United States v. Lehman Brothers Holdings Inc. and L-3 Communications Holdings, Inc.; Proposed Final Judgment and Competitive Impact Statement

DEPARTMENT OF JUSTICE

Antitrust Division

United States v. Lehman Brothers Holdings Inc. and L-3

Communications 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. sections 16(b)-(h), that a Complaint, proposed

Final Judgment, Stipulation and Order, and Competitive Impact Statement

have been filed with the United States District Court for the District

of Columbia, in United States v. Lehman Brothers Holdings Inc. and L-3

Communications Holdings, Inc., Civil Action No. 1:98CV00796.

On March 27, 1998, the United States filed a Complaint seeking an

injunction enjoining L-3 Communications Holdings, Inc. and its parent

Lehman Brothers Holdings Inc. from acquiring AlliedSignal Inc.'s Ocean

Systems and ELAC Nautik GmbH sonar business, or from entering into or

carrying out any agreement, understanding or plan, the effect of which

would be to combine the sonar business of AlliedSignal Inc.

(``AlliedSignal'') and L-3 Communications Corp. (``L-3

Communications''), a wholly owned subsidiary of L-3 Communications

Holdings, Inc. The Complaint alleges that because Lockheed Martin

Corporation (``Lockheed Martin'') owns 34.0 percent of the common stock

of L-3 Communications and controls three seats on the L-3

Communications Board of Directors, the acquisition by L-3

Communications of the sonar business of AlliedSignal would lessen

competition substantially in the production and sale of towed sonar

arrays to the U.S. Department of Defense (``DoD'') in violation of

Section 7 of the Clayton Act, 15 U.S.C. Section 18. Under the proposed

Final Judgment, filed the same day as the Complaint, L-3 Communications

has agreed to: (1) Maintain a ``firewall'' whereby it prevents the

sharing of non-public information relating to the sonar businesses of

L-3 Communications and Lockheed Martin, and (2) not enter into any

joint bidding or teaming agreements with Lockheed Martin to bid on DoD

contracts relating to towed sonar arrays.

Public comment is invited within the statutory 60-day comment

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

Federal Register and filed with the Court. Comments should be directed

to J. Robert Kramer, II, Chief, Litigation II Section, Antitrust

Division, U.S. Department of Justice, 1401 H Street, N.W., Suite 3000,

Washington, D.C. 20530 [telephone: (202) 307-0924].

Constance K. Robinson,

Director of Operations & Merger Enforcement Antitrust Division.

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. 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) Defendant 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, and 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 provisions 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 provisions contained therein.

Dated: March 26, 1998.

[[Page 17455]]

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 Lehman Brothers Holdings Inc.

Karen Muller,

Vice President, Lehman Brothers Holdings Inc., 3 World Financial

Center, New York, NY 10285, (212) 526-2728.

For Defendant L-3 Communications Holdings, Inc.

Christopher C. Cambria,

Vice President, Secretary and General Counsel, L-3 Communications

Corporation, 600 Third Avenue, New York, NY 10016, (212) 805-5634.

IT IS SO ORDERED by the Court, this ________ day of March, 1998.

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

United States District Judge

Final Judgment

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

Complaint in this action on March 27, 1998, 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 to require defendants to preserve

competition by: (1) Preventing employees, officers or directors of

Lockheed Martin who serve on the Board of Directors of L-3

Communications, or those nominated by Lockheed Martin to the Board of

Directors of L-3 Communications, from influencing, directly or

indirectly, the operation of the Ocean Systems and ELAC assets being

acquired by L-3 Communications from Allied Signal, and (2) prohibiting

the disclosure of non-public information between L-3 Communications and

Lockheed Martin relating to the Ocean Systems and ELAC businesses and

Lockheed Martin's sonar and mine warfare businesses;

And Whereas, defendants have represented to the plaintiff that they

will not enter into any joint bidding or teaming agreements with

Lockheed Martin to bid on DoD contracts relating to towed arrays, but

that they will be permitted to enter into contracts or subcontracts

with Lockheed Martin which relate to towed arrays after DoD has awarded

a contract;

And Whereas, defendants have represented to the plaintiff that they

can effectuate the preservation of competition by constructing and

enforcing a firewall and agreeing not to enter into joint bidding or

teaming agreements with Lockheed Martin to bid on DoD contracts

relating to towed arrays and that defendants will later raise no claims

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

of the 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. 18.

II. Definitions

As used in this Final Judgment:

A. ``AlliedSignal'' means AlliedSignal, Inc.

B. ``L-3 Communications'' means L-3 Communications Corporation and

L-3 Communications Holdings, Inc., and their directors, employees,

agents, representatives, predecessors, successors and assigns.

C. ``Lockheed Martin'' means Lockheed Martin Corporation, its

directors, officers, employees, agents, predecessors, successors and

assigns; its subsidiaries, divisions, groups, affiliates, partnerships

and joint ventures controlled by Lockheed Martin Corporation;

businesses Lockheed Martin Corporation acquires or merges with; and the

respective directors, officers, employees, agents, predecessors,

successors and assigns of each.

D. ``Limited Officer or Director'' means (1) any employee, officer

or director of Lockheed Martin, who is also a member of the Board of

Directors of, or an officer of, L-3 Communications, or (2) any member

of the Board of Directors of L-3 Communications nominated by Lockheed

Martin.

E. ``Ocean Systems'' means the business units and assets of

AlliedSignal to be acquired by L-3 Communications through operation of

the Purchase Agreement dated December 22, 1997, including AlliedSignal

Ocean Systems business unit and AlliedSignal ELAC Nautik GmbH.

F. (1) ``Non-Public Ocean Systems Information'' means any

information relating to the business of Oceans Systems not in the

public domain, including, but not limited to, Ocean Systems' plans

concerning current and future DoD contracts.

(2) Non-Public Ocean Systems Information shall not include: (a)

Information that, subsequent to the time L-3 Communications signs the

Stipulation and Order in this matter, falls within the public domain

through no violation of this order by L-3 Communications; or (b)

information that, subsequent to the time L-3 Communications signs the

Stipulation and Order in this matter, becomes known to Lockheed Martin

from a third party not known by L-3 Communications or Lockheed Martin

to be in breach of a confidential disclosure agreement.

G. (1) ``Non-Public Lockheed Martin Information'' means any

information not in the public domain relating to sonar and mine warfare

products of Lockheed Martin, including, but not limited to, Lockheed

Martin's plans concerning current and future DoD contracts.

(2) Non-Public Lockheed Martin Information shall not include: (a)

Information that, subsequent to the time L-3 Communications signs the

Stipulation and Order in this matter, falls within the public domain

through no violation of this order by L-3 Communications; or (b)

information that, subsequent to the time L-3 Communications signs the

Stipulation and Order in this matter, becomes known to L-3

Communications from a third party not known by L-3 Communications to be

in breach of a confidential disclosure agreement.

H. DoD means U.S. Department of Defense.

III. Firewall

A. L-3 Communications shall not discuss, provide, disclose, or

otherwise make available, directly or indirectly, to any Limited

Officer or Director any Non-Public Ocean Systems Information.

B. L-3 Communications shall require each Limited Officer or

Director to refrain from discussing, providing, disclosing or otherwise

making available, directly or indirectly, any Non-Public Lockheed

Martin Information to any employee or officer of L-3 Communications or

to any member of the Board of Directors of L-3 Communications, except

any other Limited Officer or Director.

C. The restrictions set forth in Paragraphs III.A and III.B of this

Order

[[Page 17456]]

shall not prohibit the otherwise lawful exchange by L-3 Communications

and Lockheed Martin of such Non-Public Ocean Systems Information or

such Non-Public Lockheed Martin Information that may be necessary (1)

to obtain or perform any contract or subcontract between L-3

Communications and Lockheed Martin, with the exception of the

prohibitions set forth in Section IV, or (2) to obtain or perform any

related contracts or subcontracts between or among L-3 Communications,

Lockheed Martin and any third party (including any governmental

agency).

D. L-3 Communications shall conduct all business relating to Ocean

Systems without the vote, concurrence, attendance or other

participation of any kind whatsoever of any Limited Officer or

Director.

E. Limited Officers or Directors shall not be counted for purposes

of establishing a quorum in connection with any matter relating to

Ocean Systems.

F. L-3 Communications shall not provide any Limited Officer or

Director with any type of compensation that is based in whole or in

part on the profitability or performance of Ocean Systems; provided,

however, that any Limited Officer or Director may receive as

compensation for his or her serving on the L-3 Communications Board of

Directors such compensation as is provided generally to other members

of the L-3 Communications Board of Directors in accordance with L-3

Communications' ordinary practice, or compensation that is based on the

overall profitability or performance of L-3 Communications.

IV. Prohibitions on Certain Joint Bidding and Teaming Agreements

A. L-3 Communications shall not enter into any joint bidding or

teaming agreements with Lockheed Martin to bid on DoD contracts

relating to towed arrays. L-3 Communications shall not provide any Non-

Public Ocean Systems Information nor receive any Non-Public Lockheed

Martin Information for the purpose of entering into any joint bidding

or teaming agreements with Lockheed Martin for the purpose of bidding

on DoD contracts relating to towed arrays. These prohibitions do not

restrict L-3 Communications from entering into any contract or

subcontract with Lockheed Martin which relates to towed arrays, after

DoD has awarded a contract.

V. Affidavits

A. Within sixty (60) calendar days after the filing of the

Complaint in this matter, L-3 Communications, shall certify to the

Plaintiff whether it has complied with Sections III and IV above.

B. For each year during the term of this Final Judgment, L-3

Communications shall file with the Plaintiff, on or before the

anniversary date of the filing of the Complaint, an affidavit as to the

fact and manner of its compliance with the provisions of Sections III

and IV above.

C. Until such time that this Final Judgment shall expire, L-3

Communications shall preserve all records of all efforts to comply with

the Final Judgment.

VI. Compliance Inspection

For purposes of determining or securing compliance with the Final

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

time:

A. Duly authorized representatives of the United States Department

of Justice (``DOJ''), upon written request of the Attorney General or

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

and on reasonable notice to L-3 Communications made to its principal

offices, shall be permitted:

1. Access during office hours of L-3 Communications to inspect and

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

records and documents in the possession or under the control of L-3

Communications, who may have counsel present, relating to the matters

contained in this Final Judgment; and

2. Subject to the reasonable convenience of L-3 Communications 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

L-3 Communication's principal offices, L-3 Communications shall submit

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

relating to the Final Judgment.

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

Section V 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 L-3

Communications to DOJ, L-3 Communications 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 L-3 Communications 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 to L-3 Communications prior

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

jury proceeding) to which L-3 Communications is not a party.

VII. Applicability

This Final Judgment applies to defendants; to each of their

officers, directors, agents, employees, successors, assigns,

subsidiaries, divisions, and any other organizational units of any

kind; and to 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.

VIII. 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.

IX. Termination

This Final Judgment shall continue in force until such time as

Lockheed Martin owns less than five percent of the voting securities of

L-3 Communications and there are no Limited Officers or Directors on

the L-3 Communications Board of Directors.

IX. Public Interest

Entry of this Final Judgment is in the public interest.

Dated: ________________, 1998.

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

United States District Judge

Competitive Impact Statement

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

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

this Competitive Impact Statement relating to the proposed Final

[[Page 17457]]

Judgment submitted for entry in this civil antitrust proceeding.

I. Nature and Purpose of the Proceeding

On March 27, 1998, the United States filed a civil antitrust

Complaint alleging that the proposed acquisition by L-3 Communications

Corporation (``L-3 Communications''), a wholly owned subsidiary of L-3

Communications Holdings, Inc., of the AlliedSignal Ocean Systems

business unit (``Ocean Systems''), a wholly owned business unit of

AlliedSignal Inc. (``AlliedSignal''), and AlliedSignal ELAC Nautik GmbH

(``ELAC''), a wholly owned subsidiary of AlliedSignal Deutschland GmbH,

which is a wholly owned subsidiary of AlliedSignal, would violate

Section 7 of the Clayton Act, 15 U.S.C. 18.

The Complaint alleges that the acquisition would violate Section 7

of the Clayton Act because Lockheed Martin Corporation (``Lockheed

Martin'') owns 34.0% of the common stock of L-3 Communications and

controls three of ten seats on the L-3 Communications Board of

Directors, and Lockheed Martin and Ocean Systems are the two leading

competitors in the design, development, manufacture and sale of towed

sonar arrays (``towed arrays'') to the U.S. Department of Defense

(``DoD''). If L-3 Communications were to acquire Ocean Systems, L-3

Communications and Lockheed Martin would become competitors. Towed

arrays are sonar systems consisting of very long hose-like structures

that are towed behind surface ships and submarines for the purpose of

detecting submarines or torpedoes, depending on the type of array. The

arrays are linked to electronic signal processing equipment on board

the ship or submarine towing the array. This equipment processes the

sounds picked-up by the arrays to determine the source of the sound.

As described in the Complaint, since towed arrays are sold to DoD

and there are no foreign producers to which DoD or its U.S. prime

contractors could reasonably turn to purchase these arrays, the

relevant geographic market is the United States.

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 L-3 Communications from

acquiring Ocean Systems and ELAC.

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

proposed settlement that would permit L-3 Communications to complete

its acquisition of Ocean Systems and ELAC, and preserve competition in

the relevant market, by requiring L-3 Communications to establish and

maintain a ``firewall'' whereby it would refrain from discussing with

or disclosing to any employee, officer or director of Lockheed Martin,

or person nominated by Lockheed Martin, who is also a member of the

Board of Directors of, or an officer of, L-3 Communications any non-

public information relating to the Ocean Systems and ELAC businesses.

The firewall also requires that these same individuals not share with

L-3 Communications any non-public information of Lockheed Martin

relating to Lockheed Martin's sonar and mine warfare products.

Additionally, the settlement prohibits L-3 Communications from entering

into joint bidding or teaming agreements with Lockheed Martin for the

purpose of bidding on DoD contracts for towed arrays. The settlement

does not however, bar L-3 Communications from entering into a contract

or subcontract with Lockheed Martin which relates to towed arrays,

after DoD has awarded a contract. The settlement is embodied in a

Stipulation and Order and a proposed Final Judgment.

The proposed Final Judgment requires L-3 Communications to

implement the firewall and begin adding by the prohibitions on entering

into joint bidding or teaming agreements with Lockheed Martin or DoD

contracts for towed arrays immediately upon the filing of the proposed

Final Judgment and the Complaint in this matter. L-3 Communications

must maintain the firewall and abide by the prohibitions on certain

joint bidding and teaming agreements for the duration of the proposed

Final Judgment. The proposed Final Judgment continues in force until

such time as Lockheed Martin owns less than five percent of the voting

securities of L-3 Communications and there are no employees, officers

or directors of Lockheed Martin, or persons nominated by Lockheed

Martin, on the L-3 Communications Board of Directors. L-3

Communications must certify to DOJ sixty (60) calendar days after the

filing of the Complaint in this matter and annually thereafter the

steps it has taken to comply with the provisions set forth in the

proposed Final Judgment.

The terms of the Stipulation and Order entered into by the parties

apply to ensure that the Ocean Systems and ELAC businesses to be

acquired by L-3 Communications shall be maintained as independent

competitors of Lockheed Martin.

The plaintiff and defendants have stipulated that the proposed

Final Judgment may be entered after compliance with the 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

Lehman Brothers Holdings, Inc. is a Delaware corporation

headquartered in New York, New York. Its business activities are in

financial services and merchant and investment banking. In 1997, Lehman

Brothers Holdings, Inc. had net revenues of $3.8 billion.

L-3 Communications Holdings, Inc. is a Delaware corporation

headquartered in New York, New York. L-3 Communications is a leading

provider of sophisticated secure communication systems and specialized

communication products including high data-rate communications systems,

microwave components, avionics, and telemetry and instrumentation

products. In 1997, L-3 Communications had sales of approximately $700

million.

On December 22, 1997, L-3 Communications and AlliedSignal entered

into a Purchase Agreement, whereby L-3 Communications would acquire

from AlliedSignal its Ocean Systems and ELAC businesses. This

transaction, which would give Lockheed Martin, through its ownership

interest in L-3 Communications, influence over, and access to non-

public information of, the other leading competitor in the design,

development, manufacture and sale of towed arrays to DoD, precipitated

the government's suit.

B. Towed Arrays Market

Towed arrays are sonar systems designed to be towed by a submarine

or a surface vessel. Towed arrays deployed by submarines are designed

to detect other submarines. The arrays are long, hose-like structures

measuring up to a thousand feet or longer that contain specially

designed acoustic sensors, called hydrophones, which pick up sound. The

arrays include electronics that convert the acoustical waves from

analog to digital form and transmit that data to electronic processors

on board the submarine. Processing the data involves such functions as

distinguishing the sounds generated by submarines from the sounds made

by other sources, such as whales. The construction of the hose-like

structure containing the hydrophones and

[[Page 17458]]

electronics requires specialized skills which few companies possess.

Towed arrays deployed by submarines must be designed to withstand the

extreme environmental stresses of operation in the ocean depths.

Towed arrays deployed by surface combat vessels are designed to

detect submarines and torpedoes. They have different mechanisms for

deploying, reeling in and storing the arrays and face different

environmental stresses than those deployed by submarines. Towed arrays

used by surface combat vessels are towed at much greater speed than

those towed by submarines or non-combat ships and require engineering

solutions to deal with the ``noise'' generated by dragging the array

through the water. Towed arrays deployed by non-combat surface ships

are designed to detect submarines, but not torpedoes. Only about ten

percent of towed arrays for surface ships are those designed for non-

combat ships.

There are no substitutes for towed arrays and therefore no other

products to which DoD or U.S. prime contractors could turn in the face

of a small but significant and non-transitory price increase by

suppliers of towed arrays.

C. Harm to Competition as a Consequence of the Acquisition

Ocean Systems and Lockheed Martin are the two leading firms in the

design and production of towed arrays. Over ninety percent of the towed

arrays deployed by submarines have been designed and built by Lockheed

Martin and Ocean Systems. Over eighty percent of the towed arrays

deployed by surface combat ships were built by Ocean Systems and

Lockheed Martin (and companies it acquired). The other company that

previously built towed arrays for surface combat ships has not won a

DoD contract for towed arrays in over a decade. Because of their prior

experience and repeated success in winning DoD towed array contracts,

Lockheed Martin and Ocean Systems are likely to be the primary

providers of towed arrays purchased by DoD in the future.

In 1998, DoD is expected to conduct a competition, known as the

Omnibus Competition, for the next generation of towed arrays to be

deployed by submarines and surface combat and non-combat vessels. The

award of this contract is expected to cover both design and production.

This contract will likely be awarded on the basis of ``best value''

which considers a bidder's price and the quality of its technical

proposal. The evaluation of the technical proposal generally includes

an assessment of the riskiness of the proposal and the bidder's prior

experience. Given their long history in designing and producing towed

arrays for DoD, Ocean Systems and Lockheed Martin likely will be the

leading contenders for the Omnibus contract, as well as for any future

DoD towed array contracts. Other potential competitors do not have the

experience of these two companies in the design and production of towed

arrays.

L-3 Communications' acquisition of Ocean Systems is likely

significantly to lessen competition for towed array contracts awarded

by DoD. Because Lockheed Martin sits on the Board of Directors of L-3

Communications, the acquisition could result in the two leading

providers of towed arrays to DoD having access to each other's business

plans, costs, pricing data and decisions, and other internal and

competitively sensitive information. The exchange of such information

could significantly decrease the willingness and ability of L-3

Communications and Lockheed Martin to engage in vigorous competition

for DoD contracts for towed arrays. Access to information revealing

each other's costs, pricing and technical efforts would provide them

with information that could decrease their incentive to bid

aggressively on DoD contracts and therefore could lead to higher prices

paid by DoD. Access to such information could also decrease their

incentive to minimize costs or to innovate in the design or manufacture

of towed arrays.

Successful entry into the production and sale of towed arrays is

difficult, and costly. Entry requires advanced technology, skilled

engineers, specialized know-how and costly customized equipment and

facilities. A potential entrant would have to engage in difficult,

expensive, and time consuming research to develop designs and

production processes that can economically and reliably produce towed

arrays. These designs and production processes must be perfected before

an entrant can successfully bid for a DoD towed array contract. It is

unrealistic to expect new entry in a timely fashion to protect

competition in upcoming DoD towed array competitions.

The Armed Forces of the United States rely on the ongoing, vigorous

competition between Ocean Systems and Lockheed Martin for the

development and production of towed arrays. The proposed acquisition

will lessen this competition, and will result in an increase in prices

paid by the United States and a decrease in innovation for towed arrays

and will, therefore, violate Section 7 of the Clayton Act.

The Complaint alleges that the transaction would have the following

effects, among others: competition generally in the innovation,

development, production and sale of towed arrays for military purposes

in the United States would be lessened substantially; actual and future

competition between Ocean Systems and Lockheed Martin in the

innovation, development, production and sale of towed arrays for

military purposes in the United States would be lessened substantially;

and prices for towed arrays for military purposes 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 Ocean

Systems by L-3 Communications.

The proposed Final Judgment requires L-3 Communications to

implement a firewall immediately upon the filing of the Complaint in

this matter and to certify with sixty (60) calendar days after the

filing of the Complaint that it has implemented the firewall provisions

set forth in the proposed Final Judgment. The firewall provisions

require that L-3 Communications shall not discuss, provide, disclose or

otherwise make available, directly or indirectly, any non-public

information relating to the Ocean Systems and ELAC businesses, to (1)

any employee, officer or director of Lockheed Martin, who is also a

member of the Board of Directors of, or an officer of, L-3

Communications, or (2) any member of the Board of Directors of L-3

Communications nominated by Lockheed Martin. Additionally, L-3

Communications must require that any member of the Board of Directors

of L-3 Communications who was either nominated by Lockheed Martin or

who is an employee, officer or director of Lockheed Martin refrain from

discussing, providing, disclosing or otherwise making available,

directly or indirectly, any non-public information of Lockheed Martin

relating to its sonar or mine warfare products. The firewall provisions

also require that L-3 Communications shall conduct all business

relating to Ocean Systems and ELAC without the vote, concurrence,

attendance or other participation of any individuals serving on the L-3

Communications Board of Directors who is an employee, officer or

director of Lockheed Martin or who was nominated by Lockheed Martin.

Finally,

[[Page 17459]]

the proposed Final Judgment prohibits L-3 Communications from entering

into joint bidding or teaming agreements with Lockheed Martin for the

purpose of bidding on DoD contracts for towed arrays. This prohibition

does not bar L-3 Communications from entering into a contract or

subcontract with Lockheed Martin after DoD has awarded a towed array

contract.

The provisions of the Final Judgment preserve competition because

they will ensure that any business decisions made by L-3 Communications

concerning the Ocean Systems and ELAC businesses it is acquiring from

AlliedSignal will be made without sharing any non-public information

with Lockheed Martin or receiving any non-public information from

Lockheed Martin and because L-3 Communications and Lockheed Martin will

be required to compete separately for DoD towed array contracts.

IV. Remedies Available To Potential Private Litigants

Section 4 of Clayton Act (15 U.S.C. 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 cost and reasonable attorney's

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. 16(a)), the

proposed Final Judgment has no primi 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 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 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 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: J. Robert Krammer II, Chief, Litigation II Section, Antitrust

Division, United States Department of Justice, 1401 H Street, NW, 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 Lehman

Brothers Holdings Inc. and L-3 Communications Holdings, Inc. The United

States could have brought suit and sought preliminary and permanent

injunctions against L-3 Communications' acquisition.

The United States is satisfied that the provisions set forth in the

proposed Final Judgment will encourage viable competition in the

research, development, and production of towed arrays. The United

States is satisfied that the proposed relief will prevent the

acquisition from having anticompetitive effects in this market. The

provisions of the Final Judgment will restore the towed array market to

the competitive conditions that existed prior to the acquisition.

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, in any, to be derived from a determination of the

issues at trial.

15 U.S.C. 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 mechanisms 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 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.'' \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. 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. & News

6535, 6538.

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absent a showing of corrupt failure of the government to discharge

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

[[Page 17460]]

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:

J. Robert Kramer II,

Chief, Litigation II Section, PA Bar #23963.

Willie L. Hudgins,

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

and

Justin M. Dempsey,

Robert W. Wilder,

Trial Attorneys, U.S. Department of Justice, Antitrust Division, 1401 H

St., N.W., Suite 3000, Washington, D.C. 20530, 202-307-0924, 202-307-

6283 (Facsimile).

Dated: March 31, 1998.

Certificate of Service

I hereby certify under penalty of perjury that on this 1st day of

April, 1998, I caused copies of the foregoing COMPETITIVE IMPACT

STATEMENT to be served by first-class mail postage prepaid, upon the

following:

Christopher C. Cambria, Esq.,

Counsel for L-3 Communications Holdings, Inc., Vice President,

Secretary, and General Counsel, L-3 Communications Corp., 600 Third

Avenue, New York, NY 10016.

Joseph F. Wayland, Esq.,

Counsel for L-3 Communications Holdings, Inc., Simpson Thacher &

Bartlett, 425 Lexington Avenue, New York, NY 10017.

Karen Muller,

For Lehman Brother Holdings Inc., Vice President, Lehman Brothers

Holdings Inc., 3 World Financial Center, New York, NY 10285.

Justin M. Dempsey,

Attorney, Litigation II Section, U.S. Department of Justice, Antitrust

Division, 1401 H Street, N.W., Suite 3000, Washington, D.C. 20530,

(202) 307-0924.

[FR Doc. 98-9372 Filed 4-8-98; 8:45 am]

BILLING CODE 4410-11-M