered transaction analysis
through the Staff Chairperson regarding
protection. Corporation A has no funds with at the time that Corporation A acquires the
which to satisfy Corporation B’s claim, which debentures. In the event that it determines
a transaction for which no voluntary
is greater than the value of Corporation A’s that the acquisition of the common stock is notice has been filed under paragraph
principal assets. Corporation B’s secured not a covered transaction, the Committee will (a) of this section if that member has
claim constitutes the only secured claim so inform the parties. Once the conversion of reason to believe that the transaction is
against Corporation A’s principal assets, the instruments becomes imminent, it may be a covered transaction and may raise
creating a high probability that Corporation appropriate for the Committee to consider the national security considerations.
B will receive title to Corporation A’s rights that would result from the conversion Notices filed under this paragraph are
principal assets, which constitute a U.S. and whether the conversion is a covered deemed accepted upon their receipt by
business. Assuming no other relevant facts, transaction. The conversion of those the Staff Chairperson. No agency notice
the Committee would accept a notice of the debentures into common stock could be a
impending bankruptcy court adjudication covered transaction, depending on what
under this paragraph shall be made with
transferring control of Corporation A’s percentage of Corporation X’s voting respect to a transaction more than three
principal assets to Corporation B, which securities Corporation A would receive and years after the date of the completion of
would constitute a covered transaction. what powers those securities would confer the transaction, unless the Chairperson
Example 3. Corporation A, a foreign bank, on Corporation A. of the Committee, in consultation with
makes a loan to Corporation B, a U.S. Example 2. Same facts as Example 1, other members of the Committee, files
business. The loan documentation extends to except that the debentures at issue are such an agency notice.
Corporation A rights in Corporation B that convertible at the sole discretion of (d) No communications other than
are characteristic of an equity investment but Corporation A after six months, and if those described in paragraphs (a) and (c)
not of a typical loan, including dominant converted, would represent a 50 percent
of this section shall constitute the filing
minority representation on the board of interest in Corporation X. The Committee
directors of Corporation B and the right to be may consider the rights that would result or submitting of a notice for purposes of
paid dividends by Corporation B. This loan from the conversion as part of its assessment. section 721.
is a covered transaction. (e) Upon receipt of the certification
Subpart D—Notice required by § 800.402(l) and an
§ 800.304 Timing rule for convertible electronic copy of a notice filed under
voting instruments. § 800.401 Procedures for notice. paragraph (a) of this section, the Staff
(a) For purposes of determining (a) A party or parties to a proposed or Chairperson shall promptly inspect
whether to include the rights that a completed transaction may file a such notice for completeness.
holder of convertible voting instruments voluntary notice of the transaction with (f) Parties to a transaction are
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will acquire upon conversion of those the Committee. Voluntary notice to the encouraged to consult with the
instruments in the Committee’s Committee is filed by sending: Committee in advance of filing a notice
assessment of whether a notified (1) One paper copy of the notice to the and, in appropriate cases, to file with
transaction is a covered transaction, the Staff Chairperson, Office of Investment the Committee a draft notice or other
Committee will consider factors that Security, Department of the Treasury, appropriate documents to aid the
include: 1500 Pennsylvania Avenue, NW., Committee’s understanding of the

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