United States v. Raytheon Company, General Motors Corporation, and HE Holdings, Inc.; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. Raytheon Company, General Motors Corporation,

and HE Holdings, Inc.; Proposed Final Judgment and Competitive Impact

Statement

Notice is hereby given pursuant to the Antitrust Procedures and

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

Stipulation and Order, Hold Separate and Partition Plan Stipulation and

Order, and Competitive Impact Statement have been filed with the United

States District Court in the District of Columbia, Civil No.

1:97CV02397.

On October 16, 1997, the United States filed a Complaint alleging

that the proposed acquisition by Raytheon Company of Hughes Aircraft

Company, a wholly owned subsidiary of HE Holdings, Inc. and an indirect

subsidiary of General Motors Corporation, would violate Section 7 of

the Clayton Act, 15 U.S.C. Sec. 18. The proposed Final Judgment, filed

contemporaneously with the Complaint, requires Raytheon to: (1) Divest

the second generation and third generation focal plane array business

of Raytheon TI Systems (``RTIS'') and the second generation ground

electro-optical business of Hughes Aircraft Company's Sensors and

Communications Segment; (2) establish a firewall that prevents the flow

of information concerning the Follow-on-to-TOW (``FOTT'') missile

program between the RTIS/Lockheed Martin Corp. joint venture FOTT team

and the Hughes FOTT team, and between each FOTT team and any other

employee of Raytheon; and (3) provide incentives to the RTIS/Lockheed

Martin FOTT team to pursue its bid to ensure competition between

Raytheon and Hughes in bids for the FOTT missile.

Public comment is invited within the statutory 60-day comment

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

Federal Register and

[[Page 60268]]

filed with the Court. Comments should be directed to J. Robert Kramer

II, Chief, Litigation II Section, Antitrust Division, United States

Department of Justice, 1401 H Street, NW., Suite 3000, Washington, DC

20530 (telephone: 202/307-0924).

Copies of the Complaint, Stipulation and Order, Hold Separate and

Partition Plan Stipulation and Order, Proposed Final Judgment, and

Competitive Impact Statement are available for inspection in Room 215

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

NW., Washington, DC 20530, (202) 514-2841. Copies 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

[Civil No: 97 2397]

United States of America, Plaintiff, v. Raytheon Company, General

Motors Corp., and H E Holdings, Inc., Defendants

Stipulation and Order

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 United States District Court 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 defendants and by filing that

notice with the Court.

(3) Defendants shall abide by and comply with the provisions of the

proposed Final Judgment pending entry of the Final Judgment by the

Court, or until expiration of time for all appeals of any Court ruling

declining entry of the proposed Final Judgment, and shall, from the

date of the signing of this Stipulation by the parties, 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) This Stipulation shall apply with equal force and effect to any

amended proposed Final Judgment agreed upon in writing by the parties

and submitted to the Court.

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

paragraph 2 above, or in the event the proposed Final Judgment is not

entered pursuant to this Stipulation, the time has expired for all

appeals of any Court ruling declining entry of the proposed Final

Judgment, and the Court has not otherwise ordered continued compliance

with the terms and provisions of the proposed Final Judgment, then the

parties are released from all further obligations under this

Stipulation, and the making of this Stipulation shall be without

prejudice to any party in this or any other proceeding.

(6) Defendants represent that the divestiture ordered in the

proposed Final Judgment can and will be made, and that defendants will

later raise no claim of hardship or difficulty as grounds for asking

the Court to modify any of the divestiture provisions contained

therein.

Dated: October 16, 1997.

For Plaintiff United States of America:

Willie L. Hudgins,

Esquire (D.C. Bar #37127), U.S. Department of Justice, Antitrust

Division, Litigation II, Suite 3000, Washington, D.C. 20005, (202) 307-

0924.

For Defendant Raytheon Company

Robert D. Paul,

Esquire (D.C. Bar #416314), Michael S. Shuster, Esquire, White & Case,

601 13th St., N.W., Washington, D.C. 20005-3807, (202) 626-3614.

For Defendants H E Holdings, Inc. and General Motors Corp.:

Robert C. Odle, Jr.,

Esquire (D.C. Bar #389845), Peter D. Standish, Esquire, Douglas A.

Nave, Esquire, Weil, Gotshal & Manges LLP, 767 Fifth Ave., New York, NY

10153-0119.

It is so Ordered by the Court, this ________ day of

____________, 1997.

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

United States District Judge.

United States District Court for the District Of Columbia

United States of America, Plaintiff. v. Raytheon Company, General

Motors Corp., and H E Holdings, Inc., Defendants

Final Judgment

Whereas, plaintiff, the United States of America, filed its

Complaint in this action on October 16, 1997, and plaintiff and

defendants 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, defendants have agreed to be bound by the provisions

of this Final Judgment pending its approval by the Court;

And whereas, plaintiff intends defendants to be required to

preserve competition by: (1) Promptly divesting the second generation

(``2nd Gen.'') and third generation (``3rd Gen.'') focal plane array

(``FPA'') business of Raytheon TI Systems (``RTIS'') and the 2nd Gen.

ground electro-optical (``EO'') business of Hughes Aircraft Company's

Sensors and Communications System Segment; (2) establishing a firewall

that prevents the flow of information concerning the Follow-on-to-TOW

(``FOTT'') missile program between the RTIS Missile Systems Division

(``RTIS Missiles'') of Raytheon and any other part of Raytheon and

between Hughes Missile Systems and any other part of Raytheon: and (3)

incentivizing RTIS Missiles to pursue its bid through a joint venture

with Lockheed Martin Corp. to ensure competition in bids for the FOTT

missile;

And whereas, plaintiff requires defendants to make the divestitures

for the purpose of establishing a viable competitor in the development,

production, and sale of FPAs and ground EO systems, and to construct

firewalls and incentivize RTIS Missiles for the purpose of preserving

competition in bidding for the FOTT missile program;

And whereas, defendants have represented to the plaintiff that the

divestitures ordered herein can and will be made and that the firewalls

can be constructed and that defendants will later raise no claims of

hardship or difficulty as grounds for asking the Court to modify any of

the divestiture or firewall 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 each of the parties hereto and

over the subject matter of this action. The Complaint states a claim

upon which relief may be granted against defendants, as hereinafter

defined, under Section 7 of the Clayton Act, as amended (15 U.S.C.

Sec. 18).

II. Definitions

As used in this Final Judgment:

A. ``A-Kit'' means all components necessary to fit a B-Kit into a

particular

[[Page 60269]]

ground vehicle, including the optics, electronics, software, visual

display, stabilization, and fire control as required.

B. ``B-Kit'' means the common components for 2nd Gen. Forward

Looking Infrared Systems (``FLIRs'') designed under the HTI program,

including SADA II integrated cooler/dewar detector assemblies, afocal

assemblies, and associated electronics.

C. ``DoD'' means the Department of Defense.

D. ''DoJ'' means the Antitrust Division of the Department of

Justice.

E. ``EO Business'' means the 2nd Gen. ground EO business of Hughes

operated out of the El Segundo, California and La Grange, Georgia

facilities that produces A-Kits and B-Kits for ground vehicles and

other applications, including the IBAS. M-1 TIS, LRASSS, and HTT

programs, and all employees listed in confidential Attachment A,

including:

a. All tangible assets used to produce A-Kits and B-Kits; all real

property (owned or leased), including interests in the El Segundo,

California and La Grange, Georgia facilities used to produce A-Kits and

B-Kits, research and development activities, as identified pursuant to

the Court's Hold Separate and Partition Plan Stipulation and Order; all

manufacturing, personal property, inventory, office furniture, fixed

assets and fixtures, materials, supplies, on-site warehouses or storage

facilities, and other tangible property or improvements used in the

production of A-Kits and B-Kits; all licenses, permits and

authorizations issued by any governmental organization relating to A-

Kits and B-Kits; all contracts, teaming arrangements, agreements,

leases, commitments and understandings pertaining to A-Kits and B-Kits;

supply agreements; all customer lists and credit records; and other

records maintained by Hughes in connection with the production of A-

Kits and B-Kits;

b. All intangible assets relating to the research, development, and

production of A-Kits and B-Kits, including but not limited to a non-

exclusive, transferable, royalty-free license to use all patents

utilized by Hughes in the EO Business, licenses and sublicenses,

intellectual property, technical information, know-how, trade secrets,

drawings, blueprints, designs, design protocols, specifications for

materials, specifications for parts and devices, safety procedures for

the handling of materials and substances, quality assurance and control

procedures, design tools and simulation capability, and all manuals and

technical information Hughes provides to its own employees, customers,

suppliers, agents or licensees;

c. All research data concerning historic and current research and

development efforts relating to the production of A-Kits and B-Kits,

including designs of experiments, and the results of unsuccessful

designs and experiments;

d. At the option of the purchasers, a supply contract for computer

support services and information and communications services sufficient

to support the EO Business over a period of one year; and

e. At the option of the purchaser, at the time of purchase, an

option to purchase or lease an additional 10,000 square feet of

manufacturing space for the EO Business in addition to the space set

aside for the EO Business in the Hold Separate and Partition Plan and

Order.

F. ``FOTT Information'' means all information relating to the FOTT

Program, including but not limited to, information relating to any and

all proposals, technology, cost data, suppliers, designs, plans, test

results, specifications, pricing, technical interface with IBAS and

ITAS or other sensitive competitive information. FOTT Information shall

be stamped as ``Confidential and Competition Sensitive.''

G. ``FOTT Program'' means the Follow-on-to-TOW missile program, for

which the Hughes FOTT Team and the TI/Martin Javelin Joint Venture (as

defined below) will be competing for the Engineering Manufacturing

Developing (``EMD'') contract, scheduled to be awarded by the United

States Army in 1998.

H. ``FPA'' means a matrix of detectors or pixels made of material

that is sensitive to infrared (``IR'') radiation, which is mated to a

silicon processor and used to detect and analyze IR radiation.

L. ``FPA Business'' means the 2nd Gen. and 3rd Gen. scanning and

staring IR detector businesses of RTIS operated out of the

Semiconductor Building and the Research West Building located at the

Expressway site in Dallas, Texas, including all dewar and cryogenic

cooler manufacturing and dewar and cryogenic cooler assembly (except

for RTIS' uncooled FPA Business), and including all employees listed in

confidential Attachment, including:

a. All tangible assets used to produce scanning IR detectors,

including SADA detectors, staring detectors, dewars, and cryogenic

coolers, including, but not limited to, all real property (owned or

leased), including interests in the Dallas facilities, used in the

operation of the RTIS FPA Business, including research and development

activities, as identified pursuant to the Court's Hold Separate and

Partition Plan Stipulation and Order; all manufacturing, personal

property, inventory, office furniture, fixed assets and fixtures,

materials, supplies, on-site warehouses or storage facilities, and

other tangible property or improvements used in the operation of the

RTIS FPA Business; all licenses, permits and authorizations issued by

any governmental organization relating to the RTIS FPA Business; all

contracts, teaming arrangements, agreements, leases, commitments and

understandings pertaining to the RTIS FPA Business and its operations;

supply agreements; all customer lists and credit records; and other

records maintained by Raytheon in connection with the RTIS FPA

Business;

b. All intangible assets relating to the RTIS FPA Business,

including but not limited to all patents, licenses and sublicenses,

intellectual property, maskwork rights, technical information, know-

how, trade secrets, drawings, blueprints, designs, design protocols,

cell libraries, specifications for materials, specifications for parts

and devices, safety procedures for the handling of materials and

substances, quality assurance and control procedures, designed tools

and simulation capability, and all manuals and technical information

Raytheon provides to its own employees, customers, suppliers, agents or

licensees, except that the purchaser shall agree to grant to the seller

a non-exclusive, transferable, royalty-free license for any invention

disclosed in U.S. Patent No. 5,274,578; and any invention disclosed in

U.S. Patent Applications Nos. 08/474,229, 08/097,522, 08/478,570 and

08/487,820 and Provisional Patent Application No. 60/014,812; and

c. All research data concerning historic and current research and

development efforts relating to the RTIS FPA Business, including

designs of experiments, and the results of unsuccessful designs and

experiments.

J. ``HTI'' means the Horizontal Technology Integration program to

develop a common B-Kit to be used on different ground vehicle

platforms.

K. ``Hughes'' means Hughes Aircraft Company, an indirect subsidiary

of General Motors Corp., with its headquarters in Arlington, Virginia,

and its successors, assigns, subsidiaries, divisions, groups,

affiliates, partnership and joint ventures, and directors, officers,

managers, agents and employees.

L. ``Hughes FOTT Team'' means all Hughes Missile Systems managers

and employees who have been assigned to or

[[Page 60270]]

consulted in connection with the FOTT program.

M. ``IBAS'' means the Integrated Bradley Acquisition System, a

program to upgrade the sights on a Bradley Fighting Vehicle.

N. ``ITAS'' means the Improved Target Acquisition System, a program

to improve TOW missile launching capabilities.

O. ``LRASSS'' means the Long-Range Advanced Scout Surveillance

System, a future surveillance system to be mounted on light ground

vehicles.

P. ``M1-TIS'' means the Thermal Imaging System for the M1 Abrams

tank.

Q. ``Raytheon'' means Raytheon Company, a Delaware corporation with

its headquarters and principal place of business in Lexington,

Massachusetts, and its successors, assigns, subsidiaries, divisions,

groups, affiliates, partnerships and joint ventures, and directors,

officers, managers, agents, and employees.

R. ``RTIS'' means Raytheon TI Systems, Inc.

S. ``RTIS FOTT team'' means Mr. Lawrence Schmidt, all RTIS managers

and employees of the TI/Martin Javelin Joint Venture, and all other

RTIS employees who have been assigned to or consulted in connection

with the FOTT program. One attorney in the General Counsel's Office of

Raytheon, to be designated by Raytheon, shall be deemed a member of the

RTIS FOTT Team and may be consulted for the purpose of obtaining legal

or regulatory advice, but shall not receive FOTT Information concerning

pricing or other bid information.

T. ``SADA'' means the Standardized Advanced Dewar Assembly and

consists of a scanning FPA mounted in an evacuated dewar. The SADA

program is an effort by the United States Army to develop a family of

IR detectors that can be used in a variety of battlefield systems.

U. ``TI/Martin Javelin Joint Venture'' means the joint venture

between Texas Instruments a/k/a RTIS and Lockheed Martin, which will be

a competitor for the FOTT Program.

V. ``Uncooled FPA Business'' means the technology, production

equipment, and all tangible and intangible assets used by RTIS solely

in the production of uncooled FPAs.

III. Applicability

A. The provisions of this Final Judgment apply to Raytheon, its

successor and assigns, their subsidiaries, directors, officers,

managers, agents, and employers, 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. Raytheon shall require, as a condition of the sale or other

disposition of all or substantially all of its assets or of a lesser

business unit that includes Raytheon's business of developing and

producing FPAs and ground EO Systems, that the transferee agree to be

bound by the provisions of this Final Judgment.

IV. Divestiture

A. Raytheon is hereby ordered and directed in accordance with the

terms of this Final Judgment, within one-hundred and eighty (180)

calendar days after October 3, 1997 or five (5) days after notice of

the entry of this Final Judgment by the Court, whichever is later, to

divest the FPA Business and the EO Business to an acquirer(s)

acceptable to DoJ and DoD in their sole discretion.

B. Raytheon shall use its best efforts to accomplish the

divestitures as expeditiously and timely as possible. DoJ in its sole

determination, in consultation with DoD, may extend the time period for

any divestitures for an additional period of time not to exceed thirty

(30) calendar days.

C. In accomplishing the divestitures ordered by this Final

Judgment, Raytheon, promptly shall make known, by usual and customary

means, the availability of the EPA Business and the EO Business

described in this Final Judgment. Raytheon shall inform any person

making an inquiry regarding a possible purchase that the sale is being

made pursuant to this Final Judgment and provide such person with a

copy of this Final Judgment. Raytheon shall also offer to furnish to

all bona fide prospective purchasers, subject to customary

confidentiality assurances, all information regarding the FPA Business

and the EO Business customarily provided in a due diligence process

except such information subject to attorney-client privilege or

attorney work-product privilege. Raytheon shall make available such

information to DoJ at the same time that such information is made

available to any other person.

D. Raytheon shall permit bona fide prospective purchasers of the

FPA Business and the EO Business to have reasonable access to personnel

and to make such inspection of the physical facilities of the FPA

Business and EO Business and any and all financial, operational, or

other documents and information customarily provided as part of a due

diligence process.

E. Raytheon shall not take any action that will impede in any way

the operation of the FPA Business or the EO Business.

F. Unless both DoJ and DoD otherwise consent in writing, the

divestitures pursuant to Section IV, or by trustee appointed pursuant

to Section V of this Final Judgment, shall include the entire FPA

Business and the entire EO Business, operated in place pursuant to the

Hold Separate and Partition Plan Stipulation and Order, and be

accomplished by selling or otherwise conveying the FPA Business and the

EO Business to a purchaser(s) in such a way as to satisfy DoJ and DoD,

in their sole discretion, that the FPA Business and the EO Business can

and will be used by the purchaser(s) as part of a viable, ongoing

business or businesses engaged in the development, production, and sale

of FPAs and ground EO systems. Divestiture of the FPA Business and EO

Business may be made to one or more purchasers provided that in each

instance it is demonstrated to the sole satisfaction of DoJ and DoD

that the FPA Business and EO Business will remain viable. The

divestitures, whether pursuant to Section IV or Section V of this Final

Judgment, shall be made to a purchaser(s) who it is demonstrated to

DoJ's and DoD's sole satisfaction: (1) Has the capability and intent of

competing effectively in the development, production and sale of FPAs

or ground EO systems as the case may be; (2) has managerial,

operational, and financial capability to compete effectively in the

development, production and sale of FPAs or ground systems as the case

may be; (3) is eligible to receive applicable DoD security clearances;

and (4) that none of the terms of any agreement between the purchaser

and Raytheon give Raytheon the ability unreasonably to raise the

purchaser's costs, to lower the purchaser's efficiency, or otherwise to

interfere in the ability of the purchaser to compete effectively.

G. For a period of two years from the filing of the Complaint in

this matter, Raytheon and Hughes shall not solicit to hire any

individual who, on the date of the filing of the Complaint in this

matter, was an employee of the FPA Business or the EO Business. For a

period of two years from the filing of the Complaint in this matter,

Raytheon and Hughes shall not hire any individual who, on the date of

the filing of the Complaint in this matter, was an employee of the FPA

Business or the EO Business unless such individual has a written offer

of employment from a third party for a like position.

H. Raytheon shall comply with all agreements with DoD regarding the

[[Page 60271]]

protection of information related to classified programs.

I. Raytheon shall not charge to DoD any costs directly or

indirectly incurred in complying with this Final Judgment.

V. Appointment of Trustee

A. In the event that Raytheon has not divested the FPA Business and

the EO Business within the time specified in Section IV of this Final

Judgment, the Court shall appoint, on application of the United States,

a trustee selected by DoJ, in consultation with DoD, to effect the

divestiture of the FPA Business and the EO Business.

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

trustee shall have the right to sell the FPA Business described in

Section II(I) and the EO Business described in Section II(E) of this

Final Judgment. 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 Sections

IV and IX of this Final Judgment, and shall have such other powers as

the Court shall deem appropriate. Subject to Section V(C) of this Final

Judgment, the trustee shall have the power and authority to hire at the

cost and expense of Raytheon any investment bankers, attorneys, or

other agents reasonably necessary in the judgment of the trustee to

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

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

authority to accomplish the divestitures at the earliest possible time

to a purchaser acceptable to DoJ and DoD, and shall have such other

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

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

malfeasance. Any such objections by Raytheon must be conveyed in

writing to DoJ and the trustee within ten (10) calendar days after the

trustee has provided the notice required under Section VII of this

Final Judgment.

C. The trustee shall serve at the cost and expense of Raytheon, 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 Raytheon and the trust shall then be terminated.

The compensation of such trustee and of any professionals and agents

retained by the trustee shall be reasonable in light of the value of

the divested business 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. Raytheon shall use its best efforts to assist the trustee in

accomplishing the required divestitures, including best efforts to

effect all necessary regulatory approvals. 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 the businesses to be divested, and Raytheon

shall develop financial or other information relevant to the business

to be divested customarily provided in a due dilligence process as the

trustee may reasonably request, subject to customary confidentiality

assurances. Raytheon shall permit bona fide prospective acquirers of

the assets to have reasonable access to personnel and to make such

inspection of physical facilities and nay and all financial,

operational or other documents and other information as may be relevant

to the divestitures required by this Final Judgment.

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 divestitures ordered under this Final Judgment;

provided, however, that to the extent such reports contain information

that the trustee deems confidential, such reports shall not be filed in

the public docket of the Court. Such reports shall include the name,

address and telephone number of each person who, during the preceding

month, made an offer to acquire, expressed an interest in acquiring,

entered into negotiations to acquire, or was contacted or made an

inquiry about acquiring, any interest in the business to be divested,

and shall describe in detail each contact with any such person during

that period. The trustee shall maintain full records of all efforts

made to divest the businesses to be divested.

F. If the trustee has not accomplished such divestitures within six

(6) months after its appointment, the trustee thereupon shall file

promptly with the Court a report setting forth (1) The trustee's

efforts to accomplish the required divestitures, (2) the reasons, in

the trustee's judgment, why the required divestitures have not been

accomplished, and (3) the trustee's recommendations; provided, however,

that to the extent such reports contain information that the trustee

deems confidential, such reports shall not be filed in the public

docket of the Court. 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 enter thereafter 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 DoJ.

VI. Firewall

A. Members of the RTIS FOTT Team are prohibited from giving or

receiving, either directly or indirectly, any FOTT Information to or

from the Hughes FOTT Team or any other Raytheon employee. Members of

the Hughes FOTT Team are prohibited from giving or receiving, either

directly or indirectly, any FOTT Information to or from the RTIS FOTT

Team or any other Raytheon employee. To implement this provision,

Raytheon is required to construct a firewall within Raytheon that

prevents the flow of FOTT Information between the RTIS FOTT Team and

any other segment or official of Raytheon. Raytheon is also required to

construct a firewall within Raytheon that prevents the flow of any FOTT

Information between the Hughes FOTT Team and any other segment or

official of Raytheon. These firewalls are intended to ensure

competition between RTIS Missiles and Hughes Missile Systems in bidding

on the FOTT Program. Raytheon shall, within five (5) business days of

its signing the Stipulation and Order consenting to the entry of this

Final Judgment, submit to DoJ and DoD a document setting forth in

detail its procedures to effect compliance with this provision. DoJ and

DoD shall have the sole discretion to approve Raytheon's compliance

plan and shall notify Raytheon within three (3) business days whether

they approve of or reject Raytheon's compliance plan. In the event that

Raytheon's compliance plan is rejected, the reasons for the rejection

shall be provided to Raytheon by DoJ and Raytheon shall be given the

opportunity to submit, within two (2) business days of receiving the

notice of rejection, a revised compliance plan. If the parties cannot

agree on a compliance plan within an additional three (3) business

days, a plan will be devised by DoD and implemented by Raytheon. All

Raytheon employees shall abide by the provisions of the compliance

plan. The prohibitions in this paragraph shall remain in effect until

final determination of the EMD contract award for the FOTT Program is

made by DoD. Raytheon shall use all

[[Page 60272]]

reasonable efforts to submit a competitive bid by the RTIS FOTT Team

for the FOTT Program.

B. Raytheon shall delegate to Mr. Lawrence Schmidt, Senior Vice

President, Missile Systems Division of RTIS, in his sole discretion,

the right to review and determine on behalf of Raytheon all matters

relating to the TI/Martin Javelin Joint Venture bid, including any best

and final offer and responses to any inquiry from DoD, on the FOTT

Program; to invest Raytheon's funds in the FOTT Program; and to draw on

other resources within RTIS Missiles to compete for the FOTT Program.

C. Raytheon shall provide an economic incentive to the RTIS

management personnel of the TI/Martin Javelin Joint Venture to ensure

all reasonable efforts will be made by Raytheon to submit a competitive

bid by the TI/Martin Javelin Joint Venture for the FOTT Program. As an

incentive to win the FOTT Program, Raytheon shall pay, conditioned

solely upon the TI/Martin Javelin Joint Venture being awarded the EMD

contract for the FOTT Program, bonuses to certain RTIS Missiles

employees. Each employee to receive a bonus upon award of the EMD

contract for the FOTT Program and the amount of each applicable bonus

is listed in confidential Attachment ``C.''

D. Raytheon shall notify and train all RTIS Missiles, Hughes

Missile Systems, and other Raytheon employees likely to see FOTT

Information regarding the restrictions on FOTT Information and require

that all such employees sign a statement acknowledging the restrictions

on the FOTT Information. In addition, all RTIS Missiles employees

having access to FOTT Information must sign a certification stating

that they understand the restrictions of the firewall and agree to

adhere to the firewall restrictions.

VII. Notification

Within two (2) business days following execution of a definitive

agreement, contingent upon compliance with the terms of this Final

Judgment, to effect, in whole or in part, any proposed divestitures

pursuant to Sections IV or V of this Final Judgment. Raytheon or the

trustee, whichever is then responsible for effecting the divestitures,

shall notify DoJ and DoD of the proposed divestitures. If the trustee

is responsible, if shall similarly notify Raytheon. The notice shall

set for the details of the proposed transaction and list the name,

address, and telephone number of each person not previously identified

who offered to, or expressed an interest in or a desire to, acquire any

ownership interest in the businesses to be divested that is the subject

of the binding contract, together with full details of same. Within

fifteen (15) calendar days of receipt by DoJ and DoD of such notice,

DoJ, in consultation with DoD, may request from Raytheon, the proposed

purchaser, or any other third party additional information concerning

the proposed divestitures and the proposed purchaser. Raytheon and the

trustee shall furnish any additional information requested from them

within fifteen (15) calendar days of the receipt of the request, unless

the parties shall otherwise agree. Within thirty (30) calendar days

after receipt of the notice or within twenty (20) calendar days after

DoJ has been provided the additional information requested from

Raytheon, the proposed purchaser, and any third party, whichever is

later, DoJ and DoD shall each provide written notice to Raytheon and

the trustee, if there is one, stating whether or not it objects to the

proposed divestiture. If DoJ and DoD provide written notice to Raytheon

and the trustee that they do not object, then the divestiture may be

consummated, subject only to Raytheon's limited right to object to the

sale under Section V(B) of this Final Judgment. Absent written notice

that NoJ and DoD do not object to the proposed purchaser or upon

objection by DoJ or DoD, a divestiture proposed under Section IV or

Section V may not be consummated. Upon objection by Raytheon under the

provision in Section V(B), a divestiture proposed under Section V shall

not be consummated unless approved by the Court.

VIII. Affidavits

A. Within twenty (2) calendar days of the filing of the Complaint

in this matter and every thirty (30) calendar days thereafter until the

divestiture has been completed whether pursuant to Section IV or

Section V of this Final Judgment, Raytheon shall deliver to DoJ and DoD

an affidavit as to the fact and manner of compliance with Sections IV

or V of this Final Judgment. Each such affidavit shall include, inter

alia, the name, address, and telephone number of each person who, at

any time after the period covered by the last such report, made an

offer to acquire, expressed an interest in acquiring, entered into

negotiations to acquire, or was contacted or made an inquiry about

acquiring, any interest in the business to be divested, and shall

describe in detail each contact with any such person during that

period. Each such affidavit shall also include a description of the

efforts that Raytheon has taken to solicit a buyer for the relevant

assets and to provide required information to prospective purchasers

including the limitations, if any, on such information. Assuming the

information set forth in the affidavit is true and complete, any

objection by DoJ to information provided by Raytheon, including

limitations on information, shall be made within fourteen (14) days of

receipt of such affidavit.

B. Within twenty (20) calendar days of the filing of the Complaint

in this matter, Raytheon shall deliver to DoJ and DoD an affidavit

which describes in detail all actions Raytheon has taken and all steps

Raytheon has implemented on an on-going basis to comply with the

firewall provisions pursuant to Section VI of this Final Judgment and

to preserve the FPA Business and the EO Business pursuant to Section IX

and this Final Judgment and the Hold Separate and Partition Order

entered by the Court. The affidavit also shall describe, but not be

limited to, Raytheon's efforts to maintain and operate the FPA Business

and the EO Business as an active competitor, maintain the management,

staffing, research and development activities, sales, marketing and

pricing of the FPA Business and the EO Business, and maintain the FPA

Business and the EO Business in operable condition at current capacity

configurations. Raytheon shall deliver to DoJ and DoD an affidavit

describing any changes to the efforts and actions outlined in

Raytheon's earlier affidavit(s) filed pursuant to this Section within

fifteen (15) calendar days after the change is implemented.

C. Until one year after such divestiture has been completed,

Raytheon shall preserve all records of all efforts made to preserve the

business to be divested and effect the divestitures.

IX. Hold Separate Order

Until the divestitures required by the Final Judgment have been

accomplished, Raytheon shall take all steps necessary to comply with

the Hold Separate and Partition Plan Stipulation and Order entered by

this Court and to preserve the assets of the FPA Business and the EO

Business. Defendants shall take no action that would jeopardize the

divestiture ordered by this Court.

X. Financing

Raytheon is ordered and directed not to finance all or any part of

any purchase by an acquirer(s) made pursuant to Sections IV or V of

this Final Judgment.

XI. Compliance Inspection

For purposes of determining or securing compliance with the Final

[[Page 60273]]

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

time:

A. Duly authorized representatives of the United States Department

of Justice, upon written request of the Attorney General or of the

Assistant Attorney General in charge of the Antitrust Division, and on

reasonable notice to Raytheon made to its principal offices, shall be

permitted:

1. Access during office hours of Raytheon to inspect and copy all

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

and documents in the possession or under the control of Raytheon, who

may have counsel present, relating to the matters contained in this

Final Judgment and the Hold Separate Stipulation and Order; and

2. Subject to the reasonable convenience of Raytheon and without

restraint or interference from it, to interview, either informally or

on the record, its officers, employees, and agents, who may have

counsel present, regarding any such matters.

B. Upon the written request of the Attorney General or of the

Assistant Attorney General in charge of the Antitrust Division, made to

Raytheon's principal offices, Raytheon shall submit such written

reports, under oath if requested, with respect to any matter contained

in the Final Judgment and the Hold Separate and Partition Order.

C. No information or documents obtained by the means provided in

Sections VIII or XI of this Final Judgment shall be divulged by a

representative of the plaintiff 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

Raytheon to DoJ or DoD, Raytheon represents and identifies in writing

the material in any such information or documents to which a claim of

protection may be asserted under Rule 26(c)(7) of the Federal Rules of

Civil Procedure, and Raytheon 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 ten (10) calendar days notice

shall be given by DoJ or DoD to Raytheon prior to divulging such

material in any legal proceeding (other than a grand jury proceeding)

to which Raytheon is not a party.

XII. 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 or carrying out of this Final

Judgment, for the modification of any of the provisions hereof, for the

enforcement of compliance herewith, and for the punishment of any

violations hereof.

XIII. Termination

Unless this Court grants an extension, this Final Judgment will

expire upon the tenth anniversary of the day of its entry.

XIV. Public Interest

Entry of this Final Judgment is in the public interest.

Dated ____________________, 1998.

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

United States District Judge.

United States District Court for the District of Columbia

[Civil No. 1:97CV02397]

United States of America, Plaintiff, v. Raytheon Company, General

Motors Corporation, and He Holdings, Inc., Defendants

United States District Judge Emmet G. Sullivan

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 Competivie Impact Statement relating to the proposed Final

Judgment submitted for entry in this civil antitrust proceeding.

I. Nature and Purpose of the Proceeding

On October 16, 1997, the United States filed a civil antitrust

Complaint alleging that the proposed acquisition by Raytheon Company

(``Raytheon'') of Hughes Aircraft Co. (``Hughes'') would violate

Section 7 of the Clayton Act, 15 U.S.C. Sec. 18. The Complaint alleges

that Raytheon and Hughes are the only two firms that design, develop,

and produce second generation (``2nd Gen.'') electro-optical (``EO'')

systems for Department of Defense (``DoD'') ground applications. It

alleges that Raytheon and Hughes are also the only two firms that

design, develop, and produce critical infared (``IR'') detectors,

called ``SADA II'' detectors, used in ground EO systems, and are the

leading firms that develop and produce staring IR detectors used for

sensors in missile seeker heads and aircraft and missile warning system

applications. The Complaint further alleges that Raytheon, through its

majority ownership in a joint venture with Lockheed Martin Corporation

(``Lockheed Martin''), and Hughes are competitors for the Follow-On-To-

TOW (``FOTT'') new advanced antitank missile program that will replace

the current inventory of TOW antitank missiles.

The prayer for relief in the Complaint seeks: (1) A judgment that

the proposed acquisition would violate Section 7 of the Clayton Act;

and (2) a permanent injunction preventing Raytheon from acquiring

Hughes.

When the Complaint was filed, the United States also filed a

proposed settlement that would permit Raytheon to complete its

acquisition of Hughes, but require a divestiture and other terms that

will preserve competition in the relevant markets. This settlement

consists of a Stipulation and Order, Hold Separate and Partition Plan

Stipulation and Order, and a proposed Final Judgment.

The proposed Final Judgment orders Raytheon to divest, within one-

hundred and eighty (180) calendar days after October 3, 1997 or five

(5) days after notice of the entry of the Final Judgment by the Court,

whichever is later, the FPA Business (as defined in the Final Judgment)

of Raytheon TI Systems (``RTIS''), and the EO Business (as defined in

the Final Judgment) of Hughes, to an acquirer(s) acceptable to the

Antitrust Division of the Department of Justice (``DoJ'') and DoD.

RTIS's FPA Business includes the 2nd Gen. scanning and third generation

(``3rd Gen.'') staring IR detector businesses (operated out of the

Semiconductor Building and the Research West Building, located at the

Expressway site in Dallas, Texas), all tangible and intangible assets

used in producing those detectors, including production facilities,

research and development activities, and all dewar and cryogenic cooler

manufacturing assembly.

Hughes' EO Business includes the 2nd Gen. ground EO business

operated out of the El Segundo, California and La Grange, Georgia

facilities, which produce A-kits and B-kits for ground vehicles and

other applications, including the Integrated Bradley Acquisition System

(``IBAS''), Thermal Imaging System for the M1 Abrams tank (``M-1

TIS''), Long-Range Advanced Scout Surveillance System (``LRASSS''), and

Horizontal Technology Integration Program (``HTI'') programs, all

tangible and intangible assets used in producing A-kits and B-kits,

production facilities, and research development activities. In

addition, Raytheon is required to

[[Page 60274]]

provide, at the option of the purchaser, a contract for computer

support services and information and communications services sufficient

to support the EO Business over a period of one year, and, at the

option of the purchaser, an option to purchase or lease manufacturing

space in addition to that currently set aside for the EO Business.

Until such divestitures are completed, the terms of the Hold

Separate and Partition Plan Stipulation and Order entered into by the

parties apply to ensure that the FPA Business and the EO Business shall

be maintained as an independent competitor from Raytheon.

In addition to the divestitures, the proposed Final Judgment

requires that Raytheon establish firewalls to preserve the independence

of the Hughes team competing for the FOTT program (``Hughes ROTT

Team'') from the RTIS/Lockheed Martin FOTT joint venture (RTIS FOTT

Team). The firewall provisions prohibit the flow of information between

the two teams and between either team and any other employee of

Raytheon. The Proposed Final Judgment requires Raytheon to delegate to

the head of RTIS Missile Systems Division the sole discretion to

determine all matters relating to RTIS FOTT Team's bid and to create

economic incentives for the RTIS FOTT Team members to ensure all

reasonable efforts will be made to submit a competitive bid for the

FOTT Program.

The plaintiff and defendants have stipulated that the proposed

Final Judgment may be entered after compliance with APPA. Entry of the

proposed Final Judgment would terminate the 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 Defendants and the Proposed Transaction

Raytheon is a Delaware corporation headquartered in Lexington,

Massachusetts. Raytheon produces heavy construction equipment;

refrigerators and freezers; radio and TV broadcasting and

communications equipment; semiconductors and related devices; aircraft;

guided missiles and space vehicles; search, detection and navigation

systems; and engineering services. RTIS, a division of Raytheon,

produces ground EO systems at a facility in McKinney, Texas and IR

detectors at its Expressway facility in Dallas, Texas. Amber, a

separate unit of Raytheon, produces detectors at a facility in Goleta,

California. In 1996, Raytheon reported total sales of about $12

billion.

General Motors Corporation (``General Motors'') is a Delaware

corporation headquartered in Detroit, Michigan. Hughes, a missle and

defense electronics company, is an indirect subsidiary of General

Motors. Hughes produces ground EO systems at facilities in El Segundo,

California and LaGrange, Georgia. Hughes operates the industry's

premier detector facility, Santa Barbara Research Center (``SBRC''), in

Santa Barbara, California. In 1996, Hughes reported total sales of

approximately $6 billion.

HE Holdings, Inc. (``HE Holdings'') is a Delaware corporation

headquartered in Detroit, Michigan. Hughes is a direct subsidiary of HE

Holdings.

On January 16, 1997, Raytheon entered into an agreement with

General Motors to purchase HE Holdings, the parent of Hughes. This

transaction, which would, in part, take place in the highly

concentrated SADA II detector, staring FPA, ground EO systems, and FOTT

missile markets, precipitated the government's suit.

B. The Relevant Markets

SADA II Detectors

IR detectors are sensing devices that convert IR radiation into an

electrical signal. The devices detect the differences in that heat

emissions between an object and its surroundings, and can therefore

produce a thermal image of objects in the device's field of view. The

detector consists of linear or mosaic arrays of individual diodes made

from semiconductor materials such as mercury cadmium telluride

(``MCT'') or indium antimonide ``(InSb''). The detector is attached to

a silicon chip or ``readout'' device that contains the circuitry which

stores the energy captured by the detector and converts this energy to

a voltage signal. When mated to the readout circuit, the detector is

often called a focal plane array (``FPA''). The FPA is typically housed

in an evacuated cooler dewar assembly which isolates the FPA and cools

it to cryogenic temperatures.

The combination of FPA cooler dewar assembly, optics, electronics,

software, and a visual display is commonly called a FLIR (Forward

Looking Infrared). FLIRs are used for surveillance and weapons fire

control purposes in ground and airborne EO systems. FPAs are also used

in heat-seeking missile guidance systems and missile warning systems,

applications for which no pictorial image is required. Since the Gulf

War, great strides have been made in IR technology, and the military is

switching from older first generation (''1st Gen.'') lower performance

technology to more advanced 2nd Gen. technology in a variety of

applications.

Second generation scanning FPAs consist of individual detector

elements arranged in two dimensions varying in size from 240 x 2 to

480 x 4. The detector is scanned mechanically with mirrors across a

field of view. Second generation scanning FPAs differ from 1st. Gen.

scanning FPAs in that the readout circuit is mounted directly to the

detector material. For this reason, 2nd Gen. FPAs are photovoltaic,

while 1st. Gen. FPAs are photo conductive. Scanning FPAs are preferred

on ground vehicles because of their wide field of view.

FPAs are distinguished by the spectrum of the electromagnetic

wavelength they detect--longwave (``LW''), midwave (``MW'') or

shortwave (``SW''). LW is visible in the 8 to 12 micron range, MW in

the 3 to 5 micron range, and SW in the 1 to 2 micron range. Short wave

is not typically used for tactical applications. InSb is the primary

material used for detecting MW IR radiation, and it is only used in

staring arrays. MCT, the leading material for detecting LW IR

radiation, is used in virtually all scanned arrays, but is also used in

staring FPAs.

In the late 1960s, DoD started to develop an IR detector common

across all the services. This effort resulted in the 1st Gen. ``common

module'' detectors, which were placed in the field in approximately

1970. Since the common module detector is not mounted directly to an

integrated readout circuit, fewer detector elements can be placed on

the array. Because it has fewer detector elements, the sensitivity and

resolution of 1st Gen. FPAs are not as good as that of 2nd Gen. FPAs.

First generation detectors were used in Desert Storm, and it was

discovered that U.S. weaponry could fire further than the FLIR systems

could detect. The desire for EO systems with a range closer to that of

the weapon systems motivated the development of 2nd Gen. devices. First

generation FPAs are still in use today, although in the early 1990s,

the U.S. military stopped placing new 1st Gen FLIRs in the field.

In the late 1980s, the Army's Night Vision Laboratory began

development of 2nd Gen. detectors under the Standardized Advanced Dewar

Assembly (``SADA'') program. SADA assemblies use a two dimensional MCT

array sensitive to LW IR radiation. SADA detectors include four

different configurations: SADA I, SADA II, SADA

[[Page 60275]]

III A and SADA III B. Each type has different specifications so that

one does not substitute for another.

The Army uses a SADA II for ground vehicles. As part of a broader

effort undertaken in 1992 to insert a common 2nd Gen. FLIR system into

various battlefield platforms, the Army decided to use SADA II

detectors in the M1A2 Abrams Tank, the M2A3 Bradley Fighting Vehicle,

and the LRASSS. The SADA II is also used in the FLIR for the Improved

Targeting Acquisition System (``ITAS'') for the High Mobility Motorized

Wheeled Vehicle (``HMMWV'').

Because they do not match the field of view achievable with SADA II

detectors, staring FPAs are not viable substitutes for a SADA II

detector. Staring FPAs of a size needed to match the field of view

obtainable from a scanning FPA are not yet available in LW MCT, which

is the only material that meets the Army's needs to see through

battlefield smoke, dust, and clutter.

Even if large format LW MCT arrays became available in the future,

a switch to such arrays would not be economically justified in response

to a small but significant and nontransitory price increase in the SADA

II detectors, because of the substantial configuration changes and

consequent costs required to replace SADA II detectors in ground

vehicles with staring detectors.

Raytheon and Hughes are the only two firms that have sold SADA II

detectors to DoD. Hughes qualified as a SADA II supplier in mid-1996,

and Raytheon was permitted to bid for 1997 purchases based on its

demonstrated success toward completing the qualification process.

Raytheon is expected to be fully qualified by the end of 1997. In 1997,

about 103 SADA II detectors having a total dollar value of about $6.6

million were purchased, of which 70 percent were supplied by Hughes and

30 percent by Raytheon. DoD projects purchases of 2,945 SADA II

detectors through the year 2002, having a total dollar value of about

$138.8 million.

Raytheon's acquisition of Hughes would eliminate all competition in

the development, production, and sale of SADA II detectors. The

proposed acquisition will result in a single supplier with the

incentive and ability to raise prices and little or no incentive to

minimize cost.

Successful entry into the production and sale of SADA II detectors

is difficult, time consuming, and costly. A potential entrant would

have to design and develop a product, establish production processes,

and complete a rigorous qualification process. A new facility capable

of producing SADA II detectors could cost over $20 million. Only one

other firm, Sofradir of France, is trying to qualify under the SADA II

program. Sofradir, which is partially owned by the French government,

is beginning the qualification process. It is unrealistic to expect

sufficient new entry in a timely fashion to protect competition in

upcoming SADA II purchases.

Staring FPAs

Staring or third generation (``3rd Gen.'') FPAs consist of a mosaic

of diodes typically square or rectangular in shape. Since they contain

no scanning mechanism, staring FPAs provide an image by staring at the

scene and rapidly updating changes in the scene. Staring FPAs are

lighter weight than scanning, and they can be more economical to use.

Staring FPAs are produced in sizes ranging from 64 x 64 to 1024 x

1024. The largest size currently produced for tactical applications,

however, is 640 x 480. Staring FPAs provide greater sensitivity and

resolution than scanning FPAs, because they have a larger number of

detectors. However, staring FPAs are more difficult to produce than

scanning FPAs because of the difficulty in producing large InSb or MCT

wafers. Due to their smaller physical size and lighter weight, staring

FPAs are used in missile seeker heads and airborne applications where

small size and light weight are a premium. Staring FPAs are also the

detector of choice for missile warning systems.

Staring FPAs have primarily been made of InSb because it was the

first technology capable of producing staring FPAs and the material

itself is easier to work with. Staring FPAs are now available using MCT

technology.

Raytheon and Hughes are the two leading suppliers of staring FPAs

for military programs. Raytheon produces staring FPAs at its RTIS

facility in Dallas, Texas and its Amber facility, in Goleta,

California. Hughes operates SBRC, the industry's premier staring FPA

facility, in Santa Barbara, California. Hughes and Raytheon have

supplied or are contracted to supply the staring FPAs on most DoD

missile and aircraft programs. DoD projects purchases of about 14,000

staring FPAs over the next five years having a value of about $35

million.

Raytheon's acquisition of Hughes would combine the two leading

suppliers of staring FPAs with over 90 percent of the market. The

acquisition would create a clear dominant supplier with the incentive

and ability to raise prices and little or no incentive to minimize

cost.

Boeing Company (``Boeing'') and Lockheed Martin make staring FPAs

for military applications, but neither is a major supplier in the

tactical market. Boeing has focused on space applications, where the

FPA must meet more rigid durability and quality standards.

Consequently, FPAs for space applications cost significantly more than

FPAs for tactical applications. Lockheed Martin operates a very small,

research-oriented staring FPA operation. Boeing would need to refocus

its staring FPA business from the higher price space applications and

Lockheed Martin would need to invest in a production-oriented facility

in order for either to be a more significant supplier in the tactical

market.

Successful entry into the production and sale of staring FPAs is

difficult, time consuming, and costly. A potential entrant would have

to design and develop a product and establish production processes. A

new facility capable of producing staring FPAs could cost over $20

million. It is unrealistic to expect new entry in a timely fashion to

protect competition in upcoming staring FPA purchases.

The acquisition also likely will result in lessening of competition

in the market for missile systems. Raytheon and Hughes are not only

suppliers of staring FPAs, but are also major suppliers of the missile

systems of which these devices are critical components. With the

acquisition of Hughes, Raytheon will control access to virtually all

currently viable staring FPAs for tactical applications. Raytheon will

have an incentive to refuse to sell, or to sell on disadvantageous

terms, its state-of-the-art staring FPAs to its missile competitors.

Without access to the latest staring FPAs, a missile manufacturer is at

a serious competitive disadvantage.

2nd Gen. Ground EO Systems

A ground EO system is an integrated system with a thermal imager

(usually a FLIR), including an integrated cooler dewar assembly with

detector, afocal assemblies, and associated electronics. It might also

include the optics, electronics, software, visual displays, fire

control and stabilization necessary to adapt the system to a particular

platform.

Targeting and navigation are the two major types of ground infrared

EO systems. Targeting systems, sometimes called ``fire control

systems,'' acquire the target and direct the missile or gun round to

the target. These systems are much more complex than those used for

[[Page 60276]]

navigation, which only need to permit the operator to see the general

area.

A ground EO system operating in or on a ground combat vehicle, in

the dust, heat and smoke of a battlefield, faces risks and demands that

are different from those faced by an EO system on a fighter aircraft or

a helicopter operating substantially above the battlefield. Many

problems that are unique to designing EO systems for the ground combat

environment are not faced in designing and EO system for airborne

applications. Among these is the requirement that any FLIR on a tank be

able to absorb the tremendous shock of a direct hit and keep

functioning. In addition, the shock of the recoil of the gun and the

extreme vibrations that constantly accompany the operation of a ground

combat vehicle must also be accounted for in designing and producing a

group EO system. An EO system operating on the ground may also have to

see through several miles of battlefield smoke and debris. For these

reasons, the Army spent over $90 million in the early 1990s to

specifically develop an EO system for its ground vehicles.

Raytheon and Hughes are the only two firms that develop and produce

2nd Gen. EO systems for ground vehicles. Raytheon's RTIS and Hughes are

the only two firms that have established the developmental capacity and

low-cost production processes needed to economically produce 2nd Gen.

ground EO system.

During the next five years, DoD expects to spend about $200 million

a year for 2nd Gen. ground EO systems to be purchased for the following

programs: the Improved Target Acquisition System for the HMMWV; the

Improved Bradley Acquisition System for the Bradley Fighting Vehicle;

the Commander's Independent Thermal Viewer for the M1 Abrams tank; the

Thermal Independent Sight for the M1 Abrams tank; the Commander's

Independent Viewer for the Bradley Fighting Vehicle; and the Long Range

Advanced Scout Surveillance System. Raytheon and Hughes are the only

sources for these ground EO systems.

Raytheon's acquisition of Hughes would eliminate all competition in

the development, production, and sale of 2nd Gen. ground EO systems for

military applications. The proposed acquisition would result in a

single supplier with the incentive and ability to raise prices and

little or no incentive to minimize cost.

Sucessful entry into the production and sale of 2nd Gen. ground DoD

is difficult, time consuming, and costly, Entry requires advanced

technology, skilled engineers and specialized equipment. A potential

entrant would have to engage in difficult, expensive, and time

consuming research to develop and produce 2nd Gen. ground EO systems.

It is unrealistic to expect new entry in a timely fashion to protect

competition in upcoming 2nd Gen. ground EO systems purchases.

FOTT Program

FOTT is a U.S. Army engineering, manufacturing, and development

(``EMD'') program for an advanced missile to replace the current

inventory of TOW anti-tank missiles. The program started on March 30,

1995 when the Army issued a Request for Information. An initial draft

Request for Proposal was issued on May 15, 1996, a second draft Request

for Proposal was issued on February 12, 1997, and a third draft Request

for Proposal was issued on August 8, 1997. The Army currently

anticipates issuing a formal Request for Proposal for the FOTT program

at the end of 1997 or early 1998. A contract for EMD is expected to be

awarded in the first half of 1998. Hughes and a joint venture between

RTIS and Lockheed Martin, in which RTIS owns a 60 percent interest, are

competing for the FOTT program.

The U.S. Army has determined that development of an advanced anti-

tank missile is necessary and that no other missile system meets the

mission objectives set for the FOTT program.

If Raytheon acquires Hughes, it will control the Hughes FOTT

proposal and it will control a 60 percent interest in the RTIS/Lockheed

Martin joint venture FOTT proposal. In such a situation, Raytheon has a

strong economic incentive to favor its Hughes proposal, where it stands

to win 100 percent of the program, over the team in which it has only a

60 percent interest. Raytheon's acquisition of Hughes will eliminate

the aggressive competition that would otherwise exist between these

independent teams. FOTT is a potential $8 billion to $10 billion

program.

It would be very difficult for another firm to successfully enter

the FOTT competition at this stage. The Hughes and RTIS/Lockheed Martin

Joint venture teams have completed the validation and demonstration

stage and have each spent over $20 million during the last three years

developing a missile to demonstrate during the EMD selection. Selection

of a contractor for the EMD contract is expected during the first half

of 1998.

C. Harm to Competition as a Consequence of the Acquisition

Raytheon's acquisition of Hughes would eliminate competition in the

research, development, and production of SADA II detectors and ground

EO systems, both necessary to ground military weapons systems in the

United States. It would combine the two leading suppliers of staring

FPAs with over 90 percent of the market. In addition, Raytheon's

acquisition of Hughes would eliminate the aggressive competition that

would otherwise exist between Hughes and the RTIS/Lockheed Martin joint

venture for the FOTT antitank missile. Entry by a new company would not

be timely, likely or sufficient to prevent harm to competition in any

of these product areas.

The Complaint alleges that the transaction would have the following

effects, among others: competition generally in the innovation,

development, production, and sale of SADA II detectors, staring FPAs,

ground EO systems, and the FOTT missile in the United States would be

lessened substantially; actual and future competition between Raytheon

and Hughes in the development, production and sale of SADA II

detectors, staring FPAs, ground EO systems, and the FOTT missile in the

United States will be eliminated; and prices for SADA II detectors,

staring FPAs, ground EO systems, and the FOTT missile in the United

States would likely increase.

III. Explanation of the Proposed Final Judgment

The provisions of the proposed Final Judgment are designed to

eliminate the anticompetitive effects of the acquisition of Hughes by

Raytheon.

The proposed Final Judgment provides that Raytheon must divest,

within one hundred eighty (180) calendar days after October 3, 1997, or

five (5) days after notice of the entry of the Final Judgment by the

Court, whichever is later, the FPA Business of RTIS and the EO Business

of Hughes to an acquirer(s) acceptable to the DoJ and DoD. In addition,

Raytheon is required to provide, at the option of the purchaser, a

contract for computer support services and information and

communications services sufficient to support the EO Business over a

period of one year, and, at the option of the purchaser, an option to

purchase or lease manufacturing space in addition to that currently set

aside for the EO Business.

If defendants fail to divest these businesses, a trustee (selected

by DoJ in

[[Page 60277]]

consultation with DoD) will be appointed by the Court. The trustee will

be authorized to sell the FPA Business and the EO Business. The Final

Judgment provides that Raytheon will pay all costs and expenses of the

trustee. After his or her appointment becomes effective, the trustee

will file monthly reports with the parties and the Court, setting forth

the trustee's efforts to accomplish divestiture. At the end of six

months, if the divestiture has not been accomplished, the trustee and

the parties will make recommendations to the Court, which shall enter

such orders as appropriate in order to carry out the purpose of the

trust, including extending the trust or the term of the trustee's

appointment.

Divestiture of the FPA Business, the EO Business and the options

preserves competition because it will restore the SADA II, staring FPA,

and the ground EO systems markets to structures that existed prior to

the acquisition and will preserve the existence of independent

competitors. Divestiture will keep at least two producers of SADA II

detectors and ground EO systems in the market competing for upcoming

contracts, which will preserve and encourage ongoing competition in

product innovation and development, production, and sales. Divestiture

will also maintain at least two major competitors for staring FPAs and

prevent missile system manufacturers from being foreclosed from a

critical input. The divestiture thus will preserve competition in

upcoming programs.

In addition to the divestitures, the Final Judgment requires that

Raytheon establish procedures to assure that the current Hughes and the

RTIS/Lockheed Martin joint venture remain independent competitors for

the FOTT program. The firewall provisions required by the Final

Judgment prevent the flow information between Hughes' FOTT team and the

RTIS FOTT team and between either team and any other Raytheon employee.

Raytheon is required to delegate to the head of its RTIS Missile

Systems Division the sole discretion to determine all matters relating

to the RTIS FOTT bid to create economic incentives for the RTIS FOTT

team members to ensure all reasonable efforts will be made to submit a

competitive bid for the FOTT program.

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 defendants.

V. Procedures Available for Modification of the Proposed Final Judgment

The United States and defendants 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 60 days proceeding 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 Judgment at any time prior to entry. The

comment 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: J. Robert Kramer II,

Chief, Litigation II Section, Antitrust Division, United States

Department of Justice, 1401 H Street, N.W., Suite 3000, 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 against defendants Raytheon

and General Motors. The United States could have brought suit and

sought preliminary and permanent injunctions against Raytheon's

acquisition of Hughes.

The United States is satisfied that the divestive of the described

assets and the other terms specified in the proposed Final Judgment

will encourage viable competition in the research, development, and

production of SADA II detectors, staring FPAs, ground EO systems, and

the FOTT program. The United States is satisfied that the proposed

relief will prevent the acquisition from having anticompetitive effects

in these markets. The divestiture of the FPA Business and the EO

Business and the other proposed terms will restore the SADA II, staring

FPA, ground EO systems, and FOTT missile markets to structures that

existed prior to the acquisition and will preserve the existence of

independent competitors in those markets.

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

The APPA requires that proposed consent judgments in antitrust

cases 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 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 Court of Appeals for the

District of Columbia Circuit recently held, the APPA 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 mechanism are sufficient, and whether the decree may

positively harm third parties. See United States v. Microsoft, 56 F.3d

1448 (D.C. Cir. 1995).

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

to trail or to engage in extended proceedings which might have a effect

of vitiating the benefits of prompt and less costly settlement through

the consent decree process.'' \1\ Rather.

\1\ 119 Cong. Rec. 24598 (1973). See also 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. Sec. 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. 93-1463, 93rd Cong. 2d Sess. 8-9, reprinted in (1974) U.S.

Code Cong. & Ad. News 6535, 6538.

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[[Page 60278]]

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 determining 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, (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 1448 (D.C. Cir. 1995). Precedent requires that

[T]he 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 in 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.\2\

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

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 United States v. American Cyanamid

Co., 719 F.2d 558, 565 (2d Cir. 1983).

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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).''\3\

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\3\ 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).

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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.

For Plaintiff United States of America:

Dated: October 22, 1997.

J. Robert Kramer II,

Chief, Litigation II Section, PA Bar #23963.

Willie L. Hudgins,

Assistant Chief, Litigation II Section, DC Bar #37127.

and

Janet Adams Nash,

Kevin C. Quin,

Stacy Nelson,

Laura M. Scott,

Nancy Olson,

Tara M. Higgins,

Charles R. Schwidde,

Robert W. Wilder,

Melanie Sabo,

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

1401 H St., NW., Suite 3000, Washington, DC 20530, 202-307-0924,

202-307-6283 (Facsimile).

Certificate of Service

I hereby certify under penalty of perjury that on this 22nd day of

October, 1997, I caused copies of the foregoing competitive impact

statement to be served via hand-delivery upon the following:

Counsel for Raytheon Company.

Robert D. Paul, Esq.,

Michael S. Shuster, Esq.,

White & Case, 601 13th St., NW., Washington, DC 20005-3807.

Counsel for HE Holdings, Inc., and General Motors Corp.

Robert C. Odle, Esq.,

Peter D. Standish, Esq.,

Douglas A. Nave, Esq.,

Weil, Gotshal & Manges LLP, 767 Fifth Ave., New York, NY 10153-0119.

Willie L. Hudgins, Esq.,

Assistant Chief, Litigation II Section, U.S. Department of Justice,

Antitrust Division, 1401 H Street, NW., Suite 3000, Washington, DC

20530, (202) 307-0924.

[FR Doc. 97-29474 Filed 11-6-97; 8:45 am]

BILLING CODE 4410-11-M