Collapse to view only § 801.306 - Timing rule for contingent equity interests.
- § 801.301 - Control.
- § 801.302 - Transactions that are pilot program covered transactions.
- § 801.303 - Transactions that are not pilot program covered transactions.
- § 801.304 - Treatment of certain investment fund investments.
- § 801.305 - Exception for air carriers.
- § 801.306 - Timing rule for contingent equity interests.
§ 801.301 - Control.
For the sole purpose of determining whether a transaction could result in control of a pilot program U.S. business by a foreign person, the provisions set forth in subpart C of this part (excluding § 800.302(b) of this chapter and the examples thereunder) regarding covered transactions shall apply to any pilot program covered transaction declared to the Committee pursuant to § 801.401 or notified to the Committee pursuant to § 801.501.
§ 801.302 - Transactions that are pilot program covered transactions.
Transactions that are pilot program covered transactions include, without limitation:
(a) A transaction that meets the requirements of § 801.209, irrespective of the percentage of voting interest acquired.
Example 1.Corporation A, a foreign person, proposes to acquire a four percent, non-controlling equity interest in Corporation B. Corporation B is a U.S. business that manufactures a critical technology as part of its business in a pilot program industry. Corporation B is therefore a pilot program U.S. business. Pursuant to the terms of the investment, a designee of Corporation A will have the right to observe the meetings of the board of directors of Corporation B. The proposed transaction is a pilot program covered investment and therefore a pilot program covered transaction. Example 2.Corporation A, a foreign person, proposes to acquire a four percent, non-controlling equity interest in Corporation B, a pilot program U.S. business as described above. Pursuant to the terms of the investment, Corporation A has approval rights with respect to Corporation B's licensing of a critical technology to third parties. Corporation A is therefore involved in substantive decisionmaking with respect to Corporation B and the proposed transaction is a pilot program covered investment and a pilot program covered transaction.(b) A transaction that meets the requirements of § 801.209, irrespective of the fact that the Committee concluded all action under section 721 for a previous pilot program covered investment by the same foreign person in the same pilot program U.S. business, where such transaction involves the acquisition of access or rights described by § 801.209 in addition to those notified to the Committee in the transaction for which the Committee previously concluded action.
Example.The Committee concludes all action under section 721 with respect to a pilot program covered investment by Corporation A, a foreign person, in which Corporation A acquires a four percent, non-controlling equity interest with board observer rights in Corporation B, a pilot program U.S. business. One year later, Corporation A proposes to acquire an additional five percent equity interest in Corporation B, resulting in Corporation A holding a nine percent, non-controlling equity interest in Corporation B. Pursuant to the terms of the additional investment, Corporation A will be provided access to material nonpublic technical information in the possession of Corporation B to which Corporation A did not previously have access. The proposed transaction is a pilot program covered investment and therefore a pilot program covered transaction because the transaction involves both an acquisition of an equity interest in a pilot program U.S. business and a new right to access material nonpublic technical information.(c) A transaction that meets the requirements of § 801.209, irrespective of the fact that the critical technology produced, designed, tested, manufactured, fabricated, or developed by the pilot program U.S. business became controlled pursuant to section 1758 of the Export Control Reform Act of 2018 after the pilot program effective date, unless any of the criteria set forth in paragraphs (b) through (d) of § 801.103 is satisfied with respect to the transaction prior to the critical technology becoming controlled pursuant to section 1758 of the Export Control Reform Act of 2018.
Example.Corporation A, a foreign person, has executed a written agreement establishing the material terms of a proposed non-controlling investment in Corporation B, a pilot program U.S. business. The proposed investment will afford Corporation A access to material nonpublic technical information in the possession of Corporation B. The only controlled technology produced, designed, tested, manufactured, fabricated, or developed by Corporation B became controlled pursuant to section 1758 of the Export Control Reform Act of 2018 after the pilot program effective date but prior to the date upon which the written agreement establishing the material terms of the investment was executed. The proposed transaction is a pilot program covered investment and therefore a pilot program covered transaction.(d) A transaction by or with any foreign person that could result in foreign control of any pilot program U.S. business.
Example.Corporation A, a foreign person, acquires a 40 percent interest and the ability to determine important matters with respect to Corporation B, a U.S. pilot program business. The proposed transaction is a pilot program covered transaction.§ 801.303 - Transactions that are not pilot program covered transactions.
Transactions that are not pilot program covered transactions include, without limitation:
(a) An investment by a foreign person in a U.S. business that manufactures a technology that it utilizes in connection with its activity in one or more pilot program industries, but does not produce, design, test, manufacture, fabricate, or develop one or more critical technologies.
Example.Corporation A, a foreign person, proposes to acquire a four percent, non-controlling equity interest in Corporation B, a U.S. business that operates in a pilot program industry. Pursuant to the terms of the investment, a designee of Corporation A will have the right to observe the meetings of the board of directors of Corporation B. Corporation B does not produce, design, test, manufacture, fabricate, or develop any critical technology. Assuming no other relevant facts, the proposed transaction is not a pilot program covered transaction.(b) An investment by a foreign person in a pilot program U.S. business that does not afford the foreign person any of the rights specified in paragraphs (a), (b), or (c) of § 801.209 or any control rights.
Example.The Committee concluded all action under section 721 with respect to a pilot program covered transaction in which Corporation A, a foreign person, acquired a four percent, non-controlling equity interest with board observer rights in Corporation B, a pilot program U.S. business. One year later, Corporation A proposes to acquire an additional five percent equity interest in Corporation B, which would result in Corporation A holding a nine percent, non-controlling equity interest in Corporation B. The proposed investment does not afford Corporation A any additional rights with respect to Corporation B, including the rights specified in § 801.209. Assuming no other relevant facts, the proposed transaction is not a pilot program covered transaction.(c) A transaction that results or could result in control by a foreign person of a U.S. business that is not a pilot program U.S. business.
Example.Corporation A, a foreign person, proposes to purchase all of the shares of Corporation B, which is a U.S. business that operates in a pilot program industry but does not produce, design, test, manufacture, fabricate, or develop any critical technology. As the sole owner, Corporation A will have the right to elect directors and appoint other primary officers of Corporation B. Assuming no other relevant facts, the proposed transaction is not a pilot program covered transaction. It is, however, a covered transaction (see § 800.301 of this chapter).§ 801.304 - Treatment of certain investment fund investments.
(a) An indirect investment by a foreign person in a pilot program U.S. business through an investment fund that affords the foreign person (or a designee of the foreign person) membership as a limited partner or equivalent on an advisory board or a committee of the fund shall not be considered a pilot program covered transaction with respect to the foreign person if:
(1) The fund is managed exclusively by a general partner, a managing member, or an equivalent;
(2) The foreign person is not the general partner, managing member, or equivalent;
(3) The advisory board or committee does not have the ability to approve, disapprove, or otherwise control:
(i) Investment decisions of the investment fund; or
(ii) Decisions made by the general partner, managing member, or equivalent related to entities in which the investment fund is invested;
(4) The foreign person does not otherwise have the ability to control the investment fund, including the authority:
(i) To approve, disapprove, or otherwise control investment decisions of the investment fund;
(ii) To approve, disapprove, or otherwise control decisions made by the general partner, managing member, or equivalent related to entities in which the investment fund is invested; or
(iii) To unilaterally dismiss, prevent the dismissal of, select, or determine the compensation of the general partner, managing member, or equivalent;
(5) The foreign person does not have access to material nonpublic technical information as a result of its participation on the advisory board or committee; and
(6) The investment otherwise meets the requirements of paragraph (4)(D) of subsection (a) of section 721 made effective by part 801.
(b) For the purposes of paragraphs (a)(3) and (4), and except as provided in paragraph (c) of this section, a waiver of a potential conflict of interest, a waiver of an allocation limitation, or a similar activity, applicable to a transaction pursuant to the terms of an agreement governing an investment fund shall not be considered to constitute control of investment decisions of the investment fund or decisions relating to entities in which the investment fund is invested.
(c) In extraordinary circumstances, the Committee may consider the waiver of a potential conflict of interest, the waiver of an allocation limitation, or a similar activity, applicable to a transaction pursuant to the terms of an agreement governing an investment fund, to constitute control of investment decisions of the investment fund or decisions relating to entities in which the investment fund is invested.
Example 1.Corporation A, a foreign person, makes an investment in an investment fund as a limited partner. The investment confers membership on an advisory board of the investment fund. The investment fund holds 100 percent of the ownership interests in a pilot program U.S. business. Corporation A will have the right to approve decisions made by the general partner with respect to the use and development of the critical technologies produced by the pilot program U.S. business. This transaction is a pilot program covered transaction. Example 2.Corporation A, a foreign person, makes an investment in an investment fund as a limited partner. The investment confers membership on an advisory board of the investment fund. The investment fund holds 100 percent of the ownership interests in a pilot program U.S. business. Corporation A is not the general partner that wholly manages the investment fund. Corporation A lacks any ability to control the investment fund or its decisions. As a member of the advisory board, Corporation A has the right to vote on the compensation of the general partner and the right to vote on the dismissal of the general partner for cause, but does not have the power to determine either of these matters unilaterally. Assuming no other relevant facts, this transaction is not a pilot program covered transaction with respect to Corporation A.§ 801.305 - Exception for air carriers.
No investment involving an air carrier, as defined in section 40102(a)(2) of title 49, United States Code, that holds a certificate issued under section 41102 of that title shall be a pilot program covered transaction.
§ 801.306 - Timing rule for contingent equity interests.
The provisions set forth in § 800.304 of this chapter regarding convertible voting instruments shall apply to contingent equity interests.