Devro International PLC; Proposed Consent Agreement With Analysis to Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 951 0072]

Devro International PLC; Proposed Consent Agreement With Analysis

to Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: This consent agreement, accepted subject to final Commission

approval, settles alleged violations of

[[Page 65329]]

federal law prohibiting unfair or deceptive acts and practices and

unfair methods of competition allegedly arising from the acquisition by

Devro International of Teepak International. Devro and Teepak are the

two largest producers of collagen sausage casings (the skins into which

various meat products are stuffed before being cooked or smoked) in the

United States. The consent agreement, among other things, would require

Devro to divest Devro North America, the assets it uses to manufacture

and distribute collagen sausage casings in the United States and

Canada. The assets to be divested include a manufacturing plant in

Somerville, New Jersey, and a finishing plant in Ontario, Canada. The

divestiture would have to be completed within three months of the date

the order becomes final, and the assets would have to be sold to a

buyer (1) that does not already produce collagen sausage casings for

sale in the United States, and (2) that is approved by the Commission.

If the divestiture is not completed on time, the consent agreement

would permit the Commission to appoint a trustee to complete it.

DATES: Comments must be received on or before February 20, 1996.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

Room 159, Sixth Street and Pennsylvania Avenue, NW., Washington, DC

20580.

FOR FURTHER INFORMATION CONTACT: William Baer, FTC/H-374, Washington,

DC 20580 (202) 326-2932; Ronald Rowe, FTC/S-2602, Washington, DC 20580

(202) 326-2610; or Joseph Brownman, FTC/S-2108, Washington, DC 20580

(202) 326-2950.

SUPPLEMENTARY INFORMATION: Pursuant to Section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46, and Sec. 2.34 of the

Commission's Rules of Practice (16 CFR 2.34), notice is hereby given

that the following consent agreement containing a consent order to

cease and desist, having been filed with and accepted, subject to final

approval, by the Commission, has been placed on the public record for a

period of sixty (60) days. Public comment is invited. Such comments or

views will be considered by the Commission and will be available for

inspection and copying at its principal office in accordance with

Sec. 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR

4.9(b)(6)(ii)).

Agreement Containing Consent Order

The Federal Trade Commission (``Commission''), having initiated an

investigation of the proposed acquisition by Devro International plc

and Devro Inc. of the outstanding voting securities of Teepak

International, Inc. and it now appearing that Devro International plc

and Devro Inc. (hereinafter sometimes referred to as the ``Proposed

Respondents'') are willing to enter into an agreement containing an

order to divest certain assets and providing for other relief:

It is hereby agreed by and between the Proposed Respondents, by

their duly authorized officers and attorneys, and counsel for the

Commission, that:

1. Proposed Respondent Devro International plc is a corporation

organized, existing, and doing business under and by virtue of the laws

of Scotland, with its office and principal place of business at

Moodiesburn, Chryston, G69 OJE, Scotland.

2. Proposed Respondent Devro Inc. is a corporation organized,

existing, and doing business under and by virtue of the laws of the

State of Delaware with its office and principal place of business at

Southside Avenue, Somerville, New Jersey.

3. Teepak International, Inc. is a corporation organized, existing,

and doing business under and by virtue of the laws of the State of

Delaware, with its office and principal place of business at Three

Westbrook Corporate Center, Suite 1000, Westchester, Illinois 60153.

4. Proposed Respondents admit all the jurisdictional facts set

forth in the draft of complaint here attached.

5. Proposed Respondents waive:

a. any further procedural steps;

b. the requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law;

c. all rights to seek judicial review or otherwise to challenge or

contest the validity of the order entered pursuant to this Agreement;

and

d. any claim under the Equal Access to Justice Act.

6. Proposed Respondents shall submit, within five (5) days of the

date this Agreement is signed by Proposed Respondents, an initial

compliance report, as contemplated by Rules 2.33 and 4.9(b)(7) of the

Commission's Rules of Practice and Procedure, 16 C.F.R. 2.33 and

4.9(b)(7), duly signed by the Proposed Respondents, setting forth in

precise detail the manner in which Proposed Respondents will comply

with Parts II and III of the proposed consent order, when and if

entered, the Agreement to Condition Acquisition, and the Agreement to

Hold Separate. Among other things, the report shall include:

a. A full and complete description of Proposed Respondents'

compliance and planned compliance with the terms and conditions of the

Agreement to Hold Separate, including:

(1) The names, telephone numbers, and business affiliations of the

persons that Proposed Respondents intend to appoint, or are considering

appointing, or have appointed, as members of the Management Team,

pursuant to Paragraph 4 (a) of the Agreement to Hold Separate;

(2) the name(s), telephone number(s), and business affiliation(s)

of the person(s) that Proposed Respondents intend to appoint, are

considering appointing, or have appointed, as independent auditor/

manager, pursuant to Paragraph 4 (b) of the Agreement To Hold Separate;

and

(3) copies of all written communications, internal memoranda, and

reports and recommendations concerning the terms of the Agreement to

Hold Separate.

b. A full and complete description of Proposed Respondents'

compliance and planned compliance with the terms and conditions of the

Agreement to Condition Acquisition, including:

(1) The resolution, or draft resolution, that Devro International

plc will present to its shareholders;

(2) the date that Devro International plc anticipates that its

shareholders will vote on the resolution;

(3) the date that Devro International plc anticipates learning the

outcome of the vote by the shareholders on the resolution; and

(4) copies of all written communications, internal memoranda, and

reports and recommendations concerning the terms of the Agreement to

Condition Acquisition.

c. A full and complete description of the efforts planned or

underway to comply with the terms and conditions of the proposed order,

including:

(1) A list of the firms to which Proposed Respondents (i) have

offered, and (ii) intend to offer, the Assets To Be Divested;

(2) the names and telephone numbers of the representatives of the

firms listed in response to part c. (1) of this Paragraph that Proposed

Respondents have already contacted to offer the Assets To Be Divested;

(3) the names, addresses, telephone numbers and business

affiliations of at least three (3) potential trustees that would be

acceptable to Proposed Respondents should the appointment of a trustee

be deemed appropriate by the Commission;

(4) the procedures that Proposed Respondents will employ in finding

a

[[Page 65330]]

proposed acquirer of the Assets To Be Divested;

(5) all criteria that Proposed Respondents will employ for choosing

a proposed acquirer of the Assets To Be Divested in the event that

offers for these assets are made by more than one firm;

(6) a full and complete description of all of the Assets To Be

Divested;

(7) all descriptions, characterizations, and explanations of the

Assets To Be Divested that may already have been provided, or that

Proposed Respondents intend to provide, to potential acquirers;

(8) a full and complete description of the financial condition and

potential viability as an independent business of the Assets To Be

Divested;

(9) all descriptions, characterizations, and explanations of the

financial condition and potential viability as an independent business

of the Assets To Be Divested that may already have been provided, or

that Proposed Respondents intend to provide, to potential acquirers;

and

(10) copies of all written communications, internal memoranda, and

reports and recommendations concerning divestiture.

7. This Agreement shall not become part of the public record of the

proceeding unless and until it is accepted by the Commission. If this

Agreement is accepted by the Commission it, together with the draft of

complaint contemplated thereby, will be placed on the public record for

a period of sixty (60) days and information in respect thereto publicly

released. The Commission thereafter may either withdraw its acceptance

of this Agreement and so notify the Proposed Respondents, in which

event it will take such action as it may consider appropriate, or issue

and serve its complaint (in such form as the circumstances may require)

and decision, in disposition of the proceeding.

8. This Agreement is for settlement purposes only and does not

constitute an admission by the Proposed Respondents that the law has

been violated as alleged in the draft of complaint here attached, or

that the facts as alleged in the draft complaint, other than

jurisdictional facts, are true.

9. This Agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Sec. 2.34 of the Commission's

Rules, the Commission may, without further notice to the Proposed

Respondents, (1) issue its complaint corresponding in form and

substance with the draft of complaint here attached and its decision

containing the following order to divest in disposition of the

proceeding and (2) make information public with respect thereto. When

so entered, the order to divest shall have the same force and effect

and may be altered, modified or set aside in the same manner and within

the same time provided by statute for other orders. The order shall

become final upon service. Delivery by the U.S. Postal Service of the

complaint and decision containing the agreed-to order to the Proposed

Respondents' counsel at the address as stated in this Agreement shall

constitute service. The Proposed Respondents waive any right they may

have to any other manner of service. The complaint may be used in

construing the terms of the order, and no agreement, understanding,

representation, or interpretation not contained in the order or the

agreement may be used to vary or contradict the terms of the order.

10. The Proposed Respondents have read the proposed complaint and

order contemplated hereby. The Proposed Respondents understand that

once the order has been issued, they will be required to file one or

more compliance reports showing that they have fully complied with the

order. The Proposed Respondents further understand that they may be

liable for civil penalties in the amount provided by law for each

violation of the order after it becomes final.

11. Proposed Respondents agree to be bound by all of the terms of

the Agreement to Condition Acquisition and the Agreement to Hold

Separate, attached to this Agreement and made a part hereof as Appendix

I and Appendix II, respectively, upon acceptance by the Commission of

this Agreement Containing Consent Order for public comment.

12. Proposed Respondents agree to notify the Commission's Bureau of

Competition in writing, within twenty-four (24) hours, of the action

taken by the shareholders of Devro International plc regarding (a) the

proposed acquisition by Devro International plc of Teepak

International, Inc. (``the Acquisition''), (b) the divestiture of the

Assets To Be Divested under the terms of this Agreement Containing

Consent Order (``the Divestiture''), and (c) the unlimited

indemnification of the independent auditor/manager, retroactive as of

the date of the appointment of the auditor/manager, pursuant to the

Agreement to Condition Acquisition and the Agreement to Hold Separate

(``the Retroactive Indemnification'').

13. Subsequent to approval of this Agreement Containing Consent

Order and acceptance for public comment of the Consent Order by the

Commission and unconditional approval by the shareholders of Devro

International plc of (a) the Acquisition, (b) the Divestiture, and (c)

the Retroactive Indemnification, with written notice having been given

to the Commission's Bureau of Competition, in writing, within twenty-

four (24) hours, of the unconditional approval by the shareholders,

Devro International plc may consummate the Acquisition.

14. In the event the shareholders of Devro International plc, prior

to the expiration of the sixty (60) day public comment period, fail

unconditionally to approve (a) the Acquisition, (b) the Divestiture,

and (c) the Retroactive Indemnification, Proposed Respondents, having

no authority to consummate the Acquisition, will, within twenty-four

(24) hours of the failure of the shareholders of Devro International

plc unconditionally to approve (a) the Acquisition, (b) the

Divestiture, and (c) the Retroactive Indemnification, notify the

Commission of such failure and withdraw any Hart-Scott-Rodino Premerger

Notification and Report Form that may have been filed under the Hart-

Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. 18a. After

such timely notification and withdrawal, pursuant to the terms of this

Paragraph, the Commission will not issue the following divestiture

order.

Order

I

It is ordered That, as used in this Order, the following

definitions shall apply:

A. ``Devro International plc'' means that company and its

predecessors, subsidiaries, divisions, groups and affiliates controlled

by Devro International plc, and its respective directors, officers,

employees, agents, and representatives, and the respective successors

and assigns of each.

B. ``Devro Inc.'' means that company and its predecessors,

subsidiaries, divisions, groups and affiliates controlled by Devro Inc.

and its respective directors, officers, employees, agents, and

representatives, and the respective successors and assigns of each.

C. ``Devro Canada'' means DCI Devro Canada Inc., and its

predecessors, subsidiaries, divisions, groups and affiliates controlled

by DCI Devro Canada Inc. and its respective directors, officers,

employees, agents, and

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representatives, and the respective successors and assigns of each.

D. ``Teepak'' means Teepak International, Inc., and its

predecessors, subsidiaries, divisions, groups and affiliates controlled

by Teepak International, Inc. and its respective directors, officers,

employees, agents, and representatives, and the respective successors

and assigns of each. The definition of ``Teepak'' specifically excludes

Devro International plc, Devro Inc., and Devro Canada. For purposes of

Parts VII and VIII of this Order, after the Acquisition, Teepak will be

regarded as part of Respondent Devro International plc.

E. ``Respondents'' means Devro International plc and Devro Inc.

F. ``Acquisition'' means the proposed acquisition by Devro

International plc of the outstanding voting securities of Teepak

International, Inc.

G. ``Assets To Be Divested'' means:

1. All assets related to the collagen sausage casings business of

Devro Inc. and Devro Canada, including, but not limited to:

a. All production and finishing facilities, plant, and equipment of

Devro Inc., including the plant located at Somerville, New Jersey, and,

wherever located, all machinery, fixtures, equipment, kitchen

facilities, laboratory testing equipment and facilities, research and

development facilities and programs, vehicles, transportation

facilities, furniture, tools and other tangible personal property,

customer lists, vendor lists, catalogs, sales promotion literature,

advertising materials, technical information, and management

information systems;

b. All production and finishing facilities, plant, and equipment of

Devro Canada, including the plant located in Markham, Ontario, Canada,

and, wherever located, and to the extent they exist, all machinery,

fixtures, equipment, kitchen facilities, laboratory testing equipment

and facilities, research and development facilities and programs,

vehicles, transportation facilities, furniture, tools and other

tangible personal property, customer lists, vendor lists, catalogs,

sales promotion literature, advertising materials, technical

information, and management information systems;

c. All intellectual property, including product and process

patents, patent rights, patent improvements, process improvements,

trademarks, service marks, copyrights, technology, knowhow, basic

research, trade secrets, goodwill, or trademarks that Devro Inc. or

Devro Canada use, license, have rights to, or otherwise have an

interest in; provided, however, that Devro International may retain all

rights to the trademark Devro, tradename ``Devro'', and the

stylized letter ``D'';

d. All Devro Inc. and Devro Canada inventory and storage capacity;

e. All rights, titles, and interest in and to real property owned

or leased by Devro Inc. and Devro Canada, together with all

appurtenances, licenses, and permits;

f. All rights, titles, and interests in and to contracts entered

into in the ordinary course of business between Devro Inc. and Devro

Canada with customers, suppliers, sales representatives, distributors,

agents, personal property lessors, personal property lessees,

licensors, licensees, consignors, and consignees;

g. All rights of Devro Inc. and Devro Canada, under warranties and

guarantees, express or implied;

h. All books, records, and files of Devro Inc. and Devro Canada;

i. All items of prepaid expense to Devro Inc. and Devro Canada; and

2. From Devro International plc:

a. On a non-exclusive basis, with no right to sub-license to a

third party, all rights to any information or intellectual property

relating to Devro International (but not any information or

intellectual property of Teepak in existence at the time of the

Acquisition) in development or already developed by Devro International

at the time of the divestiture, plus all enhancements, improvements or

perfections thereof within twenty-four (24) months of the divestiture,

including information or intellectual property relating to product and

process patents, patent rights, patent improvements, technology,

knowhow, basic research, or trade secrets regarding any research and

development programs or activities, wherever located, to the extent

that such information or intellectual property relate to the

manufacture, finishing, distribution, or sale of collagen sausage

casings; and

b. All additional tangible and intangible assets of Devro

International, wherever located, reasonably necessary to enable the

acquirer of the Assets To Be Divested to manufacture, finish,

distribute, and market collagen sausage casings in substantially the

same manner, quality, and quantity achieved by Devro Inc. and Devro

Canada prior to the divestiture, other than any tangible or intangible

assets of Teepak in existence at the time of the Acquisition.

H. ``Excluded Assets'' means the following entities: Devro Limited,

Devro Holdings Limited, Devro Pty Limited, Devro BV, Devro Asia

Limited, Devro GmbH, and Devro KK, and Teepak and its tangible and

intangible assets in existence at the time of the Acquisition. The term

``Excluded Assets'' does not include (that is, the following assets are

not Excluded Assets) specifically identifiable tangible and intangible

assets of these excluded entities (other than those of Teepak at the

time of the divestiture) related to the manufacture and finishing of

collagen sausage casings.

I. ``Commission'' means the Federal Trade Commission.

II

It is further ordered That:

A. Within three (3) months of the date the order becomes final,

Respondents shall divest, absolutely and in good faith, at no minimum

price, the Assets To Be Divested.

B. The purpose of the divestiture of the Assets To Be Divested is

to ensure the continued use of the Assets To Be Divested as a viable,

competitive, and independent business, in the same business in which

the Assets To Be Divested are engaged at the time of the Acquisition,

and to remedy the lessening of competition resulting from the

Acquisition as alleged in the Commission's Complaint.

C. The proposed acquirer shall not be a firm that has been engaged

in the manufacture of collagen sausage casings for sale, other than to

itself, in the United States.

D. The Assets To Be Divested shall be divested only to an acquirer

that receives the prior approval of the Commission and only in a manner

that receives the prior approval of the Commission.

III

It is further ordered That:

A. If Respondents have not divested the Assets To Be Divested,

absolutely and in good faith, with the Commission's prior approval,

within three (3) months of the date this Order becomes final, the

Commission may appoint a trustee to divest the Assets To Be Divested.

In the event that the Commission or the Attorney General brings an

action pursuant to section 5(l) of the Federal Trade Commission Act, 15

U.S.C. 45(l), or any other statute enforced by the Commission,

Respondents shall consent to the appointment of a trustee in such

action. Neither the appointment of a trustee nor a decision not to

appoint a trustee under this Paragraph shall preclude the Commission or

the Attorney General from seeking civil penalties or any other relief

available to it, including a court-appointed trustee, pursuant to

section 5(l) of the Federal Trade Commission Act, or any other statute

enforced by the

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Commission, for any failure by Respondents to comply with this Order.

B. If a trustee is appointed by the Commission or a court pursuant

to Paragraph III. A. of this Order, Respondents shall consent to the

following terms and conditions regarding the trustee's powers, duties,

authority, and responsibilities:

1. The Commission shall select the trustee, subject to the consent

of Respondents, which consent shall not be unreasonably withheld. The

trustee shall be a person with experience and expertise in acquisitions

and divestitures. If Respondents have not opposed, in writing,

including the reasons for opposing, the selection of any proposed

trustee within ten (10) days after notice by the staff of the

Commission to Respondents of the identity of any proposed trustee,

Respondents shall be deemed to have consented to the selection of the

proposed trustee.

2. Subject to the prior approval of the Commission, and consistent

with the provisions of Paragraphs II. B.-D. of this Order, the trustee

shall have the exclusive power and authority to divest the Assets To Be

Divested.

3. Within ten (10) days after appointment of the trustee,

Respondents shall execute a trust agreement that, subject to the prior

approval of the Commission and, in the case of a court-appointed

trustee, of the court, transfers to the trustee all rights and powers

necessary to permit the trustee to effect the divestiture required by

this Order.

4. The trustee shall have six (6) months from the date the

Commission approves the trust agreement described in Paragraph III. B.

3. to accomplish the divestiture, which shall be subject to the prior

approval of the Commission. If, however, at the end of the six-month

period, the trustee has submitted a plan of divestiture or believes

that divestiture can be achieved within a reasonable time, the

divestiture period may be extended by the Commission, or, in the case

of a court-appointed trustee, by the court; provided, however, the

Commission may extend this period only two (2) times for up to an

additional twelve (12) months each time.

5. The trustee shall, to the extent not prohibited by United States

or Canadian law, have full and complete access to the personnel, books,

records and facilities related to the Assets To Be Divested or to any

other relevant information, as the trustee may reasonably request.

Respondents shall develop such financial or other information as such

trustee may request and shall cooperate with the trustee. Respondents

shall take no action to interfere with or impede the trustee's

accomplishment of the divestiture. Any delays in divestiture caused by

Respondents shall extend the time for divestiture under this Paragraph

in an amount equal to the delay, as determined by the Commission or,

for a court-appointed trustee, by the court.

6. The trustee shall use his or her best efforts to negotiate the

most favorable price and terms available in each contract that is

submitted to the Commission, subject to Respondents' absolute and

unconditional obligation to divest at no minimum price. The divestiture

shall be made in the manner and to the acquirer as set out in Part II

of this Order; provided, however, if the trustee receives bona fide

offers from more than one acquiring entity, and if the Commission

determines to approve more than one such acquiring entity, the trustee

shall divest to the acquiring entity or entities selected by

Respondents from among those approved by the Commission.

7. The trustee shall serve, without bond or other security, at the

cost and expense of Respondents, on such reasonable and customary terms

and conditions as the Commission or a court may set. The trustee shall

have the authority to employ, at the cost and expense of Respondents,

and at reasonable fees, such consultants, accountants, attorneys,

investment bankers, business brokers, appraisers, and other

representatives and assistants as are necessary to carry out the

trustee's duties and responsibilities. The trustee shall account for

all monies derived from the divestiture and all expenses incurred.

After approval by the Commission and, in the case of a court-appointed

trustee, by the court, of the account of the trustee, including fees

for his or her services, all remaining monies shall be paid at the

direction of the Respondents, and the trustee's power shall be

terminated. The trustee's compensation shall be based at least in

significant part on a commission arrangement contingent on the

trustee's divesting the Assets To Be Divested.

8. Respondents shall indemnify the trustee and hold the trustee

harmless against any losses, claims, damages, liabilities, or expenses

arising out of, or in connection with, the performance of the trustee's

duties, including all reasonable fees of counsel and other expenses

incurred in connection with the preparation for, or defense of any

claim, whether or not resulting in any liability, except to the extent

that such liabilities, losses, damages, claims, or expenses result from

misfeasance, gross negligence, willful or wanton acts, or bad faith by

the trustee.

9. If the trustee ceases to act or fails to act diligently, a

substitute trustee shall be appointed in the same manner as provided in

Paragraph III. A. of this Order.

10. In the event the trustee is unable to divest the Assets To Be

Divested, the trustee may divest such additional assets of Respondent

Devro International, other than the Excluded Assets, as may be

reasonably necessary to enable the trustee to divest the Assets To Be

Divested.

11. The Commission or, in the case of a court-appointed trustee,

the court, may on its own initiative or at the request of the trustee

issue such additional orders or directions as may be necessary or

appropriate to accomplish the divestiture required by this Order.

12. The trustee shall have no obligation or authority to operate or

maintain the Assets To Be Divested.

13. The trustee shall report in writing to Respondents and the

Commission every sixty (60) days concerning the trustee's efforts to

accomplish divestiture.

IV

It is further ordered That:

A. Upon reasonable notice to Respondents from the acquirer approved

by the Commission pursuant to this Order, Respondents shall provide

such assistance to the acquirer as is reasonably necessary to enable

the acquirer to manufacture, finish, distribute and market collagen

sausage casings in substantially the same manner, quality, and quantity

achieved by Devro Inc. and Devro Canada prior to the divestiture. Such

assistance shall include reasonable consultation with knowledgeable

employees of Respondents and training at the acquirer's facility for a

period of time sufficient to ensure that the acquirer's personnel are

appropriately trained in the manufacture, finishing, distribution, and

marketing of collagen sausage casings in the manner carried on by Devro

Inc. and Devro Canada prior to the divestiture. Respondents, however,

shall not be required to continue providing such assistance for more

than two (2) years from the date of the divestiture. Respondents may

charge the acquirer at a rate no greater than their direct costs for

providing such technical assistance.

B. Respondents shall facilitate and not interfere with the hiring

by the acquirer approved by the Commission of employees of Devro Inc.

and Devro

[[Page 65333]]

Canada who may desire to undertake employment.

C. Pending divestiture of the Assets To Be Divested, Respondents

shall take such actions as are reasonably necessary to maintain the

viability and marketability of the Assets To Be Divested and to prevent

their destruction, removal, wasting, deterioration or impairment of any

kind, except for ordinary wear and tear.

V

It is further ordered That Respondents shall continue to comply

with all terms of the Agreement to Hold Separate attached to this Order

and made a part hereof as Appendix II. Said Agreement shall remain in

force and effect until the Assets To Be Divested have been divested as

required by this Order.

VI

It is further ordered That:

Within thirty (30) days after the date this Order becomes final and

every thirty (30) days thereafter until Respondents have fully complied

with the provisions of Parts II, III, and IV of this Order, Respondents

shall submit to the Commission a verified written report setting forth

in detail the manner and form in which they intend to comply, are

complying, or have complied with this Order. Respondents shall include

in their compliance reports, among other things that are required from

time to time, a full description of the efforts being made to comply

with the Order, and their compliance with the terms and conditions of

the Agreement To Condition Acquisition and the Agreement To Hold

Separate, and set forth the monthly sales of Devro Inc. and Devro

Canada during the preceding two months and compared to the monthly

sales during the same months in the preceding calendar year.

Respondents shall include in their compliance reports copies of all

written communications, internal memoranda, and reports and

recommendations concerning divestiture and the manner in which the

Assets To Be Divested are being held separate.

VII

It is further ordered That, for the purpose of determining or

securing compliance with this Order, and subject to any legally

recognized privilege, upon written request and reasonable notice, each

Respondent shall permit any duly authorized representative of the

Commission:

A. Access, during office hours and in the presence of counsel, to

inspect and copy all books, ledgers, accounts, correspondence,

memoranda and other records and documents in the possession or under

the control of Respondent relating to any matters contained in this

Order; and

B. Upon five (5) days' notice to the appropriate Respondent, and

without restraint or interference, to interview officers, directors, or

employees of the Respondent, who may have counsel present.

VIII

It is further ordered That Respondents shall notify the Commission

at least thirty (30) days prior to any proposed change in the corporate

respondents such as dissolution, assignment, sale resulting in the

emergence of a successor corporation, or the creation or dissolution of

subsidiaries or any other change in the corporations that may affect

compliance obligations arising out of the Order.

Appendix I

Agreement To Condition Acquisition on Shareholder Approval of

Divestiture and Retroactive Indemnification

This Agreement To Condition Acquisition on Shareholder Approval

of Divestiture and Retroactive Indemnification (``Agreement To

Condition Acquisition'') is by and between Devro International plc,

a corporation organized, existing, and doing business under and by

virtue of the laws of Scotland, with its office and principal place

of business at Moodiesburn, Chryston, Scotland; Devro Inc., a

corporation organized, existing, and doing business under and by

virtue of the laws of the State of Delaware with its office and

principal place of business at Somerville, New Jersey; and the

Federal Trade Commission (``Commission''), an independent agency of

the United States Government, established under the Federal Trade

Commission Act of 1914, 15 U.S.C. 41, et seq.

Whereas Devro International plc entered into an agreement with

Hillside Industries Incorporated for Devro International plc to

acquire the outstanding voting securities of Teepak International

Inc. (``Teepak''), a Delaware corporation (hereinafter ``the

Acquisition'');

Whereas Devro International plc and Devro Inc. manufacture,

finish, distribute, and sell collagen sausage casings, and DCI Devro

Canada Inc. (``Devro Canada'') finishes, distributes, and sells

collagen sausage casings;

Whereas Teepak, with principal offices located at Westchester,

Illinois, among other things, also manufactures, finishes,

distributes, and sells collagen sausage casings;

Whereas the Commission is investigating the Acquisition to

determine whether it would violate any statute enforced by the

Commission;

Whereas Devro International plc and Devro Inc. are willing (a)

to enter into an Agreement Containing Consent Order requiring them

to divest certain Assets To Be Divested, as defined in Part I of the

proposed Consent Order of the Agreement Containing Consent Order,

which include the collagen sausage casings business of Devro Inc.,

Devro Canada, and assets of Devro International plc related thereto

(hereinafter ``the Divestiture''); (b) to enter into an Agreement To

Hold Separate requiring that the Assets To Be Divested be held

separate and apart from the remainder of the assets of Devro

International pending their divestiture; and (c) to arrange and

provide for the unlimited indemnification for the independent

auditor/manager, retroactive as of the date of the appointment of

the auditor/manager, pursuant to this Agreement To Condition

Acquisition and the Agreement To Hold Separate (hereinafter ``the

Retroactive Indemnification'');

Whereas if the Commission accepts the attached Agreement

Containing Consent Order, which would require the divestiture of the

Assets To Be Divested, the Commission is required to place the

Consent Order on the public record for a period of at least sixty

(60) days and may subsequently withdraw such acceptance pursuant to

the provisions of Rule 2.34 of the Commission's Rules of Practice

and Procedure, 16 C.F.R. 2.34;

Whereas the Commission is advised and concerned that, under the

applicable law of the United Kingdom, Devro International will be

unable to commit to, or be bound by, certain of the terms of the

Agreement Containing Consent Order and the Agreement To Hold

Separate unless and until those terms are approved by the

shareholders of Devro International plc;

Whereas the Commission is advised that, under the applicable law

of the United Kingdom, Devro International plc will not be able to

seek shareholder approval for (a) the Divestiture or (b) the

Retroactive Indemnification, until after all of the terms of the

Agreement Containing Consent Order, the Agreement To Hold Separate,

and this Agreement To Condition Acquisition are made known to the

shareholders of Devro International plc, which can only happen after

the Commission accepts the Agreement Containing Consent Order for

public comment, and the Agreement To Hold Separate and the Agreement

To Condition Acquisition;

Whereas the Commission will not accept for public comment an

Agreement Containing Consent Order or an Agreement to Hold Separate

that is not binding on the Proposed Respondents;

Whereas the undersigned officials of Devro International plc and

Devro Inc. and their attorneys at this time are authorized to make

the following binding commitments:

1. Devro International plc and Devro Inc. will seek shareholder

approval for, at the same time, as part of a single package, and as

a mutually contingent matter, (a) the Acquisition, (b) the

Divestiture, and (c) the Retroactive Indemnification;

2. the shareholder approval will be sought, and if

unconditionally obtained, (a) the Acquisition, (b) the Divestiture,

and (c) the Retroactive Indemnification will be fully authorized, no

less than seven (7) days prior to the completion of the sixty (60)

day public comment period during which the

[[Page 65334]]

Agreement Containing Consent Order will have been placed on the public

record;

3. Devro International plc and Devro Inc. will advise the

Commission's Bureau of Competition in writing, within twenty-four

(24) hours, of all actions taken by the shareholders in connection

with the effort to obtain approval for (a) the Acquisition, (b) the

Divestiture, and (c) the Retroactive Indemnification; and

4. Devro International plc, Devro Inc., and all entities

controlled by either of them will not acquire, directly or

indirectly, Teepak or any of its assets without unconditional

shareholder approvals having been obtained and fully authorized for

(a) the Divestiture and (b) the Retroactive Indemnification;

Whereas Devro International plc represents to the Commission

that (1) the directors of Devro International plc will officially

recommend to the shareholders of Devro International plc that they

approve (a) the Acquisition, (b) the Divestiture, and (c) the

Retroactive Indemnification; (2) Devro International plc will use

its best efforts to obtain shareholder approval for (a) the

Acquisition, (b) the Divestiture, and (c) the Retroactive

Indemnification; (3) in light of (1) and (2) above, it would be

highly unusual if the shareholders of Devro International plc were

to reject (a) the Acquisition, (b) the Divestiture, and (c) the

Retroactive Indemnification; and (4) Devro International plc fully

expects the shareholders of Devro International plc to approve (a)

the Acquisition, (b) the Divestiture, and (c) the Retroactive

Indemnification;

Whereas shareholder approval of (a) the Acquisition, (b) the

Divestiture, and (c) the Retroactive Indemnification will be

presented to the shareholders for their approval as part of a single

resolution, to be voted upon as a package only, and Devro

International plc and Devro Inc. will not be authorized to

consummate the Acquisition unless and until they are also authorized

(a) to make the Divestiture and (b) to grant the Retroactive

Indemnification;

Whereas shareholder approval for (a) the Acquisition, (b) the

Divestiture, and (c) the Retroactive Indemnification will be sought,

and determined, prior to the time that the Commission will consider

whether to accept the final Agreement Containing Consent Order under

the Commission's Rules;

Whereas the Commission is concerned that if an agreement is not

reached regarding the nature and timing of the shareholder approval

and the commitment on the part of Devro International and Devro Inc.

not to consummate the acquisition unless and until the requisite

shareholder approvals are obtained, appropriate divestiture

resulting from any proceeding challenging the Acquisition might not

be possible or might produce a less than effective remedy;

Whereas the Commission is concerned that if the Acquisition is

consummated, it will be necessary to preserve the Commission's

ability to require the Divestiture and the continued viability and

competitiveness of the Assets To Be Divested;

Whereas Devro International plc and Devro Inc.'s entering into

this Agreement shall in no way be construed as an admission by them

that the Acquisition is illegal;

Whereas Devro International plc and Devro Inc. understand that

no act or transaction contemplated by this Agreement shall be deemed

immune or exempt from the provisions of the antitrust laws or the

Federal Trade Commission Act by reason of anything contained in this

Agreement;

Now, therefore, the parties agree, upon understanding that the

Commission has not yet determined whether the Acquisition will be

challenged, and in consideration of the Commission's agreement that,

unless the Commission determines to reject the Consent Order, it

will not seek further relief from Devro International plc or Devro

Inc. with respect to the Acquisition, except that the Commission may

exercise any and all rights to enforce this Agreement, the Agreement

to Hold Separate, and the Consent Order to which this Agreement is

annexed and made a part thereof, as follows:

1. The Acquisition by Devro International plc or Devro Inc. of

Teepak is contingent upon shareholder approval.

2. Devro International plc and Devro Inc. will not seek

shareholder approval for the Acquisition without, at the same time,

and as part of the same package, also seeking mutually contingent

shareholder approval for (a) the Divestiture and (b) the Retroactive

Indemnification.

3. Unconditional shareholder approval will be sought, and if

obtained, be fully authorized, no less than seven (7) days prior to

the completion of the sixty (60) day public comment period during

which the Agreement Containing Consent Order will have been placed

on the public record.

4. In no event will Devro International plc or Devro Inc. or any

entity controlled by either acquire, directly or indirectly, Teepak

or any of its assets without unconditional shareholder approvals

having been obtained and fully authorized for (a) the Divestiture

and (b) the Retroactive Indemnification.

5. Unless and until unconditional shareholder approval is

obtained for (a) the Acquisition, (b) the Divestiture, and (c) the

Retroactive Indemnification, Devro International plc and Devro Inc.,

or any entity controlled by either, will not acquire, directly or

indirectly, Teepak or any of its assets.

6. At such time as the shareholders of Devro International may

unconditionally approve (a) the Acquisition, (b) the Divestiture,

and (c) the Retroactive Indemnification, Devro International and

Devro Inc., by and through their authorized representatives, shall

notify the Commission's Bureau of Competition, in writing, within

twenty-four (24) hours, of the action taken.

7. Devro International and Devro Inc., by and through their

signatories, warrant that they are fully authorized to enter into

the terms of this Agreement to Condition Acquisition and to bind

Devro International plc and Devro Inc. to all of its terms and

conditions.

8. This Agreement shall be binding when approved by the

Commission.

Appendix II

Agreement to Hold Separate

This Agreement to Hold Separate (``Agreement'') is by and

between Devro International plc, a corporation organized, existing,

and doing business under and by virtue of the laws of Scotland, with

its office and principal place of business at Moodiesburn, Chryston,

Scotland; Devro Inc., a corporation organized, existing, and doing

business under and by virtue of the laws of the State of Delaware

with its office and principal place of business at Somerville, New

Jersey; and the Federal Trade Commission (``Commission''), an

independent agency of the United States Government, established

under the Federal Trade Commission Act of 1914, 15 U.S.C. 41, et

seq.

Whereas Devro International plc entered into an agreement with

Hillside Industries Incorporated for Devro International plc to

acquire the outstanding voting securities of Teepak International,

Inc. (``Teepak''), a Delaware corporation (hereinafter

``Acquisition'');

Whereas Devro International plc and Devro Inc. manufacture,

finish, distribute, and sell collagen sausage casings, and DCI Devro

Canada Inc. (``Devro Canada'') finishes, distributes, and sells

collagen sausage casings;

Whereas Teepak, with principal offices located at Westchester,

Illinois, among other things, also manufactures, finishes,

distributes, and sells collagen sausage casings;

Whereas the Commission is investigating the Acquisition to

determine whether it would violate any statute enforced by the

Commission;

Whereas if the Commission accepts the attached Agreement

Containing Consent Order, which would require the divestiture of

certain Assets To Be Divested, as defined in Part I of the Consent

Order, which include the collagen sausage casings business of Devro

Inc., Devro Canada, and assets of Devro International plc related

thereto, the Commission is required to place the Consent Order on

the public record for a period of at least sixty (60) days and may

subsequently withdraw such acceptance pursuant to the provisions of

Section 2.34 of the Commission's Rules of Practice and Procedure, 16

C.F.R. 2.34;

Whereas the Commission is concerned that if an understanding is

not reached preserving the status quo ante of the Assets To Be

Divested during the period prior to the acceptance of the final

Consent Order by the Commission, after the 60-day notice period,

divestiture resulting from any proceeding challenging the

Acquisition might not be possible or might produce a less than

effective remedy;

Whereas the Commission is concerned that if the Acquisition is

consummated, it will be necessary to preserve the Commission's

ability to require the divestiture of the Assets To Be Divested and

the continued viability and competitiveness of the Assets To Be

Divested;

Whereas the purpose of this Agreement and the Consent Order is

to:

[[Page 65335]]

1. Preserve and maintain the Assets To Be Divested as a viable,

competitive and independent business engaged in the manufacture,

finishing, distribution and sale of collagen sausage casings pending

divestiture;

2. Limit the potential for interim competitive harm during the

period between the Acquisition and the required divestiture; and

3. Remedy any anticompetitive effects of the Acquisition;

Whereas Devro International plc and Devro Inc.'s entering into

this Agreement shall in no way be construed as an admission by them

that the Acquisition is illegal;

Whereas Devro International plc and Devro Inc. understand that

no act or transaction contemplated by this Agreement shall be deemed

immune or exempt from the provisions of the antitrust laws or the

Federal Trade Commission Act by reason of anything contained in this

Agreement;

Now, therefore, the parties agree, upon understanding that the

Commission has not yet determined whether the Acquisition will be

challenged, and in consideration of the Commission's agreement that,

unless the Commission determines to reject the Consent Order, it

will not seek further relief from Devro International plc or Devro

Inc. with respect to the Acquisition, except that the Commission may

exercise any and all rights to enforce this Agreement, the Agreement

to Condition Acquisition, and the Consent Order to which this

Agreement is annexed and made a part thereof, as follows:

1. Devro International plc and Devro Inc. agree to execute the

Agreement Containing Consent Order and be bound by the Consent

Order.

2. Devro International plc and Devro Inc. agree to execute and

be bound by the Agreement To Condition Acquisition.

3. Devro International plc and Devro Inc. agree that until the

earlier of the dates listed in subparagraphs 3(a) and 3(b) of this

Paragraph, they will comply with the provisions of Paragraph 4 of

this Agreement:

(a) Three (3) business days after the Commission withdraws its

acceptance of the Consent Order pursuant to the provisions of

Commission Rule 2.34, 16 C.F.R. 2.34; or

(b) The day after the divestiture required by the Consent Order

has been completed.

4. To ensure the complete independence and viability of Devro

Inc., Devro Canada, and the Assets To Be Divested, and to further

ensure that no competitive information is exchanged between Devro

International plc and Devro Inc., Devro Canada, and the persons

responsible for maintaining and operating the Assets To Be Divested,

Devro International plc shall hold Devro Inc., Devro Canada, and the

Assets To Be Divested, as defined in the Consent Order, separate and

apart from all of its other operations, on the following terms and

conditions:

(a) Devro International plc will appoint three persons to manage

and maintain the business and assets of Devro Inc., Devro Canada,

and the Assets To Be Divested. These persons (``the Management

Team'') shall agree to be bound by this Agreement and shall manage

Devro Inc., Devro Canada, and the Assets To Be Divested independent

of the management of Devro International plc's other business

operations, including those of Teepak, after Devro International plc

acquires Teepak. The persons on the Management Team shall not be

involved in any way in the manufacture, finishing, distribution, or

sale of sausage casings by Devro International plc or Teepak. The

management team shall conduct the business operations of Devro Inc.,

Devro Canada, and the Assets To Be Divested.

(b) The Management Team, in its capacity as such, shall report

directly and exclusively to an independent auditor/manager, to be

appointed by Devro International plc. The independent auditor/

manager, who shall not be an employee or agent of Devro

International plc or a person likely to be an employee or agent of

Devro International plc within two years of the divestiture, shall

have expertise in the manufacture, finishing, distribution, or sale

of collagen sausage casings. The independent auditor/manager shall

agree to be bound by this Agreement and shall have exclusive control

over the operations of Devro Inc., Devro Canada, and the Assets To

Be Divested, with responsibility for their management and

maintaining their independence. The independent auditor/manager

shall not be involved in any way in the business of manufacturing,

finishing, distribution, or sale of sausage casings by Devro

International plc or Teepak.

(c) Devro International plc shall not exercise direction or

control over, or influence directly or indirectly, the independent

auditor/manager, or the Management Team, or Devro Inc., Devro

Canada, or the Assets To Be Divested, other than as may reasonably

be necessary to assure compliance with this Agreement and with all

applicable laws.

(d) Devro International plc shall not change the composition of

the Management Team without the consent of the independent auditor/

manager.

(e) Devro International plc shall maintain the viability,

competitiveness, and marketability of the Assets To Be Divested and

shall neither cause nor permit the destruction, removal, wasting,

deterioration, or impairment of the Assets To Be Divested, except as

may occur in the ordinary course of business and except for ordinary

wear and tear, and shall not sell, transfer, encumber (other than in

the normal course of business), or otherwise impair their viability,

competitiveness, or marketability.

(f) Except for the Management Team, Devro International plc

shall not permit any Devro International plc Board Member, officer,

director, employee, or agent to be involved in the business

operations of the Assets To Be Divested.

(g) Except as required by law, and except to the extent that

necessary information is exchanged in the course of evaluating the

Acquisition, complying with requirements of the London Stock

Exchange and independent auditors, defending investigations or

defending or prosecuting litigation, negotiating agreements to

divest assets, or complying with this Agreement or the Consent

Order, Devro International plc shall not receive or have access to,

or use or continue to use, any material confidential information

about Devro Inc., Devro Canada, or the Assets To Be Divested, in

connection with the operation of Devro International plc or its

operation of the Teepak business. ``Material confidential

information'' means competitively sensitive or proprietary

information not in the public domain, including, but not limited to,

customer lists, price lists, marketing methods, patent rights,

knowhow, technologies, processes, process improvements or other

trade secrets or confidential business information.

(h) Devro International plc, Devro Inc. and Devro Canada shall

circulate to all employees of Devro Inc. and Devro Canada, and

display in a conspicuous place at Devro Inc. and Devro Canada

manufacturing facilities, notice of this Agreement to Hold Separate

and the proposed Consent Order in the form attached hereto as

Attachment A.

(i) Devro International plc shall give funds to the Management

Team for all capital expenditures relating to Devro Inc. and Devro

Canada previously planned or approved by Devro International plc to

the extent Devro Inc. does not generate sufficient cash flow to fund

such capital expenditures. The Management Team shall expend the

funds for these previously planned capital expenditures.

(j) The Management Team shall take all steps reasonably

necessary to optimize the profitable operations and continued

viability of Devro Inc., Devro Canada, and the Assets To Be

Divested, including, but not limited to:

(1) Paying all direct costs and indirect overheads relating to

the business of Devro Inc., Devro Canada, and the Assets To Be

Divested;

(2) Making available funds for advertising and other marketing

and promotional activities at no less than the level for the

comparable period in the preceding calendar year;

(3) Providing no less than the same level of sales commissions

or incentives for sales personnel as were provided for the

comparable period in the preceding calendar year;

(4) Maintaining the same level of resources involved in sales

and marketing as was the case in the normal course of business prior

to the Acquisition; and

(5) Expending funds sufficient to perform all reasonably

necessary routine maintenance to, and replacements of, the Assets To

Be Divested.

In the event that Devro Inc., Devro Canada, and the Assets To Be

Divested do not generate sufficient cash flow to fund the activities

reasonably necessary to optimize the profitable operations and

viability of Devro Inc., Devro Canada, and the Assets To Be

Divested, Devro International plc shall advance such sums as are

reasonably necessary to pay for same, to be repaid by the acquirer

at no interest within two (2) years.

(k) The compensation and expenses of the independent auditor/

manager shall be the responsibility of Devro International plc.

Devro Inc., Devro Canada, and the Assets To Be Divested shall not be

charged by Devro International plc with those costs and expenses.

(l) Devro International plc shall indemnify the independent

auditor/manager against any

[[Page 65336]]

losses or claims of any kind that might arise out of his or her

involvement under this Agreement, not to exceed $5 million, except

to the extent that such losses or claims result from misfeasance,

gross negligence, willful or wanton acts or bad faith; provided

however, upon shareholder approval of the unlimited indemnification

of the auditor/manager, retroactive as of the date of the

appointment of the auditor/manager, the $5 million liability

limitation shall become null and void, under the terms of the

Agreement to Condition Acquisition.

(m) If the independent auditor/manager fails to act, or ceases

to act, diligently, a substitute auditor/manager shall be appointed

by Devro International plc in the manner provided in Paragraph 4 (b)

of this Agreement.

(n) The independent auditor/manager shall have access to, and be

informed about, the names of the companies who may inquire about, or

seek or propose to buy, Devro Inc., Devro Canada, or the Assets To

Be Divested. Devro International plc may require the independent

auditor/manager to sign a confidentiality agreement prohibiting the

auditor/manager from disclosing any material confidential

information obtained as a result of his or her role as independent

auditor/manager, to anyone other than the Commission.

(o) All material transactions other than those in the ordinary

course of business, if not precluded by this Paragraph, shall be

subject to a majority vote of the Management Team. In the event of a

tie vote, the independent auditor/manager shall cast the deciding

vote.

5. Should the Federal Trade Commission seek in any proceeding to

compel Devro International plc or Devro Inc. to divest any of the

Assets To Be Divested, or any additional assets, as provided in the

Consent Order, or to seek any other injunctive or equitable relief

for any failure to comply with the Consent Order or this Agreement,

as defined in the draft complaint attached to the Agreement

Containing Consent Order, Devro International plc and Devro Inc.

shall not raise any objection based upon the expiration of the

applicable Hart-Scott-Rodino Antitrust Improvements Act waiting

period or the fact that the Commission permitted the Acquisition.

Devro International plc and Devro Inc. also waive all their rights

to contest the validity of this Agreement.

6. To the extent that this Agreement requires Devro

International plc or Devro Inc. to take, or prohibits them from

taking, certain actions that otherwise may be required or prohibited

by contract, Devro International plc and Devro Inc. shall abide by

the terms of this Agreement and the Consent Order and shall not

assert as a defense such contract requirements in a civil penalty

action brought by the Commission to enforce the terms of this

Agreement or Consent Order.

7. For the purpose of determining or securing compliance with

this Agreement, subject to any legally recognized privilege, and

upon written request with reasonable notice to counsel, Devro

International plc and Devro Inc. shall permit any duly authorized

representative or representatives of the Commission:

(a) Access during the office hours of Devro International plc

and Devro Inc., and in the presence of counsel, to inspect and copy

all books, ledgers, accounts, correspondence, memoranda, and other

records and documents in their possession or under their control

relating to compliance with this Agreement; and

(b) Upon five (5) days' notice to counsel, and without restraint

or interference from counsel, to interview officers or employees of

Devro International plc and Devro Inc., who may have counsel

present, regarding any such matters.

8. This Agreement shall not be binding until approved by the

Commission. Devro International plc and Devro Inc. acknowledge that

from the date they sign this Agreement until such time as the

Commission may approve this Agreement, they will undertake to

maintain the Assets To Be Divested in a viable condition.

9. Subsequent to acceptance for public comment of the Agreement

Containing Consent Order by the Commission and after the

unconditional approval by the shareholders of Devro International

obtained not less than seven (7) days prior to the end of the 60-day

public comment period, of (a) the Acquisition, (b) the divestiture

of the Assets To Be Divested under the terms of the Agreement

Containing Consent Order, and (c) the retroactive indemnification,

under the definitions and terms of the Agreement To Condition

Acquisition and this Agreement to Hold Separate, with written notice

having been given to the Commission's Bureau of Competition, in

writing, within twenty-four (24) hours, of the unconditional

approval by the shareholders, Devro International plc may consummate

the Acquisition.

10. This Agreement shall be binding when approved by the

Commission.

11. Devro International plc and Devro Inc., by and through their

signatories, warrant that they are fully authorized to enter into

the terms of this Agreement to Hold Separate and to bind Devro

International plc and Devro Inc. to all of its terms and conditions.

Attachment A

Important Notice

As you know, Devro International plc has entered into an agreement

with the Federal Trade Commission (FTC) in connection with the proposed

acquisition of Teepak International, Inc. Under the terms of the

agreement with the FTC, Devro International must sell Devro Inc. and

DCI Devro Canada Inc. to a third party that is acceptable to the FTC.

We anticipate that this will occur within the next several months.

The agreement with the FTC also requires that, until Devro Inc. and

Devro Canada are sold, Devro International must preserve and maintain

them as competitive and independent businesses separate from Devro

International.

To ensure that Devro Inc. and Devro Canada are kept separate from

Devro International, a three-person management team, composed of

________________, ________________, and ________________, will assume

the management of Devro Inc. and Devro Canada. This management team,

which will operate totally independently of Devro International, will

report directly and exclusively to ________________, an independent

auditor/manager.

The effect of Devro International's agreement with the FTC is that,

for all intents and purposes, Devro International will no longer be

playing any role in the management and operation of Devro Inc. and

Devro Canada. Until such time as the future owners of Devro Inc. and

Devro Canada are determined, it is the responsibility of every employee

of Devro Inc. and Devro Canada to cooperate with the new management

team and to help to preserve Devro Inc. and Devro Canada as competitive

and independent businesses.

Analysis to Aid Public Comment on the Provisionally Accepted

Consent Order

The Federal Trade Commission has accepted for public comment from

Devro International plc and its United States subsidiary, Devro Inc.

(collectively referred to as ``Devro'') an Agreement Containing Consent

Order. This agreement has been placed on the public record for sixty

(60) days for receipt of comments from interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

agreement and the comments received, and will decide whether it should

withdraw from the agreement or make final the consent order in the

agreement.

According to the draft of complaint that the Commission intends to

issue, Devro and Teepak International, Inc. (``Teepak'') are

competitors, nationwide and worldwide, in the manufacture of collagen

sausage casings. Sausage casings are the skins into which various

sausage-meat products are stuffed before being cooked or smoked. Among

the sausage products using collagen sausage casings are beef jerkys,

small sausages, and frankfurters. Unlike other types of synthetic

sausage casings, such as fibrous sausage casings, used principally to

make salamis and hams, and cellulose sausage casings, used principally

to make skinless frankfurters, most collagen sausage casings are

edible. Edible sausage casings produce a ``bite'' to a sausage when

eaten.

The Commission's draft of complaint states that Devro entered into

an agreement with Hillside Industries, Inc.,

[[Page 65337]]

the current owners of Teepak, for Devro to acquire all of Teepak for

approximately $135 million. The Commission is concerned that the

proposed merger would eliminate substantial competition between Devro

and Teepak, increase concentration in the highly concentrated collagen

sausage casings markets, and lead to higher prices and fewer customer

services. The Commission stated it has reason to believe that the

proposed acquisition would have anticompetitive effects and be in

violation of Section 7 of the Clayton Act and Section 5 of the Federal

Trade Commission Act.

According to the Commission's draft complaint, the anticompetitive

effects of the proposed acquisition will be felt in an all-collagen

sausage casings product market as well as in an edible collagen sausage

casings product market, in both the United States and the world as a

whole. In the United States all-collagen sausage casings and edible

sausage casings markets, only four firms sell collagen sausage casings,

and Devro and Teepak are the nation's top two producers. The proposed

acquisition would increase the Herfindahl-Hirschman Index (``HHI''),

the customary measure of industry concentration, by a substantial

amount. For example, in the United States all-collagen sausage casings

market, the HHI will increase by approximately 2000 points and produce

an industry concentration of approximately 4700 points. In the United

States edible collagen sausage casings market, the HHI would increase

by approximately 3300 points and produce an industry concentration of

approximately 6800 points. In the world all-collagen and edible sausage

casings markets, the proposed acquisition would affect concentration as

measured by four-firm concentration and the HHI by very similar orders

of magnitude.

The Agreement Containing Consent Order, if finally issued by the

Commission, would settle all of the charges alleged in the Commission's

complaint. Under the terms of the proposed consent order, Devro will be

required to divest all of its collagen sausage casings business assets

in the United States and Canada (``Devro North America'') to an

acquirer acceptable to the Commission. Devro North America consists

primarily of a collagen sausage casings manufacturing plant in

Somerville, New Jersey, and a collagen sausage casings finishing plant

in Markham, Ontario, Canada. Because the Canadian and United States

facilities constitute a single operation, Devro is required to divest

the Canadian facility along with the United States plant. This will

insure that the divested assets will continue to operate as a viable,

competitive business. Devro will also be required to make available to

the acquirer of these assets, on a non-exclusive basis, any new

technology that Devro may develop related to collagen sausage casings

for a period of two (2) years following the final entry of the order.

Devro will be required to complete the required divestiture within

three (3) months of the Commission's final issuance of the consent

order. In the event Devro does not divest Devro North America to an

acquirer acceptable to the Commission in the requisite time, procedures

for the appointment of a trustee to sell the assets have been agreed to

and will be triggered.

An additional feature of the consent order accepted for public

comment is that it limits to some extent the class of potential

acquirers for Teepak that would be acceptable to the Commission. Firms

already producing collagen sausage casings for sale in the United

States are excluded as prospective acquirers of Devro North America.

The purpose of this exclusion is to preclude Devro from attempting to

divest Devro North America to a competitor where there are likely to be

further anticompetitive effects.

Accompanying the Agreement Containing Consent Order are two

ancillary agreements. The first is an Agreement to Condition

Acquisition and the second is an Agreement to Hold Separate.

The Agreement to Condition Acquisition requires that Devro may not

acquire Teepak until Devro is authorized by its shareholders to divest

Devro North America and related assets. The purpose of this agreement

is to ensure that the Commission, through the appointed trustee, will

have an enforceable divestiture remedy available should Devro acquire

Teepak and not divest Devro North America. For reasons related to

United Kingdom procedure and practice, Devro believes it cannot seek

shareholder approval for the proposed acquisition of Teepak, or for the

proposed divestiture of Devro North America, unless and until the

Commission accepts the Agreement Containing Consent Order for public

comment. Under the terms of the Agreement to Condition Acquisition,

Devro is required to seek shareholder approval of the divestiture at

the same time that it seeks shareholder approval of the acquisition,

and these approvals must be obtained unconditionally and at least 7

days before the end of the 60-day public comment period. Devro will not

be permitted to acquire Teepak unless it has shareholder approval to

divest Devro North America. Also, when the Commission decides whether

to issue the final order, the Commission will know whether the

conditions have been satisfied. If the Devro shareholders reject the

proposed resolution that, if passed, would authorize Devro to acquire

Teepak and divest Devro North America, no anticompetitive acquisition

will occur and the Commission will not issue the final consent order.

The Agreement to Hold Separate requires that Devro preserve Devro

North America's assets and operate Devro North America as a separate,

ongoing business apart from Devro and Teepak. The purpose of this

agreement is to help insure that the competitive value of Devro North

America will be maintained after Devro acquires Teepak but before the

assets are actually divested.

By accepting the consent order subject to final approval, the

Commission anticipates that the competitive problems alleged in the

complaint will be resolved. The purpose of this analysis is to invite

and facilitate public comment concerning the consent order. It is not

intended to constitute an official interpretation of the agreement and

proposed order or in any way to modify their terms.

By direction of the Commission.

Donald S. Clark,

Secretary.

Concurring Statement of Commissioner Mary L. Azcuenaga in Devro

International PLC

[File No. 951-0072]

Although I have voted to accept the proposed consent order

requiring divestiture for public comment, I have reservations about the

provision of the order that excludes some incumbent firms from

eligibility to acquire the assets to be divested.1 According to

the Notice to Aid Public Comment, the ``purpose of this exclusion is to

preclude Devro from attempting to divest Devro North American to a

competitor where there are likely to be further anticompetitive

effects.'' Since any proposed divestiture under the order must be

approved by the Commission,2 an attempt by Devro to make an

anticompetitive divestiture likely would be fruitless. In addition,

Devro would risk appointment under the order of a trustee to accomplish

[[Page 65338]]

divestiture and incurring civil penalties for failure to make a timely

divestiture.

\1\ Order Paragraph II.C of the proposed order states that the

proposed acquirer of the assets to be divested ``shall not be a firm

that has been engaged in the manufacture of collagen sausage casings

for sale, other than to itself, in the United States.''

\2\ Order Paragraph II.D.

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Attempts to define in advance the field of eligible acquirers under

a divestiture order are unnecessary, at best, potentially inefficient

and possibly even anticompetitive. It is an inefficient use of

resources to attempt to assess in advance the competitive effects of a

transaction that Devro might or might not propose (especially if the

exclusion covers more than one firm), even if the transaction-specific

information necessary to our merger analysis were available. As a

practical matter, any such exclusions will be based on something less

than an adequate factual examination of the various possible proposed

divestitures and will necessarily involve the risk of excluding firms

that might have been acceptable and even procompetitive acquirers. That

risk is unnecessary and should be unacceptable in view of the

requirement to obtain the Commission's approval before any divestiture

can take place and the availability of other sanctions for failing to

make a timely divestiture.

[FR Doc. 95-30834 Filed 12-18-95; 8:45 am]

BILLING CODE 6750-01-P