United States of America vs. Pacific Scientific Company; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

Antitrust Division

United States of America vs. Pacific Scientific Company; Proposed

Final Judgment and Competitive Impact Statement

Notice is hereby given pursuant to the Antitrust Procedures and

Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that a proposed Final

Judgment, Stipulation, and Competitive Impact Statement have been filed

with the United States District Court for the District of Columbia In

United States vs. Pacific Scientific Company, Civ. No. 96-0165. The

proposed Final Judgment is subject to approval by the Court after the

expiration of the statutory 60-day public comment period and compliance

with the Antitrust Procedures and Penalties Act, 15 U.S.C. Sec. 16(b)-

(h).

On January 30, 1996, the United States filed a Complaint seeking to

enjoin a transaction by which Pacific Scientific agreed to acquire Met

One, Inc. Pacific Scientific and Met One are major manufacturers of

drinking water particle counters. The Complaint alleged that the

proposed acquisition would substantially lessen competition in the

manufacture and sale of drinking water particle counters in the United

States in violation of Section 7 of the Clayton Act, 15 U.S.C. Sec. 18,

and Section 1 of the Sherman Antitrust Act, 15 U.S.C. Sec. 1.

The proposed Final Judgment orders defendant to sell all of Pacific

Scientific's U.S. assets and rights relating to the research and

development, manufacture and sale of Pacific Scientific's Drinking

Water Quality Monitoring Systems, other than real property, and Met

One's software relating to Drinking Water Quality Monitoring Systems,

and other assets if necessary to make an economically viable competitor

in the manufacture and sale of drinking water particle counters. The

Stipulation effects a hold separate agreement that, in essence,

requires Pacific Scientific to ensure that, until the divestiture

mandated by the Final Judgment has been accomplished, Met One's

operation will be held separate and apart from, and operated

independently of, Pacific Scientific's assets and businesses. A

Competitive Impact Statement filed by the United States describes the

Complaint, the proposed Final Judgment, and remedies available to

private litigants.

Public comment is invited within the statutory 60-day comment

period. Such comments, and the responses thereto, will be published in

the Federal Register and filed with the Court. Written comments should

be directed to Craig W. Conrath, Chief, Merger Task Force, Antitrust

Division, Room 3700, 1401 H Street NW., Washington, D.C. 20530 (202-

307-5779). Copies of the Complaint, proposed Final Judgment and

Competitive Impact Statement are available for inspection in Room 207

of the U.S. Department of Justice, Antitrust Division, 325 7th Street

NW., Washington, D.C. 20530 (telephone: (202) 514-2481), and at the

office of the Clerk of the United States District Court for the

District of Columbia, Third Street and Constitution Avenue NW.,

Washington, D.C. 20001.

Copies of any of these materials may be obtained upon request and

payment of a copying fee.

Constance K. Robinson,

Director of Operations, Antitrust Division.

United States District Court for the District of Columbia

In the matter of: United States of America, Plaintiff vs.

Pacific Scientific Company, a corporation; Defendant Docket No.: 96-

0165.

Stipulation

It is stipulated by and between the undersigned parties, by their

respective attorneys, as follows:

(1) The Court has jurisdiction over the subject matter of this

action and over each of the parties hereto, and venue of this action is

proper in the District for the District of Columbia.

(2) The parties stipulate that a Final Judgment in the form hereto

attached may be filed and entered by the Court, upon the motion of any

party or upon the Court's own motion, at any time after compliance with

the requirements of the Antitrust Procedures and Penalties Act (15

U.S.C. Sec. 16), and without further notice to any party or other

proceedings, provided that plaintiff has not withdrawn its consent,

which it may do at any time before the entry of the proposed Final

Judgment by serving notice thereof on defendant and by filing that

notice with the Court.

(3) Pacific Scientific shall abide by and comply with the

provisions of the proposed Final Judgment pending entry of the Final

Judgment, and shall, from the date of the signing of this Stipulation,

comply with all the terms and provisions of the proposed Final Judgment

as though the same were in full force and effect as an order of the

Court.

(4) Pacific Scientific shall prepare and deliver reports in the

form required by the provisions of paragraph B of Section VII of the

proposed Final Judgment commencing no later than February 29, 1996, and

every thirty days thereafter pending entry of the Final Judgment.

[[Page 4794]]

(5) In the event plaintiff withdraws its consent, as provided in

paragraph 2 above, or if the proposed Final Judgment is not entered

pursuant to this Stipulation, this Stipulation shall be of no effect

whatever, and the making of this stipulation shall be without prejudice

to any party in this or any other proceeding.

Dated: January 26, 1996.

For Plaintiff United States of America.

Craig W. Conrath,

Attorney, U.S. Department of Justice, Antitrust Division, Merger Task

Force, 1401 H Street NW., Washington, D.C. 20005, (202) 307-5779.

For the Defendant Pacific Scientific Company.

Donald I. Baker,

Baker & Miller, PLLC, 700 Eleventh Street, NW., Suite 615, Washington,

D.C. 20004, (202) 637-9499, Attorney For Pacific Scientific Company.

In the United States District Court for the District of Columbia

In the matter of: United States of America, Plaintiff v. Pacific

Scientific Company, a corporation Defendant. Civil Action No.: 96-

0165.

Final Judgment

Whereas plaintiff, United States of America (hereinafter ``United

States'') having filed its Complaint herein, and defendant, by their

respective attorneys, having consented to the entry of this Final

Judgment without trial or adjudication of any issue of fact or law

herein, and without this Final Judgment constituting any evidence

against or an admission by any party with respect to any issue of law

or fact herein;

And whereas, defendant has agreed to be bound by the provisions of

this Final Judgment pending its approval by the Court;

And whereas, prompt and certain divestiture of certain assets is

the essence of this agreement;

And whereas, the parties intend to require defendant to divest, as

a viable line of business, the Drinking Water Quality Monitoring Assets

so as to ensure, to the sole satisfaction of the plaintiff, that the

Acquirer will be able to manufacture and sell Drinking Water Quality

Monitoring Systems as a viable, ongoing line of business;

And whereas, defendant has represented to plaintiff that the

divestitures required below can and will be made and that defendant

will later raise no claims of hardship or difficulty as grounds for

asking the Court to modify any of the divestiture provisions contained

below;

Now, therefore, before the taking of any testimony, and without

trial or adjudication of any issue of fact or law herein, and upon

consent of the parties hereto, it is hereby ordered, adjudged, and

decreed as follows:

I. Jurisdiction

This Court has jurisdiction over the subject matter of this action

and over each of the parties hereto. The Complaint states a claim upon

which relief may be granted against the defendant under Section 7 of

the Clayton Act, as amended (15 U.S.C. Sec. 18).

II. Definitions

As used in this Final Judgment:

A. ``Drinking Water Quality Monitoring Systems'' means water

particle detection systems used in the evaluation of potable water,

including but not limited to: (1) on-line systems, such as the ``Water

Particle Counting System'' (WPCSTM), (2) portable systems, such as

the VersaCount LVTM/LogEasyTM integrated water sample

particle counting system, and (3) laboratory-based systems, such as

stationary liquid batch sample particle counting systems.

B. ``Pacific Scientific'' means defendant Pacific Scientific

Company, a California corporation with its headquarters in Newport

Beach, California, and includes its successors and assigns, their

subsidiaries, affiliates, directors, officers, managers, agents and

employees.

C. ``Met One'' means Met One, Inc., a California corporation with

its headquarters in Grants Pass, Oregon, and its successors and

assigns, their subsidiaries, affiliates, directors, officers, managers,

agents and employees.

D. ``Drinking Water Quality Monitoring Assets'' means all of

Pacific Scientific's U.S. assets and rights relating to the research

and development, manufacture and sale of Pacific Scientific's Drinking

Water Quality Monitoring Systems, other than real property, and Met

One's software relating to Drinking Water Quality Monitoring Systems.

Drinking Water Quality Monitoring Assets include, but are not limited

to, all Pacific Scientific rights to patents, trade secrets,

technology, know-how, specifications, designs, drawings, processes,

production information, manufacturing information, testing and quality

control data, servicing information, research materials, technical

information, distribution information, information stored on management

information systems (and specifications sufficient for the Acquirer to

use such information), software specific to drinking water qualify

monitoring systems, inventory sufficient for the Acquirer to complete

all safety and efficacy studies, studies or tests necessary to obtain

EPA or other governmental approvals, and all data, contractual rights,

materials and information relating to obtaining EPA approvals and other

government or regulatory approvals within the United States, and

certain rights to brand or trade names (excluding the HIAC/Royco,

Royco, Pacific Scientific, and Met-One trade names). Drinking Water

Quality Monitoring Assets also include all Pacific Scientific customer

lists, customer information, prospects, mailing lists, quotations and

proposals for Drinking Water Quality Monitoring Systems and their

applications, service contracts for Drinking Water Quality Monitoring

Systems and their applications, advertising materials, advertising

assistance, marketing training, and marketing assistance for Drinking

Water Quality Monitoring Systems and their applications, and copies of

and rights to software and technical information for Drinking Water

Quality Monitoring Systems and their applications. Drinking Water

Quality Monitoring Assets shall include assets sufficient, to the sole

satisfaction of the plaintiff, to ensure that the Acquirer will be able

to manufacture and sell Drinking Water Quality Monitoring Systems as a

viable, ongoing line of business.

E. ``Divestiture Assets'' means the Drinking Water Quality

Monitoring Assets, or such lesser portion thereof as is sufficient to

ensure, to the sole satisfaction of the plaintiff, that the Acquirer

will be able to manufacture and sell Drinking Water Quality Monitoring

Systems as a viable, ongoing line of business.

F. ``Acquirer'' means the entity or entities to whom Pacific

Scientific shall divest the Divestiture Assets.

III. Applicability

A. The provisions of this Final Judgment apply to the defendant,

its successors and assigns, their subsidiaries, affiliates, directors,

officers, managers, agents, and employees, and all other persons in

active concert or participation with any of them who shall have

received actual notice of this Final Judgment by personal service or

otherwise.

B. Pacific Scientific shall require, as a condition of the sale or

other disposition of all or substantially all of the Divestiture Assets

other than as provided in this Final Judgment, that the acquiring party

or parties agree to be

[[Page 4795]]

bound by the provisions of this Final Judgment.

IV. Requirement to Hold Separate

Prior to the divestiture contemplated by this Final Judgment:

A. Pacific Scientific shall preserve, hold, and continue to operate

the business of Pacific Scientific and the business of Met One as

ongoing businesses, with their assets, management, and operations

separate, distinct, and apart from one another. Pacific Scientific

shall use all reasonable efforts to maintain the business of Pacific

Scientific and the business of Met One as viable and active

competitors.

There shall be no exchange between Pacific Scientific or Met One of

any confidential business information (other than accounting

information required in the ordinary course of business) or any

technology or know-how.

B. Pacific Scientific shall not, without the consent of the United

States, sell, lease, assign, transfer, or otherwise dispose of, or

pledge as collateral for loans (except such loans and credit facilities

as are currently outstanding or replacements or substitutes therefor)

the Divestiture Assets or any business assets of Met One, except that

any such asset that is replaced in the ordinary course of business with

a newly purchased asset may be sold or otherwise disposed of, provided

the newly purchased asset is identified as a replacement for an asset

to be divested.

C. In its efforts to preserve and maintain the business of Pacific

Scientific and the business of Met One as viable and active

competitors, the obligations of Pacific Scientific shall include, but

are not limited to: preserving all equipment, all rights to brand or

trade names, patents, trade secrets, technology, know-how,

specifications, designs, drawings, processes, production information,

manufacturing information, testing and quality control data, servicing

information, research materials, technical information, distribution

information, customer lists, information stored on management

information systems (and specifications sufficient for the Acquirer to

use such information), software specific to Pacific Scientific's or Met

One's divestiture assets, inventory sufficient for the Acquirer to

complete all safety and efficacy studies, studies or tests necessary to

obtain EPA or other governmental approvals, and all data, contractual

rights, materials and information relating to obtaining EPA approvals

and other government or regulatory approvals within the United States.

These obligations do not preclude sales in the ordinary course of

business.

D. Pacific Scientific shall provide and maintain sufficient working

capital to maintain the Divestiture Assets business and the business of

Met One as viable, ongoing businesses.

E. Pacific Scientific shall provide and maintain sufficient lines

and sources of credit to maintain the Divestiture Assets business and

the business of Met One as viable, ongoing businesses.

F. Pacific Scientific shall preserve the business assets of Pacific

Scientific and Met One in a state of repair equal to their state of

repair as of the date of Pacific Scientific's acquisition of Met One.

G. Pacific Scientific shall maintain on behalf of the businesses of

Pacific Scientific and Met One in accordance with sound accounting

practice, separate, true and complete financial ledgers, books and

records reporting the profit and loss and liabilities of the businesses

on a monthly and quarterly basis.

H. Pacific Scientific shall refrain from terminating or reducing

any current employment, salary, or benefit agreements for any

management, engineering, or other technical personnel employed by Met

One or by Pacific Scientific in connection with the Divestiture Assets

business of Pacific Scientific, except in the ordinary course of

business, without the prior approval of the United States.

I. Pacific Scientific shall refrain from taking any action that

would have the effect of reducing the scope or level of competition

between the businesses of Pacific Scientific and Met One without the

prior approval of the United States.

J. Pacific Scientific shall refrain from taking any action that

would jeopardize its ability to divest the Divestiture Assets as a

viable ongoing line of business.

K. When an agreement has been reached for the sale of the

Divestiture Assets that is satisfactory to the plaintiff in its sole

discretion, Pacific Scientific may be released from the restrictions of

this Part IV once the divestiture sale has been consummated, in the

sole discretion of the plaintiff. Such release shall become effective

when plaintiff so notifies the Court.

V. Divestiture of Assets

A. Pacific Scientific is hereby ordered and directed, within 30

days of the date this Order is entered, to divest the Divestiture

Assets. Plaintiff, in its sole discretion, may agree to an extension of

this time period, and shall notify the Court in such circumstances.

B. Divestiture of the Divestiture Assets under Section V.A shall be

accomplished in such a way as to satisfy the United States that the

Divestiture Assets can and will be operated by the Acquirer as a

viable, ongoing line of business.

Divestiture of the Divestiture Assets under Section V.A shall be

made to a purchaser for whom it is demonstrated to the sole

satisfaction of the United States that (1) the purchase is for the

purpose of competing effectively in the manufacture and sale of

Drinking Water Quality Monitoring Systems, and (2) the Acquirer has the

managerial, operational, and financial capability to compete

effectively in the manufacture and sale of Drinking Water Quality

Monitoring Systems.

C. Pacific Scientific shall take all reasonable steps to accomplish

quickly the divestitures contemplated by this Final Judgment.

D. Pacific Scientific agrees that, if it fails to divest the

Divestiture Assets within the time specified in Section V.A, it shall

not oppose nor contest in any way a civil contempt penalty of not more

than $100,000 as may be recommended and moved for by the United States.

Pacific Scientific further agrees that, if it fails to divest the

Divestiture Assets within the time specified in Section V.A, it shall

not oppose nor contest in any way civil contempt penalties of not more

than $10,000 per day, for each day after the date the United States

moves for the appointment of a trustee pursuant to Section VI.A until

the date it consents to appointment of a trustee pursuant to Section

VI, as may be recommended and moved for by the United States.

VI. Appointment of Trustee

A. In the event that Pacific Scientific has not divested the

Divestiture Assets within 30 days of the date this Order is entered,

the Court shall, on application of the United States, appoint a trustee

selected by the United States to effect the divestiture of the

Divestiture Assets. Unless plaintiff otherwise consents in writing, the

divestiture shall be accomplished in such a way as to satisfy

plaintiff, in its sole discretion, that the Divestiture Assets can and

will be used by the Acquirer as a viable on-going line of business. The

Divestiture shall be made to an Acquirer for whom it is demonstrated to

plaintiff's sole satisfaction that the Acquirer has the managerial,

operational, and financial capability to compete effectively, and that

none of the terms of the divestiture agreement interfere with the

ability of the purchaser to compete effectively.

[[Page 4796]]

B. After the appointment of a trustee becomes effective, only the

trustee shall have the right to sell the Divestiture Assets. The

trustee shall have the power and authority to accomplish the

divestiture at the best price then obtainable upon a reasonable effort

by the trustee, subject to the provisions of Section VII of this Final

Judgment, and shall have such other powers as the Court shall deem

appropriate. The trustee shall have the power and authority to hire at

the cost and expense of defendant any investment bankers, attorneys, or

other agents reasonably necessary in the judgment of the trustee to

assist in the divestiture, and such professionals and agents shall be

solely accountable to the trustee. The trustee shall have the power and

authority to accomplish the divestiture at the earliest possible time

to a purchaser acceptable to plaintiff, and shall have such other

powers as this Court shall deem appropriate. Defendant shall not object

to a sale by the trustee on any grounds other than the trustee's

malfeasance, or on the grounds that the sale is contrary to the express

terms of this Final Judgment. Any such objections by defendant must be

conveyed in writing to plaintiff and the trustee within ten (10) days

after the trustee has provided the notice required under Section VII.

C. The trustee shall serve at the cost and expense of Pacific

Scientific, on such terms and conditions as the Court may prescribe,

and shall account for all monies derived from the sale of the assets

sold by the trustee and all costs and expenses so incurred. After

approval by the Court of the trustee's accounting, including fees for

its services and those of any professionals and agents retained by the

trustee, all remaining money shall be paid to Pacific Scientific and

the trust shall then be terminated. The compensation of such trustee

and that of any professionals and agents retained by the trustee shall

be reasonable in light of the value of the Divestiture Assets and based

on a fee arrangement providing the trustee with an incentive based on

the price and terms of the divestiture and the speed with which it is

accomplished.

D. Pacific Scientific shall use its best efforts to assist the

trustee in accomplishing the required divestiture. The trustee and any

consultants, accountants, attorneys, and other persons retained by the

trustee shall have full and complete access to the personnel books,

records, and facilities of Pacific Scientific and Met One, and

defendant shall develop financial or other information relevant to such

assets as the trustee may reasonably request, subject to reasonable

protection for trade secret or other confidential research,

development, or commercial information. Defendant shall take no action

to interfere with or to impede the trustee's accomplishment of the

divestiture.

E. After its appointment, the trustee shall file monthly reports

with the parties and the Court setting forth the trustee's efforts to

accomplish the divestiture ordered under this Final Judgment. If the

trustee has not accomplished such divestiture within six (6) months

after its appointment, the trustee shall thereupon promptly file with

the Court a report setting forth (1) the trustee's efforts to

accomplish the required divestiture, (2) the reasons, in the trustee's

judgment, why the required divestiture has not been accomplished, and

(3) the trustee's recommendations. The trustee shall at the same time

furnish such report to the parties, who shall each have the right to be

heard and to make additional recommendations consistent with the

purpose of the trust. The Court shall thereafter enter such orders as

it shall deem appropriate in order to carry out the purpose of the

trust, which may, if necessary, include extending the trust and the

term of the trustee's appointment by a period requested by the United

States.

F. The Acquirer shall not, without the prior written consent of the

United States, sell any of the acquired assets to, or combine any of

the acquired assets with those of, Pacific Scientific during the life

of this decree. Furthermore, the Acquirer shall notify plaintiff 45

days in advance of any proposed sale of all or substantially all of the

assets, or control over those assets, acquired pursuant to this Final

Judgment.

VII. Notification

A. Pacific Scientific or the trustee, whichever is then responsible

for effecting the divestiture required herein, shall notify plaintiff

of any proposed divestiture required by Section V or VI of this Final

Judgment. If the trustee is responsible, it shall similarly notify

Pacific Scientific. The notice shall set forth the details of the

proposed transaction and list the name, address, and telephone number

of each person not previously identified who offered or expressed an

interest or desire to acquire any ownership interest in the Divestiture

Assets, together with full details of the same. Within fifteen (15)

days after receipt of the notice, plaintiff may request additional

information concerning the proposed divestiture, the proposed

purchaser, and any other potential purchaser. Pacific Scientific or the

trustee shall furnish the additional information within fifteen (15)

days of the receipt of the request. Within thirty (30) days after

receipt of the notice or within fifteen (15) days after receipt of the

additional information, whichever is later, the United States shall

notify in writing Pacific Scientific and the trustee, if there is one,

if it objects to the proposed divestiture. If the United States fails

to object within the period specified, or if the United States notifies

in writing Pacific Scientific and the trustee, if there is one, that it

does not object, then the divestiture may be consummated, subject only

to Pacific Scientific's limited right to object to the sale under

Section VI.B. Upon objection by the United States or by Pacific

Scientific under Section VI.B, the proposed divestiture shall not be

accomplished unless approved by the Court.

B. Thirty (30) days from the date when this Order becomes final,

and every thirty (30) days thereafter until the divestiture has been

completed or a trustee is appointed, Pacific Scientific shall deliver

to plaintiff a written report as to the fact and manner of compliance

with Section V of this Final Judgment. Each such report shall include,

for each person who during the preceding thirty (30) days made an

offer, expressed an interest or desire to acquire, entered into

negotiations to acquire, or made an inquiry about acquiring any

ownership interest in the Divestiture Assets or any of them, the name,

address, and telephone number that person and a detailed description of

each contact with that person during that period. Pacific Scientific

shall maintain full records of all efforts made to divest all or any

portion of the Divestiture Assets.

VIII. Financing

Pacific Scientific shall not finance all or any part of any

purchase made pursuant to Sections V or VI of this Final Judgment

without the prior written consent of the United States.

IX. Compliance Inspection

For the purpose of determining or securing compliance with this

Final Judgment, and subject to any legally recognized privilege, from

time to time:

A. Duly authorized representatives of the United States, including

consultants and other persons retained by the plaintiff, shall, upon

the written request of the Assistant Attorney General in charge of the

Antitrust Division, and on reasonable notice to Pacific Scientific made

to its principal offices, be permitted:

1. access during office hours to inspect and copy all books,

ledgers, accounts, correspondence, memoranda,

[[Page 4797]]

and other records and documents in the possession or under the control

of defendant, which may have counsel present, relating to any matters

contained in this Final Judgment; and

2. subject to the reasonable convenience of Pacific Scientific and

without restraint or interference from them, to interview Pacific

Scientific directors, officers, employees, and agents, who may have

counsel present, regarding any such matters.

B. Upon the written request of the Assistant Attorney General in

charge of the Antitrust Division, made to Pacific Scientific at its

principal offices, Pacific Scientific shall submit written reports,

under oath if requested, with respect to any of the matters contained

in this Final Judgment as may be requested.

C. No information nor any documents obtained by the means provided

in this Section IX shall be divulged by any representative of the

United States to any person other than a duly authorized representative

of the Executive Branch of the United States, except in the course of

legal proceedings to which the United States is a party (including

grand jury proceedings), or for the purpose of securing compliance with

this Final Judgment, or as otherwise required by law.

D. If at the time information or documents are furnished by Pacific

Scientific to plaintiff, Pacific Scientific represents and identifies

in writing the material in any such information or documents for which

a claim of protection may be asserted under Rule 26(c)(7) of the

Federal Rules of Civil Procedure, and Pacific Scientific marks each

pertinent page of such material, ``Subject to claim of protection under

Rule 26(c)(7) of the Federal Rules of Civil Procedure,'' then plaintiff

shall give ten (10) days notice to Pacific Scientific prior to

divulging such material in any legal proceeding (other than a grand

jury proceeding) to which Pacific Scientific is not a party.

X. Retention of Jurisdiction

Jurisdiction is retained by this Court for the purpose of enabling

any of the parties to this Final Judgment to apply to this Court at any

time for such further orders and directions as may be necessary or

appropriate for the construction, implementation, or modification of

any of the provisions of this Final Judgment, for the enforcement of

compliance herewith, and for the punishment of any violations hereof.

XI. Termination

This Final Judgment will expire on the tenth anniversary of the

date of its entry.

XII. Public Interest

Entry of this Final Judgment is in the public interest.

Dated:---------------------------------------------------------------

Court approval subject to procedures of Antitrust Procedures and

Penalties Act, 15 U.S.C. Sec. 16

----------------------------------------------------------------------

United States District Judge

United States District Court for the District of Columbia

In the matter of: United States of America, Plaintiff, v.

Pacific Scientific Company, Defendant. Case Number 1:96CV00165.

Judge: James Robertson. Deck Type: Antitrust. Date Stamp: 01/30/96.

Competitive Impact Statement

The United States, pursuant to Section 2(b) of the Antitrust

Procedures and Penalties Act (``APPA''), 15 U.S.C. Sec. 16(b)-(h),

files this Competitive Impact Statement relating to the proposed Final

Judgment submitted for entry in this civil antitrust proceeding.

I. Nature and Purpose of the Proceeding

The United States filed a civil antitrust Complaint on January 30,

1996, alleging that the proposed acquisition of all of the outstanding

shares of Met One, Inc. (``Met One'') by Pacific Scientific Company

(``Pacific Scientific'') would violate Section 7 of the Clayton Act, 15

U.S.C. Sec. 18, and Section 1 of the Sherman Antitrust Act, 15 U.S.C.

Sec. 1. Pacific Scientific and Met One are the nation's two leading

manufacturers of drinking water particle counters.

The Complaint alleges that the combination of these major

competitors would substantially lessen competition in the manufacture

and sale of drinking water particle counters in the United States. The

prayer for relief seeks: (1) a judgment that the proposed acquisition

would violate Section 7 of the Clayton Act, as amended, 15 U.S.C.

Sec. 18, and Section 1 of the Sherman Antitrust Act, 15 U.S.C. Sec. 1;

and (2) a preliminary and permanent injunction preventing Pacific

Scientific and Met One from carrying out the proposed merger, or any

similar agreement, understanding or plan.

Shortly before that suit was filed, a proposed settlement was

reached that would permit Pacific Scientific to complete its

acquisition of Met One's stock, yet preserve competition in the market

in which the transaction would raise significant competitive concerns.

A Stipulation and a proposed Final Judgment embodying the proposed

settlement were filed as well.

The Stipulation effects a hold separate agreement that, in essence,

requires Pacific Scientific to ensure that, until the divestiture

mandated by the Final Judgment has been accomplished, Met One's

operations will be held separate and apart from, and operated

independently of, Pacific Scientific's assets and businesses.

The proposed Final Judgment orders defendant to sell all of Pacific

Scientific's U.S. assets and rights relating to the research and

development, manufacture and sale of Pacific Scientific's Drinking

Water Quality Monitoring Systems, other than real property, and Met

One's software relating to Drinking Water Quality Monitoring Systems,

and other assets if necessary, to make an economically viable

competitor in the manufacture and sale of drinking water particle

counters.

The United States and Pacific Scientific have stipulated that the

proposed Final Judgment may be entered after compliance with the APPA.

Entry of the proposed Final Judgment would terminate this action,

except that the Court would retain jurisdiction to construe, modify, or

enforce the provisions of the proposed Final Judgment and to punish

violations thereof.

II. Description of the Events Giving Rise to the Alleged Violation

A. The Defendant and the Proposed Transaction

Defendant Pacific Scientific Company is a California corporation

with its headquarters in Newport Beach, California. Pacific Scientific

Company reported annual sales in 1994 of approximately $234,700,000.

HIAC/ROYCO, the division of Pacific Scientific that manufactures and

sells drinking water particle counters, reported 1994 sales of

$13,011,000, of which $1,270,000 came from drinking water particle

counter sales.

Met One, Inc. is a California corporation with its headquarters in

Grants Pass, Oregon. Met One reported net sales in 1994 of

approximately $11,800,000, of which approximately $1,180,000 came from

drinking water particle counter sales. Louis J. Petralli, Jr. is the

majority and controlling owner of Met One.

Pacific Scientific proposes to acquire all outstanding stock of Met

One for Pacific Scientific stock, and merge Met One into a newly

created acquisition subsidiary.

B. The Drinking Water Particle Counter Market

Drinking water particle counters are devices sold largely to

municipalities for the purpose of protecting against contamination of

public drinking water

[[Page 4798]]

supplies. The drinking water particle counters made and sold by

defendant are capable of detecting particles the size of potentially

deadly microorganisms that may exist in public drinking water supplies.

Drinking water particle counters such as those made by defendant

generally include four components: a sensor, which directs a laser beam

from a laser diode through the water being tested; a sampler, which

provides a means to transport a sample of the water in which the

particles are being counted undisturbed through the sensor; a counter,

which sorts the signals from the sensor by voltage and assigns a

particle size to the signals; and software, which translates data into

a readable format.

Because drinking water particle counters are able to detect

potentially harmful contaminants in public drinking water with greater

sensitivity and efficiency than other technologies, such as

turbiditymeters and microscopes, municipalities purchase them to

satisfy their concerns for the purity and safety of their drinking

water. For example, in 1993, 28 people in Milwaukee died as a result of

drinking water contamination by one such microorganism--

Cryptosporidium. At the time of that tragedy, Milwaukee had installed

turbiditymeters but had not installed drinking water particle counters.

Since 1993, Milwaukee has installed drinking water particle

counters.\1\

\1\ Turbiditymeters are not part of the relevant market.

Turbidity is an optical measurement of solid contamination suspended

as particles in a fluid. Turbiditymeters have significantly

different attributes than drinking water particle counters. For

example, turbiditymeters cannot detect small quantities of

microorganisms such as Cryptosporidium, as particle counters can.

And, unlike drinking water particle counters, turbiditymeters do not

provide exact data for the size and number of particles in a given

medium. Municipalities do not consider turbiditymeters to be

substitutes for drinking water particle counters.

---------------------------------------------------------------------------

Municipalities generally purchase drinking water particle counters

through formal bid procedures. Although price is an important factor,

municipalities also consider quality, reliability, service, and the

reputation of the qualifying firms. Municipalities routinely request

from each firm as part of that firm's bid package a list of references

from past successful bids. Municipalities also routinely invite

drinking water particle counter competitors to demonstrate the

capabilities of their respective devices prior to the municipality's

determination of the bid winner.

C. Competition Between Pacific Scientific and Met One

Pacific Scientific and Met One compete directly in the manufacture

and sale of drinking water particle counters. Pacific Scientific's

Water Particle Counting System and Met One's on-line particle counting

systems are regarded by municipalities as close substitutes, for they

offer similar functionality, performance and features.

Pacific Scientific and Met One recognize the rivalry between their

products in the relevant geographic market. Each firm has engaged in

comparative selling techniques and competitive pricing strategies

against the other firm in order to increase the likelihood of

successful sales. Through these activities, Pacific Scientific and Met

One have each operated as a significant competitive constraint on the

other's prices and have each provided impetus for technological

improvements in the other's systems. For example, when Met One was

awarded the 1994 contract for particle counters provided to the City of

San Francisco, Pacific Scientific wrote the city reminding it that

Pacific Scientific rather than Met One was the low bidder. In its

letter, Pacific Scientific also provided the city a detailed comparison

of the Pacific Scientific product versus the Met One product. It has

been common practice for municipalities to conduct side by side

evaluations or demonstrations of the Pacific Scientific and Met One

drinking water particle counters in considering the merits of each

product's software and hardware capabilities.

D. Anticompetitive Consequences of the Acquisition

The Complaint alleges that the acquisition of Met One, Inc. by

Pacific Scientific Company would reduce substantially or eliminate

competition in the drinking water particle counter market in the United

States and decrease incentives to maintain high levels of quality and

service and to keep prices low.

Specifically, the Complaint alleges that the acquisition would

increase concentration significantly in what is already a highly

concentrated market.\2\

\2\ The Herfindahl-Hirschman Index (``HHI'') is a widely-used

measure of market concentration. Following the acquisition, the

appropriate post-merger HHI, calculated from 1994 dollar sales,

would be 4842, an increase of 2108 from the premeger HHI.

---------------------------------------------------------------------------

After the acquisition, the combined Pacific Scientific/Met One

entity would dominate the drinking water particle counter market. Based

on 1994 sales, the market share of the combined entity would be 65% of

drinking water particle counters sold in the United States.

The complaint also alleges that entry into the market by a new firm

selling drinking water particle counters would not likely be either

timely or sufficient to prevent the harm to competition caused by

Pacific Scientific's acquisition of Met One.

III. Explanation of the Proposed Final Judgment

The proposed Final Judgment would preserve competition in the

manufacture and sale of drinking water particle counters in the United

States. Within 30 days after entry of the Final Judgment, defendant

will divest certain of Pacific Scientific's U.S. assets and rights

relating to the research and development, manufacture and sale of

Pacific Scientific's Drinking Water Quality Monitoring Systems, other

than real property, and Met One's software relating to Drinking Water

Quality Monitoring Systems, and other assets if necessary, to create an

economically viable new competitor in the manufacture and sale of

drinking water particle counters (in general, the ``Divestiture

Assets'').

The proposed Final Judgment provides for the imposition of civil

contempt penalties as an additional incentive for defendant to carry

out the prompt divestiture of the Divestiture Assets and maintain

competition in the drinking water particle counter market.

If defendant fails to divest the Divestiture Assets within 30 days

after entry of the Final Judgment, the Court, upon application by the

United States, shall appoint a trustee nominated by the United States

to effect the divestiture of the Divestiture Assets. If a trustee is

appointed, the proposed Final Judgment provides that Pacific Scientific

will pay all costs and expenses of the trustee. The proposed Final

Judgment also provides that the compensation of the trustee and of any

professionals and agents retained by the trustee shall be both

reasonable in light of the value of the Divestiture Assets and based on

a fee arrangement providing the trustee with an incentive based on the

price and terms of the divestiture and the speed with which it is

accomplished. After appointment, the trustee will file monthly reports

with the parties and the Court setting forth the trustee's efforts to

accomplish the divestiture ordered under the proposed Final Judgment.

If the trustee has not accomplished the divestiture within six (6)

months after its appointment, the trustee shall promptly file with the

Court a report setting forth (1) the trustee's efforts to accomplish

the required divestiture, (2)

[[Page 4799]]

the reasons, in the trustee's judgment, why the required divestiture

has not been accomplished, and (3) the trustee's recommendations. At

the same time the trustee will furnish such report to the parties, who

will each have the right to be heard and to make additional

recommendations consistent with the purpose of the trust.

The proposed Final Judgment requires that Pacific Scientific and

Met One be maintained separate and apart as independent entities prior

to the divestiture contemplated by the Final Judgment.

IV. Remedies Available to Potential Private Litigants

Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any

person who has been injured as a result of conduct prohibited by the

antitrust laws may bring suit in federal court to recover three times

the damages the person has suffered, as well as costs and reasonable

attorneys' fees. Entry of the proposed Final Judgment will neither

impair nor assist the bringing of any private antitrust damage action.

Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.

Sec. 16(a), the proposed Final Judgment has no prima facie effect in

any subsequent private lawsuit that may be brought against defendant.

V. Procedures Available for Modification of the Proposed Final Judgment

The United States and the defendant have stipulated that the

proposed Final Judgment may be entered by the Court after compliance

with the provisions of the APPA, provided that the United States has

not withdrawn its consent. The APPA conditions entry upon the Court's

determination that the proposed Final Judgment is in the public

interest.

The APPA provides a period of at least sixty (60) days preceding

the effective date of the proposed Final Judgment within which any

person may submit to the United States written comments regarding the

proposed Final Judgment. Any person who wishes to comment should do so

within sixty (60) days of the date of publication of this Competitive

Impact Statement in the Federal Register. The United States will

evaluate and respond to the comments. All comments will be given due

consideration by the Department of Justice, which remains free to

withdraw its consent to the proposed Final Judgment at any time prior

to entry. The comments and the response of the United States will be

filed with the Court and published in the Federal Register.

Written comments should be submitted to: Craig W. Conrath, Chief,

Merger Task Force, Antitrust Division, United States Department of

Justice, 1401 H Street NW., Suite 3700, Washington, D.C. 20530.

The proposed Final Judgment provides that the Court retains

jurisdiction over this action, and the parties may apply to the Court

for any order necessary or appropriate for the modification,

interpretation, or enforcement of the Final Judgment.

VI. Alternatives to the Proposed Final Judgment

The United States considered, as an alternative to the proposed

Final Judgment, a full trial on the merits of its Complaint against

Pacific Scientific. The United States is satisfied, however, that the

divestiture of the assets and other relief contained in the proposed

Final Judgment will preserve viable competition in the manufacture and

sale of drinking water particle counters that would otherwise be

adversely affected by the acquisition. Thus, the proposed Final

Judgment would achieve the relief the government would have obtained

through litigation, but avoids the time, expense and uncertainty of a

full trial on the merits of the government's Complaint.

VII. Standard of Review Under the APPA for Proposed Final Judgment

The APPA requires that proposed consent judgments in antitrust

cases brought by the United States be subject to a sixty-day comment

period, after which the court shall determine whether entry of the

proposed Final Judgment ``is in the public interest.'' In making that

determination,

The court may consider--

(1) The competitive impact of such judgment, including

termination of alleged violations, provisions for enforcement and

modification, duration or relief sought, anticipated effects of

alternative remedies actually considered, and any other

considerations bearing upon the adequacy of such judgment;

(2) The impact of entry of such judgment upon the public

generally and individuals alleging specific injury from the

violations set forth in the complaint including consideration of the

public benefit, if any, to be derived from a determination of the

issues at trial.

15 U.S.C. Sec. 16(e) (emphasis added). As the United States Court of

Appeals for the D.C. Circuit recently held, this statute permits a

court to consider, among other things, the relationship between the

remedy secured and the specific allegations set forth in the

government's complaint, whether the decree is sufficiently clear,

whether enforcement mechanisms are sufficient, and whether the decree

may positively harm third parties. See United States v. Microsoft, 56

F.3d 1448, 1461-62 (D.C. Cir. 1995).

In conducting this inquiry, ``the Court is nowhere compelled to go

to trial or to engage in extended proceedings which might have the

effect of vitiating the benefits of prompt and less costly settlement

through the consent decree process.'' \3\ Rather,

\3\ 119 Cong. Rec. 24598 (1973). See United States v. Gillette

Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public interest''

determination can be made properly on the basis of the Competitive

Impact Statement and Response to Comments filed pursuant to the

APPA. Although the APPA authorizes the use of additional procedures,

15 U.S.C. 16(f), those procedures are discretionary. A court need

not invoke any of them unless it believes that the comments have

raised significant issues and that further proceedings would aid the

court in resolving those issues. See H.R. Rep. 93-1463, 93rd Cong.

2d Sess. 8-9, reprinted in (1974) U.S. Code Cong. & Ad. News 6535,

6538.

Absent a showing of corrupt failure of the government to

discharge its duty, the Court, in making its public interest

finding, should * * * carefully consider the explanations of the

government in the competitive impact statement and its responses to

comments in order to determine whether those explanations are

---------------------------------------------------------------------------

reasonable under the circumstances.

United States v. Mid-America Dairymen, Inc., 1977-1 Trade Cas. para.

61,508, at 71,980 (W.D. Mo. 1977).

Accordingly, with respect to the adequacy of the relief secured by

the decree, a court may not ``engage in an unrestricted evaluation of

what relief would best serve the public.'' United States v. BNS, Inc.,

858 F.2d 456, 462 (9th Cir. 1988) quoting United States v. Bechtel

Corp., 648 F.2d 660, 666 (9th Cir.), cert. denied, 454 U.S. 1083

(1981); see also Microsoft, 56 F.3d at 1460-62. Precedent requires

that--

The balancing of competing social and political interests

affected by a proposed antitrust consent decree must be left, in the

first instance, to the discretion of the Attorney General. The

court's role in protecting the public interest is one of insuring

that the government has not breached its duty to the public in

consenting to the decree. The court is required to determine not

whether a particular decree is the one that will best serve society,

but whether the settlement is ``within the reaches of the public

interest.'' More elaborate requirements might undermine the

effectiveness of antitrust enforcement by consent decree.\4\

\4\ United States v. Bechtel, 648 F.2d at 666 (citations

omitted) (emphasis added); see United States v. BNS, Inc., 858 F.2d

at 463; United States v. National Broadcasting Co., 449 F. Supp.

1127, 1143 (C.D. Cal. 1978); United States v. Gillette Co., 406 F.

Supp. at 716. See also Microsoft, 56 F.3d at 1461 (whether ``the

remedies [obtained in the decree are] so inconsonant with the

allegations charged as to fall outside of the 'reaches of the public

interest.' '') (citations omitted).

[[Page 4800]]

---------------------------------------------------------------------------

The proposed Final Judgment, therefore, should not be reviewed

under a standard of whether it is certain to eliminate every

anticompetitive effect of a particular practice or whether it mandates

certainty of free competition in the future. Court approval of a final

judgment requires a standard more flexible and less strict than the

standard required for a finding of liability. ``[A] proposed decree

must be approved even if it falls short of the remedy the court would

impose on its own, as long as it falls within the range of

acceptability or is `within the reaches of public interest.' (citations

omitted).''\5\

\5\ United States v. American Tel. and Tel Co., 552 F. Supp.

131, 150 (D.D.C. 1982), aff'd sub nom. Maryland v. United States,

460 U.S. 1001 (1983), quoting United States v. Gillette Co., supra,

406 F. Supp. at 716; United States v. Alcan Aluminum, Ltd., 605 F.

Supp. 619, 622 (W.D. Ky. 1985).

---------------------------------------------------------------------------

VIII. Determinative Documents

There are no determinative materials or documents within the

meaning of the APPA that were considered by the United States in

formulating the proposed Final Judgment.

Dated: January 30, 1996.

Respectfully submitted,

John W. Van Lonkhuyzen,

Alexander Y. Thomas,

Trial Attorneys, U.S. Department of Justice, Antitrust Division, Merger

Task Force, 1401 H Street, NW., Suite 3700, Washington, DC 20530, (202)

307-6355.

[FR Doc. 96-2657 Filed 2-7-96; 8:45 am]

BILLING CODE 4410-01-M