• A transaction which, irrespective of the actual arrangements for control provided for in the terms of the transaction, results or could result in control of a U.S. business by a foreign person.

• Example 1. Corporation A, a foreign person, proposes to purchase all the shares of Corporation X, which is a U.S. business. As the sole owner, Corporation A will have the right to elect directors and appoint other primary officers of Corporation X, and those directors will have the right to make decisions about the closing and relocation of particular production facilities, and the termination of significant contracts. The directors also will have the right to propose to Corporation A, the sole shareholder, the dissolution of Corporation X and the sale of its principal assets. The proposed transaction is a covered transaction.
• Example 2. Same facts as in Example 1, except that Corporation A plans to retain the existing directors of Corporation X, all of whom are U.S. nationals. Although Corporation A may choose not to exercise its power to elect new directors for Corporation X, Corporation A nevertheless retains that exercisable power. The proposed transaction is a covered transaction.
• Example 3. Corporation A, a foreign person, proposes to purchase 50 percent of the shares in Corporation X, a U.S. business, from Corporation B, also a U.S. business. Corporation B would retain the other 50 percent of the shares in Corporation X, and Corporation A and Corporation B would contractually agree that Corporation A would not exercise its voting and other rights for ten years. The proposed transaction is a covered transaction.

____________

• Proposal release commentary:
  Section 800.301(a) further develops the reference in section 800.203 to "exercisable" power by making clear that, if a foreign person has the ability to exercise control over a U.S. business at the time a transaction is consummated, at will, or after a particular period of time, then the person cannot avoid a determination that "control" exists for purposes of section 721 by voluntarily forbearing from, or delaying, the exercise of control. 
  Source: 

• A transaction in which a foreign person conveys its control of a U.S. business to another foreign person.

•  Example. Corporation X is a U.S. business, but is wholly owned and controlled by Corporation Y, a foreign person. Corporation Z, also a foreign person, but not related to Corporation Y, seeks to acquire Corporation X from Corporation Y. The proposed transaction is a covered transaction because it could result in control of Corporation X, a U.S. business in this context, by another foreign person, Corporation Z.

____________

• Proposal release commentary:
  Sections 800.301(b) and 800.302(d) further illustrate the extent to which greenfield investments, the acquisition of branch offices, assets from multiple sources, and defunct businesses, and the entry into commodity purchase contracts, service contracts, and technology license agreements, are covered transactions.
  Source: 

• A transaction that results or could result in control by a foreign person of assets that constitute a U.S. business. (See Sec. 800.302(d).)

• Example 1. Corporation A, a foreign person, proposes to buy a branch office in the United States of Corporation X, which is a foreign person. Corporation X is a U.S. business to the extent of its branch office in the United States. The proposed transaction is a covered transaction.
• Example 2. Corporation A, a foreign person, buys a branch office located entirely outside the United States of Corporation Y, which is incorporated in the United States. Assuming no other relevant facts, the branch office of Corporation Y is not a U.S. business, and the transaction is not a covered transaction.
• Example 3. Corporation A, a foreign person, makes a start-up, or "greenfield,"' investment in the United States. That investment involves such activities as separately arranging for the financing of and the construction of a plant to make a new product, buying supplies and inputs, hiring personnel and purchasing the necessary technology. The investment may involve the acquisition of shares in a newly incorporated subsidiary. Assuming no other relevant facts, Corporation A will not have acquired a U.S. business, and its greenfield investment is not a covered transaction.
• Example 4. Corporation A, a foreign person, purchases substantially all the assets of Corporation B. Corporation B, which is incorporated in the United States, was in the business of producing industrial equipment, but stopped producing and selling such equipment one week before Corporation A purchased substantially all of its assets. At the time of the transaction, Corporation B continued to have employees on its payroll, maintained know-how in producing the industrial equipment it previously produced, and maintained relationships with its prior customers, all of which were transferred to Corporation A. The acquisition of substantially all of the assets of Corporation B by Corporation A is a covered transaction.
• Example 5. Corporation A, a foreign person, owns businesses both outside the United States and in the United States. Corporation B, a foreign person, acquires Corporation A. The acquisition of Corporation A by Corporation B is a covered transaction with respect to Corporation A's businesses in the United States.
• Example 6. Corporation X, a foreign person, seeks to acquire from Corporation A, a U.S. business, an empty warehouse facility located in the United States. The acquisition would be limited to the physical facility, and would not include customer lists, intellectual property, or other proprietary information, or other intangible assets or the transfer of personnel. Assuming no other relevant facts, the facility is not an entity and therefore not a U.S. business, and the proposed acquisition of the facility is not a covered transaction.
• Example 7. Same facts as Example 6, except that, in addition to the proposed acquisition of Corporation A's warehouse facility, Corporation X would acquire the personnel, customer list, equipment, and inventory management software used to operate the facility. Under these facts, Corporation X is acquiring a U.S. business, and the proposed acquisition is a covered transaction.  

• A joint venture in which the parties enter into a contractual or other similar arrangement, including an agreement on the establishment of a new entity, but only if one of the parties contributes a U.S. business and a foreign person gains control over that U.S. business by means of the joint venture.

• Example 1. Corporation A, a foreign person, and Corporation X, a U.S. business, form a separate corporation, JV Corporation, to which Corporation A contributes only cash and Corporation X contributes a U.S. business. Each owns 50 percent of the shares of JV Corporation and, under the Articles of Incorporation of JV Corporation, both Corporation A and Corporation X have veto power over all of the matters affecting JV Corporation identified under Sec. 800.203(a)(1) through (10), giving them both control over JV Corporation. The formation of JV Corporation is a covered transaction.
• Example 2. Corporation A, a foreign person, and Corporation X, a U.S. business, form a separate corporation, JV Corporation, to which Corporation A contributes funding and managerial and technical personnel, while Corporation X contributes certain land and equipment that do not in this example constitute a U.S. business. Corporations A and B each have a 50 percent interest in the joint venture. Assuming no other relevant facts, the formation of JV Corporation is not a covered transaction.

____________

• Proposal release commentary:
  Section 800.301(d) addresses joint ventures, which may be covered only if they involve the contribution of a U.S. business.
  Source: 

• A stock split or pro rata stock dividend that does not involve a change in control.

• Example. Corporation A, a foreign person, holds 10,000 shares of Corporation B, a U.S. business, constituting 10 percent of the stock of Corporation B. Corporation B pays a 2-for-1 stock dividend. As a result of this stock split, Corporation A holds 20,000 shares of Corporation B, still constituting 10 percent of the stock of Corporation B. Assuming no other relevant facts, the acquisition of additional shares is not a covered transaction.  

• An acquisition of convertible voting instruments that does not involve control. In determining whether an acquisition of convertible voting instruments may involve control, consideration will be given to factors such as whether the date of conversion has been agreed upon by the parties or is within the power of the acquiring entity to determine, and whether the amount of voting interests that would be acquired upon conversion can be reasonably determined at the time of the acquisition of the instruments.  

• Example 1. Corporation A, a foreign person, buys debentures, options and warrants of Corporation X, a U.S. business. By their terms, the debentures are convertible into common stock, and the options and warrants can be exercised for common stock, only upon the occurrence of an event the timing of which is not in the control of the holder of the stock. Assuming no other relevant facts, the acquisition of those debentures, options and warrants is not a covered transaction. The conversion of those debentures into, or the exchange of those options and warrants for, common stock could be a covered transaction, depending on what percentage of Corporation X's voting securities Corporation A receives and what powers those securities confer on Corporation A pursuant to Sec. 800.203.
• Example 2. Same facts as Example 1, except that the securities at issue are convertible or exercisable at the sole discretion of Corporation A after one year, and if converted, would represent a 50 percent interest in Corporation X. The acquisition of these debentures, options and warrants by Corporation A is a covered transaction.

____________

• Proposal release commentary:
  Paragraph (b) clarifies factors that CFIUS will take into account in determining whether the acquisition of convertible instruments, rather than the conversion of such instruments, would be the transaction that is potentially a covered transaction. The time at which control is conferred, whether at acquisition or conversion, will depend, among certain other factors, on the extent to which the acquirer can control the timing of the conversion. In either case, control will depend on what rights the convertible interests, once converted, will convey to their holder.
  Source: 

• A transaction that results in a foreign person holding ten percent or less of the outstanding voting interests in a U.S. business (regardless of the dollar value of the interests so acquired), but only if the transaction is solely for the purpose of investment (see Sec. 800.223).

• Example 1. In an open market purchase solely for the purpose of investment, Corporation A, a foreign person, acquires seven percent of the voting securities of Corporation X, which is a U.S. business. Assuming no other relevant facts, the acquisition of the securities is not a covered transaction.
• Example 2. Corporation A, a foreign person, acquires nine percent of the voting shares of Corporation X, a U.S. business. Corporation A also negotiates contractual rights that give it the power to control important matters of Corporation X. The acquisition by Corporation A of the voting shares of Corporation X is not solely for the purpose of investment, and therefore constitutes a covered transaction.
• Example 3. Corporation A, a foreign person, acquires five percent of the voting shares in Corporation B, a U.S. business. In addition to the securities, Corporation A obtains the right to appoint one out of 11 seats on Corporation B's Board of Directors. The acquisition by Corporation A of Corporation B's securities is not solely for the purpose of investment. Whether the transaction is a covered transaction would depend on whether Corporation A obtains control of Corporation B as a result of the transaction.  

____________

• Proposal release commentary:
  Paragraph (c) has been revised and an example added to clarify that the 10 percent threshold is determinative only if the foreign person's acquisition is solely for the purpose of investment, as that term is defined in section 800.223. If the acquisition is not solely for the purpose of investment--which may be reflected by the foreign person's actions, its negotiation of special rights, or other factors -- then the rule that an ownership interest of 10 percent or less does not confer control does not apply.
  Source: 

____________

• Proposal release commentary:
  Section 800.302(c) provides a special, but very limited, qualification to the application of the general control principle. Pursuant to section 800.302(c), a foreign person does not control an entity if it satisfies a two-pronged test: (1) It holds 10 percent or less of the voting interest in the entity, and (2) its interest is held solely for the purpose of investment. Section 800.223 lays out the test for whether an interest is held solely for the purpose of investment. Under that test, an interest would not be held solely for the purpose of investment if the foreign person has the capability and an intention to control the entity, possesses or develops any purpose other than investment, or acts in a way that is inconsistent with an intent to hold the interest solely for the purpose of investment. This special rule applies to all types of investors equally, rather than assuming that certain types of institutions are passive investors.
  Source: 

• An acquisition of assets or any part of an entity in the United States that does not constitute a U.S. business. (See Sec. 800.301(c).)

• Example 1. Corporation A, a foreign person, acquires, from separate U.S. nationals: (a) products held in inventory, (b) land, and (c) machinery for export. Assuming no other relevant facts, Corporation A has not acquired a U.S. business, and this acquisition is not a covered transaction.
• Example 2. Corporation X produces armored personnel carriers in the United States. Corporation A, a foreign person, seeks to acquire the annual production of those carriers from Corporation X under a long-term contract. Assuming no other relevant facts, this transaction is not a covered transaction.
• Example 3. Same facts as Example 2, except that Corporation X, a U.S. business, has developed important technology in connection with the production of armored personnel carriers. Corporation A seeks to negotiate an agreement under which it would be licensed to manufacture using that technology. Assuming no other relevant facts, neither the proposed acquisition of technology pursuant to that license agreement, nor the actual acquisition, is a covered transaction.
• Example 4. Same facts as Example 2, except that Corporation A enters into a contractual arrangement to acquire the entire armored personnel carrier business operations of Corporation X, including production facilities, customer lists, technology and staff. This transaction is a covered transaction.
• Example 5. Same facts as Example 2, except that Corporation X suspended all activities of its armored personnel carrier business a year ago and currently is in bankruptcy proceedings. Existing equipment provided by Corporation X is being serviced by another company, which purchased the service contracts from Corporation X. The business's production facilities are idle but still in working condition, some of its key former employees have agreed to return if the business is resuscitated, and its technology and customer and vendor lists are still current. Corporation X's personnel carrier business constitutes a U.S. business, and its purchase by Corporation A is a covered transaction.  

____________

• Proposal release commentary:
  Paragraph (d) combines two previous provisions that addressed the "U.S. business" element of the "covered transaction" definition. In particular, this paragraph elaborates upon the provision in the "entity" definition that an entity, and therefore a U.S. business, may involve the acquisition of assets of an entity, provided that those assets are bound together in a sufficiently cohesive relationship such that they themselves could be readily operated as a separate, stand- alone business.
  Source: 

____________

• Proposal release commentary:
  Sections 800.301(b) and 800.302(d) further illustrate the extent to which greenfield investments, the acquisition of branch offices, assets from multiple sources, and defunct businesses, and the entry into commodity purchase contracts, service contracts, and technology license agreements, are covered transactions.
  Source: 

• An acquisition of securities by a person acting as a securities underwriter, in the ordinary course of business and in the process of underwriting.

____________

• Proposal release commentary:
  Sections 800.302(e), (f), and (g) and 800.303 establish special rules with regard to securities underwriting, insurance, and lending, to clarify certain circumstances in which a foreign person may, in the ordinary course of its business, obtain an interest in an entity that may not be considered control of that entity because of those circumstances.
  Source: 

• An acquisition pursuant to a condition in a contract of insurance relating to fidelity, surety, or casualty obligations if the contract was made by an insurer in the ordinary course of business.

____________

• Proposal release commentary:
  Sections 800.302(e), (f), and (g) and 800.303 establish special rules with regard to securities underwriting, insurance, and lending, to clarify certain circumstances in which a foreign person may, in the ordinary course of its business, obtain an interest in an entity that may not be considered control of that entity because of those circumstances.
  Source: 

• An acquisition of a security interest, but not control, in the voting securities or assets of a U.S. business at the time a loan or other financing is extended. (See Sec. 800.303.)

____________

• Proposal release commentary:
  Sections 800.302(e), (f), and (g) and 800.303 establish special rules with regard to securities underwriting, insurance, and lending, to clarify certain circumstances in which a foreign person may, in the ordinary course of its business, obtain an interest in an entity that may not be considered control of that entity because of those circumstances.
  Source: 

• The extension of a loan or similar financing by a foreign person to a U.S. business, accompanied by the creation in the foreign person of a secured interest in securities or other assets of the U.S. business, does not, by itself, constitute a covered transaction. However, if control over a U.S. business is acquired by the foreign person at the time the loan or other financing is extended, then the transaction is a covered transaction.  

• (1) The Committee will accept notices concerning transactions that involve loans or financing by foreign persons only when, because of imminent or actual default or other condition, there is a significant possibility that the foreign person may obtain control of the U.S. business.
• (2) For purposes of this section, in determining whether a transaction of the type described in paragraph (1) that involves a foreign person that makes loans in the ordinary course of business is a covered transaction, the Committee will take into account whether the foreign person has made any arrangements to transfer management decisions or day-to-day control over the U.S. business to U.S. nationals.  

• Control will not be deemed to be acquired in cases involving an acquisition of voting interests or assets of a U.S. business by a foreign person upon default, or other condition, involving a loan or other financing, provided that the loan was made by a syndicate of banks in a loan participation where the foreign lender (or lenders) in the syndicate:

• (1) Needs the majority consent of the U.S. participants in the syndicate to take action, and cannot on its own initiate any action vis-a-vis the debtor; or
• (2) Does not have a lead role in the syndicate, and is subject to a provision in the loan or financing documents limiting its ability to control the debtor such that control for purposes of Sec.  800.203 could not be acquired. ________________
• Example 1. Corporation A, which is a U.S. business, borrows funds from Corporation B, a bank organized under the laws of a foreign state and controlled by foreign persons. As a condition of the loan, Corporation A agrees not to sell or pledge its principal assets to any other person. Assuming no other relevant facts, this lending arrangement does not constitute a covered transaction.
• Example 2. Same facts as in Example 1, except that Corporation A defaults on its loan from Corporation B and seeks bankruptcy protection. Corporation A has no funds with which to satisfy Corporation B's claim, which is greater than the value of Corporation A's principal assets. Corporation B's secured claim constitutes the only secured claim against Corporation A's principal assets, creating a high probability that Corporation B will receive title to Corporation A's principal assets, which constitute a U.S. business. Assuming no other relevant facts, the Committee would accept a notice of the impending bankruptcy court adjudication transferring control of Corporation A's principal assets to Corporation B, which would constitute a covered transaction.