Question
October 17, 2006
ByFacsimile Transmission
Mr.Michael Verne
PremergerNotification Office
Bureau of Competition, Room 303
Federal Trade Commission
6th Street& Pennsylvania Avenue, N.W.
Washington, D.C. 20580
Dear Mr. Verne:
The purpose of this correspondence is tofollow up on our conversation of October 16, 2006 concerning the purchase of certain interests in limited liabilitycompanies which own coal reserves and other related assets. The factualcircumstances are described below.
Company A is entering into an agreement("Agreement 1") with Company B to acquire Limited Liability Company("LLC") I, LLC 2, LLC 3, and LLC 4. Mr. X is thecontrolling shareholder of Company B. The sole assets of LLC I and LLC 2 arereserves of coal or rights to reserves of coal within the meaning of 16 C.F.R. 802.3(b). The reserves have not generated any revenues to date. The sole assetsof LLC 3 and LLC 4 arewhat is referred to as "transportation infrastructure." This consistsof conveyor belt lines and a short haul railroad spur of two miles which, oncethe property is producing, will move the coal from the coal preparation plantto either barges or railroads which will then transport the coal to customers.In step 1, coal will be removed from the mine to a coal plant where it iswashed and cleaned. In step 2, the coal will move from the plant to theconveyor belt line. In step 3, the coal will be moved down the conveyor beltline to barges or railroads. Company A will not be involved in processing thecoal. Company A will not own any equipment or transportation assets associatedwith steps I and 2. Company A does not currently own any of the coal reservesbut after the closing of Agreement I will own the coal acquired under thatAgreement 1 while steps 1 and 2 are occurring.
Company A is also going to enter into a SecondAgreement ("Agreement 2") with Company B to acquire LLC 5 and LLC 6. Adraft of this Agreement will be attached as an Exhibit to Agreement 1. WhenAgreement 1 is closed later this year, Agreement 2 will be signed. Agreement 2will then close some 12 to 18 months later. The sole assets of LLC 5 arecoal reserves, similar to LLC 1 and LLC 2. Thesereserves have not generated any revenues to date. The sole assets of LLC 6 are"transportation infrastructure" similar to LLC 3 and LLC 4 above.
In the past, Mr. X soldsome coal assets to a third party and receives a royalty payment per ton ofcoal sold. Company A is entering into an agreement ("Agreement3") with Mr. X underwhich this contractual royalty interest will be assigned to Company A.Agreement 3 will be entered into and closed on the same date as Agreement 1.
Company A and CompanyB will also enter into a final agreement ("Agreement 4"). Agreement 4will be signed at the closing of Agreement 1. It outlines certain circumstancesin which Company B will be required to provide business opportunities toCompany A in the future and related matters.
Based on our discussion, it is myunderstanding that:
1.The acquisition of the LLC's owningsolely coal reserves, i.e., LLC 1, 2, and5, will be exempt under the unproductive real property exemption in 16 C.F.R. 802.2(c).
2.The acquisition of the LLC's owningsolely the "transportation infrastructure" will be exempt as"associated exploration or production assets" under the carbon-basedmineral reserves exemption set forth in 16 C.F.R. 802.3(b), subject to the $200 million cap in that exemption.
3.The assets being acquired underAgreement 3 will be exempt under the carbon-based mineral reserves exemptionset forth in 16 C.F.R. 802.3(b), subject to the $200 million cap in that exemption.
4. Agreements 1, 3, and 4 must beaggregated for HSR purposes including application of the carbon-based mineralreserves exemption in 16 C.F,R. 802.3(b) and its $200 million cap. Agreement2 need not be aggregated with Agreements 1, 3, and 4 for purposes of thecarbon-based mineral reserves exemption in 16 C.F.R. 802.3(b) or for any other purpose.
If the understandings outlined above should beincorrect, please let me know. In that regard, I can be reached at (redacted)
Thankyou for your assistance in this matter.