Question
February 7, 1995
VIA FAX-(202) 326-2624
VIA FEDERAL EXPRESS
Mr. Patrick Sharpe
Premerger Notification Office
Bureau of Competition
Room 303, Federal Trade Commission
Washington, D.C. 20580
Re: Hart-Scott-Rodino Antitrust Improvements Act
Dear Mr. Sharpe:
This letter is to confirm a telephone conversation that we had on January 30, 1995. During this telephone conversation, I summarized a transaction wherein a seller transfers certain mining properties** to a buyer in exchange for (i) installment cash payments of $1.1 million and (ii) minimum production royalty payments over a period of 20 years. If certain conditions with respect to the property are not satisfied by January 1, 2000 (several of the conditions are not entirely within buyers control), the seller has the ability to cause the property to be reconveyed to seller, and buyers minimum royalty payment obligations will cease as of that date. At that time, buyer will have made payments of approximately $900,000 in minimum royalty payments, in addition to the $1.1 million in cash installment payments.
**Staff comment: If no previous production, not reportable per RS
In our conversation, I asked whether the minimum production royalty payments subsequent to January 1, 2000 were contingent payments for purposes of the HSR Act. You indicated that they were contingent payments, and that for purposes of the HSR Act, buyers board of directors** should value these contingent payments*** using a reasonable valuation method. The value of the contingent payments should then be added to the fixed payments of approximately $2.0 million in order to determine the total acquisition price.
**Staff comment: doesnt necessarily have to be the board (per RS)
***Staff comment: If such cannot reasonably be determined, then a FMV determination by the board is required (per RS)
If this is not an accurate description of our conversation, or of the appropriate treatment for the minimum production royalty payments subsequent to January 1, 2000, please call me at (redacted). Thank you very much.
Very Truly Yours,
(Redacted)
(Redacted)