MEMORlAL OF THE
UNITED STATESOF AMERICA
MÉMOIRE
DES ÉTATS-UNISD'AMÉRIQUE PART 1. INTRODUCTION
This caseconcerns the failure of the Government of ltaly to afford 10 United
States investors in ltdly the protections and guarantces established by the 1948
Treaty of Friendship. Commerce and Navigation belween the United States of
America and the Italian Republic (the "Treaty") and its 1951Supplement.
Beeinnine in 1956. Ravtheon Comoanv and. suhseauenllv Machlett Laborato-
- - . .
ricï. Inc. ttvo Uniicd Stïtes corporaiions. in\,eiieJ in and gradu.illy acquired
complcic owncrship oi an 1t;ili;in clccironic5 cornp;iny. Elci1roni:n Sicul;i. S.P.A.
("KI-SI"). Hy 1967. ELSl hiid bccornc .in csiablishcd and repui~hle produter of
highly wphisiiiated cleclroriiii ii>riiponcnts Houcwr. dcspiic Iargc ini.esimcnis
ofc;~pit;il and oihcr ;issisiansc irum iis Uniied Siaici owncr,, ELSl nci,er kcïmc
finaiiciillv wli-\uilicicnIn Mxrch 1968.ihcrefore. Rnythcon and 4l;ichlcir rclui-
tantly d&ided to close and liquidate ELSI and to Gttle al1 outstanding debts
from the proceedsof the sale of its assets.
On 1April 1968,howevcr, the Government of ltaly requisitioned ELSl's plant
and related assets, in order to prevent the liquidation and to facilitate the
acquisition of ELSl's assets by Italy's commercial conglomerate lstituto per la
Ricostruzione Indusiriale ("IRI"). As a result, Raytheon and Machlett were
unable to seIl the plant and other assets and werc forced to put ELSI into
bankruptcy. ltalian oficials then publicly announced that ELSl would be taken
over hy IRI. lnstead of buying ELSl's assetsat thescheduled hankruptcy auctions,
however, IR1 negotiated a piecemeal take-over with bankruptcy authorities,
selectively acquiring theassetsit wanted at a price suhstantially below fair market
value. The bankruptcy authorities similarly failed to recoverthe fair market value
of ELSl's other asseis. Bankruptcy proceeds accordingly were not sufficient to
oav ELSI's debts. While ELSl had immediatelv a~oeaied the reauisition order
ioihe appropriate Italian authority, who found 11ugawful, this decision was not
rendered until alter Iialy had ~urchased ELSI's plant and other assets.
As a result. Ravtheon and ~achlett suffered fihancial losseswhich thev would
no1hiic dTcrtd:h:id ihcy hein .ill~iwid io pr~~ecduiih ihc pl:inncJ li4;iilati,,n
iiiELS1. or ctrn h;iJ Ir.ilforrii.ilcrpropri.iicd ELSl 2nd paiJ tusi coinwnrü-
tion. Most sieniticantlv. ~avtheon did not recove~ ~nv of ihe imounts ;t was
owed by ELS~,and wai reqired in addition to satisfy lialian bank loans to ELSI
which it had auaranteed. Five banks which were owned and controlled bv the
Government of Iialy also brought suit against Raytheon in ltalian courts for
payment of loans to ELSl which Raytheon had not guaranieed. This litigation,
which continued for 16 years at great expenseto Raytheon, ended with the dis-
missal of al1suits as unfounded.
The United States contends that these actions constitute a violation or the
Treaty and Supplement. As explained below, the requisition and suhsequent
conduct were boih arbiirary and discriminatory, prevented Raytheon and Mach-
let1from manaaina and controlline an Italian cor~oration whose sharesthev had
lawfully acquirëd,-and resulted inÏhe impairmeni of their legally acquired ;ights
and interests - in violation of Articles III and VI1 of the Treaty and Article 1
of the Supplement. ln addition, the requisition constituted a taking of Raytheon's
and Machlett's interests in property without due process and without adequate
compensation, in violation of Article V of the Treaty. ltalian authonties also
failed to comply wiih the obligation under Article V to afford the protection andsecunty, by the unwarranied delay in ruling on the challenge to the requisition
order and by failing to aford protection to ELSI's plant and premises.
After 18years of unsuccessfulattempts to resolve this matter through diplo-
matic channels, the United States appeals to the Courtto find that the requisition
and other actions and omissions of ltaly constituted violations of the Treaty and
Supplement and to order that full compensation be made to the United States
for the damages sufferedby Raytheon and Machlett as a result of Italy's failure
to accord them the protections guaranteed by the Treaty and Supplement. PARTII. STATEMENTOF FACTS
CHAPTER 1
BACKGROUND
From 1955 through 1967, Raytheon Company and Machlett Laboratories,
Inc., two United States corporations, acquired 100 per cent of the shares of
Elettronica Sicula S.P.A. ("ELSI"); an ltalian electronics Company operating in
Palermo, Sicily. Although they developed ELSl into a manufacturer of sophisti-
cated electronics equipment and a major employer in the Sicilian Region, ELSl
never became a profitable enterprise. In 1967-1968,Raytheon and Macblett made
a last major effort to make ELSl profitable.
Section 1.The Treaty of Friendship, Commerce and Navigation
On 2 February 1948,the United States and ltaly signed a Treaty of Friendship,
Commerce and Navigation (the "Treaty"). The Treety entered into force on
26July 1949 '.The Treaty was subsequently strengthened by an Agreement of
26Seotember 1951 (the "Suool..ent"), which entered into force on 2 March
1961 !.One oithe major purposcs ofthcsc Iigreemcnls u,as 10encourage /\mcric~n
in\cstmcnt in the Ital~an pojtwiir ccononiy hy cstabli,hing a niutu311ysgrm,cI
frsnicwork of lecal Drotcctlon for commercial activitics and investments uf United
States nationals-in italy3.
As reRected in Article V of the Supplement, the Government of ltaly was
particularly interesled inromoting new investment in ils Southern Region, the
Mezzociorno. an historicallv underdevelo~ed area which includes the island of
~icil~~~~owakd thatend, thé~overnment if ltaly enacted incentives to encourage
foreign investment in that Region and created a specific ministry within the
national Government to administer these programs and otherwise to encourage
development in the Mezzogiorno5
' TreatyofFriendship.Commerceand Navigatiotn etweenthe UnitedStatesofAmerica
and the ltalianRepublic, signedal Rome, 2 February 1948.entered into force,26 July
1949.TIAS 1965;79 UNTS 171(Ann. 1).
AgreementSupplementingthe Treatyof Frirndship, Commerceand Navigationof
2February 1948.signed al Washington,26 September1951.cnteredinto force,2 March
1961.TlAS 4685;404 UNTS 326(Ann.2).
The importanceofthe Treatyto theGavernmeniof ltalyas onemcansofencouraging
United Statesinvestmentin ltaly is highlightedin the attached Reportsfrom the Italian
Parliament. Chamber of Deputies, PorliomenruryProcce-diiipr.ocunanis- Bills and
Reporrs,N. 246-A, p.4, Presente10 the Officeof the Prcsidenton 2 March 1949(Ann.
(Ann.4).eSeenlm,ediscussioninfrapp.169-70,on Italianparliamentaryconsideration.960
Map of Italy,highlightingthe MezzogiornoRegian(Ann. 5).
TheForeip lnverrorkDigrsr oflinlion CorpororeLw,.pp.245-254(1963)(Ann. 6).46 ELETTRONICA SICULA
Section 2. Raytheon's and Machlett's Investment in ELSl
Raytheon Company ("Raytheon"), a United States electronics manufacturer
incorporated in Delaware', was a participant in this postwar investment activity '.
In 1952, Raytheon entered into a licensing and technical assistance agreement
with an ltalian company based in Genoa, Fabbrica Iialiana Raddrizzatori Appar-
ecchi Radiologici (FIRAR)" Subsequently, the owners of FIRAR decided 10
transfer its business to a relatively new company located in Palermo, Sicily -
Elettronica Sicula, S.P.A. ("ELSI") - and proposed that Raytheon become a
shareholder in ELSI. In Raytheon's view, ELSl had very good prospects of
success, notwithstanding ils location ina remote and underdeveloped area. ELSl
was supported by an experienced and successful ltalian partner, the Moro Croup,
as well as by the strong government policy of support for business development
in the Mezzogiorno'. Moreover, the ltalian Government oiïered and publicized
investment incentives to companies investing in the Mezzogiornos. Raytheon
acquired a 14 percent shareholder interest in ELSl in 19566.
From 1956 through 1967, Raytheon invested some 7.421 billion7 lire
(US$11,899,300)8 in ELSI, ultimately acquiring 99.16 per cent of its shares9.
Raytheon also guaranteed over 5 billion lire (US$8 million) of loans to ELSl by
various Italian banks". Machlett Laboratories, Inc., a United States corporation
incorporated in Connecticut specializing in the manufacture of X-ray tubes",
acquired the remainder of ELSl's shares in April 1967, investing 34 million lire
(US$54,100) in ELSI".
' Raytheon Company Cenificale of Cood Standing. State of Delaware. 22 December
1986(Ann. 7); introductory pages from 1985RuyrlteonConzponyAnnuolReporr(Ann. 8):
AiTidavitof Charles F. Adams, Finance Commitiee Chairman and Director, Raytheon
Company. para. 9. 17April 1987(Ann. 9).
Annex 9. paras. 10-12.
Manufaciuring and Sales Agreementbetween Raytheon Manulacturing Compdny and
Fabbrict ltaliana Raddrizzatori Apparecchi Radiologici, 18July 1952(Ann. 10).
Ann. 9. paras. 10and 15.
Ann. 6: .sea1.wAnn. 9, paras. 15-16.
Letter of Participation fram Raytheon Manufaciuring Company to Elettronica Sicula.
S.p,.A.,daied 21 October 1955,revised 15Ma~ch1956(Ann. II).
Throughout this document, the term "billion" rcfers to 1,000million.
* These are the actual United States dollar and ltalian lire amounts of this invesiment.
In the followingdiscussion,whereifkas been necessaryio determinea dollar smount based
on anactual lire figure.or viceversa.this Memoriausesan exchangerate of United States
S1.OOto ltalian L.625. the generally prevailing erchange rate from 1967through 1971
SelectedUnited States Dollar-ltalian Lire Conversion Rdles from The WallSfreeiJournal
(for dates 29 March 1968.19April 1968.29 April 1968. 30June 1971)and The Washingion
Pori (for dates I April 1968, 11July 1969.24 January 1974)(Ann. 12).The AiTidavitof
Arthur Schene. former Raytheon Vice President-Controller (Ann. 13) provides complete
detailr of relevani investmentand slatistical informoiion about ELSl'sfinancialhistory and
other maiters relevant to the claims of the United States.
Ann. 9, paras. 12-13;Ann. 13,para. 7. and ScheduleA; Affidavit ofHerbert Deilcher,
VicePrerident and Treasurer. Raytheon Company, para. 2 and Exhibit A, 6 January 1987
(Ann. 14): sec olro,Affidavit of John D. Clare. former Chairman, Raytheon Europe
International Company. para. 9 and Exhibit A, 10 January 1987(Ann. 15). ELSl was
renamed "Raythean-ELSI" in 1963to reflectRaytheon'sawncrship ofa majority of ELSl's
shires. This Memorial willrefer to the corporation as "ELSI" thraughout.
'O Ann. 13.Schedule 12.
" The Machlett Laboratories, Inc.. Certificateof Good Standing, Slate of Connecticut,
26 Dccember 1986(Ann. 16).
'l Ann. 9, para. 14; Ann. 13. paras. 7 and 21 and ScheduleA; Ann. 14,para. 2 and
Exhibit A. MEMORIAL OF THE UNITEI> STATES 47
In ~Jdilion to thcir dire21invehimcni. Kï)iheon and .M.ichlcitiupporicd ELSl
by pr<i\iding p~tcntr. Ii<cn\e\ and <>thcrtcchni:nl :i\risi.ince, providing nliindge-
ment, marketing and other expertise, and developing profitable business opportu-
nities for ELSI, including a lucrative contract to produce electronic tubes for the
North Atlantic Treaty Organization (Nato) Hawk Missile system'.
Section 3. The Development of ELSl 10 1967
By 1967, ELSI had become a significant manufacturer of sophisticated elec-
tronic components and equipment and a major employer in Sicily, with a skilled
work force of slightly under 900eniployees, a large, modem, fully-equippcd plant
in Palermo, a reputation for quality products, and a significant volume of sales
and export earnings'.
ELSl had five major product lines: microwave tubes, cathode-ray tubes, semi-
conductor rectifiers, X-ray tubes, and surge arresters3. Using Raytheon iech-
nology, ELSl produced microwave tubes, which generate high-frequency
electromagnetic waves, for Na10 Hawk Missile systems and other uses, including
telecommunications, radar, and indusirial heating. ELSl's cathode-raytuhes were
TV picture tubes, the most complex component in televisions. Its semiconductor
rectifiers. whichconvert alternatinc current to direci current. were used in X-rav
equipment, radio and television stGions, electrostatic filters, and domestic app1;-
ances. Usina Machlelt technology, ELSl produced X-ray tubes, primarily for
medical use, and surge arresters; which protcct against overvoltage surges in
telephone lines, cables and terminal lines4.
ELSI sold these products throughout Europe, the United States, Japan, and
other international markets. For each of the fiscal years ending 30 Septem-
ber 1965 and 30 September 1966, ELSl's sales totalled over 8 billion lire
(US1612,800,000)s.In addition to goods sold io Nato, just under 30 percent of
the sales durine this two-vear oeriod reoresented exoorts from 1taly6.
ELSI thus &ame an éstahiished hu'siness. It did not, however; hecome self-
sufficient. During fiscal years 1964through 1966,ELSI made an operdting profit,
but this orofit ias insutlicient to offset its debt exr>cnseor accumulated losses,
and no iividends were ever paid to its shareholder;'. As of 30 September 1966,
the accumulated accounting losses, as shown on the balance sheet, were some 2
billion lire (~S$3.200,000)?
' Ann. 13,paras. 8.9 and 12;"A NewInduriryin an AncientLand". Rayiheon-ELSI.
S.p.A..Brochure,Octokr 1963(Ann. 18):Salesbrochure,Raytheon-ELSI.S.p.A..(Ann.
19);Aerialphotograph ofElettronicaSicula,S.p.A.,plant in Palermo,Sicily.1962(Ann.
20).Alfidavitof RicoA. Merluno, formerDirectarof Planning,Rayth~on~ELSIS ..p.A.,
para. 8,17April 1987(Ann. 21)."Pn~jectfor the Financingand Rearganisdtion[sic]of
the Company", 1967Report prepared by Raytheon-ELSI,SPA. pp.20-21 (Ann. 22);
Alfidavitof DorninicA. Neti. formerController, Rkytheon-ELSI,S.p.A., 17April 1987
(A'nAnn.)21,para. 8. Thesepraduct linesare picturedand describedin Anns. 18and 19.
Ann. 15,para. II; Ann. 21,para.8.
Ann.13. Schedule63; Ann. 22, pp. 10-21.ELSl's fiscal year was I Octokr-30
September.Unlessotherwisenoted, fiscayeardata will be givenbasedon the accouniing
meihods ured in preparingELSl'saccouniing records.
Ann. 22, pp.206-213. in/ru.
' Ann. 13,Schedule63; Ann. 15,para. 12.
' Ann. 13.ScheduleBI. Section 4. Final Eflortsal Self-Sufficiency
In February 1967,Raytheon embarked upon a major effort to make ELSl self-
sufficient. It designated Mr.John D. Clare, Raytheon Vice President and General
Manaeer of ils Eurovean manaeement subsidiarv Ravtheon Eurooe International
u . .
Compün), io hc F.I.SI'sC'hairnidn~ndJirccieJ him tu dcisrniinc and iniplenicni
;ippriipriiic stcpc to iniproie IJLSl's tin;insial psriiirm:incel Rü)thcon and
\Ia~.hlcii also dcrirnatcd other hirhl\ qiialiticd indiiidualr to ~\,ist CLSI '. Sonic
~ ~~ ~ ~ ~~ ~ ~ ~u~ ~~orked full-time and others on a consultant basis to orovide
ELSl their specialized financial, managerial, and technical expertise. ~a~theon
also provided over 4,000 million lire (US$6,400,000) to ELSI in recapitalization
and euaranteed credit'
~h;s 1967cKori focuicd in pari on impro\,ing ihc cfficicncyof adminisiraiion
and operaiions ai ihc tl.SI plan1 in Pülcrmo B) Dcccmbcr 1967, m4or sicps
h3d sucsei~fully ken iakcn io upgradc plant faciliiic.; and opcraii<mr, iniluding
a somprchcnsivc invcnior). implcnicniaiion ofimpro\,ed qualit), production, and
scrap-~,ontrol sysiems. cstablishnicnt of a major uorkrr training program. and
the restructuring of production facilities4.
In Ravtheon's view. however. it wasmost critical to ELSl's self-sufficiencvand
hence sirvival to develop further its product hase, personnel, and place in the
Italian economy. Raytheon management had concluded that, as an American-
owned firm. ELSI wai at a comvet%ivedisadvantaee in seeking to develoo ltalian
ni3rkcts5 Thii pral ihcrciorc inlailcd scicral iniérrelated objcsiii,c,. to'de\elop
nw producis and markcis in ordcr io c~pand and divcrsify its business and make
full use of its operating capacity; to secure an ltalian partner with economic
r~wer~ ~ ~i~fluence: and to be assured of the critical interest and suvoo.. of the
national and regional governments6. The latter was particularly important be-
cause of the ltalian Government's dominant role as a customer and supplier in
numerous markets crucial to ELSl's ooerations and success, including the -
elccironics. ielesommunisation~. hrülth carc. militîry supplies, informalion and
irancporistion s)stenis. .ind the lialian banking s!sizm '.
ELSl s<iurhi IO bcnefii froiii Ital,'s Mezroxiornii inseniive I3ws.cspeci3lly (1)
the so-called"30 oer cent law" which reauireé 30 oer cent of eovernment aeencv
~ ~ ~~ -.
supp~)and jobco'nirasi~ 1,)hc made iium somp3n;cs iocatcd in the Mcssogiorno.
and (2) from tr:iii\port.iiion subsidics for husinencs in the 41erfogiorno8. Thc
30 oer cent Iaw wds esoeciallv imvo,tant.to ELSl's X-rav tube business. since
govcrnmcnt-conirollcd ho\pital\ ivere purshasing X-r;i) tubes froni outside Ii:i?
which could h~ve bccn purchxcd uithin Ilal) from ELSl in thr Meiiogiorno
The iransportation suhsidies were especially important to the cathode-ray tube
' Ann. 9. paras.20-22;Ann. 15,paras. 14-15;Affidavitof Joseph A.Scopelliti,former
Chief FinancialOfficerand Controller,Raytheon Company, para.2, I April 1987 (Ann.
8 7,
"* Ann. 9, para. 21: Ann. 15, paras. 33-35; Ann.17. para. 2; Ann. 21,paras. 5-8
' Ann. 9,para. 28; Ann.14, para. 2 and ExhibitA; Ann. 15, para. 21.
" Ann. 15. oara. 36: Ann.21. ,.aras. 9-15.
' ~nn. 17; paras. 3.4.
' Ann.9. paras. 24-25;Ann. 17,parapara.A3. Moreover. thepaliciessetbythe Govcrnment
of Italy in any of these areas directlyafected ELSI'soperaiions.Forexample.in March
1967.the Chamberof Deoutiesaoorovedthe IirstIivc-vearolan for the Italian economv.
which includeddeiailedpiansfor ihe developmentof ~Glian'industryQ . uarrerlyEconom>c
Review Annuol Suppkmeni,The EcanornistlnlelligenceUnit (1967)(Ann.23).
Ann. 6; Ann. 15,paras. 28-31;Ann. 17,para. 4.
Ann. 15.paras. 28-31. MEMORIAL OF THE UNITED STATES 49
business, because the large size and weight of ELSl's products made transporta-
lion costs particularly expensive'.
Manv , imr~rta~t notential new markets for ELSl nroducts and manv of ELSl's
uppliers ucrc go\,crnmcnt-conirollcd. primartl) h) the Istituto per 13 Ricurtruzi-
one Industriale ("IKI")' IKI. uhich had hcen crc~tcd in 1933io iikc cmcrgenc)
control of banks durine I-.lv's bankine crisis. had develo~ed into a permanent
holding conipany with e\tcnsitc aiid v,;de-ranging comnier>ial tnlerc~k, domina-
ting. ;imong other things, the tclccommuniç~tions. electronics and engineering
markets3. IR1 has been described as:
"Europe's largest market-disciplined public enterprise group . . .It owns
three of the largest national banks, and accounted for one-fifth of the total
of ltalian hank dewsits. In service comoanies it owns Alitalia. the main
~ ~ ~~ ~ ~ ~ . ~ ~
shtpping comp;inies. runs Italian radio and iclevibiun (RAI), the Iarger part
of ihc Itali:in telephone y\tcm, and h3s bu111 o\.cr hïlf thc renouncd national
motorway netwoik. In manukicturing it produces some three-fifths of ltalian
steel, over three-quarters of ships built, owns the Alfa-Romeo motor car
company, and has an importantstake in other national engineering sectors4."
By the end of 1967, IR1 had a majority shareholder interest valued al over
1,206 billion lire (US$1,929,600,000) in some 139 companies, which employed
some 290,000 persons and had combined sales of 2,230 billion lire
(US%3,568,000,000)5.
Because of 1Rl's importance and the importance of a strong commercial
relationship with the Government, Mr. Clare and other senior Raytheon officiais
held some 70 meetines with ltalian leaders between Februarv 1967 and March
1968' In these mcciiiigs - u,ithç~bincl-lcvelufficialsof the nalional Governmeni
and the Sisilian Rcgion. as uell as repr~sentativcs of IKI. ihe Ente Siciliano per
13 Produ~ii>neIndustri3le ("ESPI") tihc Stciliin Government indu\triïI oradniza-
tion responsihle for the promotion ;ilocal development), and the private s&tor-
ELSl's management and shareholdersattempted to find ELSl a strategic ltalian
partner and explore the possibilities of other governmental support7. In particu-
lar, Raytheon and ELSl developed and presented to ltalian and Sicilian,oficials
numerous specificproposals of ways for the ltalian Government to meet ils goals
of industrial development in the Mezzogiorno through a partnershi with ELSl
B
and support for ELSl's development of new products and markets .
' Ann. 17,paras. 3-4.
' Ann. 17,para. 3. Raytheonhad previouslyestablished a successlulpartnershipwith
IR1 and the private firrnFlAT through their jointownershipof Selenia,an electronics
company on the ltaliin mainland. RaytheonsuppliedSeleniamanagerialand technical
expertise;IR1 furnishedSeleniaaccesrIo marketsconirolledby IRI-affiliatedcompanies
and the Italian Government. Ann.9. !>ara.25. Raytheonthetelore had reason Io believe
that a similarCO-operative relationship couldbe establishedwith the ltalian industrial
communily,and with IR1in particular. Ibid. paras.24-25.
Ann. 25, p.47.
Ann.23;I.R.I.,lstirutoperlaRicastrurianeIndustriale,1967 AnnualReport. pp. 38-39,
65 (Ann. 24); The Slote As Enlrepren<sur,pp. 45-49,56-60(S. Holland,ed.. 1972)(Ann.
"I.
Ann. 9. paras. 29-31;Ann. 15.paras. 22-46: Ann.17. para. 5.
' Ann.9. paras. 29-30; Ann.15;paras. 23-32and 37-44: Ann.17,paras. 3-5.
Ann. 9. Daras. 22-23: Ann.13.vara. 13:Ann. 15. oara. 20.ELSl'sdetailedvrovosals
for ils luture'develovmentare containedin Annex 22.ÀsexplainedbyCharlesF Adams:
"If ELSl wasgoingto be successful.ilhad nochoicebut Io obtain a major Italian
partner.Aner La Centraledecreasedils ownershipof ELSl in the early 1960s.ELSl
wasviewcd asan 'American'Company. We had learnedby 1967that. in order lor a50 ELETTRONICA SICULA
At firii. Italy's rcsponsc was cncouraging. ESPI'.; Prciidenr Jnd ihc Preridefit
ofthc SiciIlan Region u,crr.cnihusiastic ahout a p;irtncr\hip uith EISI '.Siniilxly.
oihcr Iialirn oiiiiial,. includinr senior official, ;IIthe Slinisirir., of ihc 'rre~sury
and of Industry, Commerce, and Crdfts, expressed their continuing support fo-r
the official policy of Mezzogiorno development and their specific interest in
helping ELSI2.
Notwithstanding this support for ELSI [rom representdtives of the regional
and national governments, IR1 was not prepared tu invest in or consider other
commercial relationships with ELSI'. On 4 January 1968, a senior IR1 official
confirmed that IR1 was interested in furthering its own activities in the electronics
field4. IRl's specific plans al that lime were apparently still being developed: the
official said that IR1 would not enter inlo a rclationship with ELSl at that time,
but might he willing to reconsider the decision later, perhaps in a year5. ELSl
would require additional capital contributions from its shareholders, a commit-
ment they could not make unless there were good prospects that ELSl would
become financially self-sufficient6.
companyto be successfulin Italy, ilhad to beviewedas 'ltalian' andhave an 'Italian
link'or 'contact'.which would rovide access Io important Italian markets and the
contacts necessaryto obtain vitafsupport fromthe ltalianGovernmeni.The anly way
for ELSl Io be viewedas an ltalian company and have that necessarylink wanto
acquire a major ltalian partner. such as IR1 and Ente Sicilianoper la Produzione
Indusiriale CESPI'). the Sicilianaovernmental entitv.re.~onsiblcfor fundine.a-d
promoiinglocal development."(Ain. 9, para. 24.)
' Ann. 15. paras. 24, 26 and 44. and Exhibits A and B. Because ELSl war a large
emo.~~,~~.nd becauseSicilvhoned Io develonils electronicsindustrv. the Sici~ ~ ~ ~ ~ ~
had a sirone interest in k.eD"&~~~l oiieritke- Ann. 15.Daras.24..26and 27.
Ann. 15.paras. 25-30.
' Ann. 9, para.30; Ann. 15.paras. 31-38.
Ann. 9. para. 30; Ann. 15, paras.38-40and ExhibitC.
' Ibid. Sicilianofficiais were not prepared Io enter a financial relatianship with ELSl
without IRl's support. Ann. 9, para. 31; Ann. 15.paras. 37-38.
or ltaly. Ann. 9, para. 28: Ann. 15.para. 21.udgment wellknown Io the Government CHAPTER II
INTERVESI'IOS BY THE (;OVERN\IES'T OF lTA1.Y1'0 PRE\'F.NI
THb: 0OWDERI.Y1.IQUIDATIOS OF KISI
Raytheon and Machlett decided in March 1968 to close ELSl and take il
through an orderly liquidation. However, the Mayor of Palermo, acting as an
official of the ltalian Government, requisitioned ELSl's assets to prevent the
liauidation. The President of Sicilv threatened that the reauisition would be
mi~intainedindefinitely unless ~a)theon conlributed 3ddition>l ciipiial. kept the
plant open and unil.iterall) ~ibsorbrdELSl's losscr. With its iissels king held bg
the Iialian Governmtnt. and debtz cornine d~e, CLSl had no choiic but IOdcclarc
-
bankruptcy.
Section 1. The I>eeisionto Liquidate ELSl
Because their discussions with leaders of the Italian Government and others in
Ilal) did noi appear to bc Icading IOa succc\siul concl~sion. ELSI'Sshareholdcrs
kgan seriou~lyto plan IO cloic and Iiquid.~tcEI.SI to minimize their losseï'
Thes had made 3 husines\ iudement no! IO infuse additional cap1131into tl.SI
if ELSI could not he madëseE-sufficient. since it aooeared thai further invest-
ments, like earlier investments, would hélost'. ~ithout an additional capital
contribution, the shareholders would eventually have no alternative under ltalian
law but to liquidate3.
Raytheon's management and shareholders continued to meet with ltalian offi-
cials through the first quarter of 1968,stressing that ELSl's shareholders were
considering closing the plant4. Despite periodic mention of possible co-operation
at some futuretime5, ltalian agcncies were unwilling to finalizeany plan to keep
ELSl in business6.
To prepare for ELSl's liquidation, therefore, Raytheon sent ils Vice President,
Joseph Oppenheim, to Palermo to be ELSl's Chainnan. Mr. Oppenheim had the
strong financial and market expertise needed to conduct the liquidation, and was
assisted by similarly expenenced senior management officials7.
Under a comprehensive liquidation plan prepared hy Raytheon Europe's Con-
troller Joseph Scopelliti along with Mr. Oppenheim and others, ELSl would
maintain a limited operation to complete work-in-progress and fiIlexisting
purchase orders. therehy preserving il as a going concern and making it more
attractive to potential purchasers.All possible steps were to be taken to maintain
eood relationshios with ELSl's customers and suooliers so that ~otential ourchas-
ers could be o&ed ELSl's businessesas a going LOncem,inc~udingits esiablished
name and reputation, customer and supplier relationships, and the necessary
patent and trademark licensesand technical assistance from Raytheon and ~ach-
' Ann. 9. paras. 32-35Ann. 13,para. 13;Ann. 14,para. 3; Ann.17,paras.5-14.
Ann. 9. para. 20;Ann. 15,para.21;Ann.26,para. 4.
' Ann. 15,paras.42-43;Affidavit ofAvv. GiuseppeBixonti, StudioLegaleBisconti,
Rome,para.4. 11 Deçember1986(Ann.26).
' Ann. 13,para. 13;Ann.15,para.43.
' A&e..9,para.jO;rAnn. 15, para.42..
' Ann.9, paras.32.35;Ann. 15.paras.49-53;Ann. 26,para.5.52 ELETTRONICA SICULA
lett, in addition to the equipment and other tangible assets'. ELSl's business
would be oKered for sale hoth as a total package and as individual product lines
to maximize the price realized under the~liquid~tion2.
As of 31 March 1968, the book value of ELSl's assets was 17.05 billion lire
(US$27,200,000)'. ELSI's financial condition would, of course, have been
stronger had it received the benefits of the widely publicized Mezzogiorno incen-
tive laws and had it been able to expand ils position in the ltalian market4.This
book value re resented a fair measure of the value of ELSl's assets on a going
concern basis P.On the other hand, for interna1 planning purposes, Raytheon
estimated that a euaranteed minimum of 10.84billion lire (US%17.280.0001could
- ,,,
he realized on a "quick sale" basis6.
ELSl's liabilities, on the other hand, totalled some 16.66 billion lire
(US$26,656,000)'. Thus, from the sale of ELSl's assets on a going concern basis.
enough money would have heen realized to pay oK ELSl's liabilities in full,
including the amounts owed by ELSI 10 Raytheon, with a 391 million lire
(US$625.600) surulus 10 Ravtheon and Machlett as a small return on their
At worst. ironl! 10.81billion Iirc u.erc rcali7cd. K:iytheon lntcnded to use ihe
proçrrds from ihr sale i)iEI.Sl's assers to p;iy in full ELSl's prcîerrcd and securrd
crcditors and 311 of ELSl's srnallrr unsecured crcditurs9 Ra\thcon rîïsonabl\
anticipated, however, that thebank creditors with large unsecired, unguarante&
loans would quickly settle their claims al no more than 50 per cent of this value
as part of the orderlv liquidation, as such a settlement would auarantee prompt
and substantial as compared with receiving little ornothing in bank-
ruptcy". In this event, the liquidation would cos1 Raytheon some 3.79 billion
' Ann. 9; Ann. 15,paras.49-53.
Ann. 15.para. 51; Ann. 17, para. 12; Ann. 26. para. 5. ELSl'sproduct lines are
picturedandderribed inAnnex18andAnnex19.Anextensiveexposiiionofthe liquidation
plan iscontaincdin Ann. 17,paras. 6-14.
' Ann. 13,Sched.BI.
" Ann. 17.paras. 3-4.
' Ibid.,para. 15.
Ann. 17.para. 16and SchedulesCI, C2,C3 andC4; Ann. 17.paras. 7-10 andExhibit
A.Thisconservativevaluation,personallypreparedbyRaytheonEurope's ChieF financial
businesses,including:, deliberatelyomitted the significantintangiblevalue of ELSl's
"[IIIEcxieileni rcputltiun1, 4 produicr <ifrsliahleiIr;iriinic pri>Ju.,ind 11,
eiperienccand knuw-huw in ihc zlerlronic*,ndu\tr)II*wpplicr .ind cuvionirrIisir
Raytheon andMachlet1,'andother contracta.MoreoGer.in ELSI'Scaré,itir>roducislcdbv
uc;c bdcked b? the sir<>ngname,. iechnol.,g)and repuiaiionr of K~>th>on .tnJ
hkichleit L~borri<>ric>I.<. and 11 had esiabltrhcJ pr~Jutis uitha reputaiiun ftir
azalii,. Idur i~dmcnt. therr ilcm5wcreofsie-iiicaniv~lueand ~ntercsi IOouir.ntidl
buyeri." (~nn.-l7r~ara. 8.)
The plan wasconservative10reflect"the minimumprospectsof recavery of valueswhich
wecouldbe sureof, in order to ensurean orderlyliquidationprocess". Ibid.
' Ann. 13.Schedule E ("Total AdjustedClaims").This includedsame 5.71billion lire
(US$9,ICQ,OCQ in)principal andintereston loans guaranteed by Rayiheon: some 1.14
billion lireUSSI.830.0M)i)n amountsowedto Raytheonby ELSI:and some9.81billion
lire(US$I5,696,OW)in other liabilitiesand exwnser. includine amounts required for
severancepay. taxes,and other expensesof theliquidation. Ibid.-
Ibid..ScheduleE; reeolso,Tableat p. 108, in/ro.
'OAnn. 17.Asdescribednneintraal p. 58,thesebankswerewillingto settleal 50percent
or lcssas part oan overallvoluntarysettlement.See Ann.26,para. 16;Affidavitof Joseph
Oppenheim. former Chairman of the Board,Raytheon-ELSIS.p.A.,22 September1971closed' After con3uliing uith Raytheim's Presidcnt. Mr Clare 2nd his siaflscnt
dismissal letiers Iaic the nighi 0129 Marzh 1968'.
On 31 hlarih 1968. 31 6.45 am.. Ihc Presideni ofih'. Siciliiin Rceion me1 tvith
ELSl's Managing ~irector to inf& him of the Italian ~overnmint's plan for
ELSI. According to the President, the ltalian Prime Minister had said that the
Government of ltaly would requisition ELSl's plant in order to prevent the
liquidation3. He stated that an ESPI-affiliated Company would be formed to run
ELSl until IR1 could acquire ELSl's assets4. In addition to their plan ultimately
to acquire the assets, ltalian officialsdid not want to allow ELSl to close on the
schedule determined bv ELSl's directors and shareholders. National elections
were scheduled for ~a; 1968,and government officialstold Raytheon repeatedly
that they did no1want the plant 10close, with resulting large-scale unemployment
shortlv before an election5.
~ccordingl~. on I Aprtl 1968ihc Ma)ùr of Piilenno iswd an ordcr, effccti~~e
immcdiaicly, requisiiioning ELSl's plani and rc13icdt~ngiblc aszets ior a perioil
of six monihse. The order was biised on an lh65 Ia!i thxi hezttiwcd eriraordinar\
poucr on Iiiiltan adniinistrii1ii.c authùriticsIO iIi%pose of pritaie propcrt)" for
rei<onsof'.gr:i\e puhlii ncccssit)"'. Amongihc sitcd rcirirnh fur the rcquisiiion
were that "the local press is taking a great interest in the situation and . . .is
beine verv critical toward the authorities and is accusine them of indifference to
this seriois civicproblem" and that "there is a grave ~ubïic necessity and urgency
to protect the ~eneral economic public inierest (already seriously compromised)
and public ~rdër"~.
On 2 April 1968,ELSl's management relinquished control of ELSl's plant and
assets to the Mayor on the advice of local counse19.As a result of the requisition,
ELSI'S owners and management were, as a matter of law, deprived of control
over and the right to dispose of ELSl's assets, and could no1 proceed with the
Iiquidation'O. ELSI's relationships with its suppliers and customers were cut oiï
abruptly, in-process inventories could not beconverted to finished producis, and
neither ELSl's goods nor its other assets could be sold".
'Ann. 15,Daras.58-59and ExhibitG.
' Anii. 15, para.60.
' Ihid.,Accordingto the President.IR1preferredto acquire ELSl'sassetsfor its own
use rather than to work with Raytheonto keepELSL open becauseIR1did no1want Io
enter a partnerrhipwith Raytheon.
' Ann. 15.paras.46 and58:Ann. 26,para. 6.
RequisitionDecree,Mayorof the Municipality ofPalermo. IApril 1968(Ann. 33).
' Ann. 26,para. 7; Article7 of Lawof 20 March 1865,No.2248.AttachmentE(Ann.
34).The requisitionwar basedindirectlyon a 1955lawestablishingthe Mayor'sauthority
to issue"emergencyand urgeniordcrs" 01 thischaracter.PresidentiaDecree of29October
1955,N. 6 (Ann.35).
Ann. 21,paras. 18-19;Ann.26,para. 8.
'OAno.26,para. 7.
" Ann. 26, para. 7. The devastatingeffectof the requisitionis descrikd by former
RaytheonContrallerJoseph Scopellitiin Annex17.paragraph 17:
"9" April 1. however.the Mayor of Palermo requisitionedELSl's plant and
equlpment.Withthe requisiiion 01 ELSl's assets t wasimpossible 10 invitepotenfial
buyersto viewELSl'sliicilitiesand discussthe saleof the businesses. Moreover, in-
processinventonescouldno1 k convertedto finishedproducis.Suppliersandcuîtom-
ers were thussuddenlyand abruptlysuspended.ELSl'shard-earnedmarket position
was quicklytaken away by competitors.Nol only were the bulk 01 ELSl'sassets
suddenlynotdisposable.but 11did not appearlikelythat Raytheonwould ever regain
liquidationand obtaininguasfairpricefor ELSl'sbusinessesand sssets."n orderly MEMORlAL OF THE UNITED STATES 55
Although he had legal control of the plant, the Mayor did no1 attempt to
reopen and operate il. Rather, ltalian authorities allowed ELSl's formerworkers
to occupy the plant'. ELSl representatives immediately sent cables asking the
Mayor and other ltalian authorities to revoke thc rcquisition, but received no
response2. On 9 April ELSl formally petitioned the Mayor to lift his order,
arguing that the requisition was illegal and would only delay the solution of the
problem and create false hopes among ELSl workers. The Mayor did no1 re-
spond? On 19April, ELSI appealed the Mayor's order to the Prefect of Palermo,
an official of the ltalian Government empowered to hear appeals of decisions by
local eovernment officiais'.ELSI areued that the requisition was illegal and
arhiirky. and th~t ihr Mayor acied ouiside his 3utho;ity in requisiiio~ng thc
plant5 Although thc PreTcctuliim~tcly hcld th31theMayor had actcd unlawfull).
hc delascd issuine this Jeci\ton for 16months. uniil aiicr IR1 had completcd ils
acquisiiion of E~SI'S plant and assçts6.
After having requisitioned ELSl's plant and other tangible assets, ltalian
authorities pressured Raytheon to reopen ELSl at Raytheon's own addiiional
~x,e~ ~ ~O~ 19 Anril 1968. the President of the Sicilian Reeion told Ravtheon
rcprcscntati\,cs thdi thc r:gidnal and ndtionll g<~\rrnmints h2J agrccd to iorm
i<mxugcnicnt conipnny tu iiperÿtc EI.SI. He proposcd th~i Ra!thc~>nparitcipdtc
as a mrnority or equal with the G&ernment, contributing suhstantial
new capital to the venture and assuming complete responsibility for ELSl's pas1
dehts. He proposed that the new management Company pay only a token rental
(one ltalian lira) forELSI's facilities. He indicated that this arrangement would
keep ELSl workers temporanly employed until IR1 set up ils own plant in
Palermo. emphasizing that Sicily had a "single goal, to keep the workers em-
ployed" '.
The following day. the President of the Sicilian Region delivered 10 Mr.
Oppenheim a memorandum stating in part:
"On the premise that the intent of [Raytheon] is that of liquidating ELSI,
1 shall herein explain the reasons why it is absolutely impossible that this
can take place for the lime beiiig.
(1) Nohody in Italy shall purchase, that is to say IR1 shall no1 purchase
neither for a low nor for a high price, the Region shall not purchase, private
enterprise shall no1 purchase. Let me add that the Region and IR1 and
anyhody else who has any possibility to influence the market will refuse in
the most absolute manner to favor any sale while the plant is closed.
(2)The hanks which have outstanding credits for approximately 16billion
Lire, cannot and will not accept any seitlement even at the cos1of dragging
the Company in10 litigation on an international level . . .
......................................................
' Ann. 21, paru 19-21.So far as Raytheon can determine,the workers continued 10
have actual custody of the plant duringthe requisitionand consequentbankrupicyuntil
the plant wasfinallyreopened. Ibid.paras. 20-21;Ann.26,pdriis.16-17,
' Ann.26.para. 9.
' Ihid.
Appealby Raytheon-ELSI,SpA., to the Prefectof Palema of RequisilionDeçree of
the Mayor of Palermo.19April 1968 (Ann. 36): ser olsoAnn. 26.para. 9.
Seedinfia.pp. 64-65.Thisdelay in rulingappears to have been unprecedenied.Ann.
26,para. 10.
' Minutes of Meetingsin PalermobetweenMessrs.Joseph Oppenheim, HowardHen-
sleigh.StanleyHillyerand PresidentCarollo ofSicily. 19/2April 1968(Ann.37); Memo-
randum from ihc Presidentof the SicilianRegion.20April 1968 (Ann. 38).56 ELETTRONICA SICULA
It is obvious that every attempt will be made (even at the cos1 of long
litigation) IO obtain from Raytheon what is owed by ELSI.
(4) In the event that the plant shall be kept closed, waiting for ltalian
buyers who will never materialize, the requisition shall be maintained at least
until the courts will have resolved the case. Months shall go by'."
The memorandum set forth a plan for keeping ELSl open temporarily, aiming
toward the liquidation of ELSl at a later time. After consulting with Raytheon
officiais, Mr. Oppenheim formally rejected the proposal on 26 April, writing Io
the President of the Sicilian Region:
"Regrettïhly your proposïl Io form a management conipdnv wlis a tcm-
porary cîrctïker nieasure u,hich uould not solvc ihr fundanienial problem.
namelv keeiiine ELSl in Sicilvand mdkinr ita vt;iblcand kital indusirs For
this réason,'wefind it impos;ible to accept il.
It is sad to see that after al1 our invesiment over the years, and al1 our
anneals durine the las1 vear to public agencies and private industrv to ioin
&'in putting iew blood-in10 a ~icilian i;dustry, the hly re~~onsesweréthe
requisitioning of Our plant and a proposal which would only aggravate
ELSI'Scritical financial condition.
WCare therefore forced to file a voluntary petition for bankruptcy, as
required by ltalian law ...'"
Section3. The Resulting Bankruptcy
The President's memorandum made clear that the requisition of ELSl's assets
would continue indefinitelv. Deprived of the income which the sale of its assets
would produce, ELSI wacno longer able to meet ils financial obligations when
due. lis attorney advised the Board of Directors to file for bankruptcy or face
possible personal liability for Company debts3. On 25 April 1968, the Board of
' Ann. 38.
* Letter fromJoseph Oppenheim,Chairmanof the Board,Raytheon-ELSI,S.p.A..Lo
Hon. VincenzoCarollo.Presidentof the SicilianRegion.26April 1968(Ann. 39).
' . ....~,.ara. ~~, ~~ ~ ~~~,r~~a. 19:Ann.26. oara. 12:Ann. 39: Ailidavitof Charles
H. Resnick,GeneralCaunsel. Raytheon'~ompany.'paras4 .15, 19January 1987(Ann. 40).
Avv.Biscontidetailsinhisaffidavitwhythe requisitionforcedELSlto declarebankruptcy:
"On ihr.dd) die, \re tild ihr .~ppc*liu the Prelcïi. Pri,iJcnt C~rrill~of Sicil)
delirerrdJ urtitsn nicnior;inddm iciR~)ihcunihre.*icnlngihri iht ri.~u~riiiriuould
be nral<>necd indefiniiel,unlcrr Ratihcdn abandoncditr tll~nlio il<>,cCLSl I *as
infirmed of this immediatelv bv M;. Oppenheim.Thedisposabilityof ELSl'sassels
*.IS3 fundÿmrntxlprrrrqui;i~<tr,LLSI'ssh3rrholdrrs'~bilityio lakc ELSl ihrough
an r>rdcrlyliquidaiion.the) ucrr rrlyingon the prosecdi rifihr.3~s;tlcrIn largepart
to --, ELSI'<irruliiurr in an orderlv mdnner Wilhouithc ahiliiv IO Ji\ndrc of 11s
a&ets.ELSl wouldnot have the li&iditv neededto iav its debt;as thev'camedue
and thereforewould soon kome t&ehni~alliynsolve~t&der ltalian law:
All indicationsfrom the ltalian Governmentwerethat the requisitionwouldno1
bequashedin the near tem. BecauseELSl's illiquidity and its consequent inability
tomeetits obligationswhenduewerecausedbythe requisition,andwouldcontinue,
1advised ELSl'sdirectorsthattheyhadan obligationtofile a petitionforadeclaralion
of bankruptcy.failingwhichtheycouldbeheldpersonallyliablepursuantIo Article
217of the BankruptcyLaw, Royal Decree al March 16, 1942,No.267. 1had no1
prcviouslycontemplatedsuch a stcp,since I saw no possibilityof ils beingrequired
by ELSl's financialsituation priorto the requisition.Giventhe requisilion,however.
that ELSl wouldentnoalonger be inoaeposition Io sÿtisfyregularlyils obligationsand
pay ils debtsas theycamedue." (Ann.26,paras. IIand 12.)
The tex1of Article217 ofthe BankruptcyLawof Iialy. RoyalDecreeof 16March 1942.
No.267, isaitached as Annex41. MEMORIAL OF THE UNITED STATES 57
Direclors accepted this advice and voted to file a voluntary petition in bank-
ruptcyl. The bankruptcy petition, which was filed on 26 April 1968, with the
Civil and Criminal Tribunal of Palermo, stated in part:
"On April 1, 1968, the Mayor of Palermo, alleging reasons of senous
necessitv and ureencv. ordered the reauisition of the olant and of the eauio-
nient oithe C.~i~~;in). Such mc~surc: which isconsi&red hy the ~ompan~
illegsl 2nd <irhitr.ir) and moreo\cr unîit to resoli,e the economic prohlem OS
the Conindnv aiid of the Sicili;in indu*ir\. ha<de11rii~Jthe Cilmwn, ol'the
Sreedomio Aispose of ils assets for a long period, annihilating eveG possi-
bility for the orderly disposition of the corporate assets; the negotiations
then in course for the disposition of part or al1of the assets were prejudiced
without recourse. Furthermore, in the last few days there were clear and
express indications of a line of behavior intended to put the Company in
even more serious difficulties.
Because of the order of requisition, against which the Company has timely
filed an appeal, the Company has los1 the control of the plant and cannot
avail itself of an immediate source of liquid funds; in the meanwhile payments
have become due (as for instance installments of long-term loans; an install-
ment of Lit. 800 million [US$1,280,000] to Banca Nazionale del Lavoro
became due on April 18, 1968 . ..);il is acknowledged that il is impossible
for the Company to pay such sums with the Sundsexistin or available and
such impossibilily is dueto the events of these las1weeks !."
The Civil and Criminal Tribunal of Palermo round ELSl bankruol on 16 Mav
1968,and named Avv. Giuseppe Sirucusa, a Palermoattorney, as ~brator (hereil-
after, "Trustee") for the hankruptcy3.
' Minutesof Meetingof Raytheon-ELSI,S.p.A., Board ofDirectors. 25 April 1968
(Ann. 42). Sec olso,Ann. 40. paras.4-5.
Raytheon-ELSI,S.p.A..Petitionfor Bankruptcyto the Civiland CriminalTribunal
of Palermo, D. 6.26 A~ril1968(Ann. 43).
' ~s>ihc"n-LLSI. SPA.. Judgrncni of Banknipicy. (:i\iIand CriminalTnhunal of
Thc'l'ribun~i1hensnniiinied8.aefive.rnrrnhr.zrcditor,'commiiircinrludin~iuo rcnrscnia-)
ligof ELSl'slabor.rforce,iworepresentalives~ ofELSl'sbank creditors,and a r&r&nta-
tiveof Raytheon Europe. Documentsiiledin the Civiland CriminalTribunalof Palermo
designatingGiusepwSiracusaTrurleein Bankruptcyandselectingthe creditorscommittee
in the bankruptcyof Raytheon-ELSI,S.p.A., 4 June 1968(Ann. 45). CHAPTER III
THE ACQUISlTlON OF ELSI'S ASSETS BY IR1
The Government of ltaly puhlicly announced that il would take over ELSl's
nlant and related assets throueh one of IRl's subsidiaries. Ravtheon and ltalian
bfficials discussed a possible agreement, but ltaly broke off ialks in November
1968.Notwithstanding ils decision to acquire ELSl's assets, IR1 then boycotted
the series of three au2ions held by the bankrupicy judge, while communicating
directly with the Trustee and the bankruptcy judge to obtain different purchase
terms than had heen set for the auctions. Arguing that the plant has been idle
for a long penod, an IR1 suhsidiary leased and soon thereaftcr purchased ELSl's
plant and most of its assets at a fraction of their original worth.
Section 1. Public Announcement of the Decision to Aequire ELSl's Assets
On 25 Julv 1968. the Minister of Industrv. Commerce and Crafts announced
IO ihe ~arliinicni thai the Go\crnmcnt ofltaly inicndcd tu takc o\,er ELSl'i
plan1throurh one [ifIRI'bsuhrididrici' Uniil IRl's s~biidlxry ua, ready. F.I.SI'ç
assets would he takcn over hy a new Company formed hy the ~icilian ~egion and
some government agencies2. He also indicated that ltaly was still considering a
general creditors' settlement outside the hankruptcy proceeding'.
ltalian officiais in fact met with Raytheon officers repeatedly from July to
Novemher 1968to discuss a oossible vlan for a Government take-over that mieht
include a creditor settlemenÎ4. The parties tentatively agreed on a plan which-by
early Novemher 1968was close to being finalized. In thecourse of these negotia-
tions, al1but one of the seven creditor banks agreed to accepi 30 per cent-40 per
cent of their unsecured claims. One bank decided that it would accept 50 percent
in a settlement5.
On 13 Novemher 1968, however, the Government of ltaly announced its
decision that an IR1 subsidiary, IRI-STET, would "intervene" and take over
ELSl's plant in Palermo6. A senior ltalian official confirmed fivedays later that
ltaly broke off nearly successful settlement negotiations because ii had decided
to allow IR1 to take over ELSI's assets without a creditor settlement'. On 30
November, former ELSl workers who had been occupying the plant look down
r~-~~~~- ~ ~ ~~ ~ ~ ~ ~ ,
preparaiionsIo commenceoperaiionsin Palermo.adding
that "thosefamiliarwithsituationin Palermoknowthat thisisno1difficult". Ibid.ai p.3.
Ibid.at p. 4.The plan announcedby the rndustryand CommerceMinisterfor Sicily
to take over and operateELSl'sfaciliticscorrespondsdirectlyio the plan outlinedby the
Pr~ident of the SiciliaRegion, speaking an behalfof the IialianPrimcMinisier.the day
bef3r......",".y"ti...Su~ra.D. 55.
Ann. 26,para. 16: Anns. 27. 28and 29.
' Ann. 26, para. 16;Ann.29. The UnitcdStatcsis no1claimingfor damagesbased on
ihirrettlemeniihatfellthroueh.Theoresenidaimisbasedontheasrum~tiontha. Ravtheon
wouldhave paid 50 percenito 011 8f the large creditor bankslbid.
Press Releaseby the Governmentof Iialy, 13November 1968 (Ann. 47): Ann.26.
aara. 16. MEMORlAL OF THE UNITED STATES 59
the plant's entrance sign that said "ELSI" and replaced it with a new sign that
said "STET1". In December, IR1 formed a new subsidiary in Palermo - Indu-
stria Elettronica Telecomunicazioni, S.P.A. ("ELTEL") - to take over ELSl's
plant and assets2.
Section 2. The Acquisition of ELSl's Assets
The bankruptcy court ordered an auction of ELSl's plant and equipment for
18 January 1969, over eight months after ELSl was declared bankrupt, and set
a minimum bid of 5 billion lire (US$8 million)'. The Government of ltaly had
announced iü decision to take over ELSl's assets for its own use and no onvate
parties bid at the auction4.
By this lime, ELSl's plant had been idle and occupied by former employees
for over nine months, and they were bringing pre&urc on the regional and
national governments 10 reopen the plants. As early as November 1968, govern-
ment officiais,as well as IRI, had promised that an IR1 subsidiary would take
over ELSI's plant and rehire most of the former employees6. In attempting to
reach an agreement on such re-employment, however, disputes arose between
employee representatives and IR1 about timing7. Four hundred of ELSI's workers
marched on Rome in early 1969 to protest the Government's delayB. IR1 represen-
tatives and the Trustee in bankruptcy reportedly agrced on 18 March 1969 that
IR1 would acquire ELSl's assets, beginning with a lease of the plant for 150
million lire (US$240,000), followed by a negotiated purchase of the assets. This
'Photograph of entrance to Elettronica Sicula, S.p.A.. plant in Palermo, Sicily, 1962
(Ann. 48); Photograph of entrance to Raytheon-ELSI, S.p.A.. plant in Palenno, Sicily,
November 1968(Ann. 49).
' Ann. 26,para. 20: "I.R.I. Breaks Its Promise- 200WorkcrsRemainJoblesl", L'Oro.
516December 1968(Ann. 50).
' Notice of Auction to be held 18January 1969,Corrierede110Sera, II December 1968
(Ann. 51).
Although several buycrs cxpresîed to the Trustec thcir intcrcst in purchasing ELSl's
assets, no buyers appeared at the first auction. Minutes of 18January 1969Auction of
ELSI'sAssets (Ann. 52): Ann. 26. para. 18.As stated by Avv. Bisconti:
"S[jnce] the ltalian Government had made clear its decision Io have one of ils
agenciesacquire ELSl's assets,patential purchasers had no incentiveand receivedno
encouragement to pursue their interest. Moreover. during the lime ELSl's plant was
occupied by ils employees,it would have beendifficultfor the Curator to cven show
the assets." (Ihid).
' Ann. 50; "CGIL: The Undertakings CorELSl Are Nol Being Fulfilled". Giorvoledi
Sicilio, 8 December 1968. p. 6 (Ann. 53); "ELSI: Agreement Reached for Workers".
CiornolediSicilio, 30January 1969,p.2 (Ann. 54): "The'EX'[Emplayees] ofELSl Protest
in Rome". Giornoledi Sicilili.30January 1969,p. 5 (Ann. 55); "ELSI: ConclusiveMeeting
in the Prefecture". Giornde di Sicilia, 19March 1969,p. 14(Ann. 56).The workers'unions
activelynegotiatedand lobbiedthe Government on their behalf.Sec Annex50.Asdiscussed
in these news reports. IR1 wanrepresented in ils negotiations for an acquisition of ELSl's
plant and assets by Siemens, one of ils industrial subsidiaries. and by ELTEL, which
ultimately purchased thc plant and related assets. Se.g.,Anns. 50, 54and 56.
Ann. 50.
' Anns. 50, 53. 54, 55 and 56. IRI ultimately agreed to rehire the employeesin phases
over a one-ycar period. See Ann. 56.
Anns. 55 and 56.60 ELETTRONICA SICULA
agreement. which was publicly reported, was reached in a meeting with the Prefect
of Palermo'.
While these negotiations were taking place, the hankruptcy court held a
second auction on 22 March 1969, offenng ELSl's assets for 6,223,293,258 lire
(US$9,957.000)2. As with the first, IR1 boycotted this auction, and no other
poiential purchasers appeared3.The President of the Sicilian Region explained on
5 April 1969that ELTEL's decision not to bid was part of a national govem-
ment plan dating back to October 1968:
"[President Carollo] said: 'There is an agreement: precise, written, and
siened.' . . .The aereement. as Carollo exolained it last nieht. entailed the
aCquisition of the 6ctory b; IR1 for the sum of four billion~ire. It was even
agreed that IR1 would be absent from the first auction, participating instead
in the second one, where the basic price was precisely Tour billion-lire . . .
'What 1am saying is so true ' continued Carollo, 'that immediately after
this conversation the direciors of IR1 came to Palermo in order to form
ELTEL . . .The truth . . .is that IR1 (throue- ELTEL) has continued to
speculate on a lower purchasepnce, no longer honoring its previous commit-
ment; and it also happened that the consortium of creditors and the bank-
ruptcy trustee backed out as well, bringing up the problem of the inventory
to-be-acquired together with the plant4."
A week after the second auciion, ELTEL publicly proposed to the Trustee that
it be allowed to lease and reopen the ELSl plant for an 18-month period al an
annual rental charge of 150million lire (US$240,000)5.
The creditors committee met and expressed what the bankruptcy judge called
an "esseniially negative opinion" of the proposed lease6, recommending that any
such lease be limited to 6 to 12 months and be granted only if ELTEL agreed
to purchase al1 of ELSl's inventoried raw materials for 1.8 billion lire
(US$2.880.000)'. Ravtheon Eurooe's reoresentative on the creditors committee
vigorously opposed lhir le~se,in p~rl hc<au>eiif the nominal pa)mcnl. hut more
fundamcnirlly hccruse 11 uould discourilge an! polenlial conipeiilion for lhc
purshaic iiiELSl's assrts As he ~13boratedin a petition 10 the b~nkruptcy judge
"IRI, notwithstanding the alleged commitments [to purchase ELSl's as-
sets], has let two sales go unattended with the obvious purpose of causing
in such way the price to become lower. The attitude of IR1 leads one to
suspect that this maneuver shall continue for several months until such lime
' Ann. 56.The Prefect,who hdd pend in^beforehim ELSl's April1968appealof the
rcqul<iilon.a~iirrl) pïrivqx~ied in ihr hlirih 1969ncgoiiiii~un;hc,iu:in IRl. Sliiliiin
oilki~lr.ind (hi.Tru.ierin B~nkrupii! Ir>rihr >:quiriiir~i CLSl'r .i,rr.iIh,clDtrplti
hlr oerbunaloariicioaiioninIKl'srcauisiiionoiFISl'i ;ii<r.lhouc\er. ihr Prei~i dela\r.<i
rul& that the reqiisition wasillegal'untilAugust1969, fivemonthssfler the negotiat&ns
wereconcludedand 16 months after IValyseired the plant butonly 40days alter IR1
conclNoticelot~uction la be held 22 March 1969.ionThe New York Times . March 1969.
p. 28 (Ann. 57).
' Minutes of22March 1969Auctionof ELSl'sAssets(Ann.58).
" " 'ThereWas an Agreement' Says Carallo", CiornalediSicilin6April 1969 (Ann. 59).
' Minutesof Raytheon-ELSI,S.P.A. Creditors CommitieeMeeting.29 March 1969
(Ann. 60); Submissionby Trustee in BankruptcyGiuseppe Siracusa ta the Civil and
CriminalCourt of Palermo, 3 April 1969(Ann. 61). As noted supra, p.59, this lease
arrangement was reportedlyarraiged in advance of the creditorscornmitteemeetingby
IR1and the Trustee.in the presence of the Prefect.Ann. 56.
Ann.61.o. 330. inira.this material had been inventoried and appraised'. Raytheon Europe's representa-
tive on the creditors committee opposed ELTEL's offer because of this low price
and other grounds, arguing in part that the sale should not be considered prior
to the auction proceedings scheduled for early May 19~59~T .he other members
of the committee agreed to the sale despite ELTEL's low offer, in part hecause
this inventory had already been sitting unused for over 12months3.
On 3 May 1969, IR1 boycotted the third auction of ELSl's assets held by the
bankruptcy judge4. ELTEL had notified the bankruptcy court on 16 April that
it wanted to buy the plant and equipment only and not the supplies, "since these
are not indispensihle for administration". ELTEL indicated that it would bid at
the third auction if it could make a bid of 3.2 billion lire for the la nt and
equipment only - rather than for theplant, equipment, inventory andSuppliess.
The court, however, did not change the terms of the auction and ELTEL did not
hid. No other bidders appeared either6.
On the same day as the third auction, however, the Trustee petitioned the
bankruptcy judge to approve the sale of ELSI's work in process to ELTEL for
the exact priceELTEL had offered, reasoning that the reduced price was justified
by the long period of plant inactivity and hy ELTEL's leaseof the plant7. The
Court approved the sale at the price set hy ELTEL8.
C. IR1 COMPLETEIS TSACQUISITIO NF ELSI's ASSETS
Having acquired control of ELSI's plant through the lease and ownership of
its work in process, ELTEL quickly negotiated a pnce to its liking for ELSI's
remaining assets.
On 27 May 1969, ELTEL suhmitted to the bankruptcy judge its offer to buy
' Minutes ofCreditorsCommitteeMeeting,Raytheon-ELSI,SpA., 2 May 1969(Ann.
65k
Annex65. Raytheon Europe's representativestated that IRwas simplypursuingils
"well thought-outplan whichir. in essence,geared 10a maximumdevaluationof Elsi's
businessfromwhichElielalonewouldbenefit". Ibid.atp. 344, infra.
' Ibid.,alp. 344, in/rAnn. 26.para. 22.To Raytheon'sknowledge,thismaterialwas
packagefortoeveryoneexceptIRI.eIbid.ncethe plant andils assetswereoffercdas asingle
Noticeof Auctionto be held 3 May 1969, The New, York Times, 8 April 1969.p. 71
(Ann.66); Minutesof3 May 1969Auctionof ELST'sAssets(Ann. 67).The bankruptcy
judge seta price of5 billion lire (US$8million)at this auction. Thedisparity in prices
among thefirstthree auctions arisein part becausethe bankruptcy judgeslightlyvaried
the particular assetsthat wereofferedal each auctionin addition to ELSI's plantSec
Anns.51,57and 66.
' SubmissionIo the CivilCourt ofPalemo hyELTEL,S.p.A.,16April 1969(Ann. 68).
Ann. 67.
Siracusa,3sMay 1969,subsequent Crorderlby the Tribunal, 5 May 1969(Ann 69).Thee
Trusteestated:
"Accordingta theleaseagreement the undersigned [Trusteeis]obligatedto remove
limeand resultsinassubstantialreductionin valueof the materialprope.. .1; view
of the factthat thematerialioneyearoldand difficultto sel1whileifsremovalfrom
theassemblylinewould only reduce its value,the undersignedis in favorof sellingit
for L.105million."(Ann.69.)
Ann. 26, para. 22; sreolro,Transcriptof BankruptcyHearing. Civiland Criminal
Court of Palermo, 13July 1969(Ann. 74). MEMORIAL OF THE UNITED STATES 63
the remaining plant, equipment and supplies for 4 billion lire (US$6,400,000)'.
The Trustee proposed 10the creditorscommittee that it accept this ofer, subject
to some minor changes2. The coinmittee considered the proposal, as modified,
on 6 June and approved it by a split vote3. On 7 June the bankruptcy judge
scheduled an auction for 12 July 1969 on the agreed lems4. After Raytheon
Europe unsuccessfully appealed the judge's decision to sel1 ELSl's assets to
ELTEL', ELTEL npgeared at the fourth auction and purchased ELSl's plant
and remaining assets .The Civil and Criminal Tribunal of Palermo approved
this purchase and assigned ELSl's remaining assets to ELTEL the next day'.
Thus, on 12 July 1969, ELTEL finally completed its purchase of ELSl's assets
for 4,006 billion lire (USâ6,409,600), a price it had essentially determined eight
months earliera.
The Government of ltaly thus achieved its objective of acquiring ELSl's plant
and other assets without paying or otherwise co-operating with ELSl's sharehold-
ers, Raytheon and Machlett, and without paying a freely market-determined
price. IRl's subsidiary Italtel, S.p.A., now uses ELSI's plant to manufacture
telephone equipment9.
'Submissionto the CivilCourt ofPalemo by ELTEL,S.p.A..27May 1969(Ann.70).
This aRcr.whichwu accepted,wasthe pricereportedlynegotiated by IR1and theTrustcc
eightmonths earlicr.in Octokr 1968.Ann. 59. Earlierin May 1969.ELTELapparently
attemptedunsuccessfully 10get an evenlawerpricefor theassets.Twodaysafterthe third
auctian,on 5 May 1969,ELTELsubinittedto the bankruptcyjudge ils own appraisal of
para. 23.nt andthe other remainingassetsal 2.381billion lire (USS3.809.600A ).nn. 26,
Minutesof CrcdilorsCommitteeMeeting.Raytheon-ELSI,S.p.A..6 June 1969(Ann.
7,)
Ibid. The two ELSl ernployeerepresentativesvoted in favor. the representativeof
generalcreditorsabsiained.the bankrepresentativewasabsent. and theRaythconEurope
represcmativevoted againsttheproposal. Ibid.
NoticeorAuclion to beheldon 12Julv 1969(Ann.72).
Ann. 26,para. 24.
"bid. To encourageELTEL no110 prolong any further ils eRortsto secure ELSl's
assetsnt an even lowerprice.Raytheon Companyagreed in lateJune 1969to ertend to
from Joseph Oppenheim,Vice-President,Raytheon Company.to Industria Elcttronican. etter
TelecomunicazioniS . .p.A..26June 1969(Ann. 73).
' A"" 74.
A"": 59.
See I.R.I., Istiiuta perla RicostruzioneIndurtciale,19i'earbookpp.260-263(Ann.
75).Italyisthus usingELSl'splantto produceoneofthe newproductsproposedbyELSl
in ils 1967Report 10ltalianofficiaiAnn. 22,p. 215,infia;Ann. 15.para. M. CHAPTER IV
SUBSEQUENT ITALIAN COURT ACTION
Afier IR1 haJ c<>mpleieJ11spurchirr of ELSl's assets. ihc Prcfcct finaIl) ruled
that the requisiiion hïd bccn illcgïl The Tru5icc then iuîd the .M:iyorand Ilalian
lnterior Minister for damaaes b&ed on this ruline. but wasawardedonlv damages
for loss of possession durhg the rcquisition. ~&e government-controiled balks
sued Raytheon in ltalian courts 10recover for the unsecured, unguaranteed loans
they had made to ELSI. All of these suits resulted in judgments for Raytheon.
Bankruptcy proceedings were completed in 1985,with secured and preferred
creditors receivingpayment in full and unsecured creditors receivingonly a small
fraction of the amounts they had claimed.
Section 1. The lllegality of the Requisitinnand Aftermath
As noted above', on 19April 1968, ELSl appealed the Mayor's 1April 1968
requisition of ils assets to the Prefect of Palermo, an official of the ltalian
Government empowered to hear appeals of decisions by local govemmental
officiais.The Prefect ruled on ELSl's appeal of the requisition order on 22August
1969,over 16months after the appeal was filed, but only 40 days after ELTEL
had completed its acquisition of ELSl's assets'. The Prefect found the requisition
to have heen illegal, ruling that it could not possibly have achieved its stated
purposes3. Specifically, the Prefect ruled that "the order is destitute of any
juridical cause which may justify it or make it enf~rceable"~.
The Mayor appealed the Prefect's Order to the ltalian Council of State and
the President of Italy5. His appeal was dismissed on the ground that he lacked
standing to appeal a decision of the Prefect, his administrative superior6. The
Prefect'sruling therefore stands as a final decision of ltalian judicial authorities
that the requisition was unlawful.
The Prefect'sdelay in ruling on ELSl's appeal ofthe requisition was apparently
unprecedented. In other cases in which the 1865law had been invoked as a basis
for requisition of an industrial Plant, the Prefececoif the relevant jurisdiction
quickly quashed the requisitions .In most of these cases, the requisitions were
quashed in less than 30 days, sometimes in as little as one days.
Based on the Prefect's decision.the Trustee broueht suit on behalf of ELSl's
b~nkrupi esidle on 16Junc 1970in the Couri of P>lcrmo againsi ihe Minisicr
<ifihc Inicriur of Iidly and ihc Mayor of Palermo for danidgcs IO ELSl rcsulting
'supra, p.55.
Judgmeniof Prefectof Palermo.22Augusi1969(Ann.76).
' Ibid, p.362. infra.
part by hisdesire10showthe local pressthai hewas"fac[ing]theprablemin msomeaway".
Ibid.,p.363, i/ro.
' CouncilofStateOpinionRegardingAppealby Mayorof Palermo,19November1971
(Ann. 77); Rulingby Presidentof ltaly DismissingAppealby Mayor of Palermo,dated
22April 1972,registered19 May 1972(Ann.78).
Ibid.
' Ann. 26.para. 10.
lbid.bid.In none of thesccases did the Prcfecldelayhis rulingfor morethan 30 days. MEMORIAL OF THE UNITED STATES 65
from the illcgal rcqui.;ition'. In his compl~iiit. the Truitec siated ihïl lhc requisi-
lion hîd not onl) cîused ElSI's bînkruptcy. but had alio inipcded iti siicccss'
"In consideration of the heavy legal and economical situation created by
the appealed order of requisition, Raytheon-ELSI S.P.A. was obliged 10file
for bankruptcy, which was declarcd by decision of this Tribunal on May
7-9, 1968.
Even after the declaration of bankruptcy the Trustee in Bankruptcy, Avv.
Siracusa, could not take possession of the plant and relative equipment due
to the order of requisition issued by the Mayor of the City of Paletmo,
whicb remained in eiiect until September 30, 1968, causing unima inable
damages for the bankrupt Company and, therefore, for the creditors !."
The Trustee sought damages of 2.395 billion lire(US$3,834,500) plus interest for
the decrease in value of ELSl's plant and electronic equipment dunng the requisi-
tion, and for ELSl's inability to dispose of the plant and equipment during the
requisition pcriod3.
On 2 Febru~r~ 1,73.~t~. Court of ~ ~ ~mo~ ~ ~d that the Trustee was no1
entitled to compensation for the requisition4. On appeal, the Court of Appeals
of Palermo found on 24 January 1974 that the Trustee was entitled al least to
compensation from the ~inister~of the lnterior for loss of use and possession of
ELSI's plant and asscts during the six-month requisition period. It therefore
awarded, in eiiect, a "rental" payment of some 114 million lire (US$171,000),
computed as half the annual rate of 5 per cent of the total value of the üssets5.
This decision was upheld on appeal by the Supreme Court of Appeals on 26 April
19756.The amount of the judgmcnt was ultimately received by the Trustee and,
less costs and expenses, distributed to ELSl's creditors7.
Section 2. ltalian Bank Suits Against Raytheon
Upon demand, Raytheon Company paid 5.7876 billion lire (US$9,283,600) as
payment in full of thosc of ELSl's bank loans that it had guaranteeda. Seven
banks had made unguaranteed loans to ELSl that were outstanding on I April
1968,when Italy requisitioned ELSl's plant and assets9.
Between 1969and 1971, five of these banks that were owned or controlled by
IR1 or the Sicilian Region filcdsuits against Raytheon in Italian courts to recover
'Ann. 78.
LawsuitTordamagesfilcdby the Trustccagainstthe Ministerof the lnterior and the
Mayor of Palermo, 16 June 1970, p.2 (Ann. 79).
' The suitwasbrought bythe Trustecseekingcompensation for the bankruptcy estate.
IIwasno1brought, nor could ilhavebeenbrought underltalian law,on behalfof ELSl's
shareholders,Raythconand Machlett.Ann. 26. para.28.
Judgmentof theCourt or Palermo,decided2 February 1973,filed29 March 1973.
re iludgrnentpofltheCourt ofAppcalsaîPalcrrno, registered24lanuary 1974,p. 24 (Ann.
81).The United States dollarequivalcntin the tex1is derivedfrom theexchangerate on
tes $1.00to ltalian L.666.667.Ann. 12.
determiied that the Cotir1of Appeals inc6irectlycornputedthe damagesowed to the
Trustee. but thatthe decisionwasnonetheless"cquitable".Ibidp ,.389, infra.
' Ann. 26.Altachment.
Ann. 13,para. 29. and Schedule Il: Ann. 14,Exhibit B.This;total includesprincipal
and interest,& detailedin Ann. 13.ScheduleII.
Ann. 13,khedule D.the loans they had made to ELSI '. All of these lawsuits resulted in judgments in
favor of Raytheon after many years of litigation'. The courts dismissed the
banks' claims that Raytheon had guaranteed the loans and, in keeping with well-
established precedent, held that Raytheon's interest in ELSI did not make ita
"sole shareholder" that could be held liable for loans to ELSI3. All of the
decisions totally cleared Raytheon of any explicit or implicit misconduct with
respect to ELSI4.
Section 3. The Conclusion of the Bankruptcy Proceedings
In the bankruptcy, creditors presented claims against ELSI totalling some 13
billion lire (USS20 milli~n)~. Raytheon and one of ils subsidianes Raytheon
Service Company ("RSC"), had unsecured claims against ELSl of some 1.14
billion lire (US$1.830.000) .or eo..s and services thev had advanced to ELSI o~ ~ ~
uiirccureJ opsn acci>iint,' On 3d\icc oi ItitliaCLIU~;CI. houever. K;i!ihcon and
KSC did no1 lilc claims in the hankrupic) procccding bcs;iusc ii uar clcrr ihit
the, uoiild noi rccct\c cnourh in ihc h:inkru~tcv to iustifv thcir filine cosi\'.
~he bankruptcy proceedi&s closed in Novémb& 1985. ~ccord?n~ to the
bankruptcy reports, the bankruptcy realized only some 6.37 billion lire
(US$10,192,000) for ELSl's assets, as com ared with the minimum liquidation
value of 10.84 billion lire (US$17,344,000) P. Of the amount realized, some 6.08
' '1hr.fdlluuing bînkr li1r~ i .igiln\i R.i)ihronin It~li.iniuurton ihi Jxtc, indicated
in pdrc~nthi.~rrI.I <'rcJiiIt~lt~ni17 Ma! 19691. Hiiricidi Kuni.i123 Junc Iclhc>). ~nw
C'.>nimer;idlcIidli.in,! ilIanuar) IYh.1,. Hanco di Sicilidi13 h1ir;h 137bi. dnJ Clira
Centrale di Risparmio V. E. (18 july 1970).IR1 controls the first three of ihese banks.
Banco di Siciliaand Casa Centrale di Risparmio V. E. are government-controlled banks
which have their headquarters and primary place of business in Sicily. Two of ELSl's
uneuaranteed creditors. IRFIS and First National Citv Bank of New York. did no1 ~ ~ ~ ~
~aytheon. President Carollo of the SicilianRegion had &xplicitlythreatened that Raytheon
would be subjected to this type of litigation if ELSi's shareholders decided io close ELSl
and take il through an orderly liquidation. Ann. 38.
Ann. 26, para. 26.
' Ibid.
.".".
Ibid., Exhibit A; Ann. 30, Schedule D.
' Ann. 13, Schedule D; Ann. 14, Exhibit C; An": 26, para. 14. Raytheon Service
Cornoanv is a United States cornoration incoroorated in Delaware and whollv owned bv
the ~aytheon Company. Ann. 13:para. 31.CertlficateofGood Standing,State if~elawaré.
Raytheon ServiceCompany, 22 December 1986(Ann. 83); Proof of Raytheon Company's
100percent ownership of Raytheon ServiceCompany, 8 October 1986(Ann 84).
' As Aw. Biscontiexplains:
"Under ltalian law, the filingof documents supporting a claim in bankruptcy may
be subject to a registration tax, the amount of which is a percentage of the claim and
varies depending on the nature of the claim. If Raytheon and RSC had filed in
bankruptcy, they would have paid a substaniial fox. Given ELSi's many secured
creditors, the likelihood that the full value of ELSi's assets would not be realized in
the bankruptcy proceeding, and the costs of the bankruptcy, 1advised Raytheon and
RSC no1to fileclaimsat the lime. Under Italian law, it wauld have beenpossible for
them to filesuch claims al a later stage in the proceedingsand participate in distribu-
tions subsequent to their filing.Asthe bankruptcy proceededto a conclusion,however,
il became very apparent that Raytheon and RSC would no1 recoverenaugh in the
bankruptcy ta justify the costs of filing.On my advice, therefore. thcsecampanies did
no1file in the bankruptcy." (Ann. 26, para. 14.)
Ann. 13, Schedules CI, C2, C3 and C4: Ann. 26, Exhibit A; Ann. 30, para. 6 and
Attachment B. MEMORIALOF THE UNITED STATES 67
billion lire (US%9,728,000)went to pay banks, employees and other crediiors'.
The remainder weni to pay bankruptcy administration, tax, registry, and customs
charges. Ail of the secured and preferred creditors who filed claims in the hank-
ruptcy were paid in full. The unsecured creditors received lessthan I perceni of
their claims'.
' Ann. 30,AtiachmentB.ScheduleA.
Ann. 26,Attachment;Ann. 30,AttachmentB PARTIII. THE JURISDICTIONOF THE COURT
Jurisdiction is based on Article 36 (1) of the Stalute of the Court, as read in
conjunction with Article XXVl of the 1948Treaty of Friendship, Commerce and
Navigation (the "Treaty") between the two countries'. Article 36 (1) expressly
recognizes the ability of parties to the Statute - such as ltaly and the United
States - 10provide by treaty fortheCourt to exercisejurisdiction over specified
matters. In Article XXVl of the Treaty, ltaly and the United States agreed that:
"Anv disoute between the Hieh Contractine Parties as to theinterore.ation~ ~
or thcappiicntinn of th19~re3i). iihiîh thrb~igh Conir.isting P:rrti~,i$hall
noi s<iiisîactoril) ~djuhihy Jipl.imac). .;h;illhr.suhmittr.,l tu the Inicrnxti,>n.il
Court oiJusticc. unlcis the Ilieh Contnciin,: Partics shall ;tucc to seitlcnieni
by some other pacific means."
As a result of the requisition and subsequent bankruptcy of ELSI, and related
actions as described in the Statement of Facts above, a dispute arose between
Italy and the United States concerning the interpretation and application of the
Treaty and ils 1951Supplement'. The Government ofthe United States contends
that Italy's actions have violated a number of provisions of the Treaty and
Supplement, as detailed below. The Government of Italy. however, has denied
this contention.
This disoute has not been "satisfactorilv adiustledl bv dinlomacv". As detailed
in ~ttachment 2 of the Application subkitteh b; t<e ~niied %aies in this
the Governments of the United States and ltaly have attempted to resolve this
dispute by diplomatic means for many yearswithout reaching any mutually
satisfactory agreement. Finally, in the fall of 1985,the two Governments agreed
in principle thdt a contentious proceeding under the Treaty would be an appro-
priate means of resolving the dispute3. No efforts at settlement are pending.
' ArticleIX of the Su~nlemenloroviderthat it shall"constitutean inteeralnari of the
wid Treaty ofFriendship;CommeÎceand Navigation". Ann. 2. ".
' Eitherpartyhas, ofcourre, a unilateralrightto invokethejurisdictionalprovisionof
the Treaty. Sce,e.g., UniredSroresDiplomnric ond ConsulorSrof ln Tehron.Judgnienr.
I.C.J. R~porrs1980, pp. 26-27, in whichjurisdiction was premised. lnrrr allaon the
unilateralinvocationofArticleXXI (2)of the 1955TreatyofAmity. EconomicRelations,
and Consular Rightsbetween the UnitedSralesand Iran. 284 UNTS 93. whichronlÿinpd
UnitedStates and Italy.calIo that containedin ArticleXXVl of the Treaty betweenthe PARTIV. THE CLAIMS OF THE UNITEDSTATES
CHAPTER 1
INTRODUCTION
Pursuant to the Treaty and its Supplement, ltaly assumed a number of specific
obligations to proieci investments made by United States nationals in ils
territory.
A major purpose of this Treaty was to encourage investment hy nationals of
one country in the economy of the other, by creating a code of fair treatment
for the protection or foreign investors'. Thus, the Treaty contains numerous
speciiic and interrelated provisions for the protection of îoreign investors, reflect-
inz the oarties' fundamental intention to or'vide a framework which would îoster
a ïavorable climate for investment2.
As stated in the Majority Report to the ltalian Senate on the Treaty:
"The underlying principles are simple and fundamental. Full respect for
the resoective sovereie-,v and full eaual.tv be,ween the two oarties. and
consequenily reciprocity oî treïtmcni: syitematic application of ihr moqt-
ravored.nat~on principle and ihur mutual graniing of the mobt-îavored ireai-
nient IO the foreign cirizens and foreign inierrsts; a spirit of îricndship in
'As nated in the MajorityReport 10the ltalianSenate:
"there is nothine here that could createconditionsal privileae,that is no1iustified
under lawand Guity and that doesnot correspondto ihe sdie interest on ihe part
of the ltalian economyT . he latter hasa need. indeedan urgent need, for lorcign
.-r~~.~.Ceriainlvt..~~~-~e~~ldi-~-~-tio~~~~~re not ruficient in themselvesto hasten
the influx.but there remainr the aovro~riatcnessof these vrecautianary measures
a.ainsl an. .iossiblecreationof lxrsffutory or discrirninatorconditions."
Senateof the Reoublic.Billsand Revorts - 1948-1949 . .3M-A. Report of the Majority.
p 9. Sen!io ihcdfirc ul the Presidèiii on ?R \la) 1949 (,\nn 85)
"[llhis irs grnrrsl ircaty. II ir ihusa lrÿrneuurk ih~i Jïicrrnineiln 8 dcliniiiir..
<irbi~n~and Iï<tlneua., ~h~~ ~ ~~ ~ ~ ~ ~~cw~ihcciii7ensolihe iuo couniricr2nd ihcIre-l
statusthat eachcounirverants 10 citizensof theother countrylivin. on itr territoryIbid..
p. 2.As a leadingcornhèntatorpointsout:
"ln a realsense.therefore.the FCN treatyas a whole;. aYninvesimenttreaty; not
a nirisuc ~hlch merrlyronixinr dirsreic tn;oirneni regmcnis 11reg3rJ1 and irr..ii,
invciirncniJI s pmcc<<ine\iric.ioly uatn iniuthe f,~brvol'h~mdn .ilf.iiyencr.ill).
:and ~~-r ~ ~ ~ ..~ ~ ~ ~ ~~ ~ ~ ~ ~-~ ~ ~ ~ ~<li Jc~li uiih unlersset in thc ii,i.iI
'climate'in which it is to exist. . .These'treaii'ealocus, in fundamentalterms al
endurinavalue over the long rans. uponthe linebetweenpolicyfavorableand policy
iinl.trur;blt<>furcigninve<nicni naiiicl!.huspiiîl~i)i.ande+uallt! l'oih? inrclgnzr
undcr ihc Pau.;inJ reipeci forILI<pcrion and hir pr<iFri) (H Walkrr.'Trediies
Iar ihr.Eniouracemcnind Proiciiun al FrireignInrzrimzni Prrrcni CiiiicdSi:iir.,
~ractice", 5~rnhon Journo1of Compororive Gw,. p.229,al pp. 244,247(1956)) the implementation of theTreaty, goodwill when the precise provision cannot
be satisfied, fair play [so in Italian] in al1cases'."
As described bv the United~ ~a~es Denartment of State. theTreatv was "desiened-
IO assure 10 economic enierpriscs the abiltty to operate in ï forcign cuunty on
a basis of truc cornpctiti\c cquality with loc;ilconccrni"'.
p ~
' Ann. 85. pp. 2-3. Seeolso.Commerein1 Treories:HCBIM~S Before theSpeeialSubcom-
n8ittcvionConiiit,rc~ul lrc~.itiu.cd Cain<ulorConientir,n< (Yninuifil.<in ti>;ri6(Kelur,nn<
UnitcOSt<ir.~ stviol<.8?d Cong .?J Sms. p. 15tIYS2i (r\nn 8h) I'or ihc Ilnitrd St~trs.
ihi, rcflccted:i,-rniTicani <hifin emohasi, aitcr thc Swund IVurld Hir
"Perhaps the most important respect in which the current [post war]treaties difier
from those of the twenties and thirties is the greatly increased emphasis on the
encouragement ofAmcrican private investment abroiad,by the expansion and strength-
ening of provisions relating to the protection or the investor and his interests."
Ann Rh. p 191. inlru tRem~rk>i,CHar<ilJ P I.in.ier. Depui) A>>irtaniS~vrcilr! or St.ite
fur Econxnic ifalri) hlaizri~lr Irom r~iifi.~iirinproceeding<in ihc Lnitrd Siltca S:natr.
arc SIIC~ hcrcln. ioecihzi wtth ~ornn~r~hlcm:iieri~ls (rom Iilidn ~ntrrn~l rït~lii.iii<>n
proceedings. Io dem%nstrate that thé two parties had a common understanding of the
meaning and purpose ol the Treaty. Standing alone, such interniil ratification proceedings
cannat, of course, bind another Party.
"Commercial Treaty Program of the United States", Dcpartment ol State Publicction
6565. Commercial PolicySeries 163. p. 2 (January 1958) (Ann. 87). CHAPTER Il
INTERFERENCE WITH THE MANAGEMENT AND CONTROL OF ELSI
Section 1. Article III of the Treaty
Article III of the Treaty guarantees that nationals of either party may partici-
pate in corporate enterprises organized under the other's laws. Article III (1)
provides most-favored nation treatment to United States nationals, including
corporations, to organize and participate in ltaliancorporations'. It also provides
that Italian corporations controlled by United Statesnationals shall enjoy most-
favored nation treatrnent with respect to exercising the functions for which they
were created.
Article II1 (2) exlends further guarantees of treatment in the case of corpora-
tions engaged in most activities2:
"The nationals, corporations and associations of eiiher High Contracting
Party shall be permirred, in conformity with the applicable laws and regula-
tions within the territories of the other High Contracting Party, fo organize,
conrrol and manaee corooralions and associations of such other Hirh Con-
irxrting I'ariy for t,ngu,y!~III<~<i»in~crc~ f<urln.&/uclurinp.prucerrlng. mining.
cduc~iional. phillinthropis. relipious and rcicnliiic acti\iiici " (Emph~sis
added.)
Like Article III (1). Article 111(2) specifically addresses hoth the rights of
United States persons seeking to invest in ltalian corporations andof the ltalian
' ArticleIll (1)provideslhat foreigncorporations:
"shalleniov. ...riahtsand ~rivileeeswithrespectto organizatianofandparticipation
in corp&;tion< .i&l .i<ru;;ÿilan; ul ruih <,thsr Iligh Conir~~tingPm) in
r<miormii) <rlihthe .ipplii.~blIdu, :indrsyul~i~un~u.pun iïrm, no Ir<, N\dr.ihlr.
ih~nihorc n.iu or liers.ifiir.i:iurdciii n;lii.>nïiiirr>urdii<in2rnd a>r<i.'i~iion.\>i
any third country".
ltaliancarporationsso organized:
"and controlledby suchnationals, corporations and associations s, albe permitted
to exercisethe functionsfor whichthey are created or organized,in conformitywith
the applicablelawsand regulations, upon tems no lessFavorable,lhanthosenow or
hereafteraccordedto corporationsand associationsthai are rimilarlyorganized or
pqrticipatedin. and controlled.by nationals.corporationsand associationsof any
third counirv".
I BLT~U~ id.h rounirv hdd rrtiniiioni on ihc righirol.ilir.iirio ciiablirhanmÿnsge
rompantesengagcd inceriainaaivitier. llaland ihc UniicdSiairi usrc nt>!ahlcin mdke
ihr hro~derproiccia.in4 Ariicle III 12,unl\r.ri;il.Thc~cii\lticsrnumcr~icdrefleziedihosc
.n uhich nciihrr munir> had an) d~rneitiiIrgïl imlifdimcni<tri confrrrinpbn unqualiiicd
righion ihc~ihr.r'rnli.unlil, iurgaiii,rmÿndgc~ndronirol;orp<>riiidni orArih.rJiions
Article IIIi?) furihcr pr<,riJs>ihdic.>rp.,rdilo.i>iirg~ni7rd.uhich :ire
"controllcd by nationals.corporationsand associationsof either High Contracting
Party . . .rbullhe permirred IO engage in rhe uforenirn~ionpducrivirizstherein, in
conformitywiththeapplicablelaws and regulaiionsupon rerms no lessfovoroblerhon
rhosenow or hereafieroceordedta corporations and associationo sf suchother High
Contracting Party controlledby ils own naiionul.~c,orporations and associations".corporations which they control. Paragraph 2 provides in its first sentence that
United States investors shall be permitted to "organize, control and manage"
ltalian corporations engaged in, inreralia, commerce and manufacturing, subject
only to the requirements established by local law'. This provision recognizes the
need for conformitv with local law. but does not refer to treatment "no less
favorable" than th2 accorded to ~o;~orations owned by local nationals. It is by
its terms something other than a guarantee of national treatment. It is, rather, a
guarantee of non-interferencc wiih management and control. United States na-
Gonals "shall be nermitted" to orea~"~e. ~.naee and control ltalian cornorations
without impediment or interference, except for the requirements or constraints
imposed by law. This guarantee encourages investment by assuring investors of
their freedom to manage and protect theFrinvestment.
ltaly thus has an obligation 10the United States under Article 111 (2) to allow
United States corporations to organize, manage, and control ltalian corporations
operating in certain specified areas without governmental intervention, except for
such conditions and reeulations as are established bv law.
This obligation reflGs a particular emphasis, in tke Treaty as a whole, on the
importance of assuring an investor that, once he invests in a Company in the
other country, he will receive fair treatment:
"[vhere can be little in the way of effective promotion [of investment]
unless there is effective protection, for new capital is unlikely to venture
where existing capital is ill-treated. Hence the emphasis on the protective
feature of the treaty provisions on investments is essentially a matter of
placing first things first2."
The first articles of the Treaty, the so-called "establishment" provisions, are
particularly important in this regard'. As stated in the Majority Report to the
ltdlian Senate:
"The first articles, which are the most important ones, guarantee to citizens
of the other party, to juridical persons, commercial companies, enterprises
and associations constituted hv them. the exercise of commercial and non-
commercial activities in the w;dest sense. Full rights, then, to any activity,
10acquisition, possession, administration of movable and real property; to
organize, direct, manage companies, . . .etc.'"
ment Tandqconirol.thutrno1xhrogaiianol thai right rrA,lnuicd by Walkrr. ihef phrase-"in
conformir) unth~pplicable Iaurand regulati<>n," .,iluvura in thir'Trcai)."ir frsmcdin
rurh a msnnzr JI 10implythat itdoer not con,tltutca rcrervationdctracting lrum the
treatyrighi. and iuîh phr.~xulog)har kcn urnittcdfromwhsequentirniics" H. Wÿlkrr.
'Provi<~on< on Compdnicr in UnitedStatesCommcriialTreaties". 50 Anaer,<<iJ<,urnuluj
Inivrnu~iiinuLus. D.373..IID. 384.n 531195hiIn ricw of thr nos5ibleamblruitvof thir
qualification,howéver,the ~uppl&nenta<~~beement provided strongcr p~t&tion by
absolutelyprohibitingarbitrary and discriminatoryinterference,whether or not inaccor-
dancewithlocallaw. See section 2,infra.
"CommercialTreatyProgramof the United States",Departmentof StatePublication
6565, CommercialPolicySeries 163.p. 2 (January 1958)(Ann. 87, p.445,infra.).
' As statedby Hawkins,
"From the standpointof economic relations, . . the significanceolestablishment
provisions ariseslargely from their relationshipta the flow of investmentcapital.
Foreigncapitalwillno1enteracountryunlessithassome assurance that itwillreceive
fair treatment . . ."(H.Hawkins. Comm~rciolTreoriesand Agreemenrs. pp. 15-16
(i95l).)
Ann. 85, p. 6.74 ELETTRONICASICULA
This conclusion is not afiected hy the determination that the requisition was
unlawful. Il has lonr been estahlished. as stated in the Estate ofJean-Bu~tiste
Clutrc ik'rurire v. L'>i;tr.\fc.rrcunStutrr, .ihat ..il docs not maticr \\hcthcr the
ullicial or agcnc) in que,tion xtrd uithin the Iimii5UT il, romprience ur cxsccded
them'". Moreover, even if the Mayor had not been found 10 be acting as an
official of the national Government, the requisition would be attributable on
other grourids to the Government of ltaly since the action clearly was taken by
the Mayor in his official capacity as a government officer - a position he
maintained consistently before the courts of Italy'.
The requisition was aimed specifically al preventing Raytheon and Machlett
from taking steps to protect their interests as investors, namely, to liquidate ELSI
and minimize their losses. It neccssarily and intentionally hlocked ELSl's plans
to seIl its sssets. Havine relinauished control of the olant on 2 Anril. ELSl
management no longer \ad pl;ysical access to the akets. Nor couid h have
attempted to seIl them with the legal cloud of the requisition over the plant. ELSl
was nÏevcnted fromcarrvinr out a-manarement decision reached hv itscontrollinr
rha~choldcrs - 10 clojî'an~nprotiiableeplant dnd 10liquidate 115;isctj Io siitii6
outstanding dehi5 \lorco\cr. this order uas no1 in accordancc u.11hI1:ilt;in Ixu,.
as subieiiucntl, c<inlirmcd hv the Prïîrct ,~ f.ilerm~i3.
The ~iovernment of 1tali thus did not permit Raytheon and Machlett to
organize, manage and control their investment, for their own protection as
investors, butrather intervened with an illegal action 10prevent such management
and control. The United States accordingly suhmits that the Government of Italy
violated Article 111 (2) of the Treaty.
tional Responsibility"MonuolofPublicInrernorionnL law.,p. 544(M. Serenwn. ed..1968);
1. Brownlie.Sysiemof Law of Notions.Siare Responsibilir yPart 1).pp. 132-141(1983);
G. A. Christenson, "The Doctrine of Attribution in State Responsibility", lnlernalionnl
Laa of SroreResponsibiliryr InjuriesruAliens.pp. 330-332(R. B. Lillich,cd. andcantrib.,
1983);C. De Visscher, Theory and Reoliryin PublielnrernotionnlLow, p. 289 (1968);C.
Eaglelon. TheResponsibility of Sroresin InternationaLaw, p. 44 (1928);Articles5, 6 and
7 of Part One of the InternationalLaw Commission's draft articleson State responsibility
("International Law Commission'sdraft articles on State responsibility"),IIYeorbookof
rhcInrernoriono loivCommission1 ,980 (Part Two),p. 31; F. V. Garcia.Amador. "Draft
Articleson the Responsibilityof the Staie for InjuriesCausedin ilsTerritory Io the Person
or Propertyof Aliens"("Garcia-Amador's draft articleson Stale responsibility")reprinted
in F. V. Garcia-Amador, L. Sohn and R. Banter. RecenrCodg?cotioo nf the-Low of Srote
Responsibilirfor InjuriesroAliens,pp. 21-23 (1974).
' Translation. Reporrsof lniernorionoAl rbirrnlAwordr,p. 516.al pp. 529-530.As more
recentlystated in Comment I to Article 10of Part One of the lnternational Law Commis-
sion'sdraft articleson Stûte responsibility,the action is attributable
"even inthe r.~.iccil manilest incompctcndrof ihz<>,!.IIIcrpriraiing ihs crinduci
îomphtnrd 01. and ctrn ~f oihcr org~ns 01'th: Sl.itc have Jl\uunr.d thc ;onduc01'
ihr oilcndingorgan" (II Yi,urhi,i,ko/!lic Ir#rcrr?or.uln Conm!i>cion1975. p hl )
SPP01.~0 eg., T. Meron."lnternational Responsibilityof States for Unauthorized Acts of
Their Officiais".1957 Briiish Yeor Book of Inr~rn~lionnL l aw. DD.%. 93. and 113-114
(1958,.P Kçuicr. "l;arcjponubiliiéiniern:iiion~le"l>n~iii~i.~rn~;i;~nul~iippti14.1-l50
(19581. Br~unlir..op i-i..app 135.137,Jimcnc7deArMh:ipa. op cil.ai p 518. Eagleion.
op m. si pp. 57-5X Anr,loiii i~pcl1.ai pp.470-471. ,\go, op r,l.41p.469.
' ,\nn 80. O 372. infra:,\nn RI. o ~79. i*h Sei,.re .l',<,rD<.nziniuuunil C<,ni~un,
ronc v.e~ineruela): IO Reporlsof lnr~rnoriono~ l réitrol Awardr.1;1.39, al p.'156;
Brownlie, op. cil.al pp. 141-142; Christenson, op. cil..a1 p. 333; Reuter,op. eir.,al
pp. 152-153; Anrilotti, op. cir. at pp.475-478: limenez de Arkhaga, op. eir..al
pp. 557-558;Eagleton,op. cil..at p. 32; Article7 of the International Law Commission's
draft articleson Stale res~onsibilitv.II Yparbook ofthe InrernotionolLn," Commksion. MEMORIAL OF THE UNITED STATES 75
Section 2. Article 1of the Supplement
Less than two years after the Treaty entered into force, ltaly and the United
States signed the Supplement to the Treaty. The Supplement was seen by the
parties as an important step in further encouraging investment by providing
stronger guarantees to investors of freedom from harmful treatment. As stated
in the Preamble, the purpose of the Supplement was to "giv[e]added encourage-
ment to investments of one country in useful undertakings in the other country
. . by amplification of the principles of equitable treatment". The United States
Secretary of State, in recommending that the Senate give ils advice and consent
to ratification,similarly stated that:
"by rounding out the comprehensive rules governing general economic rela-
tions estahlished by [the] Treaty, [the Supplement would] further encourage
pnvate capital investments'".
The ltalian Minister of Foreign Afïairs, speaking before the ltalian Senate,
emphasized Italy's strong economic interest in ratification of the Supplement'.
AsSenator Jannuzzi,who wrote the majority report approving Senate ratification,
observed :
"Thc ruling out of ;in) dis:rimin:~tory trcliimcnt or arbit~iry nicasiires 16)
ihc prejudi~coi ciiizens. juridiia1 pcrrtins 6irusocililions of II;tI)or ul thr
L'nitedSt.itcs that rcsr>ccii\r.l\wdrk in the territor, of thc <>ihcrSt;ite. the
possibility of unobstrkcted control of enterprises, ihe most liberal possible
treatment assured for the transferability of capital, [and] the liscalconcessions
are al1 principles which, suitably supplementing those contained in [the
Treaty], aid the ltalian economy [in particular], in so far as they are aimed
at favoring the investment of US capital in Italy3.."
Thr "eclu\i<>n oi lin) discriniinotory trcliimcnt or arhiirlirv nicasures tu the
damagc of. . juristic pcrstins" lu rhich Scnator Jannuzzi refcrs is containcd in
Artislc 1ul'the Sup..cment. which canie into iorçe un ? Xllirch 1961. Itprobides
that:
"The nationals. coroorations and associations of either Hieh C-ntractina .
Piirty .iliollnihr .sahjt,i.rIO urhorur? ur <li.wrinritt~rrt~rz~usur~u~icihin the
ierrit<iric01'ihc other High Contraciing Party resulting piirticul3rly in. /II,
prevenring their eff'ecrivecoi~rrolund munugemenrufenrerprises which they
have been permitted to establish or acquire therein; or (b) impairing their
other legally acquired rights and interests in such enterprises or in the
investments which they ha\,e made, whether in the form of funds (loans,
shares or otherwise), materials, equipment, services, processes,patents, tech-
niques or otherwise . . ."(Emphasis added.)
This pro, isioncomplcmentr 2nd \ircngthcnr ihc g.uarantcesofnon-discnmin<iiory
tre<ttmznt2nd ireerlom from intcricrencc with nianagement and conirol uhich
arc coniiiined in Article III of the TrcatyA Thc terms of Article 1."sha11no1 he
' Letterof theSecretaryof Statedated25January1952.containcdinthe Messagefrom
the PresidentoftheUnitedStatestransmittingtheSupplementaryAgreementS . enalePrint
Exm. H,82nd Cong., 2ndSers..p.2(Ann.88). See, Chapter1.n. I, p. 70supru.
SenateoftheRepublic,ParliamcntaryProceedingsL , egislaturIIIBillsandReports-
Documents.1958.1960N , . 931-A.p. 4.Sentto theOfficeof the President on 18July 1960
(A'nAnn.. 89,pp. 2-3.
The rightsreferredto inArticle 1 (b) are addressedinChapter IIIin/ru.suhiected". are imoerative and unaualified. Unlike Article III of the Treatv.
~r6clc I is no1limiicd b! any rcfercnce 10 national trcatment or to doniestic lai
It thus cstablishe~a ,tandard of protcciion for Uniicd Stïtcj nriiiunals indepcn-
dent olihc standards of ircatinent a~.cordcJItrilirinur ihird country nationals or
coroorations. Article 1orohibits. in absolute lems. eovernmental mkasures which
are'either "arhitrary O; discrimiktory", and which-prevent Unitcd States invest-
ors from effectivelycontrolling and managing-co-panies which they have estab-
lished or acquired-in Italy.
As set forth above, the requisition clearly prevented Raytheon and Machlett
from exercising their management and control of ELSI. In order to establish a
violation of Article 1,therefore, it remains to be shown that the requisition was
an "arhitrary or discriminatory measure".
In accordance with Article 31of the Vienna Convention on the Lawof Trealies,
which in this respect codifies estahlished customary international law, a treaty
should he interoreted in accordance with "the ordinarv meanine to he eiven to
the icrm~of the'tre~i~in thcir conteii and in ihe Iiphtof il,i>hlrrÏand pu;posr."'
Thc abject and purpow of this Trciity in gcncral. and of thir Articlc and formula
in oarticular. indicate that the orohibition of "arhitrarv or discriminatorv mea-
sures" shoul'dbe construed hr8adly, to protect investors against gover&nental
action which violated the basic principles of non-discrimination and "fair play"
which underlie the Treaty. In hearings before the United States Senate, the
Department of State witness stated that:
"The basic aim of the linvestmentl orovisions lis1to safe~uard the invcstor
againit thc nonburines haz~rdsof <ireign oper~ti;ns. . isuch as] (i)ncqui-
tahlc tax siaiutes, confisc~tor) c\propriation IJ~\, rigiJ r.mplo!ment con-
trols, special favors to State-owned businesses, drastic exchange restrictions,
and other discriminations against foreign capital2."
As explained in the Report of the President to the Italian Chamher of Deputies:
"The . ..olementarvl Agreement oroooses. above all. to eliminate anv
di\criminatory mcasur;'thG one of ihc 'IWO couniries rnighi adupi to ihs
prcjudicc ofcilizens or juridiîal persons oi the other contracting pari).. an)
measure aimed at impeding management or effectivecontrol of enterprises
for which they have received the required license to purchase or establish,
or any measure aimed at obstructing the exercise of their rights relative to
such enterprises or to investments of any type?'"
As is indicated hy the ahove statement, and hy the use of the disjunctive "or"
in the phrase "arhitrary or discriminatory", Article 1prohibits "arhitrary" mea-
sures as distinct from, and inaddition to, "discriminatory measures". The prohibi-
tion of "arhitrary" measures conveys above al1the commitment of the respective
Governments no1to injure the investments and related interests of foreign invest-
ors hy the unreasonahle or unfair exercise of governmental authority. Following
standard dictionary definitions, an "arbitrary" act may he one which is charac-
terized hy absolute power or an abuse of discretion. "Arhitrary actions" include
those which are no1hased on fair and adequate reasons (including sufficientlegal
' ViennaConvention on the Law of Treaties, Art.31 (l), UN doc. A/CONF.39/27.
p.293(1969).
Amairs(Ann. 86,p.394). F. Linder.De~u.vA.sistantSecretawof State for Econornic
' Chamberof Deputics,ParliamentaryProceedings.LegislabreIII, Dacumcnts - Bills
and Repans. N. 537, pp. 1-2,Presentedto the Officeof the President 8 Navember1958
(Ann.90). MEMORIALOF THE UNITED STATES 77
justification), but rather arise from the unreasonable or capncious exercise of
authority'. The terms "oppressive" and "unreasonable" are thus synonyms of
"arhitrary"2.
As used in Italian and United States legal practice with reference to governmen-
ta1 action, "arbitrary" actions include those which are unreasonable, in the sense
that they are not based on sufficient or legitimate reasons, or are unduly unjust
or oppressive. The ltalian Constitutional Court has interpreted the ltalian consti-
tutional guarantee ofimpartial publicadministration as prohibiting thepromulga-
tion of arbitrary or unreasonable regulations3. Similarly, under Law No. 1034 of
6 December 1971 which governs regional administrative trihunals, one of the
bases for review of ltalian administrative acis is excess of authoriiy (eccesso di
porere). This concept includes both misuse of power (sviamenro di porere) and
' See. e.g..Bollenline'sLa%,Dieli<inory, p. 88 (3rd ed.. 1969); BlodrS Laii Dicrionary.
p. 96 (5th ed.. 1979); Shorrer0.rford Englirh Diclion~ry, p.91 (1944); Websrer'sNew
lnrernarionoD l ieriunirof th ^nglishLonguage ,. 110(3rd ed., 1961).See also,G. Devato
and G. C. Oli,Voenholorio IllusrraiodellaLinpuaIralima, p. 25 (1983)("orhirrurio" defined
as "irregolure,obui>,o,inpiusrificaro f. r10o <I@traod arbiirio"(irregular, illicit. unlawful,
un'ustified, donc or said in violation)).
Roget's Inrernarionnl Thesoyru se,? 627.5 and 737.15 (3rd ed., 1962).A "umbef of
United States investment riroteciion treaties rirohibit. variously, "arb~trary and d~scrim~na-
IUT)" or .'~nrei1son3bleGd dijcrirn~ndlrir)" rnca,urrr Çiv. c $. Pan~md. ,\cl II(21. ?I
Inrrrnoii<>na1l ~ ~ ~~u1ii.r>iil.<1227. al p. 1330 (19821(ratili.-aiion pendinpl: Bclgiurn.
Arl 4 1~-,.~4 l-nii.,iSluics Tr,~orirr1264. JI i> 1291 Thc tjnilhi S1;iler rir3rdcrl ihesr
;;As ("arbitrary" and "unreasonable") a; eq;ivalent. Se. C.B.,the UnitedStates inter-
pretation of Article IV (1) of the Treaty of Amity, Economic Relations and Consular
Rights between the United States and Iran. signed 15August 1955, enreredinloforce. 16
June 1957.284 UNTS93. 8 UST899, forbidding application of "unreasonable or discrimi-
~ ~ ~v measures":
"Government conduct which does no1 intrinsically violate international law is
nevertheless unlawful if il is arbitrary or il discriminates against aliens. Thus. actions
by the Government of Iranwhich othcrwise might have been lawful were unlawful if
the govcrnment engaged in thcsc actions arbitrarily or directed them against US
nationals." ("Memorandum ofthe Department oistate LegalAdviser on the Applica-
tion of the Treaty of Amityto Expropriations in Iran", 22 lnrernarionoL l ego1Maleri-
01s.p. 1408.al p. 1411 (19831.1
Similar clauses, prohibiting no1 only discriminatory but also unrearonable, unfair. or
arbitrary treatment, are also found in investment protection treaties between other nations.
For example. the agreement conceming the promotion and reciprocal protection of invest-
ments between the Republic of Cameroan and the United Kingdom stipulates in Article 2
(2) that:
The corresponding French tex1prohibits "mearures arbitraires ou discriminatoires". ICSID.
lnvesrmenrPromorioirand PlorecrionTrea1ie.v .982 Booklet, p. 41. al pp. 42 and 49. See
olso. e.g., investment protection treaties between Panama and Switzerland (Art. 2 (a):
"mearures indues ou discriminatoires"). ibid, 1983 Booklet, p. 63, al p. 64; lhe Belgium-
Luxembourg Economic Union and Rwanda (Art. 3 (2): "toute mesure in~~stifie~ou
discriminatoire"), ibid,p. 81, at p. 83. Still other treaties, rather than prohibiting unfair or
unequal treatment. affimatively guarantee fair and equitable treatrnent. See. e.g.. the
Federal Republic of Gemany and the Peoples Republic of China (Art. 2: assurance of
"fair and eouitable treatment"). ibid. ri43. at D. 44: Kuwait and Pakirtan (Art. 2 (2):
assurance of"fair and equitablétreatmént"). ibid..p. 17. at p. 18.
' Corte Costituzionale, 30 January 1980. n. 10, 1 GiurisprudewzC oorriru:ion<ik. 1980.
p. 67.al p. 91; Corte Costituzionale. 15 Februÿry 1980,n. 16.1 Giurisprudm:aCorriruzio-78 ELETTRONICA SICULA
inequality of treatment (disparirà di rrofromenro), which in turn require that al1
administrative actions be free of arbitrariness and discriminationL.
~imilar standards in United States jurisprudence derive from theconstitutional
guarantees of equal protection of the law and due process and are found in the
federal Administrative Procedure Act. amone other statutes. The Act ~rovides.
-
in pertinent part, that
"a reviewing court shall. . .hold unlawful and set aside agency action . . .
found to be (A) arbitrary, capricious, an abuse of discretion, or othenvise
not in accordance with law'".
The provision has been interpreted as requiring the court to "consider whether
the lazencvl decision was based on a consideration of the relevant factors and
wheihër thérehas been a clear error of j~dgment"~.
Other municipal legal systems as well probibit abitrary governmental action of
this character. In France, for example, in accordance with decisions of the highest
French administrative court. the Conseil d'Etat. administrative action will be
considcrcd .'arbitr:iry" if rükcn iiithout dur. regard ii>r the hctors and legal
principlcs govcrning the lcpitim3tc r.\erciac of dihcretiiin ina partirulxr ca\cA. As
statcd h\ de La~hadere. . 3 I..ICJIcxaniolc oi such imnro. .use di ciuthorits ii
the use of police power for a goal other than public security, peace or well-being,
"for example, a financial goaY5. The "classic model" which he cites is police
orders limiting the use of a public pier inorder to reduce themaintenance expense
to the commune6. Similar standards are in force in the Federal Republic of
Germany under section 40 of the Federal Law on Administrative Procedure of
1976, Venvaltungsverfahrensgesetzof 25 May 1976,BGB1. 1 1749(1976), which
provides:
"If an administrative authority is authorized to act according to its discre-
tion, it mus1exercise its discretion according to the purpose of the authoriza-
tion and observe the legal limits of the discretion'."
' Rossano, L'EguaglianzaGiuridiconell'ordinamenroCorriluiionnle.p. 450(1966);San-
dulliUnited States Code,Title 5,sec.706(2) (A)(1982)(Ann.14191).)(1982).
'Cirizens ro Preserve OverlonPark v. Volpe,401U.S. 402,416(1970). See also, Moror
VehielesMnnuJïnclurerAsssoe.v. SrnreFarmInsuronceCo., 463U.S.29(1983).
SociéréGlaceService,26July 1985,No. 51.083, Recueildes ddcisionsdu Conseild'Ela/,
("Recyeil Sirey" ),85,p. 236; C~inode, 13January 1983,No.27.966.Under French
administrative law, arbitrary administrativeacts may be annulledthrough the procedure
of the recours pour rxcèr de pouvoir See, cg.. Vedeland Delvolvé, Droit odminisiroir/,
pp.807-811(9th ed.,1984).
"The typicalexample[of dérournemend iepouvoir] is that of policepowers,which,by
theirnature, can only beexercisedfor a goalof security,peace,or well-being,and not for
ofmannullingpoliceorderselimitingthe usage ofaepublicpierin orderto reducethe expensel
of upkeep ta the commune:Decisionof the Conseild'Etat, 12November1927, Bellescrize,
p. 1048.(Translalion.Andrede Laubadere,1 Tmiréde droirodmini~trarif,p. 599(9thed.,
byJ. C. Veneziaand Y. Gaudemet,1984).)
lbid See olso,cg., Sieur Beaugé, Conseild'Etat, 4 July 1924, Recueil Sirey,p. 641
(mayor'sorder requiring ocean bathers to changeclothesin localbath-housesmotivated
byfinancialinterestofthevillage,annulledas dérournemendtepouvoir);Caissede Compen-
sation pour la Décenlrolirolionde I'lndurtrieAéronourique,Conseild'Etat, 8 July 1955.
RecueilSirev. o.398irefusalto aoorove the budeet of establishmentin order toorovoke
~g.iin,~rbitr~r!a;iiunI.~ll,g.~mritirI'1IIk11ri~r~~du:cd7ironi ,\rii;lc1:xnJ?O>oihihcun
BA\I; Ld* Gru,?duc,rcl:~1 thi IcJcral Rtouhllc uf Gcrnian, Ihr. Gcri~iunFsd:ral
~onstitutional~oGt haireaffirmed this genefalprohibition on~umerousoccasions. See MEMORIAL OF THE UNITED STATES 79
In international law as well. the term "arbitrary" is used to descriheprohibited
actions which constitute an unreasonable, improperly motivated, or unduly unjust
or oppressive use of otherwise legitimate governmental authority. Thus, for
example, a variety of otherwise lawful actions, such as expulsion of aliens, arrest,
d--~ntion~.deori~rtion of nationalitv. cance,.ation of contracts. and deorivation
of property may be prohibited when "arbitrary"'. In this concept, an "&bitrary"
action is one which is uniust or unreasonable in light of the relevant international
standards'. More ecneraïlv. the concept of "abuseof riehts" i-lustrates the eeneral -
usage of the term "arbitrary" to refer to governmental actions which are unrea-
sonable, improperly motivated, or unduly unjust or oppressive3.
The requisition of ELSl's plant was precisely the sort of arbitrary action
which was prohibited by Article 1 (O). Under both the Treaty and ltalian law,
the requisition was unreasonable and improperly motivated. The requisition was
generolly, G. Leibholr and H. J. Rinck, Kommenrariunt Grundgescrz (6th ed.. 1935).Art.
3,annotations 2-5; Art. 20,annovolion20: K.Obemayer, Kommenrorium Verivolrut~gsvcr-
fohrensgeser: (1983).$40,annotation 76 (b) (1).
' Sv, e.g., C. F. Murphy, "Limitations upon the Power of a State to Determine the
Amount of Cornoensalion Payable to an Alien uoon Nationalization". in 3 The I'olunrion
,,J.\'~tronolt.-~~~<nl,~rr!in /~lC~rn<iri~ii !<in.pi, 56.62 (K. Lillich. cd. 19751i:irhiirar)
cipropr!atiun). ..\mzrisan I.au Inriiiuii. The t;ir<.gn Rcbiion, L~iisi()'lhc Un,Ir.~lSIJIP.,.
ISi,i#>nilRï~!u,rni~v~l. iIYh5i I"Amcn~,.inI:iu Insi.iuir. Srrot?dR+~~rulc~nzr 1.i,lc'c1'43
,-.~~ ~ ~- ~ ~ - ~ .~~, ~~~ ~~, ~ ~ ~ ~ ~ ~ ~
(arbitrarv breach of contract) free alro. Tent. draftko. 7,'1986.sec. 712: arbitr&v im~.ir-.
mcni oi brdperi> oiher c;c>nomtc ~ni:rt~l~~ /n!c~rndt~~~ n,t,~odn! .n#Ctt!l ut1d P.81!~~cul
R,gArr.US JO:. 9 Re>220UA(IYWI.Ari~clri h (Jcprii;iiiun dflilc.Y.(arrr.1 iirdcicnii~n~.
12 irighi to rnicr ont's uwn iuunlr!). 17 (~nirrfcrcnccuilh privdc!. i~mll). homr .,r
c~ ~ ~rni>ndcnr.c,. .~nri~rsulDi~rlor<irio? ii Human R~P~IJU . S JOI A Re- 217~1111 1191Xl.
Articlés9 (arrest. detention or exile). 12~(interferen; with privacy, famiiy. home or cor-
res ondinzrj. 15(dcpri\:iiion of nai;.,nalii) ). 17(dcpri\ation of piopr.riyj
A- onr cornnieniaior hd*~tat~d~~lhrrsp~vi IO the UIC of th? tcrm "ilrb~irar)." IIII~c
Ilni\~~.-~ Orrl~ration~ ~~ ~uman Rieh~ ~ ~the ~ r~ ~ ~ ~ ~r the uir. oi ihc uorJs 'arhlir~rv
or 'arbitrarilv' was to oratect individualr from bath 'illeeal' and 'uniust' acis".
(1973);liménezde ~réchaea."i'he Backrround to ~;liclc 17of the Univerral ~eclaraiion",
X ji>*rnul #i / hi /,ircrnurionuliiirii,n~..rh.$4 Jlirirrr.No 2. p 31 iIYhX,. 1' \'.G~rLia-
Amador. tuurih Kc.pori Siaie Rcsponribil~iy. Ycurhi>i>kiij !hl.In~~~n~dlion Lulit Ci>nini~~-
.~.~>nII~ .~4~~ II.nard 21. D 7 iUN du;. t\iCN41119. nra 211
in Cme eo&e;nin~ the 'Borcèl&tn ~rner;on.~khr. ind ~orér Contpon,: Lin~ired. for
example. the Govern6ent of Belgiumequated theconcepis of "arbitraj"adminisira1ive
action, d6rourncmpnr<lepouvoir, and "abuse of "ghts". See, c.g., oral argument (second
r...~~, ~ ~~~~~ ~~~ ~~ ~P1eridint.v unddo eu ment^o.a. 35-43: submissions.reororluced in the
-~ ~ ~
Judgmenr(SecondPhise). I.C.J. Reporis 1970,.bi>. 12, 17: See also, e.g..'l OppenheimS
InrernnrionolLow. p. 345(8th cd., by H. Lauterpacht, 1955):
G. Schwarzenberger. I~ircrn<iii<inLlaw)nnd Order. p. 100:
"The hard core of situations, in relation to which the hypothesis af the abuse of
rights remains potentially relevant, ir the arbitrary or unreasonable exercise of abso-
lute "ghts . . . Thus. ultimately, the issue reduces itself to that of the arbitrary
or unreasonable exercise of rights or powers within the exclusive jurisdiction of
States."
See also, Murphy, op. cil..al pp. 59-62; Garcia-Amador, op. tir.,at paras. 22-29.80 ELETTRONICA SICULA
round io h. iIlçg31under Iialian domesiic law for prçcisely this reaion il um
"dc,iiiuic oi an). juridical cause which ma) justif? il or make il enforceable"'
Avïrt irom consideraiions of Iwlian Iau. m<)reo\,er.the reauisiiion u.35'arhi-
~r~ ~" for nurnr~~s of the Suoole..nt. Ils obiect and elTeciwcre to orevent
Kavtheon and Machlett from proiccting their i~seitmeni. u,ithoui an? j;stific~-
lion u.hichclin bc \ieued ai I-riiimaie in terms ofihc go\erninr: -.inciples oiihc
Treaty.
The declaration of a public emergency in this case was a mcre device; if the
closing of the plant was an "emergency", itwas an emergency of Italy's own
creation. Ravtheon and Machlett had eiven the ltalian authorities evervoooortu-
nit) to iahc l'egiiimaiesieps 10 prçi,cnt'~~~~lrom closing. bu1the lialiin ÿ;ihori-
iies declined IO do so. Insiead, they soughi IO force Kaythcon and Machleii 10
keeo ELSl open by the sheer exerciseof power. The requisiiion was not used Io
pebent ELS~ from closing; as the ~refeci noted, Italy took no steps to keep the
plant in operaiion, but merely seized it. In short, the planned closing was not a
bonafde public emergency, nor was the requisition a bonafde response.
The oumose of the reauisition aoriears to have been Io create the aovearance
of ariibn.'whilc allouing tinic for. RI IO >lep in IO iakc o\,er the [iiant The
Prcfect noied the apparent inteni IO show the loî~l pre,s thlii go\,ernmentsl
authorities uere "faclinrl the prohlem". notwithstandiny thai the, did noihinr
c~ ~~ete to~res~lve the Gblem! At the same lime. IR1 %asdevelooine . -.s to
cipïnd into ihii lire% hui \i,ai nui ?ci reiïdy Io do so
This nioii\c isdi5criminator). As noicd oho\e. Ariiclc I Id, prohihiir "lirhitrary
or discriniin3torv" measurci \i,ithoui uualiiir~tiun. To "discriminliie" 15"IO mlike
distinctions in t;eatment, show partiaiity (infavor of) or prejudice (again~r)"~.
The term "discrimindtory" thus embraces discrimination in favorof government-
controlled enterprises. The Treaty explicitlyrecognizesthe need to protect a ainFt
discriminatorv action in favor of oubliclv owned or controlled enteronses . The
purposc of the Supplemcni u~~r 1,)sirengihsn ihcsc protections. and in pariiiular
io proieci apainst, ..special Fai,iiriciSiair-owned businesses"' Here IRl'r inter-
est; were d6ectlv contrarv to Ravtheon's and Machleit's. and ihe Government
intervened to a&ance its-own commercial interests a1 the latter's expense. This
is a particularly clear-cut departure from the Treaty principle of "fair play" and
the soecificauarantee of Article 1 (al of the Su~~lement.
~6erequi;ition thus was an "arbitriry or discri&inatory measure" for purposes
of the Treaty. It was an unreasonable action which did not rest on legitimate
grounds, neither under Italian law nor under the governing principles of the
Treatv. It was oreciselvthe sort of "refined techniaue". contrarv to the fundamen-
ial pr;nciple\ <if"cqu;(~ble tre:iimcnt", 2nd 'iliir'pla!". \#,hiciAriiclc I 1" uaï
intendcd IOprohibit. Accordingl). the United States submits thai ihe requisition
was an arbiirary and discriminatory measure which eflectively prevented Ray-
theon and Machleit fromexercisingmanagement and controlof ELSI, inviolation
of Article 1 (a) of the Supplement.
' Ann. 76. p.362. infro.
Ann. 76. p. 363,infra.
' Websrer' Nse)? WorldDiclionory of rheAmcricon Dinguage.p. 403 (1982)(emphasisin
original). The ltalianword"discriminazionesisdefined"disiinrioneoperatane1corso di
un grudizioo di una classificariane"("adistinctionmadein the course ofa judgmentor
classificaiion"),. Devotoand G. C. Oli, Vocoboloriiollusrroiodel10Iinguoiraliano,p811
(1983).
Se, e.g..Art. XVlll of the Treaty and para . of ihcProlocol.
Ann. 86, p.395. infro. MEMORlAL OF THE UNITED STATES 81
Section3. Article VI1of the Treaty
The guarantees of management and control established hy Article III of the
Treaty and Article 1of the Supplement are further buttressed by Article VI1 of
the Treaty, which provides in part:
"The nationals, corporations and associations of either High Contracting
Party shall be permitted to . . dispose of immovable property or interests
therein within the territories of the other High Contracting Party upon the
following terms:
(b) in the case of nationals, corporations, and associations of the United
States of America, the right to acquire, own and dispose of such property
upon terms no less favorable than those which are or may hereafter be
accorded by the state, territory or possession ofthe United States of America
. . .under the laws of which such corporation or association is created or
organized, to . . .corporaiioiis . . of the ltalian Republic."
The Treaty thus guarantees that a United States corporation which has invested
in Italv is entitled to dis~ose of immovable Drovertv of interests therein upon
the same terms as would an ltalian corpora$on'invésting in the United States
investor's state of incorporation.
Raytheon is incorporated in thç State of Delaware' and Machlett is incorpo-
rated in the State of Connecticut2. Under Article VI1of the Treatv the Govern-
mint of ltaly undertook to allow these United States corporationsto dispose of
immovable property and interests therein upon terms no less favorable than
would be accorded by these states to ltalian corporations.
Under the laws of both Delaware and Connecticut, corporations may be
dissolved and their assets sold pursuant to determinations hy their boards of
directors and shareholders3. For example, Delaware provides in section 271of
Title 8 of ils Code:
"Everv cornoration mav at anv meetine of ils board of directors or
governi& ho& sell, lease or exchange al1~Ïsubstantially al1of its property
and assets . . .upon such terms and conditions and for such consideration
as its board of directors or ~overning body deems expedient and for the
hest interests of the corporation, whenand as authorized by a resolution
adopted hy the holders of a majority of the outstanding stock of the corpora-
tion entitled to vote thereon . ..4"
The courts of Delaware have emphasized that:
"there is no statutory limitation on the right of a Delaware corporatjon to
sel1its assets on such terms and conditions and for such consideration as
its board of directors deems expedient and in the best interests of the
corporation"'.
' A"". 7
Ann. Ih
CanncciaruiGrneralSiaiuie.Anndt~ieJ.lh,WC<ci33-37>,31-375(WesiSu1958and1Supp 19861;
iAnn 91) Thrw conriitui~onsleuardnicrï rndv k cnforcedihrourh r>rweJurci made
àvailablefopropertyowners under stalelaw.SC;,e.g.,Delaware~odë~nnoroird, Tille 10,
secs.6101-6115(1975)(Ann.94).
* Ste Ann.92.
Alcorr v. Hymnn. 184A.2d90,94(Delaware Court of Chancery.1962). qeîrmed 208
A.2d501(Delaware Supreme Court, 1965).82 ELETTRONICA SICULA
Thus, under the reciprocal guarantees of the Treaty, Raytheon and Machlett
were entitled to liquidateELSl's assets pursuant to the decision of its shareholders
and board of directors. The requisition which foreclosed this planned action
violated Article VI1of the Treaty.
Carrying the reciprocity point further, if Delaware or Connecticut were 10take
the immovable property of a corporation for a lawful public use, they would he
obligated to make compensation for that property under fundamental provisions
of the United States Constitution' and the resoective stateconstitutions2. Consti-
tutional righis affeçting properi) interesis drc guar;iniccd to boih n3tur~l person\
and corporaiioni'. Thc nghi 10compçnslitton for a iÿking of inicrssis in properi)
is paranteed to foreign as well as United States investors4.
Under United States law, this duty to compensate owners of property for
inierference with their property rights arises not only [rom a formal expropriation
decree but also from government actions, including interference with the use of
the property, that amount to a taking of property 5:Thus, in Benenson v. United
States6, the United States Court of Claims ruled that where the United States
Government effectively harred property owners from exercising their right ta
demolish improvements to their real property or otherwise use the property as
they wished, the United States violated the constitutional rights of the property
owners and was required ta make appropriate compensation.
Most of the assets seized hy the Mayor of Palermo and subsequently acquired
by the Government of Italy consisted of ELSi's manufacturing plant and other
immovable property'. As discussed above, ELSI's owners had the right under
the Treaty to dispose of this property as they saw fit. The United States submits
that by denying the owners that right, the Government of ltaly violated Article
VI1 of the Treaty.
'The fifthAmendment ofthe United States Constitution provides "No personshall
be . . .deprivedof life,libertor property without dueprocessof law. nor shallprivate
properiybe taken for public use,withoutjust compensation."
Section8 of the DelawareConstitution provides: "[Nlor shallany man'spropeftybe
taken or applied to public use without the consentof his representatives,and without
comSectionIIbof the Connecticut Constitution provides: "The propero tyfno pcrsonshall
be taken for publicuse,withoutjust compensationthecefor."
The generalprincipleof equal treatment under the United States Consii!ution for
corporations and natural personswasset forthby the SupremeCourt of the UnitedStates
in Gro~jeon v.Ameriem Press Co., 297U.S.233(1936)(corporations are eniitledto equal
protection of the lawsof the UnitedStates).See. cg.,FultonMorkef Cold Sforoge Co. v.
Cullerfon.582 F.2d 1071(7th Cir. 1978). cerr. dpnied439 U.S. Il21 (1979)(corporate
property owner can bring action againsl couniy and statetaxtng officiaifor wrongful
assessmentsof property value): B~rngross v. Bownon, 563F. Supp.456(S.D.N.Y. 1983)
(corporationmay bringaction againstcity for wrongfuldeciaionsafiectingcorporation's
ureoRurrion VolunfeerFleefv. UnircdSiores,282U.S.481(1931) (whenthe UnitedStates
expropriates the propertyof an alien friend,the Fifth Amendmentof the United States
requiresthat il payjus1compensation equivalent ta thefullvalueof the property).Thun,
non-rcsidentaliensowningpropertywithinthe UnitedStates "as wellascitizcnsareentitled
to theprotectionofthe FifthAmendment". UnifedSfnfesv. Pink,315U.S. 203.228(1942).
CJ. Sordinov. FederalRererveBankofNew York, 361F2d 106. 11I(2dCir.). cerf. denied
385U.S.898(1966).("Thiscountry'spresentecanomicpositionisdue in no smallpart to
Europeaninvestarswhoplacedtheirfundsal riskin itsdevelopment.rightlybelieving they
were proteciedbyconstitutionalguarantees.")
' See.e.g.,UnifrdSrofes v. Clarke,445 U.S. 253,257(1980); Pennqlvania Cool Co. v.
Mnho5482F.2d 939(Court of Claims,1977). See also,Amen v. Cify,o/Dearborn, 718F.2d
789(6th Cir. 1983).cerf. denie465 U.S.1101(1984)(defendantcity'scourseof conduct
designedto force residentsto seIlpropertyto cityviolatedUnited States Constitution).
' Sec,e.g.,Anns.20,51, 57, 67and 72. CHAPTER III
IMPAIRMENT OF INVESTMENT RlGHTS AND JNTERESTS
Section 1.The Requisition
Article 1 (6) of the Supplement provides, in pertinent part, that:
"cornorations . . .of either Hie- Contractin~ ~artv shall not be suhiected
Io orhirr<iri.or <Irs~riminuri~tr~ ,irusur~swiihin ihr.tcrritone, of the other
Iligh Contracting Part) rcruliing partisularly in i,»prrrr>n~ . ./~~guil.v
u~.ui<rrnrlrehis i»id<nrrr<.,rsin iuch entcrorises lothcr thnn manaeemcni and
control] O; in the investments which they havé made, whetherrn the form
of funds (loans, shares or otlierwise), materials, equipment, services, pro-
cesses, patents, techniques or otherwise." (Emphasis added.)
As discussed in connection with Article 1 (II)above, Article 1of the Supplement
is intended to extend the safeeuards for foreien investment contained in the
Trî~tv Io re~ch "ihe mure rriincd icchniqucr ihrough uhich go!ernmenI~ might
etTccti\ely destroy iniesimenib m~dc by foreigners . ."' As explaincd in ihc
conicmporancous UepJrtmeni of Stnte report to ihe Uniicd Siairi Senaic
"[Ill is believed 10 serve a useful purpose in that it aiïords one more
eround. in addi~~on to a~~ t~~ ~t~ ~ erounds set forth in the tre~ ~ ~for
- u ,.
contesting foreign actions which appear to be injurious to Amencan interests.
A gisen measure of a foreirn government might, for example, be fully
consistent with the nationalÏtreatment or most-favored-nation trentment
rules of the treaty, and also short of expropriation, but yel arbitrary and
unreasonahle as il affected some vested American interest in the country
concerned. In that event, the only treaty ground for protest might he general
language such as is found in [Article 1 (b) of the S~pplement]~."
Article 1IbJ thus extends the basic nrincinles of fair olav and non-discrimination
to al1for& of governmental action which are injuriXuSto in&tors, prohibiting
any "arbitrary or discriminatory measures" which impair no1only the rights, but
also the interests. of United States investors in ltalian corporations.
As discussed ahove, the requisition of ELSl's assets was an arbitrary and
discriminatory measure. It not only effectivelyblocked Raytheon's and Machlett's
exercise of management and control over ELSI. but "result[ed] particularly in
. . . impairing [their] other legally acquired rights and interests" in ELSI. The
requisition thus viulated Article I (h), in addition to Article 1 (a), of the
Supplement.
The im~airment of Raytheon's and Machlett's rirhts and interests occurred
kcause the requisitiun. aiintcnded. pre\enied the voÏunur! liquiddtion O( ELSI
2nd sliu\rd IIin filefor bankruptcv Asthe csurt-appuintsd Trurtce in Bnnkrupiry
' R. R. Wilson,descnbing the "new formulason propertyprotection"coniainedin
United States invertment-protection treatiesdevelopedin the late 1950s. R. R. Wilson,
UnilcdSIOIPJ CommercialTreoties and Inlernaiionalhv, p. 121(1960).
Se< Staie DepartmentComments in Ann. 86.p. 422, inth.84 ELETTRONICA SICULA
stated in his complaint against the Minister of the lntenor and the Mayor of
Palermo:
"In consideration of the heavy legal and economic situation created by
the appealed order of requisition, Raytheon-ELSI S.P.A. was obliged to file
for bankru tcy, which was declared by decision of this Tribunal on May
7-16, 1968 P..
Without control over ELSl's plant or assets, an orderly, voluntary liquidation
was simply impossible. Moreover, since ELSl's assets could not be liquidated,
the point would soon be reached whereils debtscould not be paid as they became
due. Hence, there was therefore no alternative but for ELSl to file a petition in
bankruptcy'.
By frustrating the voluntary liquidation, the requisition made the closing of
ELSI much more costlv to Ravtheon and Machlett than il would have been had
this governmental inte;ventioonot occurred. Raytheon was required to pay some
5.8billion lire(US$9,300,000)10those bank creditors of ELSl 10whom Raytheon
had made euarantees. As discussed in Part VI below. these oavments . .e
suhstantiall)m~~rethan Rdytheon tiould have pdid haJ ithccnall<>ucdto procecd
with the planned liquidaiion. In addition. Raytheon r~overcd nuthing on lis
open accounts uith ELSI. toiallinr obcr 1.3billion lire (USS1.830.0001 I;inally.
bbth Ravtheon and Machlett lost ïhe small return on their investment which the
liquidation could have provided'.
Further, the liquidation plan would have permitted payment of ELSl's un-
secured loans. under the bankruptcy, howevei, unsecured creditors received less
than I per cent of the amounts claimed. As predicted by the President of the
SicilianRegion4, the government-controlled banks which heldthese loansbrought
suit against Raytheon to recover the amounts due. While the lawsuits al1resulted
in ,udeuents for Ravtheon. thev caused Ravtheon substantial additional and
unnecessary expense<
In addition 10 Raytheon's and Machlett's directcapital contribution, Raythe-
on's guarantees of ioans made to ELSI and ils open accounts for goods and
services provided to ELSl are "investment rights and interests" which are pro-
tected by Article 1 (b). This Article expressly protects not only contributions to
capital, but anything else provided by an investor to an ltalian corporation in
which it invests "whether in the form of funds (loans, shares, or othenvise),
matenals, equipments, services, processes, patents, techniques or otherwise".
Both the open accounts and the guarantee payments are investments within
this broad definition: "whether in the form of funds . . .or othenvise". The
crplicii inclusion of "loanj" ln particular dimon.traies ihat srcdii arrangimcnis
beiueen a United Staies intestor and an Italian corpor~tion are uiihin the scopc
of proieclcd invisiment rirhtsand inierests under Article 1 Ih. The open dscouni,
arë amounts owed to ~av'iheonand thus constitute a "loan": ~avthion's euarau-
tees were originally in the nature of a contingent "loan" representing a commit-
ment to provide a specifiedamount of funds for ELSI'sbenefit on demand. When
the guarantees werë paid, they become an actual loan of funds to ELSI. Thus,
both the guarantees and open accounts are protected investment rights and
interests within the scope of Article 1 (b).
' Ann. 79. p. 369in/ro.
Supra,pp. 35-37,and Ann. 26. para. 12.
' See discussionalpp. 107-108. in/roand Tableat p. 108.Sec nlroChapter VI, n.4,
p. 104,infra.
* Ann. 38,p. 297. in/ro.
' Seediscussional p.109,infio;Ann. 40,para.7 and ExhibitC. MEMORIAL OF THE UNITED STATES 85
Raytheon's financial loss in defending against theltalianbank lawsuits similarly
constitutes an impairmentof protected rights and interests. The banks were suing
Raytheon for payment of ELSl's loans. If these suits had ken successful, Ray-
theon would have been required ta make furthercontributionsof funds on ELSI's
behalf.
The United States accordinelv suhmits that the reauisition was an arbitrarv
and discriminatory measure -by the Government of Jtaly which impaireh
Raytheon's and Machlett's investment rights and interests in ELSI, in violation
of Article 1 (6) of the Supplement
Section 2. The Subsequent Course nf Conduct
The harmful eliects of the requisilion were confirmed and compounded by the
subsequent conduct of ltalian officials, which was in further violation of Article
1 (b) of the Supplement. The requisilion, indeed, was only the first step in a
series of concerted actions taken by the ltalian Government and IR1 authorities
to acauire ELSl's nlant and related assets at less than fair market value. while
leaving Raytheon kith responsibility for paying ELSl's outstandingdebts ". Hav-
ing requisitioned the plant and caused ELSl's bankruptcy, the Government of
ltaly discouraged private bidders, boycotted the auctions itself, and worked out
special arrangements for a piecemeal take-over directly wilh the hankruptcy
authorities.
The object of these actionswas to secure ELSl's facilities for IRI, on the terms
and at the below-market orice which IR1 desired. while also remondine to the
pi,litiwl prcs\urr hr,iught hy ELSI.5 ïormer uorker,. Therï ;iciion; uere discrinil-
nator) meJsurer prohibitcd by Ariiclc 1of the Supplemenl, since the) ucrc takcn
uiih the çlear obiect and efict oI'fa\t>rin3 riuhlic 113113nntcrnriseJI Rasthcon's
expense. They r~sulted in the further impairken1 of ~aytheon's inves(ment rights
and interests. Thus, no1 only did the Gowrnment of Jtaly wrongfully cause the
bankru tcy, it also proceeded wrongfully Io exploit the bankruptcy which it had
caused P.
' It isa rettled ruleof State responsibilitythat the Stateis responsiblefor theactions
and omissionsof the judicialand adrninisirativt?authorities,includingregionaland local
govemmeniofficials. Sce,e.g.G. Schwanenberger, I InrernationalLaiipp.625-627(1957);
Rousseau, Droir intern~lional ublicpp.358,374(1953):1. Brownlie. S',,~teO/ Low oj
Nntianr, Slnte Respomibilily(Part 1).8.1. (19.83);C:,Ea@eton. The R~sponsihiliroyf
StoterinInternorionoL1aw.,pp.70-73(1 28),and duthoritiescitedai n1and n.3.Chapter
II, p.75,supra.Moreover,irrcspectiveof ils generalstatus for purposesof attribution,the
actionsaf IR1in this case(and of ils subsididrieg)are alro attributableto theGovernment
of Italy, sinceIR1was not only ownedand controlledby the Government. butwasalso
actingas an arm and agentof the Government. Thedecisionto take over ELSl'sassets
through IR1was a centralgovernmentdecision,conceived even kfore the requisilionand,
subsequently,publiclyaninouncedas such. As staled by Christenson."The criteria for
the entity servesState purposer. thus kcoming part of the State'sapparatus". G.A.nif
Christenson, "The Doctrineof Attribution in Siate Responsibility"IntcrnorionolLotr of
SroreResponsibiliiy/orInjuriesroAlicm. p.333(R. Lillich.cd., 1983seeOISO o.n attnbu-
lion of actsof agentsgenerallyChi- case,15 Rrporrsoflnr~rnotionolArhitrolAii,ords.
p. 399; 1 OppenheimiInlernoiionolLaw, p.342 (8th ed. by H. Lauterpacht, 1955):B.
Cheng. GeneralPrinciplesof Invrnorional Low os Appliedhy Int~rnotionalCottrtsand
Trihu~ls, pp. 192-193(1953).
For other examplesof casesinvolvingallegationsof a wrongfulcourseof conductin
conneclionwith bankruptcyproceedings sec.e.g.,AntoineFohiono(Froncev. Vene;uela),
summoriredin M. Whiieman.3 Doma~csin InrrrnoiionnlLaw, pp. 1785.1788:BarceIona
Traction,Light and PowerCompany.Limired,Jud.qrneni IC.J. Reports1970, p. 3;Tim-86 ELETTRONICA SICULA
Before t~ ~ ~ ~isition was issued. the President of the Sicilian Reeion had
informed ~a~théo" that IR1 wanted to take over ELSI'Sfacilities fo;its own
use. but was not ready 10do so immediately. He attempted to convince Raytheon
that il should kee~ ELSI onen al ils own ex~enseuntii IR1 was readv 10acauire
it. He noted that: if ~a~theon did not do 'so, the requisilion woulè remah in
effectand ELSl would have no alternative but Io declare bankruptcy. Moreover,
he predicted, in such event the Government would make the result as costly as
possible for Raytheon'. Raytheon, nevertheless, declined 10 make any further
investment in ELSI, seeing no prospect of recovering such funds2. When ELSl
accordingly did declare bankruptcy, the Government of ltaly turned ils attention
to the bankruptcy process.
The Government of Italy's objective was to acquire ELSl's facilities for IR1 al
the lowest possible price. Toward that end, it incrementally consolidated hoth
the appearance and the substance of a take-over of ELSl's facilities, which
enahled it ultimately to dictate the sale price.
Even before any bankruptcy auctions were held, the public at large had been
informed that the Government would take over ELSl's facilities. On 25 July
1968, the Minister of lndustry announced to the ltalian Parliament that the
Government of ltaly intended to take over ELSl's plant through an IR1 suhsid-
iary3. On 13 Novemher, after inconclusive negotiations with Raytheon for a
comprehensive settlement, the Government issueda press releaseannouncing that
IRI-STET would take over ELSl at the Government's request4. In response to
this announcement, workers at the Raytheon plant look down the name-plate
"ELSI" ai the entrance to the plant and put up a new name-plate, "STET5.
The IR1 subsidiary which was to run the plant, ELTEL. was formed in Palermo
in December of 19686.At the same time, IR1 announced its plans for rehiring
workers when il reopened the plant in 1969'. All of these developments were
publicly reported8. Thus, by the first scheduledhankmpicy auction on 18January
1969,the Government's take-over of ELSl's plant and assets was to al1appear-
ances a certainty.
IRI, however, had not yet reached final agreement with the Trustee on ils
purchase of ELSl's assets. Nor did it bid a1 the first auction9.The first auction
was for al1of ELSl's assets,with a minimum bid set at 5 billion lireL0.11appears
that IR1 was not interested in purchasing al1of ELSl's assets al this price, but
only in purchasing the plant and certain related equipment for some 4 billion
lire". According to the President of the Sicilian Region, IR1 had reached
agreement with the bankruptcy Trustee on such a sale as early as October 1968,
berlaneLumhcrCo. v. Brinko/Amerien. N. T & S. A.. 549 F.2d 597,605 (9th Cir.1976;
Cloims of "SalvadorCommercialCompany"el ol., 15 Rc~orrr of InrrrnaiionolArbitral
Awards, P. 467.
' Supro,pp. 55-56;Ann. 38.
Suoro.o. 56:Ann. 39.
~ÉLSIp ]lant and incammencingalsonewproductiob" (Ann. 47.)
Annr 48 and 49.
' Ann. 26.para.20: Ann. 59. p. 325.in/ro.
A"". 53.
Anns. 50. 53and 54.
' Ann. 52.
' A"". 51.
' Supro,p. 60;Ann. 59,p.325, infra. MEMORIAL OF THE UNITED STATES 87
but the agreement had broken down over 1Ri's unwillingness to purchase any of
ELSl's other assets'.
While these lems were not to IRl's liking and it boycotted the auction, it
nevertheless proceeded with ils plans to lake over ELSI. On 30 January it was
publicly reported that IR1 had reached agreement with ELSl's former workers
on a plan for rehiring2. Ir also was reported that, faced with pressure from the
former emplovees, IR1 had aereed with the Trustee and with the unions on an
interim <O reopen the under a lease arrangement, pending agreement
on the finalterms of sale3.
In late March 1969,therefore, ELTEL officiallyproposed to the Trustee that
it be aermitted to lease ELSl's olant for a oeriod of 18 months at an entirelv
nominiil r.ilc. uithoui any cummitnlent \\,hai,i>e\cr tu purch;ise thc pl;ini or :issci$
at an) pr~ce'. Ra)iheon's rsprcscniatiic on the crediiurs <ommittee poinicd out
th~t. ii~uch :1lr;t>cuçrc itoori)\ed FITFII. ulduld bc in a ousiiiun Io dtciaie ihc
ternis of final sale5.The iiase nevertheless was approved', on the ground that
ELSl's planl needed to be operated and maintained6.
Upon taking possession of the plant, ELTEL sought and received permission
Io nurchase ELSl's work in orocess for less than one-half its aonraised value7.
~his first piecemeal sale without open public bidding was justifiid in large part
hy the leasea. Finally, with ELTEL in possession of and operating ELSl's plant,
the hankruptcy authorities agreed 10-sel1the plant and-relatedequiPrnent to
ELTEL for 4 billion lire (US$6,400,000)9. Thus. for a little over 4 billion lire
ELTEL acquired ELSI's plant, equipment, and inveniory, including work in
orocess - assets initiallv valued at over 12billion lire (US$19.200,000~10.
' Thus. ihr ~ovrrnmrni oi lialy shillfullylook 3dvantaie of itsown conimanding
position and ils initial u.rongful rcquisiiion IO :tcquire ELSl's plant and ;tsscij ai
a reduced price for the use of their own commercial enterprise.
Their actions were discriminatory within the meaning of Article 1 (b) of the
Supplement. As discussed al page 80 above, the term "discriminatory", as used
in the Treaty and Supplement, expressly encompasses favored treatment for
eovernment-controlled enterorises. The actions. moreover. contributed to the
~mpairmeniof ~3~iheon.sand hl;i<hleii'rrights dnd intcreiii ai inichturr H:i\ing
causcd ihc hankrupic). ihc Goi.ernntent of lial) iurihcr \hapeJ iti rchult,.ti>ihc
dctrimcnt of Kliyihcon ;inJ Mar,hl~,ii;snd thc henciii oi IKI.
This rcsult u.;, iurihered. m<)rcii\er.h) !el snoiher arhiirary :anddiscrimina-
tory iiciion - the Prcfcci's failurc io rulc on ihc Icyality of the rcquisiiion uniil
iiftcr EI.TEI. hsd acquircd FISl's a<scls" Iluring ihis cniire period, thc Prcfcci
''Ann.54.
' Supro. pp.59-60;Anns.54,55and 56.
Anns. M) and 61.
Supro. pp.60-61:Ann. 60, p. 327,infio.
Ann. 64. p.341. itlfrThe needfor suchoperationand maintenancewas, it maybe
noted. entirelythe responsibilityofltalianauthorities.Asisdiscussedal ChapterIV, in/ro,
insteadof reapeningandmaintainingthe plantaftertherequisilion, theSicilianauthorities
allowedthe workersto occupy ii.Thus, as a resultof Cherequisilionand thesubsequent
Fdiluretoprolecltherequisitionedproperty.the planthadbeenleftidleandno1maintained
for almost ayear.
Qupru.65.p.62; Ann.69.
' Supra. p.63; Anns.72and 74.
'Qnn. 13.ScheduleCI. See ChapterIV, n. 5, p.97.in/,".
" Asdiscussed furtherinChapterII.: infrat,isdelayinrulingalsoconstituteda failure
to afoordthe protection dueto RaythecinunderArticleVof theTreaty.of P.ilcrnio rcfriined irom ruling .in the l~ululness oiihc rcquisition Whcn ihc
Prcfcci tin~ll) ru14 on 12 Augu\t 1969. ilwa, 16 rnoiiths iificr ihc dppcdl hïd
been filed, but only 48 days after ELTEL finally purchased ELSI's assets. As
discussed below. the Prefect's delav wasexceotional. This delav was "arhitrarv".
in thai IImai unfair. unrc3son3hlc. diid unsupportcd b) an) Icgi~imliiciiinsiderr-
iions. Thi, dela) u;is. moreuier. "discriminaior)". in thxi no com~~r~blcdclï)
a..ears to havé occurredin anv or,vi.us similar aooeal ..oueht bv -. Italian-
controlled corporation'.
Thus, the United States submits that, beginning with the requisition and
throughout the hankruptcy, ltalian authonties engaged in a series of arbitrary
and discriminatory measures resulting in the impairment of Raytheon's and
Machlett's investment rights and interests, in violation of Article 1 (b) of the
Supplement.
' See further,discussionatpp. 98-99, infra. CHAPTER IV
WRONCFUL TAKINC OF INTERESTS IN PROPERTY
With the requisition, Italy embarked on a course of activity aimed at acquiring
the bulk of ELSl's assets for a public enterprise at less than fair market value.
In addition to the treaty violations indicated above, the requisition constituted a
taking of property without due process of law or just compensation, in violation
of Article V (2) of the Treaty. The requisition definitively ended Raytheon and
Machlett's ability to use and dispose of assets which they owned through ELSI.
It led directlv to a forced bankru~tcv sale of the assets. vrimarilv to an Italian
Siïtc enierpr;se at a prics suh~iônt;:~li~klow theirï~ir &ksi priCe.The requiii-
lion which later uas round unlxwiul. ihur consiituted a ixking orproperiy giving
rise to a right to "iusi" comwnsation. Because the taking was accomplished
through m&ns spehfica~~~pr&scribed by the treaty - thaï is, interferirÏg with
management and control and failing to accord the guarantees of due process -
just compensation encompasses no1 only the actual market value of the property
taken, but also any additional amount necessary 10offset consequential damages
of the taking.
Section 1. The Taking of Interests in Property
Article V (2) of the Treaty provides that:
"The property of nationals, corporations and associations of either High
Contracting Party shallnorbe raken within the territories of the other High
Contracting Party without due process of lawand wirhoulrhepromprpaymenr
ofjusr andeffectivecompensarion." (Emphasis added.)
The Protocol to the Treaty expressly extends this guarantee of compensation to
"interests held directly or indirectly by nationals, corporations and associa-
tions of either High Contracting Party in property which is taken within the
territories of the other High Contracting Party".
The provision aims "to assure that the investments of the ultimate party in
interest, lying hehind the corporate façade, are safeguarded"'. In other words,
the treaty unambiguously protects the investment interest of United States share-
holders in ltalian companies whose property is taken by the ltalian Government.
The "taking" of property to which the treaty refers encompasses a multitude
of activities having the effect of infringing property rights. Under international
law,a "taking" generally isrecognizedas including no1merelyoutright expropna-
tion of property, but also unreasonable interference with ils use, enjoyment, or
disposal. As Christie stated in 1962:
"Such cases as there are recognize the principle laiddown by the commen-
tators, that interference with an alien's property may amount to expropria-
tion even when no explicit attempt is made to affect the legal title to the
' R. R. Wilson, UnitedStotcs CommrreiriTl ree1iandInternoriono1Lnw, p.201 (196û). property, and even though the respondent State may specifically disclaim
any such intention1."
Suhseauentlv. this orinciole has been reoeatedlv reaffirmed bv international tribu-
nals and co&ent'atorsf. The recent a'nd numerous award; of the Iran-United
States Claims Tribunal on this question are illustrative. As stated by the Tribunal
in Sfarreii Housing, for exampie:
"it is recognized in international law that measures taken by a State can
interfere with property rights to such an extent that these rights are rendered
so useless that they mus1 be deemed to have been expropriated, even though
the State does not purport to have expropriated them and the legal title to
the property formally remains with the original owner"'.
Of particular relevance here, it repeatedly has been recognized that interference
with manaaement and control sufficient to constitute a "takina" of ...Dertv will
be considckd IO ha\e occurrcd u,hcrc thc iorcign intestor has no rralonlihle
proypeci oTrcg:iining in3n;igcntent and conir.>l As i.iir.d h) Dolxr. coiiintcntin~
on the recent Revere case:
"it cannot be doubted that a long-term interruption of eîiective control by
theowner of the use of property in its fundamental economic function would
trigger the duty to compensate-also under the substantive international law
concept of expropriation4".
'G. C. Christie, "What Conslitutes a Taking of Property Under International Law?",
38 British YeorBookof lnrernationol Low. p. 307.at p. 309(1962).
' See.cg., Certain Gernzrin1nrere.rr.ivn Polirh Upprr Silesio. Merirs. Ju<lgmentNo. 7,
1926,P.C.I.J., Scrie~A, No. 7: NorwegionShipowners'Claims (Norivay v.Unirrd Sroiesof
An~erieo),I Reporlso/Inlernolioiiol Arbitral Arord.?,p. 308, al p. 335; The Uniied Slates
of America on Behol/o/Morgueriie deJoly deSobln v. TheRepubblic of Panamo.rcparted
at 28 AmcricunJournnl of lniernuiiunol Low, p. 602 (1934); R. Higgins. "The Taking of
Property by the State", 176Recueil de.cuurr.p. 259,al p. 324(1982-111):L. Sohn and R.
Baxter, "Convention on the International Responsibilityof States for Injuries Io Aliens"
("rcvised Harvard Draft Convention"). reprintedin F. V. Garcia-Amÿdor. L. Sohn and R.
Baxter. ReceniCodifieorionof rheLon.of Siote Responsibiliryfor h'uries lo Aliens.p. 133,
ai p. 204 (1974); "OECD Draït Convention on the Protection oj~oreign Properfy", 7
Inrernntionol Legol Mnrerinls. p. 117.ai pp. 125-126(1968).SPPfurrh~r. authorilies ciied
at n. 3 and n. 4, infro.
Srarretr HousingCorp.. et 01.v. Isloniic Republicof Iron, Awd. No. 32-24-1.4 Iran-
UnircdStore5Cloimr Tribwtol Reports(1983-111)p . . 122.al p. 154.Secalso.e.g.. Thomar
Earl Paynev. lrlornic RepublicofIron. Awd. No. 245-335-2,at p. 10(8 Augusl 1986)("11
is well settled in this Tribunal's practice.as elsewhere,that property may beiaken under
international law through interference by a State in the use of ihat property or with the
enjoyment of ils benefits.")Horza EnginceringCompanyv. lslnmie Repuhblio cf Iran, Awd.
No. 19-98-2. 1 bon-United SraresCl~imsTributtu1Reporis. p.499, at p. 504 (1981-1982)
("[A]taking of property may occur under international laweven in the absenceof a formal
nationalization or expropriation, if a goverrimenthas interfered unreasonably with the use
of property"); /TT hdusiries. Inc.v.Islaniic RepubblcClron, Awd. Na. 47-156-2(Aldrich,
concurring). 2 han-Unired SralesClairnsTribunal Reporls.p. 348,al pp. 351-352(1983-1);
Tippers,Abber MeCorth?, Siroiton v.TAMS-AFFA ConsulringEngin~rrs O/Iron. el al.,
Awd. Na. 141-7-2.6 Iran-United Butes Cluims Tribun01Reports. p. 219. al pp. 225-226
(1984-11):ForernosrTehron.Inc. el 01. v. The lslumie Republic O/ Iran. Awd. No. 220-
371231-1, p.22(11April 1986);Ph~lprDodgeCorp..er 01. v. lslnmic Rcpublieo/lron. Awd.
No. 217-99-2.p. 14(19March 1986):hrernationol TechnicolProduc1.7 Corp..el al.v.Islamie
Re ublieo/lron, et 01..Awd. No. 196-302-2.p. 46 (10 October 1985).
' ~ranslation. R. Dolîer. "NalionaleInvesiitionsversicherungund v6lkerrechilichesEn-
lei nungsrecht: Bemerkungen zum Revere Copper Fall", 42 Zeirsehrfi /ür ouslündisches
oJj!nrlicher Rechtund Vdkerrechi, p. 480, at p. 505 (1982). In RevereCopperand Brass.and Machlett had no reasonable prospect of ever recovering management and
control of ELSI, and had no alternative but to declare hankruptcyl.
It also follows from the same principle and authority that, wheie interference
with management and control constitutes a taking, the scope of the taking is
determined by the extent of actual interference. The purported scope of the
seizure. and the extent to which title to assets is ultimatelv transferred to the
go\ernment. are inimaterial. In C<srruetGernia,i Inrc3r<~strrPOI~S~ Uppcr Silc~rio.
for rxamplr. the Permanent Court held that, by seizing a nitrate Pdctory. the
I'oliih Governmrni h~d also rxprupriated the paient5 and contrdct riahts of the
management company2. ~imilar-ly,in the~orwe~ianShipowners'~laims case, the
United States claimed that it had requisitioned only partially completed ships,
but wasfound to have expropriated thecontracts for completed ships, with which
it interfered3. More recently, in Srarrerr Housing Corp. v. Islamic Republic of
Iran, the Iran-United States Claims Tribunal found that in expropriating the
subsidiaries' physical assets, Iran incurredliahility not only for the value of those
assets but also for the value of a construction project to he carried out hy the
subsidiary, the profit which the claimant would have received in management
fees and the loans claimant made to the subsidiary for the purposes of the
project4. Similarly, inRevere the measure of losswas Revere's total net investment
in the Jamaican subsidiary, even though Revere formally retained ownership, as
Jamaica's interference with effective control of the enterorise necessarilv affected
the entire operation '.
The requisition was thus a taking of al1 of ELSl's assets, even though the
requisition order did not expressly seize, nor did ELTEL ultimately acquire, al1
of these assets.
Accordingly, the United States suhmits thal the requisition was a permanent
taking of Raytheon and Machlett's property interests in ELSI, within the meaning
of Article V (2) of the Treaty.
'It isalsowell-establishedthat governmentalactionto bringabout aforcedsaleat less
than fair marketvalue constitutes a taking. irrespectiveof whether thepurchaseris an
officialentitySee, tg.. Christie,op. eir.at p. 327; E. Lauterpacht, "The Drafting of
Treatiesfor the ProtectionofInvestment".in TheEneouragemenarndProrecrion of lnvesl-
meniin DevelopingCounrries p.. 18.al p. 3(Inrernorionol ndComparaiiveLaw,Quorierly
SupplcmmrnrP olblicorion, o.3)(1962); D. F. Vagts."Coercionand Foreignlnvestment
Rearrangements".72 AmcriconJournalof InrernorionolLaw, p. 17(1978); B. Weston,
"'ConstructiveTakings'under.InternationalLaw: A Modest Foray into the Problemof
'CreepingExpropriation' ". 16 VirginiaJournaloflnrernurionoLlaw, p. 103.al pp. 133-148
(1975): B. Wortley. E.rproprioiionin Public Inrerno~ionoLlatr.pp. 1-2, 127 (1959): R.
Higgins, op.cil.al p. 326: M. H. Muller."Compensation forNationalization:A North-
South Dialogue". 19 ColumbioJournol of TronsnorionaLlaw,.p. 35,at p. 36.n.6 (1981);
SociétéduCheminde FerOrromondeJe àJcrwolem CIProlongemenu v. UnitedKingdom,
deseribedinJ.G. Welter and S. M.Schwebel,"SomeLittle-KnownCaresonConcessions".
40 BririshYeor Book OJ'lnrernorionolLait,p. 183,al p. 222 (1964); Cor< of GUICP~ &
Copelond(UniredSiares of Amerieav. Veneruelaj,4 1.B.Moore, Inrernarionol rbitrarions
io Whiehihe UniredSioresHns Been O Parr?, p.3354(1898) ("Hisrory of Inrernorional
Arhirroiions"J;Zw,aekv. Krow Bros.& Co.. 237 F.2d 255(2nd Cir. 1956) of" 133F.
Supp.929(SouthernDistrictof NewYork 1955); Firmo Wichcriv. Wicherr,AnnuolDigesr
andReporrsqfPdlic Inr~rnolionoL lawCoses ,.23(H.Lauterpacht,ed., 1948)(Switzerland
FederalTribunal);"O.E.C.D. Draft Conventionon the Protectionof ForeignProperly",
op.cil.,at pp. 125-126.
CerroinGermonInreresisin PolixhUpperSilmia,op.cil., at p. 541.As the cases cited
in n.1, supro.relatingto "forcedsales"demonstrate. itis immaterialwhether thegovern-
mentitselfultimatelvacauiresall.or anv. of the exiiro~riatedassets.
' Norwegion~hipiwn&' Cloims,op.éir., al p. 334.'
Revere, opc. ilal p. 296Seen.c4, pp.90-91,Isupra.p.cil.at pp. 154-156 MEMORlAL OF THE UNITED STATES 93
Section 2.Absence of Due Process
The first protection set forth by Article V (2) of the Treaty is the protection
aforded by "due process of law". The meaning of "due process" here is the due
process required by international law'. The purpose of this international mini-
mum standard is
"10 secure protection against arbitrary and unjust treatment in any particular
in which the Government of a country does not accord ils own nationals as
liberal treatment as that which is recognized by international law'".
As disiusscd abovc. ihc proccrs h) uhich thir taking sras ;ic~oniplished u:ii
nt>tirixcurdancc uith goicrning standards oleithcr donicstic or inlcrn;~tional
Iau. The rcquisition. uithout which this ~cquisitioii aould no1 ha\c hcen iccom-
plished, waynot only an "arbitrary and discÏiminatory" measure incontravention
of the standards of treatment required by the Treaty, but was actually contrary
to ltalian domestic law.
Moreover. Ravrheon and Machlett were denied effective leeal recourse aeainst
the requisilion order by the Prefect's exceptional delay of some 16 monïhs in
ruling on their appeal. As set forth in ChapterV, section 1,infra,this unwarranted
dela;constituted~a denial of iustice under international law.
~he means by which the taking of ELSi's assets was accomplished thus did
not meet international minimum standards ofdue process, as required by Article
V (2) of the Treaty
Section 3. Absence of Just Compensation
It is a basic and well-settled principle of internationallaw that a State which
tdkes the property ofan alien mus1 alïord "full" or "just" compensation for what
has been taken3. This principle is affirmed in Article V (2) of the FCN Treaty,
SPC R. Ri Wilson,"Property-Protection Provisionsin UnitedStatesCommercinlTrea-
lies". 45AmericonJournul of InternalionaLoti,.p. 83. at p. 99(1951);R. R. WilsonThe
Invrno~ionolbu Srandardin Treorie.~rhc UnitrdSrores. pp. 101.247(1953).
Memorandum of the Solicilor ofthe Siate Department discussingthe meaningof a
similar promise of due process protection in a 1933United States-Germanycommercial
treaty.yuoledin R. R. Wilson,"Property-Protection Provisionsin United States Commer-
cial Treaties"op.cil..ai p. 99. n. 84 (1951Seealso, e.g.The UnitedSturero/Amrrico
on behnlf O/ Harry Robrrrs.Claimant v. The UniredMe.xicanStarcr. 0pinion.rof the
Commis~ionerusndertheConvolrioncoircluded Seprembe8 r, 1923herh,ecnrheUnite<lStnier
andMexico, p. 100,al p. 105(1927):The UnirrdStoresofAmericnon heholfN/GeorgeW.
Hopkinsv. UnitedMericon Sroles.ibid. p.42, at p. 47The UniredSrarero/Ami~rie<o i n
behalfqfL. F H. iVwr andPoulineE. Neer,Claimantsv. TheUnird MesicunSrort85i.bid..
p. 71,ai p. 73; C. EagletoR~.spsponsihoil/troresinInrrrnurion<iLlutipp. 83-84(1928);
M. Whiteman, I Donioyesin Inrernoiionol Law, pp. 22-23 (1937): E. Borchard, "The
Minimum Standard of Treatmenl of Aliens". 38 Miehiynn Low, Rei'ieiip. 445. al p. 447
(1940); L. Sohn andR. Baxter.RevisedHarvard Draft Convention. op.ci!.al pp. 236-237.
Seeolro, autharities cited al Chapter V, n. 3.
' Se<. e.g..DelogonBq Roi1~i.q(Unired Srores of Amcria nnd UniredKingdoniv.
Porrugol),surnmorized in J. B. Moore. op. cil.Vol.2. ai p. 1896;Fueroryo! Chor-da:
Merirs.Judgmenl No. 13. 1928,P.C.I.J.. SeriexNo. 17,pp. 677-678. ("Chor:o>rFariory.
Mprirs"); SEDCO. lm. v. Norionolhonian Oil Co.. Awd. No. ITL 59-129-3. p. 11 (27
March 1968): AGIPSpo v. Govrrnmen" r/the PopulorR?publicoftheCongo. 67 Inrernorional
Lor Reports,p. 319,al p. 339AMCO AsiaCorpororion v.Inclonesia.4Inrernation<Lilego1
Mnterinls.p. 1022.nt p. 1037(1985): 1. Brownlie,Prineipleof PublicInt~rnolionolLaw.
p. 538(1979);B. Clagett. "Thc Expropriation Issue before the Iran-United StatesClaims
Tribunal: 1s'Just Compensation' Rcquiredby International Law or Nol". 16 Loa and
Policyin InternarionalBurinesrp. 813.al p. 838 (1984).which specifies that property shall not be taken "without the prompt payment of
jus1 and effective compensation'". Just compensation ordinarily entails payment
of the fair market value of the property taken, measured at the time of the
taking', excluding any diminution in value caused hy the government action
against it, or the perceived risk thereof3.
In the Norwegian Shipowners' Claims, for example, "just compensation" was
awarded equivalent to the "real market value" ofcertain shiphuilding contracts4.
More recently, the Iran-United States Claims Tribunal has applied the yust
compensation" clause of the 1955 Treaty of Amity between those two countries
as requiring compensation equal to the fair market value of property taken,
defined as:
"ihc imiluni uhich ü uillins hu)cr uould hlii.~.p:~id ;isilling sc~llcrfor ihc
sharei of n going conccrn, disreg~rdinp ;,ny ditnln~ti~in oi valur. duc io the
n;itionali~diion ~t\r.lior the ~~IICID;IIIOIiIhcrtot', 2nd sxcluilinc ~onsidcr~tiùn
of events thereafter that might have increased or decreased the value of the
shares5".
' In United States practice, the lems "just" and "prompt, adequate and effective"
compensation are used interchangeably. For example. in correspondence with the Mexican
Government setting farth the prompt, adequate and effectivestandard, Secretary of State
Cordell Hull used that phrase and the lem "just compensation" interchangeably. See
G. H. Hackworth, 3 Digesro/lnrernorionol Low, p. 654 (1942). United States courts have
also regarded the lems as synonymous. Sec, e.g., Banco Nacionol de Cubo v. Chase
Monharian Bonk, 505 F. Supp. 412 (S.D.N.Y. 1980), af'd ns modified, 658 F.2d 875 (2d
Cir. 1981).In the most recent public surnmary of the international legalprinciples applicable
10expropriation, the Department of State, through the Legal Adviner, interpreted similar
language in the 1955Treaty of Amity with Iran in this fashion. Sre,"Memorandum of the
Departmeni of State Legal Adviser on the Application of the Treaty of Amity ta Expropi-
tians in Iran", 22 lnrernnrionnlLegal Mritrri~lr, p. 1406,at p. 1407 (1983). Sec aI.ro,e.g,
B. Clagett, op. cil.al pp. 841-843.
Set, e.g.,Chorzbw Faerory. Merirs. op. cil.,al p. 677;Norwegian Shipo~,ners'Claims,
op. cil..al p. 334; Spanish-MoroeennCloims, 2 Reports of lnrernarionol Arbirrol Awnrdr,
p. 615: LighthouseArbirrorion, 23 Internoriono1Loi<,Reports, p. 299, at p. 301 (1956);ITT
Indurrie.?. Ive. v. The lslomie Republic"/Iran, op.cil.;American Inlernri~ionolCroup, Ine.
v. The Islamic Republicof Iran, Awd. No. 93-2-3 (19 December 1983);4 hm-Unirrd Stares
Claims Tribunal Reporrs, p. 96 (1983-111).al p. 102;Srorrerr Houring Corp. v. The lslomie
Republic of Iran, op. cil.; adiscussed in Chapter VI, infra, full compensation also should
include interest.
' See, e.g.,Americun Iniernolionol Croup v. The lslomie Republic of Iran, op. cil.,at
pp. 106-107; Article 10(2) of the Revised Harvard Draft Convention, which describesjust
compensation for a taking of property "in terms of the fair market value of the property
. ..unaffected by this or other takings ar by conduct attributable to the State and designed
to depress the value of the property in anticipation of the taking"; F. V. Garcia-Amador,
L. Sohn and R. Baxler. op. cil.p. 133,al p. 203 (1974); SEDCO, Inc. v. Norional lronian
Oit Co., Awd. No. ITL 55-129-3, p. 42 (28 October 1985); ITT Industri~s,Inc. v. lslamie
Republico/lrun, op. cil., al p. 355 (Aldrich, concurring); American Law Institute, Second
Resrnremrnr. sec. 188, comment h; Clagett, op. cil.,al pp. 862-863; R. Lillich, "The
Valuation of Nationalized Property by Foreign Claims Settlement Commission", in I The
Valuariono/Narionalir~d Properry in lnrernarional Law, p. 95, at p. 97, n.13 (R. Lillich,
ed., 1972); Muller. op. cil.,al p. 43; C. Olmstead, "Nationalization of Foreign Property
Interests. Particuldrly Those Subject to Agreement With the State", 32New York Universiry
Low Revieit,,p. 1122,al p. 1133(1957); 1.Foighcl. NnrionolizorionandCompensarion, p. 250
(1964).
Op. cil.al pp. 332, 339.
' INA Corporalionv. TheCovernmenr of rhelslamic Republieqllron. Awd.No. 184-161-1
(13 August 1985). al p. 31. See also, Amerieon Inrcrnurional Group. Inc. v. The lslrimic
RepublicofIron, op. cil.,al p. 102; ThomasEarl Payne and The Governmenro/ihe lslumic
Republieo/lron, op. cil.96 ELETTRONICA S~CULA
situation which had led the shareholders 10 decide to liquidate, ELSI remained
an on-going enterprise which had, in addition to certain tangible assets, significant
intaneible assets which ~iaced the fair market value of thecom~anv .~~r. ..blv
ïhovEihïi of ihc physi~ïl ïsseis st;indlng alonc. Thcss iniangibls as,ets includeh
cstablishcd cusiomcr and supplier rzl3iionihip,. de\elupcd and iully funciioning
methods end processes, access to al1 necessary patents, licenses, technical assis-
tance, and other technology, and an established name and reputation for quality
nrodiictq'.
Such intangible asscts are of significant value to potential purchasers. As stated
bv Mr. Scopelliti, former Chief Financial ORicer and Controller of Ravtheon's
Éuropean management subsidiary :
"ln mv exoerience. comnanies are often willine i" o~r a,~onsiderable sum
simSy for t6e name,'tecb~ology, and established customers of an electr&i&
business, in addition to the tangible assets. It is no1 unusual for buyers of
going concerns in the electronici industry to pay a price in excess if twice
their book value2."
Knouing ihij, Ra!ihcon and .Machlet1haddecided. in the liquidaiion. 10 presenc
iheje going conccrn aspects of ELSl's husiness. in ordzr io brll il for 11,maximum
valueJ.
International tribunats have recognized that such intangible assets are valuable
assets, which mus1be considered in determining compensation owed fortakeovers
of companies. In ChorzbwFacrory, for example, the Permanent Court of Interna-
tional Justice defined the "undertaking", for purposes of valuation, as "including
lands, buildings, equipment, stocks, availableprocesses.supplyund delivery con-
rracrs,goodwillandfuiureprospecrs"'. Similarly, inAmericunInrernational Croup,
Inc. v. The Islumic Republicof Iran, the Iran-United States Claims Tribunal held
that:
"the appropriate method is to value the Company as a going concern, taking
into account not only the net book value of its assets but also such elements
as good will and likely future profitability, . ..=".
Under the particular circumstances of this case, and in view of the difficulty
of independently estimating at this lime ELSl's fair market value as a going
concern almost 20 years ago, the United States submits that a fair measure of
that value is given by the aggregate book value of ELSl's assets as of 31 March
1968. This book value does not include ELSl's intangible assels as a going
concern, and the book values of otber assets which are included are not, ipso
facto, fair market values6. Taken as a whole, however, these omissions and
adjustments counter-balance each other, so that in this case book value is a fair
' Supra,pp. 47and 52.
Ann. 17.vara.Y.
' Supra. p 52. Ann. 15.psr~ 50
' Anterii.<Inrernor,nnu.lr<iup.Inc3$p7%rI~ldnitrR. rpuhl~ru/lron.A*dd N<i.91.2.3.
op.cil..al p.21.
"n principle."book value''daesno1reflectgoingconcemor fairmarketvalue, because
il doerno1take intoaccountthecapacityof an assetto produceluiureincome.Compenra-
tion al book valueis thereforeordinarilyconsiderably lessthan fullcompensation.C. F.
Amerasinghe.forexample.describesbook value as "the usualminimum"in stalepractice.
C. F. Amerasinghe."The Quantumof CompensationforNaiionalizedProperty",in 3 The
VolunrionO/ NolionolizedProperw in lnlernolional Law,. p.YI, at p.126 (R.Lillich,ed.,
1985).In this particularcase,however,inviewof theconsiderationsset forth above, book
value is in lac1a fairmearureof goingconcern value. CHAPTER V
FAILURE TO PROVIDE PROTECTION AND SECURITY
Section 1. Delay in Ruling on the Challenge to the Requisition Order
When the Government of ltalv reauisitioned ELSl's lan n tnd eaui~ment on
I April 1968. EI.SI prcmpily dp&.ileiI 10ihe Prcfcct of ~alcrmo 10 ici;ride ihi,
order The Prcfcct. houeter. diJ n,>iissue his ruling until ?? ,\ugu>t 1969. In the
mcdntirne. ELSI hxd cdnc bdnkrupt and ihr Go\rrnmcni of lial!. had coinpletcd
purchase of ELSl's and equipment. As discussed above, this delay in iuling
was an arbitrary and discriminatory measure which impaired Raytheon's and
Machlelt's investment rights and interests. Under the circumstances, moreover,
this delay constituted a denial ofjustice- more specifically,a denial of procedural
justice1 - in violation of paragraphs (1) and (3) of Article V of the Treaty2.
Article V (1) of the Treaty states in pertinent part:
"The nationals of each High Contracting Party shall receive,within the
territories of the other High Contracting Party, the mosr constanrproreciion
and securiryfor lheir and propeny, and sholl enjoy in this respectfhe
fullproiecfion and securiry required by inrernational Inn'."(Emphasis added.)
This explicii recognition and ïdo lion of th? iniernation~l lau inininium sian-
dard oi ihc ireïimeni due Io alicnsPis cnhïncrd hy Ariiclc V (3). which spccilics
ih31the proteciion ïnd sccuritv refsrred Io in Article V(1 J,assumina "ci~mpliancc
with applicable laws and re~uiations", shall be no less than ihat due under
national or most-favored-nation standards of treatment. Together, Articles V (1)
and V (3) obligate the Government of ltaly to aford to United States nationals
the international standard, the most-favored-nation standard, or the national
standard of protection of property - whichever is highest.
' The conce iof "denial of proceduraljustice" includesinjuryrcsultingfrom a denial
of proceduraliirnesî and dueprocess in relation to judicial procecdingSee, e.g., The
Amcrican Law InstituteSecondResroiemeni ,ec.181(1965). (Sec<il.sTent. draft No. 7,
sec.711.comment a.)
This denial of proceduraljustice is also furthcr cvidencethat Italy'sactionswere
arbiirarv in violationof ArticleI of the TreatvSuririlemen.et Cha~ter II. suoro.
' ~hc e<i.iïncr 01 suïh an iniernai~un~l;i.in&rd of ircaimcni rc.Ji'rmcdnioçt
rcccnil)h) khi,Cour1 inilsOrder d1 15D~crmher1979 in ihcIluir<i~icCurr. uhirh refer,
id"t~ ~~ ~ ~ ~cnldur io Iii~lio~~~.~ ~ - ~ ~r.ilrule<.~iinIcrnaiunIsw ar slizn, uiihii,
the territoryofthe iareignstale". UniredSlolesDiplamalicundConsulurSrafin Tehron.
ProviiionolMemures.Orderof 15 Decemher1979.I.C.J. Reporrs1979, p. 7. al p. 1SCP
olso.cg.. CeriainGermonhrermts in Poli3h Upper Silesio.Mcrirs,JudgmenrNo. 7, 1926,
P.C.I.J.,eriesA, No. 7, p. 510,IIpp. 523-524: E. Root. "The Basirfor Protection 10
Ciiirens Residine Abroad". 4 AmencanJournolof lniernorionol Law. D.517. al D.527
(1910):C. Eagleïon. Responsihiliiyof Sroiesin lii;ernalion<Luit,pp.83-84 (1928); M.
Whiieman. 1Domoges inhiernorionolimu. pp.21-22(1937): E. Borchard."The'Minimum
A. H.aRoth. tTlieMininiumSiandordns"of8Inrernorionol aw A~~liedIo Alienr. DD.122.123);
(1949):RevisedHarvard Draft ~onveRtion, reprinied;IR. V. Garcia-Amador, L. Sohn
and R. Baxter,RecenrCodificorion oftheLou o/Srnre R~.sponrihilir~/oIrnjuriesIOAlirns.
pp.236-237(1974). MEMORIAL OF THE UNITED STATES 99
11iswellestablished that. as a matter ofgeneral international law,unreasonable
or unwarranted delay in ruling on a case violates the international standard of
treatment. In the 1896decision in the Fahiuni case. for examole. the President of
the SwissConfederation, acting as sole arbitrator, round that:
"Upon examining the general principles of international law concerning
the denial of justice, that is to Say the rules common to most legal systems
or laid down by doctrine, one concludes chat denial of justice includes no1
only the refusal of a judicial authoriiy to exercise its functions,. . but also
persistent delays on ils part in rendering judgment'."
As Freernan concludes from the numerous arbitral awards in support of this
point in his definitive work, Tlie Inrernarionul Responsibiliryof Srares for Denial
o/ Jusrice:
"Culpable delay on the part of the courts in disposing of cases involving
foreigners is one of the most typical instances of denial of justice and as
such engages the State's international reponsibility. This point has long been
settled . . . In effect, ever since the era of private reprisals it has been
axiomatic that unreasonable delays are properly 10beassimilated 10absolute
denials of access2."
Ultimately, the premise that a delay in ruling can amount to a denial of justice
rests on their equivalence in fact. As Freeman notes:
"il is obvious that the failure to conduct proceedings with reasonable dili-
gence and despatch may produce the same dire effects for the clairnant as
though he had been denied a judicial remedy altogether3".
The delay of the Prefect in ruling on ELSl's appeal of the requisition of ils
assets constitutes a culpable denial of justice by this standard. Judged by ils
practical effect. il constituted a denial of any judicial remedy. When the Prefect
finally ruled in ELSl's favor on 22 August 1969, seventeen months alter the
appeal was filed,the Government of ltaly had completed ils acquisition of ELSl's
plant and equipment. Even though the ruling was ultimately in ELSl's favor, it
was too late to have any remedial effect. Not only had any possibility of a
voluntary, orderly liquidation been extinguished long before, but also there
rernained no chancc that the ruling might affect the acquisition of ELSl's assets
through the bankruptcy4.
The delay in ruling appears, nioreover, to be of an exceptional nature no1
justified by any legitimate consideration. A prompt ruling on such an appeal was
not only possible. but cuslomary. In al1previous cases of which the United States
is aware in which the 1865requisition law had been invoked, the Prefect of the
'Translation.Awÿrd of the Presidentof theSwissConfederationinthe case offobioni.
in J. B.Moore.5 HisroryondDigestof rheInrernorionaA l rbirrorionsro ivhichihr Unired
Srorcs Hos 8een o Pars. p. 4878.al p.4895 (1898).
A. V. Freernan. The Iiir~rnarionul rsponsihilifSinres/or Denialof Juslice. p.242
(1938).Seeolso. cg.. The UnircdSrarcsof Amerieoon behol/o/B. E.Chnrrin,Claimonrv.
The UniredMe.~icon sr are.Opinionrof Coniniissionersp..422,at p. 432 (1927);C. De
Visscher."Le déni dc justice en droit international"in 52 Rceueildes cours, p.362,at
p. 397(1935);C.Schwdrzenberger . lnrernnrionalot,:p. 621(3rd cd.,1957);Rousseau,
5 Droirinrernorion<ilpublic.69(1983);andAmericanLawInstitute. SecondResraienzeni.
sec. 181(hl.
"~reeman. op.cir.al p.244.
Supro. pp. 64-65.As noted al p. 60.supra, the Prefecrwas prsanally involved in
negotiatiansbetween IR1 and theTrustee.relevant jurisdiction had promptly quashed the requisition'. ELSI's appeal did
not nresent anv soecial comolications iustifvine this exceotional delav. nor is anv
rearbnïble cxilar;atitin for ;tappsrcni ~hf o& concluhon which &n be driiw"
under the circumstïnces is thai this delay uas unwÿrrinted and unreasonablc.
either as the result of negligent or wilful action.
In conclusion, the United Statessubmits that the delay in ruling on this appeal
constituted a failure to accord the "most constant protection and security" and
"the full protection and security required by international law" as required by
Article V (II. Moreover. because the delav was far in excess of the delav exueri-
~, , ~ ~ . .
enced in prior suits involving companies owned hy ltalian nationals, il also
constituted a failure to accord a national standard of protection, as required hy
Article V (3).
Section 2. Failure to ARord Protection to ELSl'sPlant and Premises
As discussed above, once ELSl's plant and equipment had been requisitioned,
ELSl's emolovees heean an occuoaiion of the &emises that continued. so far as
can be dei~rm~ned.up in the re.o;>eningof ihe plant hy ELTEL Thiq occupaiion.
comhined wiih the idlene,, oi the plant during ihe requisilion. had ai lea$i iuo
injunous consequences: it resulted in a detenoration~of the plant and related
matenal and equipment, and it impeded the Trustee's eflorts to dispose of the
plant'.
The occupation appears to have had the tacit approval of local authorities,
who made no effort to prevent or to end il, or othenvise to protect the premises'.
Either the legal custodians of the plant - first the Mayor, under the requisition,
and suhsequently the hankruptcy authorities - did not seek, or the police did
not provide, the protection which previously had been provided. This failure to
afford protection constituted a violation of Article V (1) of the Treaty.
As discussed above, Article V (1) of the Treaty establishes Italy's obligation to
provide "the most constant protection and security" to the property of United
States nationals, and in particular "the full protection and security required by
international law". One well-established aspect of the international standard of
treatment is that States mus( use "due diligence" to prevent wrongful injuries to
the person or property of aliens within their territory. If a State fails to use due
diligence to prevent such injur , then it is responsible for this omission and is
liable for the ensuing damages à.
' In most othercases, the requisitionwasquashedin a matter of days andin no case
more than 30days. In this case,the Prefeciruled more ihan 16monthr after theappcal
wasfiled.Ann. 26,para. 10.
Supra,pp. 54-55;Ann. 79.p. 369. infra:sep olsoAnn. 26,paras. 17-18.
The failureofltalian authoritiesto atTordprotection after the requisition untiall least
Ann. 21,paras. 20and 23. Raytheon andMachlctthavelittledirect knowledgeof eventsuuo.
in Palermoafter thebankruntcv.Accordineto the later stalementsof Avv.Bisconti and
the Trustee, however,as refleciedin~nn; 26 and 79, itappears that the occupation
continued uninterrupteduntilELTELacquiredthe plant.
See.cg., Care ofrhe Alabamaondher Tcndcr,rheTuscalooso,summoriredin Moore,
Vol.5, op. cir.p. 4144,al p.4160:E. Borchard, DiplomaiieProlecrionofCirirens Abrood.
p. 217(1915); Eagleton, op. cil.al p. 88; Rousseau.op. cil.al pp. 74-75;1 OppenheimS
Iniernorion~lLaw, pp.365-367.8thed.by H. Lauterpacht(1955): R. LillichandJ. Paxman,
Americon (iniversily Low Reviewest(1977).p.217. nt p 225-231and 240-245; Garcia- The
Amador, op. cil.p. 27;AmericanLawlnstitute, ~eeond>~mlaremenrs.ec. 183:cammentary
to ArticleII of InternationalLawCommissiondraft articles, II Yeorbook ofInrernorionnl
Low.1975, pp.70-82. MEMORIALOF THE UNITED STATES 101
The obligation of a State to exercise "due diligence" does not require that it
prevent any iniury whatsoever, Rather, the obligation is generally understood to
Ïeauire thG a Staie take reasonable actions with~nits Dowerto avoid iniury when
it A, or should be, aware that a risk of injury exists':~he precise degree of care
that is "reasonable" or "due" depcnds in part on the circumstances2. Where,
however, a State entirely fails to use the means at its disposal to provide protec-
tion, there can be no doubt that adequate protection has not been provided.
Thus, for example, in the Husroges case, this Court determined thal lran had
breached its obligation to protect foreign nationals, based on the finding that
lran was aware of the need for action and had failed 10 use the means al ils
~i~-osal to comolv with its oblieations3.
gimilarly in ~hi ;ase, ltaly shiuld be charged with knowledge of the need for
action to protect the plant and be found to have failed to use the means at its
disuosal ta orovide a~~.. .iate orotection. The occuoation beaan onlv after the
41;)or - Italian g(,\crnmer;t oficial - hïd nsiimed cusïody of.the plant
Italian ~iffiçial\had been follo\vinp EI.Sl's situation closely 2nd uere well awsre
of the threat of occuoation before-it occurred. Prior to the reauisition. the police
protected the plant, keeping strikers off the premises and al16wingonly persans
with legitimate purposes 10 enter. The requisition was issued in part to temper
the expected outcry from the workers over the actual closing of the plant. Italian
oficials thus foresaw the situation worsening, yet at the same lime they actually
decreased their physical protection of the plant4.
Having deprived Raytheon of the right and ability to protect ils own property,
ltaly had a special duty to protect them against hostile actionsJ. Moreover,
having itself assumed custody of the plant, Italy was responsiblc for ils main-
tenance and care. Instead of enhancing plant security under the requisition,
however, Italian oficials allowed the occupation to begin and continue without
interference and made no apparent effort to protect the premises from the injuri-
ous effects of occupation.
Thus, following the requisition, governmental authorities failed io meet cven
minimum standards of protection for the property in question. ltaly failed to use
~h~ ~ ~ns at its disoosal to continiie to keeo . .nt oremises free of unauthorized
persons, or so Paras appenrs. to pieserve and maintnin the plant and Gquipment
in any way. Açrnrdingly. the Unitcd Statci suhmiti th~t ihe Go\,crnment of Itnly
has Ctilcdto nrovide the reaui$itc nroieçtion ro F1.Sl.s premirc5 in \,iol3tion ul'
ils obligation; under ~rticle'~ (1) of the Treaty.
'See, e.g.,authoritiescitedai n.4. p.100. supro.
Se. e.g.,Eagleton.op.di., at p. 83.Garcia-Amador, op. cil.ai p.27.
UnitedSiatm DiplornoiicondConsulorStgin Tehron.JudgrnenrI,.C.J. Reporls1980.
p.3,at pp.32-33. The Courtalso referred 10Iran'sawarenesrof ilsobligations.Where a
treatyobligationir ai issue.however. ;iSiatemus1 nomally be presumed 10 be aware of
its obligationsSer olso. e. Wiifiornt Chopmon(USA) v. UniredMexicnn Slales. 4
ReporisoflnternotionnlArf;;ral Aivords, p. 632. atp.639; Barchard. op. rit.at p.213:
authoritiescitedal n.4. p. 100.supra.
* Supra,p. 55:Ann.21. paras. 20-21.
' C/. Case of EnriqueRou.sumrnori;e-d in M. Whiternan, op.cil..Vol. 1.p. 26al p.27. CHAPTER VI
THE COMPENSATIONDUE TO THE UNITED STATES
Section 1. The Duty to Pay Compensation
It is a fundamental principle of international law that a State which has
breached its international obligations incurs a duty to make reparation to the
injured State'. This general principle applies, inter alia, to obligations assumed
by treaty. As the Permanent Court of International Justice stated in the Chorzbw
Facrorv case. "lilt is a orinciole of international law that the breach of an
. .
ciig.igciiient in\olic, An<;hligiiion to makc rcp;ir:ition in <in<iJcqu.iic iiirm"'
The Pcrm~nr~ni('ouri rcgdrded "rcp:ir.iii,>n .i.iht ci)rc>llary~f lhs ~iol.ilinn of
ihc ,~hlicat~onire\uliinr froni an cnewcmcni hciuccn SI~ICS"'.E\sn :ibir.ni :in
expressprovision in th; internationa agreement providing for reparation in the
event of breach, the offending State is obligated to make reparation. As the
Permanent Court stated in Chorzbw: "Reparation . . . is the indispensable
cornolement of a failure to aoolv a convention and there is no necessitv for this
tobe ;taled in the conventi/i'icself4."
This Court has reaffirmed the principle that a State is entitled to reparation
for the violation of its treaty rights on several occasions. In the United Stares
Diplornaticand ConsularSiafin Tehrancase, for example, the Court held tbat
' As definedby limenez de Aréchaga.
"reparation is the ceneric temi whichdescribesthe variousrnethadsavailableto a
S i JI. O l n i m rcap<.n>ihilil) hrf<>rnio;irip.tr.tiicin
Third JIi2,C;ntur)". 153<oK.~i~~~icl<,.,>$.rp.i1.41np.'hitirlY7h)1.ill~u in ihr PA\!104 ELETTRONICA SICULA
nationals' property in Rhodopia violated the Treaty of NeuillyL. In determining
the proper measure of compensation due Greece, the arhitrator held that "[tlhe
damage suffered by the Greek nationals furnishes an equitable measure of the
reparation due to theGreek Government"'. Asnoted by Schwarzenberger, while
"[tlhe damage suffered by the State is not necessanly limited to that of the
individual . . this may offer a convenient measure of the minimum of damage
~.~ whi~ ~ ~ ~ration is due"'.
In thcsc cx,e,. as in thc prcient ia\e. the tre.iiy provirions in quciiion had only
an indirect bcarinr on the direct financial righis uithr rispectiie Govcrnmentj.
and were aimed rather at the protection of Cheparties' respective nationals. The
United States accordingly submits that the losses suffered by Raytheon and
Machlett as a result of Italy's violation of the Treaty are the most appropriate
and only convenient measure of damages to the United States for violation of
its rightsunder the Treaty in this case4.
B. ALL OF THE ~NJURIES SUFFERED BY RAYTHEO NND MACHLETS THOULDBE
INCLUDE IN THE MEASUR E F COMPENSATION
1. The Generol Principle
The orooer measure of comoensation is that which redresses al1of the iniuries
occasiined' by the commission'of the international wrong. The Permanent Court
enunciated this basic principle in the Chorzuw Fociory case:
"The essential principle contained in the actual notion of an illegal act-
a principle which seems to be established by international practice and in
oarticular bv decisions of arbitral trihunals is that reoaration must. as far
as possible. wipc oui al1 the conscqucnccs of thc illrglil act and re.crtahliih
ihe situ3iion u,hich uould. in al1probahiliiy. hlivc rx~btcdiithai aci had no1
been committed '."
A Staie may discharge ils duty to make reparalion by implementing measures
desiened to re-establish the situation orior to the wroneful act or omission. that
is.r;rrirurio in inregru,>iWhcri. houever. 11 is no1 p&rihle to rssiore ihc siaie
of facis lhat unuld ha\c eiistcd if ihc unlauful nst had not been commiitcd, or
such rcstoriiiion doea noi full! rcdress ihe iniur) c~usid b\ ihc Staic's unlawful
act, damages are awarded in iieu of restitution or as a subplement thereto7. As
stated hy the Permanent Court:
..
Ibid.,p. 101.
'G.Schwarrenberger. I InlernolionalLaw, p.141(3rd ed., 1957).Freemanagreesihat
"the degreeofpublicinjury - or ratherthe reparationsoUghtfor the violationoapublic
ri'hAs used here thraughout, "the damagessulïeredby Raytheon", refersno1only to
Raytheon'sdirect Rnÿnciÿlloss, but also to some US$551,300in lorses sulferedby ils
whallyownedsubsidiÿry,RaytheonServiceCompany, as detailedin Annexes13and 14.
ChorrbwFoc1or.vM . erils. op.cial p.47.
TexoeoOver.~c<P i.rrlroleumCo./Cali/orniaAriolic Oilv.oCovernrnen lfrheLihyoII
Arnb Repuhlie (Awardon the Merits) ("TOPCO v. Libyo"), 17 Iniern<iiionil~galMa-
ieriolp. i.at p.36(1977).
' TOPCO v. Libye.op.cil. at p. 36Seealso,cg., F.V.Garcia-Amador,2 TheChonging
La><~JlnrernaiionalCloinrrp.580(1984); Claim of ThomasW. Molher.SurviringPorlner
ofMnrher & Glover.~umnluriredin M. Whiteman,3 DamagesinlnlernolionnlLaw, p. 2021
(1943). Authoritative commentators, as well, have consistently recognized that an
award of damages should compensate for al1losses or injury caused by a State's
wrongful acts. As Garcia-Amador explains:
"While restitution merely restores the property or right of which the alien
in auestion has been deorived. an indemnitv is intended to comocnsate him
for 'al1theother conseq;ences of theact or omission contrary to international
law . . .For al1 these reason [sic], 'damages' are, in fact, the only form of
reoaration which makes it nossible in al1situations to ahide bv the ~rinci~le
. .'.that 'full' reparation musi be made for an injury caused by an act'or
omission contrary to international law'."
All damages are compensable, provided only that they are proximately caused
by the injurious acts. According to Rcutcr: "The injury for which repdration is
due is that which is tied by a chain of causality to the wrongful act2." As Yntema
explains:
"(A) Whenever an international liability anses, there is a duty to make
complete comwnsation and therefore for al1the preiudicial consequences of
the occurrence giving rise to the liability, whether the damage thus ensuing
is direct or indirect. (B) The only limitations upon this duty spring from
evidential or equitableconsiderations: (1) The damage mus1he shown to be
a consequence of the occurrence. (2) It mus1 he reasonably capable of
estimation. (3)The compensation mus1be reasonably adjusted to the particu-
lar circumstances of the individual case'.."
In the present case, full reparation cannot be achieved through resrirurio in
inregrum. The positions of the parties have changed so dramatically thdt restora-
tion of the state of facts that existed prior to the Government of Italy's wrongful
intervention is simply not possible. Accordingly, the Government of ltaly should
pay compensation in the full amount of the losses sustaincd by Raytheon and
Machlett as a result of ils wrongful conduct, as detailed helow.
2. The Specific Types oJ Injury
(a) FinuncirrlLosses wi~hRrspecl Io Loan Cuaronlee Pu~'menrs,Relurn ~Jlnvest-
meni. und Open Accounrs
As shown above, a pnnciple objective of the requisition was to prevent Ray-
theon and Machlett from disposing of ELSl's assets through theplanned liquida-
'Garcia-Amador, op. cil.at p. 584.Sec olm, D. P.O'Connell.2 Inrernurionul aw,
p. 1204(1965);Schwarzenberger op. cil.al pp.654and 655; Eagleton. op. cil.al p. 182;
Oliver. "Legal Remedies and Sanctions",in IniernriiionLaw O/ Srore Rcpunnribiliror
lnjuricrio Aliensp.61,at p. 710(R. Lillich.cd.,and contrib., 1983)Frcemdn,op. cil..ai
p. 576;proposeddraft Article6 of theInternationalLawCommission'sdrdt articles on
stÿte responsibilityII Yeorbookof rhe Inrrrnrirional ON,Commi,~xion1.984 (Part Two),
p. 100.n. 322.
Translation.P. Reuter,Droit inlrrn<iiionoplublip.266(1958).As ProfessorReuter
notes. iheuse of the terms"direct" and "indirect"isa "vague" and "insuficient" means
ofaitempiingto distinguishbetweenconsequenceswhich areand areno1 sodirctly related
IO the wrongfulact as to becompenroble. Ibid.
Columbia Laii Revieii..rp. 153 (1924).See aol.?oeg., Jiménezde Arkhaga, "intema-.24
iional Responsibility".in Monual O/ Public Ini~rnolionolLail..p. 531. al pp. 568-569
(M. Sorenson, ed. 1968);C. Eagleton,"Measureof Damagesin InternationalLaw". 39
YoleLaw Journol,p.52, al p. 75(1929). MEMORlAL OF THE UNITED STATES 107
tion. The Government of Italy wanted to acquire the assets itself and was no1
prepared to pay for them as of 1 April 1968.The requisition met the immediate
political need of responding 10the local outcry against the plant's closing, while
giving the Government of ltaly the opportuniiy io plan ils acquisition strategy.
Given ELSl's financial condition. the direci and foresceable conseauence of
the requisition order wes ELSl's bankruptcy. Even the President of the Sictlian
Region acknowledged that ELSl was then left wiih no alternative but to file for
haikruptcy. -
Having caused ELSl to declare bankruptcy when it would otherwise have
proceeded to liquidate ils assets and seek settlements with ils creditors, the ltalian
Government is responsible for losses incurred hy ELSl's owners as a result of
~ ~ ~ ~ ~untarv chanee in the mariner of disnosine of ELSl's assets.
Thc hankrubicy rilircd much less froiii ihe saL of ELS1.s aiscis than uould
have ken resei\,r.dfrom an ordcrly liquidaiion. As shoun in the following iahle,
the nrocccrls froni an orderlv Ii~uidaiion oi ELSI'Sasscrs ;IIbook vsluc la, :ifair
mea'sure of their going conceri value) would have been sutlicient to off al1
of ELSl's creditors, including amounts owed to Raytheon on open accountl and
still return 391 million lire (US$625,600) to Raytheon and Machlett as a small
return of their investment. Even had the liquidation realized no more than the
estimated minimum liquidation value, Raytheon would have received some pay-
ment on open accounis and a significant portion of ELSl's guaranteed loans
would have been paid from the proceeds of ELSl's asscts. Instead, under the
bankruptcy, Raytheon los1the full value of the open accounts and, more impor-
tantly, was required io pay al1 of the guaranteed loans, thus incurring some
6,931.4 million lire (US~11,113,600) in additional losses. The resulting damage
to Raytheon and Machlett, therefore, as compared with liquidation al going
concern value, is 7,322.4 million lire (US$] 1,739,200).
Ravtheon and Machlett incurred these losses as a result of the Government of
liai)';wrongrul iniervcntton. Thr Ioracs rcsultcd directly (rom ihr <io\ernmcnt
of Italy's xcii<insin i,iolatidn of the 'l'rc:ity.and iherefurc shuuld bc includcd in
calcul:iting ihc compcnsatiun due the Cniied Siatcs îair<urh iiol;iiion,'
' In accorddncewith the basicprinciplethat compensation should seek to restore the
situation which would have cxistedwithout thewrongïulaci. compensation should k
awardedin United States dollars. Sec.cg., Morriron-Knudren Pue@ Lrd v. Minirlry O/
RoodF ond Tronsporr<irion1.43-127-3(24July 1984)at p.35: Cruip v. Minis1r.of Energy
qfIron. Awd. No. 71-346-3(2 Septemkr 1983)al pp. 17-18.Raytheon and Machlett are
United States companies.whoseprincipal business currency is dollars. Raytheon'sIvan
guaranteepayments ueremet by purchasinglirewithdollars. aswereils legalexpensesin
defendingthe creditor clÿimsand other costs.The lasseswere lhus incurredin dollars.
Moreover.in viewoïlhe changingcurrencyvaluessincethetimeof loss,onlyifcompensa-
tion is calculatedin dollarcanit accuratelyreRectthe uctual losseswithoutdistortion
caBytheyssametakcn, compensationatifor.the portionof open accountsowedto Raytheon
which it was recludedfrom recoveringshouldbe meÿsuredin dollars,convertedal the
oficial rate ofexchÿnge in eiTecta1the time. Had any of there paymentsken received.
they would haveken promptlyconvertedto dollars and repatriated. The losswassufered
and shouldnow be measuredin dollars. ELETTRONLCA SICULA
Table. Liquidation vs. Bankruptcy Proceeds*
(Lire in Millions)
Liquidorion Liquidorion Acruol
nr Book 01 Es!. Min. Bonkruprcy
Value Vulue Proceedr
Proceeds for distribution
Paymentofcrcditors:
Preferred
Secured
Unsecured - Raytheon
Unsecured- other
Total
Administrationand
liquidationcasts
Totalpayments
Net proceeds
Net proceeds(Cost)to Raytheon and Machlett
Net proceeds 391.0 -0- -0-
Guaranteedloansinieresl -0- (3.160.6) (5,787.6)
Openaccounts - -0- (1,143.8)
Total(million lire) 391.0 (3,793.6) (6,931.4)
Total (U.S. dollars) $625,MX)** (66,082.60O)t (S11,113,600)tt
Data taken from Ann.13.Schedules E. F, and IIand Ann.30.AitachmentB.except
conversionfromlireto dollars.as notedbelow.
** Conversiongivcnal Ann. 13.ScheduleG4.
t Conversiongivenal Ann. 13.Schedule12(guaranieedloans andinterest) and Schedule
J (open accounts).
ft Conversion givenal Ann.13,ScheduleII (guaranteed loansand interest)andSchedule
J (open accounts).
It should be noted that the Treaty explicitly recognizes as a protected "invest-
ment" not onlv direct contributions to caoital but also related financial contribu-
lion. \uch d;,iuamntees and ad!dnce, of funds As Article I oi the Supplzrncnt
specifics, corpor.ttions of either prty
"shall not be suhjected to arbitrary or discriminatory measures . . resulting
particularly in . . impairing their other legally acquired rights and interests
in such enterprises or in the investments which they have made, whether in
the fom of funds (loans, shares or otherwise), materials, equipment, services,
processes, patents, techniques, or otherwise".
Thus, the guarantees and the open accounts, as well as the direct return ofcapital
which Raytheon and Machlett lost, are protected interests - being an "invest-
ment" which was made "in the fom of loans, funds, or othenvise" -and must
be considered in awarding compensation for violation of the Treaty '.
example,in thessCerruricase, whicharose when Colombidseizedthe assetsof a tanaItalian
national and those of ZICompanyin which hewas a partner. the arbitrator required MEMORIAL OF THE UNITED STATES 109
(b) Legal E.rpenses in Conneciion n'irliBankrupicy and Befense Againsf Ilalian
Bank Suifs
A further direct conseauence of the Government of Italv's actions in violation
of ihs Treliiy thai iasthcon incurred subsianiinl ouisidc lepl r.xlx.n,ch in
conncction uiih thc h~nkrupi~.)and in dcfcnding sgaiiist s~iis hrciught in Italian
courts by certain government-owned and governmcnt-controlled creditor hanks.
As discussed above, in the aftermath of the requisition and bankruptcy of ELSI,
five ltalian government banks hrought suit against Raytheon for payment of
certain of ELSl's debts which Raytheon had nor guaranteed. The Italian courts
subsequently dismissed al1 of the lawsuits as groundlcss, but only after several
years of litigation. These lawsuits would no1 have heen filed had ELSl been able
to liquidate in an orderly manner. since the banks would have been paid in full
or, at worst, would have settled their debts with ELSI. The evidence indicates,
moreover, that these suits were not only a foreseeable consequence of theGovern-
ment's actions, but part of its plan to shift the costs of its actions to Raytheon.
The President of the Sicilian Region had advised Raytheon even hefore the
requisition that such suiis would be brought'.
As detailed in Annex 40 and Annex 13. Schedule K. Ravtheon incurred
US$] 15,638.35of outside legal expenses in connection with the'bankruptcy and
USS766.936.77 in defending against these lawsuits. As part of the foreseeable
consequential damages stemmhg from Italy's wrongful intervention in ELSI,
these amounts should be included in the compensation to be awarded2.
/
(c) Cosrs lncurred by Raj~lheonIn Pursuing Ils Claim
As also detailed in Annex 40 and Annex 13, Schedule K, Raytheon incurred
outside legal and related expenses of some USS57.226.38 in pursuing its claim
against the Government of ltaly for ils actions against ELSI. Therefore, compen-
sation in this case should include this amouni. for such costs are a loss which
would noi have occiirred hut for Iialy's wrongful conduct.
Inicrnationa1 arbiiral tribunal, frcqucnil) ha\? allowcd recoicr) ior the çosts
incurrsd in rcekin* internitional rcr>iirAiionIn the S,,li,idor C,»nnirrci'ilCot>rnirni.
case, for examplerthe award included amounts which the claimant had expendd
- -
Colombiato assumethe outslandingdebisof the partnership forwhichCerruticouldbe
held personally liable. Caseof Cerruri,summorized in Moore. op. cil., Vol2. al pp.2117
debts..suchrasthe guaranteesin the presentecase. passing-on 10 the investorof company
In the ShuJcldrcase.whichconcernedthe breachof a concessionagreementwithGuate-
mala, Guaiemalawas found liablefor, inreralio, reimburwmentIo the concessionaireof
amountsadvancedto his laborerswhichwereuncollectedat ihe limeof breach.Shufeldr
elaim.2 ReporrrojlnternolionolArbirrol Aimrds. pp. 1083 el seq.
' Supra,pp. 55-56.
In rhc CosruJCerruri, op. cil., in order to preserveihe fullamountof compensation
for the propertytaken, the Governmeniof Colombiawasrequircdto pay litigationcasts
incurred by Cerruti in defendingagainst pnvate creditors seeking 10 recoverfrom him
personallydebts of the companywhoseassetshad beenreired.The arbitrator noted that
Colombia had"by itsacts destroyed[Cerruti's]meansfor liquidating [company]debts ...
ensurefull recoveryby Raytheonofainountse". owed.for the unlawfultakingof ilsproperty.
ittoo shouldbe reimburscdforlitieationcostswhichresultedfromthetakine.The creditors
that brought suit. moreover,wereitalian governmcnibanks. actingriursuant10 a rovern-
meni pl*" 10 incrcirrR.~)thcon'iloç<eçfinm iivFISI opcrailon i; ihc mjximu6ixir.ni
por,lblr. Thrrclos\r< ucre muchmoreJirecilyihe conrqutncc of urungful Guiernmcni
action thdn thoseuhich Colomb13uas requircdta asrumc in Ci.rruii.110 ELETTROKICA SlCULA
both prior to the intervention of the United States on his behalf and after United
States' espousal of the claim'. Similarly, in the SIIUJPI~case, the arbitrator
awarded the claimant the expenses it had incurred in trying to come to a settlement
with the Guatemalan Government2. In the Poggioli case, the award included
compensation for the claimant's travel ex enses in submitting the claim to the
legation and the Venezuelan Government P .
Thus the full amount of damages sulïered by Raytheon and Machlett is
US$625,600 for loss of investment, US$I 1,739,200for losses resulting from open
accounts and payment of gudranteed loans, and US$939,800 for legal expenses
incurred by Raytheon in relation to bankruptcy proceedings, in defending against
related litigation, and in pursuing its claims, for a total of US$12,679,000, plus
interest, computed as described below.
Section 3. The Award of lnterest
A. INTERESS THOULD BEAWARDED TO COMPENSAT FER THE LOSS OF USE OF
MONEY OVER TIME
The principle thai compensation should redress the injuries caused by the
respondent's wrongful actions entails, as a corollary, thatinterest be awarded to
compcnsate for the loss of use of money over lime.
International law commentators agree that just compensation to an injured
party requires the payment of interest on its loss, as "a necessary part of a just
national indemnifi~ation"~. Lillich States: "[ilnterest as part of an award by an
international tribunal . . .is recognized by customary international law . . .as
an element of damages inherent injust compensationJ". Similarly, Eagleton notes
that: "[tlhe award of interest is usually considered to be merely a part of the
duty to make full reparation6".
lnternational tribunals and commissions have long viewed interest as a vital
element ofcompensation. In The Russian Indemniry case, for example, the Perma-
nent Court of Arbitration stated that:
"al1 interest-damages are always reparation, compensation for culpability
. . .Legal interest allowed a creditor for a sum of money . . .is the legal
compensation for the delinquency of a tardy debtor exactly as interest-
damages or interest allowed in the case of . . .the non-fulfillment of an
obligation, arccompensation . ..'."
' Claim O/ "SulvadorComnierciolCompany"er 01.. 15 Repurrro$ lnrernolionolArbirral
An,ord.~p.467,al p.469.
2 Reporrso/lnlernalional Arbirrol Awordsp.1101.
10 Reporrro$ Inrernorionol rhiirol Awardsp.669.al p.691.
J.B. Moore. 6 Dixes!oflnirrnaiionol La»p. 1029(1906).quoting J.D. Davis,Treaty
Notes.in Unii~dSlore.~Treo1.vVolume (1776-1887).
R. Lillich,"Interest in the Law of InternationalClaimsE.ss<i).isn HonoO/ Voir10
Saorioand ToivoSainio. p.51,ai p.59(1983).
Ci Eagleton. The Responsibiliiyof Siores in InrernorionLois,.p.203 (1928). Spe
gen~rolly,J.H. Rabion. The Lai? and Procedure O/InrernaiionolTribunolspp. 127-136
(1925); M. Whiteman, op. cii.,pp.1913et seq. (1943): Lillicop. eii.,at pp.51-59;
FinoncialLait,Revieipp.a20et seq.(December1986):Article38(1)ofthe RevisedHarvardnol
Draft Convention.F. V.Garcia-Amador, L. Sohnand R. Baxtcr, ReceniCodificorionoj
rheLaw o/Sroie Responsihiliiy/orInjuriesroAliensp. 341(1974).
' TheRussionIndrmniri.Cose (1912).1 HogueCourrReporrer, p.297,at p.313, Pem.
Ct. Arb. (1916).rrprinrrd in7AmcriconJournalo/Inicrnarionul LON, p.178,al p. 191
(1913).ln thicase.however. theCourt foundthat Russiahad waiveditsclaimIointerest,
1 HagueCoun Rcporrer. p. 323. MEMORIAL OF THE UNITED STATES 111
The Permanent Court of International Justice awarded interest in 1923 in the
Wimbledon case' and further expressed agreement with the proposition that
compensation for a taking must include interest in the Chorzbw Factorj~case'.
Similarly, in the lllinois Central Railroad Company, the Mexican-United States
Claims Commission held that interest "must be regarded as a proper element of
compensation"'.
More contemporary cases consistently reaffirm this principle. In 1962, for
example, the Foreign Claims Settlcment Commission of the United States, citing
the opinions of mixed claims commissions and views of authoritative commenta-
tors, concluded thal an award of interest '7snot onlyinconformity with principles
of international law . . .but is also required by equity and justice . .."'. The
Iran-United States Claims Tribunal also has ruled consistently that principles of
international law entitle a successful claimant to interest. As stated in the leading
Tribunalaward in McCol/ough & Company.Inc. v. TheMinisrry ofPosr, Telegrop11
and Telephoneel al.:
"The first prinsiple [ivhich?an he deduccd from interwtional praiticel ts
th31under nomilil sircumsi;inces. and espcci~llyin commercial caws. intercil
is allocated on the arnounts awarded as damages in order to compensate for
the delay with which the payment to the successful party is made5."
The United States accordingly submits that interest should be awarded in this
case in full compensation for Raytheon's loss of use of money over tinie as a
result of Italy's actions in violation of the Treaty.
B. INTERESS THOULD BEAWARDED AT THE UNITEDSTATES PRIME FUTE
As shown in the preceding section, the purpose behind an award of interest is
to compensate a claimant for the loss of use of its money from the date of the
injury andto thereby make the claimant whole. The rate chosen therefore should
be that which, as nearly as possible, equals the amount of the claimant's actual
losses. "The rate of interest is determined according to the circumstances, the
object being to determine a just compensation for the wrong6." Or, as D. P.
O'Connell suggested, the proper itiquiry should be: "[WJhat could the claimant
reasonably have expecled had he had the use of the property'?"
Thisapproach has led international trihunals to the choice of different specific
rates of interest in ditTerentcases. Among the various rates of interest employed
mie..Sihe I'ent>:finCiour1~u~rdcdr.Iiiir.rI'ri>ihr ddlc of~~3rdp on ihcpgruunilih:it
ihisw3r "the rndrnrniuhrn thr .imoui,liiiihc iumduc hdr hmn ~Ixc~~ndthe ublig~iiun
to ay established".Ibid.
ln Choc6w Focrory,Meriis,the PermanentCourt viewedthe reparationof the value
of the praperty taken plus interestas the minimum 10which a clairnantdeprivedof ils
propertyisentitled.Op.cil..al p.47As dircussedbelow.in this casetheCourt foundthal
iust compensationwould include other damages as well. since the expropriation wds
contrary io internationallaw.
IllinoirCenlralRailrvudCo.(USA) v.UniredMexieiinSfures,4 ReporlsofInlernolionol
ArbirrolAwords.p. 134.al p. 137.
h iheMoirerof16eClaimof John HedioProach,Decision No. PO-652,Foreign Claims
SettlementCommissionof the United States,Decisiuns und Annoiurion.p. 549,al p.552
(196AwardeoNo..225-89-3(22April1986),pp. 37-38.fSeeul.soe.g..caseciteda1n.2.p. 114,
and n. 4, p. 114infra.
Eagleton, op.cil..al p.205.
'O'Connell. op.cil..al p. 1213.112 ELETTRONICA SlCULA
have been: the interest rate prevailing in thecountry of the claimant's residence',
a fair rate in light of prevailing world financial conditions2, and thai prevailing
at the nlace where theclaim arose'. In choosing the aooroor..te .inancial market
and interest rate, international commissions have been guided by the essential
purpose of an award of interest - 10fairly compensate the injured party for the
ioss of use of its money4.
The nrinciole of full commnsation eenerallv dictates. in commercial cases. the
choicc bf a c;mmerci311yrcÿsonahlc rite of iniercii uh;r.h i~irlyconipcnsatcr for
thr. lusrOF se iif fundr As siaieJ h) LiIIich "Sinsc the purpose oi intercst IS in
provide just compensation 10 claimants, the rate of interest must reflect the
~~-~~~~~~~~~ ~ ~es ~f the times5." This conclusion is not new. In the Wimbledon
case, for example, the Permanent Court took into account "the present financial
situation of the world", especiallyincluding "the conditions prevailing for public
loans" in choosing a rate of interest6.
In more recent times, with domestic interest rates on occasion reaching all-
time highs, the practice ofinternationaltribunals reflectsmore particular emphasis
onand consistent application of this principle. As noted by the Iran-United States
Claims Tribunal: "The international awards which do no1 allocate interest or
which fix very low rates are rather dated or concern non-commercial disputes
between governments'."
Contemnorarv international oractice does not offer detailed euidance on which
particular'"comkercially reasinable rate" should be chosen reRcct fairly the
financial injury caused by the loss of use of money over times. Where an actual
' See,e.g.,S.S. Wimbledono . p.cit.al p.32.
Hisrorv nnd.B~PFI "oflnr~rnotionoAil rblrrorions.o1466(1898).e), J. B. Moore, 2
..~~.~ ~,~ ~ ~ ~ ~ ~ , ~ ~,
See,cg., PuertoCobelloand ~aleneiaRailw~~CompanyCare, 9 ReporisofInternoriono1
ArbirrolAwordr. p. 510,al pp. 526-527;Borchÿrd, op.cil.at pp.429-430.Inolderexpropri-
ation cases, and in contract disputeswhich are decidedaccordingto ler loci conrrucrur,
local statutory rate of interest lrequenllybas been chosen. See. e.8..Lillich.op. tir.,al
p. 58.
See.ce., J.H. Ralson, InrernaiionalArbirrolLowondProcedure , p. 127-136andcases
~~~ollou~h& ~oh~ony. ln; .. TheMinisrry O/ Posr.Teleggropohnd Telephone n al..
Awd. No. 225-89-3,p. 35 (22April 1986).
See.e.g, the survey of recentinternationalprivatearbitral awardsin MeCollough.op.
eir.,at pp. 35-37. The Chamber in McCollough concludesthat the circumslanceswhich
mavbe taken in10consideraiion are "unlimited". Ibid.,al D.38.Thisase. however.takes
an ;nuiuilly brmd vice of .'relc\sni I~ciorc".includinp.ir'hiir~tor'.discrciion11msy bc
que.tii>ncduhcihcr includingiurh Iaiiors dosr no1amount 1,)a diririonrr oryuo cl hrino
ratherthan in.iriiirJancr.uiih arincanlc.ufldw Ilshould he noicJ JI *el1ihxt .WiCi.llt.ueh
considerscaseswhich are detehinid under contractual orovisions or /ex loci conrracïus
ratherthan internationallaw.The recent casescitedin M>~ollouph in whichthe choiceol
Jr~ts01iniereri icno!JrriJrJ unJcr n~iii>n~ lau.uith thr.cx;cption of ihc Rt~,incdse.
astard inicrcr41;ommercidll)rsa~i,n~ble raie, rJ!IgingIrom 9 tu IXperceni In Rrn~enutt.
ianin~erci~rlAiriArc ihu.:n e\en ihoueh the Jrci,iun noiiiin;ill13a>rrrncJ br loc~l PAN
1" the Revere case, thetribunal round-that the applicablearbkrai6n rulespkcluded an
award of interest, except lor non-payment of the arbitration award. See, AMINOIL v.
Kuimir, op. cil.,al p. 1042; Benvenuricl Bon/onisr1v. The Gov~rnrncn f/ the People's
Republico/rhe Congo("Benvenuriv. Congo"), 21 lnternorionolLegolMaterials. p. 740,al
o.762(1982): Norwion Arenrv. BelaianShiuowner . Yearbook~(CommercialArbirrarion,
94(1983); ~t,irre'~o~~~u rnd Bro;r. Ina. Otrrrtvu Prirorr l",r~rmenrCurporurion. 17
lnrernor,onulIxrul .\f<i!eriul. I32l. ai p 1367(1978). SoudiAruhiunHole1Conipon!v
lnruranrv <'omp<in? o~1.uEuroprunCi>unrr). 10 Yrorbuuk u/Ciimn~rreiulArhiiroiion. p 41114 ELETTRONICA SICULA
isconsistent with both general approaches to the choice of an interest rate, where
a specific"actual" rate is not claimed.
C. INTERESS THOULO BECALCULATE FOROM THE DATE OF INJURY TO THE DATE
OF PAYMEN OF THE AWARD ,ND COMPOUNDE ADNNUALLY
It is generally accepted that interest should be calculated from the date of
injury until the date of payment of the award'. This follows from the principle
that interesi is paid in order to compensate the injured party for the loss of use
of ils money. The date of injury is determined in light of what would have
occurred, absent the wrongful actions causing the injury. Thus, with respect to
Raytheon's losses for guarantee payments and other actual payments, the date
of injury is the date of payment. With respect to losses on open accounts, it is
the dateon which Raytheon would have receivedpayment on these open accounts
if it had been allowed to proceed with the liquidation plan. For the sake of
simplicity, however, the date of injury which has been used for purposes of
calculating interest is the end of the calendar year in which the injury occurred'.
By application of the same principle - that interest should compensate for
the loss of use of money - interest should be compounded on an annual basis.
While compound interest has not been uniformly sought or awarded, in a com-
mercial dispute such as this one it is unquestionably part of a commercially
reasonable rate. As stated in the Fabiani case:
"one kas to recognize that Fabiani could have invested in his enterprises, in
an interest bearing way, the simple interest on the amounts of money that
had been allocated in the arbitral award, . . .The compounding of interest
is authorized in the field of current accounts and of similar operations since
the legislaior presumes that in commerce money does not remain unpro-
ductive3."
In the AMlNOlL case, interest was also awarded on a compound basis4.
Commentators reaffirm that compound interest should be awarded where
appropriate to compensate for actual loss. As F. A. Mann has recently stated:
"1s it open to the court to hold the plaintiff entitled to compound interest
in respect of damages awarded to him? In theory the answer should once
again be in the affirmative5."
'See. e.g..AGIP, op. cil.al p.343; Delogoo Bay and EasrAfiiean RaihvoyConipony
in LaFontaine. PmicrisieInrernorionnlc,.544(1902); KorherlneA. MocMurdoCa.sei.bid..
at p.397. An excellentcollectionofearliersiatepracticeisfoundinWhiternan, op.cil.at
o~.1963-1975 .ee olm, e.e., Eaeletonor>.cil.ai D.205; Lillichop. cil.al pp. 55-57.
au~r\l unetheihcirybih~iiihaJinotauihorliyio alluwinierr,iI<>r p.ri<ii,lilmebz)unde
thsi ciliterirtcnrcSPC R~lriun. i.o <,1ai n 87.rcc170 Ai ihc Int~rn;ition1ourt or
~ ~ ~ ~ ~~~~~
Justiceisa Dermanentbody,ho&&. an'award ofinterestuntithe datetheaword ispaid
Re or&, p.234.al p.351(1983-11).
Ann. 13,SchedulesCi2 and HZ.
TranslationAnloineFabioni,op.cil.,ai p.183.
AMlNOlL v. Kuw,aii,op.cil.
F.A. Mann, "On Interesi,Campoundlnterestand Darnages",101 The Law Quarrerly
Revie~:p.30, 81p.44 (1985). MEMORIAL OF THE UNITED STATES 115
Wetter adds:
"11is submitted that the issue as to whether or not compound interest is
permissible as an element of damages must be resolved with reference to the
ultimate legal rationale for awarding interest'."
The United States accordingly submits that the award of compound interest is
ao.. .riate in this case. Ravtheon itself is a business entemrise that was eenera- ~~
ting carning\. More<i\,er.R.i)lheon. Iike mosr mlijor r<,rpordiiuns. relies s~gnifi-
cantly on dchi tin.incin6. li Rü)ihcon hsd no1sulfered fin;incialIoie, ia a result
oc li.~l\'suronr(ul ~ctions. Ihese t'~nJ\ u<iuldeirher h:iie rcnerrir~,dxdJiiionsl
earninps or woÜld have been used to repay debt. These fuids therefore would
have generated either interest earnings or interest savings, which in turn would
have been devoted to a profitable use. The calculation of interest must therefore
b~~comwunded in orde; 10reRect the extent of actual iniurv (~ ~ ~ ~ ~ 9 ~, ~~.~~
In cônclusion, in~order to provide compensation which reflects the extent of
iniury caused, the United States submits that the Court should award interest at
the average annual United States prime rate, compounded annually, from the
date of the injury to rhe date compensation is paid.
' Welter. op. cil.,at p. 72. SUBMISSIONS
Accordingly, the United States submits to the Court that il is entitled to a
declaration and judgment that:
(,,,1t~I) - by engaging in the arts linclomissiuns dc~cribedahoie, \\hich
pre\,cntcd Ka)theon and Müchlrtt. United Sixte, corporailcinï. ironi Iiqui-
datine the asscis of iheir wholl, ouned Iiililin corDorailun ELSl and c~uied
the latter's hankruptcy, and Ly its subsequent actions and omissions -
violated the international legalobligations which it undertook by the Treaty
of Friendship, Commerce and Navigation between the two countries, and
the Supplement thereto, and in particular, violated:
- Article III (2), in that Italy's actions and omissions prevented Raytheon
and Machlett from exercisingtheir right to manage andcontrolan ltalian
corporation,
- Article (V) (1) and (3), in that Italy's actions and omissions constituted
a failure to provide the full protection and security as required by the
Treaty and hy international law;
- Article V (2). in that Italy's actions and omissions constituted a taking
of Raytheon's and Machlett's interestsin property without just compen-
sation and due process of law;
- Article VII, in that these actions and omissions denied Raytheon and
Machlett the right to dispose of their interests in immovable property
on tems no less favorable than an ltalian corporation would enjoy on
a reciprocal hasis;
- Article 1 of the Supplement, in thal the treatment afiorded Raytheon
and Machlett was hoth arhitrary and discriminatory. prevented their
eKectivecontrol and management of ELSI,and also impaired their other
legallyacquired rights and interests;
(6) that, owing to these violations of the Treaty and Supplement, singly
and in combination, the United States is entitled to compensation in an
amount equal to the full amount of the damage sufiered by Raytheon and
Machlett as a consequence, including their losseson investment, guaranteed
loans, and open accounts, the legalexpensesincurred by Raytheon inconnec-
tion with the bankruptcy, in defending against related litigation and in
pursuing its claim, and interest on such amounts computed at the United
States prime rate from the date of loss to the date of payment of the award,
compounded on an annual basis; and
(c) that ltaly accordingly should pay to the United States the amount of
US$12,679,000,plus interest, computed as described above.
15May 1987.
(Signed) Abraham D. SOFAER,
Agent of the United States
of America.
(Signed) Arnold 1. BURNS,
Deputy Attorney General
Department of Justice. ANNEXES TO THE MEMORIAL OF THE
UNITED STATESOF AMERICA
Annex1
TREATYOFFRIENDSHICP, MMERC AEDNAVIGATIO BETWEEN THEUNITED
STA~ OF AMERIC AND THE~TALIANREPUBLICS,IGNEATROME2 , FEBRUARY
1948,ENTEREDINTOFORCE26 JULY1949TlAS 1965; 7UNTS 171
[Sce pp. 9-supra]
Annex2
[See pp.32-3supra]
Annex3
CHAMBE OF DEPUTIESP.ARLIAMENTA PROCEEDINGDSO,CUMENT-S BILLS
AND REmRn, N. 246-A, PAG4, PRESENTEO THEOFFICEOF ME PRESIDENT
ON2 MARCH1949
[See Counler-Mernorialof Ilah 41nex
Annex4
SENAT OF THEREPUBLIC L,EG~SLATU11E,291~~SESSIA,SSEMBLY,
PAGE13758, 19JULY1960
[See Counler-Mernorial<,fIruly. Annex 141 ELETTRONICA SICULA
Annex5
MAP OF ~TAHICHLIGHTI NHEMEZZOGIOR RNOCION
[Nor reproduced]
Annex6
[Not reproduced]
Annex7
[Not reproduced]
Annex8
~NTRODUCTORPAGEFROM 1985RAYTHEOCNOMPANANNUAL REPORT
[Nor reproduced] ANNEXES TO THE MEMORLAL
Annex9
AFFIDAVI OF CHARLEF S. ADAMSF .INANCC EOMMITTE CHAIRMA NND
DIRECTOR R,AYTHEO COMPANY D,ATED17APR~L1987
1, Charles Francis Adams, appeared before a notary public in and for the
Commonwealth of Massachusetts and, upon king duly sworn, stated that:
1. In 1932, 1 graduated from Harvard College. Two years later, 1joined the
investment hanking firm of Jackson and Curtis, where 1 became a partner in
1936.This firm became Paine, Webber, Jackson and Curtis in 1941.
2. During my tenure at Paine, Webber, 1also served as a director of Raytheon
Company ("Raytheon") and Subniarine Signal Company, which later merged
with Raytheon.
3. When the United States entered World War II, 1joined the United States
Navv and commanded destrover escorts in the Atlantic and Pacificthealres.
4.'upon returning to the ~kitedlat tis1945with the rank of commander,
1served as a memher of the star of Admiral Jonas H. Ingram, Commander in
Chief of the Atlantic Fleet.
5.After the war ended, 1served hrieflyin the Bureau of Personnel at the Navy
Department.
6. In 1947,1became Executive Vice-Presidentof Raytheon. One year later, in
1948, 1became President of Raytheon.
7. In 1964,Raytheon's Board of Directors elected me as Chairman of the
Board.
8. In May of 1975,1 retired as Chairman of Raytheon's Boardof Directors.
However, 1 continue to serve as a Director of Raytheon and Chairman of
Ravtheon's Finance Committee.
9. R~ytheon 1s United States corporation u,hich manuftacturrsliiur pnncipdl
types of producis (1) clcîtrc>nirrquipmeni, for ckrmple. miss~les)stems. r~dars,
microwaie components, and miliÏary communication devices; (2) aircraft pro-
ducts, for example, single and twin engine piston, turboprop and jet airplanes;
(3) major appliances, for example. microwave ovens, refrigerators, and home
laundry equipment; and (4) educational materials, for example, iexthooks and
instructional recordings. In addition, Raytheon furnishes various services to its
customers, for example, the design and construction ofelectricgenerating stations
and petrochemical plants.
10.During 1955,Raytheon obtained a 14percent equity interest in Elettronica
Sicula S.P.A. ("ELSI"), a newly formed company in Palermo, Sicily, Italy. The
Moro Group of Genoa, Italy, and the Fondo Regionale per la Partecipazioni
Azionarie della Regione Siciliana ("Share Participation Fund of the Sicilian
Region") owned the balance of ELSl's stock.
Il. Approximately oneyear later, in 1956,a successful,Milan-hased, investment
company, La Centrale Finanziaria Generale S.P.A.("La Centrale"), acquired the
ELSl stock owned by the MoroGroup and the Share Participation Fund of the
Sicilian Region.
12. Over the next II years, when La Centrale from time to time declined to
contribute additional capital needed to meet ELSl's requirements. Raytheon
invested almost 12 million dollars in ELSI, therehy increasing ils percentage of
ownership.120 ELETTRONICA SICULA
13.By 1967,Raytheon had contrihuted sufficientcapital to own approximately
99 per cent of ELSI.
14. During 1967, Machlett Lahoratories, Inc. ("Machlett"), a wholly owned
subsidary of Raytheon, acquired the remaining stockin ELSl from La Centrale.
15. Raytheon had increased its investment in ELSl for several reasons. First.
the increased investment appeared at the lime to make good businesssense. With
technical assistance and support from Raytheon, ELSl had become a highly
respected manufacturer of sophisticated electronic equipment. Second, we he-
lievedOurinvestment in ELSl would he secure. ltaly had entered into the Treaty
of Friendshio. Commerce. and Navigation with the United States. whicheuaran-
teed treatmént to ~merican firms equal to that accorded ltalian firmcand in
other ways afforded protection for Ourinvestment. ltaly was also rapidly becom-
ing a leading indusirialized country, where United States investors generally
enjoyed good relations. Finally, while the markets for most of ELSl's products
were not in Sicily, but the Italian and European mainland and ELSl's products
wereaenerallvexoensiveto transoort becauseof their weieht and size.wehelieved
the hTghlypiblicized investmeni incentives offered hy ïhe ltalian ~overnment
would defray thesecost and marketingdisadvantaaes. Becausethe ltalian Govern-
ment had oromised various incentiveito comoaniésif thev invested in the Mezzo-
giorno ion, including transport suhsidies, we beiieved that our strong
commitment to OurMezzogiorno work force and to makina ELSI a success were
in concert with ltalian govérnmentalobjectives. -
16. If the ltalian Government had not offered such incentives, we would not
have continued to invest in ELSI.
17. Besidesfurnishine the financial suooort and technical assistance necessarv
Iodc\,elopa Iargcfactor) and tr;iin hundkédsoi Iialian workers in basicclcciron~
skills. Rïythcon arrÿngcd, hvcxclusi!~elyIicensinaELSl in Rayihcon'r intellcciual
orooertv. for ELSl 10 obtain several-maior contracts. incrudine contracts to
provide electronic components to the North Atlantic Treaty Organization
("NaIo") for the Raytheon Hawk missile and TPSlD mobile air search radar
programs. 1personaliy negotiated the Nato Hawk contract with European Nato
countries and industries. The Nato Hawk program became a highly successful
projcct for ELSl and other ltalian firms hoth financially and technically.
18. During the early 1960s,officialsat Finmeccanica. the ltalian prime con-
traclor on the Nato Hawk program and one of the companies owned by the
ltalian conglomerate Istituto per la Ricostruzione Industriale ("IRI"), nominated
me for the Commendatore al Merito della Republica ltaliano because of "the
highly enèctive and outstanding contribution given by (me), as President of
Raytheon, 10the development of the electronic industry in ltaly". Suhsequently,
the Under Secretary of the ltalian Ministry for State Participations awarded me
this decoration at a special ceremony in Rome.
19. However, despite my efforts and the efforts of other Raytheon officialsas
well as those of Aldo Profumo, who was ELSl's ltalian resident manager in
Palermo, and Professor Calosi, who was Chairman of ELSl's Boardof Directors
until 1967,Io make ELSl a successful,profitable enterprise, ELSI continued to
accumulate losses.
20. While Raytheon ahsorbed ELSl's losses for several years, it could not go
on doing so indefinitely. Accordingly, in fiscal year 1967, Raytheon emharked
uoon a maior effort to lurn ELSl around. which included the nrovision of
additional &plial and a icarch Torncw produci markets. Our decision io procecd
u,iih ihis plan. which wùuld riiempi IO mïke ELSI ,elf suficieni. howrvcr, wu
conlingcni upon the faci ihai if CLSl could not be made self sufficienithrùugh ANNEXES TO THE MEMORlAL 121
such an al1out efiort. Raytheon would no1 continue 10absorb ELSl's losses as
it had in the pasi.
21. As part of this efiort, Raytheon selected key personnel from its various
divisions, including Raytheon Europe International Company ("Raytheou-
Europe") and Machlett, to become members of a special team, which would
infuse new technical and manageriziltechniques into the operation of ELSI. In
addition, Raytheon and Machlett elected John Clare, President of Raytheon-
Europe, as Chairman of the Board of Directors of ELSI.
22. After thorou",lv stud.in- ELSI. Mr. Clare. an accomolished enei-eer and
huiincssman uith ovcr ?O ye~r,' experience in the manur~ciure and sale of
clciironic produr.1,in Europc, issucd3 61.p;igcrcpori which indic;iicdihat. uhilc
EI.SI'\ accumuliited lo5ses uere iiicrcasina. tl.SI could becomc a vroiii~blc
enterprise if it obtained an ltalian partnerT'introduced new product fines, and
receivedan infusion of capital.
23. 1carefully reviewed the 61-page report, which wasprepared by Mr. Clare
and other senior officialsat ELSI, and agreed with the report's conclusions.
24. If ELSI was going to be successful,it had no cboice but ta obiain a major
ltalian partner. After La Centrale decreased ils ownership of ELSl in the early
1960s,ELSl was viewed as an "Anierican" Company. We had learned by 1967
that, in order for a Company to be successful in Italy, it had to be viewed as
"ltalian" and have an "ltalian link" or "contact", which wouldprovide access
to important Italian markets and the contacts necessary to obtain vital support
from the ltalian Covernment. The onlv .av f,r ELSl to be viewedas an ltalian
company and have that necessary link was to acquire a major ltalian partner,
suchas IR1and Ente Sicilianoper la Produzione Industriale ("ESPI"), the Sicilian
governmental entity responsibie for funding and promoting local development.
25. Raytheon's experience with Selenia during the early 1960ssupported this
conclusion. Selenia was an electronics company on the ltalian mainland, which
wasjointly owned by Raytheon and IRI, an ltalian conglomerate established and
owned by the Covernment. While Raytheon had supplied the managerial and
technical experience whichmade Selenia the "crown jewel" of companies associ-
ated with IRI, IR1 had furnished Selenia with accessto markets controlled by
IRI-affiliated companies and the ltalian Government, without which Selenia also
would have failed.
26. Further, as Raytheon personnel increasedtheeficiency of ELSl operations,
ELSI had no choice but io develop new product lines in order to absorb excess
manufacturing capacity, if it was tb be seif-sufficient.An ltalian partner, such as
IRI, could provide ELSl with eniree into the Italian market and subcontract
work necessary to establish new product lines.
27. Finallv. as a result of ltalian laws whichreauired that shareholders supolv
additional capital or cease operations upon the oicurrence of specifiedevenic, k
was evident that an infusion of capital was necessary to sustain ELSl until il
receivedthe benefits ofhaving an ltalian partner, Mezzogiorno benefits.and new
oroduct lines. .
28 In i)rJrr io satisfy ELSI'Snccd [or capital, during April uf 1967.Rayihcon
contribuicd îddiiional cîpit;iIO ELSl ofo\,er four milliondollars and rumished
tuo-2nd-a-haIf million dollars in ruaraniees. whichue helie\ed nould besuliïcicni
for ELSl to continue operationsfor an additional 12 months. Other Raytheon
officials and 1, however, expresslyadvised ltalian governmental and industrial
officialsthat if ELSl did no1 becoine self-sufficientwithin that lime, Raytheon
would not be able to furnish additional capital because of its already sizeable
investment in ELSI. Everyone concerned, tberefore, understood early in 1967
that, unless ELSl acquired an ltalian partner, new product lines, and benefitsunder the Mezzogiornolaws,and additionalcapital, Raytheon wouldcloseELSl's
plant, seIl ELSl's assets for the highest possibleprice. and thereby minimize its
losses.
29. From April 1967 to April 1968,John Clare and other senior officers of
ELSl met repeatedly with ltalian officialsin order to bring about the acquisition
of an ltalian partner, new product lines, Mezzogiorno benefits, and additional
capital. On ihree different occasions, 1 travelled to ltaly to join in these dis-
cussions.
30. During my second trip to Italy in September of 1967,1attended meetings
with senior officialsfrom various Italian ministries and representatives of IRI.
At the meeting withIRI, which was attended by IRl's President, an IR1represen-
tative stated that the development of ELSl would compeie with IRl's own plans
for electronics. He added that IR1 intended to useils financial resources for other
projects and, therefore, did not have any funds whichcould be utilizedto become
a oartner in ELSI. 1 then reiterated Ravtheon's earlieroronor~l~ r ~ - ~ ~ ~ ~ ~ ~ ~ ~
m&ed with Selenia, but IR1 officialsrejected the proposal. Finally, 1proposed
that Raytheon purchase IRI's share of Selenia in order to provide the financial
resources for IRI to becomean ELSI oartnerand orovide ELSI with the necessarv
new product lines.The President of RI, howeve;, bluntly rejected that propos~l
and stated that a shortage of funds realls was not IRl's problem. As a result of
this meetina- it was evident that IR1 did no1 wish io hdve a maior non-ltalian
pariner in the electronics indusiry, whirh mas rÿpidlyde\cloping in ihai couniry,
lh31 IR1 ivasconcrrned solely wiih aJi,ancing ils 0u.n objeciives under ihe fivc-
year dan for electronics, which was king develo~edbv the Iialian Government.
and ihat IR1 would take steps to prevenÏ a majbr non-ltalian-owned firm from
competing successfullyin the ltalian electronic industry.
31. The attitude of IR1 had an impact upon the opinion of the national and
local government officials. For example, ESPI conditioned ils investments in
ELSl upon participation by IRI.
32. Because we had exhausted every alternative other than contributing addi-
tional new capital ourselves,we determined that Raytheon and Matchleit had no
choice but to proceed with an orderly liquidation of ELSI. As a result of Our
large capital contribution and guarantees on behalf of ELSl a year earlier,which
were with the understanding that there would be no further such action unless
the efforts to make ELSl self-sufficientwere successful,we could not justify to
our stockholders the investment of additional funds in ELSI. Therefore, we
selected Joseph Oppenheim, an electronics engineer and expert at international
sales and iransactions, to lead the liquidation team for ELSI.
33. Mr. Oppenheimsubmitted al1of hisliquidation plans to Thomas L. Phillips,
President of Raytheon, and me for approval. We approved Mr. Oppenheim's
plans and stated that Raytheon was prepared to back Settlements basedupon
those dans.
34. During my tenure at Paine, Webber, 1became wellversed in the valuation,
purchase, and sale of businessesand their assets. Further, while at Raytheon, 1
have ken involved consistentlv in the ~urchase and sale of businessesand their
asscis. Sincc 1loincd ~ayiheon: ihc compîny hds purchased man). busine~sesand
I have rei,iewed the valuaiion OCihs m3juriiy uf ihese businesses hcforï iheir
purchase. As a result of these reviewsand my participation in the sale of assets
or business lines at Raytheon, 1 have acquired knowledge of the valuation of
assets and production lines in the electronics industry including the goodwill of
a business.
35.Basedupon myknowledgeof the valuation, purchase, and saleofelectronics
industry assets and my detailed knowledge of ELSl's plant, operation, product ANNEXES TO THE MEMORIAL 123
lines, and equipment, 1 concluded that the consemative liquidation plans de-
veloped by MI. Oppenheim and his ieam would be successful.On I April 1968,
however, the Mayor of Palermo requisitioned ELSI's assets and, thereby, pre-
cluded us from adhering io Our plans.
36. As a result of the Mayor's action, ELSI was forced 10abandon its plans
for an orderly liquidation and file for bankruptcy. After ELSl filed for bank-
ruptcy, Mr. Oppenheirn remained in ltaly and attempted to wind up ELSl's
affairs in a rnanner which would be of greatest benefit to ELSl's creditors and
stockholders.
37. As threatened by President Carollo, the bankruptcy of ELSl did damage
Raytheon's reputation. We did what we could to mitigate this damage. Francis
Lee,Raytheon's Assistant Treasurer, and 1made trips to Europe for this purpose.
We explained the situation to European bankers and the business community.
Wealso employed the Public RelationsServiceof Guido de Rossi del Lion Nero
in Rome to counteract this damage.
(Signed) Charles F. ADAMS.
Commonwealth of Massachuseits,
Middlesex County.
Subscrihed and sworn to before me this 17thday of April 1987.
(Signed) Stuart S. HELLER,
Notary Public. ELETTRONICA SICULA
Annex10
MANUFACTUR ANDGSALESGREEMEB NTTWEERAYTHEO MNANUFACTURING
[Norreproduced] ANNEXES TO THE MEMORIAL
Annex 11
LETTEROF PARTICIPATI RNOM RAYTHEOM NANUFACTURIC NGMPAN YO
ELETTRONIC SICULAS ,.P.A., DATED21 OCTOBER 1955,RE~ISED 15MARCH
1956
Letter No. 5835. 21 October 1955
(Revised 15 March 1956).
Dear Sirs:
The purpose of this letter to set forth in a preliminary fashion the terms
upon which we are agreeable to participating in additional capitalization of your
Company(hereinafter called "ELSI"), and transferring to you the Manufacturing
and Sales Agreement of 18 July, 1952 between ourselves and the ltalian com-
pany, Fabbrica ltaliana Raddrizzatori Apparecchi Radiologici (hereinaftercalled
"FIRAR"). This letter may be referred to as the "Main Agreement".
A. You have reoresented to us. throu~h Mr. Jose~h Casabianca. that the
following are true'and correct statementi, and we have relied upon them in
deciding to participate in your additional capital requirements and to transfer
said Agreement:
I. Mr. Casabianca is the President of ELSI and fully authorized to represent
il; ELSl is duly organized and existing as a corporation under the laws of Sicily
and of the Republic of Italy, and Io the best of your knowledge and belief kas
complied with al1applicable laws iii the conduct of ils business.
2. The financial data showing projected businessoperations, copies of which,
initialed by your President, are annexed hereto as Exhibit IA, and the profit and
IOSSstatements and balance sheetsto be furnished nursuant to Section B-2hereto
as Exhibit IB, fairly represent the financialcondition and operations of ELSl for
the dates and periods of lime as shown thereon, and are accurate, correct, and
complete in al1material respects.
3.None of ELSl's assets areas ofthis date, subject to any mortgage, pledge,
lien or encumbrance which adversely affects or impairs ils operations, nor are
any reflected inthe financial statements annexed hereto as Exhibits 1Aand IB.
4. There is no1 pending against ELSI, nor to the knowledge of ils officers is
there threatened, any litigation or any proceeding, the outcome of which in the
opinion of such officersmight adversely affectilscontinued operations;and ELSl
is not obligated under any commitments, contracts or obligations which willhave
a materially adverseeflect upon its operations.
5. The present paid-up capitalization of ELSI consists of Lire I million,
represented by 1,000shares of Common Stock eachhaving a value of 1,000lire;
and ELSl deliberated to increase ils total capitalization to lire 750 million, being
authorized to make such increasing capitalization by theAssessorato alle Finanze
of the Government of Sicily, withthe advantage of reduced taxation as per decree
hereto annexed as Exhibit No. 2 (Reduced registration fees).
6. The Government of Sicilyis willing to subscribe and pay for shares of the
Common Stock of ELSl which will reDresent 33! ner cent of the nresentlv
authorized total capitalization ofELS1, Govided that ;ie and the ~oroÉrother>
act similarly so as to account for the remaining 661 per cent prior to the ANNEXES TO THE M~MORIAL 127
3. ELSl will acquire hy purchiise from FlRAR al1 ils machinery, licenses,
know-how and patent rights pertaining to the manufacture of magnetron, kly-
stron, X-ray and certain other tubes. A copy of each contract or agreement for
such purchase will he annexed hereto, initialed hy your President, as Exhibit 7
(or as Exhibit 7A, 7B, etc., if theris more than one).
4.Sharesof stock of ELSl will, upon their issuanceto the Moro Brothers, the
Sicilian Government. and ourselves. he lawfullv issued. non-assessable.and fullv
pdid The stock iijucd rhdll beiuhject only to the regi.tratic,n reeslixed in rcducei
amount 3,pcr decreeof ihe Ascrqs~rato dllc 17inanzeof thc Go\crnment of Sicil)
hereto annexed as Exhihit 2
C. The following are conditions precedent to Our participation in ELSl's
additional capitalization and to Our transfer of the Manufacturing and Sales
Agreement dated 18July 1952:
1. You shall have furnished us, at your expense,an Opinion of Counsel, which
shall bedirected to ushy counselwho hasken previously selectedhy or approved
by us, wherein the legai sufficiency of the documents, corPorate proceedings and
other transactions taken by the parties mentioned herein to accomplish the
purposes of this Agreement and the agreement annexed hereto as exhihits, to
carry out the intent hereof, and to consummate the actions specified in the
Sections desienated A and B or in said exhibits. hased uoon an examination of
al1 material dOcuments and applicable laws periinent thereto, shall be reviewed
and counsel shall give his opinion that no further legal or corporate proceedings
and no further or different documents, instruments,or authorizationi are neces-
sary to eîiectuate and make legally binding upon the parties hereto al1 said
purposes, intents and actions; in the event that it is counsel's opinion that any
suchfurther proceedings or further or different documents, instruments, or autho-
rizations are necessarv. we shall in no wav he ohlieated hereunder until such
, . -
further proceedings or further or different documents, instruments, or authoriza-
tions have been taken, executed andlot delivered, or furnished, 10the reasonable
satisfaction of ourselves and of Our counsel; provided, that said Opinion shall
not he required with respect to the material contained in Exhibits IA and IB
hereto. A signed copy of said Opinion shall be furnished to us hy you, to be
annexed hereto, prior to Our comniitment hereunder, as Exhibit 8.
2. You shall similarly have furnished uswith a certificate of independent public
accountants, which shall he addressed to us hy accountants who have heen
previously selected hy or approved by us and are acceptable to you, that the
financial statements described in Sections A-2 and 8-2 ahove fairl, .resent the
fin3nci31 po,ition or ELSl in cotiformity wilh gener~lly acccptcd ac~.ounting
principles. A signed copy of s~id ccriificaic shall be furnishediiiur hy ?ou. 10
hc nnexed hçrrio. nrtor tu uur commitmeiit hereunder. ;is Exhibit 9.
3. Our in your additional capitalization is contingent upon Our
obtaining a waiver of Our obligations under the Loan Agreement dated I May
1951. by and between ourselves, the First National Bank of Boston, and certain
other hanks. A signed copy of said waiver shall be furnished to you by us, to he
annexed hereto, prior LoOur comniitment hereunder, as Exhihit 10.
4. The Manufacturing and Sales Agreement dated 18 July 1952, shall have
ken amended hy the execution of the document annexed hereto as Exhibit II,
a signed copy of which amendment shall be annexed hereto, prior to Ourcommit-
ment hereunder.
5. FlRAR and ELSl shall have executed, with us, a Novation Agreement
whereby the Manufacturing and Sales Agreement dated 18 Iuly 1952 between
FlRAR and us, as amended by Exhibit II hereto, shall be transferred to ELSI,128 ELETTRONICA SICULA
the eflectiveness of said Novation Agreement to be contingent, however, upon
OUF subscnpiion to your additional capitalization and other conditions stated in
said Novation Agreement. Fully executed copies of said Novation Agreement
shall be annexed hereto as Exhibil 12, prior to Ourcommitment hereunder.
6.The Moro Brothers have subscribed to and, simultaneously with our payment
as specifiedhereinafier, made payment in full for shares of stock of ELSl which
shares to he owned by the Moro Brothers will represcnt 55f per cent of the
presently authorized capitalization of ELSI.
7. The Icttcrs from the Government of Sicily referred lo in Sections A-6 and
A-7 shall have been received hy us and have been annexcd hereto, and shall to
Our reasonable satisfaction duly and efectively express the promises of said
Government as they have been represented by you herein.
8. All of the exhibits soecifiedherein shall have been receivedhv us and found
IO our reïronahle satirf~~iionto express ihc purposcs fur which ihiy are iniluded
herein. provided. ihat ai Oursole opiion your obligation hercundcr mabcwaived
in writing as to exhihits specifiedby us in such writien waiver
Upon Ourbeing assured, as descnhed in the foregoing paragraphs of this letter,
as to the correctness of the information and data which vou have furnished us.
2nd upon the satisfaction OCihc condiiionr prccedent ipciilicd in Section C
sbo\c. uc agrce lu, to subscr~befor shÿrcs of thc Common Stock of FI.SI u,hich
will amount to 14 ver cent of ils presentlv authorized capitalization and make
payment therefor, &ch payment lobe made by us within <en(10) days following
the satisfaction of al1 the conditions precedent specified in Section C hereof,
provided, that if such payment does no1 become due bcfore 30 June 1956, we
shall be released. without oenaltv. from al1commitments undcr this Agreement
iir sny ui'thr erhibits herei;,. ~inifh, ~imultaneousl) with such p3ymcnCiu mahe
cîTciii\c the No\liiion Agrccnient (Exhihii 12 hcreioj ,ihcrehy ihere will hs
tr~nsfcrrcd 10 you the sud M~nuC~ciurinra'd SIile<r\are-meni &ilcd 18 July
1952,as amended by Exhibit II hereto.
Please sign and reiurn to us the enclosed duplicate copy of this letter 10signify
your accepiance of the foregoing, your signature to consist of that of your
President, and that of each member of your present Board of Direciors.
Very truly yours,
RAYTHEON MANUFACTURING COMPANY.
(Si~ned) Ray C. ELLIS,
Vice President.
ACCEPTEa nnd AGRI~EV lo as of the EXECUTEV as of the 26th day of
2lst day of October, 1955: February, 1956:
L'EL~RONICA SICULAS,.P.A. L'ELETTRONICA SICULAS,.P.A.
(Signed) Joseph CASABIANCA (Signed) Tomaso Mono,
Presideni. President.
(Signed) Avv. Calogero CARONNA, (Signed) Dr. Joseph CASABIANCA,
Director. Amministratore Delegato.
(Signed) Ing. Aldo PRoFuMo,
Amministratore Delegato. ANNEXES TO THE MEMORIAL
Annex12
SELECTE UNITESTA~EDSOLLAR-ITALLIINECONVERSIROANTESROMTHE
WALL STREEJOURNA(LFORDATE S9MARCH 1968, 19APRIL1968,29 APRIL
196830JUNE1971)AND THEWASHINGTONPOST(FORATES1APRIL1968,11
JULY1969,24 JANUARY974)
[hr reproduced] ELETTRONICA SICULA
Annex 13
AFFIDAVIT OF ARTHUR SCHENE CONCERNING RAYTHEON COMPANY'S INVESTMENT IN
RAYTHEON ELSI
1,Arthur Schene, personallyappeared before a Notary Public in the Common-
wealth of Massachusetts and, upon heing duly sworn, stated that:
1. 1am a retired executiveof Raytheon Company who continues to work for
the comn.nv ,s a oart-time manaeement consultant. 1 was~h~ ~ in New Yor~~~~.
Kc!i York. on ?? 1916. 1recci;ecla degree in accoLiitingfrom ihr (.ollrgr. ~,i
the City oiNrw York in 1946 During ihe period irom 1916through 19501uds
cmolo~cd ti,an auditor hv the nuhlii acsiiuniine firm of Scovcll.Wr.llineiondnd
comGny (who have sin& me&d with Coope;s and ~~brand): 1qual;fied as a
CertifiedPublic Accountant in the State of NewYork whileworking for that firm.
2. During the period from 1950 to 1958, 1 was Treasurer and Controller of
Airtron, Inc., a small but very successful electronic components company in
Linden, New Jersey. The company was acquired by Litton Industries, within a
year after 1resigned to join Raytheon Company in Waltham, Massachusetts.
3. 1 started working for Raytheon Company, an electronics manufacturer, in
1958as Controller of their Bedford Laboratory. 1was subsequently promoted to
Controller of the Missile Systems Division(the larges1division), then to Assistant
Corporate Controller and later Corporate Controller. 1 was elected a Vice-
President of the company in 1962 and continued to serve as Vice-President-
Controller until my retirement in 1981.Sincethen, 1have worked for thecompany
on a continuous but part-lime hasis as a consultant.
4. Dunng my tenure as Vice-President-Controller, 1made many trips to Europe
to review the growing electronics operations in that area. From 1963to 1967,1
went to Europe about four times per year and visited the Raytheon-ELSI
("ELSI") operation on almost every tnp.
5. Virtually al1of my business experiencesince 1950 has been as a financial
executive of first a small and then a large company in the electronics industry.
6. The following is a statement covering my knowledge of the circumstances
relating to ELSI.
7. Between 1956and 1967,Raytheon Company and its wholly owned subsid-
iary, Machlett Laboratories, Inc., invested $11,899,300in ELSI timed as follows:
Period Amount Per Cent Owned
After Investment
Mav 1956to
~ovember 1961 $673,400 Less than 50%
May 1963 3,535,300 60%
December 1964 3,202,400 80%
June 1967 4,488,200 100%
$11,899,300
The investnicnt during the rarly ycdr, (through 1962)was modzsi and Ra)ihei~n
ouncd lei3than 50per cent of the compdti). From IYh3through 1967.K:i)thcon ANNEXES TO THE MEMORIAL 131
and Machlett Lahoratories invested over $1I million and acauired control and
an in;rcasing shxc of the rump;riiy until the) <iiined IO0pcrrenin 1967.This
uas duc IO ihe inlihilii) of othcr stoskholIOmdke ihcir sharc of the necehsliry
caoital contributions.
8. During thal period, significant funds were expended to upgrade the plant
and to provide the equipment needed for the manufacture of sophisticated
electronic equipment. The amounts invested in property, plant and equipment
during the years 1963-1967 areshown below:
YearEnded Millions of Lire Dollars
9130163 879.6 1,407,400
2,065,600
2,038,600
571,400
597,600
9. ELSl management also devoted a substantial amount of money, time and
energy to the training of persoiinel recruited from the Palermo area in the
manufacture and testing of the electronic devices. From 1964to 1967,the com-
pany employment averaged in excessof 1,000persons of which over 800 were in
manufacturing and manufacturing services.
10.A sizeable amount of money was expended to make a major reduction in
accounts payable which had grown to over 5.8 billion lire ($9 million) at 9130162
with large overdue balances. During the year ended 9130163,the payables were
reduced by approximalely 3 billion lire ($4,800,000).
II. Since the funds invested by Raytheon were no1 sufficient to cover these
expenditures, ELSl required a significantincreaseinbank loans, the major portion
of which wereeuaranteed bv Ravtheon Comoanv.
12. The invezment in manage&ent, facililks and training resulted in a major
increase in sales during the years through 9130166as indicated below:
YearEnded Millions oj Lire Dollars
9130162 2600.0 4,160,000
9130163 4061.O 6,497,600
9130164 8072.1 12,915,400
9130165 8430.7 13,489,100
9130166 8648.4 13,837,400
9130167 7263.2 11,621,100
Sales grew significantly in the year ended 9130163,almost doubled in the year
ended 9130164,and then continued to increase at a modest rate dunng the next
two years. The Company also showed an improving trend in operating profit
through 9130165as shown below:
Yeor Ended Millions of Lire Dollars
9130163 - 377,800
9/30/64 795,700
9130165 1,266,400
9130166 15,800
9130167 -2,753,800 ANNEXES TO THE MEMORIAL 133
should have been realized on this material (after excluding the so-called "taxed
reserve" item whichhad no value). More than 4 billion lire($6.400.Oûû)had been
spent during the years 1963-1967jn acquiring new capital eiuiiment and upgrad-
ing the existing facilities.The plant and equipment was relativelynew or in sound
condition and~thecos1to replace it would have exceeded book value.
18. If Raytheon had handled the liquidation il would have guarantced the
settlements outlined above with banks and other creditors. Furthemore, the
liauidation would have been comnleted in a much shorter oeriod of time which
wbuld have significantlyreduced ihe liquidation expenses. '
19.The financial data reflected in the claim kas been reviewedand confirmed
by me as being hased on the following sources:
(a) Audit reports prepared by Coopers and Lybrand, an international audit
firm, for the years ended 9/30/62 through 9/30/67.
(b) Records and analyses prepared by Raytheon Company financial, legal,
and operating departments in the normal course of business during the years
1963through 1968.
(c) The balance sheet at 3/31/68 was prepared on a basis consistent with the
valuations in the Coopersand Lybrand audit report of9/30/67 usingactual ELSl
accounting records through 12/31/67and a conservative extrapolation 103/31/68.
This extra~olation was ore~ared shortlv after 3/31/68 and has no! been altered.
(d) Al1~omputation~of'actual and potential liquidation results and damages
have been prepared from the above data without modification.
20. The following is a lis1of schedules attached 10 this affidavit and a brief
exolanation of their content:
21. Schedule A - provides a history of the capital investment made by
consolidated Raytheon Company in ELSI. It indicates when advances weremade
and when those advances weÏe converted 10investment. Of the amounts invested
in 1967, $54,100 was paid by Machlett Laboratories, Inc., a wholly owned
subsidiary of Raytheon Company. The remainder of the total investment was
oaid bv Ravtheon Comoanv.
22..?cherjulesI, B2 Und 83 - represent the financialstatements per the books
for various periods from 9/30/62 ro 3/31/68. All of the data except the 3131168
were taken from annual audit reports prepared by Coopers and ~ybrand,an
international auditing firm. The data at 3/31/68 was prepared from operating
reports through 12/31/67and an extrapolation of those results to 3/31/68 from
available records and documents on a basis consistent with the annual audit
reports.
23. Schedules CI. C2, C3 and C1 - reflect various valuations of the assets at
3/31/68. Book value is based on the amounts shown on Schedule BI. The
minimum liquidation values reflectconservative estimates prepared by members
of management who were tboroughly familiar with the quality and marketability
of the assets.
24. Schedule D - provides an analysis of the various liabilitiesat 3/31/68 and
indicates their priority in liquidation.
25. Schedule E - shows the estimated distribution of proceeds from the
disposal of the assets al book value.
26. Schrd~~le F - shows the estimated distribution of proceeds from the
disposal of the assets at estimated minimum liquidation values.
27. Schedules CI. C2, G3 und G4 - show the computation of damages to
Raytheon Company based on disposal of the assets of ELSI at book valu;. The
interest rates are the weighted average prime rates for each year.134 ELETTRONICA SICULA
28. SchedulesHI. H2. H3 and H4 - show the cornoutalion of damaees to
Raytheon Company hd,rJ on disposal of the asset> 01.~LSI ai cstiniatcdmini.
mum Iiquidîiion \iiluci The interest rate$ 3re the \ieightcJ ai,crigr prime rate
for each year.
29. Schedule II - shows the actual amounts paid by Raytheon Company to
settle the guaranteed bank loans and the accrued interest thereon.
30. Schedule 12- shows the estimated payment that would have been required
from Ravthcon Comoanv.if ,he assets of ELSl had vielded onlv the estimated
minimum Iiquid:ition \iiluc\. If thc as~!ts had )iclded'hook val&. the prcicccds
u<>uldhave been iufiicicni io pi! 311 Iidbilitics in full ;ind no p~)mcnt tvould
have been required by Raytheon on the bank loans.
31. Sckdule J - shows a comparison of the actual writeoîl' of accounts
receivable by Raytheon Company and ils wholly owned suhsidiary, Raytheon
ServiceCompany, with the amount that would have been written of if the assets
of ELSl had heen disposed of for the estimated minimum liquidation values. If
the assets had been disposed of at book valueal1liabilities,including the payables
to Raytheon Company, would have been paid in full.
32. Schedule K - provides an analysis of the legal expenses incurred by
Raytheon Company in connection with the ELSl matter.
(Signed) Arthur SCHENB.
Commonwealth of Massachusetts Aoril 17. 1987.
Then personally appeared before me the above named Arthur Schene, who
acknowledged the foregoingto be his Creeact and deed, before me
(Signed) C. Henry RFSNICK,
Notary Public.
ScheduleA
RAYTHEON ELSI NVESTMENTBY RAYTHBONCOMPANY AND MACHLFn
LABORATORIIE NSC,.
(Dollarsri1Tlmusanrls)
Invesrnienr Adi,oncer Tora1 ANNEXES TO THE MEMORIAL 135
(coniinued/rom prcvk~uspuge)
Invesimeni Advonc~s Toial
Doit Amouni Tord Amounr Toiol Amouni Tord
Note: The investment in 1967includes $54.1 which was invested by Machleti Lcborato-
ries, Inc.. a whollyowned subsidiary of Raytheon Company.
Schedule81
RAYTHEONELSI,BALANCESHEETS PERIlOOKS
(Lire in Millions)
Cash
Accounis
Receivable
inventories
Prepaid Expenses
Total Current
Assets
Invesiments
Fixed Arsets
ai Cost
Reservefor
Depreciation
Deferred
Charges
Total Assets
Accounis
Payable
Accrued Liabilities
Reserve for
Severance Pay
Tared Reserve
Total Operaiing
Liabilities136 ELETTRONICA SICULA
Bank Overdraft
Long-Term Loans
Total Debt
Capital Stock
Capital Subscriptian
Accumulated Losses
Total Equity
Total Liabilities
and Equity
Schedule B2
RAYTHEONELSI,CASH FLOWPERBOOKS
(Lire in Millions)
Periodended Total
10/1/62
9130163 5130164 5/30/65 9130166 5130167 3/31/68 io3/31/68
Cash Beginning 13.1 167.6 183.8 80.3 18.6 28.1 13.1
Net lncome -901.7 -330.7 -47.5 -855.8 -2681.3 -1068.7 -5885.7
Surplus Adjustments 0.0- 1025.4 -28.8 -790.3 -492.9 0.0 -2337.4
Depreciation 64.6 358.4 499.5 559.7 567.1 234.6 2283.9
(Increase) Decrease
in Accounts
Receivable -201.9 -661.7 -304.1 -296.8 546.0 540.0 -378.5
(Increase) Decrease
in Inventories -934.5 648.6 91.1 -569.5 372.3 162.5 -229.5
Increase in
Inventories from
Taxed Reserve
(Increase)Decrease
in Prepaid
Expenses
(Increase) Decrease
in lnvestments
Decrease in
lnvestments from
Taxed Reserve 00 00 0.0 0.0 100.4 0.0 100.4
lnvestments in
Fixed Assets -879.6-1291.0 -1274.1 -357.1 -373.5 -44.9 -4220.2
lncrease in
Fixed Assels
from Taxed
Reserve 00 0.0 0.0 0.0 -463.6 0.0 -463.6
(Increase)ecrease
in Deferred
Charges - 1225.9 121.6 360.9 - 102.6 611.2 0.0 -234.8
fcontinued onnext page) ANNEXES TO THE MEMORlAL 137
(eonrinue/rom previouspage)
Periodended Torol
10/1/62
9130163 9/30/64 9/30/65 9130166 9130167 3/31/68 103/31/68
Increase(Decrease)
inAccounts
Payable -3018.1 2096.5 -2893.1 718.6 - 1660.3 - 172.9 -4929.3
lncrease in
Accounts Payable
from Taxed
Reserve 0.0 0.0 0.0 0.0 515.9 0.0 515.9
lncrease (Decrease)
inAccrued
Liabilities 240.3 31.5 -76.6 208.7 102.3 446.2 952.4
lncrease (DeFrelse)
in Reserve
forSeverance
Pay 81.5 107.1 76.2 80.4 1w.5 46.0 495.7
lncrease(Decrease)
in Taxed
Reserve O O O O 862.4 -0.1 862.3
Toial Operaiing
Cash Flow -6791.0 -250.0 -3622.7 -877.9 -2914.6 146.5 - 14309.7
Capital lnvestment 2300.0 2000.0 0.0 0.0 2500.0 0.0 6800.0
lncrease(DeFrease)
in Bank
Overdraft 3553.7 -2464.0 2827.6 - 168.6 863.5 -279.4 4332.8
lncrease(Decreÿse)
in Long Term
Debt 1091.8 730.2 691.6 984.8 -439.4 126.1 3185.1
Total Financing
Cash Flow 6945.5 266.2 3519.2 816.2 2924.1 - 153.3 14317.9
Cash-End 167.6 183.8 80.3 18.6 28.1 21.3 21.3
Schedule83
RAYTHEONELSI,INCOMESTATEMENTPERBOOKS
(Lire in Millions)
Sales 4061.0 8072.1 8430.7 8648.4
7263.2 NIA
Operating Expensei 4297.1 7574.8 7639.2 8638.5 8984.3 NIA
Operating Profit (Loss) -236.1 497.3 791.5 9.9 - 1721.1 NIA
Interest Expense 665.6 828.0 839.0 865.7
9a.2 NIA
Net Profit (Lors) -901.7 -330.7 -47.5 -855.8 -2681.3 -1068.7 ScheduleCl
RAYTHEONELSI, ESTIMATED YS.ACTUAL REALIZATION fROM TOTAL ASSETS
ON HAND AT 3/31/68
(Lire in Millions)
Book Minimum Curoror Amounr
Value Liquidarion Esrimore Ren1i:ed
Volue
Cash 21.3 21.3 21.3
Accounts Receivable 2879.2 2853.8 2500.0
Inventories 6602.7 3500.0 3500.0
Prepaid Expenses 13.7 13.7 0.0
Total Current Assets 9516.9 6388.8 6021.3 3120.9
lnvestments in Subsidiaries 119.2 0.0 0.0
Fixed Assets 5764.4 4350.0 4560.6
Studies in Process 303.0 100.0 00
Patents andStudies 853.0 0.0 800.0
Other Deferred Costs 497.0 0.0 0.0
Total Non-Current Assets 7536.6 4450.0 5360.6 3252.9
Total Assets 17053.5 10838.8 11381.9 6373.8
Schedule CZ
RAYTHEONELSI, ESTIMATEOF REALlZATlON FROM ACCOUNTSRECEIVABLEAT 3/31/68
(Lirein Millions)
Book Minimum Curalor
Vobe Liquidarion Esrimore
Volue
Notes
Trade Accounts
AffiliatedCornnanies
- Accrued
Reimbursernent of IGE Tax onEXDO~~SB -illed
Reimbursement of SETEL Expenses
Advances to Employees
De~ositswiih Customs
idDeposits
Prepaid EmployeeTaxer
Oiher
Rcserve ANNEXES TO THE MEMORIAL 139
ScheduleC3, Page 1
RAYTHEONELSI,ESTIMATE OFREAI.IZATIONFROMINVENTORIESAT 3/31/68
(Lire inMillions)
Book ~Uinimwn Curoror
Volue Liquidation Olimote
Value
Raw Material and Parts
Cathode Ray Tubes 566.3 430.0
Magnetron Tubes 310.1 300.0
X-ray Tubes 79.2 44.0
Semiconductors 222.6 105.0
Surge Arresters 46.0 25.0
Complex Components 2.7 2.7
Other 144.1 76.1
Total- Raw Materials and Parts 1371.0 982.8
Semifurnished Goods
Cathode Ray Tubes 824.4 375.0
Magneiron Tubes 248.1 141.0
X-ray Tubes 159.1 59.0
Semiconductorr 151.7 68.0
Surge Arresters 24.1 17.0
Complex Components 0.0 0.0
Other 0.0 0.0
Total - SemifinishcdGoods 1407.4 660.0
ScheduleC3, Page2
RAYTHEONELSI,ESTIMATE OF REALIZATION FROMINVENTORICS AT 3/31/68
(Lire in Millions)
Book Mininlum Curoror
Valu< Liquidotion OIimote
Volue
-
Work in Process
Cathode Rav Tubes
Magnetron tubes
X-ray Tubes
Semiconduciors
SurgeArresters
Comolex Comoonents
0the;
Total - Work in Process
Finirhed Goods
Cathode Ray Tubes
Magnetron Tubes
X-ray Tubes
(ronriiiuedonneri page)140 ELETTROPIICA SICULA
feoniinuedhomorcvious oozel
Book Minimum Curnror
Volue Liquidation Esrimoie
Value
954.8 467.0
Semiconductors
SurgeArrcsters 54.1 31.0
ComplexComponents 1.O 1.O
Other 0.0 0.0
Total- FinishedGoods 1849.6 1147.0
Maintenanceand RepairParts 131.0 125.7
TaxedReserve 1015.0 0.0
68.1 . 0.0
MilitaryStartup
Dilierence -61.7 - 39.9
6602.7 3500.0 35W.O
Schedule C4
RAYTHEONELSI,ESTIMATEOFREALIZATION FROMFIXEDASSETSAT 3/31/68
(Lire in Millions)
Book Minimum Pro/essor
Volue Liquihlion M. Puglisi'
Value
Landand Buildings
Machiner"andEquioment
~urniture:~ixtureiandAutos 210.5 150.0 61.1
ConstructioninProcess 184.1 150.0 0.0
Taxed Reserve 463.6 0.0 0.0
ReserveforDepreciation - 1506.0 0.0 0.0
5764.4 4350.0 4560.6
' Courtappointedconsultant. Schedule D
RAYTHEON ELSI,PRlORlTYOF LlABlLlTlES IN LIQUII>ATION
(Lire in Millions)
Generol Credirors
Accaunis Pavable - Ravtheon Comoa.v . 1098.3 1098.3 5
Other 283.0
Accrued Liabilitie- Employee Insurance 223.0 223.0
lmposts 64.5 64.5
T~ ~s 9.4 9.4
Payroll
Fringe Benefils
Sales Commission
Sales Incentives
Interest - IRFIS (10 12/31/67)
Banco di Sicilia (10 12/31/67)
Other
Translater AC
Owens Illinois Patent Rights
Directors Fees
Quantity Discounts
Promotional Expenses
EMASARCO
Other142 ELETTRONICA SICULA
z 3
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L Schedule E
RAYTHEONELSI, ESTIMATEDDISTRIBUTIONOF PROCEEDSREALIZEDFROMDISPOSALOF ASSETSBASED ON BOOK VALUE
(Lire in Millionsl
DlsrrihuiioofProceeds
Liabili- Cosrs Under Elimin- Tol~l Prioriiy 100% of 100% of 100% io Torol Rc.yult.
lies per Ajier occrued arion Adjusied and Oiher Unguar- Orhers Disrri- in^
3/31/68 3/31/68 ai ofNe1 Claims Seeured Credi- anrecd burion Proeecdr
Bolance 3/31/68 Worrh Cloims torr Bonk IO
Sheei bonr Rnyrheon >
Z
PrioritClaims 2
Preferred Creditars 1036.8 1036.8 1036.8 1036.8 X
L?
Costs aller 3/31/68 270.0 270.0 270.0 270.0
AdministrationExpense 100.0 100.0 100.0 100.0 8
Total Priority Claims 1036.8 370.0 1406.8 1406.8 1406.8 i
m
Secured Claims
IRFIS 2383.5 2383.5 2383.5 2383.5 O
Banco di Sicilia 1436.0 1436.0 1436.0 1436.0 !?
Total SecuredClaims 3819.5 3819.5 3819.5 3819.5 >
r
Unsecured Claims
Banks - Guaranteed by
Raytheon 5162.7 5162.7 5162.7 5162.7
lntereson Guaranleed
Loans 243.0 305.8 548.8 548.8 548.8
Banks - Not Guaranleed 4060.3 4060.3 4060.3 4060.3ELETTRONICA SICULA Schedule F
RAYTHEONELSI, ESTIMATEDDISTRIBUTIONOF PROCEEDSREALIZEOFROMDISPOSALOF ASSETSBASED ON ESTIMATE
MINIMUM LIQUIDATION VALUE
(Lire in Millions)
DirrribuiionofProceeds
Liribili- Cosis Under- Elimin- Torol Prioriy 100% of 50% of 42.89% Tord Resuli-
ric.~Per Afirr oeenred arion Adjus- md Orher Unguar- ro Di~rri- in8
3/31/68 3/31/68 or of Net red Sroired Credi- onreed Orhers burion Corr ro
Bolance 3/31/68 Worrh Cloims C1nlm.r lors Bonk Ruyrheon
Shrei Luuns
PriorityClaims
PreferredCreditors
Costsafter3/31/68
AdministrationExpense
TotalPriority Claims
SecuredClaims
IRFIS
Bancodi Sicilia
TotalSecuredClaims
Unre~uredClaims
Banks - Guaranteed
by Raytheon
lntereston Guaranteed
Loans
Banks - Not Guaranteed
OtherCreditors
Raytheonand Raytheon
Sem.Co.
Total Unsecured Claims
StackholderEquity
Total Liabilities
hoceeds Available146 ELETTRONICA SICULA
Schedule G1
RAYTHEONELSI,COMPUTATION OD FAMACESTORAYTHEONBASEDON BOOKVALUE
($ in000's)
Acrunl Anrieipared Domages
Los LOSS
lnvestment 11899.3 11273.7 625.6
Guarant~d Loans 8282.8 0.0 8282.8
Interesi on Guaranteed Loans 1000.8 0.0 1000.8
ReceivablesDue Rayiheon Company 1830.0 0.0 1830.0
Legal Expenses 939.8 0.0 939.8
Total Excluding lnterest 23952.7 11273.7 12679.0
Interest 53395.3
Total 66074.3
Schedule GZ
RAYTHEONELSI,COMPUTATION OD FAMACESTO RAYTHEONBASEDON BOOK VALUE
(8 inO00 5)
Ypnr Aeiuol Anlicipoied Diference Beginning Rale Amounr Ending
Loss Loss , Loss Bolnnee Bolonce
1956 $131.2 131.2 0.0 0.0 0.0 0.0
1959 397.3 397.3 0.0 0.0 0.0 0.0
1961 542.4 542.4 0.0 0.0 0.0 0.0
1962 3137.8 3137.8 0.0 0.0 0.0 0.0
1964 3202.4 3202.4 0.0 0.0 0.0 0.0
1967 4488.2 4488.2 0.0 0.0 0.0 0.0
1968 10749.2 -625.6 11374.8 0.0 0.0 11374.8
1969 63.7 63.7 11374.8 7.96% 905.4 12343.9
1970 433.0 433.0 12343.9 7.69% 949.2 13726.1
1971 47.4 47.4 13726.1 5.75% 786.5 14560.0
1972 34.9 34.9 14560.0 5.28% 768.8 15363.7
1973 O 0.0 15363.7 8.07% 1239.9 16603.6
1974 O 0.0 16603.6 1080% 1793.2 18396.8
1975 2.4 2.4 18396.8 7.88% 1449.7 19848.9
1976 67.9 67.9 19848.9 6.84% 1357.7 21274.5
1977 10.5 10.5 21274.5 6.73% 1431.8 22716.8
1978 159.1 159.1 22716.8 9.06% 2058.1 24934.0
1979 23.7 23.7 24934.0 12.67% 3159.1 28116.8
1980 145.0 145.0 28116.8 15.16% 4262.5 32524.3
1981 87.1 87.1 32524.3 18.85% 6130.8 38742.2
1982 52.2 52.2 38742.2 14.84% 5749.3 44543.7
1983 111.8 111.8 44543.7 10.79% 4806.3 49461.8
1984 27.3 27.3 49461.8 12.05% 5960.1 55449.2
1985 38.2 38.2 55449.2 9.93% 5506.1 60993.5
1986 0.0 60993.5 8.33% 5080.8 66074.3
Total $23952.7 11273.7 12679.0 53395.3 66074.3 ANNEXES TO THE MEMORIAL 147
ScheduleG3
RAYTHEONELSI,ACTUALLOSSSUSTAINEDBYRAYTHEONCOMPANY
($ inO00 .S)
Gwronieed Loons
Yeor lnveslmenr Prlnclpol Inlrresl Accounls iqal Torol
Receivoble Expense.7
1980 145.0 145.0
1981 87.1 87.1
1982 52.2 52.2
1983 111.8 111.8
1984 27.3 27.3
1985 38.2 38.2
Total $11899.3 8282.8 ICQO.8 1830.0 939.8 23952.7
Schedule G4
RAYTHEONELSI,ANTICIPATEDLOSSBYRAYTHEONCOMPANYBASEDON BOOKVALUE
($ in000 's)
- - - -
GurirnnterdLoans
Yeor h,,e~trnenr Pr~ncpol hreresi Accounis iegal Total
Recervoble Expenses
3202.4
. ..UV.-
1968 -625.6 0.0 0.0 0.0 0.0 - 625.6
Total $11273.7 0.0 0.0 0.0 0.0 11273.7
Note. 391millionlireshown on ScheduleDD convertsto 3625,600shown above in1968.148 ELETTRONICA SICULA
Schedule Hl
RAYTHEONELSI,COMPUTATION OD FAMAGESTORAYTHEONBASEDON ESTIMATED MINI-
MUMLIQUIDATION VALUES
Acruol Anrieipared Domages
LOS,? L0rrS
lnveslment 11899.3 11899.3 0.0
Guaranteed Loans 8282.8 4583.0 3699.8
lnterest on GuarantecdLoans 1000.8 486.9 513.9
ReceivablesDue Raytheon Company 1830.0 1012.7 817.3
Legal Expense 939.8 0.0 939.8
Total Excluding lntncst 23952.7 17981.9 5970.8
Interest 23591.3
Total 29562.1
Schedule HZ
RAYTHEOKELSI,COMPUTATION OFDAMAGESTO RAYTHEONRASEDON FSTIMATEDMINI-
hlUMLIQUIDATION VALUES
($in 000 S)
/nrerrsr
Yeor Aciuol Anricipored Dlferenee Beginning Rue Antuun! Ending
Loss Losr Bolonce Bolonce
1956 131.2 131.2 0.0 0.0 0.0 0.0
1959 397.3 397.3 0.0 0.0 0.0 0.0
1961 542.4 542.4 0.0 0.0 0.0 0.0
1962 3137.8 3137.8 0.0 0.0 0.0 0.0
1964 3202.4 3202.4 0.0 0.0 0.0 0.0
1967 4488.2 4488.2 0.0 0.0 0.0 0.0
1968 10749.2 6û82.6 4666.6 0.0 0.0 4666.6
1969 63.7 63.7 4666.6 7.96% 371.5 5101.8
1970 433.0 433.0 5101.8 7.69% 392.3 5927.1
1971 47.4 47.4 5927.1 5.73% 339.6 6314.1
1972 34.9 34.9 6314.1 5.28% 333.4 6682.4
1973 O 0.0 6682.4 8.07% 539.3 7221.7
1974 O 0.0 7221.7 10.80% 779.9 8001.6
1975 2.4 2.4 8001.6 7.88% 630.5 8634.5
1976 67.9 67.9 8634.5 6.84% 590.6 9293.0
1977 10.5 10.5 9293.0 6.73% 625.4 9928.9
1978 159.1 159.1 9928.9 9.06% 899.6 10987.6
1979 23.7 23.7 10987.6 12.67% 1392.1 12403.4
1980 145.0 145.0 12403.4 15.16% 1880.4 14428.8
1981 87.1 87.1 14428.8 18.85% 2719.8 17235.7
1982 52.2 52.2 17235.7 14.84% 2557.8 19845.7
1983 111.8 111.8 19845.7 10.79% 2141.4 22098.9
1984 27.3 27.3 22098.9 12.05% 2662.9 24789.1
1985 38.2 38.2 24789.1 9.93% 2461.6 27288.9
1986 0.0 27288.9 8.33% 2273.2 29562.1
Total 23952.7 17981.9 5970.8 23591.3 29562.1 ANNEXES TO THE MEMORIAL 149
Schedule H3
RAYTHEONELSI,ACTUALLOSSSUSTAINEDBY RAYTHEONCOMPANY
($ in000 S)
GuaronrecdLoonr
Yeor lnvesrmenl Princip01 lnrpresr Accounls Legol Tord
Receivobk Espcnres
1956 131.2 131.2
1959 397.3 397.3
1961 542.4 542.4
1962 3137.8 3137.8
1964 3202.4 3202.4
1961 4488.2 4488.2
1968 8075.8 821.5 1830.0 21.9 10749.2
1969 63.7 63.7
1980 145.0 145.0
1981 87.1 87.1
1982 52.2 52.2
1983 111.8 111.8
1984 27.3 27.3
1985 38.2 38.2
Total 11899.3 8282.8 1000.8 1830.0 939.8 23952.7
Schedule H4
RAYTHEONELSI, ANTlClPATED LOSS BY RAYTHEONCOMPANYBASEDON ESTIMATED
MINIMUhILIQUIDATION VALUES
(a in000 S)
GuaronrecdLo<ins
Yeor lnvesrmenr P>.inci~ri/ Inrercsr Accounls Le~ril Tora1
1961 542.4 542.4
1962 3137.8 3137.8
1964 3202.4 3202.4
1967 4488.2 4488.2
1968 4583.0 486.9 1012.7 6082.6
Total l IR99 1 4583.0 486.9 1012.7 0.0 17981.9 ScheduleII
RAYTHEONEISI, ACTUAL PAYMENTOF GUARANTEEDLOANS BYRAYTHEONCOMPANY
(Dollars in Thouson&- Lire in Millions)
Princip01 lnreresr Toial
Dure Dollurs Lire Dollars Lire Dollars Lire
Banco di Sicilia 8/68 1207.5 750.0 7.0 4.3 1214.5 754.3
First National
City Bank 8/68 229.7 142.7 7.3 4.5 237.0 147.2
Banca Narionale
del Lavoro 10168 1828.6 1140.0 121.7 76.0 1950.3 1216.0
Banca Nazionale
del Lavoro 10168 16040 1000.0 108.3 67.6 1712.3 1067.6
Banca Commerciale
ltaliana 12/68 2404.5 1500.0 253.0 157.7 2657.5 1657.7
Banca Commerciale
ltaliana 12/68 801.5 500.0 324.2 202.2 1125.7 702.2
Banco di Roma 3/70 207.0 130.0 179.3 112.6 386.3 242.6
Total 8282.8 5162.7 1000.8 624.9 9283.6 5787.6
Schedule 12
RAYTHEONELSI, ANTICIPATEDPAYMENT OPGUARANTEEDLOANS BY RAYTHEONCOM-
PANY BASEDON ESTlMATEDMINIMUMLIQUIDATIONVALUPS
(Dollars in Thousands - Lire in Millions)
Principal(1) Inreresr(1) Torol(1)
Dore Dollars Lire DoIlors Lire Dollars Lire
Banco di Sicilia 8/68 668.2 415.0 3.9 2.4 672.1 417.4
Firsi National
City Bank 8/68 127.1 79.0 4.1 2.5 131.2 81.5
Banca Nazionale
del Lavoro 10168 1011.3 630.9 67.5 421 1078.8 673.0
Banca Nazionale
del Lavoro 10/68 887.0 553.4 60.0 37.4 947.0 590.8
Banca Commerciale
ltaliana 12/68 1330.6 830.0 139.9 87.3 1470.5 917.3
&nca Commerciale
Italiana 12/68 443.6
276.7 179.2 111.8 622.8 388.5
Banco di Roma 12/68 115.2 71.9 32.3 20.2 147.5 92.1
Total 4583.0 2856.9 486.9 303.7 5069.9 3160.6 ANNEXES TO THE MEMORIAL 153
theon'sopen accounts due from ELSl totaled $1,278.658.49,RSC'sopen accounts
due from ELSl totaled $551,347.31,for a combined total of $1,830,005.80owed
by ELSI. Attached hereio as Exhibit C are accurate statements of the amounts
due Raytheon and RSC by ELSI as of the date of the requisition. Among the
debts owed to Raytheon is a deht owed by Societa Electroniche ltaliano
("SELIT); ELSl had assumed ihat debt to Raytheon when ELSl and SELIT
merged in 1964. Raytheon and RSC have not received any payment for these
accounts.
(Signed) Herbert DElrc~En,
Commonwealth of Massachusetts,
County of Middlesex.
Subscribed and sworn to by me this 6th day of January 1987.
(Signed) Neal E.MINAHAN,
Notary Public. RAYTHEON-ELSI, s.P.A., RAYTHEON AND MACHLETT'S INVTSTMRNT HISTORY K
;nc,eue
lDrrrme1 (Decreae)
No.of Dollr"' No.01 Crml /rom /rom SV?,
D~P Arlion Sb,<> ~uiv~lcnz % Shihihihi Adx.mc#s Invexlovnl Em@x Amor,;:ar;on Inwscmenz
19%
and cashin.crtm.n,
TO~=I(~accnirï~66%. soli20%) 7m.m 805.~0 14% 10s.m
lu= Addiiioml arh inrnimmi or 1111.120io
1959 mainmin % ownrrihip upn irrrrain -pi-
mliiaiiormm ~m.m rharn cornmo ,n
7w.m sharn ofcornmon and m.m rham
O; Rcrcrrrd I.,.,. 105.m
70.mP
Ocl. Addiuonal arh invnmrni of 1284.240 io
1959 incrcasc ovnrrihilo 30%. La Ccntnle
purchad ri1 of So(rhurrand iniurnsold
120.m rharer ofComman end 80.m sharc?
af Prcferrrd io Rïylhcan
(Naic: From fhis point forwlrdpartncr 225.wOC
is La Ccarale.) nochange 1,615 30% 150.~0~ANNEXES TO THE MEMORIAL 155156 ELETTRONICA SICULA
-
$5i 5 -'0-'9
E * c; 9. %. ;i 2
- -, -2 2
8 - =2
-. S<.$ - -.? 2 $$ 2
E O E7 --soc D - r.. 2 'c
s
kI ,, . -
5 @$a.$ nsgng- 2 C g m
E as*$ gg,,S c2-t G?
z -
- 3: E x , m.
i ; 3 X 2 O 2
e E O "zzzz 3 " e
$ X X 0 1 m
7 2 , 2 - m.
C= w
L = s s
6 2 J J
C
= " $! .u 8 8
= 2 2
- I: 6.
3 0 P ?i
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- ." .P
e $2L g a I:
a .'y a 5
L
7
.-
W
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C
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.-:
-F En ,,- "- 2- .- ,?
L2 2 g 8- gg zg zg gg -XE% XE% a2 ANNEXES TO THE MEMORIAL 157
-. * C 22" Z Z ":%$'
- B
n. 2 z. 5
- * - =--O a D m
n. I' 0 g.NP2. 5. S.
= s - ----- - - ..
- s X - S C 3 ZSSS- 2
2 -. 22 5 5 " & *
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C .iImIqann SIVZI'PISJOmuqoal 661.sw11s 15~quod u0aq1ica .!
'"!I WC1 'Gd IJRIIOP0091 1" P3II9IYDJ21!1"O!11!4WL ill"ui!xo'ddv
"!IWO'I'Gd Elellop uw', 1s pJi.(nqPaI ram lunoua ,"iuii*,A"iqi L961'quJ,d,S "1 'a!( 'Gd n.llop 5191 iBp,,rnuog ,,,
~(~8'0JOd!qwu~o r,llrlqJsn au!pnpul ,.,
JJ!I WO'I 'ad riaIlop 5191 ia piirnuog,.,
Li6'152'1 (Olo'Z8B'ZI (9LP'WL'Lli,> iZE'668'1Iiii u~!lsz!lioui~ puanlnui Bu!laiGdopioa,~ 8961
q=rw
8961
(n8'iSO'Z L8LLZL'Z L I IL CZf'668'11 Yo!l=!liouin put iilnrv au!ie~Gdopioasx 1961
'=a
COSPIV'C (W9'ZLSZl 9SZl CZf'668'11 uo!ie2!>ioiuapue rllnru Zu!le~xlo piax 1961
ldS
PU' V IV813 MO'MO'Z - UO!lPz!iVt!d~8
oBuaq= ou ?u MO'OZVZ '%UXB ou IV rr=l3 FIBA'PJD svms ~O'M sssq3md
,',lq,vn:oui>n1 q,.' "!I ILC O, q,=> "SI
MO'I luor] pnlsnap rvsqr ,,rrslg mO'MO'2 L96,
PU' V Sn13 MO'WZ - Yo!i'"len,x son,
"a!,rz!,ioui= pua rilnru B"!isir<lo pio*x L96l
w=n
,068
iuaiuiranu! uo!m:i,iowy r2u!urn? iurwinnul ra~"nfipy rd4DVS gt wal"j"b3 rajnys
MN W O ~ wu4 Sm,D 10 'ON ,.>'~~!~a /" '%v
(srnarira) (drnaiJaaJ
,"""'Y! ExhibitB
ELSlGUARANTEEDLOANSPAlD BY RAYTHEONCOMPANY
-- ~ -
LireAmouzls
>
Bank Dnu poid Guoranree Princip01 Inreresr* TorolPaid*.
Numhcr in".S. Dollars2
4.253.425 a
Banco diSicilia August 26 108 750.000.0M1 1,214,538 "
1968 2
1stNational City August 26 211 142,698,638 4,514,783 236,982 2
Bank, Milan 1968 m
BancaNazianale October 21 145 1,140,000,000 76,035,807 1,950,339
del Lüvoro 1968 200 1,000,000,000 67.586.650 1.712.247 2
BancaCommerciale December 31 K 1,500,000,000 157,715,322 2,657,447 1
llaliana 1968 207 500,000,000 202,240.174 1.125.746
Banco di Roma March 18 206 130,OOO,W0 112,594,802 386,311
1969
Totül L. 5,162,698,638 624,940.963 %9,283,610
lncludes commissionspaid and general turntax, wherapplicable.
** Reflectaciual dollar cost.160 ELETTRONICA SICULA
ExhibitC
RAYTHEONCOMPANY,ACCOUNTRECEIVABLEDUEFROMRAYTHEON-ELSI
InvoieeNo. Tmr<iciion Amouni Balance
CC65217 CorporateSpecialPurchases $10,576.22
CC65218 WesternElectricRoyalty 59,045.18
CC55229 lntercston GuaranteedBankLoan 42,833.71
CC65230 Nato-HawkComponents 28,650.66
CC65234 TradeAccounts 566,999.82
CC65235 Commissions (5,753.78)
CC65736 RoyaltyAccount
CC65237 ManagementFee
CC65246 AccounisReceivableOthei
IndustriTubes andOtherItemsSold
to SELIT(SocietaElectroniche
Italiano) 37,635.12
S1,278,658.49 ANNEXES TO THE MEMORIAL 161
RAYTHEOK SERVICB COMPANY. LEXINGTON I>IVISION
12June 1968.
Raytheon-ELSI,S.p.A
Via Villagrazia79
Casella Postale 288
Palermo, ltaly
Gentlemen:
Following is an itemized statementof your account as of May 26, 1968:
Rayrheon ServicC eompany- EuropeanManagementBrnnch.
ManagemenrFee
Dore InvoirNo. Amouni
3/3/64 3-2 $9.000.00 Dore InvoiceNo
5/16/68 94-5-58
5/16/68 94-5-78
Total MonoremenrFee
SpeciolisrsBillings
2/3/64
2/21/64
3/17/64
4/16/64
5/15/64
6/17/64
7/2/64
8/ll/64
9/16/64
7/2/65
8/20/65
8120165
Cwdir Billings
3/1/65 7i8/COG/COl
5/18/65 l2Ol/COG/COi
7120167 COG/Z
5130167 COG/I
10/31/67 Wagon-Lits
Tora1Credil Billings
Balanceof Account with RaytheonService Company-
EuropeanManagementBranch5/26/68 ANNEXES TO THE MEMORIAL
RoylheonServiceCompany - ElecironiServices
TrudeAccounl
hvoice No.
Dore
1/7/67 19942
2/3/67 20015
TorulTrndeAceounr
ComntissioAeeounl
2/6/68
MognerronAeeut<nr ELETTRONICA SICULA
Annex 15
1,John D. Clare, appeared befom a notary public and, after king duly sworn,
stated as follows:
1. In 1940, 1 graduated from the University of Birmingham in the United
Kingdom with an honors degree in electrical engineering. Shortly thereafter, 1
joined the General Electric Company in the United Kingdom as a graduate
apprentice.
2. Approximately two years later, in 1942, 1 received a masters degree in
electrical engineering from the University of Birmingham and commenced work-
ing in the field of telecommunications at the General Electric Company.
3. In 1945, after five years with General Electric, including assignment as
project director responsible for the development of an open wire, multi-channel
carrier transmission system, 1 joined Sobell Industries, Ltd. Two years later,
during 1947, 1 became Sobell's Chief Engineer, responsible for the design and
costing of commercial radios and televisions, as wellas for the industrial engineer-
ing, inspection and test on the manufacturing lines.
4. In 1950,after fiveyears with Sobell, 1joined the Radar Researcb Establish-
ment of the United Kingdom's Ministryof Aviation where, as Superintendent of
Guidance Systems, 1 had technical responsibility for development of vdrious
radar and auidance svstems built in United Kinadom lndustrv and erso on al
re~~onsibili~~ for the developmcnt of "continuous-wave" radar and missile sys-
lems. As a result of my work on cootinuous wave radar and missile systems,the
fundamental Datents O-btainedfor these svstems were in mv ndme
5. During i960, 1 moved to the ~eadquarters of the ~'inistry of Aviation to
kcome Director of Guided Wearions Research and Develooment. As Director,
1was resoonsible for al1defensiG missile svstems for~th~ ~rm~ ~ ~ ~ ~ Force
and for co-operative development of such systems with the United Kingdom's
Nato allies.While servina as Director al the Ministrv. 1started the first successful
Anglo-French missile priject, "Martel", an air to surface missile system which
continues to be operational.
6. In 1962, after 12 years with the Ministry, 1 joined In. Iniiially, 1TT
appointed me as its Managing Director of Research Laboratories in the United
Kinedom. Later. 1became Associate Technical Director of ITT-Worldwide. and
~icc~resident and Technical Director of ITT-Europe. During my ienure al ITT,
1 was responsible for al1 research and development projects in 15 European
countries relating ta numerous fields, includingdata transmission systems, public
and privste telephone swiichinp,systems, line and microwave transmission sys-
lems: car radios, televisions, cables, industrial controls, heating and ventilation
system controls, and consumer products.
7. In 1966,I left IïT to become a Vice-President of Raytheon Company and
the President Designate of Raytheon Europe International Company ("Raytheon-
Europe"), a division of Raytheon Company ("Raytheon").
8.The principal objective of Raytheon-Europe was to furnish European com-
panies, which weremajority owned or controlled by Raytheon, with technical, ANNEXES TO THE MEMORIAL 165
managerial, and other assistance necessaryfor them 10become strong, profitable
enterprises.
9. During 1966-1967,Raytheon possessed majority ownership or control of
nine European companies. which were located in the United Kingdom, France,
Switzerland, Denmark and ltaly. One of these companies was Eleitronica Sicula
S.P.A.("ELSI"), a manufacturer ofelectronicequipment based in Palermo, Sicily,
Italy.
10.While the workforce in Palermo, Italy, had little or no experience withthe
manufacture of sophisticated products prior to the establishment of ELSl in
1954,ELSl was a respected producer of high-quality electronic products in 1966
with: sales from 110to 1,257 million lire percountry in Germany. Spain, United
States, France, Swilzerland, Yugoslavia, Japan, Beneluxcountries and Sweden;
lesser sales in other countries; and repeated sales 10Nato.
II. At ils Palermo plant, which covered approximately 48,500 square meires,
ELSI produced: (1) microwave tubes, which generated high-frequency electro-
magnetic waves based upon technological capability furnished by Raytheon, for
NATO Hawk missile svstems.as wellas for more nenera- use in telecommunica-
tions, miliiliry2nd iiiili3n radars. lind industrial niicrounvc haiing: (2)c;iihodc
ray iubej. ihc moï1complcxcomponeni in ielcvisiiins.(3)scrnic~~nduciorsi.nclud-
inn rectifiers, which converted alternating current to direct current in X-rav
equipment, radio and televisionstations, eÏectrostatic filters, and domestic appli-
ances; (4) a variety of X-ray tubes for medical uses; and (5)surge arresters, which
protected equipment and employees against overvoltages transmitted by tele-
phone and other lines.
12. During fiscalyears 1964through 1966,however, ELSl operated at a loss,
that is, profits from sales were not sufficientto offset debt expense and accumu-
laied losses.
13. Because ELSl's accumulated losses had been increasing, Raytheon em-
barked upon a major effort in fiscalyear 1967to determine the reasons for these
lossesand reverse this financial trend.
14.As part of thai effort, 1becanie ELSl's Chairman of the Board in February
1967. In addition, Messrs. Rinaldo Bianchi and Joseph Scopilleti, Counsel and
Controller of Raytheon-Europe, respectively,became Directors of ELSI.
15.After our appointmeni as senior management of ELSI, we discovered that
ELSl's plant and labour capacity were in excess ofproduciion. bu1 inefficient
operation currently absorbed that excesscapacity. We,therefore, determined that
if ELSl's operations were made more efficientas planned, ELSl had to develop
additional sales or rcduce the numbcr of ils employees to absorb excesscapacity.
We further determined that, because a significant portion of ELSl's sales were
either periodic, for example. Hawk tubes, or small volumes ofhighly specialized
oroducts. for exam~le. suree arresters. diversification into new oroduct lines
u,ould bc ncccss:iryIo pcncrlitc s:ilc uilicicni<inhsorb cxccsscapscity.
16. Bcc;iujcoi the I;iiicr dctcrminaiionu.cprcparcd Iistsof ncw product Iincs
u,hich ~.i,ulJbe (1) dciclo~cd by ILSI. 12)furnirhcd h, R;i,iheon. dong uith
suooortine know-how. o. i3)~,.ovided bv ltalian eovernmeni aeencies. ~articu-
la& the lrtituto per la Ricostruziorie1nd;striale RI"), on a s;bcontraht basis.
17.Among the new products whiçh we believedcould be introduced a1 ELSl
were subscriber head sets, relays, electromechanical assemblies, multiplex and
microwave link transmission sysiems, switching subracks, and other telephone
equipment, which is purchascd prirnarily by government-owned organizations.
18. After thoroughly reviewing ELSl's products and other aspects of opera-
tions, including production, sales, markets, and finances,iveconcluded that, while
ELSl's accumulated losseshad bcen increasing, ELSl could bccome a successfulprofitable enterprise with the addition of an ltalian partner, infusion of capital,
and introduction of new products.
19. We also concluded that, because of ELSl's location and resulting high
transoortation costs, ELSl should continue 10 seek the transoort suhsidies and
other.knefits a\,~ilshle under Iialian Iaw for conipanies localcd in ihe Mellogi-
orno Kcgion Ir uas ohvious thai irÿn\poriaiiun zuh$idieswould grcaily assisi
FLSI becausc the compdn, ourchiiscd hulk) zlass iuhcs CrommanuP~ciurr.rcin
France, transported those iubes to Palermo 10; processing in10television picture
tuhes, and then shipped finishedpicture tuhes to northern ltaly or other countries
for sale.
20. Wesummarized Ourconclusions regarding ELSl in a 61-pagereport, which
wasdistrihuted to senior officialsof the ltalian Government, the SicilianGovern-
ment, IRI, ltalian hanks, and other members of the ltalian establishment.
21. In April of 1967,Raytheon contrihuted additional capital ofover 4 million
dollars and furnished 2.5 million dollars in euarantees which we believed would
be sufficient for ELSl to continue operations during the next 12 months. R&-
theon, however,expresslyadvised al1concerned that il would beunable to furnish
any additional capital contributions because of its already sizeahle investment in
ELSI. Accordingly,everyone understood that, unless Ourefforts 10find an ltalian
partner, ohtain additional capital, and add new product lines were successful,
Raytheon would have to conduct an orderly liquidation of ELSI.
22. Between Mav 1967 and Anril 1968. 1 and other officers of ELSl ~ -
Kaythcon held siimc 70 meetings uith Italian gi>\ernmcnt and husincss oltici3ls
io dis~ujs ua)s thc Go~crnment could ~ssisior pariicipiiie in ihc effori IO 5;it.e
EI.SI
23. Wemet with the Minisiers for cach relevant Minisir) ai the ndiioniil le\cl.
Sicilian officials. local poliiicians in I'alcrmo, rcprcscnialii~esUCIKI, olliccrs OC
Ente Siciliano Der 13 Produ~ione Indusiriale ("ESPI"). the Sicilianeoternmenial
entity responsible for funding and promotinglocal de;elopment, ana other politi-
cal and business figures.
24. Weconcentrated especially on ESPI, which had a considerable amount of
capital availahle for investment and whose mission was to support employment
in Sicily. ESPl's President, the Hon. G. La Loggia, repeatedly indicated that he
was veryinterested in investing in ELSI. Further, another officialal ESPl stated
that ESPl considered electronicsone of the fundamental industries for its future
olans and understood the ureencv of the ELSl situation.
25. The general manager fOrt6e Ministry of lndustry and Trade also showed
great interest and enthusiasm for Raytheon's efforts to revitalize ELSI. He ex-
~lainedthat Ourefforts came al a most oro. .ious lime since the ltalian Govern-
men1mas in ihe proces. oiplanning a maj<irprom<iti<rn and pariicipdtiun in the
electronic..field. Iluring our mceiings. ihr.genrral manager indicaied ihat. (1) hc
would include requircmenis Fororoducts FISI could SUDDIi!n ceriain short-rerm
plans he was preparing for staté-ownedrailroads, shipbiilding works, and other
operations; (2) he would advise ESPl to invest in ELSl without delay; and (3)
he would favor ELSl's participation as a prominent partner in the national
programme for the electronics industry.
26. When we met with the President of the Sicilian Region, the President
advised us thai: (1) he had discussed Sicily'sseleclion as the principal area for
expansion of the ltalian electronics industry with officialsof the national Govern-
ment; (2) the interests of the Sicilian Region coincided with those of Raytheon
since the Region's primary objective was to promote growth of the ltalian
electronics industry in Sicily withELSI as a nucleus; (3) he would order immedi-
ately that ESPl invest in ELSl if he determined il would assis1 in obtaining ANNEXES TO THE MEMORIAL 167
national support for the Sicilianelectronics industry; and, (4)if his plan Io obtain
national support for ceniring ïuiurc grouth inclectronic~ XI Sicilydid no1suiieed.
Raythcon had his .'broadesi üssurdnce that ESPI uould promptly furnish F.I.SI
with four billion lire".
27. Minutes of two of our meetings withthe President of the Sicilian Region
are a.o.nded to this affidavitas exhibits A and B. 1have reviewedthese minutes
and thcy are an accuraie sraienient of ihe eventi which trancpired 31 ihc mcciings.
28. In nddition 10 dissuss~ngELSl's rcquircmcni for an infusion of cüpital.
new products, and an ltalianpartner, we~discussedvarious laws, which were
enacted to encourage investment in the Mezzogiorno Region, with each senior
official we met. During these latter discussions, we emphasized the importance
of receiving transport subsidies and benefits under the so-called "30 per cent
law".
29. The "30 per cent law" required that the ltalian Government make 30 per
cent of its purchases from industries located in the Mezzogiorno Region. Thus,
under tbis Ïaw,government-owned hospitals should have beën purchaiing at least
30 per cent of their X-ray tubes from ELSI, the only company located in the
Mezzogiorno region which produced X-ray tubes, rather than continuing 10
purchase al1such tubes from foreign companies.
30. When we met with the Undersecretary for the Ministry of lndustry and
Trade, he emphasized sJronglythat the Minister wishedto apply the "30 percent
law" rigorously. Further, during another meeting, the Minister for the Ministry
of Treasurv advised us that freieht subsidies would be available to ELSl from
the "~und.for the South" for domestir or expori shipments.
31. Representatives of IR1 were the only ltalian officialswe met who appeared
unsupportive of our plans. For example, at one of our meetings with IR1,~which
was artended by IRl's President, senior officialsindicated that they viewed the
development of ELSl as competition for IRl's own plans regarding electronics
and that IRl's financial resources were stretched already, without entering into
a oartnershio with ELSI. We then reoeated Our earlier orooo. . that ELSl be
merged uith Selenla. an electronics campdny in northern ltalv joinilg o\incJ hl
IHI, Kaythcon ancl hiai, bccÿusr siich ;imergrr iiould proiidc ELSl wiili huh-
contrÿct u,ork and ;irhare of the Iiallan electroniis plan. but IR1ol1ici;ilsrcir~terl
the proposal. Finally, during this meeting, IR1officialseven rejectedour proposal
to purchase 1Rl's share of Selenia and, thereby, alleviate IRl's problem of
stretched financial resources. The President of IR1 bluntly stated that shortage
of funds reallv was not IRl's oroblem.
32. ~ccordin~l~. with the &cePtion of our meetings with IR1 officials,who
showed no enthusiasm for Our attempts to revitalize ELSI, Our initial meetings
with government and business officialsled us to be optimislic regarding the
prospects for ELSl's continuance as an on-going concern.
33. Sinceother senior ELSI offici;ilsand 1weredevoting Ourlime to obtaining
an ltalian partner, additional capital, and ncw products for ELSI, we installed
senior oersonnel from Ravtheon-United States and Machelett Laboratories. Inc.
("~achlett"), at key poinis in the ELSl organization to infuse new technical and
manasenal techniques into the operation of the company and to assist in making
the cimpany as piofitable as possible.
34. These personnel included John Stobo, CO-managerof ELSI from March
through November 1967,Justin Guidi, CO-managerof ELSI from November 1967
through April 1968,Jack Mazzotti, director of administration and finance, Ricco
Merluuo. director of olannine. D"m Nett. controller. Phil Puccia. assistant
controller, Carmello Hdbdgallo.dircctor of COSI snd in\entory s!stenis, Ko)alle
Allairt. direcior oTmanuF~cturingoperations. Sheru,ood Cooke. direitor ol'engi-neering, Mike Mandel, marketing consultant for microwave tubes, Peler Char-
man. marketine consultant for semiconductors. and Sid Siandine. technical
conslltant for &anufacturing tubes. -,
35. Besideslending key personnel, Raytheon placed at the disposal of ELSl its
international sales oreanization. which nromoted the sale of ELSl oroducts with ~ ~ ~
increasing success,a& diligentl; searchédfor products whose man;facture could
be transferred from its Massachusetts or Raytheon-Euroue plants to ELSl's
Palermo plant without violating American export security control laws. One
example of these latter efforts was ELSl's production of microwave ovensduring
1967.
36. BetweenJulv and December of 1967.senior oersonnel [rom Ravtheon and
Machleit completid nurnerorrssteps ta imirove ELSI'Soperations aad facilities,
including the performance of a comprehensiveinventory of skills,implementation
of qualiiy and scrap control systems, establishment of a major training pro-
gramme for employees, and reorganization of production îacilities.
37. In late 1967, however,the tone of Our meetings withgovernment officiais
chaneed dramaticallv. For examole. the President of ESPl aualified his enthusi-
arm Forin~chiing~~ÉLSI hy riïÎinp for ihc Tirsiiimc ihai a'ihird pirtncr would
bc neccssiir) and indic~iinpa clex preicrencc ii~rplirtisipdtiun hy IR1
38 Ilurina ihi, ocriod. I hcdrd runiours thai IR1 hiid a olnn Io uermit ELSl
to become bankript and purchase ELSI's assets very chéaply for one of its
subsidiaries, STET. 1 also heard that IR1 had decided to enter the electronics
industrv iiselfand. therefore. wasunwillineto work wiih or assist ELSI. However.
becausi the President of &ily and others were seeking diligently to obtain
participation by IR1 and were veryoptimistic of so doing, 1initially discounted
. . .
such rumours.
39. While the Prefect of Palermo had advised us previously that IR1 was
interested in intewening in favour of ELSl by acquiring part of ELSl's shares, a
senior IR1 officialinformed us on 4 January 1968,that IR1 was unable to make
any decision regarding support for ELSI because it wished io study the Italian
electronics industry for a year.
40. Minutes of Our 4 January 1968 meeting with the senior IR1 official are
appended to this affidavit as exhibit C. These minutes were taken by Stanley
Hillyer, my former assistant at ELSI who had Ruent command of the Italian
Idnguage and is now deceased. 1 have reviewed these minutes and they are an
accurate statement of the events that transpired at the 4 January 1968,meeting.
41. Further, despite Our repeated efforts during the prior nine months to have
ELSl receive benefits under the incentive laws for companies located in the
Mezzogiorno Region, ELSl never receivedanv transuort subsidiesor eovernment
purchases pursuant to the 30 per cent la;. In fict, the ~inistryof Health
furnished a circular to al1provincial doctors indicating ihat the 30 per cent law
was not applicable to purchases of X-ray tubes.
42. With no firm commitment for an ltalian partner, infusion of capital, or
new products, it appeared that Raytheon and Machleit would soon have no
choice but to commence an orderly liquidation of ELSl because the financial
statemenis king prepared for the fiscal year 1967indicated ihai ELSl's losses
had reached a point under ltalian law where shareholders either would have to
infuse additional caoital or cease ooe~cti~ns~ ~
43. WCihcref~)rcadvi5r.d1i:iliango\crnmcnt oficials thai. whilc WC wcrcu,illing
ioroniinurourdi~russions in J:inunn. Febru3rv;ind lllirch ol 1968.ELSl itould
cease operation in the near future, without receipt of the necessary firm com-
mitments. AIVNEXES TO THE MEMORIAL 169
44. On 20 February 1968,the President of Sicilyreiterated his earlier commit-
ment that ESPl and/or IR1 would becomepartners in ELSI. He added that he
hoped to ohtain a commitment from the central Government to develop the
electronics industry in Sicily within days and that this commitment would be
equivalent poliiically io ensuring IR1 assistance for ELSI.
45. By letter dated 21 February 1968,Charles Adams, Chairman of the Board
of Raytheon and a participant in the 20 February 1968,meeting, thanked the
President of Sicily for his efforts to assis1 ELSl and reiterated that Raytheon
would no1 be able to furnish any additional capital Io ELSI.
46. During February and March of 1968, itwas evident ihat the Italian officials
with whom we met were concerned about the political ramifications of ELSI
ceasing operaiion in the near future. National elections were scheduledfor May
of 1968and government officialsrepeatedly advised us that they did no1 want
ELSl shut down and resulting large-scaleunemployment in Sicilyshortly before
an election. We informed them that we understood this concern, but could not
keep the plant in operaiion wiihour fim commitments of support.
47. As a result of ELSl's financial situation and the lack of any firm commit-
ments, ELSl's Board of Directors ("Board"), including myselfas Chairman, met
on 16 March 1968, and voted to liquidate the Company. The Board further
determined that. on 29 March 1968,ELSl would cease trading and dismiss al1
but 120employees necessary for an orderly liquidation.
48. Minutes of the 16March 1968Board meetingare appended Io this affidavit
as Exhibit D. 1have reviewed these minutes and they are an accurate statement
of the events which transpired al the 16March 1968meeting.
49. During early 1968,Raytheon had taken the precaution of dispatching two
of its senior officials, Vice-PresidentJoseph Oppenheim, who is now deceased,
and General Attorney Harold Oelbaum, to Palermo to finalize plans for and
overseean orderly liquidation in the event Ourefforts to obtain an ltalian partner,
infusion of capital, and new products were unsuccessful.
50. Under the liquidation plan which was finalized, ELSl would maintain a
limited operation to complete work-in-progress and fiIlexisting purchase orders,
thereby preserving ELSl as an ongoing concern and making it more attractive
to ootential ourchaser~~
il. ~urthér, since ELSl could receive a significant premium for some of its
individual oroduct lines,which weri:hiahlv attractive to al1maior Eurooean tube
manufacturers, including, ~hom~son,~~hilli~s,and siemens, ELSI hoiild be
offered for sale by product lines, as wellas in its entirety. According to this sales
plan, Raytheon and Machlett would grant purchasers of product linesal1patents,
licenses, customer lists, technical capability, and other assistancc necessary for
operation.
52. Based upon the liquidation plan, other members of senior management
and 1were confident that ELSl would realizeenough money to settle al1of ils
debts on a nerotiated basis. Dunna Ourmeetinas with reoresentatives of ltalian
banks, that ~~:ELsI'slarge creditors, bank officia indicaied that they would be
willing to accept such a negotiated settlement because the settlement would
furnish them 4th lareer"sums of inonev and that monev would beoaid more
quickly, than in a hankruptcy.
53. Raytheon, thcrcfore, cstablishcd a $1.25million line ofcredit at Citibank
Milan to-pay ELSl's small creditors and bcgan making such payments in late
March of 1968to ensure an orderly liquidation. Raytheon also indicated that il
would furnish any additional monies necessary to maintain the requisite cash
flow for an orderly liquidation. ANNEXES TO THE MEMORIAL 171
63. The next day, I April 1968,the Mayor of Palermo requisitioned ELSI's
nlant and assets.
64.While 1have not returned to ELSl since it was requisitioned hy the Mayor
of Palermo, 1have learned that the plant is operated now by IR1 and produces
electromechanical assemhliesand other telephone equipment, which wereamong
the key new products listed in our 61-page report which could be introduced al
ELSI.
(Signed) John D. CLARE.
State of California,
County of Santa Clara.
On the 10th day of January 1987,hefore me, Ci. R. Lagomarsino, the under-
signed Notary Public, personally appeared John W. Clare, proved to me on the
basis of salisfactory evidence to he the person whose name is suhscrihed 10 the
within instrument, and acknowledged that he executed il. Witness my hand and
officia1seal.
(Signed)Ci. R. LAGOMARSINO,
Notary Public.
-
ExhibitA
MEETING HELD IN PALERMO ON WEDNESUA 29,NOVEMBER 1967, PROM 6.15 P.M.
TO 7.30 P.M.WlTH THE PRESIDENTOF THE SlClLlAN REGION
Presenr: Hon. Vincenzo Carollo, President of the Sicilian Region
Messrs. J.D. Clare, A. Profumo and R. L. Bianchi.
During the first part of the meeting Messrs. Clare and Profumo introduced the
ELSl problems and gave a presentation of al1actions taken since last April, hoth
as regards operations and the continued search and negotiations for an ltalian
partner. The ELSl reports issued in May and July were illustrated for the
-r~sident.
MI. Carollo's firstinquiry was whether ELSl'sprohlem wasnot one of financial
difficultiesbut onlv one of obtaining markets from government sourcesto exploit
ELSl's nroductioi canacitv. It w& nointed out that there exist bath a severe
financiai prohlcm. Iini thc problcni kuhtaining producir iu cwrr rcliüblcniar-
kcts from goi,crnmcnt sourcrr. Thr. Prcsideni ihcn rcmarkcd thai a paiiicipaiion
b\ ESI'I alonc could noi soli,e F.I.Sl'sor<ihlemsincc FSPl could onlv conirihutc
to the solution of the financial problei. He felt, therefore, that it ias better to
try to obtain a participation from IR1 as well.
He revealed that he had heen activelynegotiating with the Central Government
to promote the selection of Sicily as the main area for the expansion of the
electronics industry in Italy. He told us that Italy is committed to develop a
significant electronics industry and that he had conferred with Prime Minister
Moro and even withthe President of the Repuhlic MI. Saragat, as wellas various
Ministers and that memoranda have becn written on the suhject of locating such
industry in Sicily. He said that, since his aim is to promote the growth of172 ELETTRONICA SICULA
electronics in Sicilyusing ELSI as a nucleus, Raytheon's interestsand the interests
of the Sicilian Region coincide.
Mr. Clare indicated to Mr. Carollo that the Sicilian Government could be
stronger in itsefforts to persuade the National Government to place theelectronics
industry in Sicily, if it caused ESPl immediately to invest in ELSl so that Mr.
Carollo could show that he has already made a start. MI. Carollo said he would
consider this suggestion. At the moment, however, he felt that the use of ESPl
at this stage could cause the Government to feel lessresponsible for helping ELSl
and the Sicilian Region in the field of electronics. He said that it cannot be
overlooked that there are other regions in ltaly which are competing for the
choice of location for the development of the electronics industry. For example,
he added, it is said that Minister Andreotti favors Lazio (the area around Rome).
He then asked whether Raytheon would favor the broad national approach which
he proposed to continue pursuing.
Mr. Clare said that there are three possibilities available:
(i) ESPl participation alone; this would immediately relieve the enormous fi-
nancial oressure on ELSl and with this helo the comoanv co.ld ,each the
breakeven point but expansion beyond such point would be extremelyslow;
(il) ESPl participation alone and a total efïort to ohtain the fullest application
of exiiting liws, such as the 30 percent law. the reduction of transportation
costs, the grant of investment credits; this would help not only to reach
breakeven point but profitability, since ELSl production would grow sub-
stantially and could be placed in guaranteed markets;
~,iil The ~ff~rt to obtain not onlv ESPI but also an IR1 oarticioation. and the
location in Sicily of the 1tafan major effort to creatéand éeveloba large
electronics industry taking ELSI as a starting point.
The first two possibilitiescan be realized immediately, Mr. Clare pointed out.
The third one will take a long lime. This is the only reason why, Mr. Clare said,
he hesitated before saying that he favored such a solution though, in the event
of such a third solution, the possihilites for ELSl would be greater. Raytheon
Company could then increase its technological contribution and the National
Government would be a major factor in promoting the growth of ELSl in the
technical and commercial fields. It is ohvious, however, that without any help
ELSI must gradually contract and the Region would lose the benefit of this
industrial asset.
Mr. Carollo said that if at any time before or during his negotiations with
Rome he comes to feel that an immediate participation of ESPl in ELSl would
help to his cause. he can and will order ESPl immediately to invest in ELSI. He
said further that the reason why no results have been obtained during the last
eight monihs is ihat Raytheon happened to raise the problem when the political
situation in Sicily was in a state of crisis. Up until very recently there wasn't a
Sicilian Government. Now there is a oolitical stabilitv and a Government. Mr.
Carollo said. He added that we woul'dnot have 10 wait several months again
before results are obtained.
He orooosed to meet with hirh-level oolitical authorities in Rome within the
nearesi fuiure and to have anotber meeting with us very soon. He then said that
if he should be successful in obtaining the placement in whole or in part of the
electronics industry in Sicily,the ELSl problem would then be solved as part of
such development. If he should be unsuccessful in his attempt, he then would Pdll
back on the solutions that an ESPl participation could oii'er and make his
decisions accordingly. ANNEXES TO THE MEMORIAL 173
MEETINGWlTH HON. VINCENZO CAROLLO P,ESIDENT OF THE SlClLlAN RECION N
HIS HOTEL ROOM IN ROME2 ,0 FEBRUARY
Present: Messrs. Adams, Clare, Hillyer and Profumo.
C.F.A. opened the meeting with the first paragraph of our prepared speech
(Raytheon is convinced that ELSl can succeed with an appropriate partner, but
Ge will not put up any more cash, etc.). and asked J.D.C. to present Our
~~~~-.ret~ti~ ~ ~ ~on. C'~ ~r~~tion at our last meetine.u
Non. C. interruptcd saying hc is ;awarehe made a commitment to us that IR1
or ESPI would intemene within a month, which has not been fulfilledbecause of
the earthquakes. The pctition today is as it was in December, but tomorrow, or
at latest the day after tomorrow, he will meet with Moro, Preti, Colombo,
Andreotti, and Petrilli to discuss the overall package program to aid Sicily.As a
part of this plan, Hon.C. hopes to obtain a central gov't commitment 10 develop
the electronics industry in Sicily.Thiscommiiment would politically be equivalent
to ensuring IR1 help for ELSI.
J.D.C. emphasized that too much lime has passed, and that although FlAT
has oiîered us a Director, IR1 would only agree to provide an unofficialadvisor.
C.F.A. added that IR1would not consider a Selenia/ELSI merger, which we had
proposed.
Hon. C. was quite aware of what IR1 had told us, and knows that 1R1 cannot
act until the ClPE plan in out. However, in his meetings of the next day or two
he hopes to obtain a political commitment for electronics in Sicily, which will
ensure IR1 action in the next 8/10 months, and which willallow ESPl to act with
fewer limitations. In short, the interests of Raytheon and the Region coincide,
as:
1. The Region wishes to protect any sources of jobs, and therefore wishes to
protect ELSI, and
2. The Region wishesto usc ELSl as ils principal reason for centering the national
electronics plan on Sicilyand in fact on ELSI, and is using ELSI as a positive
element in the current Ministerial level talks,
3. If Hon. C. can gel a National Gov't commitment to come 10 Sicily through
ELSI. this helos evervone. There will be a "ves" or "no" renlv on this in the
,
next day or [\;O;HO;. C. willcal1us to meeiagain when he knows the answer
and before he returns to Sicily.
Both C.F.A. and J.D.C. stressed again the urgency or the situation.
Hon. C. repeated that Our interests are the same, to keep ELSI alive and to
improve it. He hopcs to achieve thisaim in the best way for al1of us, by obtaining
a political cornmitnient for support from IR1 within the next two days. Howcver,
if this plan does no1 succeed, he gives us his "broadest assurance" that ESPI
would then promptly inlervene with four billion lire.
C.F.A. stated that while our interests do coincide with those of the Region, as
a private Company we do have obligations to our stockholders. While we can
continue to provide ELSl with management and technology; he reaffirmed the
Raytheon intention of not investing further money in Raytheon ELSI.
' See alsoUnnumbcredDocumentss ubmiiied withCounier-Mernoria lfIialy,Vol. 1,
Exhibit No. 11-15and III.Correspondence. Nos.41. 52 and 54.174 ELETTRONICA SICULA
J.D.C. posed fivequestions, as follows:
1. Will Hon. C. visit the plant this week? Ans: No, because he will be here in
Rome working on Moro et01.Anyway, he did visit the plant six years ago.
2. Willhe promise to talk to us again before returning to Palermo? Ans: Yes.
3. If the National Gov't. will not intervene. what will be the extent of ESPl's
intcri,cniion? Ans A \Cr) delicttc quesiion, bïscd un Ourdccision on whcthcr
uc ha\c the cxpcricnce and ihc iniclligcnccIocally io maiiagc \uch .in cntcr-
nrise (Ilon. C ohiiouslv TeIllocal iniclliat~ncewoiildtzarbc suficicnt, Iaicr
itating that ESPI would-run the companyinto the ground in a year or two,
if left to ils own desires.) JDC attempted valiantly to argue that with a Fiat
Director and possibly an IR1 Director acting for ESPI, ESPI could make a
go of a majority position, particularly with continuing management help from
Raytheon. Carollo would not huy this argument, unless the presence of Fiat
and101IR1 was backed up by a financial commitment.
4. If the National Gov't. will not intervene before you return 10 Palermo, can
you give us an immediate privale commilment ihai the Region willintervene?
Ans: Yes.
5. How long will il take ESPl to go through the bureaucratic formalities leading
to final investrnent? Ans: 30 to 60 days.
The meeting concluded with expressions of sympathy to Hon. C. for the
disasters in the Region and of gratitude for his attention to Ourproblem. (It was
decided by private exchanges not to leave any documents with Hon. C. The pre-
prepared "Notes for the Meeting" were leftat his hotel later that evening with
point (8) and the preceding paragraph on possible labor prohlems deleted. The
followingday, 21 Fehruary, a letter outlining Raytheon's conditions for continu-
ing at ELSI, together with a draft shareholders' agreement with ESPI, and
summary thereof, was deliveredto Hon. C.'s hotel.)
S.H.H.
ExhibitCi
SUMMARYOF THE TALKS HELD AT IRI ON 4 JANUARY 1968,BETWEEN TRI
MANAGEMEN TTE,CHAIRMAN OF FINMECCANICA AND MR. JOHN O.CLARE V,ICE-
PRESIDENT OF RAYTHEON EUROPE
IR1 acknowledged that through Finmeccanica, it has received the new docu-
mentation on Ravtheon-ELSI. This documentation included a ~rooosal that IR1
participüte in an.incrcase of ELSl's capital from 4 IO 10 billion (ire; ihç entirc
inrrcase of 6 billiun lirewould k requcsied from ncw Italian pariners.
IR1 and Finmcccünica point oui thai in ihis new ELSl report. thcrc sccms io
' See alsoUnnumbered Doeurnenrssubmilredrirh rheCounrer-M~moria lfllolyVol. 1,
ExhibitNo. 11-13. ANNEXES TO THE MEMORIAL 175
be litile justification for modifying the opinion on the ELSl situation which they
exoressed al the orevious meetine with Ravtheon. The financial sunnort to be~~r r ~ ~~- ~ ~
provided by the proposed new caeital of 6 billion lire is no( in iiself sufficientto
improvc significantly the basic operating position of the company, which remains
in ëxtremelv serious condition notwith~t~ndinethe ~raisewoithv efforts made bv
Raytheon io achieve a sound basis of operations.
Mr. Clare, while agreeing on the seriousness of the present operating situation
at ELSI, underlines the basic values represented bythe plant and equipment, by
the technology, and by the work force, al1achieved in Sicily by the company. He
also stressed the large investment made by Raytheon to create these values, and
expressed the conviction that the participation of a new partner such as IR1
would have substantial favorable reoercussions both on manaeement caoabilitv
and i>nsales rraultç. quiic apart from the purcly tinancial im~ruvcmcni repre-
senicd by the neu, invc\inicnt
IR1 and Finmcccÿniia do noi arrcc with this point ol'\leu. which in \alid
terms of areument is not a tenablé oosition. 1~1'and Finmeccanica "oint out ,~ ~ ~
thai u,ithin ihe IR1 Group. there arc no c(?ncrctcp~is\ihiliticsof ensuring direri
market uutlet for Rayihcon-ELSI'S production The only exceptions ta> this
siatement concern areas of marginal interest, or areas in which othër IR1compa-
nies, which already have substantial problems of their own to be solved, are
currently operating (as for example ATES, which also is in Sicily).
In summary, IR1 believes that Raytheon-ELSI's situation cannot be made
economicallv sound on the basis of the oroeram.out-ined in the documentation ~ ~ ~ ~ ~ ~ ~ ~ ~
submitied, and therefore does no1seca possibility ofintervention in the company.
This belief is strengthened by IRl's conviction as mentioned above that its
intervention wouldnot bnne abolit anv sienificant chanee in the marketine ~~
, u
position of the company, or as a consequence in the comp~ny's basic economii
position, which would remain a serious problem area.
However, IR1 desires to point oui that even though - with great regret - it
cannot accept Raytheon's request iit this lime, it remains possible that a later
request by Raytheon might receiveniore Pdvorableconsideration. Such a decision
could come when IRI, which intends to develop ils activities in the electronics
field, has completed an analysis in this area which is now king made in co-
operation with other national groups interested in the electronics sector.
This analysis, which is expected to take one year, will permit a review of the
general problem with much greater understanding. It should also lead to a
determination of whether it will be possible for IR1 10 contemplate a special
program of intervention to assist in putting Raytheon-ELSI on a sound basis, as
requested by Raytheon.
Mr. Clare indicated his disappointment with the present decision made by IR1
and look note of the further declarations of the Institute, stressing that unfortu-
nately much lime has passed since the first conversations on the ELSl problem,
and that in the intervening period Raytheon has had to devoie many efforts to
the ELSl situation, without outside assistance. ELETTRONICA SICULA
ExhibitD'
MINUTESOF THE MEETING OF THE BOARD OF DIRECTORS HELD AT 12.00P.M. ON 16
MARCH 1968, AT VIA FERDINAND0 DI SAVOIA 6, ROME FOR A DISCUSSIONAND
DELIBERATIONOF THE FOLLOWING
Agenda
1. Re~ort bv the Chairman on the cornorate situation and the asmcts of
continuid operation in light of the mandaté given him at the Board meeting on
Tuesday, 12 March 1968; possible convocation of special assembly,and appro-
priate resolutions.
2. Miscellaneous.
In attendance:
For rheBoard of Direciors:
John D. Clare Chairman
Justin J. Guidi Managing Director
Ing. Aldo Profumo Managing Director
Att. Rinaldo L. Bianchi Director
Joseph A. Scopelliti Director
Royal P. Allaire Director
For the union committee:
Dr. Ugo Frediani President
Rag. Dario Fanfoni Syndic
Excusedfrom participation are Syndic Dr. Giuseppe Alabena and the Secretary
of the Board of Directors Dr. Giuseppe Polizzotto.
The Chairman Mr. John D. Clare opens the meeting confirming the appro-
priateness of the convocation and the validity of the session, and asking Mr.
Rinaldo L. Bianchi, Attorney, to act as the Secretary. He then moves on to the
first subject on the agenda.
1. Report by the Chairman on the corporate business situation and on the
continuation of operations in relation to the mandate given him hy the Board of
Directors in the meeting of Tuesday, 12 March 1968, possibleconvocation of a
special assembly,and appropriate resolutions.
With referenceto the mandate conferred upon him and the Managing Directors
al the Board meeting of 12 March 1968,the Chairman, also on behalf of the
Managing Directors, reports that the banking institutions which are creditors of
the Company have heen apprised of the current business situation and of lhe
necessity to consider closing down the operation if it turns out be imposs~ble
to arrange for financial participation of a qualified ltalian partner. The said
institutions have offered active support in search of such participation and have
also expressed their intention to collaborate with Management at this time Io
avert any uncontrollahle situation. At the same time, contact has been taken up
with people in the Central Government who on their part have given their
assurance of support in the quest for participation by the IR1 group together
with that of ESPI. There has also been contact with private industries. Such
participation would be acccptable to the stockholders. ~ithough assurances have
been made to the Companyon various occasions, none has so far developed into
'See alsopp. 277-278,infro ANNEXES +O THE MEMORIAL 177
something tangible or concrete. Meanwhile, thebusinesssituation of thecompany
has deterioratcd to a point too critical to be ignored, the Chairman adds. Even
if every possibleeffort is made to resolve the situation, it becomes necessaryfor
the Board to providently arrange for the cessation of the company's activities
and to plan for the ultimate sale of assets on the best possible terms for the
purpose of satisfying the company's obligations. The stockholders have been
advised of the facts and of the imminence of the cessation of the company
activities.
After an in-deoth discussion and clarification of anv ooen ooints. the Board
members declare'themselvessatisfied withthe Chairman's report anddecided on
the following statement:
"Since the last Board Meeting, additional efforts were made by manage-
ment to enlist the intervention, financial and industrial of third parties, both
on the governmental level and on that of private industry. Such efforts
having until now been unsuccessful, in view of the worsening situation of
the Company, the Board deem that there is no alternalive other than the
cessation of the Company's (sociali) activities. The shareholders have been
informed of the latest developments and have expressed their approval of
the action being taken today.
After ample discussion, the Board unanirnously .. .resolvesthe cessation
of the Company's activities to bc carried out as follows:
(1) cessation of production will be effected immediately;
(2) cessation of trading and dismissal of employees will be effected on 29
March 1968.
The shareholders meetingcalledon 28March 1968willadopt the necessary
formal resolutions.
The Board gives to the Managing Directors mandate to illustrate the
situation of the Company and the events tbat led to the resolution adopted
by the Board to the unions and representatives of the Company's employees
and to al1competent authorities."
The Board of Directors.
2. Miscellaneous.
None of the eentlemen oresent has anv other ooints to discuss. With nothine
elseon the age;da and no.one elseasking to speak, the meeting is adjourned f&
the drawing up of the minutes and reconvcned for approval of the same. After
perusal and approval of the minutes, the meeting is dosed at 1.30p.m
The Secretary The Chairman
(Signarure) (Signarurr)178 ELETTRONICA SICULA
Exhibit E
MEETINGWITH HON. CAROLLO IN THE EVENING OF 26 MARCH 1968, INROME ,T
HOTEL MFiROPOL
Presenr: Messrs. Carollo, Clare, Profumo and Scopelliti.
PresidcniCarollo sisricd by sûyingihai hc had a mcci~ngeûrlierwith Colombo.
Moro 2nd Medugno. He hïd tried IO coniïci Profunio IOïsk him io attend hui
was unsuccessful~He said that the Reeion would intervene and that tomorrow
at 10 a.m. he would tell us how. J.D.C. asked a number of questions in-
cluding:
- What about the 70130 agreement we were discussing this morning? and
Carollo answered: I will tell you tomorrow.
- What about the level of money involved? - 1will tell you tomorrow.
- 1s IR1 or someone else coming in? - Leave the Central Government to
me.
He was in an almost friendly mood and then he said: Let me talk about
sorneihing else quite outside ESPI. IRI-Raytheon relations are very bad. Ray-
theon mus1take care of IR1 or IR1 will cake care of Raytheon. The problerns
come out ofSelenia through Ourown peopleand go to other groups outside. He
indicated that it would probably be useful if we want to win the battle against
IR1 to resume an old project we set aside a year or two ago. (Merger of Selenia
and ELSI?) You have a big battle ahead of you. IR1 is not alone (probably
referring to GE-Olivetti) and il is going to be IR1 or Raytheon. He said in one
or two years you are going to have an explosion of legal paper. He said you had
the key in your hands but 1had to bang open the door. He said that he had not
put Medugno in any serious difficultybut he had made him revoke some of his
previous statements.
He then called for whiskeys al1around and we seemed to be drinking toasts
10success.
Profumo stayed behind to talk privately at Carollo's request.He indicated that
Fin-Elettronica had been formed, including Monti-Edison and Olivetti (no men-
tion of FIAT). He said that Medugno was very open and had said that Calosi
had presented aplan for Fin-Elettronica includingRaytheon-ELSI, but only after
Raytheon-ELSI was liquidated (he used an ltalian word which could mean
bankruptcy or liquidation). After this it was planned that Raytheon should
disappear from Selenia. Apparently Medugno explained al1this plan to Moro.
Moro is apparently a friend of Sette (EFIM BRADE). He is to meet with
Carollo and Moro (at 9 p.m. tonight) where the outstanding subjects will be:
1. Should IR1 come in? If Sette says "Yes" then IR1 will be instructed to come
in right away.
2. Should EFIM come in? If "Yes" this can be immediately.
3. Should the Region come in on its own as a stop gap?
After this meeting at9 p.m. Carollo is meeting Colombo tomorrow at 9 a.m.
and meeting us at 10am. ANNEXES TO THE MEMOR~AL 179
Exhibit F
MEETING WlTH CAROLLO HOTEI. METROPOLE, WEDNESDAY, 27 MARCH 1968
Preseni: Messrs. Clare, Carollo, Oelbaum, Profumo, Scopelliti.
Backgroundlnrrorlucrion
In a meeting with Carollo on Tuesday (see separate notes) he had finished the
meeting by saying that the Region will intervene and that after a meeting with
Colombo ai 9 a.m. on Wednesday morning he would tell us how in a meeting at
10 a.m. The previous notes on the Tuesday meeting also outlined Carollo's
discussions with Moro and Setti of Efim Brade during the Tuesday evening.
Carollo's meeting with Colombo on Wednesday morning took 3 111 hours -
not I hour. Obviously this meant that agreement had not been reached on either
IR1 or Efim intervention and that discussions withother ministers were involved
during this time.
The meeting with Carollo started at around 1.30p.m instead of 10a.m., and
his proposals were as follows:
1. It had been agreed that the ELSl problem would be immediately reviewed
by the Cipe Committee; that on Friday, the 29th, the Committee would approve
the inclusion ofELSl as a components part of the Cipe plans; that a group of
Sicilian deputies would be told of this on Friday afternoon; and that itwould
be announced puhlicly on Friday, 5 April.
2. He asked for three copies ofthe Shareholders' Agreementfor their immediate
review.
3. He asked Proïumo to take to CaRani (the Permanent Secretary of the Cipe
Committee) by 5 o'clock information on ELSl giving a brief summary of the
value of the trained people. the value of the plant and the value of thepany;
this wasto provide the basis ofthe CipeCommittec decision. He made a comment,
enpassonr, that colour TV would soon be unhlocked - whatever that means!
4. He said he was prepared imniediately to give Raytheon a letter saying that
for an intermim period solution the Region rvould come in on a 50150basis. but
he would not specify what this meant in the way of actual cash.
5. He wanted his legal and technical experts to put under immediate examina-
lion OurShareholders' Agreement proposals and Ourpartnership proposals. This
should he done the following day. Thursday, so that he could meet with J.D.C.
on Fnday to confirm an actual agreement.
J.D.C. then pointed out that this proposal was not the firm proposal we had
been led to expect; that we had always emphÿsized a minimum of 6 billion lire,
and that he was slill not prepared to specify a definite figure; that the previous
day he had indicated a 70percent participation by the Central Government and
the Rcgion combined, and that there was still no indication of which Central
Government group was going to join in.
Carollo replied by stating that wemust leave the Central Government problem
to him; that we had a three-party front in the battle of the Region, the Unions
and Raytheon. If Raytheon hroke up this group, then the Unions would go with
Carollo and leave Raytheon. He also indicated that if we proceeded with the
sending out of the letters of dismissal,en the plant would almost certainly be
requisitioned; that he was prepared fo pay the people for If months while the
liquidation of theompanywas sorted out; and that the Region and the Unions,180 ELETTRONICA SICULA
together with the Central Government, would then prepare for the liquidation
of ELSI, with subsequent rebuilding.
The problems of the markets, keeping key people and the very short time left
in which to act were al1re-emphasized to him, together with the fact that this
was nowhere near a definite enough offer for Raytheon, Lexington, to accept as
meeting the requirements which had been specifiedand discussed over the pas1
months, and particularly over the pas1 month.
It was left that the legal and technical experts would meet the following day
and Carollo assured us that he would make certain his experts were bnefed to
work towards an acceptable solution.
ExhibitG
J. A.SCOPELLLT 2I,MARCH 1968.MEETINGWlTH CARBONE E,VENINCFRIDAY,
29 MARCH 1968
Presenr: Messrs. E. Carbone, J.D. Clare, J. Oppenheim and J. A. Scopelliti.
Inrroducrion
After the meeting with Carollo on Wednesdav. it was aereed to meet his
içchnicsl siafion ~hirsda). inorderIOsort oui the hctailr ul'p~~~ibleco-opcraiion
on ihç general political Iinesoutlined during ihe Wcdnîiday meeting (rre coniin-
ucd io press the 70 30dcal acreed by Carollo in the Tuesdas mcctinr~.
The main purpose of this &al andtechnical meeting was th sort ouïthe details
of a possible partnership based on six billion lire with a minority for Raytheon.
Previously, Profumo had fed in the idea of the "Il billion Lire deal" and
Carollo's initial reaction had been one of reasonable accentance. There are
separate notes on this legal and technical meeting but brie& three hours were
spent wasting lime on the partnership deal and at the end there was discussion
on the possible sales of the assets to a new Company, with an emphasis by the
Region on an interim solution.
It had been agreed al the Carollo meeting on Wednesday that we would meet
with him again on Friday to confirm some form of final solution. On Friday
morninr there was a lona cabinet meetinr al which Carollo was Dresent.followed
hy a crpe nieeting in ihe afiernoon. ~icre u.3~n<imes,agc fiom Carollo bui
around 9 pm. we hedrd ihai Andreoili u~ntcd to ialk IO us to pas$on a mcssage
from hloro dnd ii,e\zniuallv tinished up in Carbone's office.uithout Andreuiii,
at around 9.30 p.m
Nores on rheMeering
Carbone started by apologizing for the absence of Andreotti but made it clear
that he was speakina for the hiahest levels in the ltalian Government including
the Prime Minister.Moro. He indicated that thev could not acceot the closurë
of the plant in the bresent political situation prto the clection;. He said this
would lead to "political revolution" in Sicily,which was completely unacceptable
to the Central Government. Thev. therefore. wanted some inierim~solution~oarti-
cularly to take over the period &il the elections. ANNEXES TO THE MEMORlAL
His initial proposals can besurnmarized as follows:
(1) Raytheon does not send out the dismissal letters.
(2) Raytheon opens the plant.
(3) At the end of one week the ltalian Government will designate a group that
will negotiate to eventually buy or rent the assets from Raytheon-ELSI., ,
(4) During this period the work people can be paid under some particular Sicilian
Laws and the total operating losses will be shared between the Central
Government, the Regional Government, the designated Croup and Raytheon.
He specifically indicated that they would expect Raytheon to make some
sacrifices.
He hoped that the operating losses could he kept to sornething modest.
(5) After this week they expect within one month to produce a budget for the
o~eratinr losses, to estahlish a ric cto be paid for the assets or a leasing
agreement and to determine wheiher or not an interim solution should he set
up for a further period.
The Raytheon reply to this can be summarized as follows:
(1) J.D.C. briefly ran over the history of the pas1 year, a lot of which Carbone
already knew. He specificallycovered the Raytheon investments in Marchl
April last year and the fact that the Raytheon main Board has been directly
involved since that lime.
(2) J.O. re-affirrnedthe Raytheon satisfaction with their CO-operation10-date in
Selenia and in ltaly generally, that hecause of this they had done everything
possible to help in ELSl but that Raytheon was now reluctantly forced to
confirm that they were at the end of the road.
(3) J.D.C. confirmed that they now had to check back with Lexington before
changing the situation, but it had been made very clear that something
positive was required, preferably in writing, and that the proposition put
forward by Carbone was not even acceptable to refer to Lexington.
Carbone coninicnted th;ii ai this hour ol'the night ue uauld have to takc the
uord of th? Prime Mini,ter of Iialy asue could not expect him to put someihing
~ ~ ~itine within the next hour or so. with a clear indication that askinr fo-
somethi6 in writing from the Prime ~inister was no1 really acceptable.
J.D.C. further emphasized the danger of losing markets, losing people and the
need to either onen the olant on full Droduction as soon as ~ossihleor shut il.
Any concept of an inter& solution waSreally doomed to failure for these reasons.
J.D.C. and J.O. then concentrated on the fact that Raytheon wanted a firm
proposal over money and that we now wanted a firm proposal for the purchase
of the assets.
Carbone then telephoned Pieraccini, the Minister of the Budget, who tried
unsuccessfully to contact Moro but who talked 10 Bo, the Minister of Participa-
tion, and came hack with the following proposal. Carbone, however, made it
clear that Moro had not approvcd this proposa1 but he felt sure that it could be
accepted because of the statement of the Iwo ministers:
(1) Raytheon would not send out the dismissal notices.
(2) Raytheon would open the plant on Monday morning.
(3) On Monday rno&ing they would arrange for Raytheon 10start negotiations
with a group consisting of representatives of the Ministries. IMI, Cassa del
Mezzogiorno, IR1 and another unnamed State Company.
(4) They would immediately start 10 study the creation of a new Company 10
buy or lease the assets from Raytheon or to create an interim arrangement
for a transitional period.(5) The State and the Region would cover the new lossesbut this was no1clearly
defined.
Carbone clearly meant the payment of the salaries and some operating losses
but it was not possible to get a clear definition of points such as interest charges.
(6) L'nder pressure hc said thesc dis;ussions should becle~rcd in onc wcek and
ii unsuccc\si'ul.then the comptny should cl<)se,hut ihis siaiemeniUJS \Cr)
unconvincing.
In the following general discussion, Carbone made a point that hecause of the
elections, the Central Government could not accept "political revolution" in
Sicily,that we were now in a position of strength, that if we refused the request
from the Prime Minister, then we would occur his severe displeasure and that in
ltaly nothing happens until the roof is on fire.
Dunng the meeting there was a continuous stream of incoming phone calls
obviously asking - "How is it doing?'.
The meeting finished some lime after midnight and we agreed to let Carbone
know the following morning what we had then done.
ExhibitH
At 10.00a.m. Mr. F. Leesooke toDr. Carbone to advise him that the dismissal
letters had been mailed as siheduled. He expressed extreme disappointment and
advised that he would inform Minister Andreotti immediately. He also advised
that henceforth the climate of anv neeotiations with the Central Government
would ine%ii;iblybe much more iiiainrd Mr Lcc advised him thal EI.SI would
be preparcd io tolk Io him or the \linister nert ueek. if ihc Minister so desired.
SUNDAY, 31 MARCH 1968
Ing. Profumo reported that he met President Carollo at 6.45 a.m. Carollo said
to Profumo that Prime Minister Moro told him that an ESPI-IMI company will
be formed to deal with the acquisition of ELSl's assets and to serve as a bridge
to the time when a "Finelettronica" holding company will be formed which will
eventually own ELSI. Carollo said also that Professor Calosi will be placed in
charge of Finelettronica. Moro was also reported as saying that the asset-acquisi-
lion route was easier to travel for IR1 because in following it IR1 would not
have to collahorate with Raytheon. Carollo then said that to keep the people in
Palermo and avoid an exodus 10 other jobs, and to protect the plant and
machinery, the plant would be requisitioned and Profumo would be asked to run
it again. The Region would assume the necessary cosis until a new company is
formed. Carollo said also that he would donate Lit. 20,000 to each employee to
offer them some relief.ANNEXES TO THE MEMORIAL
Annex 16
[Nor reproduced] ELETTRONICA SICULA
Annex 17
AFFIDAVI OTF JOSEPH A. SCOPELLIT F, RMER CHEFFINANCIAO LFFlCER AND
CONTROLLER RA, YTHEOC NOMPANY D,ATED1APRIL1987
1, Joseph A. Scopelliti. personally appeared before Lorraine Lee, a notary
public in and for the State of New York on I Apnl 1987,and, upon being duly
sworn, stated that:
i. My name is Joseph A. Scopelliti. 1 hold a Bachelor's Degreein Business
Administration from Clark University and have studied finance al the graduate
levelat Boston College.1worked for the Raytheon Company ("Raytheon") from
1959 to 1977. From 1959 through 1966, 1 worked primarily for Raytheon's
Corporate Controller's Office. In 1963and 1964,1was assigned by Raytheon to
work in Palermo as an Operations Consultant with Elettronica Siccula, S.P.A.
("ELSI"), during which time 1 became very familiar with ELSl's financesand
operalions.
2. From 1966through 1977, 1was Chief Financial Officer and Controller of
Raytheon Europe International, Raytheon's European management subsidiary.
In March of 1967,Raytheon Europe's General Manager, Mr. John Clare, was
~ ~~~ -airman of ELSl as oart of a ~a~o~ ~ ~theon initiative to make ELSl
profitable. At that time, 1alio became a km& of ELSl's Boardof Directors
and assisted Mr. Clare as financial adviser. Beginnina in 1966 and continuing
through the summer of 1968,1was directly inv>lved;n al1major planning foi
ELSI, and was ultimately reponsible for the financial aspects of these plans.
3. Ravtheon and ELSl's efforts in 1967 and 1968 to make ELSl profitable
centeredon obtaining a commitment from the ltalian Government to support
ELSI. ELSl's attempts prior to this time to secure markets for items being used
- bv the Government and government-owned industry and Io avail ilselfof Mezzo-
-~orn~ incentives wereio mv knowledee ~~n""aliv unsuccessful. The Central
Go\,crnmcni. and mosi imporlanily lis husincrs iunglunieriiie Isiiiuio psr la
Risosiruzione Indusiriale ("IRI"). controlled maior ssemcnis of the Iiali3n econ-
omv crucial to ELSl's success or failure. inclu<iin-ekctronics. telecommunica-
tiens, health care, military supplies, inlormation and transportation systems,and
the ltalian banking system.The Italian Government was responsible for support-
ine these industrie.. an.. throueh IR1and its other controlled entities.dominated
thim in many instances as a clstomer and supplier as well as a sharéholder.
4. ELSl's unsuccessful attempts on its own to penetrate the ltalian markets,
broaden its oroduct lines and obtain the com~etition eoualizine benefits of the
!4cr,ogiorn; laus led 10ihe folloiiing conslus;on II hec&nccl& io m)scliiind
othrr Raythcon and FI.SI linancial 2nd niarkcting .inal!si, th:ii uithout a part-
nershin u,iih IKI or oihcr cuuiiiilcnt eo\ernnieni:il cniitv. ELSl would çoniiniic
IO bc in ouisidcr IO ihc lt~li'anindu>cial iummunii) 2nd coiild nor succccd. An
importani. go\crnmcni-hacked Iiiilian piirtncr uould offcrihc hcncfitsof a recog-
nizcd Iialian business nctu,ork. which. in turn. would assure ELSI'i iucrcsi in
secunng go\,ernmçnt benrliis 2nd inceniii,esdciigned IOphcc Mez2ogiornocom-
panies Iikc ELSl on a niorc cqual iumpeiiiivc looiing u,ithin ihcir respcsiivr
markets Such a siraiegic parincrship u,ould also positi\ely influencegovcrnrnent
decision-making in cionomic planning. ihus avsuring ELSl ula righilul placc in
ihe future of the Italian clccironics indusiry. lihich u.as dominaicd hy gokcrn- ANNEXES TO THE MEMORIAL 185
ment-hacked comoanies. Althoueh we made efforts (without success) to ohtain
3 piirtncr in priia;c indurtrg. incÏuding FIAT, u,cknc; thai tlie aciit,Cdircci 2nd
indircci support of the G<i\,crnmcntus the real ke) ru ELSl's success.
5.To 31din the nrusess oiseekine a sir;itceis oartiier. Mr. Clare and others ai
Raytheon and ELSI developd de&iled plans and proposals for new products
which ELSl could readily and profitahly produce and sell,especiallyto IRI. They
met extensively with public officiais and private individuals to pursue these
oronosals to find an interested Italian oartner that could unlock new markets
and'assistance under existing laws. ~hese efforts continued until the lasi day and
hour of ELSl's industrial life, which expired in the early morning hours of 30
March 1968.
6. Dunng this intensive activity period, we were aware of the need to have
back-up plans in case these efforts were no1successful. In the latter part of 1967,
we reluctantly began to plan in general for the potential liquidation of ELSI. 1
was responsihle for the financial aspects of this planning, that is, for determining
how much could be realized from ELSl's assets, how it could be distrihuted to
creditors, and the timing and cash-flow aspects of the plan. In preparing these
plans, 1knew that itwasessential 10be very conservative in estimating how much
money could be realized from ELSI's product lines, and to identify every liahility
which would have to be paid.
7. Working with Raytheon personnel assigned to ELSI, 1prepared an analysis
of assets, including an inventory, in order to determine how much could he
realized ina liquidation. This analysis isattached heretoas Exhihit A. As reflected
in that Exhibit, weestimated that approximately 10.8billion Lirecould he realized
through an orderly liquidation of ELSl's assets. In prepanng this analysis, and
in order to he as conservative as possible, we discounted the hook value of the
assets. Our analysis thus ignored the significant intangible value of ELSl's husi-
nesses. Basedon information provided hy Raytheon officerswho werethoroughly
familiar with ELSl's assets, customer payment history, and ELSl's financial
situation, we projected that approximately 99 per cent of accounts receivahle
would becollected, along with approximately 54 per cent of the book value of
inventories. 61 Dercent of the book value of the olant (includina t-e land and
equipnicni and e.~cliidingdcprcci;ition rcscr\esl and :!IIprepaid cxpnscs WCdid
noi projeci an) rcalizaiion inconic ior construction in prdccss. uihcr siudicr in
process, deferred costs, or other smaller book-value items.
8. As stated before, wedid nut project any realized valuesfor ELSl's intangible
assets, that is, for its excellent reputation as a producer of reliable electronic
products, and its experienceand know-how in the electronics industry, ils supplier
and customer lists and market renutation. Datent licenses and other riahts to
tcshnology wpplied by Rayiheon ind ~achieti. and othcr coniricts. ~i~~cover.
in ELSl's cise. its products wcrr.b:ickcd by the sirong names. tcshnology and
rcouiation~ of Raytheon and Machlstt Lahor~iurici. Inc ,and 11hiid esiahlished
p~oducts with a ;eputatiun for quality. In Our judgment, these items were of
significant value and interest to potential huyers.
9. In my experience, companies are often willing to pay a considerable sum
simply for the name, technology, and established customers of an electronics
business, in addition to the tangible assets.It is not unusual for huyers of going
concerns in the electronics industry to pay a price in excess of twice their hook
value.
10.For oumoses ofa conservative liquidation vlan. however. 1chose to exclude
ang rcali/ahle values for such items. 11ssiaied ahove. my ohjeciive w3s io prcpare
ï \erg conser\aii\c plan reiieciing ihc minimum prospects ui'recr>vcryof values
u,hich wecould bc sure of. in ordcr io enrure an orderlg liquidation process. Thisplan was ultimately finalizedin consultation with Raytheon Vice-PresidentJoseph
Oo..nheim.
II. In early 1968and in response to the growing concern that an ltalian partner
would not be forthcoming, detailed plans were prepared for a shut-down of ELSl
and liquidation at an? lime after 16March 1968.These plans were thorough and
well worked out. ~hev orovided for several workinè erouDs conductine the
Iiquid.iiion. One goup iould ,.O-urdin;itc ihc cniirc pl;; inoihcr iroulÏdeal
wiih b~nksand othcr creditors: anoihcr irould h:indlccommitmcnis io curlonicn
and the collection of receivables; and a final grou-.would CO-ordinalethe sale
o~ ~ ~ ~s.
12. While we were prepared to seIl the entire range of businesses to a single
purchaser, the separability of each business oîlered us the additional advantage
of appealing to a much broader group of potential purchasers. The TV picture
tube line, for example, which held 20 per cent of its respective markets, was
housed in a separate building within ELSl's industrial compound, and therefore
was salahle seoaratelv. includine ils own building. from the rest of the plant. The
semiconducto;, X-rai tube, surie arrester, and Nato assembly lines,whkh consti-
tuted distinct businesses, could be sold as separate packages, including their
respective technology, contracts, customer and supplier baies, and established
name and reputation. These product lines could have been sold with their corre-
sponding equipment to buyers elsewhere in Italy, Europe or Japan.
13. On the other hand, the general plant and equipment was no1 necessarily
limited to oroducine the soecificoroducts which ELSI had heen oroducine. The
type of facilitiesandequi6ment \;hich ELSI had, such as test equ;pment, calibra-
lion equipment, tools and machining equip~ent~ ~ssemhly lines, storage bins,
and tëmierature conlrol instrumentation. would be beneficial to ~roducine a
wide vahety of electronic equipment and, to a more limiied exteit, for o&er
forms of manufacturing.
14.The plan also dealt in detail with the use of the proceeds from the sale of
the assets. Ideally, wewould settle first with the small creditors, subject. ofcourse,
to the agreement of the major creditors, in order to minimize the administrative
eKortduring liquidation. Secured and preferred creditors would take priority and
would be paid when the assets used for collateral were sold. Major unsecured
creditors wer~ ~ ~~e~oaid on a nro rata hasis from within the funds realized from
the sale ofassets. ~hCnRayth<on would be called upon to satisfy any guaranteed
creditor to the extent not already paid [rom assel sale proceeds. We calculated
that the secured and preferred creditors would receive 100 per cent of their
outstanding claims, while the unsecured major creditors who were no1 covered
by Raytheon guarantees would realize about 50 per cent of their claims. The
latter creditors were certain banks and Raytheon and its subsidiaries. We were
confident that an orderly liquidation of this type would be acceptable to the
creditors as it was much more favorable than could he expected through bank-
ruptcy. Demonstrating ils support of the liquidation plan, Raytheon organized
to provide funds to ELSI in advance of the sale of ils assets so that disbursements
could easily be made to the small crediiors and, as a first step, transferred 150
million lire to the First National City Bank branch in Milan specificallyfor that
purpose.
15. Looking back at this plan, and hased on my subsequent experience, 1
believe now, as 1 believed ihen. that the plan was sound in every respect and
would have heen realized. The projected sale proceeds were conservative. The
totalitv of the assets were orobablv worth more than the 10.8billion lireolanned
from ihcir sale. The prule&ed scilicments were exircmely fïv<irablc IO ~he'~cncr.,l
crediiors. considering the alicrnaii\e The I<isihcnciii, tu ihc gcncral crediiors ANNEXES TO THE MEMORIAL 187
which would haveresulted from an orderly liquidation become clear when com-
pared to what happened in the bankruptcy where the unsecured creditors reccived
only a small fraction of their claims.
16. In view of ELSl's critical situation, on 16 March 1968, ELSl's Board of
Directors voted to begin ELSl's liquidation on 29 March.
17. On 1 April, however, the Mayor of Palermo requisitioned ELSl's plant
and equipment. With the rcquisition of ELSl's assets,it was impossible to invite
potenlial buyers to view ELSI's facilities and discuss the sale of the businesses.
Moreover, in-process inventories could not be converted to finished products.
Suppliers and customers were thus suddenly and abruptly suspended. ELSI's
hard-earned market position was quickly taken away by competitors. Not only
were the bulk of ELSl's assets suddenlv not disoosable. but il did not annear
likely that Raytheon would ever regainiontrol of them. The requisition &on
ended our chances ofcompleting an orderly liquidation and obtaining a fair price
for ELSl's businesses and~asseti. . . .
18.In retrospect, 1have concluded that there was only one factor, government
intervention. which rendered the liquidation plan inoperative. We had carefully
considered al1threats to our plan, including government intervention, and it was
our considered judgment that the plan was properly configured and stood a high
probability of success.As for government intervention. we knew of no instances
where the Government of ltaly had frustrated the liquidation of a private com-
pany by requisitioning ifs assets. Although this in fact did happen, the Govern-
ment's requisition action was cventually held to be illegal by the highest courts
in Italy, but, unfortunately, the process of ovcrturning the rcquisition order took
approximately one and one-half years, during which tirne ELSl's asset values
substantially deteriorated.
19. After the requisiiion, creditor demands intensified substantially, while the
assets which were to be liquidated to satisfy these demands were lied up by the
requisition. With this crucial illiquidity, precipitated by the requisition, our ltalian
counsel. Mr. Giuseppe Bisconti, advised ELSl's Board of Directors that il had
no alternative but to file a bankruptcy petition. On 25 April 1968,the Board of
Directors voted to do so, and a voluntary petition in bankruptcy was filed by
Mr. Bisconti on 26 Aoril al the Tribunal of Palermo.
20. In my view, ELSI could have emerged as 8 viable competitor in the ltalian
electronics industry. With a fully trained cadre of employees inplace, its modern
facilities and excellent reputation, and the continuing technical and product
support from Raytheon and Machlett, ELSl otlered a very attractive opportunity
10 a strategically positioned Italian partner. Had such a partnership emerged, 1
believe that ELSI would have been more successful in obtaininr Mezzogiorno
incentives, thereby further strcngthening ils compeiitive positionand incrcasing
its value no1 only to ils shareholders, but also to ils communiiy and Italy's
development al a whole.
(Signed) Joseph A. SCOPELLITI.
State of New York,
County of New York
Sworn to before methis 1stday of April, 1987.
(Signed) Lorraine Ltii.:. ELETTRONICA SICULA
ExhibitA
RAYTHEONELSIs.P.A., ASSCTANALYSIS, 3/31/68
Capital Equipment :
Land
Buildings
Plant Machinery and Equipment
Fumiture, Fixtures, Autos
Tax Reserve
Construction in Process
Studieî in Process
Deierred casts:
Patents and Studies
Start up Costs
Military Orders
Other
Materials and Work in Process:
Stores
Workin Process
Tax in Rewrve
Cash Banks
Notes Receivable
lnvestments
Accounts Receivable
Customers
ARiliated Companies
Other
Deierred Charges
Total ANNEXES TO THE MEMORIAL
ELSI. SUMMARY - INVENTORY ANALYSIS ESTIMATED AS OF 31 MARCH 1968
(Lire in Millions)
Book
Value
Raw Materials and Parts
Cathode Ray Tubes
Magnetron Tubes
X-ray Tubes
Semiconductors
Surge Arresters
Complex Componenls
Other - Common
Semi-Finished Goods
Cathode Ray Tubes
Magnetron Tubes
X-ray Tubes
Semiconductors
Surge Arresters
Camplex Compancnls
Other - Cornmon
Work-in-Process
Cathode Ray Tubes
Magnetron Tubes
X-ray Tubes
Semiconductors
Surge Arresters
Complex Components
Other- Common
Finished Goods
Cathode Ray Tubes
Magnetron Tubes
X-ray Tubes
Semiconductors
Surge Arresters
Complex Components
Other Common
Maintenanceand Repair Parts
Grand Total 5581.3 3539.9
- - ELETTRONICA SICULA
ELSI. INVENTORYANALYSISESTIMATEDAS OF 31 MARCH 1968
(Lire in Millions)
Cathode Ray Tubes
Book Sole
Volue V&
Raw Materials and Parts
Glass -mostly 19"SOM@ 5000L.
Ears 3 mos supply
Strapping SOMtubes use
Silicate per mo 1200L
Gun Parts ave mat cos1
Cathodes1 3x 5OMx 1200 L=
Graphite -acctone, etc.
Semi-Finished Gaods
Tubes tobereworked 60.000 624500 L
Customer rets be tented -
100,000@ 4500 L
Tubes to be finished and misc. sizes
Work-in-Process
Mostly 19"tubes
Finished Goods
4800 Tubes@ 7500 L
Maintenance and Repair Pans
Total
Notes:
Write down of 130.0 Raw Material and Parts represents msterial no1currently used
in production. Although il does have value. it was not caboveanalysis.
Above costs represent standard costs.
Write dawn of 449.4 ofi-finishedGoods is for tube types and sizss no1currently in
demand. Although there is value,as no1considered in above anolysis.
Selling price (average) is 9500 L.
ELSI. INVENTORYANALYSISESTIMATEDAS OF 31 MARCH 1968
(Lire in Millions)
Magnetron Tubes
Book Sole
Volut Value
Raw Material and Parts
Semi-Finished Goodr ANNEXES TO THE MEMORlAL 191
(eonrinuedfrompreviouspage)
Book Sole
Volue Vnlue
Work-in-Process 518.3 348.0
125 - QK707A 25-ES-410B
10 -ES115
Finished Goods 566.6 424.0
149-RK6027 83-2J70A 81-2K28
410-242 75-5609 130-QK707A
Maintenance and Repair Parts - 4.6 - 4.6
Total 1647.7 1217.6
- -
Notes:
Write down of 10.1of Raw Materi~ls and Parts reprsents material no1currently used
inproduction. Material doehave value.
Write down of 107.1of Semi-Finishcd Goods covers itemssuch as 70ES1229-135ES1102
some faulty QK707s and QK390.
Write down of 170.3 of Work-in-Process represents rÿdarange work-in-process. types
which are e.rtremçlyslow moving such as ES-1102 klystrons and somc Iaulty ES410Bs.
Write down of 142.6 of Finishcd Goods represents slow moving types plus some obso-
lescence.
ELSI. INVENTORY ANALYSIS ESTIMATEDAS OF 31 MARCH 1969
(Lire in Millions)
X-ray Line
Book Sale
Value Volur
Raw Materials and Parts 79.2 44.0
Semi-Finished Goods 159.1 59.0
Work-in-Procers 59.8 50.0
Finished Goods 237.1 188.0
Consigned to curtomers 9.0
Connigned to agentsand distributors 4.0
Maintenance and Repair Paris - 0.5 - 0.5
Total -35.7 -41.5
Note:
Write down of 35.2of Rÿw Material Parts, 100.0of Semi-Finished Goods. 9.8 of Work-
in-Process, 49.1 of Finishcd Goods represents material and producareno1currently
being used in production. slow moving tube types and some obsolescence. ELETTRONICA SICULA
ELSI. INYENTORY ANALYSIS ESTIMATEDAS OF 31 MARCH 1968
(Lire in Millions)
Semiconductors
Book Sole
Value Value
Raw Materials and Parts
222.6 105.0
Semi-Finished Goods 151.7 68.0
Work-in-Procesî 127.4 110.0
Finished Goods 954.8 467.0
6.0 Million@ 20 L 120.0
2.0 Million@ 7 L 14.0
TR22A Milano 170.0
Palermo and Milano 163.0
Maintenance and Repair Parts - 17.4 - 17.4
Total -1473.9 767.4
=\ -
Notes:
The Milano warehouse hasapproiimately al1of the semiconducfor material and product
which is considereexcess.slow moving. recoverable and obsolete types. This material and
product does have value, however, the abave figures have bcenadjusted to reflect an
extremely low recovery value or no value.
70,000 Chips are in stores ready for shipment to Machlett USA.
ELSI.INYENTORY ANALYSISESTIMATEDAS OF 31 MARCH 1968
(Lire in Millions)
Surge Arrcsters
Book Sale
Value Value
Raw Materials and Parts 46.0 25.0
Semi-Finished Gaods 24.1 17.0
Work-in-Process 6.4 6.0
Finished Goods 54.1 31.0
Maintenance and Repair Parts
Total
Note:
Write down in the various calegories listed above are for slow moving types, material
no1 used incurrent production and some obsolescence. ANNEXES TO THE MEMORIAL 193
ELSI. INVENTORYANALYSISFSTIMATEOAS OF 31 MARCH 1968
(Lire in Millions)
Complex Components
Book Sak
Value Value
Raw Materials and Parts 2.7 2.7
Semi-Finirhed Goods - -
Work-in-Procesr 9.8 9.8
45M) Sparrow modules
IWO Sparrow madules to betested
Finirhed Goods 1.O 1.0
1000Sparrow Modules
Maintenance and Repair Parts
Total
Note:
There arealso 4000 lieht dimmers in iirocess
Most material consigned Io ELSl fram RaytheanUSA.
ELSI.INVENTORYANALSSISESTIMATED AS OF 31 MARCH 1968
(Lire in Millions)
Other - Common to All Lines
Book Sole
Value Vnlue
Raw Materials and Parts
Metals. chemicals. oils, etc.
Maintenance and Repair Parts
Total
Note:
Write down as shown covers obsolete material. iiarts. etc.. no lonrer needed or used.
.
However, some of thir material dohavesome value although no1considered above
ELSI. ANALYSISOF ACCRUED RECEIVABLES AND PRCPAIDEXPENSES, 31 MARCH 1968
(Lire in Millions)
Book ErrimotpO/
Amounl Rmlizoble
Quantity Discounts 25.5 20.0
Klystron Price Revision 251.7 180.0
(conrlnueodn nrxr page)(conrinued/rontpreriouspage)
Book E.~rimov O/
Amounr Rc<iliz<ihle
Reimbursemeni of IGE tax on exports 47.2 47.2
Prepaid Insurance 5.4
Prcpaid Interest 3.6
Prepÿid Reni 3.6
Prepaid Rental - Telex II
~efmbursement of SETEL expenses - 14.3
352.4
-
Notes:
The estimate of realirable value of accrued receivahles represents a conservative evalu-
alion.
1. Qudntity Discounts - Sincesame of the purchasc contracis had a fewmonths remaining
the quantity levelsattained would produce a lower discount rate.
2. The Klvstron Price Revision Reurrof 251.7can be considered. under nrcsent conditions.
somewhat opfimistic. The 180.0 is conservative and represenis original submission of
value on thir contract.
3. Nol included in the above fieuresis anELSl claim for reimbursement underthe Iialian
"Mezzogiorno lnvestment in". At the lime the Planwas closed lng. Monialbano and
Rag. Fiandaca were working an the resubmission of thir claim. From 100.0to 300.0.
msi. ANALYSIS OF ACCOUNTS RBCEIVARLEOTHER. 31 MARCH 1968
(Lire irrMillions)
Book E.srin,<ie f
Anzouiir R~~~,lirnhle
Advances Io Employeen- Factory - Ofice personnel 57.0 57.0
Cash Dcposit wiih Cuîtoms 21.1 21.1
Bid Deposits with Government Agencies 15.5 15.5
Bid Depasits Third Parties 9.0 9.0
Reimbursement orIGE Tax on Exports 71.9 71.9
La Centrale S.P.A. 0.3 0.3
Bureau de Gestion 1.2 1.2
Advancc to Mr. Conosccnti 0.3 0.3
Engineer Fontunella 4.3 -
CRAL - Loan - ELSl ErnployecsCluh 12.0 5.0
SicilbanRegion - Payment for lntcrcst on IRFIS loan 3.0 3.0
Soc. Inizidtive Meridionali 0.3 0.3
Bianculli- Milan Customs Dcposit 0.1 O.1
Advances to Employees - Travel 5.6 -
Advances for Market Devclopment 2.3 -
General Administration 1.1 -
Avv. Cochetti - advance for legÿl expenser 0.4 -
Advance to Mr. Puccia (since paid) 1.O 1.O ANNF.XT:STO THE MEMORIAL 195
(conriiiued/roni previourpage)
Book EsrinioreO/
Anlounr Reolizoble
Avv. Arnone - advancc for legal expenses 0.2 -
Prepaia Employee Taxes 25.0 25.0
Advances to Agentslagainrt commissions to bepaid 4.2 -
Round-offon salary computations - 0.4 - -
Total -36.2 210.7
-
RAYTHI~ONBLSIs.P.A., ASSI:TANALYSIS, 31 MARCH 1968
Al 3/13/68 Rrolizzohilz
Immobiliirazioni :
Terrena 167.0 200.0
Fabbricati 915.7 800.0
Impianti, Macçhinari,
Attreualure 5329.6 3050.0
Mobili, Arredi, Automczzi 210.5 150.0
Riprese Fiscali 463.6 0
7086.4
Lavori in corso pcr irnpianti 184.0 150.0
Lavori in corso per studi 303.0 O
Partite da ammortiuare:
Brevctti. Studi 853.0
Commesse Militari 68.1
Diversi 496.9
1418.0 0
Materiali e lavorin corso:
Magazzino 5519.6
Merce in Iavorazione
Riprese Fiscali 1015.0
6534.6
Cassa. Banche. cc/Postale 21.3 21.3
Portafoglio EiTetti 1281 128.1
Partecipdzioni 119.2 O
Clicnti 2150.8 2150.8
Sacieti Collerdie 106.0
Ratei e Risconti Attivi 352.4 352.4
Totale 186400 10838.8 ELETTRONICA SICULA
Annex18
[Nor reproducedj
Annex19
SALESBROCHUR RA,YTHEON-ELS S.IP,.A
[Nor reproduced]
Annex20
[Nor reproduced]198 ELETTRONICA SICULA
civilian and military radars, telecommunications equipment, and radaranges; (3)
three types of mercury vapor lamps for lighting roads, yards, and depots and
self-pilotingniultiple surge arcesters for the protection of terminal equipment and
employees against overvoltages transmitted by telephone lines; (4) X-ray tubes
for various medical and industrialapplications; and (5)semiconductors, including
germanium transistors and silicon rectifiers, for computers, missiles, and other
electronic equipment.
9. Our preliminary examination of ELSI's product lines and plant conditions
revealed that. while ELSl had done an outstandine iob of oroducine these
produci,. including microua\c iuhcs for the Satu ~àwk niissiic progrÿm. and
crtihlishcd a icchnologicall! >d\ancc.i Fdcilit!. including a iully equippcd Iahnra-
tory to develop picture tubes for color television, there were various steps which
could be imolemented immediatelv 10 im~rove the ooeration and make ELSl
ninw ctlicieni dnd profiiablc The,; includid csi3blish~cni <if 3 fccdcr utirchouse
and rcpdir c)clc. implemcnidiion of cunirolr on rdiiincilerial>and tiiiishcdgoods,
modification of work stations. elimination of unnecessarv warehouse s~ace.ienair
anil mainienanie of cquipmeni, insiiiuiion OCncw produsiion rcchniqucs. and
ihe soiiinicnccmcnt <>iriudics io ;asceriain(1 Jsd~ses of \i>idsdppcaring on the
ia:c oi octurc tuhcs. (2) mcihods Corrcducing r>crccnt:igeof ,crADm.iteri31,(3) . .
trainingneeds of empioyees, (4) maximum Gpacity, and (5) appro-
priate cost standards for each step of the production process.
10. For example, our preliminary study found that when voids or cracks
occurred in a picture tube during fusion of a glass neck onto the tube, ELSI
rejected the tube and sent it to a warehouse for storage. As a result of this
prdctice, ELSI had over 100,000 defective picture tubes stored in various ware-
houses. Accordingly, if we estahlished a system where defective tubes were re-
paired and fed into the manufacturing cycle from a special warehouse, rather
than stored in leased space for years, ELSI could recover its investment in the
tubes, reduce purchases of the glass tubes from manufacturers in France and
Gennanv. and eliminate unnecessarv storage space.
~urther. oiir prclimindr) siud! fohd ih.17~ifunrk si~iions ucrc reltisaicd nex
cqiiipnicnt ncscss:irv for ihc \tati<ins to pcrform ihcir assigned tasks, cquipmcnt
necessary to perfonn tasks efficientlywas repaired or purchased, and approxi-
matelv five tons of scrao material stored in barrels throuehout the olant was
remo;ed, then ELSI coild reduce the occurrence of backl&s at worc stations,
complete production in shorter periods of time, and improveworker performance,
thereby inÏreasing itsvolume ofproducts manufactured and reducing ils manufac-
turing costs.
11. After we completed our various studies, we were able to implement addi-
tional steps to make ELSI as efficientand profitable as possible. We established
new o.ocedures for receivine comoetitive sealed bids from vendors. insoectine
maicrills and cquipmeni rcsziicd frum \cnilt~r\ itiaswre thai the) mri rsquircd
spccific:<ii.~nsa.\sigiiing spa;iihc plant t,obi~inopiimLm ..iiliziiion. rcducing
rhç Amouni .inJ L.OI~ <II' LSI'Suiilii) conhumptioii. forccii~iingmonilil) sales
and prcp:jring prndu~iion sshcdulcs b.iicd upon ihosc nionlhlv fnrecasis, idking
accurdic iiivcnioric.; oi r~ii mdtcrialj .inJ iini>hçdgoodi, rcducing pilicrdgc oi
raw materials and hand tools, maintaining production and test equipment,
centralizine nroduction linesto imorove efficiencvand reduce overhead. distnbut-
ing perso&l efficiently to work' stations, co~trolling quality and delivery of
products, and reporting accurately production yields and scrap.
12.As a result of our investigation into the causes of voids appearing on the
face of television picture tubes manufactured in the ELSI plant, we found that
the water used to wash the inside of the tubes was contaminated by bacteria ANNEXES TO THE MEMORIAL 199
which prevenied the phosphorus coaiing for thc tubes l'rom king Jcposiied
s\cnly. WC.iherefore. expendcd ine.;ce$..uf S1OO.OO tOinstalla uaier punfic~iion
svstem. which wouldueÏmit an even a~~licationof ~hos~horusand Ïesult in the
consistent manufactuie of picture tubécwhich produced'clear images.
13. In addition, we built four classrooms Io accommodate the 125employees,
instructors, and equipment involved in Our new nine-month training program
which was geared to the techniques of manufactunng new electronic producrs
for which we expected orders.
14.As Director of Planning, 1was also aware of efforts hy other employeesto
make ELSl self-sufficient.These activities included efforts by management and
the sales force to obtain orders for X-ray tubes from government hospitals, to
increase sales to the Railway and Postal, Telegraph and Telephone Systems
operated by the Italian Government, and to reduce ELSl's manufactunng costs
and prices byobtaining transportation subsidiesfor ELSl as a Mezzogiorno firm.
15. ELSl's work force co-operated fully with our plant improvements, sales
efforts, and training program. ELSI's employees frequently told me that they
were uleased with Our efforts to revitalize ELSl and that thev understood we
irerc iitenipiing io sni,e the rompan! 2nd pro\ide ~oniinued'rm~lii~mciii In
Idci. ELSl'scmplu!r~esin\,itcd mc anJ oihcr mcmber\ of the spccialmanagemeni
temi to ,itlr.nd ihcir socialclub in di)i%nto\%In'rller111a10dpariicip.ii< in ihzir
gymkhana race,activiticswhichgenerallymembcrs of management arenot invited
to join.
16. In early 1968, the plant experienced some "hiccup" strikes, brief work
stoppages, which were due primarily to employee concern over the lack of
attention from the Sicilian and Central Government of ltaly to the economic
problems at ELSI. Because 1 spoke fluent Italian, 1 was often called upon to
negotiate a resolution Io these brief work stoppages. During such negotiations,
it was obvious the emolovees were verv frusirated becausc the" knew that: (1)
. , ~ ~ ~ ~ ~
despite al1of RaGheon's efforts to make ELSI self-sufficient, ÉLSI would hàvé
to dismiss employees unless it obtained new orders for electronic products,
including ordeÏs for X-ray tubes ancltelephone equipment, or an ltalian partner
who could furnish new product markets; (2) the Italian Government had the
ahility to furnish ELSl with newmarkets and such a partner, for example,lstituto
per la Ricostruzione Industriale ("IR1" and Ente Siciliano per la Produzione
lndustnale ("ESPI"); and (3)pleas for such assistance were being ignored by
officialsof the national Government.
17. Despite the short work stoppages in February and March of 1968,opera-
tions continued throurhout this oeriod. Durine late March of 1968.John Clare
called a meetingwhich'wasattenéedby a number of ELSl and Raytheon-Europe
managers, including Jack Mazzotti and me. John stated that ELSl would have
to dismiss al1 but 120 employees nceded to continue some operations because
ELSl and its shareholders had determined that their efforts to obtain markets
for new products. an Iialian partner, and benefits from the Italian Government
under the Mezzogiorno laws had failed, that ELSl would undergo an orderly
liquidation, and that Raytheon was sending some of ils most experienced senior
officers10 ltaly to co-ordinate the liquidation.
18. Before an orderly liquidation could be completed, however, John CIare
advised me that on April 1, 1968,the Mayor of Palermo had requisitioned the
plant and other ELSl assets. Mr. Clare and other senior ELSl officialsrequested
that I stay at the plant night and day to preclude local aulliorilies from somehow
asserting that the plant had been "abandoned" by ELSI.
19.For the next several weeks, 1lived in ELSl's management offices.Arrange-
ments were made for food and other necessilies.While 1was told that the keys200 ELETTRONICA SICULA
to the plant had been turned over to government representatives, 1never observed
any attempts hy the Government to use, run, or maintain the plant. Further, no
ont. cver officiallyasked me to leave the premises.
20. Prior to the requisition of the plant, the local Carabinieri kept order and
did not permit the workers to occupy the plant premises. After the requisition,
however, they did nothing to prevent ELSl's former employees from occupying
the plant grounds or ta terminate that occupation.
21. Oneday while my hodyguard and 1were babysitting the plant, we received
word that ELSl's former employees, who had heen allowed by the Carahinieri
to occupy the plant grounds since shortly after the requisition, were going to
stonn the plant within minutes and had threatened to blow it up in order to gain
national attention so thatELSl's problems would be solved by active governmen-
ta1 intervention.My bodyguard directed me to stand behind him outside the
plant door. As the workers came running and shouting toward the plant, my
unarmed bodyguard raised bis hand, ordered the workers to stop, and directed
them not to go in the plant or harm me. To my amazement, they did what he
ordered and squatted on the premises in front of the production plant. We then
returned to the management offices.
22. Shortly theredfter, 1received a tip that the employees were convinced they
had todo something dramatic to get the Government ta take more rapid action
in solving ELSI's problems. 1 was told that the ELSI workers had decided to
join forces with ruffians from the Palermo docks and that they would either fire
shots at the plant or hlow il up. While 1did not believe the workers would go
that far in their attempts to get the Government to take action, 1agreed to meet
with representatives of the employees to answer questions about ELSI in order
to defuse the situation. After 1answered their questions for over 24 hours, the
workers left the grounds of the plant and al1was quiet once again.
23. In late Apnl of 1968,1received word that ELSl had been forced to filefor
bankruptcy as a result of the requisition by the Mayor of Palermo and that 1
could, therefore, leave the plant. As I was leaving, however, the workers stopped
me and had me return to my office,where they made me diimp everything out
of my briefcase. My briefcasehad contained my personal filesand notes regarding
studies and proposals for ELSI, which 1 wanted to take witb me. The workers
told me they were keeping al1of my files and notes, except Iwo or three items.
Thereafter, 1immediately departed the plant and never returned.
(Signed) Rico A. MERLUZZO.
Subscribed and sworn to before me this 17th day of Apnl, 1987.
Middlesex, ss., Commonwealth of Massachusetts.
(Signed) Stuart S.HELLER,
Notdry Public. ANNEXES TO THE MEMORIAL
Annex 22
CHAPTER 1
INTRODUCTION AND SUMMARY OF CONCLUSIONS
Thi~ ~ ~ort is7nrec~~~d b, ,avtheon-ELSI for submission to ESPl nro..sine -
tion are obviously availablc but the cxtrnpolaiions for the l~ture ha\ç necessarily
kenRayihcon-EI.SI now reprcrent,d3wbignificantsoci<>.economic>sretin Sisil) huili
up ai a ver) heÿ\y eost io R;i)ihsùn Thcie proposals arc ïimcd ai m;iintsinlng
and exnlind~nrthib asset uith a11ihr attendant socio-cionomii benefits.
It i~'~ro~o:ed that the Regional Government should invest 6 billion lire in
Raytheon-ELSI as additional capitalisation of the Company. Raytheon have
already invested 8 billion lireof which only 4 billion lireappear as the par value
of the Company's capital stock. Raytheon would not want Io claim back any of
its invested money and would be prepared to regard the present par value as
being 4 billion lire.
Another area of help requested from the Regional Government is in
approaching Central Government agencies to help provide new products for
ELSl to augment the ones provided by Raytheon. With the proposed plan il is
possible to reach a sales levelin two years lime which willmake the present work
force of 1,050a viable commercial proposition and in the three ensuing years,
with the appropriate Government help innew product areas, to increase the work
force to 1,500people.
The oronosed financial vlan is reearded as beine conservative and the fieures
giwn ihcrr arc. for saler and itaiïnumbers. sllghtlylouer than Ihu,e wvrn aho\e.
With the real cnihu~iasticwpport of ESPl and with the later support of Central
Government agencies for Our products, these figures could k considerably
increased.
The new laws covering assistance in transport costs, in capital investment
allowances and in assistance with training costs, will need be made operaiive
and favourably interpreted. This will be possible and can be vigorously pursued
after ESPI's participation in ELSI.
The alternative to the plan is that presently over300people are reallyredundant
and thereafter the annual sales, and hence the people required, willtend Io reduce
with a very significant reduction due to the CRT line in something like two to
three years time. CHAPTER 2
HISTORY OF RAYTHEON-ELSI S.p.A
Elettronica Sicula S.P.A. was founded by the Moro group of Genoa on 18
May 1954, with deed 35663 under the hand and seal of Vito Di Giovanni, a
Notarv Public in Palermo.
l'hc birth of EI.SI h:t\ hecn a ter) intercsiing chperteii:c Wilh thc e~cepiion
of the in\.estments madc tn the ~clri~r.hcmic~tlielJ. nc~r311the oiher Initiatives
in Sicily up to that lime (and after as well) were essintially devoted to the
traditional fields of endeavour and, therefore, did not represent an actual effort
to insert Sicily in the future of world industry.
ELSl was trying to move away from tradition and place itself in the fore of
industrial and technical development both through its decision at that moment
to operate in the extremely new and rapidly developing field of electronics and,
even more, hy selecling in this fieldfamilies of products technically advanced and
difficult.
Raytheon Company of Lexington, Mass., USA, one of the most important
and dynamic American electronic companies devoted to the study and production
of the most advanced electronic systems,joined thisventure both by participating
12.6percent in the capital of ELSI and by signing a liccnse agreement whereby
ELSI acquired the right to use Raytheon patents and know-how for microwave
tubes to be made in Palenno. Thiscontribution was a vital and essential condition
for the beginning of the operation.
Before building the plant, the initial capital was raised to 750 million lire, of
which 12.6percent was owned, as stated, by Raytheon, 33percent by the Sicilian
Regional Fund for Industrial Participations, 54.4 per cent by the Moro Group
of Genoa.
The first products to be made were microwave tubes, for which a license had
been ohtained from Raytheon, X-ray tubes for medical applications, thyratrons
and telephone surge arresters.
For the latter al1the patents, know-how and market had heen acquired from
FlRAR of Genoa.
The plant was inaugurated and began production, though on a very limited
scale, in November 1956, with a total force of about 100employees, labour and
white collar workers included. All the personnel for the production work and
administration was hired locally, while the technicians and engineers were tempo-
rarily imported from Genoa (former FlRAR personnel).
After two years (1959) experience proved:
1. Though we started training workers with no previous industrial experience,
the results were excellent. We had managed to achieve, in 24 months, good
results both in quality of work done (even though the technologies taught and
used were really difficult) and in quantity of work. Of course, the training
turned out to be very expensive and the burden was borne entirely by the
Company.
2. A production consisting only of microwave and X-ray tubes and telephone
surge arresters had too narrow a base to warrant the installation of those
facilities and common services essential to obtain products of high stable
quality, thatis, equal to those made by the licensor and, therefore, competitive
on the market.
3. To create a sufficientlystrong and wide sales network it was necessary to add
other products. stantly increasing sales volume: about 200 million lirein 1957; 350 in 1958;
800 in 1959; 1,900 in 1960; 2,700 in 1961 and 3,050 in 1962. Meanwhile,
however, chanaina market pressures were beine felt. For examole the averaee -
unit sales price\ if piciurciuhci 2nd scn~iconduçiorssiartcd n apprrciahlc
downulird trend on ihc cntirc Europcan market.
3 Sot only ihc tcchnic312nd produiii,,n slari-UDcosls wcrc hich. 3s si;iir.d,but
also thecreation of a wide~andstable market was verv cosïlv. both directlv
and indirectly. Furthermore, it appeared ever more evidcnt thii the electron;~
field not only technically but commercially as well was a very difficult field,
where a great experience was neededto operate correctly.
4. Both in ltaly and abroad al1 major customers, that is, the most stable and
interesting ones, were reluctant to grant us constructive confidenceas long as
we appeared like a small company with no real technical strength behind us.
We had 10 be substantially lied to a group which was really significant in
world electronics.
In order IO rcndcr eÿsicr thc solution of ihesr pruhlems and sincc LliCcniralc,
ou,ing IO its position. had no psriiiul~r po,sibiliiy of hclping kLSl sohï its
problcms Iisted abovc, La Centrale and Raytheon dccided IO.
1. Transfer ownership of the majority of the corporate shares from La Centrale
Io Raytheon by Raytheon's subscription to the major part of the capital
increasc resolved to handle the increased volume of business and the conse-
quent need to expand the facilities. On 4.25.63 the capital stock was conse-
quently increased by 2,300 million lire,Raytheon subscribing to 1,980million
and La Centrale 10 320 million. Raytheon now owned 60 per cent of the
caoital slock and La Cenlrale 40 Der cent (directlv or throueh affiliated ~~
companies) Thcrcforc. in practise, Ra>ihci)nsoniinucd cbcn more u IO incrcase
ils commiimïnt IO bring ihc Sicilim elecironic inliiaiite111succos
2 To chïnre ihc nîmc of ELSl inio Raviheon-ELSI Sn.A
3. To buy out al1the Selit shares as actially to unite thétwo operations - first
de facto (7.31.62) and later (3.30.65) legally through a merger - in order to
make them economically and industrially sounder. Thomas had meanwhile
ceased its activity in the TV field in the USA.
Raytheon-ELSI S.P.A. (hereinafter called RE) now under Raytheon's control
and drive, rapidly multiplied ils facilities,its personnel (in 1964it was increased
Io about 1.110 people) and ils sales (5,200 million lire in 1963; 6,700in 1964;
8,500 in 1965).
However, the large increase in sales must not lead one to believe that the
conques1 was an easy one, nor that that meant the attainment of an economic
equilibrium for the Company.
We must consider al this point that RE'SEuropean competitors were, and are,
large groups such as Philips (HoIland), Telefunken and Siemens (Germany),
Thomson Houston (France), etc. All of them not only had a long industrial
experience behind them, but had also begun operating several years before us in
our stxcific products such as CRT and semiconductors.
~urin~ the period 1958-1964they were consequently able to achieve great
progress not only in product quality, but principally in cos1 reduction. As an
exemplification let us point out that as a-resuli of cost-reduction unit prices
during the period 1958-1964were cut down Io 50 per cent forcathode ray tubes
and Io one-third for semiconductors. The effort of RE, still a young company
with no experience, Io follow this market trend was naturally tremendous. With
Raytheon's substantial help wecan state that the production capacity of the lines ANNEXES TO THE MEMORIAL 205
increased adequately, but the increase in cost of manpower, particularly high in
Sicily during those years, and the trend in the cos1of materials, did not make it
oossible to offsetthe uricecuts. To exolain these results wemust take into account
3150 ih3t the incidenceof ti~cdcosir. iniluding the ter!. high i,~lumc oi inicrcsi
crpensc. is part~culdrl) high in RE 1, the Company engagcs only in the manuF~c-
turc ~f iechniwllv Lcrvso~hirticiitcd riroducis h;i\inr-a rclaii\,el, modesi market
area, with the exception if cathode ray tubes.
Therefore, it became mandatory to start drawing up a program to add to the
old products other technically less difficult products showing greater market
stshilitv.
In o;der to improve the financial position of the Company and since Rayiheon
had meanwhile acknowledaed that the start-un costs reoorted on the balance
sheet as losses or as capitzized expenditures and offset by both the operating
capability acquired by the personnel and the possession of a market won over
with so much effort amountcd to a figu". oracticallv e. .l to or larzer-than the
c~pit;ilbtock. K;i!.thcon proposcd io La Ccni~~lcihe dcsaluiltion 2nd suhscqueni
rcconstiiuiion of the entire capital. Houever. sinLe1.3Centnile, nou the minoriiy
stockholder. as stated abovc.was no1 much committed to the oixration. it was
posbiblc to reach oiily an agrccmeni for a dei.3lu3iion of the capilal b! 2.300
milli<>nlire and io pobipone any furiher dc\nluaiion iu somc oiher lime Ai the
same iimc IIwas deridcd IO increilseihe cnniial arain hv 2.OOU million lireen~irclv
suhscribed to by Raytheon, so that on 4.58.65 Thec$iial stock was divided as
follows:
Raytheon 80% 3,200 million lire
La Centrale and wholly owned
companies 20% 800 million lire
From then on the situation has evolved as follows:
1. The increment of finishedgoods to stores per person which practically doubled
from 1963to 1966.proved not only the efficiencyof the facilities installed but
also, and principally, that the.factory personnel had auained an excellent
efficiencylevel. In other words, it proved thai in Sicilyit was actually possible
~~ manufacture eoods with a hi~h~ ~rect labour content. On the other hand.
it is necessary to point out tbaGoday the cost of the personnel, braught ub
to the levelof skilledmanDowerwith a heavyinvestment borne by the comoany
costs the same as, or moie than. what it wiuld in North ltaly (whereas Somë
yedrs ago the differencewas strongly in favour of the South) since in order to
prevent too high a personnel turnover and discourage emigration wages must
be kept at a good level. For that reason it is believed that tbere must be
adequate aid to favour personnel training.
2. On account of the impossibility of importing medium and high levelengineer-
ing skill from North Italy or abroad (there is shortage of engineering personnel
al1over the world) the only possiblesolution was to hire and train local people.
A large number have been hired(more than 50 University graduates) and they
have been assigned to the diiïerent operations. Of course, the developrnent of
personnel to maturity has been a slow process, since we had no easy products
with which to break in the personnel.
3. An investigation of the evolution of market conditions has demonstrated:
(O) The products for military usage are interesting because they allow - as
avant-garde products - an economic introduction of the most advanced
techniques in10 the Company. Their advantages, however, are offset by the fact that the market isdiscontinuous and. therefore. cannot constitute
a correct exclusive operating basis.
(6) The productsforthe consumer market, andin particular forthe entertain-
ment market, such as cathode ray tubes and semiconductors for radio
and TV. etc.. ,re~o-~~~~~~~~t hecause the overall sales volume is sizeable.
but neither can they be taken as a basis of such an industrial operation:
since the absor~tion ca~a.ity .f the market, in addition to beina uneven
throuehout thevear. is also stronelv aiTectedbv the economic situations
of ihcdit~c.rentmarkrti ~urthcrmo~c.the con\iant fighi impo,cd by pricc
trends makc.,es*cntialan ~lloc~tionof ihe fiwd expcnsesovcr 3 u,idcand
more stable basis. that is. includine other oroducts made and sold
Products havine marketine andirice characteristics like those eovern-
~ ~~ ~~-~ ~u~ ~ u
ing the sales ofcathode ray tubes must represent not too high a percentage
of the entire hilling in order not to constitute a serious risk, if they are
made in industrie; where it is verv difficult to lav oK ~ersonneleven
tcmpor~nl), such 3s in ltaly in gniral and in ~icil~'iiipaiticular. Within
Iimiisperccntagr-wisc.corrwi the) uill con\tiiuic. in>ielid.an apprcciable
contribuiion. For the cathode rav tuhcs niadc in Pslcrnio u'cmus1finallv
remcmhrr the hzÿ\y co,t, incurrd tu drlircr the product Io lhc L.ustomer's
factor). In iunction of this burdcn. c\cn though the proddcts ;ire:onipcti-
tive and are welcomed in forcign countries for qÜality and commcrcial
reasons, the prices that may be obtained in distant countries are oRen
no1economically satisfactory for us once we detract transportation costs,
customs, etc.
Raytheon-ELSI today exports over 50percent of its total sales volume.
Althoueh this ohvi~u~~~-~,l~ ~.he balance of navments oroblem it does
not aliays help the profit situation. Because if Chis,without some form
of Government helo it is advisable to make plans for narrower sales bases,
that is, to conside; selling only when you-can actually gel an adequate
profit from the sale.
For the cathode ray tubes, finally, we mus1 remember the prohlem of
the advent of colour TV. The subject will he dealt with in more detail in
the fourth chapter of this report.
The foreeoine has made it oossible 10 calculate with sufficient ~recision the
trends in q;antzy, value and economic return that we can reasonably expcct to
have not only this year but in the following years as well. These data show:
(a) In consideration of the increased productivity and of the market situation,
RE presently has too much personnel, if only the products presently made
are taken into account.
(b) Personnel training has really cost the Company a great deal and therefore,
not only for social reasons but also in order no110lose the investment made,
it is iRE'S interest not to cul down its personnel but to find a way of using
it in an economically justified manner.
(c) RE'Sindustrial capability in terms of its facilities, technical capability, per-
sonnel efficiencyand market position acquired is today a concrete positive
realitv. which onlv,n~ ~ ~ ~~ ~-bettcr exoloited in order to vield a benefit.
(d) T; n&ke the best use of the potential iapability existing in RE today it is
necessary to introduce the manufacture of new products with appropriate
techno-cconomic charactenstics to comolement the Dresent ~roduct range.
That way also, these new products, thro'ughan allocation ofthe fined coits
over a wider base, can economically show a yield commensurate with their ANNEXES TO THE MEMORIAL 207
(e) The now fairly long lice lived by RE in Sicily and the expenence derived
therefrom together wiih what the European market for Our products has
taueht durine these vears enahle us to state that this com~lementation of
nru7and uld proilusi;~, the ihing ihat cilngiw noi onlv economic satirf:i~iion
to ihe siockholdcrs bui \i,irh ihc aJkIitiunoi' ncu jubs also furiher incrcasc
the Company's social value.
In order to assert these aspects the following measures were taken during these
latest months:
1. Raytheon decided 10 buy the entire RE stock so as to be able 10 more freely
adopt the measures necessary for a definite reorganisation of the Company.
2. The capital stock was devalued hy 2,500 million lire al the closure of the
balance sheet for the fiscal year 10.1.65-9.30.66and il was then recapitalized
for an equal amount entirely subscribed by Raytheon. The relative resolutions
were approved in the special Stockholders' Meeting of 31 March.
3. A plan is to be drawn up to complement the company's aciivily with new
products responding to the technical requirements and characterisiics de-
manded by the market. We shall talk about this plan later.
4. Agreements will be sought for a participation in the capital stock of RE hy
others so as 10permit the implernentation of the programs studied and better
insert RE in the Italian cconomic, political and industrial world. Il mus1 he
borne in mind that while, through Raytheon, RE has actually succccded in
attaining on the European market that technical stature from ils own capahility
and by being closely related to so strong a group this technical strength,
however, is no1 complemented with a similar industrial political strength in
Italy - which is cssential -on account of the lack of efficientand influent
economic and industrial lies.
5. Following points 3 and 4 above another plan is to be drawn up for the
conversion of the personnel presently in excess in order 10 use il for the
manufacture of the new products foreseen.
CHAPTER 3
PRESENT CAPABII,IW OF RAYTHEON-ELSI
Present Producrs
Before going into the personnel structure, the situation of the preserii invest-
ments, RE'Spresent position on the market and Ourcompany's general lechnical
position today, we believewe should give a more analytical idea of the products
presently made in RE in order to make ileasier to understand what is 10follow.
Microtiove Tubes
They are tubes capable of generating electromagnetic oscillations al very high
frequencies (wave lengths [rom 30cm down) in both the types utilizing the joint
action of electric and magnetic fields(magnetrons), and those utilizing the action
of electric fieldsonly (klystrons).
Applications range from particular military uses (identification of fast objects
in the sky and guidance of other objects against them) to military and civilianradars, telecommunications with microwave radio bridges- industrial microwave
heating.
RE has two production lines for these tubes; one (the "white line") for the
production of particularly difficult classified military tubes, the other (the "grey
line") for al1the other types. The entire production capacity in lems of lire is
about 180 to 200 million per month at sales value, working one shift in al1
operations except exhaust. which for technological reasons is always planned on
a three shift basis.
X-ray Tubes
They are tubes capable of eeneratina X-rav radiations if thev have adeauate
high voltage power s"pply. W<engage in tube; for medical application in pa;ticu-
lar. Our end users are the radiologists. We manufacture both the conventional
stationary anode tubes for radioscopy and X-ray photography and the more
modern rotating anode tubes. Both are supplied with their necessary accessories
such as oil-insulated housings, high voltage cables, starters, exposure meters, etc.
Our present range of tubes covers al1the requirements of the radiologists. The
linehas a production capacityequal to a monthly sales volume of 50to 60million
lire, working one shift a day.
We have customer service stations for maintenance and technical assistance in
Rome and Milan.
TelephoneSurgeArresrers
They are particular discharge tubes in rarefied gas suitahle for eliminating
overvoltages in telephone lines. They are used to protect telephone lines, cables
and terminal equipment. They are made according to a patent owned by RE.
The capacity of the line in sales value is about 15 to 20 million lire a month,
working one shift a day.
Semiconducrors
We have practically terminated recently the production of germanium transis-
tors since this product has become technically obsolete, as had been foreseen.
Today we engage essentially in silicon rectifiers.These are devices that. a~oronri-
ately-inserted h a.c. circiits, convert the current into d.c. with a conker;ion
efficiencyparticularly high and stable in time (unlike the systems prcviously used)
with the additional advantage of protecting from overvoltages the entire equip-
ment using Our rectifiers.
We make low, medium and high voltage rectifiers.the latter constituting an
element ofparticular commercial interest. Applications are manifold. For exem-
plification let us point out that in addition to the use of at least two rectifiers in
each TV set, they are used in d.c. power supplies for radar, ielecommunications,
household appliances, battery chargers. High voltage rectifiers are used in X-ray
equipment, radio and TV stations, electrostatic filters, domestic appliances, etc.
The production capacity of the line is worth about 150 million lirea month in
sales, working a single shift a day.
CarhodeRay Tubes
They are the normal TV picture tubes. They are the most difficultitem of the
TV set to make. We'buy the glass in the format desired and perform al1the other ANNEXES TO THE MEMORIAL 209
operations require10change it into a cathode rdytube including themanufacture
of al1the parts of electronic optics to arrive at the formation of the image.
Our production covers the entire range of blackand white tubes, from the very
small II" tubes to the 25", the larges1on the market today. The tube is normally
sold already provided with anti-implosion characteristics by means of special
protection systems.
Production capacity today is more than 2,100tubes a day in three shifts, which
amounts Io about 550 million lireof sales a month. The line is automaled with
conveyors to handle al1in line transportation of the tubes.
The products detailed above are mÿnufactured and sold with the following
means:
Personnel
RE'Spersonnel was composed as follows on I April 1967:
Executives 19
Consultants 4
Office Employees 232
Special Category Employees 50
Factory Workers 737
i;o;12
Of these 1.042 units, 1,005work in Palermo, 37 are located in the sales and
customer service offices in Rome, Milan, Paris, Frankfurt, etc. There are 42
engineers, 8 graduates in chemistry and physic8,graduates in economics and
trade, 5 in law, 21 are bookkeepers and 27 non-graduate engineers.
Such a large force of University and high school graduates, equal to 1.06 per
cent of the total, is naturally due to the type of work in which the Company
engages. It is worth pointing out here that 95 of these persons with particular
responsibilities were hiredin Palermo, practically al1with no previous industrial
experience, and they have ken entirely trained to take over the responsibilities
they now hold.
Distribution by type of work is as follows:
Production:
Microwaves 95
X-rays 30
Surge Arresters 20
Machine Shop 52
Semiconductors 182
Picture Tubes 341
Total - 720
General Factory Services:
Maintenance and centralizedservices 89
Materials Management 40
Total - 129 Technical Management:
Quality Control 40
Laboratory 13
-
Total 53
Sales 33
Administration 39
Industrial Relations 26
Management 19
Executives 19
Consultants 4
Grand total
Since, as we have repeatedly pointed out in the preceding paragraphs, nearly
al1the people on RE'Spayroll today have been hired locally and with very little
or no prcvious industrial experience, the eiïort made io prepare each one for his
responsibilities appears clear from the very distribution of the people in the
difïerent specializedwork fields. Todaywecan reasonahly stdte thdt our Palermo
manpower has reached the point of being able to work eiiectivelyin the difïerent
specializedlines to which they have been assigned.
It is equally clear that if it had been possible to begin with personnel already
toially irained, it would have heen possible 10 turn out the same quaniity of
goods wiih much lesspersonnel. During the long training period we had to make
up - hoih in direct and indirect labor - with more people for the temporary
lesser capability of the same people. This is one of the reasons for the excess
personnel today compared to the actual sales potential.
Works discipline, absenteeism within limits quite normal, relatively low turn-
over, al1 prove that the industrial education of the personnel is efficient. The
relationships between Management and Personnel, guided by a truly efficientand
modern Industrial Relations Service,are normally good and constructive.
The work relations are hased on the National Lahor Contract for the category
"Manufacturers of electric bulbs. electron tubes. fluorescent tubes and thermo-
static equipment".
The seven member factory committee is composed as follows:
Opce Workers Faclory Workers
ClSL (Chr. Democrats) 1 3
~~~~'~~oriiniiinisi~)
UIL i\lodcr3ie Lefi)
Faciliriesand Equipmenr
.An appropriate dppendix report, the earenti<ild313of illOur ier.hniidl equip-
meni. Herî ue bclici,c iiurciul only 10set doun ihc sir?of ihc in\.esimcnidtiidcd
by types and use as well as the deprecialion made through 9.30.66.
This really sizeable volume of investments has enabled RE today not only to
manufacture al1 its products at competitive unit times, but also io control the
quality of al1the materials used, the manufacturing processes and the finished
goods in a lahoratory, and with means truly complete and modern. Only these
investments have made possible the quality attained.
The equipments are largely of USA origin, and they are equal to the parent
company'sbest.Others have beenmade in Italy on Raytheon designsand specifica-
t~~-~~~~a~v,of the more classifiedeau. .ents have ken built in RE itself.
The efficiencyof the equipment is maintained by an appropriate prevenlive
maintenance service whichguarantees complete efficiencyat al1times. RAYTHEON-ELSI
(Figuresare in millionsof Lire)
BeroiledList ofFaciliriesand Equipmenrby ProducrLine
(Aciual for periodOctober 1965-Seplember 1966)
Color TV Operiilion
Microwïve Line
-. .... .
Machin= Shop
Plant Mninienïnrr
Ccniral Lab.
MaicriaIr Mawgcr
Quality Conirol
GeneralManucer
Lkprcciaiion
ai 9130165 - (80.8) (885.4) (IW.3) (62.8) (173.4) (12.2) (4.1) (49.9) (14.4) (1383.3) -
from 1/10/65io9/30/66 - (25.7) (4C4.2) (38.5) (41.0) (22.8) (3.6) (1.2) (17.9) (6.0) (360.9) -
Toial - (106.5) (1289.6) (138.8) (103.8) (196.2) (15.8) (5.3) (67.8) (20.4) (1944.2) -
Ne1Balance
al 9130166 166.9 750.0 3,785.1 270.2 60.5 137.0 12.1 7.1 110.8 9.9 5309.6 478.0 -212 ELETTRONICA SICULA
Markers
The verv nature of the nroduc~~ made in RE has made ilmandatorv to exoand
salcstou,ards tcry widcmarkets includingno1only Europe. but forsoms products -
other continents;ISnell Thcrefore, the organisntion ha<had Io takc into .icçouni
the geographic area of the market as weli as the nature of Our products having
technicaland application characteristics totally difîerent fromoneanother. Conse-
quently, we have created a two-fold structure. One is bygeographic areas with
the task of actuallv followine the market and distribution vroblems for al1
products and the contacts with customers. But every time negotiations warrant
it, these contacts are pursued by the second slructure arranged by product
specialization and, therefore, much more competent technically.
The geographic areas are as follows:
ltalv- with headauarters in Mi~ ~ ~ ~ ~ ~
Spain, France, Belgium, Holland - with headquarters in Paris;
Germany, Switzerland, Scandinavian countries - with headquarters in
~rankfurt;
USA - through Raytheon Company;
lron Curtain countries
Mediterannean counlries with headquarters in Palermo.
South America 1
The results of this organization may be summed up as follows:
Sales during the las1 two corporate years were 8,493 and 8,226 million lire,
respectively.
Of the total of these two years exports amounted to:
1,257 million lire Germany
921 million lire Spain
676 million lire USA
551 million lire France
276 million lire Switzerland
266 million lire Yugoslavia
157million lire Janan
122million lire ~en&x
110million lire Sweden
Exports totalling less than 100million lire wereas follows:
88 million Norway; 87 Denmark; 77 Finland; 54 lron Curtain countries;
42 United Kingdom; 33 Canada; 40 Argentina: and then corne Brazil,
Greece, Israel, South Africa, etc.
The exports lisied above totalling 4,817 million lirealtogether exclude goods
sold to Nato. For several reasons these have been included under Italian sales,
even though the goods actually weot abroad.
Sales by product were as follows:
Cathode ray tubes 3,207 million lire
Microwave tubes 816 million lire
Semiconductors 633 million lire
X-ray tubes 95 million lire
Surge arreslers 35 million lire
Miscellaneous - 29 million lire
Total 4,817 million lire ANNEXES TO THE MEMORlAL 213
To give an idea of the importance of each one of the difïerent product lines,
it is pointed out that in the figurï of 8,226 million lirefor the last fiscalyear
inclusive of both domestic and foreign sales the difïerent product families ac-
counted for the followingamounts:
Microwave tubes 1,785.6 million lire
X-ray tubes 520.1million lire
Surge arresters 188.3 million lire
Semiconductors 846.5 million lire
Cathode ray tubes 4,813.8 million lire
USA and other products - 87.0 million lire
Total 8,242.0 million lire
At this point we must remember what is said elsewhere regarding the market
characteristics of each ~roduct and the orientations that RE has drawn from
them to plan its future. ~ere we havejust wanted to establish with actual figures
the position attained by RE on the European market to prove the validity ofthe
action,
Ruyrh~onELSIS PresenrCapacily IO OperoreIndusrriully
Now that we have seen RE's current basic products, the actual personnel and
investments used 10 make them. where and how they are marketed, let us see
what technical and administrative capacity the Companyhas today.
Let us start with the technical capabilities. When we reported RE's history in
the preceding chapter of this report, we explained how one of the main defects
up to the year 1962163was Ourinability todo anything but to copy Ourlicensors'
products with no capability of Our own to make new types. With the work
performed in these las1years the situation is now substantially changed.
Of course, it is obvious that the basic studies cannot but be conducted by
groups much larger than we are. For this reason we continue 10get them from
Raytheon. Today, starting from these basic studies, we are really capable of
giving Our products the technical forms and features required by the European
market, which is, as already stated, substantially different a1limes from the USA
market.
In particular, for instance, we shall list in the microwave tubes field the low
noise tunahle klystrons for missile guidance such as the QKI 102, which is now
msss produced only by us, the magnetrons 7008, ES1IOand ES115 developed
by us with Our own designs and studies. In semiconductors we make avalanche
controlled rectifier elements studied and manufactured entirely in Palermo. The
same goes for the high voltage stacks and the plastic diodes.
In the cathode ray tubes line we have heen doing Ourown engineering for the
past four years approximately, and under these conditions we have succeeded
recently to be the first to put the square 17" tuhe on the market (last year we
were successful in putting out the 12" tuhe). We are the first to patent and put
on the market an integral implosion protected system witha metal band, which
permiis mounting of the tube in overhang, a thing much desired hy TV makers.
Our technical position on the market is such that even recentlywe have been
requested by Romania and by Egypt to present a hid to set up in those countries
cathode ray tubes plants of Our design and license. From Spain we have been
asked for a license for the use of Ourprotection system.
The previously mentioned difficulty of getting good foreign en~ineering skill
to corne to Palermo and the long lime required to train local people are the
factors limiting further expansion of Our engineering work. But RE unquestion-ably has the basic technical framework today to operate its present lines in a
dvnamicallv correct fashion.
.~ith regard to administration capacity, the economic and financial control
today is organised in the following manner:
1. General and cos1accounting together with an IBM center for the elahoration
of data.
2. Offices to draw up and control budgets and forecasts.
3. Materials Management with full responsibility for al1 inventories and
purchasing.
4. Import-Export office.
5. Cashier.
Cost control is done for the pas1 regarding direct costs with the product
standard cost system.
Control of indirect costs is done by cornparing budget-forecast with actual.
This system now puts Our engineering staff in a position to be more sensitive
to the economics of the Company and thus he able actually to appreciate in a
unitdry rnanner the entire techno-economicproblems of production.
Until a relatively short lime ago the sizeof the technical, scientific and techno-
logical prohlems had hardly allowed lime for this synthesis.
From the actual data thus obtained and through the work of a Times and
Methods Office recently set up it is possible to draw up cos1estimates such as to
enable the making of economically correct decisions for the marketing of our
products and consequently generating the best possible salespolicy.
CHAPTER 4
OUTLINE OF FUTURE NEW PRODUCTS
Presenl Silualion
It has already been indicated in previous chapters that the present range of
products are beginning to come under significant market pressures.Even though
the sales output has been doubled in the las1 four years with the same labour
force the reduction in onces in such lines as CRT's and semiconductors has more
ihan oniet th15incrc3;c in produciivity. Wiihout additional help bcing pro\,ided
hoih from Rs)thson and l'rom Iialian Go\crnmcnt agcncicsthen ihcannusl sales
turnover of the present product rangescannot do anything but decrease.This is
particularly so in the caseof the cathode ray tube line where the advent of colour
television in a few years' time will have a very significant effect indeed. To avoid
this,it is necessarythat this CRT line is regarded as part of the black and white
tube nroduction facilities in ltalv and linked in on a national basis whatever
colou; tube prod~ction faiiliiic, ire creaicd Ii u.ould ccrininly bc quitc unecono-
mic IO try to exiend ihis Iine and creaie a colour iubr hciliiy in Palenno.
Thir iuriifics rurthcr cmlanaiion In the lirsi place our aim wiih new nroducts
is to find those with a mo;e stable market background. To increasethe Gpability
in picture tubes which is highly consumer oriented is quite contrary to this new
philosophy. Secondly, the investment required for a successful and economic ANNEXES TO THE MEMORIAL 215
colour tube manufactunng unit is extremely high - it is certainly somewhere
between 6 10 12 million lire. For very many years the ltalian market can really
onlyjustify one such unit- for the next two or three years even this is not really
economic - and the total national interests willalmost certainly not bein favour
of having such a unil in Palermo.
The overall eiïect on the sales turnover and hence the numher of employees
for Raytheon ELSl totally without additional help both [rom Raytheon and
ltalian Government agencies, has heen indicated in the financial chapter, No. 6.
PossibleNew Producr Areas
The new products that ought to be fed into Palermo are required to meet two
basic requirements. One of these is that they should link in with stable markets
and the second is that they will provide opportunities for the use of the local
Palermo labour without having 10import large numbers of highly skilled engi-
neers and other professional experts. It must be emphasized that there is a world
shortaee of such hiehlv skilled orofessional oeo~le. and that even in olaces such
as ~ome, London Gd~ew ~o;k thedemand ex'ceds the supply. ~he'probahilit~
of ohtaining such people in sufficient numbers in Palermo is iust too low to he
used as a hisis for furiher expansion.
This means that we can look for new products in three areas. The first one of
these relates to the areas of activity to which ELSl is already committed and
certainly Raytheon can provide additional support in these product lines. The
introduction of other new products inust be in addition io and not in replacement
of the present product ranges which mus1remain as the basic raison d'étreof the
company. With the additional resources of ESPl availahle then those in the
second area can be SuDuliedhv Ravtheon to link Palermo more closelv in10 the
Raytheon Europe Org;nisîtions under thesc clrcumst3nccs. and for ccrtîin
producc Iines. ELSI ian b<:re~~rdcd 3s the mdin mïnulacturing centrç fur the
marketing activiiies of Kï)theon Eurtipc in the EEC couniries Also. ihere uould
not only beengineering support from the Raytheon parent company in the United
States, but also from other Raytheon engineering groups in other countries of
Europe.
This DresuDDosesof course that povernment subsidies willhe available to cover
the ad&tionaftransport costs, notonly Forincoming matcrial but for export of
completed goods to other countries. It must be borne in mind that most national
exporting activities are encouraged and undertaken with a view to helping with
balance of payments problems and often turn out to be very much less profitable
than sales into home markets.
The third possible group, which should certainly represent the major huild up
of newproducts, could come from government-owned agenciesin Italy. Raytheon
on its own could not regard this as an acceptably possible basis for expansion
but with ESPl and Regional Government support there must he much greater
opportunities for successfullyarranging this. As an example, a large pari of the
communications equipment for the Italian PTT and the Concessionary Compa-
nies is manufactured by IR1 Companies. We would guessihat something like Lit.
20 billion worth of equipment is manufactured hy privatc companies. There is
certainly every reason why future telephone switching equipment and other
communications equipment for use in Sicilyand Southern IPalycould and should
be made in Sicily in Raytheon ELSI. This would represent jus1 the sort of
assemhly work which would suit the Raytheon ELSl environment and would
also represeni a very stable market. Any fluctuations in this market could be
ironed out by conlrolling the orders placed on the pnvately owned companies.216 ELETTRONICA SICULA
Possible specificproducts in the three groups outlined above are now detailed
below with appropriate comments:
Firsf Croup- Rayfheon/GovernmenH relpfor PresenfLines
Semiconductors
1. Possible introduction of plastic encapsulated "in line" integrated circuits as a
key part of both the Raytheon Europe and the Ra~theon world-wide plans
for integrated circuits.
This would mean assembly and test and the provision of integrated circuits
for the European market and for resale hack in the USA.
2. lntroduce the range of silicon-controlled rectifiers availahle from Transistor
AG Zurich using ELSl as the main production source for the EEC countries.
3. Consider the introduction of a line of zener diodes manufactured at ELSl for
sale in EEC countries.
Regard ELSI as the main manufacture, assembly .and test facility for al1
Raytheon Europe semiconductor activities.
X-Ray Tubes
Maintain present sales levels by closer CO-operationwith either Machlett US
(a Raytheon Company) or Machlett companies in Europe so that required
engineering can be reduced and tuhe types made interchangeable on a world-
wide hasis.
MicroivavePoiverTubes
I.'\e ElSlmorc :irpari of.iK3)thçon uiirld.\iidc mdnuF~ciuring.ind inïrkei-
ing aiiivii) This ,iùulJ mïke ai.iil;rble iciELSl uider Europedn niarkrir wiih
Raytheon's support
CathodeRay TubeLine
Use Regional Government support in order to contact the Central Government
so that the Raytheon CRT line can he regarded as part of the Italian national
production capahility in black and white tubes. This would be part of an overall
plan where colour tuhe manufacture is undertaken elsewhere.
SecondCroup- RayfheonNew Producfs
1.Modules
It will be possible to provide a fairly steady load of work for assembly of
modules and suh-assemblies which will be fed into other Raytheon plants world
wide. The first order along these lines has been received and is being executed.
This first order will keep 40 operators busy for something like four months.
2.Power Supplies
Sorensen - a Raytheon Company in the US - is a major manufacturer and
supplier of power supplies in the US. Emhryo activities in these lines already
exist in Sorensen France and in Sorensen-Ard AG Zurich. It is the intention of
Raytheon Europe to vigorously exploit this product line and Raytheon ELSl
could be regarded as the manufacturing centre for the EEC countries. ANNEXES TO THE MEMORIAL 217
3. TestEquipnient
This is another area which Raytheon Europe intends vigorously to exploit.
There is a line of Cossor oscilloscopes which isalready selling in France and
Germany. Cossor also have a range of Ramp Test Equipment for the checking
of various aircraft installations and it is planned to expand into a range of
general-purpose test equipment. All of these products could be fed into ELSI as
an EEC production source, supported hy engineering and marketing expertise
elsewhere in Raytheon Europe.
4. Digiral Display Equipntent
Elsewhere inRaytheon Europe someof the digital display equipments originally
designed by Raytheon in the US are being actively exploited. Potentially quite
large markets exist for this equipment. In the UK, Raytheon Europe is being
successfulin obtaining OEM agreements with computer manufacturers, and with
Government backing there is no reason why similar arrangements should not be
made in Italy.
Third Croup- Italian CovernmentNew Products
1. A whole line of possible products exists in this area, such as:
- Subscribers hand sets;
- Parts of telephone switching equipment such as relays and electromechanical
assemhlies:
- Large racks or riib-racks or ielcphone snitching cquipnieni:
- Tranrmiision cquipmcni mainly multiplex. kir terminal use.
- Microwave link equipment for transmission
In these areas which are dominated by government-owned organisations it
should be possible eventually 10build up a levelof something like Lit. 10billion
a year. This alone would enable continued expansion even beyond the levelgiven
in the plan and would double the present size of ELSI.At this level with co-
operation from the government agencies who are the customers, the PTT and
the Concessionary Companies, il would be possible to have an extremely stable
market.
2. AviationProducrs
The Raytheon Group in Raytheon Europe, mainly the Cossor Company in
the UK, has a very successful lineof airborne transponders for secondary surveil-
lance radar use for both militdry and civil applications. There ought to be a
sienificant demand for such eauioment from both the ltalian Airforce and civilian
aslines. It has not yet been possible to do any reasonahle market survey but if
the market does exist it could provide a reasonably stable demand for a good
number of years.
The financial plans giveninChapter 7envisagethat onlysome of these products
are exploited and that they are certainly not exploited simultaneously. Detailed
market analyses, availability of training facilities with the necessary Regional
Government support and other factors such as capital investment allowances and
support for transport costs will determine which products are utilized to meet
the planned growth pattern. CHAPTER 5
FINANCIAL HISTORY TO DATE
The financial history of Raytheon ELSI S.P.A. covers a span of more than 10
years heginning with ils formation on 18 May 1954.
In order to better viewthe financial pas1it has been divided into the following
parts, even at the risk of repeating events and transactions which have already
been mentioned in other parts of this report.
Part A. Capital Structure History
Part B. Phase 1- Financial Performance (1954-1961)
Part C. Phase II- Financial ~erformance'(l962-1966)
Part D. Comments on Current Performance.
Attached to this report are the following schedules which will be referred to
in the contents of the history:
A~~endixBI +3. Balance Sheets from 1956to 1966
~~~cndir B2 Incomc Siliirment~from 1956 IO 1'966
Appcndix B4 Pri)duct S~lcs~nd Hcddco~iiisfrom 1957 to 1966
Part A
Capital StructureHistory
Elettronica Sicula S.P.A. (ELSI), with headquarters in Palermo, Sicily, was
formedasa capitalstockCompanyon18 May 1954. The paid-in capital amounted
to 1 million Lire equal to 1,000nominative common shares each having a par
value of 1,000Lire. The scope of the Company was to manufacture, exclusively
in Sicily,electrical,radio-electricalequipment, and general electronicand mechan-
ical components.
For purposes of continuity of significant events,the event date is listed on the
left hand margin of this report.
As of 30 November 1961, the capital stock of the Company was composed
and owned as follows. The par value of such capital stock was Lit. 1 billion, of
which 70 per cent was owned by La Centrale and 30 per cent by Raytheon
Company.
30 November1961
The Company issued 1 million new common shares each having a par value
of 1,000Lire. La Centrale subscrihed to 700,000shares and remainder was taken
hy Raytheon Company. At this point, La Centrale maintained its 70 per cent
majority interest in the Company.
31 July 1962
Raytheon ELSI acquired 100 per cent the capital stock of SELIT S.p.A., a
manufacturer of Cathode Ray Tubes for television use whichhad a capital stock
of 300 million Lireand was formerly owned 70 per cent by La Centrale and 30
percent hy Thomas Electronics of the USA.
25 April 1963
The Company issued 2,300,000new common shares each having a par value
of 1,000Lire and was subscribed to by Raytheon Company for 1,980,000shares
and La Centrale (or affiliates)for 320,000shares. With this transaction, Raytheon ANNEXES TO THE MEMORIAL 219
Company became the majority stockholder in Raytheon ELSl owning 60per
cent of the capital stock.
On the same date, Selit issued 1 million new shares at par value of 1,000Lire
for each share and the issue was totally suhscnhed to by Raytheon ELSI.
30 June1964
Tocover past operating losses,thecapital stock of Raytheon ELSI wasdevalu-
ated hv 2..00..00..00Lire. On the same date it was resolved to recall the entire
capitaistock and re-issue ilto the shareholders on the same basis as held before
but at a reduced number of shares equal to 2,000,000,000 Lire in capital to
preserve the 1,000per share of par value. Concurrently, the capital was increased
hy a new issue of 2 million shares which would be pnvileged in liquidation
proceeds. The new issue was entirely subscribed to by Raytheon Company hring-
ing their interest in Raytheon ELSl to 80percent.
30 Seprember1965
Selit S.P.A. was dissolved and absorhed as an operating division of Raytheon
ELSI.
31 Morch 1967
Tocoveroast ooeratinelosses, thecaoital stock of theCompany wasdevaluated
hy ?.500.000,000i,ire ~~)thcoii ~oni~an! on ihe rame daic: ag;ecd to subscnbc
a neu incrrlisrICIrcrtorc the capital itioriginal talue and the action is pending
Government administrative clearance. Lit. 215billion have meanwhile heen uaid
in to ELSl to cover this increase. Concurrently, Raytheon Company moved 10
ourchase the remainina shares held by La Centrale Grouo. This was accomplished
Port B
The financialperformance of Raytheon ELSl has been divided into three lime
periods. Phases 1, 2 and 3. Phase 1covers what can beconsidered the period of
industrial infancy while Phase 2, the adolescence period. Phase 3, the future, will
he treated in a sepamte chapter of this report.
Phase I spans from the beginning of the Company until the end of 1961.This
period, as can hc noted from Appendices BI and B2 depicts the organising of
the Company, launching of products, and establishing ol basic asset values for
futureconduct. Phase 1also covers the period when ELSl and Selitwereindepen-
dent of each other and it was not until 1962 that, as was noted in the capital
structure history, ELSl acquired its interest in Selit which significantlychanged
its balance-sheet position as well as creating a hroader industrial compler.
For purposes of comparison, the combined financial performances of ELSl
and Selit onor to 1962. indicales that oroduct sales in this infancv ueriod
amounted io 6,463 million Grewhile haS 2Saccounted for some 31,29i million
Lire of oroduct sales from inceotion throueh 30 Se~tember 1966.Other financial
activitiei during the two penod; reflecttheiame reiationships: that is, an infancy
period of asset value construction 10 serve the subsequent period of significant
growth. The personnel count swelledfrom a mere 94 in 1957to 895 units at the
end of 1961. Thereafter the headcount did not increase in proportion Io sales
volume growth as the organisation becamemore skilledand technology advanced
significantly pcrmitting important productivity strides. Paid-in capital amounted
to 1,850,000,000 Lire for ELSI+Selit and with a capital devaluation of 250220 ELETTRONICA SICULA
million Lire established stockholders' interests at 1,300,000,000 Lire in ELSl
while Selit capital remained at 300 million Lire.
Long-term financing during this penod amounted to 2,850,000,000Lire forthe
two comoanies. These loans were granted at low-interest rates which were made
availableby IRFIS. Of the aboveamount borrowed, 1,400,000,000Lire was for
working capital while the dilierence was fiscalasset investments.
The combined operating results of the two companies during Phase I was a
loss of 240,000,000 Lire, which during a period of industrial building, was held
to be satisfactory.
Phase 2 of ELSI-Selit (now called Raytheon ELSI) marked the beginning of a
vast salesexpansion and included the introduction of a military supply contract
to Nato for microwave tubes to be used in the Nato-Hawk program. Also during
this period, the market penetration of the Cathode Ray Tube line reached
significant limits, going from a 1961 sales volume of 1,871,000,000 Lire to
4.- .~000..00Lire in 19~6~-
loial rÿlcs ihowcd a hctier ihan 25 percent incrcasc per yca( wiih thc excepiion
of 1966 u,hich hîd a slieht downturn mainlv due to a reduciion in dclit,crics on
the military program toa lower but still stable basis.
Worker productivity increased substantially as a result of training skills and
technological advances. This increase can be noted by comparing personnel count
in 1962 Io that of 1966 and the resoective sales volume for those Iwo vears.
Personnel count actually decreased by 51 units while sales turnover increaced by
5,192,000,000Lire.
Naturally, because of such an important increase in salesturnover, and because
of the increase in cos1 per unit of'the personnel, costs increased. The following
table of indices indicates these rises, using 1962as a base year.
1962 1963 1964. 1965 1966
SalesProduct 100.0 172.3 225.0 282.3 273.2
Oper. Supp.+ Serv. 100.0 111.0 86.5 132.0 116.5
Payrall 100.0 135.9 141.9 188.9 169.5
ShippingCostr 100.0 170.3 192.3 182.4 264.8
Royalties+Mgt. Fee 100.0 129.5 114.1 232.1 187.2
Depreciation 100.0 31 1.0 277.0 499.0 561.0
Interest 100.0 1081 102.0 138.3 132.6
Amortizations 100.0 334.0 230.0 196.0 584.0
OtherCosts 100.0 103.6 51.8 78.6 124.6
'9 months due tochange infiscayCdr.
While costs, excluding materials, generally increased at a lower rate than the
sales volume increase (excluding depreciation and amortization which in the base
year of 1962 were not taken), it should be noted that dunng this period prices
declined and in the case of the Cathode Rav Tubes. declined more than the
s<i\ingsin increased pr<)duciii,iiy.Againsi thir h!ck@r<>undm . ïtcrial priccr did
no1fall wiih ihc wlcs pricedcclines but rcniîincd considni. In ihc Semiconduciùrs
product line a simila; situation developed. These market situations were king
felt in most electronic components markets by competitors as well as Raytheon
ELSI. Whereas prior to 1962pricc changes did not greatly aliect the Company
because it was busy establishing an industrial base in the resource sense of the ANNEXES TO THE MEMORIAL 221
word, price changesfrom 1962onward began to he felt quite emphatically as this
was a period of industrial adolescencefor the Company, when it was throu~h
the use of its established or near-estahlished assetsk was movine fonvard inÏo
-
ihc market place. Thc aciual sales\,olumc grou ih in uniis. ihcn. \vasmuch grrdicr
ihan th31 reflccted in \dlcturnover incrr~sc, a$ ihis includcd pricc dcclincs.
Thur a storv of dramatic erowth in industrial ootential was coniained hv
competitive market factors w$ch in most casesnegated the economic fruits of
increasedproductivity. Not to he overlooked was the continual burden of finan-
cing costs which have historically plagued the Company.
The ooeratine results of Phase 2 were not satisfactorv and oroduced some
4.6h7.00~,000 L~C of losses,pirtly ducIO losscsarising out'ofacii~iiics conducied
in Phasc I (such as dcfcrrcd COSI amortizaiions and incrrdscd dcprcciation cx-
pense) and partly as a resuli of increased cost-price squeezesmentioned ahove.
During Phase 2, government assistancewas given in the form of low-interest
rates on some 3,500,000,000 Lire of new long-term loans.
Capital invested during the period amounted to 3,900,000,000 Lire while a
devaluation of caoital of 2.300.000.000 Lire was made in occasion of oast losses.
In îddition IO lid in providing ior furthcr workiilg capiial. lmnr amounting
in 4,230.000.000 Lirc uerc gudranlccd hy ihr mïjori~y ~ siuskholder. Rï)iheon
Company.
Thus, the Company experienced a significant but at the same time very costly
industrial adolescence.
As a footnote to this period, the stockholders on 31 March 1967,voted for a
devaluation of caoital in the amount of 2.500.000.000 Lire to he used to absorh
the accumulated fossesof the pas1Iwo fiscal iears.
Parr D
The Company's struggle to assumeindustrial maturity and stahility still contin-
ues. Operating performance in 1967 reflects an increasing amouni of market
oressuresboth in terms of orices and a demand for uodaïed technoloev ". the
pruducis. Againsi ihcsr' pressures. the Company I~ces i'urther curi insrea>eh.
pariicularly in ihe 3rc.i uf Iabur %\,hiir sign~ficanily deprndent upon naiiunal
trends. Dependenceupon foreign sourcesof supply and the geographical location
of the Company results in substantial custom dulies and transport costs. Since
the markets for the Company's products are outside Sicily and in effect away
from the southern (Mezzogiorno) zone of Italy, increased efforts in market
penetration will result in increased transportation costs, a factor most of the
Company's competitors do no1 have to deal with in such magnitude.
An investment credit has been applied for under law of 26 June 1965 NHI,
based on some of the installations and equipment recently acquired hy the
como. . but lime mus1oasshefore such credit finds its wav throueh -he various
admini\traii\c channclr lor .ipproiül and bask iu ihe Cumpdny
(iivcn the currcnl produci ~JSC.the currsnt lcvcl oi spcnding ~ndthc incrcîsing
adverse pressuresmentioned ahove. heavy losseswill~continue and in al1 prob-
ability, increase. Hence the vital need for the future dramatic changes proposed. ELETTRONICA SICULA
FUTURE FINANCIAL PLANS
Phase 3 of the life of Raytheon ELSI, that is. the next five vears, is treated
below in quantitative terms.AS was stated in the closing paragaph of Chapter 5,
the current product and people structure of Raytheon ELSl does not produce
desirahle economic results, and in fact, continued operation on the current basis
isquite unsound.
With proper infusion of additional capital, new products and correct support
of current products, the future of Raytheon ELSI can dramatically improve.
The five-yearprojections shown in Appendix C of this report reRectthis change.
Included in these projections are balance sheets, income statements, sales hy
nroduct line. a source and a~nlication of funds. and an emolovment schedule.
It should be noted that théi967 figures represent the pre&niforecasts without
takine account of the latest market vressures. These could reduce sales for the
year by nearly one billion lire with aionsequent increase in the loss for the year
without taking drastic staff reduction measures.
Some of the more significant assumptions in the projections are listed helow:
1. A capital investment of Lit. 6 billion in the second half of 1967.
2. New products, which will be provided by direct government assistance, will
generate sales at the following rates:
1968 Lit. 300 million
1969 Lit. 900 million
1970 Lit. 1800million
1971 Lit. 2200 million
3. Significantsupport willbe given hy Raytheon to existingproduct linestogether
with such factors as government directed procurements already permitted hy
policy and a joint link up with ltalian colour TV program to preserve existing
hlack and white Cathode Ray tube markets.
4. New products, which will be provided hy Raytheon Company will generate
sales at the following rate:
1967 Lit. 226 million
1968 Lit. 400 million
1969 Lit. 600 million
1970 Lit. 1200million
1971 Lit. 1400million
5. The new capital will he used principally to reduce the company's heavy debt
and high interest costs. Annual interest charges should be reduced hy approxi-
mately Lit. 450 million. As this capital will greatly improvc the balance sheet
position, itfollows that the present need for loan guarantees by Raytheon will
he eliminated. It is anticipated that additional interest savings can be ohtained
with the more favourable balance sheet position; however, this saving has not
been reflected in the projections.
6. Training costs are to be covered by funds obtained through the Regional
Government.
7. The new products and support for existing products should enable the com-
pany to increase sales from the 1967indicated level of Lit. 8.5 billion to Lit.
12.5 billion in 1971. ANNEXES TO THE MEMORIAL 223
8. The new sales level may he expected to support a total average employment
in excess of 1,300 units in 1971. This is based on the not unreasonahle
assumption that the new products will have a ratio of 60 per cent direct
matenal and 40 percent direct labour. If the new products have a significantly
smaller or higher proportion of direct labour, the estimated employment would
change.
9. The financial projections include an annual charge for depreciation on new
additions as well as present fixed assets, al the high rates used in the last
preceding fiscal year. On the other hand, no amortizations of the pas1 studies
have been provided, nor have we assumed that new studies will k capitalized
during this period. We can assume that the costs capitalized and costs amor-
tized will approximately offset each other. With the proposed financial and
product assistance and management eiïort hy Raytheon, the present operating
losses can be significantly reduced in 1968and show a small profit in 1969
and further improvement thereafter. Given thecurrentsituation, the alternative
to the proposal is steadily decreasing sales and employment estimated as
follows :
Sales Employment
1968 Lit. 7950million 743
1969 Lit. 6600million 602
1970 Lit. 4900 million 464
Invr.sinicnt\ rcldti\r. io the nt\\ produci5 clin hein part piid h! ihc Ciovernmtnt
undcr ils in\csimeni crcdii progruni (l..i~(26th Junc, 1965 Ko. 717). Th]$
credit has not been reflected inthc plan.
A further improvement in the operating results can he realized by govern-
ment assistance on freight rates- provided hy the aforementioned law. The
Company incurs an annual cos1 in excess of Lit. 250 million in shipping the
finished oroduct from a location that has a distinct disadvantaee as comoared
with ma~uf~cturers in Northern 1taly. This potential assistaB~ehas al& not
ken reflected in the financial projections.
All above assumotions and oroiections are reflected in detail in the data in
Appendix C.
CHAPTER 7
CONCLUSIONS AND REQUESTED ACTION
Looked at from a purely husiness point of view, the work force of ELSl related
to its present market opportunities is excessive - it is excessive by over 300
people: Unless significant~stepsare taken as outlined in these proposals, then the
only possible business decisionsare to lay off these excess 300 people plus face
a future when the markets for the present products dwindle and the level of
employment that can be provided also dwindles. This situation is illustrated
clearly in the figures given in Chapter 6.
As an alternative, however, a very promising expanding future is available if
three conditions are met. These three conditions are:(a) Additional capital of the order of 6 billion lire is put in10 the Company.
(b) New products are fed in not only from Raytheon but also from ltalian
Government sources.
(c) Financial help isavailable for transport costs,capital investment and training.
This plan would enable the work force to be expanded from the present
economic level of 750 total to 1,500people total in fiveyears, with a foreseeable
continuine-.xoansion. We have a cl~a~ choice between future contraction and
Cutureçotitinuing cxp:tn\ion
On the capital si&. Ka)theon h'ivc;ilrclid) in\e\ted 5i)me 8 bill~onIirc- 21
hillion oi this bcinr Jurinr! thelut iuo inonths. Oi thc nriier ni hali ol'ihir.4
billion lire, can beyegardëd as losses or as good will, whichever way one looks
al il, representing the Raytheon investment in order to createthe present capabili-
lies as far as expertise, people and markets' including expons - are concerned.
Additional capital of the order of 6 billion lire will, as indicated in Chapter 6,
provide a stable financing basis for the Company's operations and significantly
reduce the very heavy interest charges.
Ravtheon are not requestine that the 4 hillion lire. which is effectivelv now
only ihere as good will,'is retuked to them in any way, nor are they proposing
to take any money back from their capital investment. They are also prepared
to guarantee no1to take out profits for a given number of years. The present par
value of the Company can therefore be regarded as 4 billion lire and the cos1of
each share involved in the investment opportunity offered of 6 billion lire is
effectivelyhalf of the cos1to Raytheon of each of their shares.
Any possibility of later obtaining Central Government participation through
an organisation such as IR1 is worth exploring and would have Raytheon's
whole-hearted agreement.
Raytheon can provide new products support to bolster the present product
lines and to bring in new products which will meet the criteria required for this
new ~lan. That is, to be able to make use of the eood labour available in Sicilv
and <O be related to reasonably stable markets. ~hcmain newproduct possibilitiei
however which relate to significant long term growth can only be provided by
ltalian government agencies thernselves.
Any new product will require training of labour, new capital investments and
transport of materials and finished goods over very long distances, particularly
for exports. It is therefore necessary after the intervention of ESPI, to make
effectivethe laws governing financial help in these areas, from both the Regional
Government and the Central Government, and to have them favourably inter-
preted.
As well as ils investment to date Ravtheon also has loan euarantees amountine
to some 3.7billion lire which will no ionger be necessary reasonable after th;
proposed recapitalization of the Company. There are other unsecured loans again
totalline 8.8 billion lire which can also be reduced and re-arraneed to lower the
total inkrest charges to a level which is more appropriate touthe re-financed
Company.
It is simply no1 possible for Raytheon to continue to pour in such significant
capital investments on ils own and in fact it has to be clear that they cannot
afford to do so.
IL on the other hand, Regional Governrnent support is made available so that
a plan similar to the one outlined can be operated, then Raytheon willvigorously
support the proposais in every possible way, by continuing to give technical
support, market support both from the US and Raytheon Europe, and Manage-
ment support. There would be no suggestion of Raytheon withdrawing at al1and ANNEXES TO THE MEMORIAL 225
in fact Raytheon would want to continue with some form of management
contract.
Il must lx emphasisedthat ai is indicaicd nghi ai the bcginning of ihis report,
ihat IIis relsiivcly cisIO providc ihe figures uhich rclsie to the prexnt sitiiaiion
The ficurrs u hiçh relateIO ihc future erowrh ~ossibilitici arc ohviousl~ dewndent
on ihërate at which new products tank fed'into the Raytheon ~~Sfproduction
capabilities and of course also depend on a reasonable profit margin king
available with such products. This in turn is affected by any government financial
support in the areas of training, transport, etc. The figures given are certainly
within the capabilities of ELSl as far as training new labour is concerned. The
exact details of the products that can be provided frum ltalian government
sourcesare the rates at which thev can be built UD, are necessarilvthe suhiect of
furiher dctailed negoiiations u,hich mu\[ iïke place afier thc niain outlinc~of ihc
plan and the capiiali~ïiion riluaiion h~\e been ÿgreed.
WC fcel thït Ka\theon F.I.SI rciircsrnti a sianitir~ni so~ialcconomic ~i,\ct in
Sicily which has resulted from the very heavy ~aytheon investment 10date. Both
Raytheon and the Local Governinent Authorities must feel certain common
obligations and responsihilities for protecting and expanding this. We firmly
klieve chat the olan outlined does offer a formula for the oreservalion and
significrni growih opp~rtuniiici for ihis awi wiih ihç aiiend&i social bcneliis
which musi enrue. Thc alicrnative is really ihe astual desiruciion of ihc cxisiing
assetwith the undesirable social effects which mus1follow
Rliytheon is vigorousl) prepîrcd io do il\pari in ihc prescr\ation and exiension
of io criiisal 3n asset and ue hope ihat the Sicilian Guvcrnmeni will take 3
posiiive dccision IO loin R3ylheon in cnahlinr: this ionsulid;iiion and cxp~nsion
io take place.
Appndix A
(CAPABILITY OF RAYTHEON ELSI s.P.A.)
[Nol reproduced] Appendix B1
RAYTHEONELSl S.P.A., HlSTORlCALBALANCE SHEETSC , ONSOLIDATEDWlTH SELlT IN 1962
(Millions of Lire)
m
ELSl ELSl ELSl ELSl ELSI ELSl R.E. Selir R.E. Selii R.E. Selir RavElsi RavEl.~2
31-8-56 31-12-57 31-12-58 30-6-60 30-6-61 31-12-61 31-12-62 31-12-63 31-12-64 3019-65 3019.66 0
27 Mo. 16 Mo. 12Mo. 18 Mo. 12 Mo. 6 Mo. 12 Mo. 12Mo. 9 Mo. 12Mo. 12 Mo. +
<,
Lang Term Assets >
Gros FiiedAssets 489 845 948 1980 2380 2465 4380 5700 6762 7271 7732 i:
Studies+ Knaw How 338 378 307 410 548 65 1475 1516 1486 1588 1389 "
Other Deferred Costs 43 85 218 328 290 256 833 593 503 591 370 5
870 1308 1473 2718 3218 3372 6688 7809 8751 9450 9491
lnvestments- Cross - - - - - - 123 123 120 119 119
Current Assets
lnventory I 520 588 1045 1947 2342 4861 5085 5412 5679 6202
Cash+ Receivables 135 98 137 718 802 1161 2384 3375 4295 4724 4048
136 618 725 1763 2749 3503 7245 8460 9707 10403 10250
Prior YearLosses - - - - - - 26 793"' 315'.' 315 363
Current Year Losses - - 250 - - - 658 1854 - 48 2137
TotalAssets 1006 1926 2448 4481 5967 6875 14740 19039 18893 20339 22360 ANNEXES TO THE MEMORIAL
CE
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- Appendix BZ
RAYTHEONELSIs.P.A., HISTORICALINCOMESTATEMENTS,CONSOLIDATEDWITH SELITIN 1962
(Millionsof Lire)
ELSl ELSI ELSI ELSI ELSl ELSl R.E. Selir R.E. SeR.E.Selir RavEl~i RnvElsi
31-8-56 31-12-57 31-12-58 30-6-60 30-6-61 31-12-61 31-12-62 31-12-63 30-9-64 3019-65 3019-66
27Mo. 16Mo. 12Mo. 18 Mo. 12Mo. 6 Mo. 12 Mo. 12Mo. 9 Mo. 12 Mo. 12 Mo.
Credits
ProductSales
CapitalisedStudies
FixedAsset lncreases
OtherCapitalisation
Inventorylncreaser
Total Credits
Debits
Purchases
Oper.Supp.+ Serv.
PayrolllFringes
ShippingCosts
Royalties+ Mgt.Fees
Depreciaiion
Interest
Amortization
OtherCosts
Total Debits
Profit(Loss) ANNEXES TO THE MEMORIAL 229
Appendix B3
SELITS.P.A., FINANCIALSTATEMIINTS,PRE-CONSOLIDATIONWlTH ELSl S.P.A.
(Millions oj LireJ
31-12-60 31-12-61
24 Mo. 12Mo.
Long-Term Assets
Cross Fixed Assets
Studies+Know How
Other Deferred Costs
lnvestmenrs- Cross
Current Assets
lnventory
Cash+ Receivables
Priar Year Losses
Current Ycar Losses
Total Asseis
Paid in Capital
Reserves
Medium+Long-Term Debts
Short-Tem Financing
Siockholders Financing
Other Liabilities
Current Year Profits
Total Liobilitiesand
Capital
Crediis
Produci Sales
Capitalised Studies
Fixed Asset Incretse
Other Capitalisations
lnventory lncreasc
Total Crediis
Debits
Purchases
Operating Supp.+ Serv.
Pdyroll/Fringer
Shipping Costs
Royalties+Mgt. Fees230 ELETTRONICA SICULA
(ronrinued/,on,previoupage)
3/-12-60 3/-12-6/
24 Mo. 12 Mo.
Depreciaiian 28 41
Interest 87 174
Amortiraiions
OtherCosts
TotalDebiis 2765 2893
Profit(Lors) 34 (26) AppendixB4
RAYTHEONELSI s.P.A.,PRODUCT LINKSALES - HISTORICAL, CONSOLIDATEDWITH SELITIN 1962
(MillionsoJ Lire)
ELSl ELSl ELSl ELSI ELSI ELSI-Selil ELSI-Selii ELSI-Selil ELSI-Selit ELSI-Sefil
1957 1958 1959-60 1960-61 1961 1962 1963 1964 1965 1966
12Mo. 12Mo. 18Mo. 12 Mo. 6 Mo. 12 Mo. 12 Mo. 9 Mo. 12 Mo. 12Mo.
IndustrialMicrowaveTubes 101 95 381 375 166 268 384 316 528 526
Mililary MicrowaveTubes - - - - - 355 1234 2122 1260 .
Lampa+SurgeArresters
X-ray
CathodeRayTuhes
Semiconductors
Others
Total
Selit Selii
1959-60 1961
24 Mo. 12 Mo.
CathodeRay Tubes 1220 1871
Other 14 22
--
Total --234 1893
Per~onnel(End O/ Period)
ELSl
Selii AppendixCl
RAYTHEON ELS1 S.P.A., BALANCE SHEETS, 5-YEAR PROJECTIONS
(Millions of Lire)
RoyELSI RoyELSl RayELSl RayELSl RayELSI
30-9-67 30-9-68 30-9-69 30-9-70 30-9-71
Long-Term Assets
Gross Fixed Assets
Studies+Know Haw
Other DeferredCosts
Investments - Cross
Current Arsets
Inventories
Cash+ Receivables
Prior Year Losses - 1669 2094 2061 1503
425 - - -
Current Year Losses 1669
Total Assets 21354 22191 22933 23810 24039
Paid in Capital 10000 10000 10000 10000 10000
Reserves 3150 3876 4627 5427 6275
Medium+Long-Tem Debts 4358 4358 4358 4358 4358
Short-Term Financing 2140 2250 2106 1560 895
Other Liabilities 1706 1707 1807 1907 1957
Current Year Profit - - 33 558 554
Total Liabilities and
Capital 21354 22191 22933 23810 24039
Appendix C2
RAYTHEON ELSl S.P.A., PROFIT AND LOSS STATEMENTS, 5-YEAR PROJECTIONS
(Millions of Lire)
RoyELSl RoyELSI RoyELSI RoyELSI RayELSI
Fiscal Fircol Fiscol Fiscol Fiscal
1967 1968 1969 1970 1971
Credits
Praduct Sales 8500 8900 10000 11800 12500
- - - -
Capitalised Studies -
Fixed Asset lncreases 250 500 500 500 500
Other Caoitaliralion - - - - -
Total Credits 8750 9400 IOSOU 12300 13000
(conrinuedon nerr page) ANNEXES TO THE MEMORIAL 233
1967 1968 1969 1970 1971
Debits
Putchases 4449 4522 4680 5157 5419
Oper. Supp.+ Serv. 470 480 500 520 540
PavrollIFrinees 2643 2688 3104 3646 4057
lnterest 819 370 370 351 317
- - -
Amortisalian - -
lnventory Decrcase 255 88 58 90 13
Other Cortr 730 593 633 764 823
Total Debits 10419 9825 10467 11742 12446
Profit (Loss) (1669) (425) 33 558 554
Appendix C3
RAYTHEONEISI s.P.A.,SALES BY PRODUCT LINE. S-YEAR PROJECTIONS
(Millions of Lire)
RqELSl RqELSI RoELSI RayELSI RqELSI
Fi.~ï.rcul Fiscal Fiseol Fiscol Fi~col
1967 1968 1969 1970 1971
Microwave Tubes 1600 1600 1800 200 2000
Surge Arresters 250 250 250 250 250
X-ray 450 450 450 450 450
Cathode Ray Tubes 5500 5300 5000 MO0 5000
Semiconduciors 400 500 900 Io00 1100
New Raytheon Producis 226 400 600 1200 1400
New Government Products - 300
9M) 1800 2200
Olhers 74 100 100 1O0 100
Total Sales 8500 8900 10000 11800 12500
Note: Estimaled Total Sdles
without Government
Assistance 8500 7950 6600 4900 2600
Headcount (End of Periad) 1039 990 1101 1253 1322234 ELETTRONICA SICULA
RAYTHEONELSl S.P.A., STATEMENT OF SOURCEAND APPLICATIONSOF FUNDS, 5-YEAR
PROJECTIONS
(Millions of Lire)
RayELSI RayELSI RoyELSI RwELSI RoELSI
Fiscal Fiseol Fiscal Fircal Fiseol
1967 1968 1969 1970 1971 Tora1
Sources of Funds
New Capital 8500 - - - - 8500
Net Incorne - - 33 558 554 1145
Depreciation 584 626 651 700 748 3309
Current Asset
Reduction 424 89 - - - 513
Current Liabilities
lncrease - - 100 100 50 250
Bank Debt Increase - 110 - - - 110
Reserve for
Severance 116 100 100 1O0 100 516
Total Sources 9624 925 884 1458 1452 14343
Application of ïunds
Net Loss 1669 425 - - - 2094
Fixed Asset
Additions 250 500 500 500 500 2250
Current Asset
lncrease - - 242 410 287 939
Current Liability
Decrease 1498 - - - - 1498
Reduction ofBank
Debts 6207 - 142 548 665 7562
Total Applica-
tions 9624 925 884 1458 1452 14343 ANNEXES TO THE MEMORlAL
Annex23
[n'or reproduced]
Annex24
IRI, ISTITUTOPER RICOSTRUZIO INVESTRIALE1967ANNUAL REPORT,
PAGE S8-396,5,1968
[n'or reproduced]
Annex 25
THESTAT AS E~'TREPRE~ S.H OLLAN V,.1972)PAGE4S5-49, 56-60
[Nor reproduced] ELETTRONICA SICULA
Annex26
1. My name is Giuseppe Bisconti. 1was born in Palmi, Italy, on 22 April 1931.
1am an attorney and counselor at law duly admitted to practise in al1courts of
Italy. 1studied law in Italy, Austria, Germany and the United States, and have
degrees in law from the University of Rome and Louisiana State University. 1
am the senior oartner in Studio Leealu Bisconti. a law firm with officesin Rome.
Milan. london and Scu York, u.hichrcprï\ent. 2ldrgenïiiiber of niajor niultinï-
tional and financi31institiitionj I am miikinp [hi, ;iHidavitentirel) ïrcimpersonxl
knowledee.
2. I ha\e 351533s eounscl for Riyihcon Conip'in! uith rcgïril 10 ccrrïin oiit.
lcgÿl ïlTairr in Europe irom timr IO ilme siiice approxinialel) 1962 Until 1967.
I orini~rilvadviwd Rdvthei>non inirrnational id* and corriornie nintiers and the
liw of théEuropean Ëconomic Community.
3. Prior to 1968,Raytheon also occasionally consulted me with respect to the
ltalian cornpany Elettronica Sicula S.P.A. ("ELSI"). In 1967,1represented Ray-
theon in its purchase of La Centrale's shares in ELSI. Beginning in the spring of
1968, 1was involved with ELSl on behalf of Raytheon on a more or less daily
basis. Raytheon was also advised by another ltalian lawyer, Mr. Rinaldo Bianchi,
who was attorney for Raytheon Europe International Company ("Raytheon
Europe"); Mr. Bianchi and 1consulted fully on al1major matters affecting ELSI
during this time. 1was generally aware from my contacts with various Raytheon
and Raytheon Europe officials that they were making extensive efforts during
1967 and earlv 1968 to find an Italian oartner for ELSI and Io exolore the
pos;ibilities oilt3113n goi,crnmcnt p~rticipation in FI.SI.
4 Beginning in Marsh IYhh.1 ii3c consulted b! Kï)theon oiliscr, rcgarding
the possible liquiJ;iiion of FI.SI. I u;ir adi,i>cdxi th~t lime thai ELSl's rhïrehold-
ers h3d niade a business judgnicnt ihai. unles, ihc) lound .in It3lixn p3rtner or
made othcr iïii\ilrcti>r) arrxngemeni, for ELSl's future. the? ecre not prepircd
to infuse any more capital into the company. I advised Raytheon about the
ltalian legal requirements for an orderly liquidation of an ltalian company. Under
ltalian law, in particular under Article 2447 of the Italian Civil Code, when a
company's capital is depleted below a statutory minimum amount (at the relevant
time, the statutory minimum was 1million ltalian Lire), the directors are required
to cal1a shareholders' meeting in order that the shareholders hring the capital
back at least up to the required statutory minimum. If the shareholders fail Io
take the required action, the company is dissolved as a matter of law under
Article 2448 of the Italian Civil Code. ELSl's capital, after taking into account
losses to date at that time, was well in excessof the minimum statutory require-
ment. It was therefore possible under ltalian law for ELSl's shareholders to plan
an orderly liquidation of the cornpany. To this end, ELSI's Board of Directors
vo~ ~ ~ ~16 M~rch 1968. Io cease oroduction and to dismiss al1 but a small
nunihcr of ciiiplo)ces e hoss prcsence u,oulil be ncsc<sarvd~ring the Iiquidxtion
penod. Thir decisiun w;isaflirmed b! I:I.Sl'i ih;~reholdcr~on ?h Mïrch
5.Rn)iheon represeni>ti\es h.id been pr:pÿring for thi, conlingeni). R~ytheon
Vit:-Prcsidciit Joseph Oppenheini h3d becn icnt IO ltaly tu tïkc o\,cr a>Chdirmdn
<ifELSl and co-ordinxte the liquidation of ELSl's ïsscts for the highe,t poirihle ANNEXES TO THE MEMORIAL 237
price. Under his direction, plans had heen made for an orderly liquidation over
a period of several months, continuing the operation on a limited basis (for
example, honoring ELSI's Nato commitments), and amicahly satisfying ELSl's
debts in an orderly manner. Raytheon's plans appeared to me to be reasonahle
and conservative. Mr. Oppenheim had world-wide connections with polential
buyers, and had been in touch with Iapanese and other firms regarding the
possible saleof ELSl'sproduct lines,includingwork-in-processand raw matenals.
T~~ ~method of sale would have realized in a short oeriod the hiehe-. oossible
price. ELSI'Sshareholders were planning to accelerate further the liquidity of
ELSl's assets hv selling ELSl's substantial inventory and accounts receivable.
Steos were takén to irooerlv safeeuard the Comianv's records. Given Mr.
Oppenheim'sexperien& and ability,ïhe excellentstaie of ELSl's plant and assets
and ils significant accounts receivable, combined with ELSl's and Raytheon's
excellent reputaiions, 1 believe that had the Italian Government not interfered.
the liquidation plan would have been successful.
6. 1 learned from Raytheon that the ltalian Government did not want ELSl
to close and that it might act to keep it from closing. National elections were
scheduled to take place soon and the incumbent Government was obviously
concerned about the likely negative political effects in Sicilyresulting from the
closing of ELSl's plant. At the end of March 1968,1 participated in a meeting
in Rome with representatives of the Sicilian Government (held a1 their request)
to discuss and purportedly to finalize a proposed shareholder agreement with
Raytheon hy whicb the Sicilian Government (through its industrial agency Ente
Sicilianoper la Produzione Industriale ("ESPI")) would investin ELSl and would
take an equity inierest in ELSl in return. Contrary tu their stated intentions, the
Sicilian Government representatives did not make any viable proposals and we
could reach no agreement.
7.When the ltalian Governmeiii learned that ELSI's shareholders had deter-
mined to close ELSI, it seized ELSl's assets. The Mayor of Palermo, acting as
an official of the Central Government, invoked Article 7 of Law of 20 March
1865,No. 2248, Attachment E, and requisitioned ELSl's plant and equipment
on I April 1968,for a period of six monlhs. As a result of the requisition, ELSl's
owners and management were, as a matter of law, deprived of control over and
the right to dispose of ELSl's assets.
8. 1first heard of the reauisition on I Aoril 1968.when Mr. O~~enheimand
I wcre mcciing uith ~~~~'~liîliînbank rrédiiorsio review with th& Our pians
for an orderl) liq~idîtion uhich uould have assured the paymcni of iheir clîims.
We discontinued the meeting, but agreed to meet soon again, at a time to be
selecied hy the hanks. The requisition order was served on ELSI on 2 April. 1
advised ELSl's Directors that they had to turn over ELSI's assets to the Mayor
of Palermo or his representative pursuant to the requisition order.
9. Weimmediately sentcables to the Mayorand other governmental authorities
asking them to revoke the requisition. Wereceivedno response. On 9 April 1968,
after these efforts had failed, ELSl filed a pelition to the Mayor asking him
immediately 10lift the requisition order. He never responded. In accordance with
Italian law, ELSl then filed a formal appeal of the Mayor's actions on 19April
1968,to the higher authority in the Central Government, that is, the Prefect of
Palermo, asking him to declare the Mayor's actions unlawful and immediately
quash the requisition so that ELSl's shareholderscould proceed with the planned
liquidation.
10. The Prefect did not rule on Our appeal for 16 months, until 22 August
1969,at which lime he ruled that the Mayor had acted unlawfully. This delay
was exceptional. Tu my knowledge, in al1 other cases where the 1865 law had238 ELETTROKICA SICULA
been invoked as the basis for the seizure of an industrial plant, the Prefect had
quashed the requisition very rapidly, sometimes within one day. (For example,
in 1959the Mayorof Randazzo requisitioned a private water supply for the town
and 30days later the order wasannulled by the Prefect of Cantani(seeConsiglio
di Giustizia, RegioneSiciliana,Decision of 26February 1960);in 1961the Mayor
of Alessandria requisitioned the industry "Borsalino" and three days later the
order was annulled by the Prefect of Alessandria (Prefettura of Alessandria,
Decision of 12 May 1961, AniministrazioneIlaliana,1961, p.523); in 1964the
Mayor of Stimigliano requisitioned the industry "Sbordoni Ceramica" and one
day later the order was annulled by the Prefect of Rieti (Prefettura of Rieti,
Decisionof 28April 1964, MassimoriodiGiurisprudenza delLovoro, 1964,p. 167);
in 1966the Mayor of Fano requisitioned the industry "SCAC and oneday later
the order was annulled by the Prefect of Pesaro (seeAniminisrrazioneIraliana,
1966,p. 58); and in 1968the Mayor of Casalmaggiore requisitioned the industry
"Endania" and 30 days later the order was annulled by the Prefect of Cremona
(Prefettura of Cremona. Decision of 8 December 1968. Massimario di Giuris-
irudenza, 1969,p. 304)3
II. On the day after we filed the appeal to the Prefect, President Carollo of
Sicilvdelivereda written memorandum to Ravtheon threatenine.that the reauisi-
tion.would be prolonged indefinitely unless.~a~theon aband6ned its plans to
close ELSI. 1was informed of this immediately by Mr. Oppenheim. The dispo-
sability of ELSl's assets was a fundamental prerequisite lo ELSl's shareholders'
abilitv to take ELSI throueh an orderlv liauidation: thev were relvine on the
procéedsof these salesin la&e part to ELSI 'reditorsin an ordehykanner.
Without the ability to dispose of its assets, ELSI would not have the liquidity
needed to pay its debts 's they came due and therefore would soon become
technically insolvent under ltalian law.
12.All indications from the ltalian Government werechatthe requisition would
not be quashed in the near term. Because ELSl's illiquidity and its consequent
inability to meet its obligations when due were caused bythe requisition, and
would continue, 1advised ELSl's directors that they had an obligation to filea
petition for a declaration of bankruptcy, failing which theycould be held person-
ally liable pursuant to Article 217 of the Bankruptcy Law, Royal Decree of 16
March 1942,No. 267. 1had not previously contemplated such a step, since 1saw
no possibility of its being required by ELSl's financial situation prior to the
requisition. Given the requisition, however, and the consequent inability to dis-
pose of ELSl's plant and equipment, it was evident that ELSl would no longer
be in a position to satisfy regularly its obligations and pay ils debts as they came
due.
13. ELSl's directors decided on 25 April 1968, that ELSI should file for
bankruptcy. Therefore, on 26 April 1968,1submitted a petition in bankruptcy
for ELSI with the Civiland CriminalTribunal in Palermo. That petition explained
tbat the requisition had deprived ELSI of the ability to dispose of its assets at a
critical time and had, therefore, made it technically insolvent. The petition was
accepted by the Tribunal on 16May 1968.Asa result of the bankruptcy declara-
lion, control of ELSI and its assets was put in the hands of the court and was
never returned to ELSl's managementand shareholders.
14.When the bankruptcy court adjudged ELSl bankrupt on 16May 1968,it
appointed Mr. Giuseppe Siracusa, a Palermo attorney, to be the Curator in
bankruptcy. Creditors were allowed 30 days for an initial filing against the
bankrupt. Raytheon and ils subsidiary Raytheon ServiceCompany ("RSC") held
credits of over US $1 million for goods and services theyhad advanced to ELSl
on unsecured open accounts. Under ltalian law, the filingof documents support- ANNEXES TO THE MEMORIAL 239
ine a claim in hankruotcv mav be subiect to a reeistration tax, the amount of
uhi-h 1s 1 Pcrceitt~ge'~i~th~Claini and \arie%debndine on the nature oi the
cldim If Raythedn and RSC Iiad hlcd in b;inkrupicy. ihe! uould hate paiJ J
substantial ta\ Given EI.Sl'j nnnv recurcd creditors. the Iikelihood ihai the full
value of ELSl's assets would not be realized in the bankruptcy proceeding, and
the costs of the bankruptcy, 1 advised Raytheon and RSC no1 to file claims at
the time. Under Iialian law, it would have been possible for them to file such
claims al a later stae- in the Droceedinesand oarticioate in distributions subse-
qucnr to iheir filing As ihe bankruptcy proceedrd t<ia concluiion. hoirever. II
hesante icr) apparent that Rx)ihc,)n and RSC \iuulJ ni>trcso\cr cnough in ihc
h:inhrupic) ti)itistifyihe c,~sijof fil-ny.Onmy .idvise. iherefurr. iheses<iinvanic.;
did noifilë in ihe hankruptcy.
15. Raytheon Europe International Company, however, filed a claim in the
bankruptcy, and 1 was appointed to represent Raytheon Europe on the five-
member creditors commitlee ao~oi.i.ed hv the bankruotcv i. ... Thi- committee
aI,o included Iwo reprcsentati\cs or EI.Sl's iormcr entploycrs. one reprrssnt;iti\e
of the b~nk crrrliiors. and one rcpieseniaiivc of oiher creJitors.
16.After the hankruptcv declaration. there werecontinuing discussions between
ELSl's shareholders and ltalian government officiaisconcerning a possible take-
over OSELSI by a subsidiary of lstituto perla Ricostmzione Industriale ("IRI"),
an agency of the ltalian Government. This take-over would have included a full
creditor settlemenl. As detailed in mv seoarate affidavit dated 20 Aueust 1971.
these negotiations proceeded almost to completion. 1learned during thecenegolia:
lions that ELSl's hank creditors were willing Io accept a distribution OS30 per
cent or 40 per cent of their unsecured claims, except for one bank, wbich wanted
50 per cent. In November 1968, bowever, the Government of Iialy hroke of
talks, issuing a press releaseon 13Novemher announcing thai it intended simply
to take over ELSl through one OSits agencies.
17. 1 went to the ELSI olant several limes durine 1968 and 1969 to attend
mceiings oi the crcdiior\ ci'~mniiitccthai look pl:icciherc \Vhen I u;ij therc. I
sa\\,FISl's emp1o)cej had iiccupied the plant t\en th~ugh the oceupiilun uas
in tiolaiion oil1~1i;in I;ia.local oflicinli look no asticit.ieiict the \iorker\ l'rom
the nlant
18 During 1968and 1969. I lc:irncd ihat the Curaior rcceiierl inquiries irum
piiriies, including m3jur clectronics tirnij. tihu uîrc interssicd in purchaing
ELSI'. assets tlou.cvcr, sinsc the Ivïlian Goiernntcnt h3d madeclcar itsd~ision
IO h:ive one of ils agenrie, acquire ELSl's asseir. poieniial purcharcrs had no
inccnri\e 3rd receiicd nu encouragemeni IO pur,ue ihcir interrsi. >loreo\,er.
during the rime E1.Sl.s plsni wai o:cupied b) 11scmployrc~. iiwould hai,e becn
difficult for the ~uraioito even show Ïhe assets.
1') To m) knowlcrlge. the plant at idle iur the rcni3iii;ler oi 1968. ,II the
direction orthe b.inkruptc) judgc. Iwo aucii,)nj of FISl's plan1and as,rt, ucre
helrl.on 18Januarv and ?? hlarsh 1069 Alihouch IR1h3d announced 11sdccision
to take over the dant and assets, itdid noi a&ear al these auctions. No other
purchasers appeared either. Indeed, 1 would have been extremely surprised if
there had been other bidders, since il had been repeatedly and officially an-
nounced, and was common knowledge in the relevant financial and commercial
sectors, that the Government had decided to take over ELSl's assels iiself.
20. IR1 formed a subsidiary, Industria Elettronica Telecomunicazioni
("ELTEL"), which would take over ELSl's assetts. Although ELTEL did not
aooear at either OSthe auctions. it asked in March 1969 to lease ELSl's olant
and assets. As a memher of the creditors committee, 1opposed this lease,'since
il did not require ELTEL to purchase the assets and effectively precluded al1other potential purchasers from bidding for them. The creditors committee also
exoressed serious reservations about the lease. askina that ELTEL be forced to
cornmil itsclfIO purchr.ing ELSl's rdw mÿtr.rialscinjthat. ifappro\cd. ihe le:ibe
hr IiniitcdIO onc )car. Noneihclcss. on a April. the hdnkruptcy judge îppro\cJ
dn 18munih 1sd.euith no reauircmcnt thai ELTEL n~rsh3se the rJu mrteri.il~.
On behalf of Raytheon ~urope, 1unsuccessfullyappéaledthe judge's decision to
approve the lease.
21. Having leased the plant, ELTEL resumed ELSi's operations, and many of
ELSl's former employees returned to work. The other employeeswere receiving
unemployment compensation. The Government of Sicilyhad also announced its
intention to pass a special law providing for additional compensation to the
unemployed workers,so that, hetween the unemployment compensation and the
additional compensation, they would receive100percent of their former salaries.
These arrangements were designed to satisfy the major financial interests of
ELSl's employeeswith respect10the bankruptcy. As a result, ELSl's employees
had no incentive to question the terms under which ELTEL proposed to acquire
ELSl's assets.
22. ELTEL tben proposed to purchase the bulk of ELSI's "work in process" -
material in various stages of completion left on the production lines of the plant
from the tirne of the requisition. The appraised value of this work in process,
exclusive of material relating ta the Hawk missile production, was 217,300,000
lire. ELTEL offeredto purchase this material for 105million lire.At the creditors'
committee meeting held on 2 Mav to consider this orooosal. mv oroxv made a
numbcr of objecii~ns.3s reflcrtcd ln ihc curïior'b olt~~i3l'mlnules~itha~mceting.
The commiitce nonthclers approbcd thc <aleior ihe reaions given in ihc minutei,
including the Fdctthri nu uiher offcr had ken rcccivcd for ihis m3tcriaI To my
knowlcdgc. houcvcr. no other oiTcrsh3d hrcn solicitcd: the only genïrdl public
ini,it3tions io purchasc any of EI.Sl's asret, wers the bankruptcy auction noiicca.
which providcd iur ihc SJICof ELSI'Sdant and other ph\siçdl r>szisac 3 9inplc
oackaee. On 3 Mav. the Curator orobosed this sale io ihe bankruotcv iudé.. 2 . u.
;ho &st ordered ;n'investigation of Ghether the sale might violate any patent
rights or otherwise injure leg-ll~ ~rotected technical information, and then ap-
pÏoved the sale.
23. Also on 3 May, a third auction of ELSl's plantand assets was held, with
a starting price of 5 billion lire, including 3.2 billion lire for the plant and
equipment, and 1.8 billion lirefor the remaining inventory at the plant. ELTEL
did not bid at this auction, nor did any other hidders appear. Some weeksbefore,
ELTEL had notified the bankruptcy court that it was interested in buying only
the plant and equipment, and not the inventory, for a total of 3.2 billion lire. It
also submitted its own appraisal of ELSl's plant and assets, arguing that the
value of the whole was only 2.381 billion lire.
24. On 27 May ELTEL submitted an otTer to purchase ELSl's remaining
physical assets for 4 billion lire.The Creditors committee approved this sale on
6 June hv a vote of two to one. 1voted aea-nst it. the hank creditor reoresentative
iib5iaincJ and une ulthc cmplo)ccr' rcprr.seniatii,eswxsah.rni. Thc bankruptcv
judge 3pprotcd EI.IEL's otTerun 7 Junc 1969.but cxcludcd tinirhed products,
motor \chicles, icmi~.onJuitor maier131.and items locaied outsidc the P3lcrmo
plant and warehouse from the sale. 1filedan appeal of this decision on 9 June,
arguing that it was no1 in the best interest of ELSl's creditors. The appeal was
rejected on 20 June, removing the last obstacle to IRI's acquisition of ELSl's
assets. On 12July 1969,therefore, a fourth auction was held at the price set hy
ELTEL, and ELSl's assets were sold to ELTEL in accordance with the judge's
order. Thus, through the series of four auctions at which the price of ELSl's ANNEXES TO THE MEMORIAL 241
assets was successfullv reduced. throueh ils lease of the olant. and throurh its
earlicr purchaw uCselecir.d3ssets. ihc Ii~li:inGoicrnmcnt succccdcd in minimiz-
inp iiiCUSI in ~lcquiiii~gELSl's iissei,. and iticrcb) niiiiii111ihc distrihuiion
ofproceeds to ELSl's creditors.
25. On 16 August 1969, after the sale io ELTEL had been completed, the
Prefect finallyruled that the Mayor had acted unlawfully in requisitioning ELSl's
assets. The Mayor of Palermo appealed this order 10 the President of Italy, the
official empowered to hear appeals from Prefect's orden under Iialian law. The
President dismissed the Mayor's appeal, holding that the Mayor lacked standing
to appeal the Prefect's decision.
26. Raytheon hiid promptly paid al1guaranteed bank debts of ELSI. Neverthe-
less, five of ELSl's unsecured bank creditors, including three [RI-owned banks,
filedsuits against Raytheon to recover from il the unsecured bank debts, although
Raytheon had no1guaranteed these debts. The hanks argued, among other things,
that Raytheon was in fact ELSl's soleshareholder. Their position was factually
inaccurate and therefore would have no foundation in ltalian law. These cases
were initially litigated in Palermo before the Tribunal (the court of first instance)
and the Court of Appeals. Three were finally adjudged by the ltalian Supreme
Court: two were discontinued bv the olaintifls. All of the iudicial decisions (at
al1 levélsof the ltalian judiciaryj were'in favor of ~a~theon Company and,'in
addition, totallv cleared Raytheon of anv explicit or implicit misconduct in its
actions with reioecl 10 ELS~
38. Aïter ihe êre~cci'sruling. ihe Curaior \ued the Mayor and ihe Miniiicr oi
ihr Inicrior of ItalyIO obiain ci>mpcnsation for ihe bankrupi cstatc as a rcsull
of the Ma~or's unlawful actidns. This suil u'a, no1 hrouxht. nor could il have
been brought under ltalian law, on behalf of ELSl's sharëholders.
29. The bankruptcy proceedings continued for over 17years. On 10Novemkr
1985,the bankruptcy judge in Palerino approved the final bankruptcy distribution
reoort. Attached to this affidavit are translations into Enrlish of relevant sections
ofthe fivedistribution reports' in the bankruptcy. The riports indicate that after
payment of the secured and preferred creditors, unsecured crediiors were paid
only 0.3998 percent on their claims.
1certify that the foregoing is truc and correct
(Signed) Giuseppe BISCONTI.
Suhscribed and sworn to before me this IIth day of Decemher, 1968.
(Signed) Martha J.MISTREITA,
Notary Public.
Attachment
I*I.FRMO COllRT - IlASKHUPl<'Y DlVISiOS, CUKAIORSHIP Ob 111ERAKKRUPTCY OF
RAYTHEOS HSI SPA, I>RAçT PARTIAL UISIRIHUTIOY
(Nor reproduced]
' Not reproduced. ELETTRONICA SICULA
Annex 27
AFFII>A\,IOF J~SP.PHOPP~.SHCIM FO, RMFRCIIAIK~IA SF THE HUAHU.
KAYTI~EOS-ELS S. A.. DATCD 22 SEPTEIIRER 1971
My name is Joseph Oppenheim. 1was born in Boston. Massachusetts, on 23
November 1914.In 1968and for several vears orior thereto 1was emoloved bv
~a!iheu" Company as Dircctor of lnter&tionai AlTairi.On 9 April lk8: 1 r&
clecicd Chairman of ihc Hoard of Hayihcon-ELSI Sp A (hereinafirr rcfcrred 10
as "ELSI") and smnt mosi of ms lime from ihcn until Ociobcr 1968 in Iialv
meeting wLh ltalian government &iicials, and CO-operatingwith the Curator iR
the bankruptcy with respect to ELSl's aflairs.
During June, July, August and October of 1968, 1 had many meetings with
officiais of the ltalian Government and with of~ ~e~sof various banks in Rome.
Aniong ~hùscuiih rhoni I discusscd ELSl's problems ucre Ministcr Picraccini,
Undcrsecrciar) Scnaior Cdron. ùnd iheir aidc Pr~fcssor Cahpna
MI s~in\ers~tionsuiih Iialidn r?u\,ernnicntolticililsucre direcicd larecl\ to ihc
cpesiion of solving al1the probleks connected with the ELSl afïairs whiih arose
as a consequence ofthe seizure of the ELSI plant by the Mayor of Palermo which
forced ELSl into voluntarv bankruotcv. At a meetine on 31 Julv 1968, with
Undersccrciary Senlitor on. xitcnded albu by A\%,.Ciuscppe ~isconri. Profcs-
sor C'aFagnaand Dr. Su\olone. Chicf of Cabinci ofMinisier Colomho. WC rcrc
adviscd of a plan whichen\i,aged the purchasc ai fair \liluc of the ELSl asscis
by ligovernmcnt~uwncdCompany and 3 toral seirlcmcni uiih credir~irs.When
the dtsirihuiion requircd io saiisfy unsccured crediiors was discuçscsi later
meetings wiih Undcrsecrctary Scniiior Caron and ProlèssorCafngna in Ociobcr
1968,the amount mentioned by the ltalian government representatives as king
an acceptable distribution ta the ltalian creditor banks was generally40 percent
of their unsecured debt, with only one bank allegedlyinsisting on 50per cent.
On 14 October 1968, 1 participated together with Mr. Charles H. Resnick,
Vice-Presidentand General Counsel of Ravtheon Comoanv. and Avv.Giuseooe ..
His<unti.in a meeting uith Undcr\rcrctnr) Senaior ~ar;>nind his aide. Przlèisor
Cafagna. Thc i%ucof rhcihcr a 50pzr ccni pa)mcnt IO banks could bc pcnerated
from-the ELSl assets was announied 10us~asa crucial one. ~imultaneouslv. in
adluining rooms nt ihe Iialian Xlinisir) of thc Biidpci. in Rome. ~iidcr~ecr~t~r)
Senaior Cxon uas niccting uiih reprcsenwiives of the Iialian crediior banks.
Lindcrsecrct3rsSenaior Caron and Professor Cafarna cxcused thcmselve, rcpcat-
edlv durine our meetine in order to confer with saa reoresentatives of the lîalian
cr&itor bànks. In the ourse of said meeting. ~nders&retar~ Senator Caron and
Professor Cafagna reported that there was disarreement among representatives
of the various banks-as to whether a 40 wr cent distribution or a 50 iwr cent
distribution on unsecured debts would be acceptable to the banks. The majority
of the banks were willing ta accept 40 per cent, they indicated; except one, we
were told, which was insisting upon 50percent.
Alone with Mr. Resnick and Avv. Bisconti. 1 worked with Undersecretarv
Senator~aron and Professor Cafagna to showthat &en after providing for the
exwnses of the bankruptcy, based on the plan that had previouslybeenmentioned
to-us and publicly announced contemplating the purchase by a government- ANNEXES TO THE MEMORIAL 243
owned Companyof ELSl's fixed assets at a price (which we were informed was
to be Lire 4 billion) and the sale of the inventorv at a iustifiable value. al1 the
assels of ELSl could he diiposed of31 a ioial priie whiih would yield ai leasi a
41.h5per cent distnhuiion to811un>esuredcrediiors Throughoui ihï nrpotiations
ii wa,made clwr hb ui ihdt Rîbthcon u,uuld olso ormide technical inform<ition
to a huyer of the ËLSI plant in exchange for a &Il release hy creditor banks.'
Similarly,it was indicated to us that each of the banks was willing Io granf such
releases ifil receiveda 40 per cent distribution on ils unsecured dehts; only one
bank (IRI-owned) was holdine out for 50 ver cent.
In 'loiember 1468,1was i;ddenly 3dv&d hy A\,v Giuirpp Biwonti thai the
Iialiûn Go\ernmrnt had decidrd ihat al1ncgotiatlons \rould k diiconiinued and
h<idannounced ihai IRI-STET uould iake ovcr ELSl's nsseis
(Signed) Joseph OPPENHEIM
The Commonwealth of Massachusetts,
Middlesex. 22 September 1971.
Subscribed and sworn 10before me.
(Signed) Mary E. MACDOUGALL,
Notary Public. ELETTRONICA SICULA
AFFIDAVI OF CHARLE S .RESNICK G,ENERAC LOUNSEL R,AYTHEOC NOMPANY,
DATED 8 SEPTEMBE1 971
AFFIDAVIT
My name is Charles H. Resnick. 1was horn in Beverly,Massachusetts, USA,
on 4 November 1924. 1am an attorney and counselor at law duly admitted to
practise in the Commonwealth of Massachusetts and hefore Federal Courts in
the United States at al1levelsincluding the United States Supreme Court.
For more than fiveyears 1have been the principal legalcounsel for Raytheon
Company, holding the title of General Counsel.
Dunng the months of June, July, August and September of 1968, 1 was in
frequent touch with Avv. Giuseppe Bisconti of Rome, Italy, who had been
engaged 10 represent Raytheon Company in Italy. Avv. Bisconti, among other
thinas, had reviewed with meand obtained my ap~roval for forms of release to
be obtained on Raytheon's behalf in connection with a proposal that the assets
of Raytheon's former affiliate, ELSI, he taken over by a government-owned
company; and that Raytheon grant a technical license to such company or to
the actual ooerator of the olant.
In Ociuher of 1968ai lhc requcsi ofA\,v Bisconiidndlithe rcquesi of Joîrph
Oppcnhcim. ihcn Chdirman of the 8odrd of Dircciur5<iftLSI, 1tri\clcd io Iialy
forthe purpose of attending a series of meetings intended to resolve various
problems created hy the seizure of ELSI's plant by the Mayor of Palermo and
the subsequent bankruptcy of ELSI.
On 14October 1968.together with Mr. Joseph Oppenheim and Avv. Bisconti,
1nartici~ated in a meetine.al the Ministrv of Budeet with Senator Caron. then
~idersciretar~ for the Ëudgri 2nd Economic Pi3nning. and ulih Professor
Cïfiigïn. aideIO Senlitor Picraccini and Iarer io Scnïtor Ciron. The mcctings
continucd on 15Ociuber 1968.uiih Profe5sor Caldena At ihe 14Octuber 1968.
meetine. meetines were simultaneouslv beine held iith~re~ ~~ ~tatives of ltalian
crcdii& banks inadjuining rooms, and senaïor Cdron frcquently leftOurmecting
in confer wiih sïiJ rcprescnialivcs At the mcïiings wiih Senaior Caron ïnd
Profcsror Cdfarna. Ur. O~~enhcini.Avv. Bisronii and mssclf wcrr iold ihai the
major~iyuf ihe'ltïlian cred;ior blinkswcrcagreîablc tu a~ce~tin~in fullsciilcmcni
of iheir claims aEdinst ELSIa 40 pcr ccnt disinbution and thai only une blink
WJS holding oui for 50 Dercent. Ai uur meciiiips. Mesiri. Oo~enhelm, Bisconti
and 1 anaivzed data made available to us h; Senator c&& and Professor
Cafagna to'show that the requested paymentrcould be made through monies
realized from the sale of ELSl's assets
At a later date 1learned from Avv. Bisconti that the proposal for a complete
settlement of the ELSl matter had been abandoned and that Raytheon Company
would probably be sued by ltalian creditor banks.
(Signed) Charles H. RFSNICK.
The Commonwealth of Massachusetts,
Middlesex. 8 Septernher 1971.
Suhscribed and sworn to before me. (Signed)Mary E. MACDOUGALL,
Notary Public. ANNEXES TO THE MEMORiAL
Annex 29
[Iralian rexr of Exhibirsnoreproduced]
My name isGiuseppe Bisconti. 1was born in Palmi, Italy, on 22 April 1931.
1am an aitorney and counselor at law duly admitted to practise in al1courts of
Italy.
For a number of years, 1have acted as counsel for Raytheon Company with
regard to some of its legal aîïairs in Italy. Beginning in the spring of 1968,1was
consulted and engaged on behalf of Raytheon Company with regard to the
problems created by the seizure of Raytheon-ELSI S.p.A.'s plant by the Mayor
of Palermo and the events subsequent thereto.
During the period between the beginning of April 1968and Cheend of the year
1968, 1 had numerous conlerences with representatives of ltalian banks which
were creditors of Ravtheon-ELSI~S.~.A.(h.reinafter referred to as "ELSI") and
wiih high ollicials ;;theltalian C;o\ernmcnt Among the banking <illisislswiih
whùm 1discusscd claim, uerc representalivcs oi Banca Nazion;ile del Lavoro.
Banrd Comcrcialc Italiana. Crediio Italiano. Banco di Roma. B~ncodi Sicilia.
Cassa di Risparmio ~ittorio Emanuele an'd IRFIS. ~mong the governmeni
officials with whom Idiscussed the matter were H.E. Senator Pieraccini, then
Minister for the Budget and Economic Planning; H.E. Senator Caron, then
Undersecretary for the Budget and Economic Planning; Professor Cafagna, aide
to H.E. Senator Pieraccini and later to H.E. Senator Caron. The subject-matter
of the discussions with the ltalian government officialswas the take-over of ELSl
by a company owned by the Italian Government and a settlement with the ELSl
creditors, as a resull of which Raytheon Company would be held harmless and
released from any claims threatened by ELSl's creditors. This plan contemplated
Raytheon Company granting to the company that would take over or operate
the ELSl plant a technical license ofthe same scope as ELSl had. Raytheon
Company had stated to the Iialian Government, from the first meeting with H.E.
Senator Pieraccinion 18June 1968,its complete readiness to grant such a license,
orovided as a result of anv settlement of the ELSl matter Ravtheon Comoan. .
tvould be held harmless and released from any creditors' threaiened claims.
This plan under which (1) ELSl's assets would betaken over by a government-
owned company; (2) Raytheon would grant a technical licenseto such company
or to the actual operator of the plant; and (3) Raytheon would bereleased from
any claims the ltalian banks or any other creditors of ELSI might make, was
discussed by me and Mr. Joseph Oppenheim, a Vice-President of Raytheon
Company, in suhsequent meetings wiihProfessor Cafagna during July 1968.On
31July 1968,Mr. Oppenheim and 1met with H.E. Senator Caron, who confirmed
the above plan.
On 25 July 1968,H.E. the Hon. Giulio Andreotti, then Minister for lndustry
and Commerce. announced 10the ltalian Chamber of Deouties "no1 a orooosal
but a fact", namely, the formation by some government aiencies and thé ai on
of Sicily ofa new company which would take over ELSI, and he indicated thepossibility of an over-al1 out of court settlement with creditors. Information
available from other sources indicated that the new Company would be owned
bv IRI. IMI and ESPI. A further olan of the ltalian Government was to have
the new IRI-IMI-ESPI compdny IV&C the EI.SI plant IO an elestronic Company.
which uuuld operate il.Accordingly. ncgotiations uere conductcd by ihc Iialian
Go\crnmcnt. represented hsHE. Senator Caron and hisaide. Professor Cafaana.
with the renresentatives ofceneral Instruments. a US cornoration.
IYromlj Septeniber 1968.to 15 Noi,ember 19681I ha2 numerous ielcphone
çon\ersations and mcciings uith HE. Senatur Caron and or Profcjsor Cdfagna.
Ai ,orne of ihcse mcciing,, Ur. Ji>irphOppcnheim and Ur. Charles H. Resnick,
Vise-President and Gcncral Counscl of Ra)iheon Compïny uerc also prcseni.
In thc course of ihcse mcciings. iiwa5indicïtcd IO me hy the Italian go\,ernmeni
representatives that the ltalian creditor banks were amenable to a complete
settlement of the ELSl matter and of their claims along the lines of the above-
descnbed plan.
Complete releases would be given bythe banks to Raytheon Company. 1
drafted the tex1 of such releases and delivered them toeether with a coverine
siaiemeni lu HE. Senaior Caron on 24 Septembcr 1968 A copy of ihe dra;
rrlracrs and ihe cotering slatement are siiarhed hereto 3s Exhibits 1. 2 snd 3
and tnalish irïnçlations are ïiiïched hcreio ü\ Exhihiir IA. 2A and 3A. 1wïs
also toG al said meetings that the only issue pending wa; the percentage of
distribution on their unsecured claimswhich the banks would accept. 1was told
that some banks would be satisfied even with30 per cent, the majority of the
banks were askine for 40 Dercent and onlv one bank was holdine out for 50 ner
cent. This was cgnfi;med'to me in verbaj communications 1 hA in ~e~tember
and October 1968with banking officiais.An attorney for the bank that had taken
the stiffestoosition as a creditor told me, on a oersonal basis. that his bank would
be happy with a 50 percent recovery paymen.t.
More specifically,on 14October 1968,together with Mr. Joseph Oppenheim
and Mr. Charles H. Resnick, 1participated al a meetingat the Ministry of Budget
with H.E. Senator Caron and Professor Cafagna. At the same lime, the represen-
tatives of the ltalian creditor banks were meeting in adjoining rooms and H.E.
Senator Caron was frequently leavingOurmeeting to confer with said representa-
tives. At such meetina. we were told bv H.E. Senator Caron and Professor
Caiagnï thai the mal&ity of the Itïliïn creditor banks ucrc agreedhle io a'cepi
a 30 pcr cent distribuiion of iheir unsecured clainis and thdi only une bïnk wd,
holding out for 50 per cent.
On 15 November 1968,1had a meeting with Professor Cafagna, at which he
gave me a copy of the officialpress,releaseof the ltalian Government issued on
13November 1968,announcing that IRI-STET would take over ELSI. A copy
of said oress releaseis attached hereto as Exhibit 4 and an Enelish translation is
dltached hereio as Exhibit4A Profesior Cafagnï iold methai ihc Ilalian Gotern-
mcni's dcsision io disconrinue ihc discussionstouards d complcic sciilcmeni of
ihc ELSl mJtier ülona the abore-descnbcd lino was a ~olitical one and thai
Raytheon Company slÏould from then on take care of the'ltalian creditor banks
and their threatened claims, al1alone.
(Signed) Giuseppe BISCONTI.
Republic of Italy, . ,
Province of Rome,
City of Rome,
Embassyof the United States of America. ANNEXES TO THE MEMORIAL 247
Subscnbed and sworn to before me Phillip V. Battaglia, Vice Consul of the
United States of America at Rome, Italy, duly commissioned and qualified, this
20th dayof August 1971.
(Signed) Phillip V. BATTAGLIA,
ViceConsul of the United States of Amenca.
Exhibit1A
For good and valuable consideration receipt whereof is hereby acknowledged,
the undersigned lnstitute hereby declares to waive irrevocably the suhmisdon or
enforcement of any claims, actions or proceedings whether directly or indirectly
against Raytheon Company, a UScompany with officesin Lexington, Massachu-
setts, USA, and101any of its subsidiaries or affiliates(except only for Raytheon-
ELSl S.p.A., an ltalian company with officesinPalermo, Italy, hereinafter called
ELSI andior any officeror director of Raytheon Company or ofany of its subsidi-
aries or affiliates(including any officeror director of ELSI) and therefore declares
irrevocablv to release, remise and discharae the ahove-mentioned companies.
officersand directors of and from any clai&, liahilities, actions or proceedings,
direct or indirect, in any way arising in relation to the financings granted hy the
undersigned Institute to ELSI or iiiyelation to any damage, Io& or expensethat
the undersigned lnstitute might have suiïered or may suffer as a result of the
hankruptcy of ELSl or in relation to the activities and operations or 10 the
conduct of the business and management of ELSl or for any other reason or on
any other ground whatsoever in any way related to or denving from the relation-
ship of the undersigned lnstitute with ELSl and/or with Raytheon Company and/
or related to or deriving from any obligations whatsoever in any way or for any
reason undertaken bv .avthe,n Comoa.v t, this lnstitute in relation to ELSI.
The undersigned Instilute acknowledges the payment by Raytheon Company to
it of the amounts due under the auarantv or auaranties eiven on behalf of ELSl
and that the undersigned lnstitute has no ciim whatsoever against Raytheon
Company in relation to said guaranty or guaranties.
The undersigned lnstitute further agrees that it will not cause or otherwise
occasion any action to be initiated or prosecuted, and that il will not in any way
abet or aid others to initiate or prosecute any action, directly or indirectly, such
as may be aimed at or may result in a determination of liahility of Raytheon
Company andlor of anv of its subsidiaries or affiliates (except onlv for ELSI)
. .
and/;rof.iny uificcror~irccturof ~a~thcon Cumpanyor ufan) ofit;ruhridiarfei
or arlili3ics(includingany ollicer or J~rectorof ELSI), in any uïy ariaing from or
related to the bankruotcv of ELSl or in anv wav arising from or relatëd 10 the
~CI~VI~IC2nd uPcraliok Arthe cunduci of thébua.incsr a& m;inagcnicnroi tLSI.
Thcrefhre. ihc unJcriiancJ In\iitutr Jeclarc, th;it froni nou on ilha5no cliiim
whatsoever against ~ayiheon Company andior any of its subsidiaries and affili-
ales (except only for ELSI) and/or against any officer or director of Raytheon248 ELETTRONICA SICULA
Company and/or of any of its subsidiaries or affiliates (including any officer or
director of ELSI) in any way, for any reason or on any ground arising from or
related to the above
Exhibit 2A
For good and valuable consider~iion rcceipi whcreof is hrrçhy acknowledgcd.
ihr undcrsigned Insiiiuie hrrehy declarcs io uaive irrerocahly the ~uhmissionor
enforcement of any claims, actions or proceedings whether directly or indirectly
against Raytheon Company, a US company with officesin Lexington, Massachu-
setts, USA, and/or any of its subsidiaries or affiliates(except only for Raytheon-
ELSl S.p.A., an ltalian company with officesin Palermo, Italy, hereinafter called
ELSI) and/or any officer or director of Raytheon Company or of any of ils
subsidiaries or affiliates(including any officeror director of ELSI) and therefore
declares irrevocably to release, remiseand discharge the above-mentioned compa-
nies, officersand directors of and from any claims, liabilities,actions or vroceed-
ines. direct or indirect. in anv wav arisine in relation to the financines eranted bv
the undersigned lnstitute 10.~~~1or inYelation to any damage, 1;s or expense
that the undersigned lnstitute might have suffered or may suffer as a result of the
bankruptcy of ELSl or in relalion to the activities and operations or to the
conduct of the business and management of ELSl or for any other reason or on
any other ground whatsoever in any way related toor deriving from the relation-
ship of the undersigned lnstitute with ELSl and/or with Raytheon Company and/
or relaied to or derivine from anv oblieations whatsoever in anv wav or for anv
'
reason undcriaken by castheon 6omp<ins io ihi, lnsiiiuic in rcliiio&o F.LSI
The undersigned Institutc furthcr agrees ihai itwill no1 c~use or otherwise
occasion any action to Lxinitiated or prosecuted, and that it will not in any way
abet or aid others to initiate or prosecute any action, directly or indirectly, such
as may Lxaimed at or may result in a determination of liability of Raytheon
Company and/or of any of its subsidiaries or affiliates (except only for ELSI)
and/or of any officeror director of Raytheon Company or of any of itssubsidiaries
or affiliates(including any officeror director of ELSI), in any way arising from or
related to the bankruptcy of ELSl or in any way arising from or related to the
activitiesand operations or the conduct of the businessand management of ELSI.
Therefore, the undersigned lnstitute declares that from now on it has no claim
whatsoever against Raytheon Company and/or any of its subsidiaries and affili-
ates (except only for ELSI) and/or against any officer or director of Raytheon
Company and/or of any of its subsidiaries or affiliates (including any officer or
director of ELSI) in any way, for any reason or on any ground arising from or
related to the above.
Exhibit 3A
Upon request of the ltalian Government and in the framework of an over-al1
and satisfactory solution of ELSl's problems, Raytheon Company is prepared to ANNEXES TO THE MEMORIAL 249
waive ils subrogation rights deriving from the payment of the guarantees granted
hv it Io credit institutions on behalf of ELSl and conseauentlv not to suhmit the
rélativeclaims as ELSl's creditor, on the condition that the abovementioned
institutions sign releases inavor of Raytheon Company in conformity with the
texts drawn up by Raytheon Company's legalcounsel.
[See olsop. 318.infra]
Minister Restivo, Minister Bo, Under-Secretary Caron, the President of the
Region of Sicily the Hon Carollo, the Governor of the Bank of ltaly Dr. Carli,
the Secretary-General for [Economic]Planning Dr. Rufolo, the Director-Generai
of the Treasury Dr. Nuvoloni and the General Manager of IR1 Dr. Medugno,
held a meeting presided over hy Minister Colombo, in order to examine the
situation following the hankruptcy of Raytheon-ELSI and the possibility ofstart-
ing again the activities of the latter's plant also for the purpose of maintaining
employment.
"Without prejudice to the undertaking of the STET Group to huild in
Palenno a new plant to manufacture in the field of telecommunications, the
{RI-STtT ~rou~. wlicited by ihc Government. sincc ilhas proten impos-
sible iocarry oui othcr carcfiilly cxïmined solutions, har communicaicd its
willin~ncssIO inicrbenc in iaking ovcr ihc IEI.SII plan! and in romniencina
also nëw productions." ~. -
The IRI-STET Grouo. in takine s-ch a positive attitude. has borne in mind the
burdens deriving IO ii from ~hcneu reccni conveniions concerning the main
ielecommunic3tion scr\ices. in 3 tielJ in uhich lechnological prùgrcss is \ery Liri
and imposes to face hy suitahle means the prohlems of technological resedrch
applied-to telecommun~cationsand, specificaliy,to the switchingcentrais.
The application of the provisions of law, recently approved by Parliament, for
promoting applied research in the fundamental areas of the indusirial activities
and the function of prominent intervention which STET, hy benefiting from the
above-mentioned provisions, can perform for the technical progress of the tele-
phone exchange, can give considerahle impulse to the achievement of the ahove-
mentioned objective. In this perspective, the STET Group has adhered to the
request of intervention10take over the plant of the bankrupt Raytheon-ELSI of
Palenno.
Conditionsand modalities for the intervention mus1necessarily beagreed upon
hy and between the STET Group and the Authorities of the Sicilian Region. ELETTRONICA SICULA
AFFIDAV~ OF DOMIN~A C. Nm, FORMER CONTROLLER R, YTHEON-ELSSI.,P.A.
DATED 17APR~L1987
1,DominicA. Nett, personallyappeared before a notary public in the Common-
wealth of Massachusetts and, upon being duly sworn, stated that:
1. 1 was bom in Woburn, Massachusetts ("Mass.") on 18 July 1922, and
receivedmy early education in the Woburn Public Schools. In 1945,1graduated
from The Bentley School of Accounting and Finance in Boston, Mass., with a
diploma in accountancy. 1initiallyworked for Raytheon Company ("Raytheon")
from 1943until 1946. 1then joined the US Amy, where 1performed a period
of military serviceand then worked in a civiliancapacity for the US Department
of the Amy. 1then returned to work for Raytheon in 1950,and have continued
10work for Raytheon until the present time. During this period, 1also acquired
a Bachelor of ScienceDegree and a Masters Degree in BusinessAdministration
from Suffolk University in Boston, Mass.
2. In Aunust of 1963.from the nosition of Division StaffAccountant. I was
aisigncd b) R;t)thcon iora sir-to.ninc-month pcriodasa s)siem, anal!si io
providc accouniing s).siîms and procedures assistancc io L'Elciironica Sicula
So A t"ELSI"I I thcrcforc closcd m\ homî and to~eihcr with mv familv moved
on a temporary'basis to Palermo, Sicijy.HoweveGy assignmen<wasrepeatedly
extended, and 1 remained in Palermo to perform this function on behalf of
Ravtheon until the summer of 1965.After a hrief vacation in the United States.
I réturncdto EI.SI and continucd u,ork in the bame clipaciiy until I ~e~iemhe;
1966.ai u,hirh iimc I was a,s~gnçdas Cunirullçr and rcmained in that capacity
until ELSl's bankruotcv
In March, due 10 théseries of sporadic strikes which were occurring at the
ELSl plant in Palermo at the time, it was ELSl's management desire to keeo ils
salesand accounting operations functioning as uninterriptedly as possible.~hus,
on 2 March 1968, 1 assisted in the move of the ELSl books of account and
accounting documents to ELSl's sales officein Milan. Here together with both
ELSl and Ravtheon oersonnel we carried out ELSl sales and accountine func-
lions. We attëmpted io update the books of account which were inarGars of
postings due to delays caused principally by a series of earthquakes and labor
interruptions earlier at ~alermo. Wewere able 10bring the books up-10-date to
30 December 1968.In addition to posting to the ledgers we performed shipping,
billing,collection, and payment functions. These wedid until 24 April 1968,after
which time certain key books of account were sent to Rome where they were
made part of the petition in bankruptcy filed by ELSI on 26 April 1968.Then 1
released the ELSl employees there, locked the office, and waited in Milan for
further developments. Subsequently the petition in bankruptcy was accepted by
the Tribunal of Palermo, and on or about 25 May 1968,1turned over the keys
of the Milan officeand warehouses to the appointed bankruptcy Trustee, and
then the doors were locked and sealed by the Court officer who accompanied
him. 1 then moved to Rome and was assigned 10 work a1 the headquarters of
Raytheon Europe International Company from where 1 continued to provide
assistance on ELSI matters to both Raytheon and ELSl's bankruptcy Trustee
until October 1968.Then 1was assigned 10work on financial matters involving ANNEXES TO THE MEMOR~AL 251
SELENIA, an ltalian Company jointly owned by Raytheon, IRI, and FIAT.
Finallv. in Seotember 1969. 1 returned nermanentlv to the United States as a
Senior Financial Analysi ai Ra)iheon's corporaie he~dqu~rters.Suhqequcntl), 1
was pronioted io Senior Slanagenieni An3lysi. ihc position which I siill hold. In
this position I ha\e provided a wide \,anety iif srl\,anied and routine fin3nsial
iniormaiion and striices Io the Corpor;iie t~ccuiivc Ofices including the hcind-
Iing of special assignnients iu help resul~caccounting problenis <ivarious Ra)-
theon operations. 1 also assist in the compilation of sensitivecxccutive reports
and analyses, such as monthly and annual forecasts of overall earnings, cos1
trends, and data relative Io union negotiations.
3. When 1first arrived at ELSl in 1963,1participated in meetings ofvarious
task forcesand together developed and installed new basic financialmanagement
systems, including a compatible ItalianjUS chart of accounts, inventory-taking
procedures, and cost accounting and reporting systems. 1 also designed and
introduced newand improved forms.Thereafter, I continued Io monitor, oversee,
and imnrove these svstems and orocedures as well as adaoted and installed
~a~thei>n'\ri:indard reporting for;nat for rrgular linansial m'anagemenircpori-
inc. 1 31r(1inade bpecial reports and analyse. IO Raythcon headquarters as may
haie been reauesiédbv ilsdeoartments from tirne to time. 1orovided trainine to
a certain nuniber of ELSI'>linancial personnel and on occasibn madc reconikcn.
dations on personnel organizaiion I cilsoassisicd ELSl'j ouiside accoiinianis,
Coopcrs dnd Lshrand. iin audit,. Since I spokc li~li3n. I \r<)rkedwiih the Ii;ilian-
4. In 7967, as part of its effort to improve ELSl's financial position, Riytheon
assigned a number of additional staff to work in Palermo. With this additional
manoower we were able to oerform more comorehensive and detailed studies of
\;irious aspcii5 oiELSl's i>pcralionsand. ab a rcrult, reiommend and irnple-
meni more uide-r~nging inipro\,emcnib For c\ample. together wiih ELSl'r icch-
nical manufacturing, and marketing personnel, as applicable, we conducted a
studv of the inventorv 10 determine ELSl's current and near-future needs and
beg& a program to dispos er or convert to useful items any surplus or obsolete
parts and finished goods. Standard costs were carefully examined more closely
io assure accuracy in pricing the inventory. Wealso conducted astudy ofaccoun<s
receivable to assure that the balances shown on the books net of reserves were
good and collectible.
5. In April 19681worked with a number of ELSl's key accouniing personnel
t~,oreo.re a ~rovisional balance sheet for ELSI as of 31 March 1968. This
balance sheet i's~~iachrnenA t to this affidavit. Since the plant by that time had
been requisitioned, no1 al1of the records were available to us in preparin8 this
balance sheet. However, we had previously moved most of ELSl's financial
records to ELSl's officein Milan, including the invoices for accounts receivable
and payable. Moreover, 1 was familiar with many of ELSl's financial activities
in detail. Together, therefore, we were able to prepare a balance sheet which in
my opinion objeciively reflected ELSl's assets and liabilities at 31 March 1968.
6. During 1986, 1 received and analyzed the five distribution plans prepared
hy the Trustee in bankrupicy for ELSI, along with the Court approvals of
modifications to these olans. Since I read as well as swak Iialian, 1was able to
re\.iru ci>pwsof the oriiinal documenta Ra\ed on ihcseni3icrials. Ihaie prclrared
the all:îched SchedulesA ihrough E (Arr<iil,~?z<R?)#.St.hc,,lr~,summari7er ihe
amouni, and sources of prosceds rc;ilizcd in the hankrurit<s of ELSl and the
distribution of thesc proceeds. As this schedule indicates, iccording to the distri-
bution plans, the bankruptcy redlized a total of Lire 6,373,838.866in proceeds.
Of this amount. Lire 47,916,666and Lire 3,205,000,000,respectively, were re-ceived from the rental and sale of fixed assets to Elettronica Telecomunicazioni.
S.P.,\. ('ELTEL"). a .uhsidiar) oithe IR1 group ul'Iialian-owned ionipnnics
(t'i~cdaricii hcrc includcs propcrty, pllini, and equipmeni located in Pülermi>.j
The h~lanceol'rirocecds iiSLire 3.1?0.')?2.?00redli~edu3s recci\cd from the sdlc
of nio\ablc asséi,and the iollcction of aisounis rccei\ablr. Incluilcd in [hi, 1ü\i
üniount is I.irc 8UI ni~llionfor the rïlc IO E1.Tt.I. of ihüt portion (II'invenror)
which it chose only to acquire. As this schedule further indicates, according to
the distrihution olans and Court orders. of the total Lire 6.373.838.866 realized.
Lire 673,566.~3f wcnt IO pl) the ~rustec and oihcr cxpcnscs of thc'blinkrupic)'
Lire 291,696,987ucnt IO püy Ilali;in govcrnmcni agencie\ for taxes, rcgi\tr~lion
ofdccds.and cusionisduiics lire ?.638.3.7.39.wen. in IRFIS. I~iiruioKeeionale -
per il Finanziamento alle Industrie, in Sicilyfor payment of principal and interest
on a number of "Mezzogiorno" loans which weresecured hy a first mortgage on
ELSi's plant, property, and-equipment. Lire 1,097,778,643went to pay various
banks for loans and credit extended to ELSI. Of this amount, the major portion,
Lire 1,025,834,395,went to the Bancodi Siciliafor principal and interest on loans
and credit which were secured by a second mortage on ELSI's property, plant,
and eauioment and bv a lien on its inventories. Pavments of Lire 1.014.449.388
uerc niade io tl.SI'> employccs for uÿgcs, sdllirics,and ,evcranîe pa) In relation
IO ELSI cmplo)ecs, paymenis ui Lire 441,582,112 aerc made io tanous prirJie
and State insurance organizations for employee withholdings and company con-
tributions for life insurances, pension, medical, accident and other employee
henefits. Other payments were to Sales Agents for Lire 21,180,198, to attorneys
for Lire 5,428,320, to other priority creditors for Lire 13,463,493,and finally to
unsecured creditors for Lire 1.539.187to third narties and Lire 82.216to Ravtheon
group companies. ~emaining in ieserve, and as discussed further below in para-
graph 8, was Lire 174,724,000.
In total, of the total proceeds received, Lire 6,340,404,315went to pay secured
and priority claims and Lire 33,434,551went to pay unsecured claims.
7. Schedules B through E are detailed analyses in elaboration and support of
Schedule A, as follows:
Schedule B is a general summary of each distribution plan, showing key dates,
liabilities admitted. the total nroceeds received. and the oavment. m,de. The
procccd$ arc $hosin b) fi\cd and morüblc ;isretr cütcgorir.s: th: lilibiliiics and
paym:nis arc jhoun by rei,crlil priorii) pJynicni ~lüssific;iiions For purposcs of
[hi. rctniri. ihr.slli~iilicationsarc no[ Jiinla\cJ in ihc i~rJcr,II'vü\mcnt nri<>riit
~chêdule C is a summary of the total proceeds received, iccording'to eaih
distrihution plan, shown by date and description. More specific breakdowns of
how much was received, respectively,fromthe sale of other inventory, other fixed
assets, and collections of receivables werenot detailed in the Trustee'sdistribution
plans.
Schedule D is a summary analysis of the details given in SchedulesE-l through
E-5. It shows by payment classificationsthe total liabilitiesadmitted and payments
~ ~ ~~~~ ~~~ ~ ~~~ ~ ~~i~~~~~~~~~~~~~-
SchedulesEl-E5 are analyses of the fivc distribution plans presentcd hy the
Trustee to the Court. 1have indicated on each schedule the modifications in the
planned payments, if any, which wereordered hy the Court directed in connection
with approval of the plans.
8. These schedules are subject to the following notes. First, while it is possible
to trace each item from one plan to the next for the first four plans, certain
information and detail have been omitted in the last plan, dated 10October 1985,
so that it is impossible to relate it exactly to the fourth plan, dated 31 December ANNEXES TO THE MEMORIAL 253
1979. Specifically, the final plan does not recapitulate the liabilities whichhave
been accepted and admitted, but which remain unpaid. As a consequence, it is
impossible to determine whether any additional liabilities were accepted and
admitted between January 1980and October 1985, which would bein addition
to those shown in the fourth distrihution plan. 1was therefore unable to finalize
the items for claims admitted and final unpaid claims. Second, there were minor
errors in arithmetic in the distribotion plans, which 1resolved in my hest judg-
ment. Third, as indicated in Schedules D and E-4, the fourth plan includes a
legal reserve amount of Lire 92,724,000, which isnot included or accounted for
in the final plan. At my request, in Octoher 1986, MI. Mano Romita of Studio
Leeale Bisconti. Iialian lawver for Ravtheon. contacted the Trustee in bankruotcv
byielephone regardhg thédisposition of this amount. Mr. Romita has adAsed
me that the Trustee stated that al1 proceeds were distributed and remembered
that this amount was oaid to oreferred creditors.This would have heen the losical
diirihuiiirn. under the circumrianxs. .ind I have ihcrr.iorç incluJeJ this amount
in the iouls for p;i)meni, io prcl'erreil;reditors. Fourih. I\va\ unaicdcierminr
from the distribution plans how much, if any, was paid to employees, employee
insurance oreanizations. and sales aeents for work or services oerformed durine
the orcup:iii;>n of ELSl's plant h" ihr M3yor 01.Pdlcrmo commcniiny 2 ~~r;i
1968.uniil ihcdaie dthe hankrupic). and Junng ihs psnod ol'h.inkruptsy iiscll:
Suhie~t IO ilicsc.noic. 1stiear and dlirm ihri ihew rchcduler ï~irlvand acc~rsiclv
reflict the underlying bankruptcy distrihution plans and court-brdered modifi-
cations.
9. 1 have also prepared a detailed breakdown of ELSl's employee count ai
various points during the period 30 September 1964to 29 March 1968.All but
the 29 March 1968 figures are based on information published in management
reports provided by ELSI to Raytheon as of those dates. The 29 March 1968
figuresare based on a summary and listing of ELSl's employeeson or about that
date. This hreakdown is Arrochmenr C.
10.Finally, 1have reviewed the financial schedulesprepared hy MI. Arthur V.
Schene, summarizing ELSl's financial history, recapitulating various appraisals
of amounts to be realized for ELSl's assets. and detailinu ELSl's liabilities as of
31 Marçh 1068.cotripdrlng the redli~~tionand disiribution ufprocceds frdm the
~ISDU,~~ OCEI.Sl'r .i\rcis ai hook valuc and ectimaied niininiuni liquidation \alue
wiih the results of the bankruptcy, and analyzing Raytheon's-losses. In my
opinion, these schedules are fairly and accurately representative of the facts as
they existed.
(Signed) Dominic A. NETI
Commonwealth of Massachusetts,
County of Middlesex.
On this 17th day of April, 1987, hefore me personally appeared Dominic A.
Nett to me known to be the persoii described in and who executed the foregoing
instmment and acknowledged that he executed the same as his free act and deed.
(Signed) Rosemarie MALONEY,
Notary Public.254 ELETTRONICA SICULA
Atisehment A
RAYTHEONELSI s.P.A.,PROVISIONALBALANCESHEET AS OF31/3/68
(lralian Lire)
Faciliries
Land and buildings 1.082.636.651
Plant. machiner,.and ea. .ment 5.793.172.263
~urniture, fixtures,and
motor vehicles
Consrrucrioninprocess
Srudiesinprocess
D-ferred cosrs
Patents, studiesand experience
Start-up cost- Military orders
Other costs to beammortized
Sloresand workin process
Cash and banks
Cash
Banksand current postal
accounts
Nores Receivable
Invesrmenrs
AccounrsReceivable
Customers
Affiliatedcompanies
Other
Accrued receivableasndprepaidexpenses
Loss
Prinr year
Current year
Capiralstock
OrdinaryReserve 1.514.377
OrherReserves
Depreciation 1:505.994.640
Employee severance pay 584.946.979
Baddebts 80.574.054
Taxed reserve 862.331.226 3.033.846.899
Nores payable 1.200.000.000
Morrgageloans
IRFIS loans
Bancodi Sicilialoan ANNEXES TO THE MEMORIAL
Accountsandaccruedpayables
Banks 7.929.000.000
Suppliers 283.000.000
Parent group companies 1.098.320.481
Accrued and other 1.004.414.910 10.314.735.391
FAClLITlES
Landand buildings
Land
Buildings
Plant,machineryandequipment
Plant and machinery 4.659.384.132
Electroliticcells 58.242.434
Ovensand related parts 339.212.171
Equipment 236.793.837
Small1001sand equipment 10.626.073
Interna1vehicles 25.316.327
(Tax reserve) 463.597.289 5.793.172.263
Furniture.fxtures.and automobiles
Furniture and officemachines 155.513.473
Storesand officefixtures 39.130.098
Automobiles
OTHERCOSTSIO BEAMORTIZED
Start-up costs 23.000.000
New marketing organization 31.106.869
Production improvements 165.790.269
Company reorganization 150.096.463
Cost to he transferred to
magnetron production orders 126.952.648
-96.946.249 STORES AND WORK IN PROCESS
Raw materials 340.900.000
Semi-finishedparts 1.052.500.000
Purchased parts 498.000.000
Plant repair materials 131.000.000
Materials tohe recovered 35.571.000
Finishedgoods 2.182.800.000
Work in process 844.000.000
Materials in transit 434.856.305
(TaxReserve) 1.015.000.000
6.534.627.305
CASH
Cash - Palermoheadquarlers 500.000
Cash - Milan office 3.109.160
Cash - Rome office 182.811
3.398.818
BANK AND POSTALCURRENTACCOUNTS
Current postal account - Palermo
Credito Italiano- Transit account
Banca Ponolare di Palermo
Milan baAksand current postal account 3.109.160
Banco di Rorna and current postal account 1.526.638
17.881.299
INVESTMENTS
Raytheon ELSI AG - Zurich 71.209.490
Raytheon ELSI AB - Stockholm 48.000.000
119.209.490
- ANNEXES TO THE MEMORIAL
AïïILlATED COMPANIES
Rayiheon ELSl AG - Zurich 64.827.449
Rayiheon ELSl AB - Stockholm 41.202.643
106.030.092
ACCRUED AND OTHER PAYABLES
Payablesaccrued/Transistor AG
lnterest payable accrued
Employee insurancecontributions accrued:
lNAM
lNPS
INPDAl
lmposts payable
Payroll payable
Taxespayable
Owens Illinois(for Patent Rights)
ANIE
Associazione Lampade
Emoluments due Sindaci
IRFIS for inieresi on loans (maturcd 21.12.67)
Bancodi Siciliafor interest on loans(matured 21.12.67)
Accrual for deferred fringe benefits(Contraciuals)
Salescommissions accrued
Quantity discounts 10customers
Promotional expensesaccrued
Sales incentivesaccrued
ENASARCO
Other
Landand Buildings:are considered unchanged the valuesper the 3019167balance
sheet
Plant,machinery,equipment.furnitirre. filorveheclesthe increments for
these items are siill in in-process, therefore remain unchanged the values per
the balance sheetas of 3019167.ConsrrucrioninProcess:
increase from October to December 1967 mil. 27.4
estimated increaseJanuary-March 1968 mil. 39.7
67.1
decrease for oven sale to TRAG -21.2)
-5.9
S~udiesin Process: are considered unchanged the values per the balance sheet as
of 3019167.
Deferredcosrs:
- Patents, studies and experience: are considered unchanged the 3019167
v~~ ~-~
- Start-up costs - Military orders: decrease October 1967-January 1968
4,900,000 withrespect to the 3019167values.
- Other costs to be ammortized: are considered unchanged the values at
3019167.
Cashand banks:
Cash Palermo L 500.000 estimated because we lack data
Cash Milano L 3.109.160 book balance as of 3113168
Cash Roma L 182.811 book balance as of 31)3'/68
L 3.398.818
Current postal a/c
Palermo 6.475.573 book balance as of 31/3/68
Credito Italiano
Transitaccount 5.769.928 book balance as of 31/3/68
Banca Popolare Pal. 1.000.000 estimated value
Current Postal a/c
and Milano banks 3.109.160 book balance as of 31/3/68
Current Postal a/c
and Banco Roma-Roma 1.526.638 book balance as of 31/3/68
17.881.299
Notes receivable:
at 30112167book balance 118.136.196
estimated increaseJanuary-March 1968 10.000.000
128.136.196
Invesrmenrs:unchanged the values per the balance sheetas of 30/9/1967
Receivables:
Customers L 1.973.863.315 accounting position by Volpe
436.300.000 Hawk accrual as of 31/12/67
54.300.00 Hawk accrual January (Nett)
2.464.463.315
(313.700.000) advances receivedon Hawk
2.150.763.315
AffiliatedCompanies L '106.030.092 value unchanged 3019167
Other receivables L 236.211.519 as a result of the estimates in-
dicated on the relative page
attached to the Balance
Sheet. ANNEXES TO THE MEMORIAL 259
AccruedReceivables and
PrepaidExpenses: L 352.369.770 as a result of the estimatesin-
dicated on the relative page
attached 10 the Balance
Sheet.
OrherReserves:
Depreciation L 1.270.292.640 at 3019167
incrementOctober 1967-Marcli1968 235.702.000
L 1.505.594.640
Employeeseverancepay L 538.939.772 at 3019167
incrementOctober 1967-March1968 46.007.206
L 584.946.979
BadDehts: the valueat 3019167isconsidered unchanged L80.574.054
Taxed reserve: L862.331.226unchanged the valueof the balancesheei 3019167
Notespayable:
in favor of the BancaCommerciale L 250.000.000
in favor of the Banca Nazionale Lavoro 800.000.000
in favor of the Bancodi Roma 150.000.000
- 1.200.000.000
MortgageLoans:
IRFIS 2.341.594.117 unchanged in respectto BalanceSheet 30/9/67
Bancodi Sicilia 1.500.000.000 diminished by L75.741.142 in respect to
3019167
Banks: valuesestirnatedat 31/3/68
Regular accounts
BancaCommerciale 6,O
Banca Nazionaledel Lavoro 350.0
Bancodi Roma 38.0
Banco di Sicilia 280.0
Credito ltaliano 285.0
Cassa C. di Risparmio VE 300.0 1259,O
-
lmport accounts
BancaCommerciale 580.0
Banca Nazionale del Lavoro 550,O
Bancodi Roma 291,O
Bancodi Sicilia 270,O
Credito ltaliano 216,O
Cassa di Risparmio VE 210,O 2117.0
Export accounis
BancaCommerciale 35,0
Banca Nazionale del Lavoro 199,O
Bancodi Sicilia 106,O
Credito ltaliano
Cassa di Risparmio VE 12,O
- 45.0 397.0
Specinlaccounts
Comit - advanceson invoicesaccount 17.0
BNL - advanceson invoicesaccount 384.0
Bancodi Roma - Hawkadvance 179.0
Comit -short term financing 2100,O
BNL - short term findncing 1000,O260 ELETTRONICA SICULA
Banco diRoma-short term financing 228,O
Banco di Roma - advances on notes 71.0
Bancodi Roma - advances on drafts 15,O
First National City Bank 162.0 4156.0
-
-.. -. ,.
Suppliers:situation based on documents prepared in Milano by Rag. Amerio.
Pu~ables 10 Purenr Group Companies: increment October 1967-March 1968
estimated
for royalties L mil. 10.9
management fee L mil. 37,4
for materials L mil. 46,0
94,3
OrherundAccruedPayables: valuesestimated as per sheetattached to the Balance
Sheet.
Attachment B
SCHEDULE A. SUMMARYOF SOURCES AND DlSTRlBUTlON OF PROCEEVS REALIZED IN
THE RANKRUPTCY OF RAYTHEON-ELSI S.P.A.
(Irulion Lire)
Sources:
From rental offixed assets to ELTEL 47,916.666
From sale of fixedasseis to ELTEL 3,205,000.000
From sale of movable assets and collection of receivables 3,120,922,200
Total proceeds 6,373,838,866
Puidro Prioriryund Unsecured Tora1
SeruredClnims Claims
Bankruptcy administration 673,566,932
Taxoffices 255,185,406
Registryof deeds 15,550,600
Cusioms 20,766,441
Tora1- Governmenr 291,502,447
IRFIS 2,638,347,390
Bancodi Sicilia 1,022,894,946
Banca Nazionale del Lavoro 11,682,380
Credilo llaliano 14,868,887
Banca Commerciale ltaliana 17,357,216
Bancodi Roma -
Cassa Centrale di Risparmio V.E. -
Tora1- Bunks 1,066,803,429 ANNEXES TO THE MEMORIAL 261
Paid 10 Prioriryand Unsecured Tora1
SecuredClaims Claims
Employees 1,014,399,901 49,487 1,014,449,388
Employeeinsurance
organizations 440,988,205 593,907 441,582.112
Salesagents 21,180,198 - 21,180,198
Attorneys 5,428,320 - 5,428,320
Otherprivilegedcreditors 13,463,493 13,463,493
Other unsecured creditors - 1,539,187 1,539,187
Raytheon CroupCompanies - 82,216 82,216
Legalreserves
Tora1Payments SCHEDULEB. SUMMARYOF CURATOR'S PLANS FOR THE DISTRIBUTIONOF PROCEEDSREALIZED IN THE BANKRUPTCY
OF RAYTHEON-ELSIS.P.A., INCLUDING FINAL MODIFICATIONS BY THE COURT
(Iralion Lire)
/sr 4rh final Comhined
Report Reporrs
Deseriprion Report Reporr
Dures:
Coverine.liabilitiesverifiedand admit-
ted aÏ
Signed by the curator
Reviewedby the creditars' committee
Accepted by the court
Filed in the chancery
Approved by the court
Approval registered by the court
Summary of Liabilitier.Procecds. nd
Poymenis:Liobiliriesverifiedondad-
mirrrd:
Preferred claims
Unsecured claims
Procedural and administrative
expenses
Total liabilities
Proceeds:
Fram rental of fixedassets 10 ELTEL
From sale of fixed assets to ELTEL
Fram sale almovable assets and col-
lection ofreceivables
Total proceedsDirlrihulionor Proceedr:
Payment of preferred claims (3,988,028,102) (615,972,774) (96,046,735) (506,626,527) (285,439.245) (5,492,113,383)
Paymenl of unsecured claims - - - - (33,434,551) (33,434.551)
Paymeni of procedural and admini-
strativecxpenses l238,111,142) (131,326,049) (154,392,667) (64,105,124) (85,631,950) (673,566,932)
Total Poyrnenis (4,226,139,244) (747,298,823) (250,439,402) (570,731,651) (404,505.746) (6,199,114,866)
To legal reservesfor ~referred claims (935,000.000) (700,000,000) (842,763,418) (522.1 16.315) (174.724,000)** (174,724,000)*'
~ r a ~ l-aal reservei for ~referred
clilims - 935,000,000 700,000.WO 842,763,418 522,116,315 -
Net aciiviiy Io reserverfor preferred
claims (935,000,000) 235,000,000 (142,763,418) 320,647,103 347,392.315 (174,724,000) >
Total Dislribuiion of Proceeds (5-161,139,261) (512,298,823) (393.202.820) (250,084,548) (57,113,431) (6,373,838,866)
BoloncrUnpaid: x.
Preferred clairns ' 1.362.140,584 829.276.836 853,071,653 512,901,833 m
Unsccured clairna 10,221,329,847 7,751,891,996 7,278,604,617 7,284,693,749 ' O
Procedural and administrative ex- i
penses - - - - - - I
Toial Unpaid 11,583,470,431 8.581.168.832 8,131,676,270 7,797,595,582 m
Unablc Io include further amounls Io complete these items accuralely due Io insufficienidetails in the final report received. :
** L92.724.000portion of this reservebalance,confirmed in the 4th report,was not addresred in the hnal report. 0 SCHEDULEC. SUMMARYOF PROCEEDSREALIZEDIN THE BANKRUPTCY OF RAYTHEOPI-ELSS I.P.A. PER Ist-4th
AND FINALDISTRIBUTIONPLANS
(Iraliun Lire)
Proeeedsreolirrdfrontsole4f
Plan Plan Fix'rd Moi,ohle
No. Dale Description Assrlr Asrcls Taro1 il:
1st 13/11/69 Rental of Fixed Assets laELTEL rn
47,916,666 - 47.916.666 i
Sdle of fixedassets tELTEL 3.205.000.000 - 3.205.000.000 ?
Sale of inventory toELTEL
Sale of materialsand collection of reccivabler
Toml
2nd 16/12/71 Sale of materials and collection of receivables
3rd 31/2/75 Sale or materials and collection of receivabler
4th 31/12/79 Realized from 1/1/75 to 31/12/79
Final l0/l0/85 Realized from 1/1/80 to 10/10/85
57.113,431
Total Praceeds Realized 3,282,916,666 3,120,922,200 6,373,838,866
Note: Specifichreakdowns as ta how much was received separately fram the sale of inventory, other fixed assets. the collection of receivables.
etc.. were not detailed in the distribution plans.
lncluded in the sale of movnble assets is also the sale of capital assets not acquELTEL.ySCHEDULE D (PAGE 1).SUMMARYANALYSISOF CLAlMS AND DISTRIBUTION OF PROCEEDS REALIZED IN THE BANKRUPTCY OF RAYTHEON-
ELSl S.P.A. - 1st THROUGH 4th AND FINAL DISTRIBUTIONPLANS, 13 NOVEMBER 1969-10 OCTOBER 1985
(Ilalian Lire)
Clvims Verijed and Admilied Cloim Wmen~r
PreJerred Unrecured
/.~<-4,h 11!-4th Fin01 Tolu/ /sr-4lh Final Final Tot01
Dcrcription Reporlr Rcclnr~ Rrp<irr Cloimr Repor/l Repr, RP~DI~ P!~mtnr?
Prqerred Clain!$:
Tar OAice~(E~rilore) 255,229,211 . - 255.229.213 - (255.185.406) (194.540) (255,179,946)
Regisiry of Dccdn (URicio Re- 69.960.WO . - 69.964.600 (15,550,600) - . (15.550.6W) .
Dotanale)
I.G.E.(Turnover ta%)
'Toial- G,"cF"~""~
IRPIS
Banco di Sicilia
Banw Nïzionale del Lvoro
Credito lialiano
BancaCommcrcialc Italianï
Bïnco di Romu
Cïsïn di Rirpnrmio V.E.
Toial - Banks
Employco 1.014.399.901 - - 1.014.39!7.901 (1.014.399.901) - (49,487) (1.014,449.388)
Comvwni~ Tirrcnn di Gai> e 2.504.000 - - 2,504,000 (2,504,OW) - - (2.504.0W) ~ ~ ~~
,!sod>p .,ip~a, s.su.drg
I~X~~PC~.LS~) - - (ZX6'PC6'LXS) 286'PC6'LXS - - ZX6'PC6'LRS 62~~x1~3~A!~PJIS!
-u!uiprpuc ~t~np>mldciw old
:9,,1.,,Jd
(~7 U~!I~II)
a 5861 X380UO 01-6961 838WXAON El 'SNVld NOll~UIIIlSl~ 1VNId aNV qIb H3nOXHI IS[ - 'V'd'S In3
-NO3HLAVU dO A31dnXXNVB XHL NI <IiIZIlV311Sa3330Xd dO NOIUlLnsl8LSla aNV SWlV13 $0 SISATVNVAnvwWnS '( Zl3vd) a XlnaXH3S -:,:-Z r
OJurflol p!edy rlunouie 2~1~111~8~2 9Z0'62I'ZL 911'286'591 69/0l/iC 1-
n?qi icql pa~apiotinoj . urudra on!ialis!u!uipepue [einpxxd -
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id pqnbx rn wuxa
(998'011'661'9) (ISS'PCP'TO (561'1~0'1~~()021'609'~6~'~) .LS~'~ES'LL~'~I .OS~'IC~'SR - ZOL'POZ'Z6S'FI riuaui.iodpuorw!o]~!oio~
(zc~'~~s'cL~) - (056'1C9'58)(286'0C6'LSS) Zi6'99S'TLY OZ6.IF9.511 - Z86'0C6'LSS Y S Y ~ ~uo!ie~l
-s!u!uip\r I~idn~i(u-fl[eio~,
(ooo'ooo'ri) - (OW'OOO'ZI) - 000'000'21 000'WO'ZI . . SaaJ
S,IOIP>~J uo xri pappc anpi\
(000'000'09) - (000'000'09) - 000'000'09 000'000'09 . - 5861 ~yoiao 91 12p~o)>no>
ird SaJ s,loinln>JO ~JUBI~B
- . âieqn!p
(wo'ow'i~) - im'000'ri - 000~000'r1 OOO'WOI'C 10 31.101 inholdd~ 10 ale0 SCHEDULE E2. ANALYSE OF CURATOR'S PLAN FOR I>ISTRIBUTIONOF PROCEEDS REALIZED IN THE BANKRUPTCY OF
RAYTHEON-ELSIS.P.A. - 2nd DISTRIBUTION PLAN, 16 DECEMBER 1971
(Iraiion Lire)
From Profcedr Real;:rd/rom Dispori,;O/:
Procedurnl rnd ïdministrï!ire erpenrer
1111169-3019171 35.146.917 96.179.132 131.326,0¶9
Banco di Sicilid Second marigiigc larn- paymeni on
amounl 104,853.083 - 164,853,083
Avvociiio Sïlvnlore Co-
sentino Paymcnt Io stiorney
2 lirlcd cmployccr Laie clairnr
15liricd ~rnployees A~wsrcdliiibilitics
INPS Sociïl weuriiy conlributions
INPDAI Saial wcurily conlributioni
Banco di Sicilit. wzione
crediio induslrialeSCHEDULE €4. ANALYSE OF CURATOR'S PLAN FOR DISTRIBUTION OF PROCEEDSREALIZEU IN THE BANKRUPTCY OF RAYTHEON-ELSI S.P.A
- 4th DISTRIBUTION PLAN, 31 DECEMBER 1979
(Iralion Lire)
FromProcerdr ReoIi:ed/rom Di,~ppo~itio4n1
Fi-ied Movobk
To Pgv $0 For A.~reu A.!iel,r R~ral Erceptionrhy rll~Court
Prmrdur;il and administrative Bancodi Sicilia claimedii warduc a
erpcnws 1/1/75-31/12/79 - M.105.124 6J.IO5.124 loial of L143.381.015.bu1ihecuraior
UAcio Regirtro In wlllcmeni of prefereniial countcrcd thrl L67.825 for legal cr-
daims over rçalily 7.276.000 - 7.276.W pnwr warno!duc becauw ii wasno1 ,
3 liried attorneys AltorncyIm - 5,315,690 5.375.690 a liiibiliiy of ihc bankrupicy andintzr-
9 liricd salesagcnir Salcrcommisrionr - 21,180,198 21.180.198 crt of LI 1.557.806was not duc k-
Bancodi Sicilia. wzianc Seiilemcnl of inicrcri outstand- CJUY il was calculaled Io 4 March X
~reditoindustriale ingon prcfercnrial claimr - 92.747.610 *92.747.610 1980inrtcad ofihc dateof larr salof
Bancodi Sicilia Scltlcmcni re rubrogîiion of movablc rsseiswhich look placeun6 i
EUS~O~S claims . 21.588.682 21,5R8.682 March 1978.This lefl L131,755.384 O
Bïnca Nazionale dsl Scltlemcnt re subrogation of which ihc curaior cxprcswd a fdvor- i
Lavora EUS~O~S claiml - 8.431.120 8,431,120 able opinion. Finnlly. the court or-
Credilo Itnliïno Sctllcmenl rc subrogation of dcrcd thal the L92,747,610shown in
ust tomscl~im~ - 5,382.776 5.382.776 the distribution plak increared by m
Bancï Commemiale Setilcmcni rc rubrogïiion of L39.007.77410L131.755,884and lhnl 5
Iiiliïna EUSIO~S claims - 13.304.241 13.304.241 the movrblc ïswir rercrve k dc-
Amminirtrazionc fi. cr~awd from L468.400.089 io .
nanze circoarizionc L429.392.315. r
doganalc 13lirtcd cu~iomrpvyments - 20,166,441 20.766.441
UAcio Regirtro Rcgirtry ofdcsdr . 8.274.600 8.274.MXI Nole: In thc 4th dirtnbuiion plan: of
the L1OO.WO.Wrncrv~that warini-
InsuronceinrIirurionr: Furrnriolrscurirand o~herem- ti'lly rvailnble Irom prcceedsrccnved
piowe inrurance:
INPUAI (3 listed lnsurrncr contributions and from ihe rals of fixed nrrctr,
pnymçnir) liner - 14,695.807 14.695.807 L7.276.000wilspaid io theOfficio Re-
INAM (3 listed Insurincc coniribuiianr and gisiro. This Içfi L92.724.000remïin-
paymenls) liner - 121,022,257 121.022.257 ing in lhis rcserve.
INAIL (2 listed Insurance coniribulions and
paymcnir) fines - 5.402.690 5.402.690
N
(onrinued on nexrpage) 2 '=!1
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pue ruo!inqgiuo> awv..nrul pair!l y) ~ d ~ l
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rlrnp!n!pu!
puesa!urduio~plis!~ 28
oue!leil
a~~!xauiuio~ FJWg ANNEXES TO THE MEMORIAL 275
Attachment C
ELSlS.P.A. EMPLOYEECOUNT AT VARIOUSPOINTSDURING THE PERIOD 30 SEPTEMBER
1964 TO 29 MARCH 1968
Administrdtion II 8 7 6 4 5
Manufacturing 823 591 722 601 565 562
Manufacturing scrvices 143 130 132 122 129 129
T~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 41 47 57 52 55 60
Marketing 95 65 48 36 57 56
Finance 38 40 38 39 38 35
Industrial relations 34 30 27 24 24 23
Guards and
messengers
Total
Administration
Manufacrurin~:
Cathode rdy iubcs
Magnetron tubes
Semiconductors
X-ray tubes
Lampr/arresters
Complex components
Machine shop
Total
Monu(ne1uringservices:
Purcharing and
warehousing
Maintenance and
service
Total
Technicolservices:
Central laboriiiory
Quality control
General engineering
Planning
Total
Markering:
Cathode ray tubes
Magnetron tubes
Semiconductors
X-ray tubes
Lamps/
arresters
Marketing
managementMilan sales
office 32 21 - - - -
Raytheon-ELSI,
A.G. IO I - - - -
Rÿytheon-ELSI,
Export/irnport 5 5 5 5 5 5
Data processing - 4 - 6 6 7 8 7
Total 38 40 - 38 -39 -38 -35
- - - - - -
Iiidusrrirelations:
Personnel 10 9 6 5 5 5
Pavroll 5 4 4 4 4 4
Caletcria 15 14 14 12 12 12
Industrial relations - 4 - 3 - 3 - 3 - 3 - 2
Total - 34 --0 - 27 --4 -24 -23
Guardsand
rnersengers 17 14 14 15 17 18
Grand total 1.202 925 1.045 895 889 888 ANNEXES TO THE MEhlORlAL
Annex31
[See ulsopp. 176-177. supra]
MINUTESOF MEETINGOF THE BOARD OF DIRECTORS HELD ON 16 MARCH 1968,
AT 12.00P.M. AT 6 \'[FERDINANDCJDI SAVOIA R,OME ,O OlSCUSS AND CONSIDER
THE FOLLOWING
AGENDA
1. Report b) ihr. Chairm:iii on tlic 1in;inïial .iiiiaiiun of the conipln) and on
the coniinu~ti~~nofoper;ition, in Iighioi'ihs ii~.inJ.iiegiicn io b)mthe Ho;ir,l
ai the nieciine ofTuerd3~. I? hllrch 1968..hr.n.ssibilit\ ofconi,cni-.r rneci.iI
assembly, and related re&lutions.
2. General.
Were present:
For the Board of Directors:
Chairman
John D. Clare
Justin J. Guidi Managing Director
Engineer Aldo Profumo Managing Director
Attorney Rinaldo L. Bianchi Director
Joseph A. Scopelliti Director
Royal P. Allaire Director
For the trade union committee:
Dr. Ugo Frediani President
CPA Dario Fanfoni Auditor
Excused were:
Audifor Dr. Giuseppe Alabena and the Secretary of the Board of Directors, Dr.
Giuseppe Polizzotto.
The Chairman, Mr. John D. Clare, opened the meeting by justifying the
convening of the meeting, confirming the legitimacy of the meeting,and asking
Attorney Rinaldo L. Bianchi to act as secretary. He then look up the first item
of the agenda.
1. Report by the Chairman on the company's financialsituation and on the
continuation of present activities in light of the mandate given to him by the
Board of Directors ut the meeting of Tuesday, 12 March 1968,the possibility of
calling a speeial assembly, and related resolutions.
In regard to the mandate received by him and the managing directors al the
Meeting of the Board of 12March 1968,the Chairman reported - on his behalf
and that of the managing directors - that the banking institutions that are
creditors of the Companyhave been informed of the company's presentfinancial ANNEXES TO THE MEMORIAL
Annex32
MINUTES
REPUBLIC OF ITALY
On the twenty-eighth day of March. nineteen hundred and sixty-eight, in my
office in Palermo, as indicated below, ai the request of Attorney Rinaldo L.
Bianchi, born in Highland Park, Michigan, USA, on 4 August 1924,and domi-
ciled as Director of RAYTHEON ELSl S.P.A. at the company's registered office
in Via Villagrazia. 79 Palermo, registered with the Office of the Clerk of the
Palermo Court under No. 792. Company 6507, Volume 25/71, 1, Cesare Di
Giovanni, son of the late Salvatore Di Giovanni, Notary Public in Palermo, Via
Mariano Siabile, 179,licensedio practice in the District of Palermo, have drafted
these minutes of the regular and special General Meeting of the company's
shareholders convened today, and announced in the Oficial Gazerie No. 55 on
29 February 1968,in the announcement page.
The meeting has been convened with the joint agreement of al1 the persons
here preseni in myoffice in Via Mariano Stabile 179,since it could not bc held,
for reasons of force majeure, at the company's registeredofficein ViaVillagrazia,
79.
Attorney Rinaldo L. Bianchi, whoseidentity 1 have personally ascertained in
my capaciiy as Notary, has waived the presence of witnessesIo this deed, bcing
legally qualified to do so and with my consent, and has asked me to note that,
besides him, the following persans are also present:
Representing thc Board of Directors:
- Mr. Royal Phillip Allaire, born in Northampton, Massachusetts, USA, on
12September 1915,Director:
Representing the Board of Statutory Auditors:
- Dr. Ugo Frediani, born in Orvicto, on 16April 1913,President;
- Dr. Giuseppe Abbadessa, born in Palermo on 15April 1913,Auditor;
- Accountant Dario Fanfoni, borii in Valmontone on 3 February 1911,Aiidilor.
Mr. Bianchi also asked me to put on record that the oiher members of the
Board of Directors gavejustification for their inabiliiy io aiiend the meeting.
Mr. Bianchialso asked me to put on record that two stockholders are present,
namely:
- Raytheon Conipany of Lexington. Massachusetts, USA, represented by Mr.
Jack Ernert Mazzotti, holder of a written power of attorney to this eiïeci,
who declares ihat the Company owns 3,966,250(three million nine hundred
sixtysix thousand and two hundred and fifty) stocks of 1,000 lire each, of
which 1,966,250(one millionnine hundred sixtysixthousand and two hundred
and fifty)are common stocks,marked with the letter "A", and 2,000,000(two
million) shares are preferred stocks, marked wiih the letter "8";- Machlett Laboratories Incorporated, Stamford, USA, represented by Mr.
Dominic A. Neit, holder of a written power of attorney to this eiïect, who
declares that the Companyowns 33,750(thirtythree thousand seven hundred
and fifty)common stocks of 1,000 lireeach, al1marked with the letter "A";
renresenlinr the whole caoital stock of 4.000.000 (four million) stocks of
1,600lire eich, of which f000,000 (two million) arè marked with the letter
"A" and 2,000,000(two million) are marked with the letter "B.
As indicated in the notice convening the meeting, these stocks have al1 been
deposited as required by law, according to Mr. Bianchi.
The powers of attorney have been declared valid by Mr. Bianchi, and are to
be retained amone -he c~m~~~ ~~~~~r~,.
Attorney Rinaldo L. Bianchi was unanimously appointed to chair the meeting
and. aftcr ascertainine that the Director, the Auditors and the stockholders
indi'catedabove wereGesent, and that the notice of the meeting had been properly
issued, declared the meeting validly constituted and resolved to discuss the
following:
AGF.NDA
Regular General Meeting:
1. Report of the Board of Directors and Report of the Board of Stalutory
Auditors on the financial statements as of 30September 1967,and supplementary
matters. Pertinent resolutions.
2. Establishment of the number and appointment of Directors.
3.Any other business.
Special General Meeting:
1. Losses for the year ended 30 September 1967,and pertinent measures.
2. Any other business.
After calling the meeting to order, the President redd the report of the Board
of directors, enclosed hereto under the letter "A".
The President of the Board of Staiutory Auditors, Dr. Ugo Frediani, then read
the Report of the Board of Statutory Auditors, which is enclosed hereto under
the letter "B.
The President then read the financial statements (Balance Sheet and Revenue
Statement) for the period ended 30 September 1967,enclosed hereto under the
letter "C".
After a short discussion, the financialstatements for the year ended 30Septem-
ber 1967.and the oertinent Renorts were unanimouslv aoor.ve.. and the Direc-
tors fully dischdrgéd.
The stockholder, Raytheon Company, requested the Aoor. Its representative
proposed that, since the whole proprietorship was represented at the meeting,
together with the full Board of Statutory Auditors and the Directors as indicated
above. the Assemblv should deal with the second item on the aeenda of the
special General ~eétin~,and amend Article 7 (seven) of the lais 10provide
that the Board of Directors be comoosed of no lessthan three and no more than
nine Directors.
The Assembly, noted that the Board of Statutory Auditors was in favor,
unanimously resolved to amend the first paragraph of Article 7 (seven) of the
Bylawsto read: ANNEXES TO THE MEMORIAL 281
"The company shall he managed by a Board of Directors composcd of
no less than three and no more than nine members, of whom al leasi one
shall beappointed by the holders of 'B'stocks."
The rest of the Article will remain unchanged.
Coing hack to the second item on the agenda of the Regular General Meeting,
the President announced that the Board of Directors had to be replaced having
reached the end of ils ierm of office.and invited the Assemhlvto adovt a ~ertinent
rcsoluiion. Sinîe ihe meeting u.i\ ~~nstiiuicdin complianre wiih ~riicle j (scvcn).
par.igr:iph 2 of ihc Hylsus, thc iollowing uas unaniniously adopted:
RESOLUTION
- To appoint five(5) Direclors to the Board, who will remain in officeuntil the
adoption of the Financial Stateinents for the yedr ending 30September 1968;
- To appoint the followingDirectors:
(A) for the common stock marked with the letter "A":
Mr. John DickensClare, horn in Birmingham (UK),on 21January 1920;
Mr. Joseph Oppenheim, born in Boston, Massachusetts, USA, on 23
November 1914;
MI. Justin Joseph Guidi, born in New Alexandria, Pennsylvania, on 16
November 1924;
Mr. Royal Phillip Allaire. born in Northampton, Massachusetts, on
12Septembcr 1915;
(B) for the preferred stock marked wiih the letter "B, Mr. Aldo Profumo,
horn in Genoa on 15October 1917.
Pursuant fo the provisions of Article 7 of the Bylaws amended as indicated
above, the Assembly unanimously empowered theBoard to refrain from replacing
a minoritv of retirine Directors. so that, even with at least three Directors, the
Board codd legally manage the company with the full power conferred to them
hy law and by the Bylaws.
TheAssemblyalso unanimously resolvedon the followingappointments, unless
otherwise resolved bv the Board ofDirectors: Mr. John Dickens Clare. President.
Mr. Joseph J. Cuidiand Mr. Aldo Profumo, Managing Directors. The Assembly
also resolved, unlessotherwise resolved by the Board of Directors, to confirm
the powers and dulies conferred on President Clare, and Managing Directors
G-~di a.d Profurno ~-~~ ~the Boar~ ~ ~t~ng h-ld on 29 November 1967.
There being no other business, the Regular General Meeting was adjourned,
and the Special Meeting called to order. The Chairman read the sections of the
Board of Directors' Report relatiiig to the Special agenda, which is enclosed
hereto under the letter "0".
The Chairman of the Board of Statutory Auditors then read the sections of
the Board of Statutory Auditors' Report relating 10the special agenda, which is
enclosed hereto under the letter "E.
The stockholder, Raytheon Company, through ils ahove indicated representa-
tive, was given the floor and moved the following:
KESOLUTlON
"The Assembly, having heard the Report of the Board of Directors and
having taken noie of the coniments of the Board of Statutory Auditors,
unanimously resolves: 1. To adopt the Report of the Board of Directors;
2. To ratifv the resolutions adooted bv the Board of Directors at the meeting
of 16hlirch 1968.and hcncî io agicc ihÿt the Company ccÿscoperation;,
and accordingly empou.cr ihc HocirdUTDircciorr. and Torii the Direrior.,
JusiinJ.GuiJi :inJ Aldo Profumo. ioinil\ or scver~llv.io ççasr oocraiions
on 29 March 1968and to dismiss'<heemployees,exCépithose engaged in
administrative. maintenance, security and miscellaneousduties which are
deemed 10be necessarv on a temoorarv basis durine t-e neriod leadine -
to the total termination of the compan;;
3. To empower the Boardof Directors to make contacts wiih the banks and
principal creditors of the company to reach an agreement on the pro-
cedures to be followed to disoose of the comoanv's assets in an orderlv
manner and ai ihcir highesi rkilimblc v~lucinihc'intcresi of al1crcdiior\;
4 To furiher rmpoucr ihc Uircciors io conrcne the Gencral Yeelinp ai an
appropriate time, in order to give a progress report on the state~of the
company, and for any necessary resolution to be taken in reference
thereto."
The above resolution moved by the representative of the Raytheon Company,
was unanimously adopted by the Assembly which empowered the Managing
Directors to make any amendments, additions or deletions to these minutes,
jointly or severally, which may be requested by the authorities when issuing an
authorization.
There being no further business, the Chairman adjourned the meeting.
(Notury'scusrumurydeclururion.hundwrirrenundpurriullyillegible) ANNEXESTO THE MEMORlAL
Annex33
REQUISITIONDECREMAYO RF THEMUNICIPAL IFPALERMO,l APRI1968
[Sec p. 39. supra/ ELETTRONICA SICULA
Annex 34
LAW OF 20 MARCH 1865,NO. 2248, ATTACHMENTE, RELATIVETO ABOLITIONOF
ADMINISTRATIVE LlTlGATlON
......................................................................
7. When. because of grave public necessity, the administrativeauthorities must
dispose of private property without delay or, pending a court case for the same
reason, proceed to enforce a measure whose legal consequences are the subject
of the dispute, the administrative authorities will proceed by means of a decree
indicating the reasons, withoutrejudice 10the rights of the parties. ANNEXES TO THE MEhIORlAL
Annex 35
PRESIDENTIA LECRE E F29 OC~OBER 1955,N. 6
(Trunslarion)
............................................................
69. (Orders basedon emergenciesand urgency.) The Mayor issuesemergency
and urgent orders in rnatters of civil works, local police and health for reasons
of oublic health and safetv.
li\ceptin cdsc df inipo$~ihili~JC io urgcncy. ,uih ordcr, musi bc nuiili:d
by scri,i~iiiihc inicrcjicd pari1r.r uiih .in injuncti,~n urdcring c,>mpli.iiir'c uiih
ihc relliiiic ~rdcrs uithin a 1ixr.Jicrni. Ur>iin c\pir.iiion of said icrrn. ihc ordcri
are enforced at the expenseof the interesied parties without prejudice Io any
criminal prosecution if the facts constitute a crime.
The bill for expensesis made final and enforceable by the Provincial Conirol
Commission, (O which any interested parties may presenl observations within
20 days from the date of notification of tbill.
After one month from the date of finalisaiion and enforceability of the bill,
the Mayor delivers the bill to the tacollecterfor collection by him following
the procedures and with entitlement to the iax liens which the law grants in the
caseof collection procedures for income taxes. ELETTRONICA SICULA
Annex 36
APPEAL BY RAYTHEON-ELS SI.,P.ATO THE PREFEC TF PALERM OOF
~QUISITION DECREE OF THE MAYOR OF PALERMO D,ATED19APRIL1968
(Translation)
APPEAL [TO HIGHER ADMINISTRATIVEAUTHORITY]
To His Excellencythe Prefect of Palermo
appeals Raytheon-ELSI S.P.A. by ils Managing Director Mr. Justin J. Guidi,
with registered office in Paler-o Via di Villagrazia n. .9. .with domicile
elected clo Prof. Avv. Luigi Galaieria and Avv.Giuseppe Bisconti in Rome, Via
Bissolati 76 (CIOStudio Legale Bisconti)
againsrthe City of Palermo in the person of the Mayor in Office.
for theannuimenr of the order of I April 1968,served on 2 April 1968,which
"orders the requisition with immediate eîTectand for a period of 6 months. save
for necessaryexlensions and withoui prejudice to the rightsof the parties and of
third parties, of the plant and relative equipment owned by Raytheon-ELSI
S.p.A.".
Bydeed of Notary Viio di Giovanni of Palermo on 18May 1954,Elettronica
Sicula (ELSI) was organized, having as its object the production of electronic
products. Said company built a plant in Palermo in 1956for the production of
the aforementioned products and started its activity in November 1956.For such
purpose, about one hundred white collar employees and workers were hired in
Palermo.
In 1959Societa' Elettronica ltaliana p.a. (SELIT) was organized. with regis-
tered officein Palermo.
Subsequently, ELSl purchased al1theshares of SELIT and Raytheon Company
with registered office inLexington, Mass.. USA, purchased thc majority of the
capital stock of ELSI, whose name was changed into Raytheon-ELSI S.p.A.
Subsequently, SELlT was merged in10 ELSl by deed of 30 March 1965.
As a consequence of the capital contribution of Raytheon Company. the
oroduction of the oriainal vlan1 and of the subseauent olants was increased to
ihe point that about Co00white-collar employees and Grkers were employed.
Despite very largecapital coniributions and modern faciliiies, for manv vears
the company has Sutïeied very great losses, due to a series of reasoni which
cannot be properly examined here (such as the imbalance between production
costs and market prices, excess of employecs in com~arison with the volume of
production, etc.). The company. however;aware of the fact that it was important
for Sicily and for Palermo that the company continue to operate, induced its
shareholders to investat various timesseveralbillion liras wiihihe.or.ciseouroose
of preventing the cessation of the activities of the Palermo plant.
During the last 12months, the management has made rreat etïoris in order to
obtain fiiancial and industrial interventions. both oubli; and orivaie. unfortu-
nately without success.
Wecannot refrain from calling aitention to the pressing and repeated requesis
ihat have been addressed both to the Central and to the Regional Governmenis ANNEXES TO THE MEMORIAL 287
urging them to intervene in some way in order to rescue a situation which
appeared very grave.
In particular, the intervention of IR1 and of Ente Siciliano per la Produzione
Industriale (ESPI) were requested, but al1efforts aimed ai the obtaining of said
financial and industrial interventions, and also of contracts from government or
government-owned sources have gone unheeded.
The inertia of both the Central and the Reeional Government aooears .. be
cicn more berious uhcn one cunjider, ihat ihc cconomic pl.inning i(ir industr~al
Jc\~cl~)r>mcn 0t1'the Souih IP hassd in 3 iiibsi:inti;il wd) on thc elccironic icciiir.
Ils efforts havine met with failure. the comoanv wiih ereat reeret found itself
forced to cease itsiciivities and consequently'dismiss itsperson~ei.
By order dated I April the Mayor of Palerrno ordered the requisition of the
plant and of the equioment.
' Againil iuch ord>r.'whiih scriousl? prcjudccs itscconomic inlcrc~i,. Kayihcon-
t.'I.SItiler ihi appc31IO thc Prefcir of Palernio based or1the follou,ing
LEGAL GROUNDS
(1) Violorionof Arricle 7 oJLaw N. 2248, Schedule E. of20 March 1865,andof
Arricle69 of D.L.P. N. 6 of 2I Ocrober1955.ontheAdminisrrurive Orgoniza-
rion c~fLocolGovernmentin the Regionof Sicily
The Mayor of Palermo based his order for the requisition of the plant and of
the equipment owned by Rnytheon-ELSI on Articles 7 and 69 above cited.
~uihoritative cases ;nd leea" scholars hold that Article 7 does no1 erant a
ipr,<,/rc:~ndiiuro~iu~*iovp.iucr to txkc 3u2) propcrt). c\cn Icss so a pou,cr IO
rcqui\itiun prciperiy; IIonlj ion\iitutcs the statcnicni ofa principlc (the admin!.
strative auihority may dispose of private property in the evënt a serious necessity
arises) of a general nature which is implemented in other provisions of law which
govern specificcases (requisitions, condemnations, occupations, etc.).
The general nature of Article 7 is ohvious in that il does no1 specify the
administrativeauihoritv. the nu. .ses. the limitations and the nrocedure that the
puhli~.aJm~niiiratiun musi ohrcrrr in ekcrcising ruch potier
S31dgciicral n;iturc rcquircs ihxt the prin~.iplchc implemcntcd h! t~thcr.>pr,i,/ii
I~I/<>uhfch ..CCI~. :ind .~lmi),it\.pif, ihe iarir)J> 1nji;inccsin nh~ch ihc puhlie
administration may exercisc ils pow&s, indicating the hases, the purposés, the
limitations. etc.. for such cxercise of powers.
Therefore, ifilis true. as il is believedIo be true that Article 7does no1provide
rules for a specificpower IO take away property, the consequence is that the
Mayor, in issuing this order, could not refer to Article 7, but, on the contrary,
should have referred to and applied the special rules governing requisitions.
On this point, the Council of State. by decision rendered on 23November 1929
by Plenary Meeting stated:
"It is appropriate to remember that the interpretaiion of Article 7 has
given rise to doubis. The doubt has arisen whether it grants Io the Admin-
rstrative Authorit. in e-neral a oower to disoose ofirivate ...Dertv for
>criou\and urgent neccsrit) tiithout mniplyiiig in the c\crci,c oliheir poucrs
uith the ord~niir) pro~c<turcrset iurth in ridiutes and rcguldiiuns or. .issuiii-
ine that such oower is eranted to it. it eoverns onlv the civil conseauences
ofa privnte nature withreference to therights of the parties. The dicisions
of this administrative tribunal, which this Plenary Meeting does not deem
proper to reverse, are consolidated in holding that in i,i&' of rhe nornial
jurisdictiofiofludicial courts,rheourhorizorio»gro,iredyen~ricully,by wu)'of ANNEXES TO THE MEMOR~AL 289
In this instance, such conditions do no1exist, especially ifwe consider the fact
that the Prefcct of Palermo had ken directly informed by the officers of the
Company of the resolution to dismiss the employees at least ten days before the
actual dismissal. The Mayor was therefore not entitled to exercisesuch power in
the absenceof the necessaryconditions as above pointed out.
(3) Violarionof Arricle69 of D.L.P. of 29 Ocrober1955
Article 69 provides as follows:
"E.rceprin casesofimpossihilirydueruurgency.saidordersmusrber~orified
by serviceru theinrerestedporrieswir11 an injuncrionorderingcomplionce wirh
the rclutivr orders within uf.red rerm. Upon expiration of said term, the
orders are enforced al the expenseof the interested parties without prejudice
to any criminal prosecution in the event the facts constitute a crime. The
expensebill is made final and enforceable by the Provincial Control Commis-
sion 10which interested parties may within 20 days from service of the hill
oresent observations. Alter one month from the finalization of the hill.the
Mayor delivers the bill to the tax collecter for collection by him folloking
the procedures and with entitlement to the tax liens which the law grants in
the caseof collection procedures for income taxes."
The above-quoted provision clearly shows that the Mayor, in the absenceof
impossibility due to urgency, which in Our casedidnot exist, had the preciseduty
of serving appellant with an order to reopen the plant, fixing a term, before
issuing an order of requisition.
On the contrary, the Mayor ordered the requisition in clear violation of Article
69 and the principle of entitlement to open debate and of principle of protection
of rights.
(4) E.rcessoJAuthoriry by Reoso!!of Lock of, and MisrakenLegal Grour~ds
Requisition orders, not unlikeevery other disposition of private property, mus1
be basedon urgency and grave necessity.
The order of the Mayor, in order to justify the serious order issued against
appellant, statesthat the shutdown of the plant and the dismissal of the employees
"caused the reaction of the employees and of lahor unions which look the form
of industry and general strikes".
The above statement is not entirely true. There has ken no strike, neither at
the industry level nor general, there has been no violence either to persons or to
property, there has been no occupation of the plant as a consequenceof the
dismissals.
The truth is that on 30 March 1968.that is, the same dav the dismissal letten
were delivered, a group of representatives of the personnecwent to the plant to
talk with some executives and peacefully remained thereafter al1 day on the
premisesOCthe plant
The ~o~lowine~-.vsa meaeree.~unLof e,olovees.and,red within t~~ oremises
OC ihe plant uithout gi\ing rise IO an) incident uhatsoevcr
II is thcrci;,rc~uitc~~lcar 1h.lhr i~bo\ccpi.~~)dedso not constitutc thr siiu~tion
of serious necessiiywhich the law requires <O exist hefore a requisition order may
be lawfully issued.
II is also stated in the order that "the situation is particularly alarmed and
sensitive and therefore il cannot he excluded that serious acts in breach of the
public order may occur". The above statement does not constitute a valid reason for the issuance of the
order.
In fact, it has ken constantly held by the Council of State (Fifth Section, 15
September 1960; Fifth Section, 3 June 1950, No. 692). that the serious public
necessitymus1be real and not merely supposed and that requisitions determined
by rhemere subjecrive fear rhar a breachof thepublicorder may occurmus1be
heldio be unlawful.
(5) Excess fflAulhority by Reasonof Its Usefor Orher Objectives
The order appealed is also unlawful under another aspect. No doubt the taking
away of properly from citizens conslitutes the most severe measure that the
Administration may take as it is aimed al depriving of propcrty or limiting ils
freedisposahility. Now, for the very reason that these measures areso severeand
coercive the Administration hasthedury, before issuing such orders, to do al1it
can to achieve ils purposes with the least possible sacrificefor the citizens and,
if possible, without resorting to coercive measures.
In this instance, the Central and the Regional Government and the City of
Palermo, if they really wanted to protect the public econon~ic interest of the
Sicilian Region, should have promoted the indispensable public interventions
repeatedly invoked by the company. It is truly significantthat, among the reasons
given for the requisition order, it is stated that "the city press is giving ample
space to the situation and criticizes hitterly the responsiblc authorities who arc
even accuscd of bcing unresponsive to the serious problems of the city".
The fact that the objective sought to be pursued with the appealed order is
dilïerent from the objectiveallegedly sought is almost proved by the wording of
the order itself. ..! First, the public authorities remain passive despite having
ken fullyaware for a long lime of the serious financialcondition of the company
and desnite its nressine oleas. ~.en. when thev,bee-n to fear that oublic ooinion
may aciuse them of ineriia, in order to avoid any responsibilily théydiscocer the
brilliant. . .solution of the requisition order, without the slightest concern for
the senous violation of orivate ~roo.:tv riehts and without thésliehtest concern
for the consequences th& the requisition oyder may have for the &onomy of the
Region, both in itselfand because of its national and international consequences.
FuÏthermore. the order is not suitable to satisfv the nubiic economic inierest of
the Rrgion sincc the plant will he dcpn\.cd of it;~iiaiclemcnts, ihat isIO sa)the
iechnical assistance and ihc scr\,icesof highl) qualificd technical personnel such
as Kwtheon's personnel Finallv. il 1s self-cvident thdi ihc rcuuisition iirder
cannoi create . ..favorable mark2 conditions for electronic prodicts capable of
solving the financial and industrial prohlems of the company.
For the above reasons:
May it please His Excellencythe Prefect of Palermo to suspend and annul the
appealed order with al1legalconsequences.
RAYTHEON-ELSI S.p.A
Managing Director,
(Signedl Justin J. GUIDI. ANNEXES TO THE MEMORIAL 291
Mr. Justin J. Guidi, Managing Director and legal representative of RAYTHE-
ON-ELSI S.p.A., with registered officein Palermo, Via di Villa Grazia No. 79,
whosepersonal identity, qualificatii~nand powers 1Notary am personallycertain,
having renounced the assistance of witnesses has signed al the bottom of this
appeal and in the margin of theother Iwosheetsin my presence.
Rome, 19(nineteen) April 1968(one thousand nine hundred sixty-eight).
(Signed) Andrea GIULIAN(INotary in Rome).
NOTIFICATION REPORT
.. (Omissis). ELETTRONICA SlCULA
Annex 37
Company Private,
To: MI. Joseph Oppenheim 21 April 1968.
From: S. H. Hillyer
Re: Palermo meetings 19/20April.
I. FirstMeering
Messrs. Oppenheim, Hensleigh and Hillyer met with President Carollo of the
Sicilian Reeion and his orivate secretarv. Sie.Iamicelli. at 6 mm.. 19Avril. The
iiicciing h:d hecn lirrdnkcd xi ihc requis[ orrhc Hon ~.;irolio.
The H.m Cdrollo opcncd ihc rncciiny b! i.i)ine th3i hc wa*sure WC had sccn
ihc ncwsvdocrs. and thlit WC knc\r thai the Regional xnd Cenir:il Goicrnmcnis
had reached agreement to form a managemen<company with IR1 participation
to operate ELSI. He asked if we would join the management company as a 30
per cent, 40 per cent or 50 per cent partner.
Mr. Hillver. before translatine. asked what sort of oarticioation was reauested
from ~a~theon - capital? ~vailabilit~ of the and kuipment? ~.anage-
ment? The Hon. Carollo replied that the management company would expect to
have the olant and eauioment made available. for a nominal rent of verhaos one
lin. ii~id'lhai11\i,iuid 'hope iu usc ihc Rayihccin rnanligenicni iaki ani s.~lc\
orpaiiilniion uith lippropriatc conipciiiaii<in.Hc ;iddcd thai ihc plani 2nd cquip-
ment are without value as long as the plant remains closed.
MI. Oppenheim stated that ELSI can recover money to meet its obligations
only by selling the physical assets, and that we cannot compensate our creditors
unless a sale of these assets is envisaged.
The Hon. Carollo replied that while the plant remains closed, no one will buy
it and it has no value. The Region, the Central Government and IR1 will oppose
a sale to such a point that no private Italian organization would buy the plant.
He did admit that if an appropriate foreign purchaser could be found, a sale
could be made, quite probably with the blessing of the Region.
Mr. Oppenheim asked what we should tell Ourbanks if we accept the manage-
ment company hypothesis.
The Hon. Carollo reolied as follows: (1) tell the banks that as lone a- the
lactory iiopcraiing. II hns \alue IOguxrÿntcc )Our oblig~tions; (2) ii)ou do no1
loin ihc rnan.igenicnicornpan!. ihc flicior!.uill rcnian requiiii<~nc<lnd wiihoui
value, no matter how many telegrams Raytheon may send to the authorities;and
(3) as the Region will pay part of the salaries of the personnel, no large losses
should be incurred. On these grounds, and with the moral help of the Region,
the banks will CO-operatewith you.
MI. Oppenheim asked if the management company would take any responsibi-
litv for ELSI's oast debts.
~he Hon. ~arollo replied no. The past is Raytheon's responsibility. However,
if Raytheon leaves ELSl closed, the Region, the banks, the ltalian Government, ANNEXES TO THE MEMOR~AL 293
and IR1 will al1be againsi Raytheon, and al most we might gel I billion lire for
al1the assets.If the plant is kept open. Our objective of obtaining II billion lire
in liquidation of the assetsis much more obtainable.
Mr. Oppenheim asked the Hon. Carollo to put himself in Raytheon's place,
and to tell us why Raytheon would not be better OR io shut now and take ils
present loss, instead of going on two more years and losing more money, only
10shut down then (as we understand that IR1 has no intention of keeping ELSI
going on a permanent basis). The Hon. Carollo replied with the following four
reasons why Raytheon should keep going:
1. While IR1 wishes to run ELSl for onlv Iwo vears until IRl's new tele~hone
snitching plant ir built in I'alermo. the management comp:in) coul(l ofc<iur,e
kconie pcrmaneni if il ii :i~cccs,. Judging by Raytheon's oun reports. it
may weli be successful.
2. You would like 10 seIl your assetsfor II billion lire io cover that much of
your 16billion lire of debis. With the plant closed, you will gel nothing close
to 1I billion lire. The assets are not worth what you sa? (the figures of 6
billion lire of inventory and 2 or 3 billion lire of land and buildings were
specifically cited as inflated), and with the opposition of the Region no ltalian
company will buy from you.
3. If vou will hein us kee~ the plant open. both the Recion -nd the Central
Goiernmeni uill dctoie ?\,sr! etfort to helping )ou rell oui :iJi..int3gcousl).
Ir ir prohÿhlc rhac in i~iur or liic iiidnths )oii uill bc :ibIOcl1 Tor pcrhjlps
80 percent of what you are asking, with Our help.
4. If you go in10 bankruptcy, remember that ELSl's hank debt was negotiated
by responsible Raytheon managers, and even if long legal proceedings are
necessaryon an international level, Raytheon must pay this debt. You have
other assetsin Italv: as a verv first sten it will be easv for the hanks to block
any lorctgn c~chanie perniiis cor your ~cleriia ri,y,iliic;. In gcncral. banlruptcy
u.ill mor~llv blackcn Ra>iheon'\ name in Italy and in Europe
Mr. Oppenheim asked if we would be free to seIl the assetswhile the manage-
ment company was running ELSI. The Hon. Carollo re~lied yes, provided the
pur~haserint~nded to contrnue operating the business.He added again that the
Region, the Centrzil Government, and IR1 would actively help us find a suitable
purchaser.
Mr. Oppenheim said that we are therefore given Iwo choices, cither putting in
more money or taking a morally indefensible position.
The Hon. Carollo agreed that the choice is difficult, but asked why we have
taken lossesof 3 billion lire a year on salesof7 billion without complaint. Mr.
Oppenheim replied that probahly we should have shut down three yearsago, but
did no1 becausewe felt that the situation could be corrected.
The Hon. Carollo stated that the Region now has a single goal, to keep the
workers employed. If Raytheon will CO-operateto achieve this goal, we in turn
will receive al1 nossible heln in liauidatinc advantaeeouslv from Moro (Prime
Minister), pieraicini (~ud~ei ~iniiter), ~idreotti (Minisie; of Industry), ind of
course the Region. IR1 probably will not help; they are in jtist to keep ELSi's
labour force torether uniil their own olant is readv to start o~eration in ~alermo.
Mr. Oppenh~ini s;iid ihai uhile hi undcrsian~; ihc ~c&i;n's poqition. he h;is
obiaineci no nen or constructive inli~rmaticin 10 suhmii tu 111n sidnqenienr froni
this talk.
The Hon. Carollo said that if we will stick with him for four ta six months,
he is morally certain he can put together a group which will buy the assetsat
about 80 per cent of Our valuation. Othenvise, if we go bankrupt now, we will294 ELETTRONICA SICULA
gel nothing for the assets, and will have to pay al1the debts. He stated that the
ltalian Government was ofiended at the brusque manner in which the US Em-
bassy repliedto the appeal to hall the sending of the letters of dismissal to ELSI's
employees, and that OurEmbassy willno1be listened to sympathetically if it tries
to help us.
However, if we go on, the microwave tube line will be in good shapc. as the
Central Government has promised to add 2 billion lire in tubes to the defense
budget. There is a definite possibility of selling the CRT line within 6months
(purchaser unnamed, but from asides probably Voxson). The X-ray tube line is
more difficult, but probably can be sold.
Mr. Oppenheim asked what financial responsibility the management company
would take.
It was clear that the Hon. Carollo did not have a detailed conceotion of the
manner in which the management company would work. However, he did make
il clear that il winor .av.financial charg-s for the .as1 (.lthoue- it mie-t hel~
obtain a moratorium on interest), it will pay only a nominal rent for plant
facilities, but it will pay al1current operating expenses. Furthermore, the Region
will pay the wagesof 300workers, leaving the management company responsible
for only the 700 employees we desired. Thus losses will be cul 10 a minimum,
perhaps only 2001300million lirein the six months necessarv to seIl the assets.
and RaytheGn wbuld bear only 30-40 per cent of this loss: Furthermore, the
management company will assist in selline existine inventorv. 10 Ravtheon's sale
adva'tage. . . - -
Mr. Oppenheim asked why we were needed in the management company at
all, as losses will beso modest. Mr. Hensleigh asked whether the new company
would run ELSl as presently constituied.
The Hon. Carollo said there is a moral need for Ourparticipation. to maintain
a friendly atmosphere. Furthermore, a guarantee of Oursupport in the marketing
area is necessary.The management company would rent ELSl's plant from ELSI,
and would hire the labor force directly (again, il was clear that ihe details of the
management company have not been thought out). If we participate in the
management company, the Region will see to it that ELSl's creditors delay their
demands for payment. If we liquidate, we willhave to pay everything now.
Mr. Oppenheim said that he still did no1have any specificfigures to take back
to Lexington.
The Hon. Carollo said thai he would be pleased to wnte a memorandum to
help, which could be ready by 5.30p.m. the next day.
Mr. Oppenheim requested thai the following specificpoints be included in the
memorandum :
1. Maximum time interval before salc of assets (4-6 months mentioncd in talks).
2. Minimum saleprice of assets (80 percent of I1billion liremenlioned in talks),
and how Raytheon could be guaranteed at least this price.
3. Maximum amount of Raytheon's share of the operating lossesof the manage-
meni company (this point was not heard in the cross-talk, and was not
translated to the Hon. Carollo).
The Hon. Carollo noted down points (1) and (2) above. stating that he could
no1express firm commitments but could onlv exoress his best oersonal iudement.
Mr Oppenheini asked him to do this as posi;irciy 3% possiblf. ~he mcc;in~nded
sordiîlly. u.iih Mrssrs. Carollo and O~penhrim i>firine Io <uan lobs snd resrion- ANNEXES TO THE MEMORIAL 295
II. RqvtheonInrerlude
Over dinner Messrs. Oppenheim, Hensleigh and Hillyer discussed the meeting,
and it became clmr that Mr. Oppenheim's third point for the Hon. Carollo's
memorandum had not been translated. It was decided that Mr. Hillyer would
stay overnight in Palermo, get the third point through to the Hon. Carollo, and
pick up the memorandum the following afternoon.
Mr. Hillyer gave written instructions to the hotel porter to gel through Io the
Hon. Carollo on the telephone by 10 am. Saturday at latest. (Should these
instructions ever turn up, they willsound cloak-and-daggerish, as theyemphasized
that no name was to be given to anyone but the Hon. Carollo, in order to avoid
any leak to Profumo.)
It was no1 possible IO gel through Io the Won. Carollo, but his Cabinet
Secretary, Dr. La Commari, left word that a car would be sent to pick up the
anonymous gentleman from Raytheon at 1p.m.
Ill. SecondMeering
Dr. Zito, press agent of the Region, picked me up somewhat after I p.m., 20
A~ril. and drove nie 10 the Hon. Cirollo's house. At 2.30D.m.the Hon. Carollo
arrited uiih npulugie\. dnd immcJ~:~tel)eniph,i,~zeJ ih~t Raytheiin \io~I~lhciie
iu ùcccpt .IIIrïit aJll pcr cent rharc IIIihc ni.inagcmcnt cumpiny.
I *isied ihdi ih~c\vasor~bablb no1 ;ide ter min -na cior ln Our thinkin-. and
that Our real need was for a truly positive answer Io Mr. Oppenbeim's three
questions, which 1went through in detail. 1also stated that a clear description
of what would happen if we closed down would impress Our management, and
that Mr. Oppenheim would douhtless hand-carry the letter to Lexington if any
possible solution emcrged from ils contents.
The Hon. Carollo listened, understood, and promised Io have the letter ready
at 5.30p.m. at his office.
IV. ThirdMeeting
The Hon. Carollo reachcd his office at 7 p.m., 20 April, and received me
immediately with apologies. He produced a manuscript draft from his pocket
and asked me to listcn to it and give him my comments.
1 limited my initial comments to the fact that the document contained no
specific or even general commitment relative to the three points defined by Mr.
Oppenheim, which had been carefully reviewedjus1 four hours hefore. The Hon.
Carollo agreed that this was so, but stated that as a serious and honest person
he could not set down in writing a firm commitment he might not be able to
follow through on. His personal opinion is very strong that events will develop
favorably as he told Mr. Oppenheim, but he cannot sign his name to any
statement of this opinion.
1asked if he felt IR1 would help us achieve the goals we descrihed. He stated
that apparently during the past year, IR1 has developcd a violent anti-Raytheon
feeline. and that we have urgent need of mendine Ourfenceswith [RI. If wedroo
uut ,>?CI.SI. IKI si11 i;ik: ihiiJ< !ci :inurh~r <leni.iniir;<ti\<ii ~n)ihc~n',
opportunism. .ind uc iln ckpcci IO sec IKI mdking i'\cr) ciTorttu ùch~evcclixcr
tics aith CSP CFTH and to reier ii, Ka!ilieon connections If ue un \uccr.r.J
in running ihc ELSI mdnagenicnt <<>mp.in)and in inipru\ing our rdppurt uith
IRI. u,r hd\e an cxrellent ch;incc <II' aintùining a dominant poliiiun in lial).Othenvise we can count ourselves wholly out of ltaly and much weakened
elsewherein Europe.
The only chanae the Hon. Carollo made in his draft as a result of mv clear
cxpression~ofdisÏppoinimcni was IO;idd IO point (5) on p;ig: ? thni iheialc of
E1.Sl.s ;isseis uill be concluded .'in ihe shoriesi iinie possible" The 1)pr.d aiid
signed memorindum \ras handed IO nic :II8 2lip ni .?il April. ANNEXES TO THE MEMORIAL
Annex 38
MEMORANDU FMOM THE PRESIDEN OF THE SICILIAN RI!CION2 ,0 APRIL1968
(See R/S<JI.C.J. Reports 1989,pp. 34-35]
20 April 1968.
MEMOOF THE PRESIDENT OF TllEREGION TO THE COMPANY RAYTHEONELSI
1deem it my duty, in the situation as it has developed, to provide Raytheon
Company with some fundamental elements of judgment so that the irreparable
can be avoided.
On the premise that the intent of the Company is that of liquidating ELSI, 1
shall herein explain the reasons why il is absolutely impossible that this can take
place for the lime being.
(1) Nobody in ltaly shall purchase, that isto say IR1shall not purchase, neither
for a low nor for a high price theRegion shall not purchase, private enterprise
shall not purchase. Let me add that the Rcgion and IR1 and anybody else who
has any possibility to influencethe market willrefuse in the most absolute manner
to favor any sale while the plant is closed.
(2) The Banks which have outstanding credits for approximately 16 billion
Lire, cünnot and rvillno1accept any settlement even al the cos1of dragging the
Company into litigation on an iniernational level.1mean to rcfer io Raytheon
and no1 to ELSl because the distinction between ELSl and Raytheon is not
found to be admissible since any and al1financing was granted to ELSl based
on the moral guarantee of Raytheon, whose executives have always negotiated
said financing.
(3)Anyway, it is known in ltaly that one can enforce the claimsdirectlyagainst
Raytheon because it has interests aiid revenues in Ourcountry also outside ELSI.
It is obvious that every attcmpt willbe made (evenat the cost of long litigation)
to obtain from Raytheon what is owed by ELSI.
(4) In the event that the plant shall be kept closed, waiting for ltalian buyers
who will never matenalize, the requisition shall be maintained at least until the
courts will have resolved the case. Months shall go by.
On the other hand the Italian Ciovernment had responsibly solicited the US
Government to make a cordial intervention with Raytheon Company ai the lime
the latter was readying itself 10 seiid the letters of dismissal (of employees and
workcrs).
The US Government had a negative reply and forwarded il curtly to the ltalian
Government which was seriouslydisappointed.
T~~ine into account al1the above rcasons which would out Ravtheon into an
<>h\i<ius-situ;iiionof inoral i>ol3tion. I sh:ilI nou idlu\trlitr'the rcisons which in
myopinion rrould impro\,c the situsiion ineters rcspcci both muriil;ind tinanciïl.
(1) A plant in full operation is worth much more than a closed one or one
which is in the midst of a great conflict isolating morally Raytheon both in ltaly
and in Eurooe.
(2)The can be kept open through the formation of a provisional manage-
ment Company organized by IRI, the Region and Raytheon. In such case there298 ELETTRONICA SlCULA
shall not be necessary any further capital investment since the nature and the
purposes of the management company would not require it necessanly. At the
end of each fiscal year the operational losses shall be computed and allocated
amongst the shareholders. Taking into account the fact that IR1 would have a
participation of 10-20 per cent, the Region a participation of 40 per cent and
Raytheon a participation of 40 per cent, Raytheon would make an initial gain
represented by adiminution of 60 per cent of the losses incurred until today.
(3) In the meantime the Region has approved a law taking on itself the burden
of paying for a period of five months the salaries of the workers that were
dismissed a1an earlier date, that is to sav in December.
(41In the clim~tcol'nea ;<>rJi~li!)the %iiuatiiinil\<, can imprine hecau\e oi
a grzatcr uillingne,\IO hclp by the K~gion.h) IKI it\eli. h) the Hank,. b) prii;iic
cntcrprisc. thnt hlic shoiin Leriain intcrcst for ELSl II is knoun that ~hcItalian
Miniitry of Defense must place orders for microwave tubes and it can also place
orders with ELSI, therefore increasing ils sales and diminishing its losses.
(5) Everybody, including the Region and IRI, shall be ready to help Raytheon
in the meantime to liquidate ELSl through a useful sale in the shortest possible
time.
In substance any losses, even if allocated in rather reduced terms to Raytheon
shall certainly be diminished with regard to the losses of the prior years because
of the concurrence of so many favorable circumstances represented by the com-
mitmcnts of the Region, IRI, the Banks and private enterprise.
The gain shall be certain for Raytheon as Far as the figures go and the
prospective gain shall be greater taking into account the fundamental objective
of Ravtheon which remains aller al1the liauidation.
FO; thesc reasons 1 take the liberty oi suggesting and recommending the
formation of the management company through the natural and necessarypartici-
pation of Raytheon in a proportion of al least 40 percent. ANNEXES TO THE MEMORIAL
Annex 39
LETTER FROM JOSEPHOPPENHEIM CHAIRMA ONTHE BOARDR , AYTHEON-ELSI,
S.P.A.,70 HON.VINCENZC OAROLLO P,RPSIDEN TF THESICILIANREGION,
DATED 26 APRIL1968
26 April 1968.
Hon. Vincenzo Carollo
Presidente della Giunta
Regionale Siciliana
Palermo
My dear Mr. President:
The proposal contained in your niemordndum delivered Io us on 20 April 1968
received al1due considcration by everyone involved.
Regreitably your proposal to form a management Company was a temporary
caretaker measure which would no1 solve the fundamental problem, namely
keeping ELSl in Sicilyand makingia viable and vital industry. For this reason,
we findilimpossible to accepl il.
It is sad to see thdt alter al1Ourinvestment over the years, and al1Ourappeals
during the last year to public agencies and private industry to join us in putting
new blood into a Sicilian industry, the only responses were the requisiiioning of
our plant and a proposal which would only aggravate ELSl's critical financial
condition.
We are therefore forced to file volu..arv oetition for . .kruvtcv, as reauired
hy Iilililin lasv Weore thereby 3sruming Our responiihilitics unIiiu.hc
WCarc grlileful for )Our etTorts3nd I u3s pîrson;illy mort plc~sedtu have met
Sincerely yours.
RAYTHEON-ELSI S.P.A..
(Signed) Joseph OPPENHEIM,
Chairman of the Board. ELBTTRONICA SICULA
Annex 40
1, Charles, H. Resnick, personally appeared hefore R. Joseph D'Avignon, a
notary public in and for the Commonwealth of Massachusetts, on 19January
1987,and, upon heing duly sworn, stated that:
1.My name isCharles H. Resnick. 1am SeniorVice-President,General Counsel
and Corporate Secretary of Raytheon Company. 1am making this affidavit en-
tirely from personal knowledge.
2. From 1951 to 1963, 1 served as an attorney in Raytheon's Office of the
General Counsel. 1was appointed General Attorney and Secretary of Raytheon
in Seotember 1963.In October 1964.1 hecame Ravtheon's Secretarv and General
COUA aSdCuIs promutcd io Vice-Prcridcniin ~I:hru.ir) IOhx.Iuis made Seiiior
Vicc-Prcsidriil Mai 19x5 As Gener~l Counscl. I ïm a nimber oi R.ivthcon'\
scnior management and am ultimately responsible for al1legal matters affecting
the Company.
3. 1 have closely followed and participated in Raytheon's major decisions
affecting Elettronica Sicula("ELSI"). During 1967and 1968,1followed closely
al1significant developments with respect to ELSl and Raytheon's planning and
decision-makine in that -.eard. sincethese matters were reeularlv reoorted to the
Board of Direcrors and also because, as a senior management official,1regularly
participated in management meetings at which ELSl was discussed. 1 was also
consulied bv ~avtheon's mana-eme; with resoect to the-.eeal asoectsof decisions
concerning ÉLS~.
4. 1was regularly advised ofand consulted on questions relating to the possible
liquidation of ELSI. Raytheon had determined in March of 1968that, as a matter
of sound businessjudgment, such a liquidation would be necessaryif it appeared
that ELSI could no1be made orofilable desoite the efforts beinn made to find an
ltalian partner or othenvise aisure ELSI's iuture. ~ccordingli ELSI's manage-
ment beean to olan in 1968for an orderlv liquidation of ELSl's assets. Until the
requisitiDnof ELSI'Sassets by the ~overnment of Italy, Raytheon's management
had never considered the possihility of bankruptcy for ELSI. 1 can state this
categorically because this would be a most significant and unprecedented legal
action on which 1would have heenconsulted. Although Raytheon had liquidated
or sold some of its other investments, none of Ravtheon's whollv or oartiallv
owned subsidiaries had ever heen placedinto bankriptcy prior to CheE~SI pet;-
tion of 26 April 1968.Once ELSl's assets were requisitioned on 1 April 1968,
however.,Rav+heon's ltalian lawvers recommended that ELSI consider declarine
bankruptcy.
5. In earlv 1968. Ravtheon had sent to Italv a team of exoerts, headed bv
Raytheon vice-~resideRt Joseph Oppenheim, to seIl ELSl's as;ets in an orderh
liquidation. Raytheon's liquidation plan was frustrated without these assets. Ray-
theon's Italian iawvers ad;ised us that hecause of the seizure of ELSl's assets bv
the Government O; ltaly without provision for ELSl's liahilities, therebéould
no sales proceeds with whichto work. In the light of ELSI's resulting inability to
pay ilsdehts as they camedue, ELSl would be obligedunder ltalian lawto declare ANNEXES TO THE MEMORIAL 301
bankruptcy. This recommendation was sound and 1so advised Raytheon's man-
aeement.
"6. Atiliihed ai Fxhibit A isiisummlir) of K3)iheon's lcglilcxpcnser for cilunsel
in 1131) uiih respe~-1io ELSI from 1508io ihr preacni These ;ire expcnses ihal
would noi have hem incurred hy R;i)ihcon bui for Iialy'r seiLurcoCFI.Sl's 3sscts
2nd FI.Sl's conscqur'nthmkrupic! Aitachcd :i$Exhibli H is.isuniin:try oi'ceri;iin
r'xpenie, incurred in ihe Cn~icJ Silitc, for counscl. printlng ;in* othcr expens!,
reiating to this proceeding and the claim to which it relates.
7. Attached as Exhibit C is the total figure separated by: (1) cxpenses incurred
in connection with the bankruptcy proceeding, (2) expensesincurred in defending
against lawsuits brought by ltalian banks against Raytheon seeking payment of
loans to ELSlwhich Ravtheon had no1euaranteed. and (3) exoenses incurred in
~ursuing Raytheon's claim for damage; against the Government of ltaly as a
result of its actions with respect to ELSI.These amounts include, among other
things, payments to Italian lawyers and payments for translaiion costs. They do
~~..inc~ud~ ~t~ ~ ~ ~ ~ ~such as the lime and exoense borne bv Ravthe,n's .n-
house attorneys and employees.Thcse summanes were prepared under my super-
vision based on actual billinrs received and paid by Raytheon, and 1affirm that
these costs were incurred in Conneclion withthe three categones-soecifiedabove.
The prcciss hreakdoivn i?icosis bysniegor) ma..not protidcd IO uson the original
billiiigs.but waqrsiimliied b) nie bdrrrl iin m) knou,ledge of the \i,ork linclcosts
~nsolicd.~nd 13;ic<urilieIO ihc heii ofm) knoulcdgc :ilid hcliei.
(Signed) R. Joseph WAVIGNON,
Commonwealth of Massachuseits
County of Middlesex.
Subscribed and sworn to before me 19January 1987.
(Signed) R. Joseph D'Avic~o~,
Notary Public. ExhibitA
TOTAL OF PAYMENTSMADE TO VARIOUS OUTSIDE COUXSEL WITH RESPECTTO BLSI S.P.A
(April 1968-December1986)
ForI~,,qoiServicand E.vp<nrerPi~iTio
PYW? Birconri Cuiuinin : : O R<in?liu Ln Prrgolu Culi<~iti Cusi,rluno CicruIli Ii>,<li si
i
Siudio LegnlcBirconli 1545,32287 1 8.63667 1 39,34151 $ Y9282 $1,12000 5 1 5 $595.411.87 ';
Studio LegalcAvv. Frrn- 4
ccscoCalrmia 22,92554 22,92554
Studio dcl Auv. Pror Elio
Fazriikri 138.470.00 138.470.00 >
Studio Legïle Avv. Filbio 51,52468 "
Romclla 51.524.68
Prof Avv. Anlonia LI - C
Pergolï - i
pror Doti Nicoli Collclti 34.W0.00 34.0W.W >
Prof. Giovanni Curimrno IS.WO.00 S.OW.00
Studio LcgrlcAvv. Frïn-
C~EO Ciccolti 72.48511 72,48571
Total $545.322.87 531.562.21 5177.X11.51 552.517.50 S1.120.00 534.W0.00 llS.WO.00 $72,48571 5929,81980
Noie, rcStudio L<.,q<ein.<inli:
Churgeslor scrvicrsprioio April 1968arc no1includcd inthis rçpon
No billingrhaveken reccivcdfor anyrerviccs~bsequçniio 1983. ANNEXES TO THE MEMORIAL
Exhibit B
PAYMENTSMADETO VARIOUSSOURCESIN THE UNITED STATESWlTH RESPECT
TOELSlS.P.A.
(per detailslirruched)
Poid To : Addre.rs InroiceDore Ainounr
Bakerand McKende Chicÿgo. IL 12/06/71 $2,551.70*
R. R. Baxter Cambridge. MA 4/12/70 559.24
Warner Heinz Billcrica.MA 11/02/71 958.85
Warner Heinz Billenca. MA l 1/11/71 34.00
Warner Heinz Billerica.MA 12/13/71 132.00
Addison C. Getchell and SonsI.nc. Boston. MA 12/28/7l 3,013.40
Addison C. Getchell and Sons. Inc. Boston. MA 1/10/72 2.510.52
John J. Whelan 8/06/70 162.00
'rofll 169.981.71
ELSl portion of invoice.
-
Exhibit C
Expenser related Io ELSl bankruptcy $115,638.35
Expensesrelated Io defense arsuits by banks which had loaned money
10ELSl 766,936.77
57.226.38
Expenserrelated to preparation oldiplainatic claim and applicatIoICJ
$939.801.50 ELETTRONICA SICULA
Annex41
ARTICLE 217 OF THE BANKRUPTCLY AW OF ITALYR , OYALDECRI~E
OF 16MARCH1942,NO. 267
{For AnorherEnglishTransluiionseeCounier-Memorialoflful~! Anne.r 211
(Trunslurion)
SECTION VI.PENALTIES
Article 1
ViolutionsCommirred by lnsolvenrBusinesses
217. Simple Bankruptcy. Punishahle by six months' to two years' confinement
if the ownerladministrator. independent of the cases covered in the preceding
article,
(1) has made expenditures for himself or his family which are excessivein
relation to his economic status;
(2) has spent a considerahle part of his assets in plainly or manifcstly impru-
dent tran~~ctions;
(3) has carried out gravely imprudent transactions for the sake of delaying
bankruptcy;
(4) bas aggravated his own failure by not requesting a declaration of his own
insolvency, or through othererious default;
(5) bas not satisfied obligations assumed in a previous composition with credi-
tors or hankruptcy.
The same penalty applies if, during three years preceding the bankruptcy
declaration or, otherwise,ince the inception of the enterprise whichever is less,
the bankrupt enterprise has failed to keep books and other accounting records
prescribed by the law or has kept these in an irregular or incomplete fashion
(c. 2214S.).
Apart from other additional penalties per Article III, Section II, Book I of the
penal code, the sentence involves barnng from the conduct of a commercial
business and preclusion from leading positions in any enterprise for a period of
up to two years.
Article 224. "Fatti di bancarotta semplice." The penalties provided for by
Article 217 apply to directors, general managers, statutory auditors and liquidd-
tors of corp&tions which aredeclared bankrupt, who:
(1)have committed any one of the offensesprovided for by the aforementioned
Article; ANNEXES TO THE MEMORIAL
Annex42
PROCE~~DIN THS:MBETINGOF THE BOARD OF DIRECTORS HELD ON 25 APRIL 1968
IN ROME, VIA FERDINAND0 DI SAVOIA 6, AT 14.30HOURS TO DlSCUSS AND DECIDE
ON THE FOLLOWING
AGENDA
1. The situation of the comoanv subseouen10 the seizureof the olant and recent
developments. ~ertinent'decisions.'
2. Convocation of a shareholders' assembly.
3. Various and sundry.
In Attendance:
for the Board of Directors:
Joseph Oppenheim Chairman of the Board
Justin J. Guidi Member of the Board
Ing. Aldo Profumo Member of the Board
For the Audit Bureau: present:
Rag. Dario Fanfoni.
Absent was Dr. Giuseppe Abbadessa, Acting Audiior.
Prcscni at the meeting was Stanley H. Hillycr.
In the chair was Joseph Oppenheim who, finding thai the assembly had been
duly summoned to the gathering by telegrams sent on 24 April 1968to every
member of the Board of Directors and of the Audit Bureau, and that al1Board
members werepresent, declared the meetingregularly calledto discussand decide
the maiters appearing on the Agenda.
The Chairman called upon Stanley H. Hillyer 10 aci as secrelary for the
meeting. The Secretary read the Agenda.
Uoon declarine the session ooen the Chairman informed the Board that Dr.
ugo' Frediani, chairman of the Audit Bureau, had resigned, effectiveas of 18
April 1968,and had been replaced,as stipulated in Article 2401of the CivilCode,
b; Dr. Domenico Ramondelli. Dr. Ramondelli. dulv summoned to todav's meet-
ing, bas informed us by telegram, received today, chai he will be unabléto take
part in the meeting and that he is resigning from his officeof Auditor.
Ii will accordingly be necessary to ask the forthcoming shareholders' assembly
to choose an acting auditor and/or a substitute auditor and a chairman for the
Audit Bureau.
Wiih respect to Point I on the agenda, the Chairman reviewed the company's
situation in the aftermath of the plant scquestration order issued by the Mayor
of Palermo. He informed the Board that an appeal had already been filed with
ihe Prefect of Palermo seeking annulment of the decree. The seauestration order. which the comoanv considers altoeether illeaal and
arbitrary,'has served no Grpose Savetha; of2further damagi& the cor;ipany7s
financial situation, denying it access to ils assets and thereby impeding as well
the sale of al1or part of the same. In this connection, the ChaiGan notes that
negotiations were already under way for the sale of the microwave and X-ray
tube lines, which cannot be continued because of the sequestration order. The
action itself is resoonsible for worsenine -he oositions and exoectations of the
company's creditors.
Furlher, the Chairman informed the Board that las1 week, al the request of
the President of the Sicilian Reeion. he had met twice withhim to discuss possible
sdlcofcorpordte ~<SCIS 10 J newcorporaiii)n io be sreatcd by the Sicilian Region.
In actualits. the Rcgion's propo.;ïl ti)\ci up a holding compdn) i\mcrel) a siop-
gap solution that iould no1in any way iesolve the-basi~-~roblem. which is 10
maintain ELSl as a vital and economically healthy component of the Sicilian
economy. For this reason, it was no1 feasible to agree to the proposed solution.
After having made every possibleeffort to solve ELSi's problems, it is clear as
of now that there is no possible or practicable chance of further developments.
The company's financial situation has worsened and has not reached a state of
insolvency. There are payments on long-term loans that fell due a few days ago,
and other paymenis which the company cannot make as a result of lack of
liquidity and of any chance of finding funding elsewhere. Sequestration of the
plant has practically cancelledout any possibility of proceeding with an orderly
liquidation of the company's assets that could provide us with immediate funds
and give us the requisite breathing-space to negotiate and rcach suitable arrange-
ments with Ourcreditors. In this state of insolvencv. it is the Board's obliaation
under ltalian law to report the situation to the courts, and to file a peticon in
bankruptcy. The shareholders have been informed of the Board's intentions and,
in view of the lecal oblication incumbent on the Board in cases of cornorate
insolvency, have express& their support for that decision.
The Chairman opened the discussion. Board member Profumo asked to make
t~ ~~~ll~winc statement. He maintains that the laneu- - barrier and the disparate
procedures have created a fundamental gap in understanding due to the lack of
communications between the companv a.d t.e aovernme-tal authorities and the
siïtc agcncics ~nvol\,cd.In ihis conncction. hc ciicï a meeting ihai look place on
23 April 1968wiih Profcssor GaiTagns, u,ho claimcd ihat he spokc for Minisler
Picr~ccini Acsordinr IO %,hiilProfcbcorCilriliens had to sdv. Ilin~cicr Picrïccini
is of the opinion that the problem is due to a failure tounderstand and to
incom~atibility of their political and industrial views, each set of whichmay be
pxcei;ed as iound, in and of itself. Reportedly, Minister Pieraccini would~like
to build a bridge between politics and industry, and plans to appoint a commission
that would look in10 the claims of both parties and come up with possible
solutions within a very short time. According to Profumo, there are three com-
panies interested in acquiring ELSl's assets, and therefore argues that ELSl
should be allowed 10eet what it is entitled to. in view of the strenuous efforts it
has made and of the Contributions il has made to date.
Chairman Oppenheim pointed out that the situation that has developed over
the last several'days kas made it al1too clear that the company is in a date of
insolvency and hence the obligation arises for the Board to bring the situation
to the attention of the courts. In such a situation it is not permissible for Board
members to lollabout doing nothing while they wait for a firm proposal promised
them several months ago. but which has yet to matenalize. Theone firm proposal
that has come to the company is that from President Carollo of the Sicilian ANNEXES TO THE MEMORIAL 307
Region which, even so, for the reasons set forth earlier, is not an acceptable
solution to the problem.
Meanwhilc, the Board is still bound by its fundamental obligation to comply
with the rules of Italian law. That does not alter the fact that should there he
third-party interest in making firm and acceptable proposals, such proposals can
stillbetaken into consideration within the limitsof the substantial and procedural
standards of Italian law.
Board member Guidi agrees with the Chairman's analysis. Profumo agrees as
to the legal obligations incumbent on the Board in the situation of insolvency
that has lately set in. Speaking for the Audit Board, Rag. Dario Fanfoni gave it
as his opinion that the Board'sduty, "now that the company'sstate of insolvency
has been ascertained, is to proceed to do just that!" as the Chaiman proposed.
The question was put to the vote. Thereupon the Board unanimously
recognizing the state of insolvencyof the company, to ask the Palermo Court Io
declare the Company hankrupt, and gives a mandate, jointly and severally, to
Board Chairman Ioseoh Oooenheim. born in Boston. Mass.. USA. on 23Novem-
ber 1914,and Io Managing Director Justin J. Guidi. born in N~WAlexandria,
Pennsylvania, USA, on 16November 1924,to prepare, present, and endorse the
aforesaid requestand any other document, act, or petition of any kind whatsoever
~ ~ ~ ~v be call~ ~~~r or suitable~~o that end. s,~tine -orth hefore the Court the
circumstances leading up to this srate of afairs, and, Io that end, confers upon
the aforementioned Joseph Oppenheim and Justin J. Guidi, iointly and severally,
full powers of attorney, &dinary and extraordinary, exclusiie of none, Io the end
that there may be no perception or question of inadequacy or insufficiencyin the
powers vested in them.
With referenceto oint 2on the Agenda. the Chairman alluded to the advisabil-
iiy of con\oking ai ordin~ry 2nd &trdor<linar!. mcciing oi thc ihareholdcr, 10
dccide upon ihc choice \if Auditori and upon ihc cumpany's state ui iniolrcnc)
The Board unanimously
DECIDED
to convoke the eeneral assemblvolshareholders for 15Mav 1968al 11.00hours
for the initial c&~oc;<ti<inand'foi 22 \ILS l')fi8for the >eix,ndcon\oiation. ai
VIA1:erdinanJo Ji S~!OI.I 6.lu JI<CUII:ind dccidc upon ihe fullowing Agenda:
Ordinary Session
1. Resignation of the Chairman of the Audit Board and election of auditors.
2. Various and Sundry.
and decided to aurhorize the Chairman to proceed with publication of the Notice
of Convocation and other pertinent lormalities.
With reference to point 3 on the Agenda the Chairman pointed out that the
situation that has arisen as a conseauence of the seauestration order. it is no
1ongr.rfc;isibleIO proceed aith the .,~hcdulcdacti\,itie;in Iight oi'thc sulpcn,ion
oiZonipan) acti\itir.s ruh\cqucni lu the ceb\3ii<>n ur company acti\,iticï. giicn
uhich ihc Board dccidt.dno1Io nrocccd rrith the dismisial of em~loycesrequircd
to perform such activities. Acco;dingly, and with deep regret, il 6ndSil necèssary
to proceed now with the dismissal of said employees. Upon completion of
adequate discussion, the Board unanimouslywith regret IO procccd niih ihr dismis\al of al1cornpan). çmpli>)ecs.cKcctivc as
oi 30 April 1968.iluthorizing thc Chairmiln and the Roard mcmbcrs. jointly xnd
sevcr~lly.io send timely notificaiion io ernlili>)ccsenea~cd in nlani sec.riiv uork.
reauestine. them to continue their duties durine theRatificatio oneriod.
inasmuch as no other matter was put forward for discussion, the Chairman
declared the session closedat 17.45hours, pending printin-, editi-g, and approval
of the present proceedings, which is signed as foilows:
(Signed) (Signed)
The Secretary, The Chairman,
Stanley H. HILLYER. Joseph OPPENHEIM.
(A) Strike
1. "Dr. Ramondelli," and add
2. "in Rome."
CorreciionsApproved.
No. 36,400 of the Law Reports (2nd printing)
1,the undersigned Dr. Andrea Giuliani, Notary Public in Rome, member of the
College of Notaries in Rome, do herehy ccrtify that the excerpt in qucstion is a
true account of the original decision taken by the Board of Directors of Raytheon
ELSl S.p.A., with home offices in Palenno as of 25 April 1968,entered on pages
110to 124of the proper corporate record book, duly stamped and witnessed in
accordance with the law, and shown to me for collation purposes.
Il is released in its original fonn at the request of the said Company for
legitimate use.
Rome, 25 April 1968. [Signed: signature illegible.] ANNEXES TO THE MEMORIAL
Annex 43
RAYTHEON-ELS SI.,P.A.. PET~TINOR BANKRUPTC TO THE CIVIL AND
CRIMINAT LRIBUNA LF PALERMD OATED 26 APR~L1968
(Translation)
Raytheon-Elsi S.P.A. with offices in Palermo, Via Villagrazia 79, by its legal
representative Mr. Justin 1. Cuidi. Managing Director (who acts in this deed by
virtue of powers conferred upon him by resolution of the Board of Directors of
25 April 1968,attached hereto) in application of Articles 5, 6, and 14,of Royal
Decree of 16March 1942, bcing ina state of insolvency.requests this honorable
Tribunal to declare its bankruptcg.
To this end it staies as follows.
Bydeed ofNotary Vito Di Giovanni of Palermo, of 18March 1954,Elettronica
Sicula (ELSI) was organizcd as a joint stock company, having as its objcct the
production of electronic equipmcnt. In 1956said Company built in Pdlermo a
plant for the production of said eqiiipment, whichstarted itsactivity in November
1956.The Comnanc~hi,ed in Palermo about 100emolove.s .nd workers.
In 1959So~.iclïEleiiri>nic~Ii~lian.1pcr Azioni lSEI.IT) uïr <)rgani/edsriih
otfi;cs in Palermo Subscqucnil\ EI.SI ~urchmcd LII sharei of SELIT Kd\thcon
Company, an American joint Stock company, having ils offices in Lexhgton,
Massachusetts, USA, and La Centrale Finanziaria S.P.A. of Milan (and some of
its affiliates) purchased the whole capital stock of ELSl which was allocated
amona them in varving ratios. iniriallv 70 oer cent a30 uercent resoectivelv:
laicr. ïhrough ihc ;ndëruriting oi sub,eq;cni i,sues of neu, sh;ir40.per cchi
and 60 pcr ceni rcspcciivel). and ihen 20 pcr ceni adl)per ccni The namr JT
ihcCom~snv u~schanacd IO Kï,iheon-ELSI SPA . bvdccd of30 1ïrr.h 19hS.
ELSl abiorbed Selit ina merger: As a consequCnceand because of the relevant
contributions of capital and advanced technology which wassupplied by Ray-
theon Company the production nctivity of the plant became more and more
imnortant and about 1.000workers wereemolo.ed, In the meanwhile. the situa-
lion in the elecironisiarkci and ihc grouing ditticul(inpdriicular conccrning
sumc Iinesof produ-lion) crcaicd ruhst:iniililproblcms. chieilyhc~use Kaythcoii-
tLSl is lucaicd inSicils and musi ihercfore hçïr ~ustsand burdcns hirhcr ih~n
those of similar indusGies located in areas more advanced from the rndustrial
point of view or nearer to the market. These higher costs and burdens have no1
been offsetin practice (despite legislativeprovisions) by the payment of incentives
due (i.e., 30 percent ofgovernment supplies, reduction of transport costs, gratui-
tous contributions).
In order to givethe Company a more solid financial basisRaytheon Company
and Machlett Laboratories Inc.. another US joint stock company, decided in
March 1967, to purchase the share holdings of La Centrale and ils affiliates
investing a very substantial amount of money. Then they proceeded Io reduce
the capital stock of the Company from Lit. 4 billions to If billions to ;iccount
for losses and subsequently increased it to Lit. 4 billions. Raytheon Company
bore further costs and otherwise substantially contrihuted to the business ofELSlhy having ELSl execuie orders which Rastheon Com~anv could have execuied
d;rcctl). ~llihi. nits donc uith the purpo;c anJ aj xn'atténipttu iind 1 hr<ilidr.r
bliji, for itSicilian industry. uhich uould iillou II tgiIivcand \ur\ii,c as :ihcitlthy
and vital element of the regional and national economy.
In order to achieve such ouroose. durine the last vear the manaeement o ~f h~e.
Company has niade cvery p;>s,iblccffort. ihrough iontaci.. 2nd ncGtiations uiih
the Siciliitn Rcgionitl Go\crnmcni, ESPI. IKI. Finniecc3nicli and other public
agenciesand private industries, in order 10find an Italian partner which nit only
would furnish fresh capital but mainly would further the integration of the
Company in the industrial, political and economic Italian situation, assuring it
the actual benefit of the incentives for the industries in the Mezzogiorno Area
ahove-mentioned and the oossibilitv of ohtainine new oroducts and thus new
~ ~ ~ ~ ~ - ~ ~ ~ ~ ~
and hrolider markcis. Unforiunatcly ihcje contacts and ncguiiations (which hase
bccnculiivated wiihdcrcrniinlition 2nd .uh\ianiilil erpenseol'iime hvihc mannre-
ment of the Com~anv. not in their selfish interest but with the soie nurooseof . . ~~
maintaining in ~icilyan industry for the success of which the shareholders had
made such relevant investments of capital and efforts of CO-operation)despite
several promises which had been made, up to this time. haie not given any
concrete and positive result.
The fiscalyear ended 30 September 1966,showed a loss of Lit. 2,137,486,904.
This loss was offset, as stated ahove, by a suhstantial investment of new capital
on the part of the shareholders. The fiscalyear ended 30 September 1967showed
a loss of Lit. 2,683,460,080,of which about Lit. 1,200,000,000represented neces-
sary devaluations and reserves and about Lit. 1,400,000,000 represented the
operating loss. In spite of the fact that (thanks to the management of the business
durine the last fiscal vear and thanks to the administrative assistance of th?~ ~~ ~ ~ ~ ~.
shnrcholdcr Ra)ihron.~om~-n). uhiih urre made poisiblc by ihc greatcr ~ICC-
dom ofmanagcmcnt dcri~ingfrom ihe suhstiiution of the sharzholder 1.3 Ccntrnlc
S.D.A.)the ooerating losseswere reduced hv comoarison with the orevious fiscal
ihe fui;rr. pr.rr~ecti\~r.o si ihc ~ompan!. uerc dim. During tic firbtnionths
of 1968somec\cnis <iccurredu,hichcnused lirapid dctr.rior~iionofthc C<impany.
The earthquakes caused disturbance to the production and neeativelv influenced
the liquidiiy of the Company. ~urthermoré, intermitting striLes in ihe division
of cathode ray tubes caused more adverse effectsthan the actual loss of working
hours would suggest. It was necessary to close the cathode ray tube division in
order to negotiate with the Unions conditions more in line with the industrial
and commercial necessities.The notice given of the intent to reduce the numher
of workers hy 175-a necessary measure - caused a general strike in the plant
starting 4 March 1968. All this gravely prejudiced the conditionsof the Company.
In this situation, in consideration of the notice by the shareholders that they
could not contribute further capital in viewof the enormous investment already
made during so many years in Sicilyand sincc it appeared impossible, in spite of
many promises, to find an adequate ltalian partner, the Board of Directors, on
16 March 1968, resolved to cease immediately al1production activities and to
cease al1 commercial activity and to dismiss al1 employees effeciive 29 March
1968. Such decisions were timels communicated to the regional and central
Auihoriiicr. The Ciimpïn) uas then prcparing io org:ini/e .iti;rdcrl!. iran\fcr of
al1corporÿie liset, and Io such end ithcglinIo conl:ict groups uicrcJitors ibanks
and credit institutions).
On I April 1968the Mayor of Palermo, alleging reasons of serious necessity
and urgency, ordered the requisition of the plant and of the equipment of the
Company. Such measure, which is considered by the Company illegal and arhi-
trary and moreover unfii to resolve the economic problem of the Company and ANNEXES TO THE MEMORIAL 31I
of the Sicilian industry, has deprived the Company of the freedom Io dispose of
its asset for a long ~eriod,annihilaiing every possibility for the orderly disposiiion
of the coroorate aiseis: the neeotiaii6ns the8 in cour& for the disoosition of Dari
or al1the'assets were prejudiGd uiihout recourse. ~urthermore,'in the last'few
days there were clear and express indications of a line of behavior intended to
put the Company in even more serious dificulties.
Because of the order of requisition, against which the Company has timely
filed an appeal, the Company has los1the control of the plant and cannot avail
itself of an immediate source of liquid funds; in the meanwhile payments have
become due (as for instance instalments of lone-term loans: an instalnient of
Lit. 800,000,000to~~anca~azioile del ~avorobecame due on'18Apd 1968,and
the note therefore has been or shall be protesied, etc.); it is acknowledged that
il is impossible for the Company Io pziy such sums with the funds exkiing or
available and such impossibility is due to the events of these last weeks. The
Board of Directors has made al1possible eiïorts for several months in ordcr to
find a solution to the fundamental problems of an economic, industrial and
political nature of this Sicilian industry: now, in compliance with the diitics of
the Board of Directors arising from ltalian law,the Board of Directors responsibly
request that this honorable Tribunal declare the bankruptcy of the Company in
order ihat the events of these last weeks (the origin and the duration of which
are beyond the conirol of the Company) should not further prejudice the interests
of the corporate creditors.
The following books and documents are attached to this request:
(A) Resolution of the Board oCDirectors of 25 April 1968.
(B) Statement signed by MI. Giuseppe Polizzoiio.
(C) Notes and comments concerning thc books and documents attached hereio'.
(D) Accounting records
(1) lnventory book n. 3 (see notes 1, 2. and 3).
(2) General ledger (see note 4) from page 2801 to page 3069.
(3) Clients ledger (see note 5)from page 851 to page 1100,filledin up to page
nn7
(4) Two suppliers ledgers (see note 6) [rom page IO01to page 1250and from
page 1251to page 1500 - filled up Io page 1310.
(5) Book of notes receivable.
(E) Balance sheei and profit and loss statement for fiscal years 1966and 1967
(as of 30 September 1967).
(F) Attachments to the balance sheei as of 30 September 1967.
(Ci )ro forma balance sheet as of 31 March 1968.
(H) Particular and estimate description of assets.
(1) List of creditors and indication of the respective crcdits.
(L) List of creditors which have a lien onassets of the Company and indication
of the assets on which such liens FaIl.
As it is explained in detail in Exliibit (L) the strikes and in particular the order
of requisition have bindered the filing of some of the exhibits in the mariner
requested and desired by the Board of Directors. The Board is al the disposal of
ihis honorable Tribunal to furnish any clarification and any document available
Io il.
In view of the requisition of the plant the applicant Raytheon-ELSI S.P.A.
elects ils domicile for the purpose of this procedure in Rome, Via Bissolati, 76.
' SeeCounter-Memarial of ItalyAnnex 32.care of Studio Legale Bisconti, and requests this honorable Tribunal that any
communication direcied to il or ils legal representativeshe addressed to the
elected domicile.
RAYTHEON-ELSIS.P.A.
(Signed) Justin1.GUIDI,
ManagingDirector. ANNEXES TO THE MEMORIAL
Annex 44
RAYTHEON-ELS SI..P.A.,JUUGMEN OF BANKRUPTCC YI,VIAND CRIMINAL
TRIBUNA OLFPALERMO D,ECIDED7 MAY1968,DEPOSITE1 6MAY1968,
REGISTERE 27 MAY1968
(Trunsluiion)
Decision n. 41/68
Chronological No. 1966
Repertory No. 2049
Art. 12941-
REPUBLIC OF ITALY
IN THE NAME OF THE ITALIAN PEOPLE
The Tribunal of Palermo, third civil and bankruptcy division, formed hy the
followingmemhers:
(1) Dr. Claudio Terranova- President
(2) Dr. Salvatore Burgi- Judge
(3) Dr. Calogero Costanza- Judge
convened in the council chamber has issued the following
JUDGMEN'T OF BANKRUPTCY
against
RAYTHEON-ELSI S.p.A., with head officein Palermo.
Having read the petition by which the Managing Director of RAYTHEON-
ELSl S.P.A. asked for the declaration of hankruptcy of the Company;
Having seen the documents exhibited and the attached balance sheet;
Having deemed Raytheon-ELSI S.P.A. to he in a clear situation of insolvency
and that there are al1the grounds for declaring it bankrupt;
For These Reasons
THE TRIBUNAL
Seen Articles 1,5,6, 16of R.D. 11.267of 3March 1942
declares
the hankruptcy of RAYTHEON-ELSI S.p.A., with head office in Palermo, 76
Via Villagraria, represented by its legal representative
ORDERS
that the goods helonging to the bankrupt Company,wherever theyare, be sealed
APPOINTS
Dr. Vinccnzo Badalamenti as Judge in Charge of the proceedings and Avv. Giu-
seppe Siracusa, with officein Palermo, Piazzale Ungheria, as Curator314 ELETTRONICA SICULA
ORDERS
to the legal representative of the bankrupt company Io deposit within 24 hours
the accounting books
GRANTS
to the creditors and to third narties who claim orooertv rizhts on chattels nos-
sessedby the bankrupt company the term of 30 ;lay: from tuhedate of this d&u-
ment 1saffixedto filetheir proof of claim with the Chancery
SETS
on 6 July 1968at 9.00 a.m. the meeting of the creditors for the examination of
their proofs of claim whichwill take place hefore the above-mentioned Judge in
Charge of this bankruptcy Chancery
ORDERS
the "prenotazione a debito" for lack of funds.
Decided as above in Palermo, today, the 7th of May, 1968.
Signedby :Claudio TERRANOVA
Salvatore BURGIO
Cologero COSTANZA
G. SANTORO.
Deposited with the Chancery today, the 16thof May, 1968
The Chief Clerk, signed by: G. SANTORO
Art. 12941-
Registered in Palermo on 27 May 1968,n.290 registermod. 71 M.E.
Debited Lire 6,200.Art. 125788mod. 9.
The Director, signed by: ALOI.
This is a true copy of the original
Palermo, 29 May 1970
The Clerk
(Signed) Illegible. ANNEXESTOTHE MEMORIAL
Annex45
DOCUMEN FTSEINTHECIVIANDCRIMINATRIBUNAOFPALERMO
DESIGNATIGNIUSEPP~RACUTSAUST=INBANKRUPT ANYSELECT~ THE
CREDITOCRS'MMI.IINTHEBANKRUPT OFRAYTHEON-EL S.PI..A.,DATED
4JUNE1968 ELETTRONICA SICULA
Annex46
The las1item concerns an issue which has rightfully stirred public opinion in
Palermoand the Sicilians in eeneral. namelv the lone cnsis of the S~~~-ian electron-
&~firm Raytheon ELSI. li touchéd pubiic opini& because, as was properly
observed. in this casethe cnsis did not befall an old industry but one operating in
a sector asnew asthat ofelectronics.
What caused this crisis? There may be also other reasons, and 1 should no1
make a pal speechon this factory. Essentially, the crisis originated in part as a
negative consequenceof very positive premises,that is, it was causedby the desire
of hirine the workforce locallv - no1onlv unskilled workers hu- a-~~~~ ~ ~ ~ith
degreesr~his causesdelais, the hiring of a larger number of workers and the risk
of having to star1 al1 over anain as workers who reach high leve-s of technical
exnertiseare lured awav b, ci.oetin. industries.
.Morcu\cr. ihc siock ouncrihip folloucd a uinding pctih: ai lirji ~tiras o\\,nerl
hy s >maIl group from liguri3. and ihcn b) ihc Ccntralc group which joined
Ra)ihcon uith tivo difircni level. uTparticipaiion. Thcrc ucrc. also. somc unfor-
iunstc dc\clopmcntj. In ordcr to amortizc thc initial crpcnm and ihc gcner~l
c.xpcnscsby producing high-qualiiy material in large quaniiiy. IIw~sdccidcd IO
manufacture television tubes, reachinn agreements with theThomas company.
However. this comoanv.,usoende.their6duction of thesetube~.~In other words.
a whole seriesof events explains the insufficient earnings of the company which.
besides.started with acertain amount ofindebtedness.
Last year, when there was the first sign of crisis, not only locally but also at the
headquarters, contact was sought with Raylheon, and the company was asked to
formulate a program to strengthen internally ils operation. The program was
formulated. It involved several aspects: First, a new infusion of capital in the
amount of 6 billion lire from the Region; next a qualitative widening of pro-
duction which was partly viable, partly difficult lo implement and partly inade-
quately planned; finally, a commitment on the part of the State to place some
specificorders with this now restructured company. Under this profile, an attempt
was made to find a solution. which seemedleeal then and still does. but it did not
uork IIconsisicd in sssigning thequoia ior ~ouihern ltaly not only IO the finished
produci hut Io ihc componcnts as u,cll In thai Cashion WC could hate uiili/ed the
auota assienedto Southern Italv for swcific elecironic comvonents manufactured
in paierm,. Our jurists (that Le deem above us) felt initead that the supply
contract is a contract for finished products, and that the legally authorized appro-
priation can be usedonly for completeequipment and not for components.There-
fore. under the circumstances. we were unable Io eive t-e Ravtheon ELSl stock
holders any guarantee.
1 should add that we felt particularly perturbed (and not for petty political
interests, but with the national interest in mind) bv the absurditv of the structural
and hum3n deterioration ,>fthii rcsourcc ihai iliiok ).carsto cr;atr. And iurthcr-
more. bcc~uscpdri of ihis uork. which invol\c, Sato ordcrs for cquipnicnt rclai-
ing to a spcsific i)pe of mis,ilcs. is made crclusivcly b! ihis Palermo plant for ANNEXES TO THE MEMORlAL 317
Nato countries, and it is of outstanding quality, according to the judgnient of
experts. IIshould be noted that the judgment on the quality of the plant cornes
from highly qualified and demanding sourcesand it hasworked to the advantage
of Ravtheon ELSI.
E h éinanci;il burden oi the hudgri hru~ghi Ki!ihcon F.LSI IO ihc dificull
riiuition ue al1 knou. Through coniliiis nindc u,ith the Rcgion. and 0ftr.n 31~
u.ith Sicilian r>srli«nieniliririn~. somc dczi,ii>ns ha\c bccn made. uhich were dini-
cult to reach,'which allow usto look at the problem in a more satisfactory light.
The first decision was 10 direct IR1 to create a plant for telecornmunications
equipment for the Siemens group. lied to IRI, as known. This was a formal
decision. We have ei-en IR1 two n~onthsto work out the olans and to make the
ncccbrar! prcparaiions (finding i ruit>blr. >iic. cicj Hu1th<i\c Pumiliar u.iih thc
>iiuaiion in P~lcrmo knou thxi ihis 1,not dilficuli. This firii dcci\ion hîs IO do
with Ravtheon ELSI. not becauseil is infended as a reolacement for Ravtheon
CLSl bii hci:iuse iiu,ilJSSIS~ in ihc rccuvery pri>gr.im i;id. in m) cipinion:II uill
hopcfully qualii) Palcrmo ;is a Lenier hr clcciri>nic~.;ind thii m:,y possihl) son-
irihuic Io furihcr devr.lopmcni. Tnis i\ p<~ssiblcber~use ihe orod~cis in\ol\cd
have a considerableadded value. asvon know. so thÿt the ereaier distance would
not causea significant price diff&eiice. ~ith this in mind,Gd 1ampleased to say
itin this forum. we look into account the provisions in the extension law for the
Fund for Southern Iialy, relative to the agreements between the Minisier of
Transportation and the Fund for Southern Italy, according IO which the efective
cost of transportalion to the user is a Rat rate which allows him not io be at a
disadvantage in relation to other destinations in the country. These agreements
(as 1 am told bv~,he Ministers' Committee for Southern Italv) have ,.w been
prliiiicillyfinalilcd and. ihcrcfore. will hxunic effciii\,e rcl;iii\cly suon.
As far as Rn\,theon ELSl is dirccil! conccrnrrl. iuo nieaiures hsw beeniîken.
one effective immediatelv and the other asa lone-term measure.The first has been
;iimall preliminary niea;urc. lissigning io the Rcgion ihr h~rdcn or ihc Zoinpcnili-
lion paynientq l'or an ;iddiiion;il couple oi month$. uiih the cstïhlishmcni of a
tvoe ofcomoanv which would ~ermit a transition from a hiahlv sirained situation
toa phase of normalization. And normalization, as we kniw; for an indusiry of
this kind doesno1mean the srurusquo, but the possibility for further expansion in
the qualitative senseand we hope in terms of employment.
This comoanv. which should have the above-mentioned transitional funclion.
is to bc csi;hli~hcd h) public initiiutions in LU-opcr~iion iiith ihc Kcgion and I
clin iurnull) ras. iiiihe namc ofihc C;~>\ciniiicni. ihai thir iinui an inicliiion hui
a fast. Thcrcf<>re.ihc rcopcninr O( ElSl dlonr !hi; f,~rmuld por\ihl) sill periiiii.
throueh an oui-of-court como~sition. the settkment of the cirrent liabilii&s. and
uiihoùi ihe.esiep,.i rrro\cr;or a ncu ,idri b) t LSI alonc uuuld iioi bc po\\ible
1 uould Iikc IO rneniion th31 .~ctu.illy Ra)ihcon FLSl noi onl! m.inuOciured
~roducts under the Ravtheon RrOUDlicense,but manaaed to adaoi manv of ihese
produiis to ihe Curopcan mirkei uiih pruccdurcs ïnrl ~cchn;~iies~bsoluiely
original Which protes ihc rcm3rk~blc imporiance of ihir pl:ini eiiïhlished in ihc
middlc oiSicilk I may add thai ihc Minisicr of Indusiry and ihe Go\crnmcni in
eeneral will witch this develo~menl so that it mav be comnleted in the shortest
possible lime. but Ibelic\c. as I sîid )crierka) io ihe delegaies in aniwcr to iheir
questions. that WC ma) consider ihis iwue. ivhlch raurerl 3 loi of disircss even
outside our country, positively solved. Nato, for instance, was very concerned
that these products contracted out exclusively to Raytheon ELSl in Palermo
would becomeunavailable. ELETTRONICA SICULA
Annex 47
PRESS RELEAS EY THE GOVERNMEN OFTITALYD , ATEO 13NOVEMBE1R 968
[See alsop.249, supra]
Minister Restivo, Minister Bo, Undersecretary Caron, the Hon. Carollo, Presi-
dent of the Sicilian Region, Dr. Carli, Governor of the Bank of Italy, Dr. Ruffolo.
Secreiary-General for EconomicPlanning, Dr. Nuvoloni, Director-General of the
Treasury, and Dr. Medugno, General Manager of IRI, met with Minister Co-
lombo as Chairman ta examine the situation resulting from the bankruptcy of
Raytheon EI.Si. and the possibility of resuming operations at the plant also for
the purpose of reducing unemployment.
While the STET Group remains committed to build a new plant in Palermo for
the production of telecommunication products, the IRI-STET Group, urged by
the Government. alter the examination of alternative solutions which proved
unfeasible, statedits willingness ta intervene in the take-over of the plant and in
the organization of new linesof production.
The IRI-STET Group, in assuming this positive attitude, look into consider-
ation the commitments made by it in the receni conventions regarding the most
im~ortant telecommunications services. in a sector where techn~loeical oroeress
isïery rapid and uhcre the prohlcms or icchnological rcscÿrch niusthI~~CJUII~
adequate mcani. ap~l~ed IO tclccommunications and cspccially IO ciimmuiation
centers.
Parliament has recently enacted new provisions concerning the promotion of
applied research in the fundamental sectors of industry. Acting under such new
provisions STET will be able to play a very relevant rolein promoting technical
progress in the fieldof telephone commutation. In consideration of these premises
the STET Group agreed ta intervene in the taking over of the plant of the
bankrupt Raytheon EI.Si.of Palermo.
The conditions and means of such take-over will havc to he agreed by the
STET-Group in concurrence with the Government of Sicily.ANNEXES TO THE MEMORIAL
Annex48
/A1oIreproduced]
Annex49
[Not reproduced]
Annex50
[Nol reproduced] Annex51
NOTICE OFAUCTION TO BEHELD18JANUARY 1969,CORRIEREDELS LARA,
II DECEMBE1R 968
(Translarion)
DEPARTMENT OF STATE ,IVISION OF LANGUAGE SERVICES
LSNO. 121099
BLIAO
Italian.
From Corriere dellaSerapage 15,Wednesday, II December 1968
The Tribunal ofPalenno,
Bankruptcy Division.
It is herewith made known that on 18January 1969,at 11.00am., an auction
salewillbe held in Palermo before thejudge in charge of the bankruptcy proceed-
ingsof the Raytheon EL.SI. S.P.A.for the purpose ofauctioning offthe Raytheon
ELSI. S.P.A. electronics plant located on a plot measuring 48,103 square meters
accessiblefrom Via Villagrazia 79 and consisting of buildings, installations, ma-
chines, various equipment, and furnishings for the production of cathode ray
tubes, microwave tubes, X-ray tubes, dischargers, semiconductors, and complex
components.
Base price: L.4,560,588,440 [translator's note: These figures were extremely
bard to read and may be wrong, pleasecheck out].
Those intending to participate in the auction mus1 deposit with the Court
Clerk's OfficeL.365,000,000as security as well as L.847,271,000for foreseeahle
expenses, inthe form of a legalbond, by 17lanuary 1969, 1.00o'clockp.m.
Bidsmus1exceedL.5,000,000.
Costs and taxes are borne by the highest hidder.
Remittance of priceto be made within 30days from award.
Further information availahle from the trustee in hankruptcy, Attorney Giu-
seppe Siracusa, Piazzale Ungheria 84 (translator's note: this number could also
read 34 - the original is almost illegihle), Palermo, Tel. 217.480 or from the
Court Clerk'sOfficeat the Tribunal of Palermo, Bankruptcy Division. ANNEXES TO THE MEMORIAL
Annex52
MINUTE SF 18JANUARY 1969AUCTION OF ELSI'SASSETS
(Trans[arionJ
DEPARTMENT OF STATE ,IVISION OFLANGUAGE SERVICB
LSNO. 121049
BL
Italian.
Judicial Files,
Tribunal of Palenno. No. 128.
N. 41/68,
Cron. 126.
Tribunal of Palermo- Bankruptcy Division
Record of failed auction sale of the property of the hankrupt Raytheon.S.
S.p.a.
On 18 January 1969, attorney Giuseppe Siracusa, Raytheon EL.S. S.p.a:s
trustee in bankruptcy, appeared hefore Judge Vincenzo Badalamenti in the pres-
ence of the undersigned court clerk in Palenno.
It is noted that al1the formalities have been observed in pursuance of the order
to sell,and that no bids have been receivedfor the auction scheduled for today.
The Judge thereforedeclares the auction failed.
Judge's signature.
Court Clerk's (illegible)signature Annex 53
[Nor reproduced]
Annex54
(Nol reproduced]
Annex 55
[Not reproduced]
Annex56
(Nor reproduced] ANNEXES TO THE MEMORIAL
Annex 57
TRIBUNALE VI PALERMO - SEZIONEFALLIMENTARE
(TRIBUNA OF PALERMO - BANKRUPTCY DIVISION)
It is made known that on 22 March 1969,at 10am. in Palermo the judge in
charge of the Raytheon-ELSI S.P.A. bankruptcy will proceed with the sale by
auction of the Raytheon-ELSI S.P.A. electronic complex standing on 48,103
sauare meters of land. with access from 79 Via Villaerazia. Palermo. Italv. and
- , , ~ .,
composed of buildings, facilities, machinery, miscellaneous equipment and fur-
nishinas for the manufacture of cathode ray tubes. microwave tubes,X-ray tubes,
surge &esters, semiconductors and complex components, as well as with the
contemporaneous and unseparable sale of the entire inventory as dcscribed in the
inventory statements and existing in the warehouses at the plant, in Milano and
in Rome. in the "Maeazzini Generali" and customs warehouses in Palermo.
~xcluded from thc sa6 are only some movable goods indicated in the Court
Provision of2/26/69.
Upset pnce for the plant and inventory is Lire 6,223,293,258 of which Lire
4.000.000.000 (four billion) are for the olant and eauiomen. .nd Lire
2;223:293;258for the inventoky.
Prospective bidders must post with the "Cancelleria Del Tribunale" (Court
Office a)Lire 520,000,000bond and Lire 780,000,000for foreseeableexpensesin
the forms prescribed for judicial deposits within I p.m. of 21 March 1969.
Biddingsabove the upset price mus1not be lessthan lire 6,000,000.
Expenses and taxes are at the awardee'scharge: payment of pnce to be made
within 30davs from the adiudicatioii date.
t'or 3dJiiional ~nlortnaiion apply 1,)the baiikr~picy curaior. Mr. Giuicppr
Siraiuv~.aiiorne) 41Idir.84 Piar~nlr.Cnghcria, Palerniii, Ilal). Tcleph<)ne?l74bU.
or Io ihc "Cancclleria Del Tribun~lc. Scrione F;illinicniare ICouri Otfice.Bank-
ruptcy Division),Palcrmo, ltaly
The Master,
(Dr. Albert0 ANANIA). ELETTRONICA SICULA
Annex 58
JUDlClAL FILES
TRIBUNAL OF PALERMO - BANKRUPTCY DIVISION
Record of failedauction saleof the property and movahle assets of the bankrupt
Raytheon EL.SI S.p.a.
On 22 March 1969,Attorney Giuseppe Siracusa, the trustee in hankruptcy of
Raytheon EL.SI S.p.a., appeared hefore Judge Vincenzo Badalamenti in the pres-
ence of the undersiened court ~lerk~ ~ ~~ ~ ~- ~~~~~~~~-~
It is noted that ail formalities have heen ohserved pursuant to the order to sell,
and that no hids have been received for the auction scheduled for todav.
TheJudge therefore declares the auction failed.
Judge's signature.
Court Clerk's signature. ANNEXES TO THE MEMORIAL
(See also UnnumheredDocumentsSubmittedwiihtheCounier-MemorialofIlaly,
Vol.II. ExhibirNo. III-22Al
(Translaiion)
PALERMO - SUNDAY6, APRIL 1969. GIORNALE DI SICILIA, ELSl "THERE WAS AN
AGREEMENT" SAYSCAROLLO - BY ETTORESERI0
It should have heen merely a demonstration of solidarity with the employees of
ELSI, for 428 days engaged in a desperate struggle to save their factory from
closing.The intervention of several rïgional delegates,and especiallyof the former
President of the Region, Carollo, transfomed it instead into a real and true
political debate which will have, iilmost certainly, repercussions at the Sala
d'Ercole.
Last night the PoliteamaTheater was fillcdalmost to the boxes. For the "Easter
for the ELSl workers" al1 the women's movements and the workers of other
Palermo factories had given their support. The interior of the theater had been
festooned with a long series of slogans. "We are wrong" - said one - "to hope
in those who do not know - nor wish - to solve our prohlem." And another:
"We want to be free from need. Give us work to make us feelfree."
Phr~sesof this t)pc gitc :in iklc:ioi rhc ti~nc (11lhr.inrcr\cntioris ol'th: \;irioii,
,pcaker, (llhor rcprescntdii\cs. c.\ponents oi the uorncn', rnuicmcnt. politici.ins)
Whofollobcd oneanother to the microphone. But the most important interven-
tion came from the Honorable Vincenzo Carollo, who was seated in one <ifthe
last rows and had been loudly called to express his thoughts. Rather, more pre-
cisely - as Colombo, one of the seçretaries of the Lahor Union Council clearly
told him - to "confirm" several of the declarations he made when hewas Presi-
dent of the Region, which afterwards were disclaimed by the parties concerned
with solving the ELSI problem. Colombo was referring to the ncws froni last
Octoher when Corollo and competeiit minisiers of the national Government had
given for reached the agreement hy which IR1 would take over the Guadagna
factory.
Last night Carollo confirmed thr news, adding a clamorous element to the
nolemics of these davs. He said: "There is an aereement: ~recise. written. and ~.
>igneil.II ini.iil\cd ih; t~keo\erofELSI byIKI i\;lh the <ami,linancihl tcrmr thdi
wcrcconçidercd uhen thc i~irm:iti,>nui'a mi\ed conip:in)~ ~ -- IKI-I\ll-Regi-n $va,
contemplated.
The agreement, as Carollo explained it last night, entailed the acquisition of
the factory by IR1 for the sum of four billion lire. It was even agreed that IR1
would be absent from the first auction, participating instead in the second one,
where the basic pnce was precisely four billion lire. With regard Io the inventory
it was, instead, decided that it would he sold in successivestages. The proceeds
would go to the creditors, less 30 pcr cent to cover administrative fees. "What 1
am saying isso true -" continued Carollo, "that immediatelyafter this conversa-
tion the directors of IR1 came to Piilermo in order to form ELTEL. They even326 ELETTRONICA SICULA
managed 10 walk in10 the faclory, convincing the workers to manufacture the
'oscillators' commissionedby Nato".
Carollo then added, and this isanother veryimportant element, that theconsor-
tium of creditors declared iiself satisfied with the lems of the agreement. Even
the bankruptcy trustee gave his assent "without captious objections". "What
happened between then and today," concluded the former President of the Re-
gion, "1 do not know nor have I been informed." And from this final comment
transpired a polemic tone towards the present regional Government.
Two things are remarkable in Carollo's remarks:
(1) In October the agreement would have been reached evenon the purchase
price;
(2) The consortium of creditors and the bankruptcy trustee would have been
satisfied.
The truth. instead. is that IR1(throueh-ELTEL) has continued IO ~~~c~~latc -~
a lower purchase price, no longer honoring its previous commitment; and it also
happened that the consortium of creditors and the bankruptcy trustee backed out
as well,hringing up the problem of the inventory to beacquirëd togeiher with the
plant. So that the next auction, scheduled for 3 May, has a basic price of five
billion lire,notwithstanding ihat the price of the plant alone has fallen 103 billion
and 200million lire(the inventory isvalued at I billion and 800million lire).
Many obviously reneged on their obligations, and this was already known. But
Carollo's statement, where a written agreement was mentioned, shifted thc dcbate
to a purely political plane.
The Honorable La Torre, who spoke immediately aftenvards, said thai "after
the news given by Carollo, we must immediately bring this explanation to the
attention of the Regional Assembly. The Communist Party will propose a new
debate and the appointment of a parliamentary committee which willgo to Rome
and deal with the whole matter."
Feliciano Rossiito, regional secretary of CGIL, talked of "maneuvers by Ray-
theon and IR1 to tire the workers of ELSI. We need clarity", he continued. "The
Regional Assembly mus1clear up what happened in Ociober and what changed
afterwards."
Rossitto, then, dealt with the fundamental issuesof the problem. He stated that
the battle for ELSl is, in reality, the battle for the industrialization of Sicily,for
the economic rebirth of the island. and he admitted that even the unions ha~ ~to ~ ~ ~
clirry outa new strategy involving "the conlèderationr :itanliiional leiel".
What 1, ihc most imporilini propos~l 10corne hrih from lasi nighl's meciing?
To obt<iin.in Cact.ihat ihe u,orkers ui'41il;infighi for ihe prohlem-.uftheir Sicilian
ct>unterplirt, 1sone of ihc aspirliiions. alinor1 mythic. iif al1 Souihcrn u,iirkcr,
N'il1the CGIL \uccecd in rc;ilizingthis kind of niir;iclr.'!
Lnsi nighi', meeting. chiird~.ieri!edh! C.irollo's st;itcmeni\. ha\ noi losi. hos-
e\,cr. 11soriginal spirit. which icidemdnstraic the .<>lidlirit)of the whole ciiy
tiiihe emplo)ees of ELSI. There h;i\e hcen intcr\cniion. h) the Iloiiorshle Kosa-
no Nicolstt~,\\,ho pl;iced ihe problcm 01'the clecironics indurirs inio the widcr
context of the Palermo economy, by labor representatives Bellomo, Riccobono.
Garofalo, Viola and by Miss Franca Castiglia, who brought the support of the
women'smovements of Palermo.
The sum collected for the "Easter for the ELSI workers" amounis to approxi-
mately 3+million lire.It will be used to form a "resistance fund". From this fund
the workers will draw the amount necessary for a coming trip to Rome: the
purpose: a new protesi against IRI. ANNEXES TO THE MEMORIAL
[See also UnnumheredDocumenrSsuhmirtedwirhtheCortnler-MemorfaloIflaly,
Vol.II.ExhihitNo.111-241
(Translarion)
The Creditors' Committee met on 29March 1969,at the Raytheon ELSI facility
located at 79 via Villagrazia in Palermo. Present were:
Dr. Bruno Lipari, Director, BNL, Palermo,
Dr. Ene. SilvioLaurin, member.
Mr. Giovan Battista Riccobono, member,
Mr. Antonio Miserendino,member,
Attorney Giuseppe Bisconti, member.
Also orese~ ~ ~s~~he trustee. Attornev Giusen~e Siracusa
hé trustee informed thé~ommiitee of ihe results of the negotiations with
re~resentatives of ELTEL reeardine the leasine of the facility, and he summarized
- -
théessenti~ ~ ~ ~~- ~
Lease: 150,ûû0,000ltalian Lire. Term: 18 months, with early and immediate
termination in theevent of a court-ordered sale.Normaland start-up maintenance
to be charged to the lessee.Possibility of installing new equipment for new types
of operations, and restoration of the facility to the initial condition prevailing at
the start of the lease.
The trustee also reported that a third attempt to auction offthe property would
have to be made, and he asked for an opinion regarding the sale of the stocks at a
reduced price.
The Creditors' Committee could not reach unanimity regarding the first item.
Attornev Bisconti obiecled to the lease because ils sole effect would he to favor
one individual partyand to make it essentially impossible Io seIl the facility 10
any third party other than ELTEL; because the amount of the lease is consider-
ablv less Ïhan the de~reciation caused bv the Wear and tear on the eauiument;
and hecause, despite ail precautions by ihe trustee, the lease would of necessity
give ELTEL access to the business secrets of the Raytheon Company for the
;iolation of which the Ravtheon comoanv could even hold the trusiee liable. He
felt that under these cir~~mstancesa decision by the bankruptcy administrators
to grant a lease to ELTEL would constitute a departure from their own institu-
tional objective which isto safeguard the interest of the creditors and not to favor
any particular party. The other four members were in favor of leasing the facility
for a period of six months to one year, at the maximum. on the condition that
ELTEL acquire ai the same lime the inventoried stocks for an amount ofnt least
1.8billion Italian Lire. They were also willing to reduce the corresponding lease
price, even though the agreed amount would not appear to conform 10 sound
financial management. Regarding the second item, Attorney Bisconti advised against reducing the
pnce of the stocks, based on the inventory report, arguing that the price isalready
extremely low. He pointed out that the best way to achieve a profitable sale is the
one originally planned for the liquidation of Raytheon ELSI., that is, selling each
production line separately together with the related stocks.
The other four members were in favor of selling the stocks at a reduced price,
not lower than 1.8 billion ltalian Lire, in one single lot at the same time as the
sale of facility.
Such a sale in one singlelot was opposed hy MI. Riccohono.
Read, approved and signed: B. Lipari,
Giuseooe Bisconti
~ntonio ~iserendino,
Riccobono, Giovan Battista,
SilvioLaurin,
Giuseppe Siracusa, trustee.
This isa true copy of the original:
The Clerk
(Signature illegible)
Palermo, 5June 1970. AKNEXES TO THE MEMORIAL
Annex61
SUBMISSI~ BY TRUSTE EN BANKRUPTC GIUSEPPS EIRACUS TAO THE CIVIL AND
CRIMINAC LOURT OF PALERMO D,ATED 3 APRIL1969
THE HON. JUDCE IN THE BANKRUPTCY CASE OF RAYTHEON ELSl S.P.A.AT THE COURT
OF PALERMO
The undersigned attorney Giuseppe Siracusa, liquidator/receiver in the ahove
bankruptcy case, herehy suhmits and requests the following:
The undersiened has heen neeotiatina with the reoresentatives of ELTEL S.D.A.
rslatiict~ ihcposribilii) oFlc:tyingihc-~a)ihc,m ~LSI iasiliiy. The ncg,itiaiion,
ucrc interrupicd whcn CLTCLiricd for a I:ase of ~hcF~cill~)for a tixcd peiiod of
two vears. without anv . .vision for earlier termination in the case of a court-
drrangsd i~lcoi IIic propcri). in ricir ,~fihc Couri'i iihjcciii>nto a p<ihsibl;lease
u.hich iiotild precludccarlier icrminiti<>noiiht aiiir;ict in ihec~sc of.! iudici~r)
sale.
Several days later, the undersigned was invitedto participate in a meeting in
Rome for resuming the interrupted negotiations now that ELTEL was prepared
to accept a prior-temination clause 2 part of a lease agreement. ~he-meeting
took place on 25 March 1969on which occasion ELTEL presented the draft of a
proposed lease agreement which the undersigned, without comment or discussion,
reserved the right Io examine for referral to the cognizant agencies. The draft
reads as follows:
"1. The liquidator of ELSl S.P.A. leases to ELTEL S.P.A. the industrial
facility owned by the bankrupt Companyal Palermo-Guadagna as descrihed
in more detail in the attached tabulation.
2. The contract will be valid for a period of 18months beginning on . ..
196~.However. it is snecificallvaereed that this contract can be~te~ ~nated
2 u
at an earlier date whenever the leased facility is sold hy liquidation of the
bankrun. . assets. throua- le-al adiudication orovided that the huver sub-
mils an appropriate request in writing.
3. The rental fee is set at L.12,500,000per month, payable to the lessor at
hisdomicile by the fifth day of eachmonth.
4. On expiration of the agreement, the facility will be turned hack over in
the condition il was leased to the tenant per detailed enumeration, except
with allowance made for fair Wearand tear of the itemsconcerned.
5. The tenantJlessee assumes the cost of ordinary maintenance and any
expenditures il deems necessary for operating the plant.
6~ ~he lessee mav oerfoim. at its own exnense. such modificat~ ~ ~~nd
2 . . .
conversions as it deems desirahle for a more efficientproduction operation
within the leased facilitv. To thextent that such modifications and conver-
sions would substantialiy change the present structure of the facility proper,
the lesseemust obtain the lessor'sapproval, without change or prejudice to
the obligation stipulated in the preceding clause. 7.All and any products brought into the rented facility bythe lessee, even
ifthey are integrated intothe facility,remain the lessee's exclusiveproperty.
8. The cos1of this agreement including registration feewill be defrayed by
~ ~ ~ ~ - - ~ ~
9. Any controversy relative to the interpretation or execution of this con-
tract will be resolved indefinitive fashion bv formal arbitration throurh a
committee of arbiters of which one each is Gminated bv the ~arties to-this
agreement while the third arbiter is selected by agreem&t beiween the first
two or, failing that, by the president of the Court of Palermo. Place of
arbitration is ~alermo for which purpose the parties hereto choose the domi-
cile specifiedinthe above heading."
The undrriigncd has ;iskcdfor ihc opinion of ihr r.rc.ditors'commitirsrcgarding
a pi>.siblcIc~sc agreement on ihc F~ciliis.In thcir nicctinpof29 March 1969,the
committee votedrbv maioritv. in favor-of it under the condition that the lessee
purchase ai the ïdme tiAie ail'ihe (unfinished) g<iod<in proccss ai ihe pncc of
1. 1.800,000.000.La51nighi ai 8.30. El-TFI. seni the iollowing iclcgram:
"Reference negotiations pending at Palermo and Rome - We formally
confirm,in regards to your declarations and request of today, Ourwillingness
10 proceed immediately with drawing up of lease agreement according to
contract draft submitted to you and discussion with you during meeting
Rome, 25 March 69, draft which acknowledges request previously formu-
lated by the Judge and yourself.Wealso confirm that Societa ltaliana Teleco-
municazioni Siemens is prepared for any possible guarantees in honoring
Our contractual obligations. Regards, Ing. Rovalido, Vice-President.
ELTEL."
Palermo, 3April 1969,the liquidator. (s)Attorney Giuseppe Siracusa
THEIUDGE,
having read the above request; havingconsidered that the third attemptcd auction
sale of the facility is scheduledfor 3 May 1969;having also considered that the
liquidator has ken negotiating for the passible leaseofihe facilityand has mean-
while receivedfrom foreign companies requests for information regarding the
possible acquisition of given production lineswith the appropriate supplies; hav-
ing further taken into account that the creditors' committee, providently advised
of the possible leaseof the factory, has expressed essentially negative opinion on
the subiect; and having consequently concluded that a decision rerarding the
leaseand the clauses invilved would be of a particular delicate nature;
THEREFORE
invites the liquidator to express his opinion, indicating the reasons for the same,
relativeto ELTEL'srequest, also keepingin mind the following:
1.Time required for turning the facility over to the lesseeand, most of all, for
the restitution of the plant to the liquidator in the case of ils sale (inconsideration
of the short limein whichthe facilitymust be made available to a possible buyer);
2. Acceptability of the clause according to which ELTEL would be permitted
to make modifications and changes formore efficientproduction;
3. Possible complications with the clause relating IO premature termination of
the lease contract also in the hypothetic sale of a single production line of the
facility; ANNEXES TO THE MEMORIAL 331
4.Adequacy, or inadequacy, of the rental feeoffered;
5. ~cce~tabiiitv of the ~ro~osedduration of the lease:
h. P&r;hlc irnl;oiiion ;>l prnaltics for delxys on the lessee'spart in rnceiingils
obligation iu rccun,ign ihc bciliiy in ihe case oi prerniitbreconirÿct rerrninailon
or uion expiration ofthe lease
The liquidator is asked to draw up a contract format, if necessary, in viewof
the vaguenessand incornpleienessof the draft transcrihed in the requesi.
Palermo, 3April 1969
The liquidator,
(Signed) Giuseppe SIRACUSA. ELETTRONICA SICULA
Annex 62
BRIEF TO CIVIL AND CRIMINAT LRIBUNA LF PALERM FROM AVV.GIUSEPPE
BISCONTD I,ATED 8 APRIL1969
(See also UnnumberedDocumenfsSubmiftedwifhthe Counrer-Memorialof Italy,
Vol.II, Exhibit No. III-251
(Translation)
TRANSLATION OF BRIEF TO THE JUDGE IN PALERMO CIVIL AND CRIMINAL TRIBUNAL
OF PALERMO
To the Honorable Judge in Charge (Giudice Delegato) of the Bankruptcy of
Raytheon-ELSI S.P.A.
Your Honor,
As you know, at the meeting of 29 March 1969,the Creditors' Committee in
the bankruptcy of Raytheon-ELSI S.P.A. was called upon to express its opinion
in relation to the proposed lease of ELSl's plant and pertinent equipment to
ELTEL S.p.A., an affiliate of Siemens (IR1 Group).
The reasons underlying my unfavorable opinion are expressed in the minutes
of said meeting in a summary way, as required by the need of concise minutes.
1 believe it is my duty to clarify hereby in greater detail the reasons for my
dissent. For such purpose, it is necessary to outline in a summary way the
develoument of events of the last months relatinr! to the ELSl case.
In the coJrse of ihc summcr orIclhX.vari<>u.icgi,tiliiioni look pl.icc aiih the
p~riicipaiioii of ihc Iiquidliior. .Aiiorncv Giu,cppc Sir:icusd. Scndior Gron in
representation of the ltalian Government, representatives of private companies
interested in takine over. in one form or another. the EL.I ol,nt. and reoresenta-
tives of IRI, IMI and ESPI.
Said negotiations, in spite of the difficultiesencountered, seemedto he a prelude
to a global solution to the ~roblem of ELSI. which would take into account the
serioYs socixl prohlem rcpkscnicd b! ihc iincniplo)niciii oi appr<iximalcl~ 3
ihous~ntl persons .ind;IIihe sanie iimc, proteci ihr intcreii <>crc,liiors S.iid
negotiations, and in particular the negotiations with a French group, were
abruptly discontinued by the ltalian Government after a meeting which took
place in Rome on 13Novemher 1968,followed by a press release (issued by the
ltalian Government), photocopy of which 1am attaching hereto, indicating the
decision of the ltalian Government Io cause IRI-STET to intervene in order to
take over the ELSI nlant.
Said deci>i<in rccci\,cd as.iiriuniph bv ihc Sicili:iiipolitial cniironmcnt.
11ii,:igrcetcd bcncvolcnily h) ihc u.orhers.iiELSl 16,auch xn cxtcni ih;it ihc
R3\rhc<in-ELS1ndme \!,a>idken ORihc 61c.ideof ihc ol.ini ;ind rsnldicd \iiih
théwords IRI-STET which until today, as far as 1kno;, are still on the façade
of the plant at Guadagna (location of the ELSl plant in Palenno).
STET, which had been designated by the ltalian Government for such opera-
tion, has formed together with Siemens (a subsidiary of STET) an affiliate in ANNEXES IO THE MEMORlAL 333
Palermo under the name of ELTEL S.P.A. The purpose of ELTEL S.P.A. was
that of participating in the auction for the purchase of the ELSI plant and its
inventory.
In order to facilitate this transaction and, above all, taking into account the
limenecessaryfor the completion of the auction saleand the followingformalities,
the Creditors' Committee expressed a favorable opinion, at ils meeting of 3
December 1968,in relation to the temporary operation of the magnetrons line
also in order to enable ELTEL, or Siemens instead, to participate in the supply
of magnetrons to Nato, thus retaining for ELSl a customer of absolutely primary
importance. From the standpoint of the creditors, the temporary operation of
the line appeared beneficial in so far as it would have kept high the value of the
plant retaining a customer of such importance. The express condition for the
temoorarv oneration was the ourchase of the olant bv ELTEL. Ravtheon Com-
pany, aine; of the proprietary rights necesiary fo; the manufacture of said
magnetrons, maintained a benevolent attitude with the view of favoring a total
solution of the ELTEL problem.
All this notwithstanding, at least until the date of the last meeting of the
Creditors' Committee and, judging from the Sicilian press untiltoday, there has
been no declaralion nor any proposal coming from ELTEL or the IR1 group
addressed to the bankruptcy officiais, relating to the purchase of the plant.
The Giornale di Sicilia of 6 April 1969 reports a statement issued by the
Honorable Carollo (past President of the Regional Government of Sicily)to the
effect that las1 fall IR1 had agreed in writing to purchase the plant (without
inventory) for 4 billion lire.
IR1, notwithstanding the alleged commitments, has let two auctions go un-
attended for the obvious purpose of causing in such way the pnce to become
lower. The attitude of IR1 leads one to suspect that this maneuver shall continue
for several months until such lime as the price of the plant, hecause of the
reductions that the law permits (but does not require), will go down to such a
IOW value that the solution of the serious social problem represented by the 1,000
ELSl workers may also convert itself into an enormous bargain for IR1 and into
an enormous damage to ELSl creditors. The aforementioned decision of the
ltalian Government, which was conimunicated to the press through the attached
oress release of 13 November 1968. has in fact made it imoossihle for nrivate
groups to participate in the auctions for the purchase of the ELSI plant (and the
fact that interested private parties are mentioning that the provisions of the
bankruptcy laws are fully respected hecause anyhody has the right to participate
in the auctions, has the taste of a bitter mockery in a country like Italy, the
fatherland of law).
In consideration of the decision of the ltalian Government to take over the
ELSl plant through a group controlled by it and of the attitude taken by the
labor unions and of the occupation of the plant by the workers and in consider-
ation of al1the actions carned out hy the workers so that IR1 would take over
the olant in oreference to anv other ..ouo. it would he naive to think that anv
rcspon,iblc privdic group ma) JeciJc IO hid aian auiiion II niu5i bc ni~icd.in
ihis rtspcct, ih;it ihc inicrnaiional presr hxr giren cmph.isis io ihc pr:js rclc;isc
of the Iialian Cio!crnnicnt of 13 Nuicmbcr 1968, IO ruch an zxtcnt ili:lsonic
journals, including also the monthly Journalof the AmericanChamberof Com-
merce for Italy,had already announced the solution of the ELSI prohlem through
the completed take over of the plant by IRI.
All this notwithstandina. until todav ELTEL has not made anv offer of
purchase. Today il reques<a leasefor a period of apparently 18montlis, without
making any commitment as to its purchase at any price.334 ELETTRONICA SICULA
It is impossihle to see what benefit may accrue to the creditors from the lease.
On the contrary, it appears that the lease can only cause damage to the creditors
because ELTEL, once it has ohtained possession ofthe plant - notwithstanding
the provision that may be included in the lease agreement that in the event of
ourchase of the olant or oart thereof hv third oarties the same shall be temi-
nated - shall have pres~mably no interest in ;>urchasingthe plant or, in any
case, il shall have no urgency to purchase it and a consequence of al1this shall
be that, through successiveiuctions, the price shall be reduced to such point as
to depreciate completely the ELSl plant. On the other hand, a private group
which might still think of purchasing the plant or part thereof, knowing of the
aforementioned decision of the Italian Government and knowing that IR1 is also
in the possession of the plant, can only be absolutely discouraged even from
taking into consideration such a possibility.
1 must add also that the lease of the plant shall make it impossihle (for the
lisuidator) to seIl the inventorv al anv reasonable orice. In accordance with a
c&nmunication made by the liiuidator; Attorney Gi;seppe Siracusa, at the latest
meeting of the Creditors' Committee, ELTEL is said to have offered to huy part
of the inventory at a price of approximately Lire 600 million.
In relation thereto, one cannot avoid observing the following:
(al the orice offered bv ELTEL is extremelv low. esneciallv if related to the
vaiuéof t6e inventory déterminedby the app;aiser apiointed hy the Tribunal,
which was itselfconsidered extremely low byexperts in the marketing of electron-
ics products;
(b) the inventory can be sold al a reasonable price only to whomever uses the
plant; therefore, if the inventory is separated from the plant and if an attempt is
made to seIl the inventory separately, the only result shall bethat the inventory
will be sold as scrap or that il may he absolutely impossible to seIla suhstantial
r~~~~~ ~ ~ ~ ~ ~ - ~ ,
(c) in the aforementioned situation, ELTEL shall be in a position to impose
the conditions under which it may huy the inventory for its own use.
This aspect of the problem was finally seen also by the other members of the
Creditors' Committee. who did want to attach a condition to their favorable
opinion on ihr prop<>\edIsass. n~mclythai ELTEL musi purch~>c.IIIthe invcn-
[or) c\cn ii ai.I iurihcr rcduccd pricc i>i1.11~I,XUU.UUU.UOu
In the liahi of ihc ;ibo\c eicnts. iihich :ire knoanIOc\er>bod> inadditidn io
having becn fully reported by the press, it is obvious thai the.proposed lease
would have the only effect of favoring a third Party, that is to say ELTEL, in
acquiring the plant at an extremely lowprice or even in enahling ELTEL to avoid
the ~olitical and social ~roblem in which il was enmeshed bv the Government's
deci;ion of 13 ~\oveitiher IYOX\.iiiho~i purchasinp the plant: InJccJ. .ind pled\e
)Our Honor, pardiin me ïor hcing ii,o ~uïpiciou~.in con~i,lcraiion of ihe decision
announccd bv the IKI-Sl'tT croup IO build a nlünt for telenhone eauinmeiit in
Palermo, onécannot seewhy ÏRI Eould not in a year-and-a-half or t&o'approxi-
mately, namely, when the telephone equipment plant presumably shall be in
existence, merelytransfer the workers from the ELSI plant to the new plant. For
the aforementioned reasons, in fact, if ELTEL will not make an offer to acquire
the ELSI plant, nobody else shall participate in the auctions; hence, the lease
will most likely be extended and certainly this is what the politicians and the
unions would request.
1have explained al1these reasons in the course of the meeting of the Creditors'
Committee of 29 March 1969.Whereas 1obtained the consensus of al1the other
members, in so far as the analysis of the situation and of the events that havedetermined such situation are conccrned. an. whereas there has been at al1the
meetings of the ~rediirs' cornmittee a unanimous consensus in criticizing and
condemning the action of the ltalian Government and the attempts of the IR1
-.ouo to imuose a solution which lowers the value of the ~~Sl~~ldntbevond
mcasurc. ihc'fornial decision has bccn that uhich rcsult>irom ihc minuics iiihc
mcciing of 29 Mnrch 1969.1do n<~ipre>umchcrch) tu subir:ici m)$clf froni the
ma.,>ri.srulc. iincc I rcmaincd ;iclc;ir niinoriiy in the Crediiors' Commiiiec. The
reason which forces me to clarifv .v n,.ition is that 1 resoectfullv believe that
the Crcdiiors' Conini~itcc.as ;in oltici.il orgaii of ihc bankrupicy proccciling\,
exprcrjing ;iiai,orablc opinion on \tic lessc is ;1bdic2ting11suun i..n~tion. uhich
is thal of proiccting ihc inicrcri <1f3ihe crcdiiorh (and no! only oflhc creditors
who are direcil) rrpre<ented in the Comm~ticcjand no1th:ii of fa\oring a privJtc
pariy c\en if for \;<lidsoci;il rr';isons II 1sin ihis respect ihai 1hate \poken oJ
deviation from the institutional purposes of bankruptcy proceedings.
The Sicilian and the national oress have amolv.d,cumented the occurrence of
meetings, of negotiations, of verbal and written agreements, etc., relating to the
future of the ELSl assets to such an extent as to iustify the doubi as to whether
the interested parties think that thefficialorgansof the bankruptcy procecdings
are those established by law or instead thereof the meetings of national and
regional political aiiihorities. union leaders, representatives of IR1or ils affiliates,
etc., and as to whether instead of a public auciion with al1the substantive and
formal guarantees of law, there shall take place a disposal on a "fire-sale" basis
achieved ihrough private negotiations.
Your Honor. 1 would be naive and not honest if 1 did no1 recoenize the
difficultiesof the situation and above al1if 1did not recognize the diffiiulties of
the task which the Liquidator,Attorney Giuseppe Siracusa has so ably performed,
and 1wish here to eipress my absolute esteem of said gentleman. However, in
the presence of a series of acis of political interference and of acts of government
which have caused this situation, 1believe that the officialorgans of the bank-
ruptcy proceedings must take a diiïerent altitude. It was an act of government
that caused the insolvency of ELSI, naniely, the illegalrequisition ordered by the
Mayor of Palermo in his capacity as an oficial of the ltalian Government, which
was not revoked in spite of the requests received. by the Prefect of Palemio. who
had the duty and ihe power to do so; it was an act of government which,
notwithstanding any false appearance of respect for legal procedures. practically
has made and makes it impossible for a private group to participate in the
purchase of the ELSl plant. namely, the amply publicized decision of the ltalian
Government 10cause IR1 to intervene in order io take over the ELSl plant. It
was also an act of government, which is about to be formally completed, which
has attempied 10separate the interest of the workers in so Caras creditors, from
the interest of the remaining creditors in maintaining a high value for the ELSl
plant, namely, the decision of the Regional Government of Sicily (allegedly
suggesied by members of the Rome Government) to guarantee to the workers
the payment of their severance pay. thus separating this group from the other
creditors. Today, in substance, Your Honor, the threatening forecast contained
in the letier which the former President of the Sicilian Region, the Honorable
Carollo, delivered to the representatives of ELSl on 20 April 1968,is proving to
be true:
'hobodyin Iraly ii~illpurcltase.nome- IR1 sl~allno1purcl~asee ,irherjor a low or
for a higliprice,rileRegionshall tiopiirchase,privaieettrerprisessslrallulpurchase.
Lei me add rhar the Regionand IR1 and an)'budyelsewhohosun),pussihilir~r~o
influence111e market u,illrefusein rht*mosrabsolirremannerrojavor any sale."336 ELETTRONICA SICULA
In consideration of this situation, notwithstanding the difficulties which one
may also personally encounter, 1believeit is the dutyof the Creditors' Committee
to take a diiierent stand towards the Government and IR1 which permits an
adequate protection of the creditors' interest.
In the course of the aforementioned meeting of 29 March 1969,l insisted again
that as an alternative to the sale of the plant together with the inventory, the sale
of separate lines should also he considered. My insistence was due to the fact
that when Ravtheon-ELSI intended to oroceed with an orderlv liquidation of its
activities (wh;ch was made impossible by the requisition) it did consider as the
best way to realize a high value for its assets the sale of separate lines, each line
comprehensive ofinventory, raw material, work in process and finished products.
The reason for this - and I believe that few oeonle in the world have an
expericncccqual IO or highcr ih.in ihat oiihc ~a)ihcon icchnici-in~in this iicld -
is ih.it h) scllingscparïtr. Iincs.onij re;i~hinga market of potcnii;il bii)cr, rnuch
ereater ihan that danv buver who mav beinterested in aciuiring an entire olant
rn a predetermined location that cannot be changed; moreoier, the saie of
separate lines permits the sale of inventory to the user of the line and therefore
to~theoartv which needs it and, as a conscquence, at a high pnce. I realize that
an off& of seoarate lines would be ooliticdlv an extremeïv unoooula. .ct and
ihai il niighi bring ;ib<>uJidvcrse ~ct;on b! ihc uni<>n,such 3s. for c~dnlpie. ihc
ocLupiitidni~ithe plant. On ihc oihcr hcind,thii wenir to he ihc ml!. alicrnaiiie
is \rliai uill oihcriii>c hcicompleie dcpreci;iiion oi ihc ELSl's is\cis \rliich u.111
cause, 2s 3 nc;c,i;ir! r.,>n\cqucn,'c.3n Assessnienioiihc h~nkrupi.') in ils cniirct).
<iiihc cduscs dnd responsihiliiic\ ior thc s3nic. uhich ilocs niii correspund 1s ihc
rt~liiy. hes3usc the b~nkriip1r.v.inJ the amouni of Iidbililies no1ci>\crcd hu ihc
sale of the assets would be ihe result no1 of normal and natural evenis in
bankruptcy proceedings, but rather of political impositions and abuses (pardon
me for the expression) which occurred over and over without interruption from
the spring of last year until today.
Your Honor, 1 trust that you willunderstand the reasons underlying my dissent
and why 1am expressing it outside and heyond my formal participation in the
Creditors' Committee. 1 believe that 1 am compelled to make this clarification
and a more complete statement of my position hy the duties imposed on me hy
the robes which 1 morally Wear.
(Signed) Attorney Giuseppe BISCONTI,
Rcprcscni;iiii,ct~iRayiheon
Europe 1nierniiiion;ilCornp.in)
in the Creditors' Committee
8 April 1969. ANNEXES TO THE MEMORIAL
Annex63
SUBMISS~ ONCIVIIAND CRIMINAT I.RIBUNA LFPALERM OYAVV.GIUSEPPE
BISCONTD I,ATED10APR~L 1969
[TRANSLATION OF THEOPPOSITION AIJAINST THE IUDGE'SAUTHORIZATION OF THE
LEASE TOELTEL]
CIVIL AND CRIMINAL TRIBUNAL OF PALERYO
Submitted to the Honourable Tribunal against the Order by the Honourable
Judge in Charge of the Bankruptcy of Raytheon-ELSI (Giudice Delegato) of
8 Apnl 1969.
RAYTHEON EUROPE INTERNATIONAL COMPANY,
represented byAvv. Giuseppe Bisconti, acting as ils special proxy pursuant to a
specialpower of attorney executed on 28 August 1968,acknowledged by Notary
George B.Klim on 4 September 1968,and legalizedby the ltalian Consul General
in Boston,F. Tonci Ottieri, on II September 1968,represented in court by said
Avv.Giuse~oeBiscontiof the Rome I3arand hv virtue of the deleeation contained
on the externa1side of this folio also hy Avv. ~rancesco calami: of the Palermo
Bar at whose offices in Palermo, Via Napoli 84, the aforementioned Company
electsdomicilefor the ourDosesof the uroceedinrs instituted herebv.
Whereas, &aytheof Europe lntérnational- Company (heréi'naftercalled
"REIC") is a creditor in the hankruptcy of Raytheon-ELSI S.P.A. (hereinafter
called "ELSI") and was admitted as creditor of the same hy the Hon. Tribunal;
and
Whereas, REIC is represented in the Creditors' Committee of ELSI; and
Whereas, the Creditors' Committee of ELSl at its meeting of 29 March 1969,
was called upon to express its opinion on a proposed lease of the ELSI plant to
ELTEL S.p.A.; and
Whereas, at said meeting the Creditors' Committee expressed by a majority
vote an opinion which wasformally favorable to the lease on the condition that
ELTEL should buy al1the inventory of ELSI at the pnce of Lire 1,800,000,000;
and
Whereas, at said meeting the representativeof REIC expressedan unfavorable
opinion for the reasons that are restated in a summary way in the minutes of said
meeting and that are more amnlv illustrated in the hrief addressed hv REIC to
the~Gourable Giudice ~eleg'ato on 8 April 1969,filed with the court on 10
April 1969, a photostatic copy of which is attached hereto and constitutes an
inteeral nart hereof: and
Fheréas, on 3 ~bril 1969,the Curator in the hankruptcy of ELSI, Avv. Giu-
seDm Siracusa, re~orted to the Honourable Giudice Delegato on a petition by
ELTELto obtain a leaseon the olant: and
Whereas, hy order dated il 1969,the Honourable Giudice Delegato,deem-
ing that the Creditors' Committee had "substantially expressed an unfavorable
opinion" on the proposed lease, requested from the Curator a reasoned opinion
on the petition submitted hy ELTEL and directed him to prepare a new draft338 ELETTRONICA SICULA
lease agreement since the one that had been attached to said petition was vague
and incomplete; and
Whereus, on 8 April 1969,the Curator submitted Io the Honourable Giudice
Delegato a favorable opinon on the leaseas follows:
"In the opinion of this writer, the lease of the plant located on Via Villa
Grazia No. 79, subject to certain lems and conditions, is to be considered as
a oositivefact,also in the interest of the creditors.
Ohviously ihc positi\c a;pect islosc c l!latcdIO the iormulation ois lcnsc
aprccmr.ntdraitcd in such :Ie:~) ih;it the intcgrity and the \aluc oithc plant,
eauioment and machinery may be safeeuarded also for the future
'~he proposed lease shall not in aiy way represent an obstacle to the
judicial sale of the plant, as a safeguard of the institutional purposes of the
bankruptcy proceedings.
The rental of Lire 150,000,000 peryear, considered abstracily, is neither
adequate nor remunerating, however if it is related io the obligations which
the lesseeshall undertake to safeguard the integnty and to maintain also for
the future the value of the plant, it shall on the other hand result 10 be
definitelyconvenient.
In viewof such considerations, the undersigned, notwithsianding the sub-
stantially contrary prior opinion expressed by the Creditors' Committee al
its meeting of 29 March 1969,is favorable to granting a lease on the plant to
ELTEL at the following termsand conditions.
OMISSIS''
and
Whereus, by order dated 8 April 1969,the Honourable Giudice Delegato au-
thorized the lease asfollows:
"THE GIUOICE DELEGATO
Deeming that the lease of the plant, for the reasons explained by the
Curator, isadvantageous for the creditors collectively
FORALL THESE REAWPIS
Authorizes the Curator 10 erant to the comoanv ELTEL a lease on the
plant as pcr the pciition at al1iIhecondiiionscon~ai~d in the draft agreemcni
prepÿrciland iranscrihcd hercinabo\c "
Now therefore,Raytheon Europe International Company in ils name and for
its own account as a creditor of ELSl and also in the interest of al1the creditors
of ELSI hereby submits an
OPWSITION
against the order by the Honourable Giudice Delegato of the bankruplcy of
Raytheon-ELSI S.P.A.of 8April 1969,for the followingreasons:
1.The proposed leuseis not in the interesof the creditors.The order which is
hereby challengedadopts as its own the grounds set forth by the Curator in his
ooinion. Such erounds reallv .ee -he auestion in that thev iake for eranted the
p;oposition th& ought to prors. 2nd in no uay indiclitcwliat ma). bcÏhc bcncfil,
ifany. aiiruingIO ihccrediiorsfrom the lca5c.Indrcd. ihcopinion ofihe Curatur,
adopted asitsown by the order challenged hereby,and the~draftlease agreement
attached thereto, care to indicate some cautions and safeguards to be inserted in ANNEXES TO THE MEMORIAL 339
5:iiJagrcenicni in <~rdcrto c~limiii:ior io rcilu~cthe prcjudicc :ind ihc ri\k iihich
\iuulil ilcritc tlicrcfrnnIO the h;inkruptcy esidte. and ihruugh II t<tlic crediton.
from the proposed lease; this itselfisevidencethat the propoied leaseisdamaging
to the creditors if the party who proposes il is unable to indicate any (even
potential) advantage and indicates only the means to cope with sure disadvan-
taees. Therefore. the rounds for the order are to be deemed as beine -bsolutelv
inFuficien/, if not altogether inexistent in substance.
2. The order challenged herehy was issued notwirhstandingthe substuntially
unfavorableopiniorrof rheCredirors'Cornmirtee. The Honourable Giudice Deleg-
ato, in his pnor order of 3 April 1969,had himself considered said opinion as
being unfavorable and had requested the Curator to suhmit a reasoned opinion
on the petition for a lease: this therefore is evidence that the Honourable Giudice
Delegato did not think on 3 April 1969 that there had heen demonstraied an
interest for the creditors deriving from the proposed lease. Since the opinion of
the Curator dated 8 Aoril 1969.adooted bv the order challeneed herebv. does not
itidir,itc ivhdt \uch intcrezis ni;hc.rlrcqruutiil>,./'r/ii>rih,ih~llr.trt.<~<ll~,~<n~hi.
reldtion tu the pritir orderdi 3April IYh'J.:arc III~IIIIJ;,S~/i.,nrrr<iri
3.31nl.tI/>C('r0610r.3 ('O~II,J~~IILI,>, .inrt.i>c~i~,uh.~~<rt~r ozlii<,ruhh .,nin-
ion, as the Honourahle Giudice ~elegato was the first to recognize, to which
creditors is the leasebeneficial? Nor can one say that the henefit is represented by
the startine uo and the maintenance of the lan n tecause iwe do not want hcrebv
to enter in70 an examination of the merits if the proposèd lease) rherente1is &J
lowasta representonly arnodestshcrreof thedepreciarion of the plant constituted
hy the wear and tear of the same necessarilyderivingfrom their use.
4. In reality, the lease represents an enormous, very grave and irreparable
prejudice to the creditors, hecause itmakesinfact impossible asaleroihirdpurties
other than ELTEL (or other than companies in the IR1 group or affiliatedthere-
with) of the plant or of individual separate lines; hecause ir contriburesto lower
the valueof ELSIS ussets through the mechanism of successive auction sales
unattended hecause of the will of ELTEL, of IR1 and of the political authorities
that are behind them; because it niakesinfact impossible a saleof theinventor)' at
a reasonable priceand puis ELTEL in the position to imposethe priceof inventory
which ELTEL may be interested in acquiring for its own use; and al1this for the
reasons which the plaintiff has explained in the attached aforementioned brief to
the Honourable Giudice Delegato of 8 April 1969,which constitutes an integral
part hereof.
5. For the reasons expressed in the attached and aforementioned brief of 8
Avril 1969.wbich constitutes an inteeral nart hereof. theleasehas iheonlveffect
(and for the private party which requ~stsii, also the Purpose) o/favoring a>&te
part" in relation to the vurchase of the ELSl assets. In the absence of an interest
?or ihe creditors, as abovesaid, the orderis thereforeinvalidbecauseof deviarion
from the institutional purposes of the bankruptcy proceedings, which are the
~rotection of al1creditors throueh the maximum realization from the assets of
ihe bankrupt. An order issued f& the purpose of meeting even valid social needs
would constitute a deviation for the same reasons.
6. Notwithstanding any cautions that may he inserted in the proposed lease
agreement, the lease would certainly give access to ELTEL to production secrets
which are owned by third parties. Since such circumstance cannot he unknown to
the Curator, said cautions would not be sufficient to exclude a co-responsihility
of the Curator for the consequences of any breach of said secrets. A court'sorder
ca~rrtorratqy an actionwhichby irs<,(foriginutes or is Ihe occasionfor a brearhof
rightsof lhirdparries.340 ELETTRONICA SICULA
FORALL THTSEREASONS
Raytheon Europe InternationalCompany requests theHonourahle Tribunal to
revoke immediatclytheorderagainsi which thisopposition isfiledto preventand
to impedetheenormous,vcrygraveand irreparahlcdamagewhichit wouldcause
to the creditors.
10 April 1969. Respectfullysubmitted,
Avv. GiuseppeBISCONTI.
Avv. Francesco CALAMIA.342 ELETTRONICA SICULA
Amongst such clauses one must emphasize the one under which
"the lesseeagrees to maintain the plant in a perfect state of efficiencyand to
to the ordinary and extraordinary maintenanceof al1the machinery, plant
and fixtures as well as the obligation to make any substitutionsas may be
necessary, evenqcaused hy thenormalWearandtear"(Art. 2).
The cur~ior'i oilicc tliereforc h:#rput iiiclf in lhe condition to orier for s:ile;inil
dcliter (in cunciderdtion or the clauses eri3hlishing ihc riglit io 1erniin:ite the
arrr.c~mcnlin Ihc r.\cnt oisdlc .Art 7) inst:dJ ofsn ifld~<iri~Ipl3111wI11chh3i
bien inactive for approximately one year, a plant in perfect efficiencyand addi-
tionally other reinstated commercial goodwill.
Therefore the lease is advantageous and useful to the creditors and, far from
making "impossible the sale" of the plant, makes the same easier and enables and
encourages any interested party to take part in the next auction sale.
The rental, taking into consideration above al1the obligations undertaken by
the lesseeby means of the aforequoted clause (Art. 2) must he deemed adequate
and represents, moreover, pending the procedure of disposition of the assets, a
further advantage to the creditors at large.
Finally, the argument could not be sustained that the lease "notwithstanding
the orotective clauses contained in the agreement. would certainlv gi.e ELTEL
acciss to production secrets belonging to Ïhird parties".
Indeed, as thecurator has determined
"the machinery, the test equipment and utensils can he used drJjerent1yfor
the manufacture of finished products covered hy industrial secrets or for
manufacture of finished orodkts no1covered bv such secrets. Certain soeci-
liedcquipn1:nl ni;,iiuf;iciurerpJrlSdesigiied.111cdo!err.d by iiiduriri;il se<rzir.
nhich. honever arc not in ihe ndturc iiiIir.cnsed fini>hcrlm<~Jcli"
Now the curator has sealed al1 originals of the manufacturing specifications
and of the drawinas-and lists which are part of the licensed models and, as may
ixread in the dr.ili Iwsc iigreemcni. ha., rxprc\.ly ii,rhidJen t.iihc Ic>\ccIo u\c
.in) paienis and manuc~ciuringproze>rc, oii.ncJ hy ihirJ parties
Thi, hsing the situdiion .inJ in canridc,rati<inof the Na th.11thc mcre u\c ,>i
the eauioment and machinerv does not enable lesseeto acquire knowledge of anv
pateGei manufacturing processes, anybody must see hob the aforemëntioned
complaint is unfounded.
With regard to the aforementioned s.pecifiedequipment, it mus1be noted that
thev cannG be used in anv wav hv the le& which-doesnot know the manufactur-
inbethods of the desigied parti referred to hereinabove.
Therefore, in the light of the above consideration the complaint must be re-
jected
FORALLTHEABOVEREASONS
The tribunal rejects the aforementioned complaint.
Palermo, 9 May 1969. Dr. Livio FIORIAN~,
The Presiding Judge. ANNEXES TO THE MEMORIAL
Annex 65
[See also UnnuntberedDocuments Suhmirred wirh tC heounter-Memorial of Ilaly,
Vol. II. EichibNo. III-291
BANKRUPTCY RECEIVERSHIPFOR soc1mÀ RAYTHEON EL-SI, S.P.A.90125
PALERMO - VIA VILLACRAZI7 A9,
Palermo, 26 April 1969.
(Registered Mail)
Mr. G. B. Riccobono Raytheon Company
Palermo (Full address on originalj Attention:
Attorney G. Bisconti,
Rome.
Mr. Antonino Miserendino Banca Nazionale del
Palermo Lavoro,
Palermo Office.
MI. Silvio Laurin
Palermo
The Crcditors' Cummittce uill mrd on 1:riday. ? hlay 1969. cil1200 n<i<>n a.i
ihc ;iho\c adrlrear. Via \'iIlagr;i~a 79,Io dclihcraic and vote un the follo\iing
issue:
The purchase by EL.TEL. of al1the material currently in the production line
at the price of Lire 105,000,000.Said matenal was inventoried and appraised at
Lire 217,000,000. Classifiedmilitary material, currently in the appropriate pro-
duction line valued at about Lire 24,000,000,is no1 included in the sale.
Sincerely,
The Liquidator,
(Signed) Attorney Giuseppe S~RACUSA.
CREDITORS' COMMlTTEE MEETING
On 2 May 1969, in the offices of the former Raytheon ELSI S.P.A. in Via
Villagrazia 77, Palermo, a meeting was held by the Creditors' Committee com-
prised of MI. Riccobono G. Battista, Dr. Bruno Lipari, Eng. Silvio Laurin,
Attorney Egidio Rirloldisitting in for Atlorney Giuseppe Bisconti as per attached
power of attorney, and MI. Antonino Miserendino.
The liquidator, Attorney Giuseppe Siracusa, informs the cornmittee that in the
production lines of the plant, material in various stages of completion was left
and has been there since the shut-down of the operation in March of 1968.This
material has been inventoried and appraised at the total value of Lire 217,300,000. In the lc~sc.igrssmcnt ihe Iiquidsi,ir ohlig.iicJ him\eli io remo\c said ni3ierial
friim ihc pr<~ducti.inlinch2nd IO htw II ~ti>rc,lin ihc ir.,~rcliou,c Ho\ie\cr. Ihe
removal involves certain losscs and exnenses. The li~uidator indicates that the
xhii\c rn.iicri;il \alucJ ;IIIirc ?17.300,~0~docs ndt inslud: materilil giuncd hy
militliry ~uih<~riticl.which rvïs in\cnloric~I 3nd ;ipprJiscd scpar.,tcl) :II Lire
?4,UiJ0,11tJIlFor the niaicrial inicnioried h) Fng. D. Hcnc~lctio ;it lire
?17.3t10,1JI11:in,J uhich. :iccor,ling IO Ille ic~liiiici;inIS 1101suicrcd h! ~nilit.iry
jc:rci, El TI-1.has stTcredan 3s-ispur<harc prix <iiLirc IOj.ii1Oi1.01T ihe Iiquida-
iur in\itc> the conimiitce r<>cxprci, th.-iropinlon rcp.irding the piirch:isc orler b!
Fl'l'kl. Attoriic! Kin~ildidcil:irc~th~i hei;~rcihccommiticc r<>ic,<>inhr.ponihlc
ralc. IIIS nccc~sir!. 10 niakc sure thiil lhc ni.,ieri,,l in qucsiioii19 iiot iuhlc~i 1,)
military secrecy requirements, that is, not classified. Attorney Rinoldi expresses
his opposition to the sale in view of the aforesaid, and of the following: At least
in the case of some items, the material is in various stages of completion and
continuation of the production processconstitutes, or might constitute, a violation
of industrial know-how or patent rights exclusivelyproprietary to third parties.
ELTEL, which is not a CO-ownerof the hankrupt company, has no right to use
the licenses and know-how of ELSI. Also, the offer hy ELTEL was made while
there is a claim pending against the provisions of the Court which authorized the
lease of the plant, and the lease itselfmight, therefore, be revoked. Consequently,
ELTEL's application represents an improper interference with current Court pro-
ceedings. The price offered hy ELTEL is ridiculously low, heing considerably
helow the already underpriced value set for the inventory. Based on information
reauested from Semiconductors S.D.A..California, ATECO. and Electrovalvula
S.P.A. with respect Io the possibleacquisition of the Discharge-Lamp and Kine-
scope lines, and relative inventory, said lines would hring a price corresponding
to the appraisal made and, therefore, we do not see why we should authorize
ELTEL to purchase the materials requested hy them at a price even lowerthan 50
percent of the appraised value.
The offer by ELTEL proves, also with respect to the price, what has been stated
by Raytheon Europe International Co. in their memorandum to the Court dated
8 April 1969, and in the complaint submitted to the Court on 10 April 1969,
namely, that hy virtue of the lease by ELTEL, that company can dictate theterms
of the purchase of the inventory of interest to them, making it practically impos-
sible to seIl the inventory at a reasonable price. An auction is scheduled for 3
May 1969,for the sale of the entire ELSI operation in one hlock. The sale has
heen authorized with a formal provision stipulating the terms and conditions.
It isinconceivahlethat,contrary to normal practice and to the above-mentioned
provision authorizing the sale, the application hy ELTEL should be taken into
consideration, even ifjust by the Creditors' Committee, hefore the auction is held
and before a final authorization is issued for the separate sale of the inventory.
ELTEL's offerdemonstrates that this company seemsto he operating on the basis
of a wellthought-out plan which is, in csscnce,geared to a maximum devaluation
of ELSl's business from which ELTEL alone would benefit. It is, therefore, diffi-
cult to understand why, reversing the order and the procedure regarding the sale
of the ooeration. one should consider the ELTEL reauest orior to the oublic
luciion. iihcn ,uch .in ofir b! CLTEL(dn hc <iilidv.iniagc 1.)noonc hul EIT1:I..
sihich is ;i pri\;itepdrt). :\II thi,. xnd ihc cllici oi'Ic.i\~ngihc pl.ini IO El T1:L.
m.ikc5 it in Etcl ~nlnosslhlc 11)sell ihc j:~iilitvIO anwne <~thcrih;in EI.TI:I. iur
companies of the ÎRI group), and contribuies to Chedevaluation of the ELSI
operation, thus favoring a private party a1 the expense of the creditors, with
deviation from the institutional purposes (next sentence illegible). ANNEXES T0 THE MEMORIAL 345
In voting againsi ELTEL's proposal, Attorney Rinoldi confirms what was the
subject of the memorandum of 8 April 1969,and the tenor of the complaint of 10
April 1969,submitted hy Rayiheon Europe International Co., in connection with
the proposal and the provision auihorizing the leasing ofthe plant to ELTEL.
The ELTEL proposal, on which the Creditors' Committee was asked 10vote, is
only an act which is part of a series of acts by the Government which, ever since
spring of last year, have in fact been essentially aimed at a confiscation against a
private entrepreneur.
Attorney Rinoldi deposiis the original power of attorney given to Attorney
Bisconti by Raytheon Europe Int. Co. The other four members of the Creditors'
Committee. considerine the difficultvof selline the inventorv withoui also disoos-
ln@of the cquipmeni and ihc faci ihLi ihi\ reduccIOa min;mum ihe value oithe
inscntor, si,lrl~rparaicl) from ihe Iàciliiy iisclf.and ~ilsoconsidcrinIisieihlii
the inventory ha; been &ing in the lines for a long ([me, and con-
sidering that, according to Dr. Santoro, no offer was received from anyone else
hy the Clerk's officeof the Court of Palermo, as of 1.45p.m., Torpariicipation in
the auction scheduled for3 May - the deadline being today al 1.00p.m. -vote
in favor of the sale of the material in the production line for the price of Lire
105,000,000.
(Signed) LIPARI.Egidio RINOLDI,Eng. LAURIN,Riccohono G. BATTISTA,
Antonino MISERENI>INO.
The Liquidator
(Signed) Attorney Giuseppe SIRACUSA ELETTRONICA SICULA
Annex66
LEGAL NOTICE
TRIBUNALE DLPALERMO - SEZIONE FALLIMENTARE
(TRIBUNA LF PALERMO BANKRUPTCY DIVISION)
It ismade known that on 3 May 1969al 10a.m. in Palermo thejudge in charge
of the Ra~theon ELSI S.D.A.hankru~tcv willnroceed with the sale bv auction of
the ~a)il;con ELSI S.^. -\c~troni~~~ni~lc~st:inJing on 48.103 ,iu;ire rncicr\
of land. wilh :ICCCIStruni 70 \'liV1II:igra/1i.lilcrrno. liai). .IS~~III~OSC~of
buil~lin~~1.3~iliiir.s.milchiner\.. m~~~cll~nes. .Ditiênatnd furnishindr ior the
m~~iii~xi~reoic.iihoJe xi! iubc,. rniL.rinr:i\ciuhch.X-r~ytuhcs. wrgc arre,tcrs,
,c.micunJuci<~r~inil cornplcr a,rnp<iiiciits,.is iicll .is wiih ihe conienipur:inwiis
and unseparable sale of the entire inventory as descrihed in the inveniory state-
ments and existing in the warehouses at the plant, in Milano and in Rome, in the
"Magazzini Generali" and customs warehouses in Palermo. Excluded from the
sale are only some movable goods indicated in the court provision of 3/31/1969.
Upset price for the plant and inventory is Lire 5,000,000,000, of which
3,200,000,000 (3.2 billion)are for the plant and equipment and Lire 1,800,000,000
for the inventory.
Prospective hidders must post, with the "Cancelleria Del Tribunale" (court
office),a Lire 450,000,000bond and Lire 650,000,000for foreseeable expenses in
the forms prescrihed forjudicial deposits within I pm. of 2 May 1969.
Biddings above the upset pricemust be not lessthan Lire 6,000,000.
Expenses and taxes are at the awardee's charge; payment of price to be made
within 30days from the adjudication date.
For additional information apply to the Bankruptcy Curator, Mr. Giuseppe
Siracusa, Attorney at Law, 84 Piazzale Ungheria, Palermo, Italy, Telephone
217480,or to the "Cancelleria DelTnhunale," SezioneFallimentare (Court Office,
Bankruptcy Division), Palermo, Italy.
The Master
(Dr. Alberto ANANIA). ANNEXES TO THE MEMORIAL
Annex 67
MINUTE SF3 MAY1969AUCTION OF ELSI'SASSETS
(Translation)
SudicialFiles
41/68
Cran. 2119.
RECORD OF FAlLEO AUCTION SALE OF THE PROPERTY AND SUPPLY STOCK OF THE
BANKRUPT RAYTHEON ELSl S.P.A.
On 3 May 1969, trustee in bankruptcy Attorney Giuseppe Siracusa appearcd
before Judgc V. Badalamenti in the presence of the undersigned court clerk in
Palermo.
It is noted that al1formalities for the sale scheduled for today on the basis of
the ordinance of 31March 1969,have been ohserved with the objectiveof bringing
todav's auction to the oublic's attention.
It is also noted thatno offer of participation in the auction kas been presented
al the Chancellery.
In viewof the above, the Judge declares the auction failed.
Court clerk'ssignafiire. Judge's signature. Annex68
SUBMISSIO TN THB CIVILCOURT OF PALERM BY ELTEL, S.P.A.,DATZD
16APRIL1969
CIVIL COURT OF PALERM OANKRUPTCY DEPARTMENT
BANKRUPTCYOF RAYTHEO NLSI.41/68
JUDGE DR.V. BADALAMENTI
As noted by Your Honor, the ELTEL Company has today proceeded 10draw
up a lease for the factory at Guadagna owned by the bankrupt Raytheon ELSI
-.r.--.
We hereby wish 10 declare once again that ELTEL Company is prepared to
acauire the said facilitv. takine the necessarv steos which will assure stable ad-
ministration of the fac/lityas an indispensaMep;erequisite for the future of this
industrial operation which is to provide jobs for the workers of the bankrupt
company.
In its ordinance of 31March 1969the Court has scbeduled a oublic auction for
~~ ~~ ~ ~ ~ ~ ~ ~
3 May 1969for~lhc sale of the f&ility with equipment at a base price of L.3.2
billion and for the simultaneous sale of the supplies (merchandisc, raw materials
and semifinishedgoods) al a base priceof L.1.8 billion.
ELTEL, whilc not intending to hid for the purchase of the said supplies since
these are not indispensable for administration, is prepared, as of now, to acquire
the facility and its equipment and tools. For this purpose, ELTEL is willing 10
oKer the amount of L.3.205.OûO.000(three billion two hundred and five million
lire) and to make an a&ro~rial'e bid'at the public auction on 3 May 1969.We
shall he awaiting the Court's instructions relative to the requirements that mus1
bemet to that end.
This declaration shall be binding for the undersigned company until 31 May
1969(handwrittenchange: 15June 1969- initialled).
ELTEL.
Industria Elettronica TelecomunicazioniS.P.A.
(Sinnalurc)
Palermo, 16April 1969 President ANNEXES TO THE MEMORIAL
Annex 69
SUBMISSION TO THECIVIL AND (:RIMINALTRIBUNAL OP PALERMO RY TRUSTEE
GIUSEPPE SIRACUSAD , ATliD3 MAY 1969.SUBSEQUEN OTRDER RY THE TRIRUNAL,
DATED 5MAY 1969
(Trunslaiion)
THEHON.JUDGEIN THE RANKRUPTCY CASE OFRAYTHEOS ELSI,S.P.A., THllCOURT
OF PALERMO
The undersigned Attorney Giuseppe Siracusa,receiver/liquidator in the above
hankruptcy case,submits and requeststhe following:
At the time of cessation of the factory's activities certain materials were left in
the ~roduction line in various slaecsofcomoletion. and remained ihere for about
a y&r. This materilil wasinventoXed at a toial valde of L.217,300,000.According
to the lease agreement the undersigned is obligated to remove the material in
question which removal costs a considerahle &ount of money and Lime and
results in a substantial reduciion in value of the material propcr, ELTEL Com-
pany has gone on record ;is being prepared 10purchase the material in question
for the total amount of L.l05,000.000. In view of the fact that the material is one-
year old and diîiicult io scll while ils removal from the assembly line would only
reduce its value,he undersigned is in favor of selling it for L.105,000,000. The
creditors' committee, in ils sessionof 2 May 1969has agreed to this by majority
vote, for the sameconsiderdtions.
Raytheon Europe Company voted against it, giving long and detailed expla-
nations.
On the basis and in consideration of the above, the undersigned requests the
Court's oermission io seIl 10ELTEL S.O.A. al1of the said material left unfinished
in the p~oduction line and invento2iea value of L.217,300,000, for the reduced
priceof L.105,000,000.
Palermo, 3 May 1969.
The Liquidaior.
Attorney Giuseppe SIRACUSA
(Signurure)
(Handwntten subscriptum, noi very legible:)
The Presiding Judge,
having read the above request and reviewed the opinions expressed by the
creditors' committee and in particular the observations by the representative of
Raytheon EuropeCompany;
and having consideredthe claiin for part of the material the sale of which has
beenrequested;
finds that before any decision can bemade relative to the saleof the material in
question, the liquidator is 10ascertain whether the releaseof any of the material
ta be sold and subsequent production (by the huyer) could possibly constitute a350 ELETTRONICA SICULA
violation of ihe rules governing proprietary productionknow-how or any patent
ri-hts belon- -e exclusivelv to lhird oarties. It is decided that in the affirmative
case Ihc rnaicrilil in question is Io hc remo~edfrom ihc production Iine. and the
liquidliior rnay propose the ililcof the rcniiiining rnliierial uith the exception. xi
any rate of items lhat rnay no1 be sold and therefore can only bc removed from
the production line (highly illegible).
Palermo, 5 May 1969.
(Signature offudge)
The liquidator.
Il;iiingread ihe Couri's Jr~i\ion of 5 5 69 as staied lihi>ie. and h:i\ing takcn
inIo consideration ihai IO iisceriiiin hy thc naiure of iome of the iicm, in ihe
oroduction line whether their further urocessinp "could constitute a violaiion of
produciion secretsor p.ilen1 rightr bel&nginge~~usivcl~ IO third p~riics" in\oli,cs
lin c\irniiiilllechniclil dcterm~n:~i~onl.ecl, thaiit isneçessary.and rcquc\i.; the
C'ouri. IO nominate iiiechnic~l ron\ulilint IO make the said technic~l determi-
nation.
Palerrno, 7May 1969.
The liquidator,
(Attorney Giuseppe SIRACUSA).
(Final endorsement handwritten, totally illegible.) ANNEXES TO THE MEMORIAL
SURMISSIO TNTHE CIVILCOURT OF PALERM OY ELTEL, S.P.A.,
DATED 27 MAY1969
(Translation)
The Hon.Judee
DI. ~adalamgnti
at the CivilCourt of Palermo
Bankruptcy Department.
RANKRUPTCY OF RAYTHEON ELSI S.P.A.- 41/68, COURT OF PALERMO
The undersigned ELTEL - lndustna Elettronica Telecomunicazioni S.P.A. of
Palermo, with a registered capital of L.1 million fully paid up, hereby declares its
desire to bid at an auction for the acquisition of the electronics firm Raytheon
ELSI S.P.A. of Palenno, located on a piece of land 48,103 square meters in area,
and comorisine buildinus. ea..oment. machinerv..various tools and imolements
iijr the proditcii<ifs;iihodcrl? iubci. riiirr,)u.avciuhcs. X.rï) tuhcs, Iighininl;
arrcsicrs. icniiconduciori .ind ci~tnplc~coniponcnii. diid for ihc simuli.incou,
~urchaw tiia11 ihc merchdndisc 4nJ ~p~lics dcscribcd in the inicnior\ 114and
8n hand at the warehouses of the faciliiy, at warehouses in Milan and ~ome, at
general and customs warehouses in Palermo, al1of these items being described in
more detail in the various ordinances on fileat the Clerk's ORiceof the Palermo
Court and oarticularlv in the ordinance of 31 March 1969. For this ouroose
ELTEL - industria Élettronica Telecomunicazioni S.P.A. is prepared 'to 8lTer
the amount of L.4000,000,000(four billion lire)at a public auction held by order
of the Court
Respectfully Yours,
ELTEL
lndustria Elettronica Telecomunicazioni S.p.A
(Signature)
President.
Palermo, 27 May 1969. ELETTRONICA SICULA
Annex71
(Translation)
On 6 June 1969,at the officeof Attorney Giuseppe Siracusa at Piazzola Un-
gheria 84 in Palermo, a meeting of the creditors' commiitee look place which
included the followinggentlemen:
1. Dr. Bruno Lipori, representing BML, president;
2. Attorney Giuseppe Bisconti,representing Raylheon International;
3. Reg.G. B.Riccohono;
4. Mr. Antonio Misumolino;
Absent: Ing. SilvioLancia who was away from Palermo.
The liquidator suggests to the committee that an auction he scheduled for 12
July of this year, with the base price bein4 billion of which Lire3.2 billion
would be for the buildings and equipment and Li800 million for raw materials
and semifinishedgoods, excluding items intended for semiconductor production
and excluding al1finished goods. The committee agreed by majoriiy vote, Dr.
Lipori ahstained and Attorney Bisconti votedagainst it for the reasons set forth
in a previous report.
LSC (Signed) LIP~RI.
(Signed) BISCONTI.
(Signed) RICCOBONO.
(Signed) MISUMOLINO. ANNEXES TO THE MEMORIAL
Annex 72
(Translation)
TRIBUNAL OF PALERMO - BANKRUPTCY DIVISION
NOTICE OF THE SALE OF THE RAYTHEON ELSl S.P.A.PLANT
It is herewith made known that on 12July 1969,at 10.00am., an auction sale
will be held inPalermo before the judge in charge of the bankruptcy case of the
Raytheon ELSl S.P.A. for the purpose of auctioning on the Raytheon ELSI
electronics plant locatedon a site nieasuring 48,103square meters accessiblefrom
Via Villagrazia 79 and consisting of buildings, installations, machines, vanous
equipment, and furnishings for the production of cathode ray tubes, microwave
tubes, X-ray tubes, dischargers, semiconductors, and coniplex components. At
the same time, the raw materials and partly finished goods in the plant and the
General Warehouses of Palermo will he sold except those required for the pro-
duction of semiconductors.
Also excluded from the auction is othcr movable propzrty as mentioned in the
iniunction.
The re,cr\e prise for Ihc pl~iitaihl thr.\v and 5cmi-n~udturd rnxtcridlsij
foiir hiIlionlire. oiithich ihrsc billi\id hunilred niillion.IP~IYto the plünrand
equipment, and eight hundred million lireto the rawmateriari
Those intending Io participate in the auction must deposit with the Court
Clerk's Office L.350,000,000 (three hundred and fifty million) as security, and
L.480,000,000(four hundred and eighty million) for foreseeable expenses, in the
form of a bid bond, before nine o'clock a.m. of 12 July 1969, the day of the
auction.
Bidsmust exceed L.6,000,000(sixmillion lire).
Costs and taxes are borne by the highest bidder; remittance must be made
within thirty days from award of bid.
For further information contact the trustee in bankruptcy, Attorney Giuseppe
Siracusa, PiazzaleUngheria 84, Palermo, Tel. 217.480,or the Court Clerk'sOffice
of the Tribunal of Palermo, Bankruptcy Division.
The Court Clerk,
(Signed) A. ANANIA. Annex 73
26 June 1969.
Industria Elettronica TelecomunicazioniS.p.A,
via Villagrazia 79
Palermo, Itdly.
Gentlemen.
This is to confirm the information given your representatives in Lexington,
Massachusetts, today.
if ELTEL purchases those assets of ELSl offered at auction by the attached
published advertisement, on 12July 1969,for a price of at least the L 4 billion
minimum as set forth in the Notice of Auction, Raytheon Company will grant
to ELTEL a licenseunder ils existing Italian patents and ils proprietary informa-
tion to produce the microwavc tubes heing produced by ELSl al the time of ils
bankruptcy, on terms al least as favorable as those in effect for ELSl at that
time.
Very truly yours,
Raytheon Company,
International AiTairs,
(Signed) J.OPPENHEIM,
VicePresident. ANNEXES TO THE MEMORIAL
Annex 74
TRANSCRIP OP BANKRUPTC HYEARINC C,IVILAND CRIMINAC LOURT OFPALERMO,
13Ju~u1969
(Translation)
COURT OF PALERMO
BANKRUPTCY HEARINC
Bankruptcy of Raytheon ELSI. S.P.A.
Record of Adjudication.
The session takes place on 13July 1969,at 10., in the public courtroom of
the IlIrd Civil District of the Court of Palermo, before the Hon. Judge Dr.
Vincenzo Badalamenti, assisted by the undersigned Clerk and by the hailiff, Mr.
Chiarello Ianazio. and attended bv Attornev Giusenoe Siracusa in hiscaoacitv of
receiver/liq;idato; of Raytheon ~i.si. S.~.A:.jiaccordance with saiesrujing
of 7 June 1969,requests that one proceed with the sale of the industnal complex
comprising real property, buildinis, furniture, machines and equipment, rüwma-
terials and semifinished goods, etc., as described and identified inthe said ruling
which was signedand puhlished in conformance with the guidelines givenby the
presidingJudge as documented in the records.
It is stated that on II July 1969the Clerk's Officereceivedan application for
participation in the auction on the part of MI. Ingo Ravalico in his capacity of
vice-president and legal representative of ELTEL-industria Elettronica Teleco-
municazione S.p.A., located at Via Villafranca No. 81, Palermo, which com-
pany has offered theamourit of L.4,006,000,000,thereof L.3,205,000,000for the
acquisition of the facilityand equipment and L.801,000,000for raw materials and
semifinished goods, depositing the required total of L.830,000,000,comprising
L.350,000,000as the security deposit and L.480,000,000for estimated expenses.
No other offerwas presented.
It is recorded that the hearing is attended hy MI. lngo Ravalico in the capacity
indicated above. The presiding Judge then declares the auction opened. MI. Ra-
valico, on behalf of his company, offers the amount of L.4,006;000,000for the
purchase of the property and materials mentioned and descnbed in more detail in
the sales ruling. The purchase offer for L.4,006,000,000is not bettered by anyone
else during the hidding lime ("the time it takes to consecutively hurn three new
candles").
The said Mr. Ravalico, on hehalf of his company, requests thal the property
outlined above be adjudicated and an appropriüte order of ownershiptransfer he
issued, making reference to the request already contained in the application for
participation in the auction, for invocation of al1the benefitsprovided for in the
DLCPS of 14 December 1957,No. 1598,and of al1corresponding national and
regional incentive benefits applying to the Mezzogiorno (underdevelopedSouth-
ern Italy) and the Island of Sicily,including the registration fee and tax for the
said ownership transfer order under the provisions of Article 109of the TU of the
legislation governing the Mezzogiorno as approved by DPR of 30 June 1957,
No. 1523,applying to the purchase, conversion, reactivation and modernization
of the said industrial facility. He also requests authorization, per Articles 508and585of the CPC, to work out an agreement with the registered inortgagees for the
takeover of the bankruptcy debt owed them by Raytheon EI.Si.S.p.A., within the
limits of thepnce at wliichthe adjudication was made.
Also preseni are Dr. Filippo Nicastro, representing IRFIS per special power of
attorney granted him by the president, Attorney Rocco Gullo on 9July 1969,and
drawn up by Notary Public, Mr. Cesare Di Giovanni, lic.No. 165288;and Attor-
ney Antonino Occhipinti, representing the Bank of Sicily pei special power of
attorney granted by Dr. Gerlando Micciche, acting director of the Palermo otlice
of the Bank of Sicily,and certifiedon 10July 1969by notary public Mr.Antonino
Schifani, lic. No. 11951; which gentlemen declare, on behalf of the institutions
they represent, their consent to the request by the offeror to assume the debts of
the bankrunt Ravtheon EI.Si. S.D.A.owed the said institutions. in conformance
uith ihc 13; and ihcconditiun.~itheir rnand~ic.
Sincc thcrr is only onc biddcr. ihc recci~cr~liquid~toroiicrs no opposition Io
ihc ~iljudicdtionof ihe prijperiy in quesiion to FI TF1 SpA and Io the assunip.
lion. hl ELTEI.. of ihc dcbi oued by ihe bankrupi cornpan). u'ith.icquiitance of
thc laiirr in respect of ihc murigage holder IRI:IS exccpt ior crpcnscs and for
no%iblc claims of ihird wxites. The arsumniion of the dehi In €\.TEL wiII br
Larriedout as directed bithe Depuiy ludge.'
THE PRBIDlh'G JUDCE,
on appropriate advice by the receiver on the basis of the above and having duly
considered the opportunity to accept ELTEL's oîler, adjudicates to ELTEL the
followingproperty :
The electronics firm Raytheon EI.Si.S.P.A. located on a piecc of land covering
about 48.103 square meters facing Via Villagrazia No. 79, registcrcd under deed
No. 51345 of the NCT of Palermo, sheet No. 72, part 203 sub. h and part 204
sub. b, sheet 73,parts 85,307,225,226,230,233,231,234,455,456, bordering on
the north side on ihe Oreto river, in the south on Via Villayrazia, in the east on
Cassino and in the Weston Guaniana, consisting of buildings, equipment, various
machines and appurtenances and tools for the manufacture of cathode ray tubes,
microwave tubes, X-ray tubes, conductors, semiconductors and cornplex compo-
ne~ts~a~ ~escribed in the technical ieoort bv Professor Ine. Mario Puelisi dated
II Ociokr 1963.uhich is hcrchy mdc an i"iegral pari oirhc rccordj.
Rau mïicrials and semiiinishcdgoodson hand :IIthe fiiciliiy.ind in ihe P:ilcrmo
warehouse (excluding those inienaed for semiconductor productions) belonging
to the electronics firm mentioned ahove and described in the inventory on file.
Excluded from the sale are the eoods claimed by third parties or raw materials
and semifinishe~ ~-~d~ ~ ~ ~thdrawn bv~,he receivei or used for maintenance work~~
and thus not available. Also excluded are raw matenals and semifinished goods
intended for the production of semiconductors and al1those items not on hand al
the factory except those stored in the aforesaid warehouses. The adjudicator has
inspected al1the items adjudicated and has eonvinced himself of their condition;
hence, a request for price reduction cannot be considered even though no guaran-
tee can be given, which also applies to the provisions of Article 1437of the Civil
Code. Also excluded from the sale are al1 the finished products regardless of
location, motor vehicles, equipment of the Milan and Rome offices, goods on
consignment with customers. goods with agents against deposit, and any material
and equipment in the factory which are the property of Nato (administrative
headquarters). The adjudication of the facility is on an "as is" basis for the real
property buildings, equipment. 1001sand machinery as well as the raw materials ANNEXES IO THE MEMORIAL 357
and semifinished goods, with no responsibility or guarantee whatsoever on the
part of thereceiver/liquidator in respect of charges, obligations, casements, etc.
The nriceof L.4.006.000.000includesL.3.205.000.000forthe factorv and eauio. .
ment and ~801,000,000 f& raw and semifi"ishédmaterials.
Under the ~rovisions of Articles 508 and 585 of the CPC, the court authorizes
as part of the price the takeover of only the morlgage debt of the bankrupt
Companywith the IRFIS, Regional Institute for Industrial Financing in Sicily,up
to the amount of L.2,180,000,000and makes allowance for fees and expenses as
well as possible claims by third parties. It is directed that the diference of
L.1,476,000,000with the security deposit already is to be deposited in the manner
descrihed in the sales ruling.
The cost of the transfer and related expenseswillhe borne hy the buyer.
It is noted that the buyer has requested the right to take advantage of the fiscal
benefits connected with industrialization of the Mezzogiorno and Sicily and, in
particular, that the transferder be registered at a fixedfee.
The sessionhere recorded closed at 11.40am. ELETTRONICA SICULA
Annex75
IRI,ISTITUTpOnLA RICOSTRUZII ONDEUSTRIA1L98,5YEARB~K,
PAGE2S60-264
[Nor reproduced] ANNEXES TO THE MEMORIAL
Annex 76
JUDCMEN TFPREFEC OTFPALERMD OA, TED22AUGUST 1969
(Translarion)
22August 1969.
No. 29779CAB
REPUBLIC Of lTALY
THE PREFETTO OF PALERMO
Havingseen the appeal proposed by Raytheon-ELSI S.p.A., a company with
head officesin Palermo, Via di Villa Grazio 79, by its Managing Director, MI.
Justin1.Guidi, domiciledin Rome, Via Bissolati76,at Prof. Avv. LuigiGalater-
ia'sand Avv.Giuseppe Bisconti's office.
AGAINST
the city of Palermo represented by ils Mayor,
FOR THll ANNULMENT OF
the order of I April 1968,notified on 2 April 1968, issued by the Mayor of the
City of Palermo, by virtue of Arti7lof lawNo. 2248 of20March 1865,attach-
ment "E and of Article 69 of the decree law of the President of the Sicilian
Region No. 6 of 29 October 1955, by means of which it ordered the immediate
requisition for six months of the plant and relative equipment owned by the
appellant;
In considerationof the fact that, by means of the above appeal, the appellant,
after having briefly summarized the life and the events of the company, claims
thatthe appealed order is unlawful for the followingreasons.
(1) Violationof Article 7 of Law No. 2248 of 20 March 1865, Arrachmenr "E"
undof Article 69 oJDLPRS Nu. 6 of 21 Ocfober1955 on theAdministrative
Organizationof theLocalGovernmenr in theRegionofSicily
The appellant points out that Article 7 of the above-mentioned lawof 1865
"does no1govern a specificand autonomous power to take away property,
even less so a power of requisitionil only constitutes the statement of a
principle (possibility of disposing by the administrative authority of the pri-
vate property in case of necessity) which has the character of a general
principle and which is implemented in other provisions of law concerning
specificmatters (requisition, expropriation, occupation..e.)."
Therefore, the appellant holds that the Mayor, in issuing hisorder, could no1
refer to Article 7, but he should have instead referred to and applied the special
rules governing requisitions.
To support its assumption, the appellant makes reference to the decision ren-
dered by the Council of State in plenary Meeting("Consiglio di Stato in adunanza
plenaria") on 23November 1929.[The appellant] also points out that the Mayor
could not make reference to Article 69 of DLPRS No. 6 of 21 Octoher 1955,but360 ELETTRONICA SICULA
had to make reference to and apply the provisions of law concerning requisitions
instead of referring to provisions which provide in general for emergency and
urgent orders
(2) Violalionof Arricle 7of Law No.2243 of 20 March 1865. Altochment"E':
Excessof Aurhorityby Reasonof Lockof Compeience
The appellant, on the basis of the provision of law No. 996 of 30 November
1950, whichstated that the orders issued by the Prefects, in the exercise of their
powers, according to Article 7 of the above-mentioned law of 1865,are dcfinitive
orders, draws the conclusion that "there being no mention [in the above-men-
tioned law of 18651or orders issued by the Mayor according to Article 7, it is
appropriate 10hold that the Mayor has no power to issuethem".
On the other hand [the appellant] assumes, referring to the case law, that the
Mayor, even though the power to issue emergency and urgent orders was in his
comnetence. in order 10exercisesuch oower il is necessarv that the ureenu ,and
thc circumstanccs be sueh 3s not10 pcrmlt ihc Prefcci IOinicrvcnc.
ï'herefaore,Ihc appellant ohservis ihÿi there wa%no gri>und for ihe hlayor
issuine ihc order. sincc "the Prefect had been dircctlv infornicd bv the oîiiçers 01'
the ciimpany of the resolution 10 dismiss the emploiees at least ien days before
the actual dismissal".
(3) ViolarionofArricle 69 of DLP No.6 of 29 Ocrober1955
The a~oellant. from the examinaiion of the above-mentioned Article69. draws
the concl;sion that the Mayor, hefore issuing the order of requisition, had the
duty to communicate to the Companythe order to re-open the plant, fixinga .erm
for this.
[The appellant] from this assumption draws as a consequence the violation of
Article 69.
(4) Excessof Powerby Reasonof LockandErroneousneso sfLegril Ground
The appellant challenges the existenceof the ground of the urgency and grave
necessity whichshould have determined theissuance of the order [of requisition].
alleging that the dismissal of the employees did not provoke either partial or
general strikes, contrary to what is staied in the motivation of the order [of
reauisitionl.
flhe apiellant] also holds that no act of violenceagainst persons and property,
nor the occupation of the plant, happened; therefore "thai situation of grave
necessitvwhich the lawrequires to exisi as the -ound for the issuanccof an order
of requkition" was not exkting.
About the stdtement contained in the appealed order, according to which "the
situation itself is particularly alarmed and sensitive, therefore it cannot be ex-
cluded that unforeseeahle actions which might perturb the public order may
occur", the appellant, in accordance with the decision of the "Council of State"
(5th Division, 9.15.1960; 5th Division 6.3.1960, No. 692), points out that the
grave necessity has to he actual and no1 supposed and that "the requisiiions,
determined by rhemeresubjective feor Iltutfocts,fit for perturbingrhepublicorder
mayoccur.ore IO be11eldIO beunlaivjul".
(5) ErcessofAu111ority by Reasonof ils Usefor OrherObjecrives
The appellant. after stating that the Public Administration, before issuing an
order of requisition, has the duty to carry out al1the necessaryactivity to achieve ANNEXES 'r0 THE MEMORIAL 361
its purposeswith the leastpossiblesacrificefor the citizens, holds that the National
and Regional Government and the City of Palermo "if they really wanted to
protect the public economic interest of the Region of Sicily, should havepromoted
the indispensablepublic interventions repeatedly invoked hy the company".
[The ao..llantl assumesthat the useof authoritv Ihv the Public Administration1
foi othcr ohjecti;cs lies iiithe çircuni.;tan:e th~t [hi. Piih~ii :\dniiniiir:~ii~~n. afic;
h.itirip rcni:iincd pxr\i<c in rroni cilth', scri<Iu. linxncial z.>n<lii,on%> ihe mni-
pany, presumed to be able to solve the problem by meansof issuing the order of
requisition in order to elude the critiçism of the public opinion.
It observes, finally, that the order was unsuitahle for satisfying the regional
public interest becauseil deprived the plant of the highly qualified support from
the technical personnel of the Raytheon Company, and becausethe requisition
could no1 "create . . . favorable market conditions for the electronic products
which might have helped Io resolve the financial and industrial prohlem of the
pl.ini"
tliiii~i<u,i.irdi,rr,.lthe fast thdi ihc Cil).iiidcfcnic, il2inis the groundlessness
t~ithc rc:i\on on which the appcal i\baacd.x>\uming the iiill<~uing:
(1) That Article 7 of law No. 2248, of 20 March 1865,attachment "E, gives
the Public Administration the oower to intervene, hy takina oossession of
the private property, whenever'the urgency and the grave ;Assity do not
permit to act otherwise; and that, ifwhat the appellant assumesabout the
necessitvto resort to soecific orovisions of law ias truc, there would be no
rcaron iiir ,\rticlc 7 ol'thc :ih>\e-mcnti~~ncd 1311,Ir ior AriiiI~~6')of the 1311
on ihc Org:ini~.iiian i>fthe I.<~c.ilC<~\~crnnienitn the Keglt>n ,>iSic~l!. brins
in existence;
(2) That the question of the competenceof the Mayor, in his capacity asOfficer
of the Government, to issue orders of requisition of private property, has
definitely beenclarified by the uniform case law, and that the provision of
law No. 996 of II November 1950,has beeninterpreted by the Courts in the
sensethat only the orders issuedby the Prefectare to he held to be definitive,
while those issued by the Mayor, in his caoacitv as Officer of the Govern-
meni, src iuhjcct icihc .ippc;ilc~ 1,)the higl;cr ~"ihorit~. and that, as iar as
the proiind oithc urgcnc) is ;on;cr~icd. it is IO bcionsidc.rcd is the indispciis-
able ground to requisition the private property;
(31 That rrom Article 69 of DLP No. 6 of 20 October 1955. il is not inferred
what is stated hy the appellant, since the provision "gives generically, in the
most discretionary form. to the Mayor, in his capacity as Officer of the
Government. Ithe-rieht..to.take info-mal measuresmade necessarvbv an . .
urgent smcrgen<) anil ,itu.iii<in". ~ndihat the rcicrcnce tirArticle hi>h.i\ 1'1
heionsidercd tirahiorbed hl ihc refcrenscIo Arii2lc 7 of the Iaw oi Ibb5.
(4) That the obiections of exces; of authoritv for lack and erroneousnessof the
lepl grounds ISalso ui~foui~dcd. \IIILCdi 11141 11r11tli.e s1rsuriijiJn::(oïcu.
p.ilion of ihc pltint. ycncr31and p~riiiil sirikcs, p~r~desIhrdugh the iuun,
etc. .. .) and-the motives whiçh~detennined the issuance of Cheaooealed ..
order did in fact exist ;
That the order is not to be connected with alleged non-performance by the
(5)
Government. in order to challen~e it- validitv: "i. ,he case in ooint. .t is .
necessaryonly to ascertain whether or not the urgent necessityexisted for
the Mayor to issucthc order in question, bv virtuc of his own powen"; such
eround; were existine at the lime of the issuanceof the orderof reauisilion.
since "di thdi lime thcrc \id> .iddiigcr oi publi; diiturb.iiices, dnd ihe fcdr
th31 such d~jti~rh~nce,suuld hccome çjcn niore seriou. which lu\iificd the order of requisition, which was directed also a1preventing Raytheon-ELSI
from engaging in further actions which might evenmore prejudice the above-
mentioned already serious situation".
Having held, first in the merit, that the assumption of the appellant relative to
the violation of Article 7 of law No. 2248 of 20 March 1865, Attachment "E
(the appellant assumes that, to order the requisition, the Mayor should have
referred to the specific rules governing the matter), has to be rcjccted, since it is
undisputed, in case law and legal doctrine, that the Public Administration is
empowered by the above-mentioned Article 7 to dispose of the private property
whenever the necessity exists ta face a situation of actual and imminent danger
for a public interest (public health, public order, etc., . ..) and, therefore, the
groundsof an urgent emergency are given.
On the other hand, itisevident thal, in theevent the assumption of the appellant
was founded, the provision of Article 7 would be deprived of any content and,
practically, would remain as a mere statement of a principle. However, il isevident
that the law-maker intended bv this orovisio~ to~ ~low the use of the oower where
ihc iirgciic?:ilid thr.iircum~t.~ncc~ni.ikc iinccc,j:ir!
The i3mc 1..1,)hc ~ld 2. lir :i\.4rilcle03 oiihc I;iridn ilic 0rg:inilaticin oi the
L<ls~< li~i\crnmi~nih in the Region oiSicil! i~conceriicd.
Thr.Ix;k oici~nipcir'nreoCthc M:i)or IO iwuc autc.iti<.imuuo,rder*oir<'<ldi.iiion.
icc<~ril~nr 16,Article 7 ofihc Ix\r of Ih65. acrunicd h\ the inncllant. i.;ilçnin bc
rejected,Since the competence of the Mayor is almoit una~fmousl; admitted by
legal doctrine and case law (see decisions of the Council of State No. 132, of
2 February 1952; No. 61 of 15January 1955; No. 1008of 17 Novernber 1956;
No. 1137of 18 December 1965; and decision of the Council of Adnlinistrative
Justice - "Consiglio di Giustizia Amministrative" - of the Regiori of Sicily,
No. 212,of Il June 1956).
In the same way,it is undoubted that the measure to dispose of private property
is included in those emergency and urgent measures that the Mayor can take
according to Article 69 of DLPRS of 1955, which reflects Article 153 of the
Communal and Provincial Law No. 148of 3 Fehruary 1915.
The ground of urgency is not to be considered as the possibility or impossibility
ta inform the Prefect, but as the indispensable ground to requisition the private
property.
Once the competence of the Mayor has been ascertained, it is necessary to
ascertain whether in the situation there were the grounds for the exercise of the
power.
There is no douht that the goal to which the requisition was directed could not
be actually achieved by the order, even though - in theory - in the case in
ooint. the eroundsof the grave oublic necessitvand of the emereencv and-.reencv -.
bhich caused the issuanceol théorder may béheldto beexisting.
This isproved by the fact that the activity of the Company~as ~either resumed,
neither might it beresumed.
Therefore, the order is destitute of any juridical cause which may justify it or
make it enforceable.
In fact, the Mayor believedto be able to facethe situation existing in Raytheon-
ELSl's plant bv means of an order of requisition. clearly without taking into
consideration &e fact that the situation oi'the cokpany -- for fundion~ng -
economical reason and for reason of market - was such as not to permit the
continuation of the activity, unless hy means of interventions by the responsible
organs directed to salve the financial and industrial problems of the Company. ANNEXES TO THE MEMORIAL 363
Tt~c ~C~UISIII~IId~dnui :I,:III~~:~II\~IIII I~the s~i,~~fit~ of~i~ccd~~~p,~r~ it,38s
proscd hy 111c i.1~1t1i.11i~c~ihcirhc \toppcd SICII\I~\ ~:ISrcsui~ied.nur. .IS :I C,III>C..
auence of the order. more favorableconditions were created in the comuanv. On
the contrary, the sit"ation of insolvencydetermined the declaration of bank<uptcy
of the Company, with the consequence that the plant was taken away from the
disuosabilitv of the Public Administration
it is also;moortant to emnhasize that the olant. at the time of the declaration
.ii hankrupto. \i.i\noi iiiirking ini. thdi the cmplo)cc, ucrc .tiying thcrcin r<>
pro1i.i for ihc niin-rr.wnipii<~n<>iihc a~iiiii! inJ iiir di*nii\>.il cii ihc \ih,>lc
p:rr~iiiiic.l
JI, iar the d.tiigcroi.'ur~i',~rc,cc~hIc 6)ipcrturh,1ti,,11.II111p~~blic order".
iti.iiihc \l.i!or u;~iiied 10 .i!siilby iiic:gn,of ihc rcq~isiiion. :Ire .'onccrncd. ihc
ciciii> cuhsc<iuciii 10 ilic ~eu~iii~~idh,.ivc iIc.irl\ Jcniniiir.itc.i ilie incrtii;iz\ of
the measure;'this is proved by the fact that théparades and demonstrationi of
protest followed one another, creating also a situation of perturbation of the
public order, until the situation was faced by responsible organs of the Govern-
ment and, even through the inevitahle obstacles unfortunately present in these
cases, was drawn toward a solution.
Wecannot refrain from stating that the order was issued - as it appears from
the same order and as it has heen ohserved by the appellant - also under the
influenceof the pressure created by, and of the remarks made by the local press;
therefore we have to hold that the Mayor, also in order to get out of the above
and to show the intent of the Public Administration to intervene in one way or
another, issued the order of requisition as a measure mainly directed to emphasize
hisintent to face the prohlem in some way.
On the basis of the above-mentioned considerations, even though the assump-
tion of the appellant relative to the presumed violation of Article 69 DLP No. 6
of 29 October 1955.indicated in section 3of the appeal, has to be rejected, and
having held that the appeal is founded and, consequently, is worthy of heing
granted;
ORDERS
that the appeal mentioned in the premises be granted.
The Mayor of Palermo is charged with enforcing this order.
The "Consigliere", The Prefect,
[Signedj (illegible) [Signedbvj RAVALLI. ANNEXES IO THE MEMOR~AL 365
(1) Unlawfulness becouse of complete failure rosrategroundsasto unacceptnbiliry
of the oppealnnd becauseof erroneous presumptioo nf rhe righr ro sue the
MunicinÜlit y of Palermo
. ..
Ac~ordingio the appcllant. in idci. ihc Prri~ci u,iulJ hdic ~iiiiittedIOkccp inta
acciiuni uhcn cx:imining the through-~hanncl :ippc:slintroduced h! Ka)thcan
ELSI comnanv - the obiciiiùii of un~ccer>tahilit\uf th: coiiinl~ini itscliidrniii-
lated by the Mayor by déedof 22 Apd i968, accordhg to which (objection of
unacceptability), having the Mayor himself acted in the capacity as Government
Officer,the appeal in question should have been declared unacceptable inasmuch
as same was introduced against the Municipality of Palenno and not against the
Mayor acting as Government Officer. Consequently, always according to the
appellant, the complaint should ha\,e been notified to the Office of the District
StateAttorney.
(B) By the second appeal introdured by the Mayor in his capacity as Govern-
ment Officer,is also introduced the following reason for complaint in addition to
the complaiut stated above:
(2) Iliogicalandobviouslyconrradicroryformularionofthe (Prefecr's)decision.
Accordinr to the appellant. these riefectsderive from the circumstance that the
Prefect, afte; having akrrnedthe Mayor's cornpetence to issuethe order of requi-
sition, and after having admitted the existence of a condition of public need as
well as of necessity and urgency to intervene, has, neverthclcss, accepted the
aooeal suhmi~t~d bv Ravtheon ~~SI Comoanv in consideration of the fact that
.. , . .,
"the conipan) hïd no1rc<uined11sa, ti\iiics aitcr thr.rcquiriii<>n"
F~riherniore, the .ippcll:inic~nipl.iini that thc Prcfcci annullcd ihc .irdcr i,iucd
b\ the Makor for 1.i~kdi:, h:t,is i.>rthe cirdci. ~ltirminc. on the othcr hdnd. thsi
the provis&ns adopted by the Mayor, by virtue of ~rti& 7of law No. 2248of 20
March 1965,enclosure E, as well as hy virtue of Article 69of DLP No. 6, Sicilian
Region, of 29 October 1955,was hased on the very "urgent and not-postponable
necessity of making the property available, to prevent impairment of the com-
munity's interests".
The Raytheon ELSl Company - which in the meanwhile hdd been declared
- through the agency of the Official Receiver, opposed the Mayor's
bankrupt
actions on the grounds that the appeals in question "had no1 been drawn up,
notified and deposited in the waysand tenns required by the law".
Consideringinpointof lniv:
That the contested Prefect'sdecision, issued with respectto a through-channel
appeal, is tobe considered as a final deed, and that such a decision stemmed from
his powers which were exercised in accordance with Article 7 of law No. 2248,
enclosure E, of 1865concerning administrativedisputes and the principle affirmed
by law No. W6 of 30 November 1950, both appeals under examination appear Io
-e~~ ~ -~~.....~
By one of the two complaints the Mayor, in his declared capacity as Govern-
ment Officer.hascontested the decision of the Prefect annulling- on the hasis of
the throueh-channel anoeal submitted bv the interested comoanv - the Mavor's
ordinance to requisite the plant belonging to the Company itself. The Mayor,
however, in the caoacity as Governinent Officer. is obviously not authorized to
act a-ainst the decision Of the hieher authoritv. namelv the Prefect. since he is an
orlicrr under ihz direii super\isi;n oithe ~rcicct htnirclf In 1-icl.both the \Ia)<>r
in the capacil) 3, Cioi.ernmcni Oiliicr. and the Prri<ci. :arcnui t\io scp.ir.itc Icgal
persons but, on the contrary, both of them are Government authoriiies, thatis,helonging to the same governing body. Consequently, they do not pursue opposed
interests but identical interests, even if evaluated from a different point of view
and at different hierarchic levels.
Also the other appeal introduced by the Mayor in hisalleged different capacity
as Chief of the Municipal Administration must he considered unacceptahle. In
fact. it is no1.ossib~ ~ ~ admit that the Municioali.,,mav have an interest. iuri,>-
call; capable of heing evaluated, in delending against the ~refect actions per-
formed hy the Mayor in the capacity as Government Officer.
The oower to disnose of vrivaÏe orooertv. under Article 7 of the above-
..,
meniioncd l.iaconcerning Admini.iraii\c dispiiicr - on ihc b.i.is oi which ihc
M3)or's dccision u.15issiic,I -- rcfcr.IO a powcr uhich c;in hc I3uiiill) excr~i~erl
only by Government authorities;and among these authorities is also included the
Mayor - being a Government authority - when he acts, subsidiarily, in lieu of
the Prefect.
Both authorities, in the exercise of their power of issuing ordinances, enjoy a
iurisdiction which does no1 involve the orotection of narticular in~~rests of the
Municipal Administration inasmuch as tiis exceptionaiand extraordinary power
is to be intended as a means apt to meet a major public interest which, as may he
recoenized inthe Mavor's ordinance under examination. mav also exiend bevond. , .
the very limits of themunicipal territory. This is a function ihat clearly differenti-
ates itself from the sphere of aclivities and jurisdictions proper of the Municipal
Administration, even if the Mayor, in both the ahove-mentioned capacities -
which, however are suhject to different regulations - is re-appointed and his
appointment is approved hy the civic representation. As regards this function, the
Mayor mus1account for it only to the Government Administration without in-
volvine- in said function. the resnonsibilitv of the Municioal Administration. The
Idlier, ihercl<irc,1sno1 I.i\rriil.iuih,>ri7eJio appc31.c\.cn in lhc abc di ~~~crlcd
rcason, <iiprcsiigc. 10 dcfcnd the xiion oiihc hla)\>r, in ihc i~pdiiiy as <j~\ern-
meni Odiccr. ïr.iin,i ihc decirion ol the Prclcci uh,~ h3, .innuIlcd b31Jdilia)n
through the exeÏcise of a power of hierarchic supremacy - not to be mistaken
with that concerning the control over deeds issued by local government agen-
cies - which, however, refers to a matter falling under the primary jurisdiction of
the higher authority and in which, as stated above, the Municipal Administration
cannot interfere.
Decision No. 1130 of the 5th Section, dated 14Decemher 1957,mentioned by
the Ministry of Interior, refers to a test case concerning the transfer of Govern-
ment Officer'sfunctions from the Mayor Io a city councilman, and has nothing in
common with this case.
FOR THIS REASON
Expresses the opinion that both appeals bcdeclared unacceptahle
SUMMARlZED FROM THE RECORDS,
(Signed) (illegible).
Seen :
(Signed): (illegible). ANNEXES TO THE MEMORIAL
Annex78
Registered at the Court of Accounts,
May 19, 1972,
lnternal Register 15,sheet 140.
THE PRESIDllNT OF THE REPUBLIC
Having seen the extraordinary appeals directed Io the Chief of the State by the
Mayor of the Municipality of Palermo - in his capacity as Government Officer
and as Chief of the Municipal Administration, respectively, against decree
No. 29779 of 22 August 1969, issued hy the Prefect of Palermo, granting the
throueh-channel aooeal suhmitted bv S.D.A.Ravtheon ELSl to ohtain the annul-
meni oiihc ordin;in;c of rcquisiii<~n*,l'thepllini 3nil rcl;iiin$eqiiipnieni belonping
io ilie,~iorc,aidC~impdn),i.rucd on I April 1968,b! the hlayor <>iPilcrm<);
liavine wcn the Ci,n%oliil.iitdTc~t al lsus rclaiinr: to ihc Council di SI:IIC,
-
approvezby royal decree No. 1054of26 June 1924;
Having seen royal decree No. 444 of 21 April 1942,approving the regulations
for the imolementation of the laws relatine to the Council of State;
11aviii~'hedrdihi,<ipinioncrprcs\i.d h)Ïhc Couiiiil of Siair.in ihc cour>: oiihc
mxiinp hcld on IY Soi.cnibcr 1971,the tcxi ul'uhi~h i>aiixhed it>ihi* dc:rce
and the considerationscontained therein are here integrally reproduced;
On the proposal of the Minister Secretary of State for lnternal Affairs;
DECREES:
Thc c\traordin,iry .ippclil, inili~.:iii.iiln thc forcgArc,Jcclsred unacccpi;ihlt
Thc propming Miniitr i,ch;irgcd uiiti tlic implemeniliiion i>fihi, Jc~rcc
Rome, 22 April 1972.
On the 16th day of the month of June of year 1900 seventy two in Palermo, 1,
the undersigned municipal public officer have served a copy of this to S.P.A.
Raytheon ELSl at its domicile, Piazzale Ungheria 84, delivered in the hands of
Miss Maria Parlovecchio, employed with lawyerCurator Giuseppe Siracusa.
The Municipal Public Oiïicer,
[Signed) (illegible). Annex 79
LAWSUI FOR DAMACEF SILEDBYTHE TRUSTEA EGAINS THE MINISTE RF THE
INTERIO RND THE MAYOR OFPALERMO D,ATED 16JUNE1970
TRIBUNAL OF PALERMO
SUMMOPISAKD COMPLAINT
The bankruptcy of S.P.A. Raytheon-ELSI, represented byits Trusiee in Bank-
ruptcy, Avv. Giuseppe Siracusa, domiciled for the purpose of these proceedings
in Palermo, 4 Viaowel, at the officeof Avv.Carmelo Lo Cascio, by whom it is
reoresented and defended accordine to Decree of Authorizai-on eranted bv the
~id~ein Charge, Dr. V.ada al am oen2:November 1969.
Bvthis act served bvthe undersirned Service Clerk ofthe ServicesOfficeat the
court of Appeals of ~alermo
SUMMONS
1 The Minister of the lnterior of the Reoublic of Ilalv in the nerson of the
\,
Hon. Franco Restivo, domiciled athe'"~vvocatura'~eneraldel10~iato"
in Palermo, 114Via Marchese di Villabianca (VassalloPalace);
(2) The present Mayor of the City of Palermo, in therson of Dr. Francesco
Svarnolo, domiciled in Palermo. Piazza Pretoria, Palace of Eaales lPalazzo
TO APPEAR
before the Civil Tribunal of Palermo, in the premises witmeels, at Piazza
V. E.Orlando - Palace of Justi-e at the hearine which willbe held on 27 Janu-
ary 1969,at 9.00 am., by the lnvestigatingJudge to be appointed and invites them
to amear as defendants accordinr to the terms and conditions set forth bv the
law order to hear the followingcÏaims.
WHEREAS
by act of I April 1968,served on the subsequent 2 April, the Mayor of the City of
Palermo, invoking Article of Attachment "E of Law No. 2248 of 20 March
1865, and Article 69 of DLP n. 6 of 21 October 1955, on the Administrative
Organization of the Localntities of the Region of Sicily.ordered the requisition
of the plant, machinery and equipment which form the electronic1 of Ray-
theon-ELSI S.p.A., located in Palermo, at 79 Via Villagrazia, for a period of six
months subject to be extended.
Raytheon-ELSI S.P.A. represented by its Managing Director, Mr. Justin
J. Guidi, on 19 April 1968, appealed the above-meniioned order of requisition
before the Prefect of Palermo.questing that the order. alter king suspended,
be nullifiedwith al1the consequences of law. ANNEXES TO THE MEMORIAL 369
In consideration of the heavy legal and economic situation created by the
ao..aled order of reauisition. Ravtheon-ELSI S.D.A.wasoblieed to filefor bank-
rupic?..which na.<dklarcd by delision 0~1his~r;hunrilon 7-1'6Ma) I!)hh.
Eicn aitcr ihc dcclx;~tion or bdnkrupiry ihc Trusicc in Bankruptcy.
Sir~cus~.couid ndi 1;ikcpusrcssion of lhc piani Jnd rcl~tiiccqulpnicnt duc 10the
ordcr g~ircqdisiiionisjucd b) the hls).ir <>iihc Ciiy uf P;ilcrnio,whiih reniaincd
incfici through 30Scpienibcr IYbX< . :iJSiilgunimaginahled;iiii;igcsfor tlic hank-
rupt company and. therefore, for the creditors.
In the meantirne, since the Prefect of Palermo was late in deciding on the
Appeal made by the bankrupt Raytheon-ELSI, the Trustee in Bankruptcy, on 9
July 1969,gavewarning to the Prefect of Palermo, in accordance with Article 5of
TU n. 384of 3March 1934.of the Communal and Provincial Lawand subseauent
modifications, to take a decision on the above-mentioned appeal within 60'days
frorn the day the warning was served.
The Prefect of the Province of Palermo, by Decrce n.29779of22 Auaust 1969.
x.rved on 18 Septcrnbcr 1969.graniing ihiappe~l. dcclarcd illegal th; ordcr of
rcquisiiion of the ,M3)oruf the Cityof P~lerntoof I April 1968
Such Dccrec of ihc Prcfc~ih:i, not been appealed hy :iny oi the partlei and.
therefore. it is now irrevocable
On 22 November 1969,the Judge in Charge, Dr. Vincenzo Badalmenti, having
authorized the present proceedings, the plaintif, Avv. Giuseppe Siracusa, in his
above-mentioned cdpacity, asks that the defendants bc condemned to pay dam-
ages to the bankrupt estate of Raytheon-ELSI due to the illegaloccupation of the
industrial plant and relativecquipmcnt owncd by the bankrupt company.
Such damages can be identified as the considerable decrease in value of the
plant and the electronic equipment existing in Palermo at 79 Via Villagrazia,
which results from the diference between the book value at the date of the
bankruptcy of Raytheon-ELSI, of Lire6,623,000,000and the evaluation made on
II October 1968(thai is. immediately after the six-month period of requisition
had elapsed) by the Court Appraiser, Professor Mario Puglisi, appointed by the
Judge by Decree of 19September 1968of Lire 4,560,588,400,with a real loss of
value of Lire 2,062.411,600 and as the lack of disposability of the plant and
relativeequipment for six months which, on the basis of the amortization rate for
the industrial plants, cqual to 10 per cent per year, can be determined in Lire
33,150,000,and, therefore, in the aggregate amount of Lire 2,395,561,600, plus
the interesls ai the legalrate from I October 1968,to thc payment.
Now thercfore it isasked that
THE TRIBUNAL
reject any contrary demdnd or defense, condemn the Minister of the Interior of
the Republic of Ilaly, the Hon. Franco Restivo, and the Mayor of the City of
Palermo, Dr. Francesco Spagnolo, to pay Io the bankrupt estate of Raytheon-
ELSI. in the person of ils Trustee iriBankruptcy, Avv. Giuseppe Siracusa, dam-
ages for the illegal requisition of the plant machineryand equipment which form
the electronic unit of Raytheon-ELSI S.P.A. in Palermo. at 79 Via Villagrazia,
for the period from I April to 30 September 1968.in the aggregate arnount of
Lire 2,395,561,600 plus intcrcstsat the legal rate from I October 1968,to the date
of payment.
If necessary,dispose an appraisal for the evaluation and for the detennination
of the claimed damages.
Condemn the defendants to the payment of expenses and fees for these pro-
ceedings. Grant the immediate enforcement of the decision, without prejudice to any
othernght.
(Signedb}') Avv.Carmelo Lo CASCIO.
1hereby appoint Avv. Carmelo Lo Cascio to represent and defend me in these
proceedings in accordance with the Decree of Authorization granted by Judge
Dr. VincenzoBadalamenti, on 22November 1969.
(Signedby) Avv.Giuseppe SIRACWST Ar,ustee in Bankruptcy.
The above signature is true.
(Signedby) Avv.Carmelo Lo CASCIO.
Together with this act the followingdocuments willbe exhibited:
Coov of the Order of Reauisition issued bv the Mavor of the Citv of Palermo
on 1&ri1 1969;
Copy of the Warning dated 9July 1968,served to the Prefect ofPalermo;
Coov of the Decree of Revocation n. 29779of the Prefect of Palermo. dated 22
~ugusi 1969,served on 18 September 1969;
Copy of the Decree of Authorization to these proceedings by Judge Badala-
menti dated 22November 1969.
(Slgnedby) Avv.Carmelo Lo CASCIO.
This a true copy of the Original which is attached to the official file of the
Tribunal of Palermo n. 7197169RG - Palermo, 16lune 1970.
The Clerk
(Signed)Illegible. ANNEXES TO THE MEMORIAL
Annex 80
JUDGMEN OTF 'THCOURT OF PALERMO D,ECIDED2 FEBRUARY 1973,FILED
29 MARCH1973. REGISTERE 4DAPRIL1973
LS NO. 118969
BL
Italian.
THE REPUBLIC OF ITALY
IN THE NAME OF THE ITALIANPEOPLE,
The Court of Palcrmo, First Civil Division,nsisting of:
(1) Dr. Antonino Marino Presiding Judge,
<2j Dr. Vincenzo Palmegiano ~ssociac ludie',
(3) Dr. Pasquale Barreca Associate Judge,
meeting in chambers, hasissued the following
in the Civil Case No. 7197169
Beriizeen
S.P.A.RAYTHEON-ELiS nI,the person of ils trustee in bankruptcy Attorney
Giuseppe Siracusa, represented and defended by Attorneyarmelo Lo Cascio -
Plaintifï
and
THE MIKISTRY OF THE INTERIOR re,presented and defended by the Government
fegal Adviser's Offic- Defendant,
THE MAYOR OF THE CITY OF PALERMO re,presenled and defended by Attorney
Angelo Perna - Defendani.
Plaintiff's summation:
MAY ITPLEASE THE COURT
disregarding any contrary motion and defense,
to sentence the Ministry of the lnterior of the Republic of Italy in the pcrson of
the Hon. Francesco Restivo and the Mayor of the City of Palermo in therson
of Dr. Francesco SpagnoloIOcompensation for damages in favor of the bankrupt
estate of the Raytheon-ELSI comp;iny in the person of its trustee in bankruptcy,
Attorney Giuseppe Siracusa, arising from the unlawful appropriation of the plant,
installation, and equipment whichconstituted the Raytheon-ELSI electronic com-
plex situated in Palermo in Via Villagrazia 79 for the period from I April 1968,
to 30 September 1968,in theamount of L.2,395,561,600,plus legitimate interest
from I Octoher 1968,to date. If necessary,to cal1for tcchnicalconsultation for the evaluation and determina-
lion of the damages claimed, and to sentence the defendants to pay the court
costs.
Government Legal Adviser'ssummation:
MAYIT PLEASE THE COURT
to reiect al1claims out forward bv the olaintiff, sentencine him to bear the costs
for Ïhis proceeding and reject ali oth& claims from whatever side, against the
Ministry as wellasany deduciions advanced against ils arguments.
Attorney Angelo Perna's summation:
MAY IT PLEASE THE COURT
to reiect an, oo..sine motion. obiection. and defense
Ti preliminarilg dclarc ihe inc~pahiht~ OC king sued oithc Ciiy of Piilcrino,
uhich e~iendsio ihc M:i)irr in his douhle wp:ii.iiy oi he:idoiihc cii, :iJniini,ira.
lion and government official,and declaringhim excluded from thiiproceeding;
to declare, also preliminarily, the summons 10 be irremediably nuIl and void
with regard to the relations between the plantilï and the Mayor of Palermo in
his capacity as a government official.
Secondarily, to absolve the City of Palenno or the Mayor of Palenno in his
capaciiy as a government official from the plaintiiï's claims because they are
inadmissible, unacceptable, unfounded, and reckless.To sentencethe administra-
tion of the bankrupt Raytheon-ELSI estate to pay the costs, fees,and charges of
this proceeding.
Upon deliberation. the Court observes:
COURSEOf THE PROCEEDlNG
By summons sewed on 20 October 1969, the trustee in bankruptcy of the
Raytheon-ELSI company brought the Ministry of the lnterior and the City
Administration of Palermo in the persons of the respective minister and th:
Mayor of Palermo before this court, charging:
(1) that on I April 1968,the Mayor of Palenno issued an order in accordance
with Articles 7 of Law No. 2248 of 20March 1965,Annex E, and 69 of Decree
Law Pres. Reg. No. 6 of 21 October 1955,to take over the Raytheon-ELSI plant
in Palermo for the duration of six months. and that in the cours~ ~~~~-~ lime
required for the appeal to the Prefect, the company, due to the grave economic
situation occasioned bvthe above-mentioned takeover, had to declare bankruotcv
on 7-16 May 1968; (5) that during the takeover, the trustee was not even abk
to take possession of the plant and equipment due to the protracted elïects of
the Mavor's order until 30 Seotember 1968: (3) that on 22 Aueust 1969. the
Prefect issued a decree declari& the above-men~ionedorder unl&ful; (4)'thai
the damage centres on the dilïerence between the evaluation of the worth of the
olant and-eouioment as listed in the balance on the date of bankru~~~ ~ ~ ~ ~e
k,623,000,0Ô0,'and the estimate of Lire 4,560,588.400 given by the iechnical
adviser appointed by the court, thus showing a lossof Lire2.062.411,600,as well
ason the-(nability to dispose over the plantand the respectiveequipment valued
at Lire 333,150,000for six months, and asked the court on the basis of al1this ANNEXES TO THE MEMORIAL 373
to sentence the above-mentioned defendants to pay the plaintiff a total of Lire
2,395,561,000 plus legitimateinterest from 1October 1968.
In rebuttal, the City Administration claimed that it was exempt from king
sued since the order was issued bythe Mayor as a government official,and both
administrations based their claim that the charge is unfounded on this argument
and demanded ihat ii be rejected. Documentation produced by the parties in
support of their respectivecharges and defenses al the hearing of 26 January
1973,was accepted and the arguments were closed, with the representatives of
both parties insisting on the conclusions described earlier.
First of all, the court makes it clear that the Mayor of the City of Palermo
lacks the capacily of being sued. In this respect, il must be explained thai this
officialwas brought in10court as head ...[translater's note: part of thissentence
seems to be missing in the Italiaii text] . . .clear that the takeover ordcr was
issued by him in his capacity as a government official.
The motivation adopted is the surest demonstration of this and is really based
on the fact. which isnot shown uo in the introduction 10this decision. that the
Raytheon-ELSI cornpan? hdJ deci~edio end itsproduciion actiiiiics rrom March
1968.Therriore. as is aller iill u,cll knoan, sincc at ihc timc. the Cacialso g3i.e
nse to a seriesof pressreports, expressionsof publicopinion and pronouncements
by politicians, the order was based on the consideration that the cessation of
production was going to expose the roughly 1,000workers of the Companyto a
rough period of unemployment, which might even have serious repercussions on
oublic order itself. And in fact. acknowledeine the "vast and eeneral movement
- -
;fsolidariiy of ihe entire public opinion which has riolenily criiiciwd the plans
in viewof thc faci thît about 8 ihousînd familiesmight suddcnl) find thcmscl\es
out in ihe streei kcausc of them". ihr Ma\,or J~v1arr.dihai "ihe riluaiion it.eli
was pariisularly alarming and br.nsiiii,eso &ai unforescc~blcdiriurbances of the
public ordcr could no1k cxcludcd". 2nd hc iherclorc <oncludcd ihai in thc cdsc
at hand "the conditions of grave public necessityand the uraency of saferuardinn
both the general public economic interest (already seriousÏy compromised and
the public order. . .".
Under these conditions one can easily perceive the order in question to be of
the very nature of the "possible and urgent" measures undertaken, among other
things, by "local police forces". . for "motives ofpublic safety", in accordance
with Article No. 69 of Decree Law Pres. Reg.No.6 of 21 October 1955.which
is in fact bei-. auoted and which corresoonds to Article 153of the consolidation
*ci of 1915 Such mcasuresoi ihc prci,:ilcnidociriniil and jurisprudenii;il currcnis
are part oCihe powcrs ol the Mayor a\ 3 po\,ernment <.lliii<ilnd nui as hcdd or
the citv administration.
~h&, the Mayor in issuing the orders mentioned in Article 69 of Decree Law
Pres. Reg.No. 6 of 21October 1955,acts as a functionary of the civiladministra-
tion of the Interior. of whosehierarchv he isa oart. so that. as has beenestablished
for the responsibility of the organs wkich are'part of the direct administration of
the State, the responsibility for the acts of the Mayor in the execution of his
functions as a government officialmus1 be placed at the summit of the above-
mentioned State administration, that is, the Minister of the lnterior (see Cass.
Sez. Un., 14June 1967,No. 1329,Cass. 5 January 1966).
Nor is il appropriate to quote, as the plaintiff does, the decision No. 1676of
7 July 1967,of the United Sectionsconcerning a difierent kind of case which is
not analogous to the case in hand, in which the question is that of a proven374 ELETTRONICA SlCULA
conneciion wiih the iorniliti\e spbritofihc "imposstblcand urgcni" /.vrr/mrÿrures
of Ariiclc 69 oi the Prcridcnttal Dccree quoicd scscral limes ahiws
While ihe Iask of LXJJ,IV~Iceiiimaiion of ihc hlx\,ir tif ihc Cii\ of P~lcrmo
means that the c~aimia~ainst hymmust be rcjecied, iifocusesthe q;estion of the
merit of the case on the other defendant administration.
The assertions developed by the plaintiff in that respect are substantially
founded on the following arguments: (O) that the takeover order caused an
economic situation of such gravity that it immediately and directly triggcred the
bankruptcy of the company; (b) that the damage suffered consists of the dilier-
ence between the evaluation of the land, plani, and general equipment listed in
the balance and the estimate made by the consultant appointed by the court, as
wellas in the lack of control over the plani for the duration of the takeover: (c)
that the esiablished illegalityof the Mayor's order is clear proof of the fact thai
the takeover was the causeof the damage sufered by the company.
Now. regarding the argumentation under (cl,it has been clearly pointed oui
by the defendant administration that the prefect's order is basically a recall of
the Mayor's previousorder on the grounds that the objectives pursued by the
latter have been found to be unrealizable, since the conditions for a valid and
efficaciousresumption of production, the cessation of which was considered and
carried out by the competent social organ due to the extremely serious situation
the company was in and was confirmed by the actual stop of production. That
this happened in the manner described above is evident from the documents
oroduccd bv the defendant administration. conccrnine in oarticular the verv
éventswhich ledto the cessation of the above-mention& activity because of thé
extremely serious economic situation which had been caused by the unfavorable
market conditions and otber reasons.
Ii is useful in this connection to recall a number of salient facts drawn from
the above-mentioned documentation and which are not contested by the plaintif
First of all, it mus1be noted that one can see from the cable traffic betweenthe
Prefecture of Palenno and some central, national, and regional authorities which
were following the developments of the situation of the plant with a view to the
repercussions it had on the many workers, the regional economy, and, an impor-
tant circumstance, even on the public order: (1) that on 15 March 1968, the
above-mentioncd officecommunicated to thesc authorities that the administrative
board of the company was about to decide tostop production at the plant, laying
of 800workers. of whom a group of 175had been on strike since 13March and
had occupied plant property; (2) lhat on 18March the Prefecture had reported
that the closing down of the plant had been decided on and that al1activities
would cease on 29 March.
There is also a document dated 2 July 1969.sent by the trustee in bankruptcy
to the Prefect requesting that the appeal of the Mayor's order in question be
considered, stating that
"in spite of the immense capital and modern equipment of the plant, the
Raytheon-ELSI company has encouniered senous difficulties inthe pursuit
of ils commercial act~vities.for which reasonils shareholders had been called
upun se\,eraliimrs io pry 'billions'in ordcr tu prcieni the plant irom hdiing
io he \hul du\i,n. In spitc oi\uch cunsiJer~hlc support. iht silulition conlin-
ucd Io detcrior.itc furthcr. so ihai the Rd\ihcon-EI.SI :onip.in\ u.ii forccd
on 31 March 1968,to close the plant andlay off the workirs"..
The clarity of these expressions and communications leaves nothing io be
desired. On 31 March 1968, the ELSl plani was for al1practical purposes no
longer in operaiion, closed down in accordance with a decision of the compctent ANNEXES TO THE MEMORlAL 375
social organ which had not even considered it necessary, probably due IO the
resistance encountered from the workforce. to reduce nroduction and nersonnel.
but instead had dccidcd, in theabsence of any other solution, to go foi the mosi
drastic solution, evidently considering it most conducive to the interests of the
company, a solution which meant the total shutdown of production. This, in
spite of the immense financialsupport from the shareholders, caused a gigantic
increase in the Company'sindebtedness as it appears from the prospectus of 31
March 1968(calledpreliminary balance), which wassubmitted to the Bankruptcy
Division, and where the indebtedness is listed as Lire 2,683,500,000 for the
preceding financial year, and as Lire 1,068,000,000for the current financial year
(31 March 1968).
To this must be added, as is well known in viewof the great resonance this
company's afairs found even on the national level,that in the early part of 1968,
there was a notable deterioration of the general siiuation of the company, which
was further aggravated by unfavorable market conditions as well as the January
earthquakes and a series of strikes which in March were sometimes continuous
and sometimes intermittent, causing the loss of a considerable amount of pro-
duction hours.
The cessation of activities was, by the way, preceded by the closing down of
some special departments, which is a clear sign of trouble. This was the siate of
events a1 the plant at the time the Mayor's order was issued on I April 1968.
It is clear from these conditions that the connection between the company's
bankruptcy and the takeover is unfounded, as the defendant administration
correctly mainiained, sinceRaytheon-ELSl's economicsituation had alreadybeen
seriously compromised, as its own management explicitlyadmitted.
Nor can the plaintif claim that the damage is evidenced by the dilference
between the evaluation given in the balance of the land' buildings, installations,
equipment, furniture, and other furnishings, al a total of Lire 6,622,800,000,and
the estimate given on II October 1968,a fewdays after the end of the takeover,
by the expert appointed by the judge, or arose from the lack of access Io the
plant for the above-mentioned period, since il has bcen cstablished: (1) that the
precisedefinitions above show that thc bankruptcy was due Io other, much more
relevant causes and not to the takeover which had no such efect: (2) that the
eviludiion listed in the b.ilmce oii lhc crcdii side. which 15 \Cr) importani (or
the iniiallaiioni. variou\ cquipmrni. Curniiurc.dnd niiichinerv (more ihan rite
and a half billion), concems the indication of values whose correspondence to
reality is relative. so much so that the items relative to funds of amortization and
renovation (Art. 2424 of the Civil Code) are entered on the debit side, in view
of the expected progressive lossof value of the installations in general (and of
everything connected with them) and of the necessityof replacing some of them;
(3) that it has not been proven that any damage is connected with the lack of
acccss to the plant, which was nioreover a limited period of lime, since the
trusteeship was established even More 30 September 1968,as evidenced bythe
activitiesnerrormed bv theconsultant aooointed bv the court. Durine his summa-
lion IOih;,c<>uri.ihc ~lainiill~lluded iu d.~~iid~cc,;u.;r.hd) uorker, <;hoorcupierl
the pliini. by negligrni cu>i<>!.r oiher(aciers.Theseare i.icis ih:ii ucrï rsporierl
in ihe cornplai$ iiself, and which moreover are no1corroborated by the above-
mentioned consultant's report which, in ils evaluation of the plant, would cer-
tainly have pointed out and mentioned the existenceof such damage.
The suit is therefore rejected.
The pl.iiniiRis consequcntly scntenceJ IO p.iy the cihioi theas procecdings 10
ihc dcfcndani$. There s<~iisconsisi of Lire 1.715.800in hr.paid ri>the .M.i)or ofPalermo, including Lire 1,500,000for defensecounsel,and 200.000focomperenre
diprocurarore,and of Lire 1,792,000to be paid to the civiladministration of the
Interior, consisting of Lire 1,600,000for lawyers fees,and Lire 192,00dirirti
di procurorore.
THEREFORE
the Court, after hearing the representatives of the parties:
(1) rejectsthe suit; (2) sentencesthe plaintiffto pay the costs for the proceeding
to the defendants in the amount of a total of Lire 1,715,500tothe Mayor of the
City of Palermo, and Lire 1,792,000to the civil administration of the Interior.
Thus has been decided by the First Division of the Court on 2 February 1973.
(Signed) Antonino MARINO.
(Signedj VincenzoPALMI?GIAeN s.O
(Signed) Pasquale BARRBCA. The Chancellor,
(Signedj MERENDINO.
Filed with the Court Clerk in Palermo today, 29 March 1973.
The Chancellor (Signed)Merendino.
Registered in Palermo on 4 April 1973.
No. 2449 regisrroNad. 71 M Exactly lirenine thousand four hundred
Attorney PERNA. The Director,
(Signed) Cashier TORTORICI (Signedj D'Onso. ANNEXES 70 THE MEMORIAL
Annex81
JUDGMEN TF THE COURT OF APPEALS OF PALERMO R,EGISTERE 24 JANUARY
1974
(Translation)
THE REPUBLIC OF ITALY
LN THE NAME OF THE ITALLAN PEOPLE
The Court of Appeals of Palermo, First Civil Division consisting of:
,,- Dr. -iovanni Piccione Presidi.e Ju-ee.
(2) Dr. S~l\aii~re Assoiiliie Judgc,
(3) Dr. Vlnccn7d F:tritc~ ,\.wii~ie Judgc,
(41 I>r Fr.inccsco Ruiii.inu ,\~~<~ii.eudcc.
(5) Dr. Caetano Lo Coco Assistant ~udge,
meeting in Chambers, has issued the following
DF.ClSION
in Civil Case No. 510 as per the Official Register for the Year 1973on the basis
of the court hearing of 16November 1973.
Berween
S.P.A. Raytheon-ELSI, in the person of ils Attorney, Giuseppe Siracusa,
domiciled in Palermo and specifically(illegihle) in the Law Offices of Carmelo
Lo Cascio (illegible), whose representative and defense Attorney he is under the
provisions of the writ of authorization (illegible)issued by Dr. S. Migliore
on 3 May 1973 - Appellant
THE MINISTRYOF THE INTERIOR. reoresented bv the Acting Minister. the Honor-
able Mariano Rumor, with domicile of choiceatthe officeof the State'sAttorney
of Palermo, 114Marchese di Villabianca Street- Appellee
and
The Acting Mayor of the City of Palermo, Col. Giacomo Marchello, with
domicile of choice in Palermo, Piazza Pretoriaalazzo delle Aquile, represented
and defended by Attorney Angelo Perna (illegible) as per general power of
attorney (illegible), Novemher 1965(illegihle).
SUMMATIONSBY THE ATTORNEYS OF THE PARTIE?
Attorney Carmelo Lo Cascio, for the appellant, petitioned:
MAYIT PLEASETHE COURT OF APPEALS
to disregard any contrary instance and defense, to grant this appeal against the
decision handed down by the Court of Palermo on 2 Fehruary, 29 March378 ELETTRONICA SICULA
(illegible) 1973, communicated on 18 April 1973, and revoke and cancel this
decision in al1 of its points. Consequently, sentence jointly and severally the
Acting Minister of the lnterior of the Italian Republic and the Acting Mayor of
the City of Palermo to the compensation of damages in favor of S.P.A. Raytheon-
ELSI, in the person of its Trustee in Bankruptcy Attorney Giuseppe Siracusa,
byvirtue of the unlawful requisitioning of the establishment, plant, and equipment
constituting the electronic complex called Raytheon-ELSI S.p.A., at 79 Villa-
franca Street, Palermo, for the period from 1 April 1968on, in the total amount
of 2,395,561,600 Lire, plus legal interest, from I October 1968, or by way of
compliance.
May il please the Court to cal1for a technical consultation, based on timely
market surveys, to assess and determine the damages both with regard to the
major decline in asset value suffered by the Raytheon-ELSI establishment as a
direct consequence of the requisitioning order issued by the Mayor of Palermo
on 1April 1968,and with regard to the equitable indemnification due to the state
in bankruptcy of Raytheon-ELSI for the fullduration of said unlawful requisition
(from I March until 30 September 1968) of the entire factory complex called
Raytheon-ELSI Electronic Establishment, at 79 Villafranca Street, Palermo.
To sentence the Appellees to payment of double the court costs and compen-
sations.
Without prejudice to any other rights
Attorney Matteo Ferrante, for the Appellee, the Ministry of the Interior,
petitioned :
MAY IT PLEASE THE COURT Of APPEALS
to reject any instance to the contrary, exception, or defence, and reject the appeal
filed in connection with the bankruptcy of Raytheon-ELSI, Inc., sentencing the
latter to court costs and expenses.
Attorney Angelo Perna, for the Appellee, the Mayor of Palermo, summed up
his case:
MAY IT PLEASETHE COURT
Reiecris adversis (in rejecting opposition arguments) to reject the appeal and to
sentence the appellant to maximum payment of court costs, charges, and fees
connected with this case.
COURSEOF THE PROCEEDlNG
C)nthe halir ui .I runinions sencd on ?O I>ccemhîr 1969.:ind renctveJ un 28
J;inudr! 19711i.hr [ru.tec ln hdnkrupic) oi'the Kx)iheon-EISI Ci~mpanyhruughi
the \Iini$tcr of the Interi<~roi the Rcnuhlic :ind ihc \l;ivor of Pïlermo heigirc
the Court of Palermo. He charged:
1. That by Act of the Mayor, issued effective I April 1968, Annex E,and
Article 69, Presidential Decree Law No. 6, dated 21 October 1955,the requisition
of the establishment, plants, and equipment of said Company was ordered for a
oeriod of six months and that, due to the delav of the administrative anoeal
procedure proposed io the i'rcic.~.utri 19.\pril IYRS.the <.<inip~ii)- oti a2;;unt
oi the &ratec.un<imicand Ieg~lsiiudtion CJUSC~ b) ,.II~requi\itl<>n U.ISiorcéd
to petilion for h;inkrupt;\ rrhich \iss JecIdreJ $13 1t.eruliiiwsl 7-16 hl;&\ 1968.
2. That the trustee in bankruptcy was not even able to take possession of the
establishment and its equipment because of this Order which remained in effect
until 30 September 1968. ANNEXES TO THE MEMORIAL 379
3. That 111:Prcitct. .iitcr h.ii.inf bec11put oii noiicc in ,i:cordance nith thc Act
oi 9 Jul) 1969.undcr the pr<i\i,i<insof .Arti:lz 5. ,ii <',in~olidati,inAiSo 3x3.
d:iicJ 3 M~rrh 1934, h) I>crrc:c N,) 23779. hïd Jcr.l~rr.J[hi, hli)i>r'. 0rJi.ICI
be unlawful.
4. That the unlawful requisitioning order and the unlawful takeover of the
industrial establishment and the pertinent plants had caused damages which led
to a reduction of the value of the establishment and the facilities as shown in the
balance sheet for the date of bankruptcy in the amount of 6,623,000,000 Lire,
while the estimate made on II October 1968, by the technical consultant ap-
pointed by the Official Receiver, came up with a figure of 4,560,588,400 Lire,
hence with a loss of 2,062,411,600Lire, as well as the fact that the establishment
and the pertinent equipment were unavailable for six months, to be estimated at
a figure of 333,150,000Lire on the basis of an industnal plant amortization rate
of 10 per cent per year. In the light of the above, he petitioned that the Court
sentence said defendants to indemnify the trusteeship in bankruptcy for the
damages in the total amount of 2,395,561,600 Lire, plus legal interest as of 1
October 1968,as well as to payment of the trial costs.
In his testimony. the Mayor of Palermo argued that he himself was legally no1
liable since he had acted as a eovïrnment official: he then noted that the ~etition
was groundless and asked th& il he turned down. The Ministry of the interior
argued along the same lines in its summation.
After having obtained the documentation produced by the parties in support
of their petitions and defenses, the Court addressed itself to handing doan a
ruling in this case, and through its Decision of 2 February-29 March 1973, the
Court rejected the petition of the Plaintiff and sentenced both the Mayor of
Palermo and the Civil Administr;ition of the Ministry of the lnterior to pay the
trial costs.
The judges noted above al1that the Mayor could not be sued because he was
cited as head of the communal administration, while the requisitioning order had
been issued by him as officer of the Government, that is, in the context of the
Administration of the Interna1(Affairs)of the State. Examining next the position
of said Administration with respect to Plaintiff's petition, they stated first of al1
that the Prefect'sdecision as to the Compaay's administrative recourse was aimed
at revoking rather than annulling the Mayor's requisitioning order; in the light
of the results of these facts and ;ils0 by virtue of the notonety of these events,
they remarked then that there were considerahle repercussions at that time also
in the national and local press so that one could entirely rule out the causality
link - sueeested bv the Plaintiff between the Mavor's order 'and the Com-
pany's baikruptcy which had its enplanations in the &the1 precarious eçonomic
conditions of the Company itself - conditions which, even before the Mayor's
order, had been manifested rather clamorously; that, in any case, the figures
shown in the balance sheet could not be takeu as basis for a determination of
the damages; that, finally, it had no1 heen proven that there were any damages
due to the lack of accessto the establishment.
The trustee in bankruptcy appealed this sentence to this Court through a
petition forwarded to the Minister of the lnterior and to the Mayor of Palermo
on 9 Mav 1973. in which he ahove al1 deolored the fact that the Mavor was
coiisidcred no110 hcr~pnbleof bsing iiicd. .r'h:rc.iithhouldh.i\c bccn rc;ogni~c.J
th:ii he w;ii inJrcil rc,ponsihlc ior ihc unlai\.iul rc~ui,itioii (iir\t moii\c). hc thcii
reorooosed the areument relatine to the link beiween the reauisition,ne order
and tke bankruptcy declarztion wiich had been caused by it; th&in turn brought
about the damage cited in the first instance which consisted in the difference of380 ELETTRONICA S~CULA
the value of the plant and equipment at the beginning and at the end of the six-
month requisitioning period, as well as the fact that the Company did not have
possession of the establishment during that same period of time, that the Court
was in error when it considered this to be an event that did no1cause any damages
(second motive); he then insisted on the award of legal interest as of 1 Octoher
1968,on the sums requested by way of damage indemnification (third motive);
he finally complained about the provision calling for payment of costs which
should instead have been charged to the Defendant Administration (fourth
motive). In conclusion, he asked that the petitions formulated in the first instance
be approved.
Both the Mayor and the Ministry of the lnterior appeared in these proceedings.
The former main~ ~~ ~ ~hat. sinc. ~he~ ~der had been issued bv him in his
capcit) a.:gcncrnnieni ~lfic131,lic hx> n<lpas\i\c I~e~l~nhat~o d( hcrld iiithe
ci)niniundl adniiniitr3ii<in. The Minisiry in iii iurn. rspcatsd the iIlu\ir;ition di
the situation of exireme c~.i>nonii~ <litlicultsin rihich the Ciimn:in\ iouiid itjcli
on the eve of the order, noting that the.latter had no efeci on the state of
insolvency, which had manifested itself already earlier, and on the subsequent
bankruptcy of the Company; it then noted that the requisitioning order was not
declared unlawful but merely "inutilitor datum" (uselessly issued) in the sense
that it was not suitable for resolving the serious economic difficulties in which
the Company found itself; he finally claimed once again that no unfair damage
could be linked to the reauisition. concludine that the a~oeal be reiected and that
. .
the appellant he sentence'dto pa;ment of c&ts.
The summations of the parties were stated in the terms reproduced above and
the case was taken up during the hearing of 16November 1973.
MOTlVtS BEHlND DECISION
The tirhi mi>ii\e of ths .ippcal ir uithout i;>unddi.i>n. IIcensures itic rcjecii,in
of the peiiiionr proposcd sith rep3rd to the \l~,,>r oi 1':ilcriiioirhu. dccurding
1%)dppellani. sas IO k hcld resp,in>ihlc ~oinil\ ;inJ sr.\crnllv wiih the \lini,ier
of the lnterior for the damages iufered by thecompany.
The Court amply motivated its own conviction regarding the lack of passive
legitimation of the Mayor of Palermo, demonstrating on the basis of the provis-
ions of the law aoolied for the issue of the reauisitionine order (Article 69.
Ordinance of the al Entities of the Sicilian ~egion, corr&pondin~ to ~rticle
153,of the consolidated text of the communal laws and Order No. 148,dated 4
Februarv 19151and of its intrinsic content (erave necessitv or ureencv in -.e
matter of pubiic safety) that the Mayor acted in his capacity as government
official, that is, as an organ of the administration of the interna1(Affairs) of the
State and not as head of the communal administration, drawing the conclusion
that only the administration of the State - and not the communal administra-
tion - had to answer for ils conduct.
Since thc appellant did not present any substantial line of argument to counter
the Court's motivation on that point, the Court can only state that said motivation
is in line with legislative regulations in this matter and with the teachings of the
Supreme Court, adding that further confirmation of this adherence to leglisative
procedure is to be found in the 23 April 1972decision of the President of the
Republic (which therefore was introduced during the tnal in the first instance)
regarding the extraordinary remedies presented hy the Mayor of Palermo against
the decree of the Prefect of Palermo, dated 22 August 1969, Number 22979,
which upheld the Company's administrative appeal procedure. The President of
the Republic indeed declared such remedies to be unacceptable, as relates to the ANNEXES TO THE MEMORIAL 381
first remedy presented by the Mayor in his capacity as government official and
the other as head of the communal administration, noting that the Mayor, in his
capacity as government official,and the Prefect do not represent two different
subjects under the law but instead are both organs of the State, that is, of the
same entity, moreover in order of chain of command, which is why one could
not challenge the actions of the other, and that, as for the other remedy, one
could no1perceivea juridically evaluable interest on the part of the Community
10 defend - aeainst the Prefect - the actions of the Mavor as eovernment
official:IIaddsd th21 the p<iuer Io di,p\>\c ci( priiatc property iis pcr Article 7.
I.av Ko 2248. dated ?U \I<irch Ih65. ,\nne~ C (cxprr.,,l) restaicd in thc rcquisi-
iionlngorder. inaddition to ,\rticlc 69oCthexhovr-mcntioned 0rdin:ince). relates
icia pùu:r that crin hr.legitimliiclyercrci,cul onlv hy the rluthor~t~csof thc St:~te
and thal I~<ISCauthor~t~e\also in~ludethe Mii)or ;is3 gorcrning auihority. in ii
subsidiary manner, when he acts in lieu of the Prefect.
Regarding this first motive, referencemust also k made to the decision of the
Combined Divisions of the Suprerne Court, of 7 July 1967,Number 1676,which
the appealing Company again cited in support of iis own thesis, in spire of the
(act that the examination of said thesis in the first instance turned out to have
ken negative. One cannot in any way whatsoever repeat that this decision
"concerns a different case ai issue, without any analogy to the case under
examination", as the Court asserts, because it deals with an order for the emer-
gency takeover of a privately owned building, issued by the Mayor under the
provisions of Article 7, Law No. 2248, dated 20 March 1865,Anncx E, that is,
an order substantially similar Io the order involved in this trial.
It must be said, instcad. on the one hand, that the Supreme Court in this ruling
repeats the affirmation - stressed several times in the past - that these orders
(both those based on Article 7, Law No. 2248, dated 1865.Annex E, and those
under the provisions of Article 153,Consolidated Text, No. 148.dated 1915)are
issued by the Mayor, in his capacity as government official, and that going
through administrative channels via the Prefect is acccpted as remedy against
such orders (neverthelesscoricludingas to the passive legitimation of the City or
State with reeard to the netition for oav. .t of damaecs: and. on the other
hand. ihat the question ioncerning the Icgitini;itionof the Siaic or of the Com-
munit! is no1criiniined hirc. eithcr hecaurc 11a.is no! propoied in thcw icrmi
(perhaps because the communal administration was the indirect beneficiary of
the takeover order), but rather from the angle of a demand to extend the
confrontation between parties to the Prefect.This decision thercfore cannot count
as precedent contrary to the frequently asserted principle in connection with a
specific, in-depth examination of the issue at st=ke in this case, according Io
which damages that can accrue to ihird parties - in relation to the orders issued
by the Mayor in his capacity as government official - mus1be charged to the
State and not to the Community (Court of Cassation (Highest Appeals Court),
14 June 1967, No. 1329, in particular; Court of Cassation, 5 Ianuary 1966,
No.92; Court of Cassation, 4 May 1964, No. 1061; Court of Cassation, II
August 1962,No. 2563; Court of Cassation, 7 June 1959,No. 1718,etc.).
The Court's decision Io reject the petition with regard to the Mayor of Palermo
must thus be upheld, leading to the appellant's king sentenced to payment of
costs in favor of said appellee.
As regards the Ministry of the lntenor - whose passive legitimation was not
the subject of disputc and was furthermore afirmed by the Court in a ruling in
favor of this party which was not challenged - one must above al1clarify the
possible misunderstanding chat can spring from the fact that the Court affirmed
that the Prefect's decrec "substantially revokes the Mayor's Act, since thepurposes it was aimed at were considered to be impossible to attain . . ." in
juxtaposition to the thesis of the trustee in hankruptcy who saw in this decree a
declaration as to the unlawfulness of the reouisitionine order.
Thît in the ihinking of ihcoriginaljudges lisinviilv&a mcrclyterb.11question.
wiihout liny substîniial sipnificancc. is dcmonsiraied by the simple f.ict ih;ii ihe
Court also moved on to examine the problem of the concrete existence of the
damaee- claimed bv the PlaintiKas havine been-ca~ ~ ~bv the order. whereas -
if this h3d in\,il\ed a truc and pruper reiocJtian oi the (Iliufull requiiitioning
ordcr - one rould no1 spcak of dnni;iges hiii. on ihe ionirar?. of ihc i.ic1rh.11
indemnit! sas duc for ihc Dcrioddurini! u,hich ilbrourhi irs elTccl<to hex. il
is thus ecident that one cahot attribuïe a revocationcontent to the Prefect's
decree, above al1because the power to revoke rests with the same authority that
issued the order to be revoked, which is why only the Mayor, but no1 also the
Prefect, could revoke the requisition ordered by the former and not by the latter,
or, in the second place, because it would have made no sense to revoke - by
means of the Prefect'sdecree of 22 August 1969-a requisition order which had
alreadv ceased to be in eiïect on 30 Seotember 1968.In the absence of an exoress
provision in the Prefect'sdecree,which was confined to ordering that "the remedy
appealing the decision is hereby accepted". the Court only wanted 10say - in
talking about revocation - that the defects in the requisitioning order, as dis-
closed by the Prefect, are defects of merit and no1defects of legitimacy; but it
did no1 take up the point that becomes relevant here. that is to Say, that the
Prefect'sdecree works ex runc[as of then] and not e.r nunc [as of now] and hence
deprives the takeover of the assets of the appealing Company, as performed by
the administration, of any justification. which is why, in any case, there anses
the prohlem of the damages that the Company may have suiïered as a result.
This is whv il would not even be necessarv - exceot for the sake of com~lete-
nesb - Io add thdi I,r the ïike of liscurÿc). e\cn in juridiwl irrm>. ihc Court's
altirrn;itiun uar urong hcr~u%e ii1, quiic.evidenl ih:it- uhcn ihc Preicci po~nied
oui thai " .the uliim~ic.gwil oi thc rcuuisitian could ntit h.ii.e hem ~iiia;ned
in practice through the order itself" and that ". . .the order generically lacksthe
juridical cause that could justify it or render iloperative" as was then amply
demonstrated, concluding with the severe finding that ". . . the Mayor . . .
resortcd to requisition as a step aimed more than anything else at bringing out
his intention to tackle the problem just the same" - he is obviously showing a
typical case of excess of power which, as we know, is a defect of legitimacy on
the part of ihe administrative act (Art. 26, consolidated text, Council of State,
approved by Royal Decree No. 1054,dated 26 June 1924(illegible)).
Moving on to an examination of whethcr the reported damages still exist. 1
must say right away that, as regards the damages consisting in the fact that the
order triggered the Company's hankruptcy, the negative conclusion arrived at by
the Court is amolv and convincinelv motivated and (1mus1sav) that the cntical
considerations hithe appellant :ré not sufficient so as to l&d to a diiïerent
determination; in any case, as the Court pointed out, there is no proof whatsoever
as to the damaees incurred from that viewooint
The fact thaï the Company was insolvent during the lime immediately prior
to the Mayor's intervention - in connection with which we recall the many and
noisy demonstrations which this gave rise to. as we are reminded by theCourt -
i~ ~ufficient to rule out anv causal link between the subseauent reauisitionine -
ordrr anJ the Comp.in)'j L>.inkrupic)and that thc Ciimpan)'~si;iic oi insol%eiicy
na, dcci\i\e xnd sutti~.icnic.iurc.for ils failurc (Art 5. H~nkr~ptc) I..I\VI.
In dccidinc ihir çxc. the ar>pell~ni'sIinciifara~nicnt 1,noi iiitlizieii10dcriritc
this prior in~olvencyof the ~Ampany of itsjuridica~relevance; according tothat ANNEXES TO THE MEMORIAL 383
line of argument, the stockholders of Raytheon-ELSI, having made good for the
losses of prior years would also take action to bring about an orderly and
favorableliquidation of the Company, fhus forestalling bankruptcy, which instead
had become necessaryas a result of the takeover order hy the Mayor. The Court
has no difficulrvin considerine it nrobable that the bankruotcv was reauested bv
the Company iiself with the intention of getting out of the'vePyserioui situ&ok
of operational unavailability created by the takeover; but, apari from the other
questions of proof - no1supplied, by the way - which would arise in this
conneclion, il seems clear, on the one hand, that this does no1 eliminate the
decisive eflect of the state of insolvency, because, apart from everything else,
relevant proof on this point should have been aimed not at the mere factual
possihility ofthis action by other persons in support of the solvency ofRaytheon-
ELSI but rather the juridical possibility in the sense that there was a juridical
relationship between said third parties and the Raytheon-ELSI Company so as
to give the latter the right to demand their intervention.
Apart from these decisive considerations, it is then certain that the damages,
such as they were claimed, since they are wnnected to the bankruptcy, could
never be considered to he existinr.
ï'hc spesifi~Ii\ring of theic ~aiia~c>. I;>r bhich rompcitsition ia dskcd lack, 3
minimuni ni rrsdibility he:ausc ihcy arc jCiiJ Ici cdiisistor 2.062.411,600 lire.
edudl to tlie dill'crencehciivisn the xrrcsscd \duc oi the csiahlirhnicnr. phni.
and eauinment. as shown on the balance sheet. on the date of Ravtheon-ELSI'S
h~nkrupt:). uiih ù figure oi6.h?.?.oOO.UUO Lire ~nd the csririixrc[i'rcp3red<inII
Oclober 156h. h) the icchnis.il c.,nsultant appointed b! thc <ificixlb~nkruptcy
rcdirer. ihouing a ligurc oiJ,51~i~.56d,JiiO Lire.The court qiiitec~>rrccilyohscr\ed
ih~i thcrc ii no pr,~oi 3s 10 the rcliibilit! 01'the tigurcs >houn in the b.il.in~,c
\hcei ;ind hcncc 2s io the iriu.tl dcicrmin:ition oithir \;iluc rcdu:tion. quitc ap.irt
irom the fdct ihat. evïn ~ciurdin~ io the b.tl;inrc shcet to itliuithin ihc hudrct,
il would have been necessarvto sùbtract the liabilities nertainine to the amartGa-
tion or modernization fundi; and the Court added in'an equalïy correct manner
that there is no further, likewise indispensable proof that the above-mentioned
reduction was caused by the requisition.
One can further add that the daim pertaining to this alleged value reduction
does not seem to be the result of adequate reflection since the sums indicated
result from the various values specifically assigned inthe two above-mçntioned
documents not only to the plant ;ind machinery, and fixture and fittings but also
to the ground and buildings. Now, while the values assigned by the consultant
in the 11 October 1968 report to the ground and buildings are considerably
higher - and no1 lower - than those shown in the balance sheet (respectively,
503,938,500 Lire and 1,213,040,000 Lire, as against 167,000,000 Lire and
915,700,000 Lire), the diiïerence as regards the plant and machinery, and as
regards fixtures and fittings (respectively, 2,782,459,940 Lireand 61,150,000Lire
as aeainst 5.329.600.000 Lire and 210.500.000 Lirc: is considcrablv lower: and
sincc ii icincon~ci\ahle ihdi itmis the i.ikco\er [thlit purhcd upl ihc \aluc ofthe
land :inJ the building,. 3 minimum of logicho.11.ih:iw rcquircd thit the J;im.igcs
\htiuld br. rctlccicd in the sonsiJr.r.ihl! Iiighsr iigur: rc,uliing ironi ihc JiNercncc
hcinr.cn ihc \;duc of ihc plant and ni~;hiiicr) and the fixtiircr and tiitin~. ~lonc
in thc iu\> JNionent\ iiithe unaurit of ?.h.)ti..I~)U.OhL liirc
The ihoie :on~idcriiion~ pr,i\c th.ii rhebctllius ~vhichire. ,o to qxik. intrinri2
in the claim and these shortcomings in the evidence can never be corrected by
the technical expert opinion requested by the officialreceiver, not to mention the
fact that. in any event, no expert or consultant could now in any way estahlish
the actual value of the plant and equipment on the date of the requisitioning384 ELETTRONICA SICULA
order which - according to plaintifi's viewpoint - constitutes the element
indispensable to determine the damages claimed.
This is why the Court's ruling must be upheld, and the receiver's appeal
dismissed.
On the other hand, the Court considers this appeal to he justified as regards
the damages derivahle from the operational unavailability of the installation,
plant, and equipment unhichare the subject of the takeover order, as a result of
the execution of that order. The Court touched on this issueonly hriefly, stating
that it has not heen ". . .proven that the damages can be lied to the fact that
the facility was not accessible, a state which moreover was limited in terms of
..... . .
In point of fact, it inust he noted that the takeover order was specifically
directed at "the plant and relevant equipment owned by Raytheon-ELSI of
Palerme", in other words, not at the Company as a whole, but rather at that
specificproperty of the Company. And, to rule out any possible misunderstand-
ings springing from soine hint given hy the Ministry of the lnterior as to the
failure to executethe order (something that isveryimportant becausethe damages
can he derived not from the order itself but from ils execution, that is to say,
from the material hehavior of the administration), it mus1be affirmed that instead
ilwas fully carried out, as one can see among other things from the fact that the
Mayor appointed two representatives (Dr. Armando Colena and Attorney Nicolo
Maggio) with the task of making sure that the orders and instructions given
would be properly carried out, along with the assignment given to MI. Aldo
Profumo to manage the plant under thc direction of the two ahove-mentioned
representatives (Mayor's orders No. 56812and No. 57012,dated 6 April 1968);
al1of this applied for a duration of six months, that is to say, from 2 April until
30 Septemher 1968.
It is indisputable that, if the takeover order had heen lawful, this would
necessarily have led to the payment of an indemnity (Art. 835, Civil Code);
indeed. inthe Mavor's order itselfweread that "a subsequent order willdetermine
the t;ikcoicr indrniniiy id br'.~\r:irdcdI<Iihc .iho\e-nicnii,?nci1(:i>mp.in!". SOL\.
;ip;irt frum the conridcr.iiidii thdi the t'silure iu ~ictcriiiiii~ihi. inJcninii) (nu
iuthoriiv bas c\cr nroiccded iu do ~h;il:ilih<)urh [hi, 3hoiild h~ic hcrn dune
before ihe takeove; came to an end), hy itseli would have heen enough to
recognize the unlawfulness of the takeover (Court of Cassation, 7 July 1967,
No. 1676, op. cil.) one cannot fail to stress the incongruency of denying the
Company - which had been suhjected to this unlawful takeover - an indemnity
which most certainly it would have been awarded if this same action had heen
taken lawfully hy the administration.
By way of application of the juridical principles that were never doubted, it
mus1instead he said that the deorivation of the eniovment of an asset. undereone
by the private propnetor, is in iiself an economic SaCrificewhich entajls adeGate
indemnification when it is lawfully carried out (takeover, requisition, etc.) and
restitution of damaee. when il is unlawful. a damaee that 1sconcretely ex~. .sed
si Izasi in ternistiithe curreni cLonoiiiisialuc oi',.i~dusiiiru~.~(ciijo!menij liseIr
c~scpt icir ihc Jcnion.;ir,iiiot,iiluriher d~ni~gci. .i,iscunrrintl\ rcpc.iicil in ihc
copious and well-known iurisprudence of the Supreme Court in the analogous
matter of emergency takeovers that had been ordéredfor the execution of p;blic
works, and which became unlawful.
There is no foundation to the objections which are raised on this point by the
Ministry of the Interior which maintains in point of fact that the establishment
was occupied hy the personnel prior to the requisition and that, either for this
reason or by decision of the Company to cease al1activity as of 31 March 1968 ANNEXES TO THE MEMORIAL 385
(in other words. orior to the reauisition). the establishment was no loneer able
[s !icld an! earni;i@si"rihc ~oii;~in" al;hirugh ruch cJriitngs uoulii ha\rce.i%ed
linjna) upon dccl.ir:iiion oi hankruptsj. froin [hi, IJdc<lui~drighily 1h.11ihcrr.
wouldhave been no income of which the Comoanv could have hien deorived on
account of the requisition and which could have.been compensated Gr by the
requisitioning authority.
Reeardine the event as such. the resoonse is niven in the form of a reminder
of ith:ii>t:i,sid edrliir ÿhout ihc do,~umr~ni.itii>pni.ri;iining tu the ;pi.~~iri:.,iilu31
act ol'taking pwsciiion of ihc e,iahli.hmcni b\ ihc M3)or \<hichhoueker could
not have been adequately eliminated by the ci~cumstancethat the requisitioning
authority tolerated the illicit takeover of the workplaccs by the personnel; and,
rightly so,that the Company which was stricken by this order does not have the
hurden of proving that, during the period of the takeover, it would have derived
an income from the occupied assets since, as was noted, the damage resides in re
ipsa (in the matter itself) and consists in having been deprived of the enjoyment
of its own assets which, since this was unlawful, clearly makes the occupier
responsible at lcast for the payment of the economic value of such enjoyment,
so as Io restore the property equilibrium which was upset by the unlawful act.
Nor can any major obstacle ta this conclusion arise from the bankruptcy declara-
tion since, during the time before that, the trustee in bankruptcy (receiver)
exercises a nght of credit due the bankrupt Company which fonns part of the
hankruotcv (Art. 42 K.. Bankruotcv Law) and for the subseauent oeriod. he
exercises &I inhcrent right since 'he;s pre;ented from the detetkinat'ion of the
asscts and their use to the advÿniage of the creditors; not to mention that - by
wav of corroboration of the leealib of the conclusion arrived al - there is the
consideration that the delay inuthebrocess of taking possession by the receivers
delayed the liquidation operations and hence the realization of the value of the
requisitioned o...ertv to the evident damaee to the bankruotcv. .sets.
Reg~rdiiig ihç spc~iticdctcrmiiinii~in JI lhcsc dam~gcr. equivdlr.iiias irc siid
bcforc. to ihc cc,>n.>mic\al.~c ciihc cnp)mr.nt ~)I'aiJ rcqiiisiiioncd propert). in
the absence of proof as to any greater damage, the Court states that, in the
absence of terms of reference, also because of the singular nature of the requisi-
tioned property one mus1 proceed to liquidation in an equitable manner in
accordance with Article 1226,as recalled in Article 2056, Civil Code. From this
angle, one may consider that the value of this enjoyment can be equated to the
amount of the interest al a rate of 5 per cent per year of the value of said
property, as ascertained by the technical consultant appointed by the official
bankruptcy receiver which. as we said, was equal to 4,560,588,440 Lire; it is
noted in this connection that onecannot go along with the idea expressed by the
receiver who instead asks for an interest rate of 10per cent, equal to the rate of
amortization of the industrial plant, hecause this amortization rate (even al a
higher levelin view of the fast obsolescence of the plant in question, as per page
2 of the report prepared by the ahove-mentioned technical consultant) can be
allowed for the part of the ahove-mentioned sum pertaining to plant and equip-
ment while, on the other hand, a by far lesser rate than 5 per cent should be
allowed for the other, larger portion which is made up of the value of the land
and the buildings since they compensate each other, one can consider it equitable
to settle on a rate of 5per cent for the whole.
Since the takeover lasted six months, the damages based on this criterion
amount to 114,014,711 Lire (=4,560,588,440 x 5:2) Lire; that is the sum that
100
mus1he paid to thc Company's receiver by the State Administration.386 ELETTRONICA SICULA
On this sum are due the interest payments which, according to the principles
vrevailine in the matter of liahilitv for unlawful action. derive from the fact of
ihe unlawful act itself and hrnce mus1be counted al least as of I October 1968,
the date the takeover ended, as expresslyasked for by the plaintin.
As for the expenses, there is no reason to deny the principle of the position of
the loser (Art. 91, c.p.c. (Civil Procedurc Code?)), therefore theyare charged to
the Ministry of the lnterior which mus1 return them to the receiver, and with
respect to the Mayor of Palermo, the receivermus1bear the costs.
The former will he paid taking into account - as regards the value of the
case - the sum awarded (illegiblcwords) of the winning party and no1 the one
that was asked for (Art. 6 of the Rate Schedule).
In accordance with the attached notes, the payment for the first instance shall
total 2,000,210 (illcgible) Lire,including 55,710 Lirefor out-of-pocket expenses,
344,500 Lire for diririiprd ocuraio(r aettorney fees) and 1,600,000 Lire for
honorarium; for the second instance a total of 2,388,610 Lire, including 66,610
Lire for out-of-pocket expenses, 202,000 Lire for dirird iiprocuraroa rnd
2,120,OWLire for honorarium.
The costs for this proceeding in favor of the Mayor - considering his much
simpler position - can be assessedai a total of 1,826.600Lire, including 26,100
Lire for out-of-pocket expenses, 200,500 Lire for dirirriprd oicuraroa rned
1,600,000 Lirefor honorarium.
THEREFORE
The Court
In definitivelyruling on the petition of the above-mentioned parties,
Partly revisingthejudgment of the Palermo Court, dated 2 February-29 March
1973,appealed hy the trustee in bdnkruptcy of Raytheon-ELSI Stock Company,
sentences the Ministry of the lnterior, in the person of the Minister, to pay to
said receiver the sum of 114,014,711 Lire withthe legal interest due as of 1
October 1968,as well as the costs of the two instances (degrees) ofthe trial. for
the first instance. of 2.001,210 (illcgible) Lire and for the second instance of
2,388,610 Lire.
As for the rest, it confirms the challengedjudgment and sentences the above-
mentioned trusiee in bankruptcy to pay the Mayor of Palermo the costs of this
instance of the trial, in the amount of 1,826,600 Lire.
(Schedule of fees paid.)
(Illegiblehand entries.)
Registered on 24 January 1974.
(illegible stamps and signatures.) ANNEXES TO THE MEMORIAL
Annex 82
JUDGMEN OF THE SUPREMC EOURT OF APPEALSD ,ATCD 26 APRIL1975
(Translorion)
R.G. 1448/2103/74.
REPUBLIC OF ITALY N THE NAME OF THE ITALIANPEOPLE ,HE SUPREME COURT OF
APPEALS, FlRST CIVIL DIVISION
Hearing of 26 April 1975.
Consisting of Dr. Giuscppc Mirabelli, Prcsiding Judge, and Associate Judges:
Dr. Ugo Milano (illcgible),
Dr. Francesco Fdlletti,
Dr. Vincenzo D'Orsi,
Dr. Fernando Santosuosso,
Dr. Giuseppe Scanzano,
for the first appcal (No. 1448174)filcd by
The Office of the Trustec in Bankruptcy of Raytheon-ELS1 S.p.A., in the
person of its trustec in bankruptcy, Attorney Giuseppe Siracusa, domicile of
choice at 45 Sabotino Street, Rome, clo Attorney Ennio Parrelli, reprcsentedand
defended by Attorney Carmelo Lo Cascio, as per power of attorney appended
to the peiition.
Appellonl
Versus
The Minisrer of the Inierior Summoned
File: Ilo (2103174)
by
The Ministry of thc Intcrior of the ltalian Republic, in the person of thc
Ministcr in office, representedand defended by the Officeof the Attorney General
with headquarters al Via Portoghesi 12, Romc.
Versus
Estoiein Bonkruprcy O/'Ro,'rhenn-ELSIS.p.A Summoned
against the sentence of the Palermo Court of Appeals dated 11/23/73-1/17/74;
Having heard the report on the trial held in public sessionby Assistant Judge
Giuliano;
Having heard Attorney Lo Cascio:
Having heard the Public Prosccutor in the person of Assistant Attorney General
Dr. Grossi who in his summation ziskedthat both appeals be turned down.388 ELETTRONICA SICULA
COURSE OF THE PROCEEDING
On 20 December 1969 the trustee in hankruptcy of Raytheon-ELS1 Stock
Company summoned before the Palermo Court the Mayor of Palermo and the
Ministrv of the Interior and oetitioned that the..be ioint.v and severallvsentenced
tu compcnution of dlirnagcsuhiçh hc i.\crlcd acrc inflicied upon ihc C'onip~ny
as a result of the cxccuiion uf :in order for the tükcovcr of itr cii3blishniciii .ind
cquipmcni, ;in ordcr whirh tlic M3)~)rh~d ISSJC~ on I April 1968.ahoril) hcfore
the hankr~pic) decl~raiion. 'Thci:ikr.oicr w.is in eilc.'t uniil 3uScptcnib:r IOOX;
ihc .\la,,)r'h ordcr h3J kcn c~nc:llcd h, ihc Prcfe;i (ln ihc .rounds of unl;iu.ful-
ness th;ough a decree dated 22 ~ugust-1969.
The two defendants appeared in Court. The Mayor argued by way of objection
that he had no passive legitimation (that he could not be sued); his thesis was
accepted and this point is not debated here.
The Ministry of the lnterior opposed the petition, arguing that it was without
foundation. In its ruling of 2 Fehruary-29 March 1973, the Court cleared the
Ministry, repeating that the damages claimed by the trustee in bankruptcy had
not been caused by the takenver (the requisition).
However, on appeal by the bankruptcy estate, which the Ministry opposed,
the Palermo Court, through the sentence now challenged, by way of partial
revision of the decision handed down hy the first judge, sentenced the Ministry
of the lnterior topay to the bankruptcy estate- as restitution of damages caused
bv the reauisition - the sum of 114,014.711 Lire, olus lelzal interest as of I
Octohcr 1468.The Court oh~cricil th;ii the unl~uïul r:quisith>ning u.a< ü source
of Iiabilit\si)ihat.iiII h~d hccn I3uful. IIaould h3i.r.enl;iiled the ohli~iitioIO
pay an iidemnity. And, excluding any other item of damage derived From the
hankruptcy, it considered the only reparable damage to consist of the deprivation
of the use of the establishment and equipment of the Company for a period of
six months and as a yardstick for reparations for this damage it gave the
"economic value of the enjoyment of the requisitioned property". This was
determined, c.~honn er uequo (on the merits of the case). al a ralc of 5 per cent
per year of the value of the property, specifically,4,560,588,440 Lire.
The Comoanv's trustee in bankruotcv. -. .scd an earlv and routine anceal.
with a singie count, illustrated later by a memorandum; the Ministry oE the
lnterior fileda counterao..al which contains an incidental remedy, with a sinale -
count.
MOTIVESBEHIND DECISION
After reviewing al1 the appeals, under the provisions of Article 335, C.P.C.,
the Supreme Court considers above al1the incidental appeal which,quite logically,
mus1have precedcnce, sinceit has to do with the issueof the existenceof reparable
damage, while thc principle appeal concerns thc payment of the reparation.
The Ministry of ihe lnterior charges violation and wrong application of Articles
2967and 2043, C.C. (CivilCode), maintaining that the challenged sentenceclearly
affirmed the existence of reparable damage. In its opinion, the Court erred in
referring to the obligation to pay indemnity as applicable to anyone who lawfully
proceeds to requisition: itdid not consider that - in the case of lawful requisi-
lion - the compensaiion is esiahlished by law according to objectively predeter-
mined criteria, refraining from ascertaining the specific continued existence of
reparable damages. In cases of unlawful requisition, leading to liability for dam-
ages, one must instead find out whether it really caused reparable damage. But, ANNEXES 'ro THE MEMORIAL 389
the Ministry adds, the Court of Palenno simply presumed the existence of such
a damage.
This point of censure is without foundation. The challenged scntence as a
matter of fact, based on a factual evalution, ascertained that the requisition did
indeed deorr~~ the C~mnanv o. th, availabilitv and hence the usufruct of ils own
c>tihlishineni dnd of the eqiiipnicni ~oniaincJ therein liir3 periud ois#\ nionthr
,\nd ii Ioricdll, de~li~ced frùni ihis ih;ii s:iid iirpri\<iti<>JiJ C.IUSÇ d.irnd.e eq~al
to the vaiue of the usufruct itself.
Through the principal appeal, the trustee in bankruptcy charges "violation of
Articles 1226and 2056, CivilCode, in relation to Articles 113, 115, 132, 161a ,nd
360, c.p.c.". It deplores the fact that the Court in question came up against a
contradiction in settling the reparable damage since, on the one hand, it asserted
that, for the purpose of determining the damage, one would have to consider the
annual amortization rate of the requisitioned property and that said rate was at
least 10per cent of the value of the industrial plant facilities while it was by far
less than 5 percent for the land and buildings; on the other hand, it had settled
the damage at a smaller sum than would have resulted for the amortization of
the industrial plant alone, as calculated at the rate of 10percent. In this respect,
the trustee in bankruptcy bases his arguments on the values of the individual
sources ascertained in the challenged decision itself.
This criticism likewisedoes not merit acceptance. It is, as a matter of fact,
aimed onlyat marginal considerationsentertained by the Palermo Court which-
after having ex boiio et oequo settled the reparable damage on the basis of the
annual rate of 5 per cent of the total value of the requisitioned property, under-
stood here as "value of usufruct" - added, adabundanriam (on topof everything
else) that one could not instead go along with the "thesis of the trustee in
bankruptcy" which referred to the amortization rate.
In rejecting thisthesis, the challenged decision in reality made an error calcula-
tion. imol.,ne L loeical contradiction. as chareed bv .,e ban,runtcv side. B.t ,
th13 ilcicinot Jerr:t<t (rom the lis1 thdi the rctilcmcni of ihc rcpdr.ihle Jdmdgc
was donc in .in equii;ihle manner .ind hencc nit11 4 Nciii.il .l,ic.ssnir.ntihai rinn<>i
be censured here~wilhregard. not to the amortiration rates, but rather to al1of
the circurn,tsncc~ ini~ilvc~d in ilic ;pecitis~iir.. eiin~idcred .I,.Inh.ile. B) iirtuc
of 11, naiure. ihe ,,ih<i~s i.1iic,qi<.;ciilcnicnt 1.Jii.,~rcediriim an) ri-id rpeiirica-
lion, I'hc con\iJcr.Iti,inr .I\IciIhc ;inidrtii)diionr:iic, iliihe 1n.h~idual (iropcrt!
items entered into su~erfluouslvbv the Court involved conflict with theresult al
which it (the Court) irrived bit io not justify an appeal against the challenged
decision since one could not force the retrial judge - as the bankruptcy side
would have it - to proceed to an equitable settiement, that is to siy, io his
discretionary evaluation relating only to one of the elementsthat can be examined
to that end.
In conclusion, both appeals are rejected herewith; and it appears to be fair to
divide the cosrs of this trial between the parties.
The trustee in bankruptcy is sentcnced to loss of deposit.
The Court therefore, after reviewingthe appeals, rejects them.
The cost of the appeals court trial is to he shared between the parties.
The Coun sentences the bankrupt estate of the Raytheon-ELSI Company to
forfeiting its deposit.
Rome, 26 April 1976 ELETTRONICA SICULA
Annex83
[Nor reproduced]
Annex 84
[Nor reproduced]
Annex85
SENAT EF THE REPUBLIBILLSASD REPORTS, 1948-19N.,344-A,REPOR TF
THE MAJORITY,AGE 2, SENTO THE OFFICE OF THEPRESIDENT28MAY 1949 ANNEXES TO THE MEMORIAL
Annex 86
COMMERCIA TLEATIESH:EARINGB SEFOR EHE SPECIALSUBCOMMITT ONE
COMMERCIA TLEATIE SND CONSULAC RONVENTION CO,MMITTE OE FOREIGN
RELATIONU S,NITEDSTATESSENATE 8,2~CONGRES2 S, SESSIOK(1952)
HEARING BEFORE ASUBCOMMITTEEOF THE COMMITTEEON FOREIGN RELATIONS,
UNITED STAES SENATE E,IGHTY-SECOND CONG SEESNS,SESSION ON TREATIESOF
FRIENDSHIC P, MMERC AN,D NA\'IGATION BETWEEN THE UNITED STATESAND
COLOMBIA, ISRA ETH,IOPII, ALY, ENMARK A,D GREECE
EXECUTIVESM AND R, EIGHTY-SECONDCONGRES SlST SESSIONAND EXECUTIVESF,
H,I,AND I, EIGHTY-SECONCONGRES SECOND SESSIONM AY 9, 1952
COMMITTEE ON FOREIGN RELATIONS
Tom Connally, Texas, Chainnan
Walter F. George, Georgia Alexander Wiley, Wisconsin
Theodore Francis Green, Rhode Island H. Alexander Smith, New Jersey
Bnen McMahon, Connecticut Bourke B. Hickenlooper, Iowa
J.W. Fulbright, Arkansas Henry Cabot Lodge, Jr., Massa-
chusetts
Charles W. Tobey, New Hampshire
John 1. Sparkman, Alabama
Guy M. Gillette, Iowa Owen Brewster, Maine
Frances O. WilcoxChiefoj'Sfaf
Car1Marcy, Siof Associate
C. C. O'Day,Clerk
Mosella R. Hammer,AssistnnrCIerk
Nancy Hanchman, AssisranlClerk
SpeciulSubcomn~irreen ComnrercialTreariesand ConsularConvenriuns
John J. Sparkman, Alabama, Chairman
J. W. Fulbright, Arkansas Bourke B. Hickenlooper, Iowa
COMMERCIAL TREATIES
Friday, May 9, 1952
UNITED STATESSENATE ,OMMITTEBON FOREIGN RELATION SUBCOMMITTEE ON
COMMERCIAL TREATIEAND CONSULAR CONVENTIONS
Washing~onD,.C.
The suhcommittee met, pursuant to notice, in the committee hearing room.
United States Capitol, at 10a.m., Senator John Sparkman (chairman of the
subcommittee) presiding.
Presenr:Senators Sparkman (chairman of the suhcommittee) and Hicken-
looper.392 ELETTRONICA SICULA
SenororSpurknion: Let the committee come 10 order, please.
The members of tbis subcommittee, in addition to myself. are Senaior Ful-
bright, who is out of town, and Senator Hickenlooper.
The chairman of the Committce on Foreign Relations, Senator Connally, has
asked this subcommitiee Io consider six treaties of friendship. commerce and
navigation, now pending before the committee. The treaties now hefore us are
the following:
ExecutiveM (82d Cong., 1stsess.),treaty of friendship, commerce,and naviga-
tion witb Colombia;
Executive R (82d Cong., 1stsess.),treaty of friendship, commerce, and naviga-
tion witb Israel;
Executive F (82d Cong., 2d sess.). treaty of amity and economic relations with
Ethiopia;
Executive H (82d Cong., 2d sess.), agreement supplementing treaty of friend-
ship, commerce, and navigation with Italy;
Executive 1(82d Cong., 2d sess.), treaty of friendship, commerce, and naviga-
tion with Denmark; and
ExecutiveJ (82d Cong., 2d sess.). treaty of friendship, commerce, and naviga-
tion with Greece.
1propose, if it is agreeable io the subcommittee, to ask represeniaiives of the
Department of State first to direct their comments to the six commercial treaties
and then 10the two consular conventions.
In recent years the Senate has given ils advice and consent to treaties of
friendship, commerce, and navigation with ltaly in 1948, Uruguay, 1949,and
Ireland, 1950.These postwar ireaties are part of the program that ihe Department
of State has been carrying on ovcr a pcriod ofyears seeking to modernize treaties
with a number of countries with whom earlier treaties were negotiated in the
nineteenth century.
The Department of State, in a recent publication, has described ihesetreaties
as -
a charter of the American citizen's rights when he is in a foreign country.
They assure him for the most part of the fundamental personal liberties that
he enjoys in ihis country. They pledge constant protection and security for
his person and properiy. They allow him to engage in the normal run of
business pursuits, whether by himself or in association with others, and in
general assure to hirn the privileges necessary to carry on his business
eliectively.
The first witness this morning will be Mr. Harold Linder, Depuiy Assistant
Secretary of Staie for Economic AlTairs.Mr. Linder. will you proceed. please,
sir, in your own way?
STATI-\![!NT OF H:\KOI.D 1: LISDCK. I>tl'l:'IY .ASSISTr\ST
SC<.'RETARI'OF STATE f?OR FCO.SOhllC'At'tr\lKS. DEP,\K'r\ltUT
OF STATE
Mr. Linder: Senator, the treaties with Colombia, Greece, Israel, Ethiopia, and
Denmark which are now before vou bring to nine the number of trcaiies of this
gcncril t!pc uhich h~\,cbccn signcd on behalf ai the Unitcd Si~irs sinccthc uar.
You uill recallihilt the firri iuo trcatiss of ihii >cries.iho\c wiih China Ii:ily.
ucre considcrcd h) ihc coniiniticc in 1948and ihoie uiih Urugu;i! and Ircland ANNEXESTO THE MEMORIAL 393
two vears later. and that those treaties were aooroved bv the Senate.The treatv
withitaly hasn'nwheensupplementedby an akeement, glso before you, designed
to bnng il abreast of developments reflected in the more recent ones.
Similoriries und Differencesbefii'eenrlle Commerciol Trearies
While there are differences among these nine treaties, funddmentally they are
alike. The treaties with Colombia, Ilenmark, and lsrael follow closely the treaty
with Uruguay, which in turn wasa restatedform of the one with Italy. The treaty
with Greeceis also bascdon the Uruguay model, but with changes inmatters of
form. The treatv wiih Elhiovia is a soeciallv adavted version of the document
ncgoiiatcd uith'thc othcr sohirics. ikt,i,~\,~cokidcrablc abridgcnicnt of ihc
ubual provisions and the addilion oi articles on diplomatii and ron\ular ollicers
no longer usual in this tvve of treatv. Al1 three treities also reflect diiïerencesof
v3ryinFcxicnt in m;itter~~idciail, hiith a\ a rc\uli ofneu, or impro\.cd pro\isions
which h;i\c bccn devclopcd from tiioc to time hy the Dcp~rtmeni of Staie. with
counsel, of course, from other agenciesand as a result of the adjustments that
inevitablv occur durinu the -ive-and-take of nee-tiation. For examole. the basic
e\tabli.,hmcnt pr<i\i.ion. h:ii,e bccii cxicn.i\rcsi~ied in thc ireai) uiih I\racl.
aJ.iiti,~n.il pro\irioni on shipping arc includcd in the Grcck ireaty.dpr<>vi\ion
rcprding ihc u,c oithc tcrni ":olfcc"hts hccii addcdIO the ircaty with Ci)l<imhi;i
Uui ihc gciicral tihjcciiics rcmain thc i:imc and, uith Ihc departurcs that nwy hc
noteJ in ihc c;isc of Fthiopia. a11thc trc.itic, go about rcali~ing ihc.r ohjr<tiic\
in essentially the sameway.
The more notable differences in the several treaties now before vou. both as
among themselvesand ascompared with thosepreviously approved t;ythe Senate,
are summarized in the report of the Secretary of State atiached in each caseto
the President'smessageof transmittal. 1want to suhmit now. for the convenience
of ihc conimiticc. copiesof a ixhular cornpiriion u,hich indicatcs in grcatcr deiail
the \imilariiics and difTcrenîcsof these inrirunicnts on a pruvi~iun-by-pr~i~~~ii~)n
basis. In my opening remarks I shall not attempt io repeat or elaborate on that
information. leavine the discussion of details 10 be euided bv the auestions the
committee mighi have. To assist in providing speciKcinformation about parti-
cular provisions, Ihave with me Iwo officers of the Department who have been
immediately responsible for the technical aspectsof thesetredties.
1 have three exhibits.
Senuior Sporkman: They will be receivedand made a part of the comrnittee
files.
(The exhibits referred 10were reccived and made a part of the committee file.)
Senoror Sparkmun: 11was not your idea to have these printed in the record,
but simply to be made exhibits?
Mr. Linder: That is correct.
Commerciol Treury Program
The commercial treaty program is the oldest continuing economic program of
Our Government. It dates back to the beginning of Our national independence
and has been kept up. with minor interruptions. ever since. As a rule the first
treatv concluded with a forcien country has tended to be a treatv of friendshiv.
comhercc, and navigation, which set; the framework in which Our econom'ic
relations can be conducted on a stable basisfor the future. The instrument aims
at establishing the rule of law in Our everyday relations with the country con-cerned, at protecting our citizens and their property in the foreign country, at
promoting our trade, and at reducing discriminations against our shipping. An
idea of the enduring character of these treaties may he gained from the fact that
the treaty with Denmark now before you is to replace a treaty negotiated with
that country in 1826 and the treaty with Colombia will take the place of one
signed in 1846.
Modern Phases O/ the Treary Program
While this is a traditional program with a history of over a century and a half,
its modern ohase dates from the vears immediatelv after the First World War.
..\i ih;ii iinica hrosrlrncJ ~nd rci11aIi~:dprogram iIc\,oicd pùriiculilrl!. I<Iihc
c\pdnsitin or our iureiyn irüde ai, dr.\ilupcd under ihe direciion of Sccrct~ry
Charles Etan5 Hughes Scgùiiaiigm> \tire c;irricd on c~ien~i\r.l! uniil ihc 01.1-
hrc~k of World War II. rcl>iiliing in Ihc c<~nclu~iuo ni 1r~:iii:swiih I? cdunlrics
\\'hile ilie cLrrcni propr:iniii ücontinuati,rn .if ih.11inriiiuicJ under Sccrciür!
Hugh-.. remainine similar in fundamentals to what has zone before. the oresent
program reflects iew emphasis occasioned by problemi which have taken on
increased importance in recent years. The consular provisions have been detached
in the intereit ol'more effectivetreatment of each subiect-matter. The form and
coiiieni oithc irr~i) h;i,bccn e\p:inJeil :inil re\,iinp:J. and ih: p:icc or ~iegoiia-
iiiinh:i> .icr.clcrnir.d.In tnir ~onncciion11ma!. hr.noicd lh31 iiiihc tirs1.ii )cari
:ificr the tnd 01'Wi>rlilW;ir I ihrce trcaiir., uerc coiicludcd. In ihc samc Iciigih
of iimr.;!fier Wdd Wlr II nine ircaiie>ha,: hxn ,i-ncd. ülihtiugh th^.coniniii-
ment. .oni.iinr.d IIItlic currzni irr..iiics iriii,i hc niorr. f.ir-rcachiiig. .ind ihc
eeneral international climate is less svmpathetic to the free-enterorise oremises
in which these treaties are hased. ~oreiver, as you will recognizégovekments
al1 over the world are constantly preoccupied with pressing and critical proh-
lems - not exactly an atmosphere conducive to negotiations of agreements of
the type now hefore you.
Emphasis on EncouragingPrivute InvestmentAbroad Through Greater
Protection o/the Investor
Perhaps the most important respect in which the current treaties differ from
those of the twenties and thirties is in the zrea",v increased emohasis on the
encouragement of American private investment abroad, by the expansion and
strengthening of provisions relating to the protection of the investor and his
interests. This development, of course, reflects the process of continuous adjust-
ment to the needs and conditions of the era in which negotiation takes place.
The United States came out of the war with a ereatlvexpanded industrial machine
and, alone among the major nations of th; woid. &th a surplus of private
capital availahle for export. To encourage the investment of this capital in the
production of goods and services ahroad was a matter of importance to our
domestic economy and Io economic development and world prosperity generally.
Apart from these purely economic considerations, moreover, foreign investment
can strengthen the common defense and promote the prevalence of ideas of
individual liberty and individual initiative under law.
The basic aim of these new provisions has heen to safeguard the investor
against the nonbusiness hazards of foreign operations, an objective emphasized
hy the Congress in the Act for International Devclopment of 1950.There is no
intent here, of course, Io shield the investor from the economic risks to which
venture capital is suhject, a matter which cannot and should not he reachedthrough international agreement. However, there are grave hazards of a nonbusi-
ness nature which have become characteristic in overseas business operations
since the war. They assume many fonns: [nequitable tax statutes, confiscatory
expropriation laws, rigid employment controls, special favors to State-owned
businesses,drastic exchange restrictions, and other discriminations against foreign
capital. Taken together, they can be a formidable obstacle to the American
investor, for they impair from the very start the prospect of fair competition and
a reasonable profit. Yet these haznrds are no1 infrequently legal rather than
economic, and they can be checked to a substantial extent hy treaties which
establish mutually agreed standards of treatment for the citizens and enterprises
of one country within the territories of another.
Rightsof CorporationsRecognized
Perhaps the most striking advance of the postwar treaties over earlier treaties
is the coenirance taken of the wides~read use of the corDorate form of business
organizaGon in present-day economic aiTairs. In the trëaties antedating World
War 11American corporations were specifically assured only small protection
against possible discnminatory treatment in foreign countries. In the postwar
treaties, however, corporations are accorded essentially the same treaty rights as
individuals in such vital matters as the right to do business, taxation on a
nondiscriminatory basis, the acquisition and enjoyment of real and personal
vrovertv. and the ao~lication of exclian~econtrols. Furthermore. the citizens and
corporations of one country are giv& substantial rights in connection with
forming local subsidiaries under the corporation laws of the other country and
controlïin- and manaei- -the affairs ofsuch local com~anies. The leeal reason
inhihiiing iiiorc cxicnsivc pro\i,is~i for ciirp<>r.iiionrin c.irlicr ir:iiie. (n3111el).
the rcrcr$r.d rishi,oiihr riiics 35IO ihc idm1\sio11of iorclgn corporations] h;ij
bccn \,)li,ed in the ciirrcni ire<iiirahfsrn1ul.i which tqiiaics ihc dlicn corporA-
tion to other out-of-state corporations, ratherthan to the domestic corporation,
for purposes of "national treatment" in the United States.
ProblemsArisingoutof Stare Ownershipof EconomicEntrrprises
Another significant feature of the postwar treaties of interest to the prospective
investor is the body of provisions which deals with problems arising from the
state ownership of economiç cnlei-prise.There is a gr6wing tendency abrond for
the ~~al comoetitor of orivate business to be the eovernment itself. The Deoart-
ment of tat thas, acco;dingly, endeavored to work out treaty provisions deskned
to reduce the hazards of unfair c<impetition from state-controlled businesses.
Theseclauses provide assurances of inost-favored-nation treatment in the conduct
of state-trading operations and in the awarding of government contracts and
concessions. They also establish broadened rules governing the carrying out of
nationalization programs. There are as well newly developed provisions, found
first in the 1948treatv with Italv. to assure American orivate business concerns
which must compete with fore& state-owned concerns ihe same economic favors
that the latter received from their government, and to assure that state-owned
commercial enterprises of the one country engaged in business in the other
country will not be immune from taxation, suit, or other normal liabilities by
reason of their public character.
Provisionon ExchangeControl
Another important development in the post-World War II treaties is the provi-
sion on exchange controls. The formulation of such a provision poses difficulties.Many foreign countnes have a genuine need to protect their limited foreign-
exchange reserves in order to insure that the highest-priority needs of their
economv are met. At the same lime. there is a real need for liheral orovisions on
withdra&als ofearnings that willa&rd a proper protection 10invesiors. Wehave
sought to achieve a fair balance between the two factors.
Older Provisions Revised
In addition to the innovations introduced to better the climate for investment,
substantial imorovements have been introduced inorovisions of loneer standing.
The rules on ;xpropriation of property havc bec; worked out in more deta;;
more explicil assurances have been formulated on basic personal freedoms and
~rotection for the individual: and causes have ken added on freedom of com-
kunication and of repartini. Provisions on commercial arbitration and the
employment of technical personnel have been added; and traditional provisions
for nondiscriminatory treatment of shipping have ken strengthened.
The continuing process of revamping of the standard provisions has henefited
these treaties as a whole, both as the content and language. Whal we hope
constantly 10 achievc is stronger articles, fewcr exceptions and, above all, a
document which can give the American citizen who goes abroad, whether for
business, pleasure, livelihood, or study, a firtn and clear body of rights and
privileges.
Muruo/ir.vof RighrsAccorded by !/le Treuries
So Far 1 have spoken mainly about the rights these treaties assure and the
protection they give to American citizens and businesses in foreign countnes.
However. these treaties are not one-sided. Thev are drawn uo in mutual terms.
in keeping with their character as freely negotiated instrumenis between friendl;
sovereign equals. Rights assured 10 Americans in foreign countries are assured
in equivalent measure to foreigners in this country. In undertaking trealy commit-
ments that would'formally confirm to foreigners a substantial body of rights in
the United States, the Department of State has exercised great care to frame
provisions that would be in conformity with Federal law. The exception is that
Article VI1of the suoolementarv agreement with ltalv orovides for the develoo-
ment of arrangernen'tknot pro;ided for by existing Federal statute regard&
totalization of social-security benefits. Furthermore, where the subiect-matter
covers fieldsin which the Staies have a paramount interest, such as the-formation
and regulation of corporations and the ownership of property, the treaty pro-
visions havc been worked out with the same careful regard for the States'
prerogatives and policies that has traditionally characterized agreements of this
type.
Limitations and Objecrivesofrlie Trearies
These documents are concerned primarily with legal conditions and with the
efïect such conditions may have on economic activitiescarried on across interna-
tional boundaries. While they are comprehensive documents. they are not able
to remove al1leeal imoediments to investment. owine both to the inherent nature
of such a treaty-and ihe complexity ofpresenl-day Gonomic afïairs. While these
treaties are concerned with everyday matters, they are not exclusivelyeconomic
in nature or purpose; they are also. and perhaps above all, ireaties oifriendship.
Their objectives are the normal objectives of friendship between nations: 10
protect the foreigner, to maintain good order in everyday aiTairs, to encourage ANNEXES TO THE MEMORlAL 397
mutually heneficial relations, to strengthen the rule of law in the dealings of one
nation with another. They are practical expressions of good faith and good
neighborliness asmuch as they are legalcontracts. Their worth rests as much on
their eauitv and reasonableness as on the numher and scooe of the orivile~esthev
specify; and their spirit, which goes beyond the limits and wording'of thëtreatiës
themselves. is in every way as important as the letter of the undertakings they
actually make.
The Department of State for mariy reasons regards these treaties as an impor-
tant element in promoting our national interests and building a stronger economy
within the free world through the lraditional American means of private enter-
prise; and it is most gratified that your committee is finding time from a very
crowded calendar to give them its study and attention.
Thank you, Mr. Chairman.
SenororSparknrun: Thank you, Mr. Linder.
Encouragemei: rf PrivateInvesfment
Now let me ask yon a few questions pertaining to this. You are familiar with
the provision in the proposed Mutual Secunty Act of 1952, written in by the
House in the following language - or, rather, reported out hy the House
committee; the House has not acted on it yet (reading):
The Department of State shall accelerate a program of negotiating com-
mercial and tax treaties or other arrangements where more suitahle or
expeditious, which shall include provisions to encourage and facilitate the
flow of private investment to countries participating under this Act.
Are these proposed treaties which we have hefore us now designed to accom-
plish this purpose?
Mr. Linder: 1 think without question, Mr. Chairman, they provide a climate
in which private investment can flow. They do not guarantee private investment,
but 1think it is fair to say that without such treaties certain impediments exist
which would retard the flow of investments, and to that extent 1 think they
stimulate them.
SenatorSparkman: You think they represent a step fonvard?
Mr. Linder: Very definitely.
SenororSporknlan: What is the effectof the unconditional most-favored-nation
clauses inthese treaties?
Mosr-Favored-NationC'lauses and "National Trearmenr"
Mr. Linder: Well, 1 have referred to both most-favored-nation clauses and I
have also referred to the expression "national treatment". The most-favored-
nation clause guarantees to us that we shall receiveequivalent treatment to any
treatment accorded to any other nation. "National treatment" insures that Our
own nationals or corporations will receive treatment equal to the treatment
accorded to the nationals of the country with which we have the treaty.
SenarorSparkman: That is, their nationals in this country?
Mr. Linder: No; their nationals in their own country.
SenarorSparkman: 1see; so as to make uniform national treatment.
Mr. Linder: That is correct.398 ELETTRONICA SICULA
SenatorSparkman: Let me ask you, do some of the treaties contain the most-
favored-nation clause and others contain the national-treatment clause?
Mr. Linder: 1 think il is fair to say that al1 treaties contain hoth. There are
times when the most-favored-nation clause is more important than the national-
treatment clause, because the country with whom we have the treaty may have
accorded rights to other foreigners which are hetter than the rights they have
accorded to their own nationals. On the other hand, there are times when the
iiational-treatment clause is more important, because rights accorded to the
nationals of that country may no1 have heen accorded thus far to any other
foreigner; and, therefore, we slrive to get in that case national treatment.
Senator Sparkman: And you have worked in these treaties to get the most
favored position for our nationals?
Mr. Linder: We have, sir.
ProtectionAgainsrNarionalization
SenatorSparkman:Do these treaties giveAmericans any protection in the case
of nationalization of p~op~rties affected with American interest?
Mr. Linder: 1 think they give a great deal of protection, Mr. Chairman. The
basic rule, of course, is that if there is to be nationalization - and we do no1
feel that we can negotiate a treaty which would deny another government the
nght to nationalize property - there must be for the American interest prompt,
just, and effectivecompensation.
In addition to that. there must be national treatment or most-favored-nation
treatment, whichever is the better (rom our point of view. In other words, they
cannot nationalize us when thev do not nationalize other industries eneaeed. or
These standards of as eood trealment as their own nationals eet. or as eood
treatment as the nationalof any other country gels, are not enough. In adztion
to that, we go back to our basic thing: That there mus1 be full compensation,
and that il mus1be prompt and just and effective,and that it must also contain
provisions which will permit the conversion of that compensation from a local
currency hack into dollars; and, further, in addition to that, we have taken the
position - 1think most effeetively - that countries that propose nationalization
must have planned the thing sufficiently so that they are able to meet the
conditions of our treaties. They can't jus1 say they are going to nationalize
without making provision in advance for that nationalization, without knowing
where the money is going to come from, how they are going to nationalize, what
the criteria of "just compensation" are going to be; and, in other words, jus1
decide that they are going to nationalize.
TaxationProvisions
SenatorSparkman:Do these treaties give protection to Americans and Ameri-
can corporations against discriminatory treatment with respect to taxation?
Mr. Linder: These are not tax treaties; that is to say, they do not provide
for -
SenarorSparkman 1understood in your direct statement you did include some
reference to taxation. ANNEXES TO THE MEMORIAL 399
Mr. Linder: They do include a guaranty that we will not be taxed in any
country, and no American corporation will he taxed, beyond the activities of that
corporation within the country. That is to Say,if a large American corporation
has a suhsidiary operating in a foreign country, the only thing the Foreigncountry
can tax is the business that is conducted within its territory. To that extent the
answer surely is "Yes".
Furthermore, we do have provisions which will insure that we will not be
taxed, or our corporations will not be taxed, heyond the tan that is enacted hy
that government and affects its owii nationals, and also we have the guaranties
with respect to most-favored-nation.
SenatorSparkman: In other words, those provisions apply to the matters of
taxation as well as they do to anything else?
Mr Linder: They do.
ReferencesIo theGeneralAgreementon Tarifs and Trade
Senator Sparkmon: Some of these conventions refer to the General Agreement
on Tariffs and Trade. Do these references im.l~ in any~.ay to congressional
approval of that?
Mr. Linder: They do not, sir; but 1would like to answer, if 1may, sir, for the
record, that statement a little bit niore carefully by reading an excerpt from a
letter which we addressed Io Senator Millikin in respect to this point. Our letter
read:
The purpose of this kind of provision is not Io ohtain Senate approval of
the general agreement. Its purpose is simply to clarify the relationship he-
tween the treaty and the General Agreement on Tariffs and Trade, where
the two instruments exist side hy side, so as to obviate possible confusion
concerning the international rights and obligations of a country which is
party to both instruments. The provision is thus in the interests of orderly
treaty procedure. Being framed in the fom and style of a reservation, to
provide for a contingency, it does not in any way bind the United States as
to participation or nonparticipation in the General Agreement on Tariffs
and Trade.
The Senate has already given advice and consent to ratification of Iwo
treaties containing a nearly identical clause which also refers to the charter
for an international trade organization (Treaty of Friendship, Commerce,
and Economic Developrnent with Uruguay, signed November 23, 1949,81st
Cong., 2d sess. . .. and Treaty of Friendship, Commerce, and Navigation
with Ireland, signed January 21, 1950). . . We do not consider that Senate
action on these treaties constitutes approval by the Senate of the General
Agreement on Tariffsand Trade.
Refereoces IO CopyrightMatlers
SenatorSparkman: Are there any provisions in these treaties, or any one of
them, that affect the copyright laws?
Mr. Linder: No: there are not.
SenatorSparkman: The copyright laws of the United States?
Mr. Linder: 1do not think there are.
SenatorSparkman: I helieve we have had a letter from the State Department
with reference to that, have we not? lt might be well to incorporate that in the There mil1he pl;i~.edin ihe reigiril al ihis point dn e\changc of lettsr, kiue~n
Mr. ,\rthiir Fishcr. Regiiirr ,)f Ci>p!riphts 01'the Lihrÿr! ol'C'onyre.~.and Mr
Adrian S. I.ishcr. Lee31Adi,i'er to the Deri~rinir.ntoiStarr., undeJJI:~ of Anril
23 and May 6, 1952.
Copyright Office,
The Library of Congress,
Washington 25, D.C., Apri123, 1952.
Mr.Adnan R. Fisher,
Legal Adviser,Departmentof State, Washington25,D.C.
Dear Mr. Fisher: There are presently pending before the Senate Foreign
Relations Committee treaties of friendship, commerce, and navigation with
Colombia, Greece, Israel, Ethiopia, Italy, and Denmark, similar to those
ratified within the pas1 few years with Uruguay and Ireland. In connection
with these latter two treaties, there appeared in the report of the Senate
Foreien Relations Committee a statement 10 the effect that neither treatv
touched on any question of copyright.
In view of the fact that the six pending treaties have provisions similar to
those emhodied in the treaties relatina to Urueuav and Ireland, it would
seem to follow that the pending treatie; also donoirelate in any manner to
questions of copyright. Kindly advise me whether or not my understanding
k correct in this respect.
Sincerelyyours.
Arthur FISHER,
Registerof Copyrights
Department of State,
Washington, May 6, 1952.
Mr. Arthur Fisher,
Registerof Copyrights,CopyrightOficer, The Libraryof Congress
Mv Dear Mr. Fisher: Reference ismade to vour letter of Anril23, 1952.in
which )OL reque,i contirni.ition oi biiur undcrjtanding ihai cericiin ireiltic\
u hich Arepre\r.ntl) pendinp heii~rcihc Senair. Foreign Kr.lciiioiirC'ommitiee
do not relate inany manner to questions of copyright.
You are advised that your understanding in this respect iscorrect and that
the treaties of friendship, commerce, and navigation with Colombia, Den-
mark, Greece, and Israel, the treaty of amity and economic relations with
Ethiopia, and the agreement supplementing the treaty of friendship, com-
merce, and navigation with Italy do not relate to copyrightmatters.
Sincerelyyours,
Jack B. TATE,
Acting LegalAdviser. ANNEXES TO THE MEMORIAL 401
SenaiorSporkmon: Mr. Linder, in a statement that has been submitted in letter
form from the National Foreign Trade Council a suggestion ismade for a broader
investment clause. Are you familiar with that?
Mr. Linder: Sir, 1 saw the letter just as 1 came in. 1 really have not had an
opporlunity to study il.
Sendo,r Spurkmu~i He itaris oui dirculsing iion page 5and continues oii p~gc
6. I ii,.~nJcrII)ou c<iulildiscuss 1h.11;ind icll us uh) ihc Stiiie Vcpiirtnicnt hds
not been able to gel this broad coverage.
Mr. Linder: Mr. Chairman, 1am a little lodth to discuss il because 1have given
it only the most superficial reading.
Converribiliryin EvenrojNarionolizorion
SenarorSporkmon: 1wonder if 1might ask this question, that inight at least
show it a little more clearly on the record. As 1understand, these treaties provide
for convertibility in the event of nationalization or taking over.
Mr. Linder: They do, sir.
SenatorSporkman: They provide first for compensation. and that that compen-
sation shall bein dollars rather than inthecurrencyof thecountry, for the amount
that was orginally invested in the Company. The Foreign Trade Council, as 1
understand il, recommends that the entire amount that has gone in, the earnings
that have been plowed backin, should be covered also.
Mr. Linder: Wethink they are covered.
SenarorSporkman: You think ihey are covered by these treaties?
Mr. Linder: 1 think they are. As 1 understand, the way this treaty would be
interpreted in case of an expropriation is that this specificclause does not in any
way impair jus1 compensation, and jus1 compensation and equitable compensa-
tion mus1be in terms of the value whichthen exists.
SenatorSporkmun: The question was raised as 10 ambiguity in the provision.
The Foreign Trade Council particularly points out a qualifying phrase "which
they have supplied". The contention of the Foreign Trade Council is that this
might be held to apply only to the ainount of capital originally supplied, and that
it would not covcr thc invcstments that had beenplowed back.
Now, is il your interpretation that il does cover the reasonable value of the
entire capital structure?
Mr. Linder: Yes, sir; thüt is my interpretation, and 1am sure, while 1didn't
take an active uart in the neeoiiation of anv one of these. that that is clearlv
under,iood on ihe part ofcii& signaior) to ;iny of our ireaiies. I don't think ;t
uould mrke any szn,c u,hsic\er 1,)i~lk only in terni\ of an original in\,eitmeni.
IV. R. Crace & Co. made an iniesiment in Chile 120 ,cars aeo. or ccrtainl) a
lone-.lone number of vears aeo. and there mav have been aRaccumu~ationof
earnings Fnthiit coinpJn). o\er a very long pcri;d kiinie ~urely ifihai property
wcre iu k çxpropri3icd by the Chilean Go\ernment ihc oriyinïl in\estmcni could
not in any sensebe regardod as a jus1 and equitable standard for compensation.
What mus1be determined is the value of the property as il exists at the lime il is
expropriated, and while, as 1say, 1have a certain reluctance to discuss this in
detail (a) kause 1am no1 a lawyer and (6) because 1have not read carefully
the comment of the Foreign Trade Council, 1feelreasonably certain of myground
in stating as 1have, that il does cover the investment, as it exists at the lime of
expropriation.402 ELETTRONICA SICULA
Mr. Herman Walker,Jr. (Office of Assistant Secretary of State for Economic
Affairs): Wehave a specificclause on expropriation which says:
Such compensation shall be in an effectively realizahle form and shall
represent the full equivalent of the property taken; and adequate provision
shall have heen made at or prior to the time of the expropriation for deter-
mining and effectingsuch compensation.
SenarorSparkman: Now let us go one step further. That is as far as compensa-
tion. 1 wonder if you can point out the clause relating to convertability at the
same time.
Mr. Linder: The clause in the treaty with Colombia, for example, Mr. Chair-
man, is Article XII, section 3.That says -
If either party imposes exchange restrictions in accordance with paragraph
3above -
which permits certain types of exchange restrictions necessary 10 preserve the
economy of the country -
it shall, after making whatever provision may be necessary 10 assure the
availability of foreign exchange for goods and servicesessential to the health
and welfare of its people, make reasonable provision for the withdrawal, in
foreign exchange in the currency of the other party, of: (a) the compensation
referred to in Article VI, paragraph 3, of the present treaty-
the one to which 1 have previously made reference -
(6) earnings, whether in form of salaries, interest, dividends, commissions,
royalties, payments for technical services, or otherwise, and (c) amounts
for amortization of loans, depreciation of direct investments, and capital
transfers,givingconsideration to specialneeds for other transactions.
This is subsidiary to that, and it guarantees where there is a multiple rate of
exchange. If you would like meto read that, 1can go on.
SenatorSparkman: Where does this phrase to which the Council points occur?
Mr. Walker: It is in a different paragraph, sir.
SenatorSparkman: 1 wonder if you could read that sentence. It is hard to tell,
when words are just lifted out of contexts such as this.
Mr. Walker (reading) :
Neither party shall take unreasonahle or discriminatory measures that
would impair the legally acquired rights or interests within ils territories of
nationals and companies of the other party in the enterprises which they have
established or in the capital, skills, arts or technology which they have sup-
plied; nor shall either party unreasonably impede nationals and companies
of the other party [rom obtaining on equitable terms the capital, skills, arts
and technology it needs for its economic development.
ME Linder: 1 am informed, sir, that that is supplemental to and in no way
restricts or limits the broad basis for compensation which we have just heen
discussing.
Senaror Sporkmon: Then il is your opinion that the objection raised with
reference to that matter hy the National Foreign Trade Council isnot justified? ANNEXES TO THE MCMOR~AL 403
Mr. Linder: Sir, 1would say absolutely, except that 1have not read everyword
of the National Foreign Trade Council's letter. 1just received it as 1came into
this room. I would say categorically, with only the reservation that if 1find our
Legal Adviser has any reservation, he willcommunicate it to the committee.
Senaror Sparkman: 1wonder if it might not be well simply to have the Legal
Department address a letter to us to be put in the record on that question.
Mr. Linder: WCwillbe happy to do il, sir.
(The following information was subsequently furnished:)
May 21, 1952.
Hon.John J. Sparkman,
Cornmirteeon ForeipnRelarions. UnitedSroresSenare.
My Dcnr Senstor Sparkm~n: I rcfer IO the hearing held hy yiiur suhcam-
milice. 12). Y.on rhe pcnding rommcrci.il 1rc:it~csand 10the qursiit~nrai~rd
during the course theieof concerning what these treaties provide as to com-
pensation for property which isexpropriated, with particular referenceto the
effect of Article Vlll of the treaty with Greece. The Legal Adviser's Office
hasprepared a briefstatement, enclosedherewith, whichconfirmsthe opinion
1expressed in this matter. 1offèrthe Legal Adviser'sstatement for inclusion
at an appropriate place in the record, in order that there notbe the slightest
doubt about the correct answer to this important question.
Sincereiyyours,
Harold F. LINDER,
DepuryAssisrontSecretary/or EconomicAfairs.
Encloszire.
STATEMENTOF THE OFFICE OF THE LEGAL ADVISER - MAY 16,1952
Article Vlll of the treaty with Greece, and the similar provision of the
other treaties before the subcommittee, is entirely independeni of, and in no
way modifies, the provisions of Article VII, paragraph 3, and comparable
provisions of the other treaties, which establishes the rule of compensation
applicable when property is expropriated through nationalization or other-
wise.Article VII, paragraph 3,of the treaty with Greece states the governing
rule in al1cases of expropriation, that compensation shall bepayable on the
basis of the full value of the property taken, at the time of the iaking.
Compensation based on the value of the initial investment would not meet
the standard of the treaty or of international law, if it were less than the
value at thelime of taking; if the value of the initial investment were greater
than the value at the time of taking, a country is obliged only to provide
compensation for the value al the lime of taking.
Senaror Sporkman: 1may say tha! at the end of Mr. Linder's testimony I will
insert in the record, if there is not objection, the letter from the National Foreign
Trade Council, Inc., addressed 10me on May 8.
Senotor Hickenlooper: Can we identify, at least for my benefit, MT.Chairman,
the National Foreign Trade Councill Of what is it composed?
Mr. Linder: 1prefer 10have Mr. Vernon describe it, if l may. Mr. Vernon: The National Foreign Trade Council is an organization which has
been in the field of promoting foreign trade and international investment for
rather a long time. 1would say they are probably "the" organization in the field
at this moment in the United States.
SenatorSparkman: It isa well-known and reputable organization?
Mr. Vernon: Well-known and reputable, and ils membership looks like a glos-
sary of Standard & Poor's.
SenaiorHickenlooper: Throughout the United States?
Mr. Vernon: That's right.
SenarorSparkman: Senator Hickenlooper, do you want to ask Mr. Linder
some questions?
We have had MI. Linder's statement, which was a prepared statement. You
have a copy of it there in your file,andaddressed these questions to him.
SenatorHickenlooper: There is one line of questioning 1would liketo address,
probably two or three questions, to Mr. Linder. Did you ask Mr. Linder al1of
these questions?
SenatorSparkman: Yes.
Relationshipof Treaiiesto Gatt
SenatorHickenlooper: l am sorry to ask you to repeat, Mr. Linder, but 1would
like to know, especially, do any ofthese conventions in any way, and under any
circumstances, according to your interpretation and the Department's interpreta-
lion, involveus in the General Agreement on Tariff'sand Trade?
Mr. Linder: They do not, sir. 1introduced and read, in order to be sure that we
were quite explicit about il, a statement which is quoted from a letter which we
addressed to Senator Milliken very recenlly - as a matter of fact, a couple of
months ago, the las1day of February. If you would like me to do so, 1shall be
very glad to read that to youagain.
SenarorSparkman: 1 may say, Senator Hickenlooper. that we have a letter
from the State Department signed by Mr. John M. Leddy, Director, Office of
Economic Defense and Trade Policy, in which he brings out the same point, and
says (reading):
. . .il does no1 in any way bind the United States as to participation or
nonparticipation in the General Agreement on Tariffsand Trade.
Mr. Linder: Senator, would you prefer that 1read this statement?
SenotorHickenlooper: If you have already put it in the record, there is no use
in putting il in again. 1sil already in the record?
Mr. Linder: 1 have read it carefully and we will be glad to provide it for the
record.
SenatorHickenlooper: If you have already read il in the record, there is no use
in repeating it here.
SenatorSparkman: Without objection, wewillalso put this letter in the record,
which is to the committee in answer to this particular inquiry. ANNEXES TO THE MEMOR~AL 405
(Thecommunication is as follows:)
Department of State,
Washington, Fehruary 29, 1952.
Mr. Carl Marcy,
Sla/fAssociate, CommifteeonForeignRelalions,UnitedStatesSenole.
Dear Mr. Marcy: This is in response to your inquiry, during our recent
telephone conversation,as to what is the Department's viewof the provision
referring to the General Agreement on Tarins and Trade in the Treaties of
Friendship, Commerce, and Navigation with Denmark (Art. XXI, para. 3),
Greece (Art. XII, para. 4), Israel (Art. XXI, para. 3) and Ethiopia (Art.XII,
para. 6), al1of whichare now pending before the Senate.
The purpose of this kind of provision is no1to obtain Senate approval of
the general agreement. Its purpose is simply to clarify the relationship be-
tween the treaty and the General Agreement on Tariiïs and Trade, where the
two instruments exist side by side, so as to obviate possible confusion con-
cerning the international rights and obligations of a country which is party
to both instruments. The provision is thus in the interests of orderly treaty
procedure. Being framed in the form and style of a reservation, to provide
for a contineencv. il does not in anv wav bind the United States as to oarti-
treatiesconta in in^a nearlv~identicalclause which also refers to the charter
for an international trade.organization (Treaty of Friendship, Commerce,
and Economic Development with Uruguay. signed Novemher 23, 1949,Slst
Cong., 2d sess., Senate Executive D, Art. XVIII, para. 3; and Treaty of
Friendshio. Commerce. and Navieation with Ireland. siened Januarv 21.
1950(TIÀS 2155),A~~.'xx, para. 2) W .edo not consider ïhat Senate action
on these treaties constitutesapproval by the Senate of the General Agreement
on TariKsand Trade.
Sincerelyyoun,
John M. Leddy,
Direclor.OfJIceof Economic Defense and TradePolicy.
(Thefollowingadditionalinformationwossubsequenrlysupplied:)
Department of State,
Washington, May 21, 1952.
Hon. John J. Sparkman,
Commirreeon ForeignRelari,ins,UnitedStoresSenate.
My Dear Senator Sparkman: 1understand that inquiry has becn made as
to wheth~ ~ ~-~orevious statem~ ~ ~ ~ ~~~Deoartment of State. with reference
to the significance of the provision concerning the ~eneral~~reement on
TariKs and Trade, in the various commercial treaties pending, before the
committee. is an..icable s~ecificallvto the treatv of frkndshio. commerce.
and n.i!,ifÿti.)n uith Denmark The 3nibir.r i$ in the iifirni,iti\e 'Theaddi.
iiontilm~ierid f81~nJin ,\riiclç XXI.p~iigr:iph 3,oilh31 trr..iir:iiin.luded
for a purely technical reason; iiamely, to provide for the situation in which
Denmark, though not a member of the General Agreement on TariKs and406 ELETTRONICA SICULA
Trade, was experiencing halance-of-payments difficulties. The additional
material is comoarahle with the additional orotocol attached to the treatv of
friendship, commerce, and economic development with Uruguay.
As Mr. Linder stated in his testimony hefore the committee, the Depart-
ment helievesthat the provision in the trialy with Denmark does not commit
the United States as to participation or nonparticipation in the General
Agreement on Tari% and Trade and that Senate approval of this treaty
cannot he regarded as constituting Senate approvalof the general agreement.
Sincerelyyours,
Raymond VERNON,
AcringDirecror.Ofice of EconomicDefenseandTradePolicy.
SenatorHickenlooper: The whole hurden of my question is, are we hacking
into that hy some involved interpretive provision in any of these trade treaties
which would put us in a position where we have committed ourselves to the
General Agreement on TariEs and Trade?
Mr. Linder: The answer to that is, "No, sir".
CeneralPurposeofthe Treaties
SenatorHickenlooper: The general purpose of these treaties, as of al1the other
treaties of friendship, commerce, and so forth of a similar type, 1 take it, is to
guarantee and assure equality of treatment of Americans, American nationals, on
a reciorocal hasis. that is. recinroca-.ne eauitahle and fair treatment. These treaties
c<iniJinccri.iln spciificJ i~feguards $\.hichlhc rcrpiiii\c. ndiiutis dprce io cnior~c
i<>V:ir:is ihe xcti\iiy of ihc .Anicric~nnaiion.ils :ire .vnicrncd in hu,incss diid
trade and so on.
Mr. Linder: And travel. That iscorrect.
SenatorHickenlooper: That is my understanding of the purpose of the treaties.
New Featurein lralian ProrocolreluringfoSocial-SecurityBenejits
1s there anything unusual that you could say in any way differentiates these
particular treaties which are hefore us today in specificprovisions from the general
provisions of the treaties already in force, historically in force, between the United
States and other nations?
Mr Linder: 1think there isonly one.
SenaforHickenlooper: 1mean, are there any innovations?
Mr. Linder: Yes. 1think there is one in respect of the protocol which we are
asking your approval on with Italy, and that exception 1alluded to in my state-
ment, and if 1may quote it again 1would say that ArticleVI1 of the supplementary
agreement with ltaly provides for the development of arrangements not provided
for by Federal statute regarding totalization of social-security henefits.
I have here for submission a memorandum from the Federal Security Agency
which sets that forth more completely than 1 am able to do. It is a technical
prohlem, but in essenceil provides for a consideration hy each of the countries of
the social-security henefits earned hy any national within his own country. In
other words, if an Italian had worked in Italy for 10 years and worked in the
United States for 15years there isan adjustment made so that he ineffectgels the
benefit,in calculating the payments due him hy each country under social security,
for his years of work in ltaly as well as his years of work here, and vice versa. ANNEXES TO THE MEMORIAL 407
That is the only provision that 1helieve differssubstantially, except for improve-
ments and tightening up both in language and in substance that is the natural
result of, wehope, competent negotiation.
SenarorHickenlooper: What is the explanation or thejustification of that provi-
sion, in view of the fact thatanifestly at least now, and we assume for a long
time in the future- at least now, and probably willbe in the future- greatly in
excess of the social-secunty benefits in any other country, so that someone, for
instance from Italy, could come over here and work for 15 or 20 years and go
back to Italy and retire very nicely on those benefits, with the lie-in under the
ltalian system.
Mr. Linder: 1think, sir, that there has been a general movement al1over the
industrial world, particularly in Western Europe, toinsure that workers who for
one reason or other migrate from one country to another are not penalized, and
in effect their social security is guaranteed. 1 think that this is an attem-t 1
helieveit is an attempt- to do the same kind of thing, with respect to anybody
who comes to this country, or any American who works ahroad.
SenarorHickenlooper: 1merely raise the suggestion that it may be an attempt
10internationalize social security.
Mr. Linder: The ltalians do not get the benefits on Our scale for the period
during which they worked in Italy.
SenarorHickenlooper:1 wouid assume nOt.
Mr. Linder: They get some sort of combination of the two which has been
worked out with each country paying a pro rata share. As 1say, sir, in respect of
the technical aspects of this,would liketo make available to the committee this
statement prepared by the Federal Security Agency.
SenarorSparknlarz: Without objection, wc will insert that in the record at this
point.
(The statement referred to is as follows:)
STATEMENT PREPARED BY THE FEDERAL SECURITY AGENCY UNDER DATE OF
FERRUARY 14, 1952 - EXPLANATION OF THE SOCIAL-SECUR ITYVISIONS (ART.
Vil)OF THE UNITED STATES-ITALIAN SUPPLEMENTARY AGREEMEN ST,NED ON
SEPTEMBER 26, 1951
At present workers who have some coverage under the old-age and survi-
vors insurance systems of more than one country may suffer losses in their
benefit rights. In some cases the individuals involved may fail to meet the
elieihilitv reauirements of one or both systems because of gaps in their
employment records, and thus no benefits at al1may be payablé.in order 10
eliminate these losses, various European countries have entered into
agreements with each other in order toprotect the hcnefit rights of workers
who have employmcnt in more than one country. The countries with which
ltalv has alreadv concluded treaties include Beleium. France, and Switzer-
lani. The unite; States thus far has no international agreement in operation.
While no fipures are availahle on the extent of the movement of workers
between the Ünited States arid Italy, it seems likely that the number of
workers with coverage under the insurance systems ofboth countries issmall.
Nevertheless, coordination of the Iwo systems to take care of these cases
seemsdesirable, inorder to prevcnt the hardship which may sometimes occur408 ELETTRONICA SICULA
in the absence of coordination.As the number of cases will not be large, the
total administrative burden should not be areat.
I, ,The lane-aze of the aer-ement would authorise the immediate coordi-
nation only of the "principal old-age and survivors insurance systcm" of each
country. The coordination could later be extended to s~ecial old-age and
survivors insurance systems or ta insurance systems pr&iding proiection
against permanent disability.
(2) Service time under bath systems would be combined and counted for
determinine elieibilitv for benefitsunder each svstem.
(3) serviCe Ghich has already been credited under both systems, if any,
would not beincluded in any combining of employment periods.
(4) Benefits based on combined servi'cewodd be reduced to take account
thc i~ct ihtii311of the uorker'q xn.i:2 15 cuunird ~ndcr r~ch proèrain
Th15ii.<>uld hc Jonc by rcducinr:r~ch bciicfiiJiilouni by ihz rÿiiiwhich ihc
oeriod of lime sDentunder the other svstem bears to thétotal oeriod of time
Spentunder bath systems.
(5) An individual might elect whether or not the coordination provisions
shall aoolv to him.
(6) fhe2agreement provides that if the Maintenance of Migrants' Pension
Rights Convention of 1935isadopted by bath countnes, the convention shall
suüersede anv inconsistent orovisions in-theae-eement. (The 1935convention
includes provisions establishing multilateral social-insurance coordination
amongthe countries adoptingthat convention.)
While the aereement indicates that each svstem is to base benefits on
combined periods of service, it does not speciiy how such benefit amounts
are to be computed. It is contemplated that a method would be used which
would not rea"ir~ ~ creditine under one svstem of waees received under the
other, but oniy a crediting ojservice periods. Bysa dokg, the administrative
difficultiesinvolved in such problems as the conversion of ltalian currency
in10American. and the reverie. would beavoided.
The bilsicfr;nic,iark of ihs soordinsii<,n 1,eii.ihlishcd in rhc ~igrcenieni
Prccc.icnt\ illrca<l,cxisi Forihis r,pe ofcaordiii3iian. .inJuc hclir\c 1h:iino
serious difficultieswould be encountered in efiectuatine the aereement. Each
ctiuniry i\.ould hear u.haic\cr incrc3s:d cusis muuld ;iri,c undcr iiis!blcni1,
1 rc~uliof~ddiiion.il pa!riienii rerultin- from the xgrccnicni. Wliilcue li3\c
not been able to make cost estimates, because figureson workers with cover-
age under both systemsare not available, we believethat the additional costs
willbe small.
The Federal Security Agency favors the coordination provisions contained
in section VI1of the agreement.
Protectionof AmericanBusinessmein n Morocco
SenatorHickenlooper: 1want to gel back, Mr. Linder, if you know anything
about this particular matter - it may no1he in your bailiwick over there to a
matter which has been before this committee repeatedly in the past. It directly
involves a treaty of commerce, trade, and friendship, and has been the occasion
for two rather positive positions taken not only by this committee but by the
Congress, and which according to my view, whichmay not be wrong, have been ANNEXES TO THE MEMORIAL 409
not only ignored but flouted by the Department. That is the Moroccan situation
and what apparently has moved this Congress to consider that OUI American
citizens in Morocco have not receivedthe euaranteed eau.litv ,f treatment under
ihecx~~iingirc!~).\\,iih M<>ruiio.Ai 1sii). ihdt nlilybc iiron~: Idon7 knou Hui
is h3s bcen suttiiicnll) prcwnied \<i lhat IIha hccn ihc ucca,iun uliuu aciions
bv this committee and two actions bv the Coneress-on that line. But the situation
has not seemed to be improved any.
Are you familiar with that Moroccan situation?
Mr. Linder: 1 am no1familiar with il, sir. Maybe MI. Vernon can speak to that.
Mr. Vernnn:1 think so. l
Right at the moment, sir, as you no doubt know, \ha1 issue is before the
International Court of Justice.
SenatorHickenlooper: Yes.And may 1say that in myunschooled and probably
inadequate opinion, it has no busiiiess before the International Court of Justice
at all.ihave had a little suoehcial examination of that. and at least in the absence
of further proof 1 do n; think it ever had any b"siness being taken to the
International Court of Justice, and 1don't think we had any businessjoining in
that matter in the Court of Justice. 1 mean, 1just wanted to make my position
clear so we willknow from what standpoint weare arguing.
Mr Vernon: Let me e-.e iust for a moment or two some of the considerations
u,lii~.hIcd uiti~~~<incluJtchat il ux>no1cd;) io dcierniine ju,! u.h~ithc righis oi
the ,\mcri:ins ucre. The Ani:ric:in righii in Xloruiiu nicumulaicd oui ol'awholc
series of treaties going back to the ecghteenth century. That is when the earliest
one was. Some of the rights depend upon sucb a complicated issue as the
following: Whether, if we have most-favored-nation rights, and if as a result of
the moscfavored-nation rieht we eet a rieht which was ex~resslveiven to another
counir), iu~h England. ;ind ihcri ihe rrc.ir) b) uhtch Engbnd acquirrïl certain
righi, is~lirugiicd, do se cuniltius to h.iw ihc right, uhich u,c.icquircd indirciily
through the most-favored-nation treatment, notwilhstanding the abrogation of
the U.K. treaty with Morocco.
There was also a problem of whether and to what extent custom and usage
would give usa right which was no1expressly stated in a treaty.
1sat~~own with our lawvers trvin. t" trace back the eiïect of the accumiilation
of ihe,s principles upiin,bur righir 3nrlidmciiady iiiih the ter) ccri.iincon\icii«n.
uhich ws, .harcJ h, xii\onc siho hail IO ro inio ihis in dcrail. ihat as minimum
one could say our n'ghts-werecomplex ana far from crystal clear.
We were also concerned that whatever the rights may have been as a result of
these longer standing treaties, whether in fact recent agreements under the aegis
of the Economic Coooeration Act niodified them.
~her&ult was a leg'aljumble complicated by the fact that it could be interpreted
not in terms of domestic law but in terms of the rather more obscure provisions
of inter~~tional law.
In iho>i':irsumsi:in:ci tic kll, :and I think ihcrc 15 riiom fur honesi dilfercnce
~fjudgrncnt on ihir. ihai ihc hc\1powihlc:ippruach uxs IO ir) IOgei 3 cl:irific:iiion
from ihc Inicrn~tional C'oiiriof Jubiice
Factors in theFrenchMoroccan Situation
SenatorHickenlooper: Our treaty was with Morocco, where the violations were
alleged.
Mr. Vernon: That is correct.410 ELETTRONICA SICULA
Senaror Hickenlooper: And France look il in10the International Couri
MI. Vernon:On behalf of Morocco. France has a relationship with Morocco
which wehave recognized by treaty, taking over the responsibility [or Morocco's
foreisn relations: therefore shewas within her -.ehts. ac-ine on behalfof Morocco
a"dhirie~f, to brhg the suit.
Senoror Hickenlooper: Nevertheless we have found, on two or three occasions,
that the treaty has been violated a number oftimes. Isn't that true?
Mr. Vernon: 1hesitate to rely on myjudgment on this, or on my memory on
this,because really thejumble of both fact and law is involved. One thing isclcar,
that a lot of things the Moroccans and French have donc have no1been right in
equity or any abstract concept ofjustice that you might want to think of. and we
have noc by any means been happy about the treatment in certain respects that
theAmericans have receivedin Morocco. There isno question about that.
Senoror Hickenlooper: May 1 ask you this: Have the Moroccans themselves
ever refused to comply with the treaty, under their own steam? In other words,
aren't the Moroccans oerfectlv willine to carrv out the treatv. but the fact is the
French, through iheiractiviiiés thererpreventthe Moroccans from carrying out
the treaty and the French superimpose special advantages to French people in
Morocco in trade and othenvke which arenot given to ~merican citizen;?
Mr Vernon:That isan awfullydifficultone to answer.
This is one of the reasons why it is so difficult to answer: 1 use this as an
illustration rather than the whole erouo. The currencv in which the French
Moroccantrade isconducted isthe yenc c ranc. The ~hoccans may be perhaps
willing that in imporls in10 Morocco there should be no discrimination against
dollars, but in a sense it is not their ox that is gored. The currency that is usëd for
trading in the area is the French franc, and runs on the French franc by reason
of, let us say, open imports into the French Moroccan area, and the rcsulting
weakness in the French franc because of the loss of dollars, is a problem which
hits France and not Morocco.
I supposeitir truc in s3) ihai ,Wurur.cowouldix happy if the Frcnch ~rmiited
XIIthc c~petid~turcrui Frcnch dollars thal uoulJ k in\ol\ed in frcc impuris inio
Morocco. but I cxocct IIis also irue Isas ihai ihcir uillincncss Io ocrmii lhat i,
not a relieclion or'their willingnessto cxÏend us favors whkh ranc woeuld not
bewillingto extend us, but rather a knowledgethat it does not cos1them anything
to extend them to us.
Senoror Hickenlooper: 1 understand there are some propositions in currency
exchange which any country will have to meet equally, and should if there is
equality of treatment, but it is the unusual and extraordinary export and import
license svstemand the oenalties which are out on American eoods and Amcrican
trade thérewhich are not imposed upon Îhe French, and ai those things which
are practical inhibitions and coercive things against Americans operating in Mo-
rocco, and treatment which is not accordëd wTththe same severity to théFrench
and perhaps one or two others with French favor.
Mr Vernon:That is true. sir. and the reverse istruc also. that there are areas in
uhich Anier~c~incsan do things ihïi Frcnchmcn ian'i JO. Th31is uhy in the tirsi
in.,iance )ou hd\c3 IargcAmcrii!n colon). irad~ngin .\lr)~occ<)T. hcrc are ccri;tin
oroducts \#,hichthe Amcrirani m:i.impu.1lieel, which 3 Frcnchman isprohihitcd
irom importing freely.
Senoror Hickenlooper: Do the French prohibit the Frenchmen from importing
them. or do the Moroccans? ANNEXES TO THE MEMORIAL 411
Mr. Vernon: The French. That soundsrather curious, but the answer is simply
this -
Senaror Hickenlooper: Why shoold we be cnticized for operating in an area we
are privileged to operate in when the French could raise the restrictions and the
French could operate in the same area if they wanted to, when it is within their
control.
Mr. Vernon: That is true, sir, and what this reflects is the fact that there has
been a recognition of American rights, which is the reason in the first instance
why Americans are living there and trading there. In some situations the result
has been that the French, in recognition of tbese specialtreaty rights, have pemit-
ted Americans to import a large Listof products provided that the Americans
found the exchange in some way or another, but have prohibited Frenchmen
from importing the same products because they knew perfectlywellthe exchange
the French would usewould have to come out, directly or indirectly, of the French
reserves inParis.
Senator Hickenloouer: 1merelvmention the matter. It isnot before this commit-
[cc [hi.;m<irning,but I nicnii<in IIwondering, lfier iic do gel in1,iihe,c,ire:iiic, of
Cricndship,jus1ho\\ the? proieci the righii iif~Imçricansih.11dre .iciunllygiurin-
iced iinclcrilic trc.11,bciorr. u\.11 is3 uuciiiiin ni uhcrc fiou the hcnciiis. ;ind I
would hope that they would be quitahie and give equal benefits ta nations that
we treat with and, by the same token, that we would be utterly zealous in seeing
that American nationals receivetheir full rights under the treaties wemake.
1do not have anymore questions.
Senalor Sparkn~an: Thank you very much. You will stay here, Mr. Linder, 1
assume.
Mr. Linder: If you want me to 1willbe here.
Posirionofrhe National Foreign Trade Council
~~noror Soarkman: It miehtube wellIo stav. 1do not know whether some other
que,ili,nr uill conic up Ir prtihahly !ilIIno1 i3ke vcry long. I uggesi ihe Ieiicr
l'roiiiihc N:iii<~naIliireian Tcidc Council. Inc .un(1r.rJdic of M:i\ 8, 1952.hiiricdr
in the record at this point and that it be followed by any comhents whi;h the
Department of State may wish to suhmit:
National Foreign Trade Council, Inc.,
New York 6, N.Y., May 8, 1952.
Han. John J. Sparkman,
United States Senate, Senate OfficeBuilding, Washington, D.C.
Dear Sir: The National Foreign Trade Council has been advised tbar you
have been appointed by the chairman of the Senate Foreign Relations Com-
mittee, chairman of a subcomniittee to take a testimony and make recommen-
dation relative to the consent and advice ta be given in respect of treaties
heretofore signed on behalf ofthe United States with certain other countries.
The treaties concerning which wewish ta comment are:
Treaty of Friendship, Commerce, and Navigation between the United States
and the Republic of Colombia412 ELETTRONICA SICULA
Treaty of Friendship, Commerce, and Navigation between the United States
~n~ ~enmark~~~
Tre:iiy of Amity .ind F~.ononiicRrlationi siiih Ethiop13
ï'rc;ii\ of l'ricndihip, Conimerce. and hd~igation bciwccn ihe Uniicd Stale.;
and Greece
ïrc:ii) 01Fncndihip. Commerce.:ind ii.i\igiiii>n uiih Iirdel
Agreement siih It~ly iupplcnicniing ihc Trciii" 01 Fricndship. Commerce.
and Navigation of 1948.
We have heen advised further that you have designated Friday morning,
Mav 9. 1952.as the time for hearines in this connection. We reeret that it
ap<eari 1; beimpossible for us 10srange for a witness 10 be Gesent and
testify at that time and in lieu thereof we are respectfully submitting in this
communication Ourviewsin connection with those treaties
TREATY OF FRIENDSHIP C,OMMERC E ,D NAVlGATlON BETWEEN THE UNITED
STATESAND THE REPUBLIC OF COLOMBIA
Under date of Octoher 9. 1951,we wrote Hon. Tom Connallv. chairman
of the Foreign Relations Committee, givingOur views relative io the treaty
with Colombia. For your ready reference, we attach hereto a copy of this
letter.
The onlv additional comment which wewould liketo make with regard 10
this treat\ is to m~ke refcrciice to ihc p.rrasraph> in this lelter &titled,
rcspe.ii\cl). "The In\c;iment CI:iujcnand "The Resiricti\e BusinesrPr~ctisc
C'lÿiiss".Our \leus uith respect IO ihe in\e,tmeni ~lxusc:lnJ the rciiricii\c
business practice clause are'the result of study since October 9, 1951,and
weretherefore not coveredin our letter to Senator Connally.
TREATYOF AMITYAND ECONOMICRELATIONS WlTH ETHlOPlA
Werespectfullyurge that the Senate shdll not giveits favorable adviceand
consent to the ahove-entitled treaty. Our reasons for taking this position in
respect ofthis treaty are as follows:
It is apparent from the content and phraseology of this treaty that the
obstacles to mutual understanding on severalphases of commercial relations
werenot overcome. In fact. it seemsdoubtful whether. at the Dresentstage of
t.thiopiii'scconi>micdcvslopmciil. an) s~iisi'yingmulual ain\ictions or coni-
nion &round for iiipulatiuns rcgarding privaie in\cstmcni, un bL' f~und.
Moreover, a recentianvass of representative memhers of the council has not
developed any expression of po$tive interest in potential investment in that
country. Therefore, it seemsundesirable to dilute the pattern of our bilateral
treaties by resorting in this caseto such weak phrases as -
"reasonable opportunity for the investmentof capital, and for the estab-
lishment ofappropnate commercial, industrial, or other enterprises. .."
or "nationals or companies . . .which are permitted to estahlish or
acquire enterprises. ..."
The objections to the second clause of Article VI11(1) and to the second
sentenceof Article VI11(4).are contained in the investment clause section.
While there are other features in this treatv which mieht vrove of practical
interest to American business, the aggregaie advanta& wbuld not'seem 10
outweigh the disadvantage of estahlishing an undesirahle precedent in our
treaty writing, at thisjuncture. ANNEXES TO THE MEMORIAL 413
Since the objectionahle weakness of this treaty is confined practically, to
paragraphs 1, 4, and 5 of Article VIII, the Senate might consider giving its
adviceand consent to the ratification of this treaty, with a reservation deleting
paragraph 4 of Article VI11in its entirety and the words "are permitted to"
from the second lineparagraph 5Article VIII, and amending Article VI11(1)
in accordance with the suggested provisions set forth in the section of this
letter entitled "The lnvestment Clause".
AGREEMENTSUPPLEMENTINGTHE TREATYOF FRIENDSHIC P, MMERC AEND NAVI-
GATION OF FEBRUARY 2, 1948, BETWEENTHE UNITED STATESAND THE ITALIAN
REPUBLIC
Werespectfullyurge that the Senate giveits favorable adviceand comment
to the above entitled agreement or treaty subject, however,to the following
comment:
Article 1 of this pending agreement or treaty appears to he a somewhat
watered-do~n version of the ~n~estmen~ ~ ~use hereinafter~ ~~ ~ with. It is
Ourheliciihsi ihcçomment in thc prrigriphr dexling iiith th#\maticr sould
3ppl) ti,Ariislc 1of [hi\ \upplcmental Italian ircJiy.
WC;ils0ctillatteniion lu the lici ih.11Articls XVIII . .i)I'theliiilian trcüi!
of February 2. 1948, is the rehtriitite busine>>pracice cl-iu%chcrcin:iCtcr
dexli uiih IlmAyhc th~i iiyour romniiliec iiFa\ur.ibl) di\porcd io\i'~riithc
recommendation contained in the memorandum attached to this letter en-
titled "Restrictive BusinessPractice Clauses in Pronosed Treaties with Den-
mark. Gree~.e,Isr.icl, and C,~lonibi:i" )ou \io~ld dcem iiappruprixtc in
conneciion u.ith ihe r~titiçiiion i~ithesupplcmcnt~lagrccnient io rcqucji ihe
nioditiisiidn of Ariicle XVI11131oitlic origindl ircxt)
TREATIFS OF FRIENDSHIC P,OMMERC EN,D NAVIGATION BETWEEN THE UNITED
STATESAND DENMARK G,EECEAND ISRAEL
We respectfully urge that the favorable advice and consent of the Senate
be given to the above-captioned three treaties of friendship, commerce, and
navigation, subject, however, IO the comment contained in our letter of Octo-
ber 9, 1951,dealing with the treaty with Colomhia in so far as said comment
applies to these treaties and subject further to the-comments hereinafter
contained relative to the investment clause and the restrictive business prac-
ticeclause.
THE INVFSTMENTCLAUSE
The clause referred to by this caption is Article VI of the treaty with
Denmark, Article VI11of the treaty with Greece, and Article VI (4) of the
treaty with Israel. The clause in the treaty with Denmark is less complete
than the corresponding clausesof theother two treaties.
Reference is also made to the fact that the substance of this clause is
contained in Article I of the agreement supplementing the ltalian treaty. A
corresponding clause is also to he found in the 1949treaty with Uruguay
(Art. IV), the 1950 treaty with lreland (Art. V) and the 1951 ireaty with
Colombia (Art. VI (4)). For ready reference we quote as follows the clause as it appears in the
treaty with Greece:
Neither party shall take unreasonable or discriminatory measures that
would impair the legallyacquired rights or interests within ils territories of
nationals and companies of the other party in the enterprises which they
have established or in the caoilal. skills, arts or technolopv -.ich they
haie rupplird: nor shall ciihcr part! uiirc.iw~n;ibl!inipcdc naiionals dnd
Loniniinics<>I'ihociher pari, irdni obtaining on cquii>bleterm, th- ~..ipital,
skill;, arts and technology needed for economic development."
This provision is a version of a provision of the Bogoti agreement which
has never heen submitted to the Senate for ratification. The Habana charter
of the International Trade Oreanization also wntained a similar ~rovision
but ihi, I~keiriseha>nc\cr rece~!ed:ippro\al of ttlc Srnale
The irai! s(immitiee of the S:iiionaI l'oreign Tr;,de Counsil h;is pointcd
out to us that this clause orohibits onlv "urkeasonable or discriminatorv
me.isJrr., . . ."uhicli impair :i~.quiredrighis and that the implic~ti,>nin lhc
il~uir.1s ih~i hy rnca.;urc*IIhiih .ire neiilier unrz~soii.iblcn.ir di~~.rinil!iator).
the Government of one nartv to the treatv mav urooerlv imoair within ils
territory the acquired rights ofnationals ofthe ;th& part; to the treaty.
In our opinion, the importance of the defect in this clause as pointed out
above is emoh.sised hv recent develooments in Iran. The Government of
that country, because apparently beiieved nationalization to be desirahle
as a national policy, enacted legislalion to nullify the Government's contract
with the Anglo-Iranian Oil Co. and thereby impaired, in fact actually de-
stroyed, important acquired rights of that Companyin Iran.
A second dangerous implication in the phraseology employed is based
upon the qualifying phrase "which theyhave supplied". As applied to capital,
it suggests that only as to the amount of capital originally "supplied" by
remittance of foreign funds, would the stipulations of this article provide any
securitv. Historicallv. American direct investment has grown tremendously
not onl? iri~nifunds rcrnitted for in\esiniciit. hut b! rsin\c~trnr.iiioieainings
trithin the loreign country Therc >houldhe no iinihi$uii) ur niiiundersi:ind-
ing on the that the investor's interests are lobe protected as well in
respect of this"plow-hack" as in respect of the original "remitted" capital.
That this is not an academic issue is clear from the discussions in progress
with the Government of Braril reeardine the serviceof American investments
inihat sountr! Uitloriun;iiel!. \ie h;iic no mirdern c<iinmcrci;~tlrc.ii) uith
that ndtion. hut iiue hxil one rc~dinr :asdocr the Hoeoii ~ii~iil;itionqui>tcJ
above, it would bea very precarious 'ssurance of equzable treatment.
In view of what are felt to be deficiencies in clarity of this article, we
respwtfully urge that the investment clause as it appears in pending treaties
now under consideration by the United States Senate be so amended as to
giveadditional protection to rights acquired by American nationals in foreign
countries. If thegovernment of a foreign country having a treaty of friend-
ship, commerce, and navigation with the United States of the post World
War II type takes property of an American national for public purposes, it
must pay due compensation with respect thereof It is urged for your con-
sideration that if the government of a foreign country takes the measures
which woulddestroy or impair the rights or interests of an American national ANNEXES TO THE MEMORIAL 415
irresnective of the . .ooses underlvi.e "uch destruction or im~airment. cor-
rc.p<>ndingp3)mcnt sliould be made
If ihc iirsi pxri oiihc Inir,iimcni ',lsu\e soulJ he so modiiied :iiio rsad
"Neither oariv shall take measures that would impair the rinhts or interests
within itsierrkories of nationals and companies of the otheriarty except on
payment of prompt, adequate, and effective compensation" we feel that a
desirable result would be accom~lished.
We also feel that our balance of Article VI11of the treaty with Greece,
reading: ". . . nor shall either party unreasonably impede nationals and
companies of the other party from ohtaining on equitable terms the capital,
skills, arts, and technology nceded for economic development" should be
deleted in its entirety.It is to be assumed that it would he the United States
which would beinhibited by this language from unreasonably impeding na-
tional~and companies of the other party from ohtaining on equitable lems
the capital skills, etc., referred to. It seems to us that the meaning of the
phrases "unreasonably impede" and "equitable terms" are so obscure and
the implications thereof so broad as to make the inclusion ofsuch a provision
in a tieaty entirely inappropriate and undesirahle from the point of view of
the United States. This language or a modification thereof iscontained in the
treaties with Colomhia (Art. VI-4), Israel (Art. VI-4), Ethiopia (Art. VIII-4)
and Italy (Art. 1of the supplemental treaty with Italy). It does not appear in
the treaty with Denmark.
THE RESTRICTIVE BUSINESSPRACTlCE CLAUSE
The restrictive businesspractice clause to which we refer has, we helieve,
been incoroorated suhstantiallv without chanee in al1of the oost World War
II treaties'of friendship, commerce, and na;igation comméncingwith the
1948 treaty with Italy and it reads (treaty with Denmark, Art. XVIII-1) as
follows:
"1. The two oarties aeree that business oractices which restrain comoeti-
tion, limit access to markets or foster minpolistic control, and which are
engaged in or made effective hy one ormore private or public commercial
enterpriser or bv combination. anreement O; other ar~ann-ment amone
wch cntcrpri\c\ ma! ha\c Iiarmiul cilecis upon coninicrc: betucen their
re~p~~cI~v tecrriIorie< ,\cci,rJingl) e:ich pari? :igrsss upon the rcquesi of
the other party to consult with respect to any such practices andto take
such measures as it deems appropriate with a view to eliminating such
harmful effects."
The National Foreign Trade Council believes firmly in the principles of
private enterorise and business conducted on a cornpetitive basis. Until re-
Ccnil) ilhad ;icuçd ihc rcsiriaivc husincrs praciisc,ilause ds heing nierel) ;i
c~~ndcmn~ii~ ~npr:!:iiccs contrxry ttithe lccicrami 5pir1iofe~i,iirig AIIIC~I-
Cdilldu.
More receni siud) of thaspri)i.isiiin.ind p.iriicularly oithe .econd ,entciise
h:ii i.iu\cdLS io rc\.i>cour ~dcd. At the prescnt iiiiic. taking inio consider-
dtioii thei.i:tit,.iirc;iiicr diilv cnicrcil inio hc;ornc undcr the Constitution
the supreme law of the land, and hearing in mind the delicate relationship
estahlished hy the Constitution between the powers of Congress and the
powers of the Executive, we have come to have real apprehension that this
clause as now drafted may result in transferring to thééxecutivebranch of
our Government certain powers heretofore reserved to Congress.416 ELETTRONICA SICULA
Attached hereto please find a memorandum dealing with this suhjeci in
somedetail which webelievewill be of interest to your commiitee.
Respectfullysubmitted.
William S. SWINGLE,
Presidenr.
RESTRICTIVE BUSINESSPRACTICE CLAUSESIN PROPOSED TREATIESWITH DENMARK,
GREECE, ISRA END,COLOMBIA
Article X\'III-I of ihe proposcd irelit? <~iiricndrhip.coiiirnercc. and n>\i-
&:ilionuiih itic Kingdoni of Dcnm:irk. non undcr considcr:ition hy ihe Com-
mittcc on I'orci-n Rclxtions of the Senate of the IJnited States. coiilliins a
pro\.ision de,igned Io cliinin3ic h:irniful elteci\ upon iomnicrcc bciuccn the
Cniicd Staic$ 2nd Dcnrnark arising irom business prlicliccs u,hich restrain
competition, limit access to markets or foster monopolistic control as
follows ':
"ARTICLE XVIII
1.The two parties agree that business practices which resirain competi-
tion. limit sccess to markets or [oster monowlistic control. and which are
engaged in or made effective byone or more private or public commercial
enterprises or hy combination, agreement, or other arrangement among
such enterprises may have harmful effects upon commerce between their
respective territories. Accordingly, each party agrees upon the request of
the other party 10consult with respect to any such practices and to take
such measures as it deems appropriate with a view to elirninating such
harmful effects."
The second sentence of the provision quoted above givescause for particu-
lar concern in that it would bind the United States "Io take such measures as
itJeems appropriate niih 3 \leu io climinating such harmful clTccis".There
is31 lasi ro<m for the construclion ihlitc~ch Party c<immilsitself Io rnact
measureswhich willeliminate the harmful effecti of restraints on corncetition.
leaving only to the discretion of the parties the choice of ihe measure O;
measures which willbe appropnate for this purpose. Sincea treatyconstitutes
the supreme law of the land', it may certainly be argued that the United
States could be held liahle before an international tribunal should itfail to
13kc\orne mc;isure or mc;isurcs. uhethcr hy ciciof Congrcsc or hy cxccuiivr
ïition.IO wrry oui the iii;ind.iieoiihc 1rc;itywith Dcnm:irk'.
Prcsum3blv. thc consultation aarccd IOundcr Articlc XVIII-I would take
place with the executive branch'of Our Government' and the executive
branch, rather thon Congress, would be directed to take "such measures as it
deems appropriate with a view to eliminating such harmful effècts". Thus
read, it rnay be argued that the provision in question would result in a
surrender by Congress to the executive branch of Our Government of a
portion of itspowers regulating Ourforeigncommerce which isnow entrusted
to Congress under Article II of the United States Constitution. Following
this lineof a"gument to ils~"o~ ~alconclusion. it seemsclear that the Execuiive
would not he required to seek congressional approval of measures which it
deemed appropriate Io the extent that such measures were within the general
'-" Footno~es no1 reproduced. ANNEXES TO THE MEMORIAL 417
oower of the Executive Io carrv into effect. For examnle. the administration
ci>ulil throiiph the Otlicc of l~crnÿiion.il ïr~dc inip;sc'cxport rcsirict~ons.
thu.: iimcing indiibir) tu .ibinJoii or sh:ingc ;tnv pr,iciicc \ihich hdd bccn a
subject of Gmplaint.
Again, following this line of argument, the executive branch in fulfilling
the obligations assumedunder the proposed treaty, would not in any way be
limited by the existing antitrust laws of the United States5, but in fact the
executivebranch would becoinmitted to take suchmeasuresas itmieht deem
appropriate a,ith 2 \ie\i to climinating harmiul etTeci;from "hu\ine>s prac-
ticc.rrhich re\irain ;ompeiiiit,n. Iimit ïccci> 10markci,. or fuster iiionopolis-
tic control . . ."whether or iiot such oractices in a ~articular casewere in
violation of the antitrust laws of the United States. in eHect,therefore, the
executivebranch of the Government would hecommitted to diferent criteria
from the existing criteria applicable to American enterprises at home or
ahroad.
If 3 ircjiy ucrc no1in\olicd. rhcrc ijliitlc qiic,tion but thai 11\iould bc
unconsiituti~in.il (or Coiigress to dclcg:iic ils aiititriirt puiicIIIthe iiiJiincr
c<~niemplai~.d^H . oueber a trraty maile under the xuth<>rii) i)i rhe United
St;itcr bczonics the riiprcnic 13%of thc hnd' 3nd tlicrc ii support for ihe
propo$ition tli.1ihst itilcli ciingresiiiii)1101do undzr the Consiitution. ic.
the delegation of its power 10regulate commerce, may still be accomplished
oursuant to a treatv enteredinto "under the authoritv of the United States" '.
' I'h: full iniport of ihc congrcjsion31surrcndcr oibo\rcr o\,cr forcign com-
merceuhich i\ inhereni in ..\rticlc XVlll (II of the propo,eJ trrai) i\ perhïns
more oointedlv revealed bv the ootential imoact of ihis article-on existine
legislaiion. ~héreare in effect today a numbir of iaws enacted by congre<
which grant some form of antitrust exemption to activities affecting our
ioreign-conimcrcc which might bc consirucd to hc rotrictite practicc, u.ith~n
the iiic;iniiig of Ariiclc XVlll (11.For c~aniplc, ihc Cdpper-VolstcaJ Act'
permii, perwn, engagcdin the production <iia&ricultural pruduct, to market
such products in interstate and foreign commerce by means of marketing
ae-nciesin common. Let us suoDoseth..Government of Denmark were to
niake the contcniion ihat agrccmcnthc\iïhli\hing \urh collecti\c markeiing
3gcncicspursu:int to ihc Cappcr-Volstc;id Act trcre 3d\,crrel) rcsirictint: tradc
heiuccn the I:niteJ Si:itc, an4 Denmark. I'ndcr Article XVlll Ili thccxecu-
tive hranch of our Government. accordine to the areument Stated above.
would be obligated to take meakres to eliminate the ~rmful eHectsof such
restrictive practices, including, if desired, the withdrawal of approvals pre-
viouslv exknded Io the colleciive marketine ae- -mcnts.SinceChe~rovis~ons
oiihe tre:ity siisperscdethe I:iirsof Cuiigrcs, prc\iuusl) cnÿsied 'O,the Excc-
iiri\c :fiction uould o\:rrulc tlic prior congrc,sion,il dciernlin~t~onih:it ~uih
collective marketing agreements~werenot harmful to our foreign commerce
andshould bepermitted by law ".
If, on the other hand, it is not intended to interfere with the power of
Congressto regulate Our foreign commerceor to open the way to the nullifi-
cation of the congressional enactments descnbedabove (and there is no
indication of a contrary intent), Article XVllI (1) should be amended so as
to eliminate any question on this score. For that purpose revision along the
following lines is suggested:
"Accordingly each party agreesupon the request of the other party to
consult with respectto any such practices and to take such measuresas it
deemsappropriate with a view to eliminating such harmful efïects: Pro-518 ELETTRONICA SICULA
vided, however, That in order to accomplish the aforesaid purposes the
United States of America shall be obligated to take only measures hereto-
fore or hereafter enacted by Congress."
While existing treaties of friendship, commerce, and navigation with ltaly
(Art. XVIII) and lreland (Art. XVIII (1))contain similar "restrictive business
6ractice" oiovisions ". it'is no1too late to orevent a more widesoread use of
ihc cI.iusc .iroriciiiall) drdied. The :imcndnicni sug&ciicd3bow iiiü!. 3s 3
niaitcr ol'fir\t irnprc,siun. ;ippe;ir io he too one-sidcd in ii\or ~~iihc,United
Siaies Iloucr~cr.ihr. llnitcd Siiieb I,the onl) iuiiiiir! iiithe iiorld. a.iih the
possihlec\~cpiii~n,)iFr.inr.c. u,h:rc 3 ircül) c:in hcs.imc J psri oiihc ,uprcme
la\! 01 ihc l.iiiiirithoiii ihc necerrii) <II'implcmcnling Iciuscn:icied b) ihc
I l i 1 ) ' II ccnis nc;c\\.ir\. ihi.ri,iorr,. h) \pccifii rcfcrcnrc in the
trëaty clause to make it clear that the measures to be adopted hy the United
States must be those which are enacted by Congress.
October9, 1951
Hon. Tom Connallv,
Chairman, ForeignRelations Commifree,
UnitedStates Senate, Washington,D.C.
Dear Sir: The National Foreign Trade Council, on the basis of a report
from its treaty committee, has reviewed the provisions of the Treaty of
F~~ ~ ~ ~ ~ ~ ~ ~ ~ ~and Navigation between the United States and the
~e~ublicof ~olomhia executed April 26, 1951, which is now before the
Senate Foreign Relations Committee and desires respectfully to urge that the
Senatc eivc i?sadvice and consent thereto as ~rovided bv ihe ~o>slitution.
The ~.iïion;il Foreign Trddc <:(iun<iliceh ih:i; the Siaic i>cpdrinicnt should
hi commended icir II.ar.ii\ii) in ncgoii;itins tredi) oîiricnd\hip, c<>mmcrr.e
and naviaation the orovisions of which arein general alone lines meeting in -
8 ruh>ilinrill rnanncr ihc rietri oiihc nicnibcrs \iiihci(iun~il.
On the ;i\sumption thai protisicini ui ihc Ircat). ivilh Coliimhili uill ,cr\c
as a model for c~rrespondin~ provisions in other treaties to be negotiated,
the couneil'streaty committee has formulated as to certain provisions thereof
the following suggestions the adoption of which it is believed would be de-
sirable:
Article III, paragraph 1, and Article VI,paragraph 1.-The words "in no
case less than that required by international law" should he added at the end
of each ofthese oaraeiaohs. This ~hrasehas aooeared in most other commer-
CIXiIrcÿties tu \ihich;hC L'nircd~taics 15a p~;i) and in ihc ~udgmentollour
conimiiicc ir irnportJnt in th31 II \uggell\ what uc hcliei.~tu bc ct~igniticanl
principle, namely, that international law does require governments to give
orotection of the D.rso~ ~d the or~..rtv of .ationals in another countrv.
,Irrii.l111. piirtiyntph 2 -- The word~ "<II 'i5rhoirc" \h<,uldhc ail(lcd JI
the end of ihis pJnigrJph. This psrdgriph indicliic\ ihii a nxiionxl oi onc
counir! ~cîu~cdoi crinic in ihe other coLniry nia). enlu) iliç right. among
oihcr*.,>C,~hi:iininè 'the scr\ises ofçonipeieni counscl". Oh\iou,ly hc >ho~Id
ha\c ihc right io clc~t ch counrel.
Arri<.lc ,I1 pur<igr<ipk 1 'indArtr<.lr VIII. p<iruy,yr<i1pli-The propoiül of
ihç 'Ixiionlil Forcien Tradç Council Coniniiiicc on Ins~rdncc relütine io the
specific inclusion ;f "insurance" in the enumerated enterprises entked to ANNEXES TO THE MEMOR~AL 419
national or most-favored-nationtreatment should be aooroved and acceoied.
The insurance committee advised that specific referéice to insurance' not
havina heen made in existina treaties with some countries, the Statc Depart-
ment has heen unable to make adeauate reoresentaiions on hehalf of Ameri-
can companiesdoing business in such countries when discriminatory laws or
practices were adoptedand enforced.
Article IX.paragraph4. - Neither the use of the words "particulnr types
of activiiy" nor the reference to Article VIII, paragraph 1, is clezir. It is
recommended that this paragraph be clarified.
Article X. -This article does not but should dcal wiih copyrights as well
as trademarks, etc. (Il was recommended that, if Colombid is no1a member
of the International Conference for the Protection of Industrial Property. it
should hecome a member.)
Article XIV. - It is suggested thai a new paragraph, reading as follows,
be added to follow paragraph 2of this article:
"Neither .art, shall imooseanv. .ohibition or restriction or discrimina-
tory iax preventing or hindering the importer or exporter ofgoods ofeither
country from ohtaining insurance on such goods in transit in companies
of thei; own choice."
Arrr<.leXXI'I. por<iyri~p4l. This paragrnph pro\idch ior icrniinsilng on
one yc;ir'suriticn ntiiicc ihc pro\,isioni of p~ragrdph I of Arii~.lcYIV Iis,ur-
ine most-favored-nation treatment as to customs duties and other related
matters. It therefore avoids the necessity of denouncing the entirc treaiy
hecause of a change in policy aiiecting customs duties which might bcincon-
sistent with the relevant treaty provision. The treaty committee believesthat
the freedom of action thus granted to both parties is desirable and should be
commended.
Thecommittee would also take this opportunity to rcfcr agdin to thc nccd
for treaty provisions specifically assuring American enterprises operating
abroad the right to secure entry for and utilise the services of Aincrican
nationals in administrative, technical, and confidcntial capacities. This sub-
ject was discussed in a letter to Senator Connally from the council, datcd
April23, 1951,as wellas in a lelter to the former chairman, Senator Vanden-
berg, dated June 1, 1945.
Very truly yours,
(Signed) Robert F. LOUES,
Chairman.Norionul~o;ei~nTradeCouncil.
(Communicaiions of the Department of State relative to the foregoing lctlcr
from the National Foreign Trade Council:)
May 15, 1952.
Hon. John S. SPARKMAN,
CornmitteeonForeignRelaiions,
UniiesSraresSenote.
My Dear Senator Sparkman: There is enclosed herewith a memorandum
concerning the pending Treaty of Amity and Economic Relations with Ethio-
pia, as requested during the course of hearings before your subcommittee
last Fnday, May 9, in light of the objection cxpressed by Mr. Swingle,presi-420 ELETTRONICA SICULA
dent of the National Foreign Trade Council, in his letter of May 8 to you.
Thememorandum has been prepared for the record.
Comments regarding thepoints raised in Mr. Swingle'sletter with reference
to certain clauses in the pending treaties with Colombia, Denmark, Greece,
and lsrael and ths supplementary agreement with Italy, will be forwarded
separately.
Sincerelyyours,
Harold F. LINDER,
AcringAssistantSecrelaryfor EconomicAJjâirs.
Enclosure:Memorandumwirhattachmenr.
MEMORANDUM
There follow the State Department's comments upon the letter of May 8,
1952,from Mr. Swingle,president of the National Foreign Trade Council, to
Senator Sparkmaii, regarding the pending treaty of Amity and Economic
Relations with Ethiopia.
The State Denartment considers the treatv with Ethio~ia to be an outstand-
ingl) good one,'in XIIthe cir~uniiidnce~.2nd ~~~riiciil;irlu )rg:s iiclippr,)\;il
11conlain\ pr<ivirionsoi grc31 \alut (1 1 IO Our rliplomntic 2nd consiil~r
csi;iblishmcnts in Eihi<irii:i.cer1:iinof tihich. as indic~icd IIIone of the ex-
changes oinoie, a1i:ichedta ihe ireai), go he!onJ rrhdi ihs Erhiiipian Ciov-
crnmcni i norninll) prepdrcd 10 gr.in1: (2) 10 Our riiilen, .n Eihiopix. ihc
exsh.inge ciinoie. rcp3rdinr the .pccial righij of Amerir~ni heiiir: Ethiop~~in
iustice beinr es~eciallvnotëworthv: and 73) to the rrowth of Our trade-and
ihe dc~elo~ie~i oioiher ~meric;;n inierrsts in ~1hio~i.i .Ar the tirsi tre.ii).
of the sort that Filiiopi;~Iilissoncluded wiih .in) nation iincc ihc uar. iinia?
be regarded as having considerable political significance.
The obiection of the National Foreien Trade Council to this treatv seems
to be baied principally or entirely on the ground that it does noi go far
enough in obligating Ethiopia to receiveAmerican investment. However, this
lack of commitment concirnine the -ntrv of investment ca~ital was not. as
suy&csiçdin Mr. S\vinple',Iciicr. d C~ilureio o\er:omc an obsiacle io muiuiil
undersianding. On the :ontrar). 11 riai srideni th3i. in Eihi61pia'scxijtiiig
:ircumrt:incc~. C.ihiopixcould no1hce\pecled 10 uiidcri~keire.Ii) liniil.itioiis
unon her rie"t to reiulate the entrv of foreien-investment. No henefit was to
he gained froni :iitcmpiing in ihij ireai!. to ft~rreEihii>pi.iio acccpt Americnn
inieitmeni. c~pc~i3ll! 4s no American uoulJ likel) wish [O venturc hiic~piiiil
in Ethiooia anvhow exceot with the exnress sanction of the Ethiooian ~ov-
ernmcnt. The irecil) does. ol'cour~e,antain \:iluahlc awJrJnccs. of ihe sort
norm:illy *ouphi in one ,iithex ircaiio. concerning the pri>icciionof iri,esi-
ments which are actually made now or hereafter in Ethiopia.
The State Denartment does ~ ~ ~~ ~rd this treatv as at al1 "dilutine the
pattern triOur bil;itcral irr~tie,". :iij~ggeried in Mr. S\i,iiigle'ilettcr. Ir i>
sp<cinlly(Ie~igneJfor a ctiuniry like Eihiupia. not i\>r .Icuunlr) of Wc,icrn
Euroric II is iu be iudrcd hv lis nian\ oosiii\~caccomnlishiiicnis in rclxiion
to ~tiiio~ia rather ihan hy iis omissi&;. As it stands,'it is a stronger treaty
than most nations commonly make with one another. It represents a great
advance over Our existing commercial treaty (that of 1914) with Ethiopia,
and sbould serve well until Ethiopia reaches the stage of being able to enter
into a still more ambitious treaty. ANNEXES IO THE MEMORIAL 421
Department of State,
Washington. May 16, 1952.
Hon. John 1. Sparkman,
CommitfeeonForeignRelations.
UniredSraresSenale.
My Dear Senator Sparkman: There is enclosed a memorandum, as re-
quested during the course of the hearing held by your subcommittee on
Fnday, May 9, concerning questions raised by Mr. Swingle,president of the
National Foreign Trade Council, in hisletter of May 8 to you with reference
to the pending treaties of friendship, commerce,and navigation with Colom-
bia, Denmark, Greece, and lsrael and the supplementary agreement with
Italy. A memorandum concerning the National Foreign Trade Council's
viewson the treaty with Ethiopia has been sent under separate cover.
This Department givesmost careful consideration to the suggestionswhich
the ForeienTrade Council offèrsfrom time to time with a view to makine
the treati; a more effectiveinstrument of American foreign policy.~oweve:
as will appear from the attached memorandum, we are unable to concur in
the advisabilitv of the chanees which the council now oroooses he made in
the sc\er;il injtrunicni, pcnding hciorc the commitici.. Aprc,cmr.ntoii iltesr.
tre.iris11.1bren rc.i:hc,l .iitcr Icngthj anci olicn Jitticult ncgutixtions con-
Juiied 31 the instance of ihe llniicd Si~icsGoi.ernmrni ancion ihc h;isirol
United States orooosals: and il would not aoDear advantaeeous to risk re-
upening neg<>iiatiiinrior ihz purpose oi securing none,icnii~l ~h:ingc,,
r.spesia11in sl;iuscsdlredd) apwciring in hiiherio .ippr<~ieJtrïatie.. Sonc ot
the changes sugrested bv-the-council aooears necessary. and at least one
appears 1; be contrary tothe interests ofihe United ~tatés.
If there are any further materialsyou might require, please do no1hesitate
to cal1on us, for we are most anxious to be of whatever assistancewecan in
facilitating the committee'sconsideration of these treaties.
Sincerelyyours,
Harold F. LINDER,
AcringAssisranrSecreraryfor EconomicAffairs.
MEMORANDUM
There followcomments of the State Department on the two points raised
in the letter of May8 from Mr. Swingle,president of the National Foreign
Trade Council, concerning the pending treatiesof friendship, commerce,and
navigation with Colombia, Denmark, Greece and Israel, and the supplemen-
tary agreement with Italy.
So-calledinvesrmenrclause - The quoted provision, as found in Article
VI11of the treaty with Greece, is one of the least of many clauses relating
to investment in the treaty. It first occurred, in a larger form, in the 1949
treaty of friendship, commerce, and economic development, with Uruguay
(Art. IV), heretofore approved by the Senate; and it was not then criticized
by the National Foreign Trade Council in the letter which it sent to the
Senate, recommending approval of the Uruguay treaty (letter to Senator
Connally, from MI. Thomas. then president of the organization, dated
March 6, 1950).The Uruguay version,however,contained one passagewhich
has been ahandoned in the current treaties, in light of further study and in422 ELETTRONICA SICULA
response to a particular objection suhsequently raised by the National For-
eign Trade Council; namely, a stipulation that neither party should "without
appropriate reason deny opportunities and facilities for the investment of
capital by nationals and companies of the othcr party".
The State Deoartment does not aeree with the obiections or the recommen-
dation containid in the National Greign Trade ~ouncil's letter.
The National Foreign Trade Council recommendation, as set forth in
bottom of page 6 of its letter, is that the treaty rule requiring prompt, just,
and effectivepayment of compensation for expropriated property, including
interests in property (as, Art. VII, para. 3, of the Greek treaty), be extended
to require compensation in the event of any "measures that would impair
the rights or interests" ofany kind which nationals of one country may have
in the other. This Department does no1 helieve that this recommendation
represents a commitment which the United States could, for ils part, un-
dertake. This is for the reason that such a ~rovision would aooear to reauire
..
iaiiipcnwtion in iircunisi;inces in uhisli [hi I.'niii.dStatc, Gu\crniiicni dot,
mit unilcr the Cunsiiiuii,>ii.ind la\\\ oithc United Sidte. pdy soiiipcn.aiiiin
While the United States, of course, pays compensation for property and
nro~r~tv ,nt~ ~ ~ ~which it takes. il does not oav comoe.sa,ion for al1
"losses" which Government action may cause. For example, the Federal
Government does no1 pay compensation for so-called "consequential dam-
a..s" occasioned bv acoodemnation of orooertv...otwith.tandine that the -
condciiin.iiiun ma).c.iulc the pri\:iie sulier sonriJcr3blc lo%c, in the n:itLrc
01'<~in~cqucnii;ild;ini;igcs Thcrc irno ohlipii~>n ~pon the Uiiitid St:itc,
Ci<i\ernnient 1,)conipenïÿtc ;idi,iillcr Il)r ihc lu.;>of husincjj brouslit un b\
a orohibition law: nor a utilitv comoanv.for 'he economic conseaÜenccsof
the ii>rni:itionoi ;iGo\ernnicnt-3upporied rur.rl ~lc<iriii~aiion.!,leni: nor
individu~lr or hu\inc\, cunccrn, for the loir ,>Ipr<,rpe<ti\cprutit, rcsultiiig
from ~rice control laws. There are manv other instances of Govcrnment-
caused losses, or alleged losses, which the United States Government under
the Constitution and laws declines to make good. The State Deparlnieiil
cannot recommend a treaty provision which would go beyond eslablished
United States no.icv i, this connection and erant fo-eien nation..s more
fd\,~r.ihletrc.ttment ihïn ciiiycn, rr.cci\c in the CniteJ St.ite,
1he I>cp;irtnientof S131~r:;ogni/c> the I~mii.ii~.~n o,ithe pro\.isit>iircprc-
scnied b) Xri~ilcVlll ,,i ihc (ireel. ireai).. Hi>uci,cr. II ishclie\cd 1,) .cr\.e
.iu,~,iul purpore in thdi it ïtiordi one niarc gr\iuiid. in .iJJiii<>n tii-il1the
other grounil, ,ci iorth in the trc:ity. for conicrting i,ircign .iiiluns uhiih
appear to he injurious to American interests. A given measure of a foreign
government might, for example, he fully consistent with the national treat-
ment or most-favored-nation treatment rules of the treaty, and also short of
expropriation, but yet arhitrary and unreasonable as it afected somc vested
American interest in the country concerned. In ihat event, the only trcaty
ground for protest might be general language such as found in Articles 1
and VI11of the Greek treaty. It remains, howevcr, that the real protection
of an American investment abroad rests for the most part on the more
snecificorovisions of the treatv: the clause in auestion does no1aualifv.thes.
nior: spcciiic proiisionr. but 1, merel! iimcthing .iil,lition:~l
The con:luding parr.igc <>ithe pro\i.ion ircl;iii\,c ti> inipcJiiiicrits oii the
,iuiilu\i invc,tmcni c3~1ul. ilsu~~ted ,?ilihc t0p OCnaze 7 .>ithe Icticr
in reference) is not phrasid in a wiy to create a source oi'ekbarrassment to
the United States. The commitment is merely no1 unreasonahly to impede
the outflow of free enterprise investment capital. There is no undertaking ANNEXES TO THE MEMORIAL 423
oositivelv to encouraee the oiitflow of cavital or to suovlv anv caoital. AI1
>ornniitnicntsin the t&aty are. <inthe oih& hmd. suh]c~i'i; a h;o~d'ndtion:il
security rescrtdtion rhi\ pJsrdge. thcrcforc. uould apwar to ix a rn<>dcratc
a3wrtion of ihl.. <iincrnnieni'\ fa!ordbie attitud~ louard the nrlvillc in\c\i-
ment nrocess which it is amoiie th- maior aims of the treatv'as~ ~,hole to
foster and protect.
Resrricrive business pracricesclriuse - This clause, which has avpeared in
several oreviouslv.ao~..ved treaties. is desiened to enlist the coooëration of
foreign 'governmentsin the congre~s'ionall~ approved efforts of this Govern-
ment 10reduce and remove the adverse eflects of cartels and other restrictive
practices on international trade.
It will be observed that the clause is no1 self-executing, and it is also
cautiously worded otherwise. The commitments are (1) to consult, i.e., to
hold discussions, and (2)to take such action as each party deems appropriate,
in i~ ~~wn discretion and in its o~n ~av. with a view to elimin~ti~e the .~
hirmiul enécti <II'etin:d pr~ciiccr ,in i~~icrnati<in.iirl:i~ic Whilc the holding
oiconiuli~iionr uoiilil hc diic.;ccutii,c iunciion. :inv action th:it ihc IJiiitcd
States might sce fit 10 take would he the normal iombination of congres-
sional, executive, and judicial action that exists apart from the treaty. The
clause has, furthermore, been drafted in such manner as to avoid conflict
with the Webb-Pomerene Act and the other enactments which revresent
exceptions to the basic antitrust law of the United States. The clau;; is no1
regarded as creating new substantive antitrust law or new procedures of
antitrust enforcement in the United States.
It may be stated categoncally that the restrictive business practices clause
is not in any way designed 10enhance executive power or to alter established
congressional-executive reljtionscips lin the formulation and execu-
lion of antitrust policy. In the State Department's view, the Executive would
he hound, in carrying out the clause, 10proceed in confonnity with statutes
duly enacted hy the Congress; and there isno intent to authorize the contrary.
A proviso spelling out the interna1processes by which the United States acts
is therefore unnecessary; it would also appear to be inappropriate in an
international instrument, since it is not the concern of a foreign government.
(The following additional comments of the National Foreign Trade Council
were suhsequently received and incorporated in the record:)
National Foreign Trade Council, Inc.,
New York 6, N.Y., May 12, 1952.
Hon. John 1. Sparkman,
UniredSroresSenare,
SenareOfiiceBuilding,Wosliingron,D.C
DearSir: ...
With reference to Article VI1 of the supplementary treaty with ltaly we
enclose a memorandum in relation to the social security benefits under the
laws of the two countries. We believe this may be helpful to your cornmittee
inthc study of this provision.
Verytruly yours,
William S. SWINGLE,
President.424 ELETTRONICA SICULA
MEMORANDUM ON ARTICLE VI1OF THE SUPPLEMENTARYTREATY WITH ITALY
Article VI1 of the Dro.os.d ltalian agreement Drovides for combining -
ctxrragc iindcr the s<ici~l-,ecuritysycicm. <II~heiuo counirie\ in 'iccordancc
uiih ceriain bro.id principles i\.hichds noi oui an) oithz Jeidils of how
such a comhitiing provision would operate in actual practice. For some time
wehave heen trying to ascertain whether or not the Federal Security Agency
has developed any concrete plans for implementing the agreement if and
when it is ratified. Our efforts in this direction have heen unproductive.
Without such information. it is imoossible to evaluate the eKeclof the oro-
po,cJ .igrccment iin Our~td~~~cs tCI:I~-,~~LI~II)pr<>gr;im
The iollduing enample will illustr.iiz the i)pe oi quesiion, in ionneciion
with anv such ~rooosal. Assume that an ltalian workman enters the United
States ifter 15' years of coverage under the ltalian social-security law. He
ohtains employment in the United States and dies, leaving a widow and
children, after working for only I year in employment covered hy the Social
Securitv Act. Ordinarilv. in order for his widow and children to be elieible
icirrurciior bencliis. thc'u;it.c edrner mu.1 h3~ h.iJ iiicurrJ cmplo)nie~it in
6 di thc 13quïricrs prcicding hii ile,iih \il<iulJ ihc cniplovmcnl uniler itic
It.ilian \chenle bc s<insidcrcdin detcrniining ihc cligihiliiy .iiihc uidoti aiid
cliildrcn undcr ihe Unitcd Siare.;Soci.11Sesuril) .ALI 'If sur\ivor pd\nicnts
are io k mdde undrr haih Id\\ Shou \\diild ihc proportion ui Ihc rc\pccii\,e
.av.ents be determined?
Ir sccm, IO us th~t II 13almori iniposiiblc ti~dc!eldp a iair dnd c,uii~hlc
:trr:ingcnicnt ior conihininx coicrrigi under Unitcd Site< anil ioreign \oci;tl-
scziirit) sihenic, ~ihicli:ire \O r;i<lii~llydilkrcni in iheir concepi, I~ckiiig
hii) inTorni.ilion x* id hou the pr<~pivcJ3grcsnicnt uoiild bc iinplcrnenied.
hoii.ci,er,niakei IIc~ircniel! diili~uli31 ibis strigeI<IJ<Imore tliitiraiv ihcse
questions and to insist on complete information as to the types of cases in
which the agreement would be applicable and the mechanics which would be
employed in its operation.
It should also be noted that this isa precedent-sctting agreement, since the
President'smessagestates, "Another provision incorporated forthe first time
in an agreement to which the United States is a party is that contained in
Article VII". This raises the auestion as to whether or not it is the oolicv of
the United States to extend Ais type of agreement to other counthes. This
fact alone should warrant the Senate Foreign Relations Committee making
careful and exhaustive investigation into the possible implications of such
agreements for Ourdomestic social-security program.
EXPLANAIION OF HOW THE UNITED STATES-ITALIAN TREA1
CERTAIN TYPESOF CASES - MAY 15, 1'
The provisions of the United States-ltalian agreement establish the general
method of coordinatine benefits which is to be used. The followine is a brief
explanation prepared b; the Social SecurityAdministration as to hiw benefit
coordination rnight be brought about as regard. the old-age and survivors
insurance benefiGof the twocountnes.
There would be eligibility for coordination only if (1) the worker had at
least 3 years of employment after 1937 under each system, and (2)the worker ANNEXES TO THE MEMOR~AL 425
gains insured status under one or both programs by reason of the combina-
tion of periods of service.
When there is eligibility for coordination, the worker, or his surviving
dependents, may elect whether or not to have the coordination provisions
apply. Ifcoordination iselected. the worker's combinedserviceperiods would
be used in determining his henefit rights, or those of his survivors, under
each system.
Each system would usecomhined periods of servicein determining eligibil-
ity for benefits. Each system would useits own qualifying requirements in
determiningwho could receivebenefits. While each system woulddetermine
henefit amounts on the basis of combined service, it would not be necessary
10transfer information about the levelof earnings - transfers of records of
servicewould be sufficient.
After the initial benefitcomputation on the basisofcombined service,each
system would reduce the benefit according to the relative amounts of service
under the two systems.
Attached are Appendix 1, giving the insured status requirements of the
two programs, and Appendix II, giving illustrations of cases which might
anse under coordination. While the illustrations go into some detail in de-
scribing the benefits payable under the United States system, they present
onlv in roueh outline enoueh information about the benefits oavabl. u.der
ihcltalian s\$tcm tu >hou h;,ii thc basa principles nould opcratr.
Thc iIlustrvti\c caws in Appcndix II xrr.organired iiccordingto the insurcd
ji;iius dithe uorker bciurc 1nJ ïCiçr thc total17:ition<ifhis ncriods i,iscrvicc
under the two systems. There are nine possible types of cases which may
arise, based on the effect of the coordination upon the worker's insured
status. The following table shows these nine categories of cases:
[Table notreproduced]
As shown in the table above, group eight cases are the only cases in which
benefits can be paid as soon as the coordination becomes effective. The
earliest date forthe berinnine of benefitoa.me.ts in anv of the other erou-.
ol"~i.<~,i~Jul) 1957 1%~re~;i>nwh) ihe,c hcnrtit pn)n>enisc;inn<ithc made
ïïrlier isc~pl.iincdfor eïch 1)pe@fc:ircin Appcndir II. under "Commcntj"
Ao..dix IIcontain> iIlustr3tion, ol'c;ises\!hich niieh- ari,c in sach oithc
group. in uhi~h ilierc might hc cligibilit) for hcnelii, undcr coordinaiion.
Ihc n>ordiiiaiion pliin 15 noi cxrccicd io dil'sciin ans subitaniial manncr
the actuarial status of the insurance svstem. While it ii not oo.sihle~ ~ ~sti-
11131~ihe ciiii i)I'c~iurdin;itionii~citherthe Itiilianiir thc I.'niiedStatei ,)\r'.m,
iliscxpccted thai. since only a \ery feu L.;iieïuill hr 3lfecicd. the ciwt uill be
ncgligihlc. Whatcvcr small addition;il erpendiiurrs ina) be invul\cd would
hcjurtilicd iiiiica of the coniiibitiuni pÿid on behalf of the perbiinsarkctcd.
who now contribuic to ihs Umtcd Siaici .\\lem b~tdo noi work lonecnoueh-
to draw benefits.
APPENDIX 1.- INSURED STATlJS REQUtREMENTS OF THE ITALlAN AND UNlïED
STATESPROCRAMS ASOF MAY 7, 1952
lnsuredstatusreqtrirementsof UnitedStatesprogram
(Table andexplanatoryrextnotreproduced]426 ELETTRONICA SICULA
INSURED STANS REQUIREMENTS OF ITALIAN PROGRAM
For old-age henefits under the ltalian system, the insured status require-
mentis taken as being 15yearsofcoverage.The ltalian insured status require-
ment for survivor henefits istaken as beinr a total of 5 vears of coveraee.
with the additional requirement that 1year'i coverage mu&have been in the
5 years immediately precedingdeath. These requirements follow the general
atioroach of the actual. more detailed orovisions of the ltalian svstëm. (II
u.11k nnoicdihai the "reccn;y" ic\t of ihc Ii~lian program for siir\i\orrhip
proieciioii is.in aJiliiii~n:ilrequirenicni rihich iiiuctheuhileihc reccnc)
iest of the United States svsem is an alternative method of meetinr th-
insured status requirements of the program.)
APPENDIX II.- ILLUSTRATIVE CASES SHOWING OPERATION OF COORDINATION
UNOER UNITED STATES-ITALIANTREATY
Group 2. Not insured under either system without coordination, insured
under the Italian system withcoordination:
B works for 3 years, from 1950 through 1952, under the United States
svstem. He works for 4 vears, from 1960through 1-63. under the ltalian
$stem. He dies in July 1966.
Without coordination, B cannot of course meet the length of service
reauirement of either svstem. With coordination his 7 vears of combined
service are suiïicient to meet the length of servicerequirement of the ltalian
program but not of the United States program. (As shown in the preceding
table 7%vears would be re~uired under the United States svstem: the alter-
ndiiic rcquircmcnt ior liniiicd sur\iior\hip proieciion.ai noied, riould hc
1: )eJri of ernplo!mrni Junng the 3 )c>rs i~iitiicdiaiel!preccdinghis dcaiJ
Wiih ci,orJin;iiion. ihc heneliic liR's .ur\ ivors undcr the Iialian svsicm
would first.be computed based on the 7 years of service under thé two
systems. They would then he reduced to four-sevenths of this amount, as
four-seventhsof B's service wasunder the ltalian system.
Comment.- 1t might be noted that there could be no cases in group 2
until after June 1963,and then only in survivor cases. Group 2 cases could
neverarise heforeJuly 1963becausea workerwho meetsthe 3-yearqualifying
requirements would also be able 10 meet the United States insured status
requirement which applied before that date. There could be no retirement
cases in.rrou. I even after the middle of 1963,as anvone meetinr the ltalian
Iciiyihoiser\icc requirenicni could alro mcci ihxi tifthe Uniicd Siaier s!s-
icni There could hc \orne \ur\i\or c~scsaller Junc IYM.as ailer ihai date
the survivorshi. .eauirements of the ltalian svstemwould be more liberal in
some waysthan those of the United States syitem.
Group 3. Not insured under either system without totalization; insured
under the United States system,but not the Italian system,with totalization:
C works under the ltalian systemfor 6 years, from 1944to 1949.He works
under the United States system for 6 years, from 1956 through 1961. He
reachesage 65and retiresin January 1966.
As the leneth of servicereauirement under the Un~ted~ ~ ~ ~ ~ ~tem is74
years for anindividual reaching age 65 in January 1966 C is iot insured
under the United States system without coordination. He is not of course
insured under the ltalian system without coordination. With coordination
the 12years of comhined service wouldstill no1meet the ltalian requirement
of 15years, but would meet the United Statesrequirement.428 ELETTRONICA S~CULA
program until that date.) After lune 1957,both retirement and survivor cases
could anse in group 4.
Group 6. Insured under ltalian systemonly without coordination; insured
under both systeniswith coordination:
F works under the Italian system for 20 years, from 1951through 1970.
He works under the United States svstem for 7 vears. from 1971 throueh -
1977.He reachesage 65and retiresin.lanuary 1978.
F meets the Italian length of servicerequirement without coordination. He
does not meet the United States requirement (10 yedrs for workers reaching
age 65 after 1970)without coordination, but does meet the United States
requirements with coordination.
Without coordination, F would qualify for benefits under the Italian sys-
tem based on 17 years of service. With coordination, he would qualify for
benefits computed on the combined total of 24 years of service and then
reduced to seventeen twenty-fourths of this amount, as seventeen twenty-
fourths of F'sservice wasunder the Italian system.
It is assumed that F received wages of $200per month while under the
United States svstem. and that he had a wifeaeed 65or over when heretired.
The amount oi the monthly benefits based & combined service would be,
under the initialcomputation: F'sown benefit,$65; his wife'sbenefit, $32.50.
The benefit amounts would then be reduced Io seven twentv-fourths of the
amount as origin~iiycomputed, as seven twenty-fourths of F's total service
was under the United States system. The amounts of the reduced benefits
wouldbe: F'sowubenefit,$19; hiswife'sbenefit,$9.50.Theseare the benefits
which would bepaid under the United States system.
Comment. - Group 6 cases could not arise until July 1957, when the
insured status reauirements of the United States svstem first exceed3 vears.
Aitcr th31date. h.ith iur\i\or and retircniciit :dar.>ci>iild1in [hi.;group
Groupx. In\urcd iinder I:niieJ States ,stem unly \iithout coordiii~tion:
insured &der both systems withcoordination:
H works under the ltalian system for 10years, from 1937through 1946.
He works under the United States svstem for 6 vears, from 1947 throueh -
1952.He reachesage 65and retires injanuary 195j.
Even without coordination, H is insured under the United States system,
as the length of servicerequirement for a worker who retires in lanuar; 1953
is but Ij years of service.With coordination, his combined total of 16years
of serviceenables him to also meet the Italian requirements.
With coordination, F would qualify for benefits under the Italian system
computed on the combined total of 16years of service,and then reduced to
ten-sixteenths ofthis amount, as ten-sixteenths of H's servicewas under the
ltalian system.
II is assumed that H received wages of$200 per month while under the
United States svstem,and that he had a wifeaped 65or over when he retired.
The amounts of the monthly benefits based ;n combined service would be,
under the initial computation: H'sown benefit,$65;his wife'sbenefit,$32.50.
This comoutation would be based on the 1951"new start". and H'saveraee -
monthly &agewould be based on his wages in 1951and 1952.
In this case, there would be no reduction in the benefit amounts as origi-
nallv comnuted. if our sueg-utions are adonted. As H did not den~nd~ ~ ~~~ ~
ltalian servicebefore 1951for insured status, the reduction, if any, would be
based on the relative service oenods after 1950. However. as there is no
ltalian serviceafter 1950inthis.case, there would beno henefitreduction. ANNEXES TO THE MEMORIAL 429
Comment. -This group of cases is of particular interest, as it is the only
t,.~ ~f case. under our o. .osals. in which benefits could be naid under
coordination hciorc ihr. ni!ddle of 1957.I hua. itir the 1:rrt lcii )eiirr under
the dercement. theonls hcnctii, riÿyxhleh, rcaron oiiheci),~rdindti<inivtiula
be those payable unde; the ltalian System.-
In the case of H the amounts of the benefits payable under the United
States svstem were not affected. However. the benefits v.va.le under the
United Sidies >)>Ici1in Aroup 8 cs\ci willordin;iril) be loiiercd iiihcrc ras
Ii.ilian *cr\isc aft~r 1950.ifihe \vorkç.r'~insured jt3tiis .lepend. on Italian
servicehefore 1951
SenarorSparkn~an: MI. Roy Leifflen?
Mr. Lerne": Yes, sir.
SenatorSparkn~qr~ W: illyou conie around, Mr. Leiîlien?
For the record, will you giveyour name and the capacity in which you appear,
to the reporter?
STATEMENT OF ROY LEIFFLEN, REPRESENTING THE ASSOCIATION
OF MARINE UNDERWRITERS OF THE UNITED STATES
SaJeguards Against Discrinrinalionin Marine InsuranceAdvocared
Ir. Li. Mv niime 15 R<I!.Lcilnen. and I dm dppearing as counscl ior the
As~<isiiiionof Mdrinc (JnJcnirircrs of the UniicJ Sidie>.\hic1115an orgdni~diion
rompriscd of 25 di' the Ieading insurancc compdniei eng3gr.d in ihc marine-
inrurance husincss in thii c<>untr).1haie 3 prep:ireJ ~idicmentin suppori oithc
nosirion uI'iIirAiiicilssnin:irine undemrilerr. ihai rhc Unitcd S1;itcsh<!uld. in
ireaties of commerce and friendship, provide'adequate safeguards against the
arowing prevalence of discrimination in the field of marine insurance which pre-
ients ~merican marine-insurance companies from competing for the marine in-
surance on imports and exports.
In connection with the treaties under consideration today, insofar as we know,
onlyColombia and Italy have discriminatory lawsor practices, but weare primar-
ily interested in setting a pattern because it seems to us it is far better to include a
prohibition against discrimination in a commercial treaty ratherhan to wait until
a country enacts discriminatory laws or regulations and then attempts by diplo-
matic negotiations to have them abrogated.
1have already submitted copies of mystatement, Senator, but 1will he glad to
read it if you wish.
SenatorSparkman: It is not necessary at all. The statement will be printed in
full in the record.
(The statement of Mr. Roy Leiîlienisas follows:)
STATEMENTON BEHALF OF THE ASSOCIATION OF MARINE UNDERWRITERS OF THE
UNITED STATB
This statement is submitted in support of the position of American marine
underwriters that the United States should in treaties of commerce and
friendship provide adequate safeguards against the growing prevalence of
discrimination in the field of marine insurance which prevents American430 ELETTRONICA SICULA
marine insurance companies from competing for the marine insurance on
imoorts and exPorts.
ii ihc outsei wc wi\h IO eniphasize thai the Amcrican m.irine insurSncc
rnÿrkci helieies firml) in ihc prinriple of freecompclition in marine iilrurancc
and seeksonly the nght to compete for the manne insurance.
~h~ ~ ~hlem of discrimination. which is lareelv a develonment of the
posiiilir perioJ. and uhich IhrcJtcn, ihc de\clopnieni of intcrnlitioii.tl tr.idc
iisrlf. has becomc a >uhlccl0iintcrnalion3l c<)ncern.hoih on thc privaic and
political level.
Private insurance interests in the Western Hemisphere have in the course
of three hemispheric conferences recognized the importance of eliminating
such nractices. At the First Hemisoheric Conference. held in New York Citv
in1946, a resolution was pesented by the Chilean delegalion relative 10the
"Guarantee of freedom to orivate enterpnse in the insurance field". The
resolution was approved and its principÏe reaffirmed in the Second Hemi-
spheric Conference held in MexicoCity in 1948and in theThird Hemispheric
Conference, held in Santiago, Chile, in October 1950.
Similarly, the proposed charter of the International Trade Organization
provides:
"Art. 53.The members recognize that certain services such as transpor-
t~ ~~~~.t~~~-ommunications. insurance and bankine. are substantial ele-
menis of intcrnation.il tr.ide. and lh31 311).reslr~crivebusiness practice, in
rrlat~on io ihcni hdje hdrmfui clk~l, siniilar 10 Ihoic dc>crihe<l iripdr:i. I
of Art. 46."
LJ\I )c.ir ihe Inicrnaiionsl Chlinikr of Commrrce prc3enicd lhc ~UCrliJn
bcfore the l'ranlpori and Cornmunicdiii>n, Coniiiii~si~in of the Uniicd
NaricinsSoci;iland Ecunomir Coiincil That Ci)mmil\ion p.lrscJ Rcr<iluiiun
I? hy a voic oi IO io 3 (Ruma, PolanJ. and B!~.luruwi~\oiing aginst)
uhich rccogni/cJ 1h:ilJiscriniin;ii~~rymc.i\urcr :ipJlnSlinarinc in\ur;in:e nid)
interfere with the free Rowof international trade and recommended a studv
of the situation by the Social and Economic Council. This resolution wis
approved by the Council in July.
The International Union of Marine Underwriters, having amone its mem-
bership the marine insurance associations of nearly al1thelree countries of
the world, likewise passed a resolution condemning such practices at its
annual meeting held in Sevtemher of last vear in Switzerland
It is suhmitted therefoie that there isabundant evidence of ~he ~ ~~ous ~ ~
proportii>nsuhich ihcse pr.iciiici hatc rc'iched.31iJ IIiiicl~iha1 1hi L'niied
Si:itci ihould Lakea rcalisiic iioproach tiithe problcni in ncr<-iiatinr:-ulurc
treaties of commerce and friendship
In addition to conforming Io current international opinion evidenced by
the foregoing, such action would conform to congressional policy that a
strone American marine insurance market is essential to the national econ-
omy and defenseof thiscountry. The House Committee on Merchant Marine
and Fishenes recently stated:
"The Congresshas several times in the past forcefully stated its position
with regard to fostering the growth of the American marine insurance
market" (H. Rept. 220,81st Cong., 1st sess.,onH.R. 1340).
The committee was referring to the principle, first enunciated in the de-
claration of policy of the Merchant Manne Act of 1920and more recently in ANNEXES TO THE MEMORIAL 431
the Merchant Ships Act of 1946(Public Law 371,791h Cong., Act of March
8, 19461,thac:
"It is necessary for the national security and development and mainte-
nance of the domestic and the export and import foreign commerce of the
United States that the United States have an efficientand adeauate Amen-
can owned merchant marine. ..supplemented hi efficient~me'ricanowned
facilities for shiphuilding and shi. re.air, marine insurance, and other
auxiliary services."
The Congress has consistently recognized that a strong American marine
insurance industry can only exist in an atmosphere of free international
comoetition. Leei-lation dealine with manne insurance has never soueht t-
protc~.tAmcriclin marine 1nsur3nic'indusir) from forcign iunipciirii,n hut io
pllice11 inlip<>\ititinIo competc on cqu31tcrm, inicrn;ition;illy The action
Ïeauested heÏein is similarlv desiened to Dreservethat free international com-
peiition which Congress has rec&nized is essential to a strong marine insur-
ance industry.
Discrimination in marine insurance in its several forms. includine laws.
regul~tii>ni.taxer :ind duiissh35 ctthcr dirc:il) or inJire;tI> requirediarins
in,ur:iricc,,ririip<ir2nd cxptirts rd and froni forcign cuunirics io hc plaird
in the national markets, thus eiiectivelypreventing American companies not
admitted to do business in the foreien countrv from comoet.ne for the busi-
ncs. 3s a.cll.I\prcieniin,: ihs iinportcr .ind cyportcr irdni $clcciingthe mort
;id\:intagciwi and cc&in<>mii;n,uransc, .ind inni:iiiy ::tic\. causing Jclay,
uncertainty, anctconfusion.
In .~~~~~ted marine insurance markets hieher rates are usuallv chareed
because there is no international competition. The added expgnse is,"of
course, passed directly Io the ultimate consumer of the noods. Similarly, the
delav. uncertaintv. and confusion directlv inhibit the flomof-eoods in interna-
tionii trade.
The treaties of friendship and commerce with Colombia, lsrael and Den-
mark (Art. XIV, subsec. 3), Ethiopia (Art. XIII, subsec. 2), Greece (Art.
XVII, subsec. 1)provide:
"Nationals and companies of either party shall be accorded national
treatment and most-favored-nation treatment with respect to al1matters
relatingto importation and exportation."
There is nothing on this point in the agreement supplementing the treaty
with Italy and the original treaty contains narrower language.
The foregoing clausefailsto afford anyguaranty against the discriminatory
practices in question. II does not prevent a party to such a treaty from
requirine its own nationals to dace their marine insurance in the national
market,-thus preventing the f;ee selection by the parties to international
transactions of the most favorable insurance market. Moreover, if a party to
such treaty thus restricts ils own nationals in the selection of the insurance
market it may similarly restrict the nationals of the United States.
For this reason, and for thc rcasoiitliat the gravity and prevalence of such
discriminatory practices require affirmative language in order Io assure their
elimination, the following or similar words should be inserted following the
above quoted words or in some other appropriate place in commercial
treaties:
"Keither Pari) \hall impoie 211)prohibition or rc,iriiiii>n ,Ir dii~rimin~.
tsry i;ixpre\cniing or hindsring thc imporrcr or exporter ofgoods ofeither country from obtaining marine insutance on such goods in companies of
either Party."
This rn.ilier hd, hcrctofore hccn J:Ji:u,icJ uith ihe Deparimeni oi SI;ite
and 3 mcmn~~ndunisiiiiilür t<>[hi, i,n has bcen submiiicd it>the Ikpari-
mcni Althoueh ihz Dcp~rimcni h.15iidopied 3 ~ymp.iihc~ic.ittitudz i,iw.irJ
the nosition cf ~merican marine insurance ~nd~rwriters it has not inserted
in a commercial treaty any provisions which would enable the American
marine insurance underwriters 10competefor this insurance in the traditional
American manner.
It ir. ihcrcfore. rcipcctlull) rcqucsicd ihat iftlieSCIIr-'iitic\ ihex irsiliics
IIhcon the uiider,ianding. condilion, or rcseri,aiion ihat the clau,r >uggebiïd
herein he made an integral part of the treaties
DiscriminatoryPracticeof Italy andColombiaonMarineInsurance
SenarorSparkman:You statethat Iwocountries havediscriminatory provisions
in their legislation. What two countriesare they?
Mr. Leiffien:Colombia and Italy.
Senator Sparkman: Italy and Colombia are involved in these treaties. In what
way are those provisions discriminatory?
Mr.Leiflen: Colombia practices its discrimination through ils lawsand through
the office of exchange control, penalizing importers and exporters who place
insurance in comnanies not authorized to do an insurance business inthe Reouhlic
of Colombia.
Italy, insofar as we know, has no statutory discriminatory provision, but it
exercisesdiscrimination hy means of its foreign exchange cootrol board.
Senator Sparkman: Do you feel that the provisions in the presently proposed
treaties arenot sufficientlytight on that?
Mr.Lemen: 1 don't think it covers the situation at all, Senator, for this reason:
Even the so-called national treatment which MI. Linder was talking about is not
effective.If, say, Colombia imposes a restriction on its own nation& with respect
10 where they place insurance, we cannot expect them under the national treat-
ment clause to give any better treatment to an American importer or exporter
who isdealing with merchants, buyers or sellen in the Republic of Colombia.
Senator Spurkman: Let me ask this question, Io see if 1 understand jus1 what
you mean. You mean a shipper from New York shipping goods into Colombia, if
he look out insurance on the goods he was shipping with a New York insurance
conipany,how would Colombia interfere with that?
Mr. Leifflen:There are various tvoes of contracts of ourchase and sale. Insur-
,, ,.
ance is a term of the contract between the huyer and the seller, and in some types
the insurance 1staken out hy the Colombian purchaser or seller, and if he 1s
reouired hv Colomhian law to take it out in a~colombian insurance comoanv. . .,
yo; have one of the terms of the sale dictated by a government which is histori-
cally - and that is the way we like to see it continue - is a matter of open
negotiation between the buyer and the sellerin a competitive market.
SenatorSparkman:There would be nothing to prohibit the shipper in the case
1gave, from taking out his insurance in New York, and that certainly could not
be interfered with hy Colombia.
Mr. Leiflen: That is right. ANNEXES TO THE MEMORlAL 433
SenatorSparkman: The question would he if insurance was to be provided by
the buyer in Colombia, or in the event of shipping out of Colombia if ilwas to be
provided by the shipper in Colombia. Then it would have to he taken hy a
Colombian company; is that right?
Mr. Leiflen: Yes, sir, that is right. In some cases it goes further. For instance,
in Argentina there is a law that if the goods coming into Argentina or going out
of Argentina are at the risk of the Argentine purchaser or seller, as the case may
he, the insurance must be taken out with an Argentine insurance company or else
there is a large penalty.
That also has an eRecton the terms of the contract which takes one term of the
~onirxct <>uiof ihc sphsrc of free negoii3iion hciwcen ihc huycr and seller. ~nd
ihai is uh;ii ihc Amcrictin inwrance cornpinier uini io proiide ;igainsi. bcc~u,c
historicallv it is a free market
Senator Sparkman: You believe that in negotiating these agreements that
should be one matter that should he included in the negotiations?
Mr. Lemen: Yes, sir, in negotiating commercial treaties we think our Depart-
ment of State should endeavor to include a prohibition against governmental
interference with the placement of marine insurance so it will be left to the buyer
and seller to decide who is to take out the insurance and in what market, exactly
like the financine. what the terms will he - 10 davs. 30 davs. 2 months: the
nieihod h) uhich ihe r<~mmodit! \ii1hc pdckcd. All ihu>eniÿitcri arc. uc iecl,as
ad\<ic~iesof priv.itc indiisir! ~nd hu\inr,r, maiter, uhich jhoiild noi bc <Iicuied
hy any government.
Senotor Sparkman: Senator Hickenlooper, have you any questions on this
point?
SenarorHickenlooper: Mr.Chairman, 1think 1understand the position.
National TrealmentwithRespectrorhePracticeof Pro/essions
1would like to ask Mr. Linder some questions.This note wasjus1sent me hy a
memher of the Senate who asked me to inquire into if, and it is here. This has ta
do with Article Vlll in the treaty with Israel. 1 have jus1 asked MI. Marcy ta
check the other treaties. Perhaps you can tell me whether the same article is in
any of the other treaties.
The entire Article VI11apparently is an attempt to give great latitude and
privilegeta the nationals of either party to use their own technicaland professional
experts within the territory of the other; and then, in paragraph 2 of Article VIII,
it reads as follows:
Nationals o~ ~~ther .art, shallnot bebarred from oractisine-.he orofessions
uiihin thc 1erriioric.soi ihc oihcr p,iri) mercl) h) recisiin01their ilicmgc,
but ihey rh.illhc perniitied in cngqc in pr<>lcs,ii>n:i~lcii\iiies ihcrcin upon
compliance with ihe requirements regaÏding qualifications, residence, and
competence that are applicable to nationals of such other party.
Now, as 1 read that, il would niean that nationals of lsrael having first heen
properly admitted here and haviiig met any enaminations for professional or
technical competence that may apply to American citizens, can go on indefinitely
practising their professions here and remain aliens at al1times.
Mr. Linden: No. Do you want me to reply, sir?
SenatorHickenlooper: 1Say,that is the way 1would interpret that No. 2, and 1
would liketo comment on that. First, isa similar provision to Article Vlll in the treaty with Israel in any other
treaty?
Mr. Walklke 11has been in Ourtreaties since 1923..
Mr. Linder: And it does not carry the implication that you read into it. It
rather means that a citizen of Israel or any other country with whom we have
such an agreement may, upon being properly admitted ta the United States, not
be barred by reason of being a citizen of lsrael from doing what anybody else in
this country may do. In the case of certain provisions that is a matter regulated
by the State and, as 1 understand it, a citizen of Israel, if he wantr to practice
medicinein, say, Florida or New York, he has ta do whatever the requirements of
those States are.
SenatorHickenlooper: 1am no1familiar with thissubject. 1mean, Ican't make
any positive allegation, but it runs in my mind that there are a number of States
that have a Ratprohibition against licensingof an alien to practice certain profes-
sions or businesses whichrequire a specificprofessional license.This would abro-
gate that,1 take it.
Mr. Walker: lnsofar as the alienage requirement is concerned that is correct.
That has been treaty policy since 1923. lt has been in most treaties since then.
This is a more explicit statement of the rule that has been in effect. It is national
treatment on the practice of professions.
(The following information was subsequently supplied by the Department of
State:)
Eight treaties (those with Austria, El Salvador,Germany, Honduras, Hun-
gary, Liberia, Norway, and Uruguay) provide for national treatment gen-
erally; and two (Italy and Ireland) so provide except for the practice of law,
which in turn iscovered by a most-favored-nation clause. Five of the remain-
ing six also contain national-treatment clauses, but subject ta qualifications.
The treaty with Poland excepted professions reserved to citizens by laws in
force on June 15, 1931 ;and provided further for most-favored-nation treat-
ment on condition ofreci~rocitv. The treaiv with Finland contains the reser-
vation "insofar as may bepermitted by local law", but supplements this with
a most-favored-nation clause. The treaties with China, Estonia. and Latvia
contain an exception for professions "reserved exclusivelyto nationals of the
country", without specifying whether a profession can beconsidered exclu-
sively reserved to citizens if open to other aliens by virtue of a treaty with
any third country. The treaty with Siam rnerely provides for most-favored-
nation treatment on condition of reciprocity.
SenatorHickenlooper: Therefore 1would interpret it that if an alien, under the
provisions in these treaties, who is an engineer or a doctor or a lawyer or of any
other profession, once has a proper entry into this country; that is, if he is here
under proper entry, then the fact that he is an alien would not bar him - that
alone - from the practicing of his profession if he could meet the educational
standards or whatever the standards are within the area met by Americans.
Mr. Linder: He would be required to meet al1 standards except the one of
citizenship.
SenatorHickenlooper: And therefore a State law in conflict with that would
fall under this treaty.
Mr. Linder: And under other treaties that wehave had for many years. ANNEXES TO THE MEMORIAL 435
(The following information wassubsequently furnished:)
May 16' 1952.
Hon. John J. Sparkman,
Unired SraresSenare.
My Dear Senator Sparkman: 1 have been informed by Acting Assistant
Secretary of State Linder that some questions have arisen concerning Article
VIII, paragraph 2, of the Treaty of Friendship, Commerce, and Navigation
with Israel(Exccutive R), Eighty-second Congress,first session. which is now
being considered by the subcommittee of which you are the chairman. This
article readsasfollows:
"2. Nationals of cither Partv shall no1 be barred from ~racticine the
pr,>fcssidns!iiihin the ierriturii,ol ihc other I1iriy iiierels' b! rc:.sloi
ihcir alicn;igc: but the) slt;tll bc pcrmiiIOdengagein proFcs,ional acti\i-
lies therein upon compliance 'ith the requirements rëgarding qualifica-
tions, residence, and competence that are applicable to nationals of such
other Party."
This articlemeans that a national of Israel shall not be harred from prac-
ticinu . orofession in the United Statesmerelv becauseof his alienaee-As the
ïrticlc sixies. hc mu\t iunipl) uiih Si;itc I:iur rcgarding qu~tlifiwiions. rcsi.
dcncc. 2nd idnipeicncc in his prolc,jion u.hich a Si:iic applies to any ciiijcn
of ihr United Si;ites Ifs St;itc. for example. rcquircq a u,ritten c\amin;ition.
rcsidencc in ihs St;ite. etc. hslureIIu,ill gr:ini a IicenrIOi physici;in. ihc
pariicul:ir îorcign n;iiion31 musi nicei ail such requircmcnin. The only rcquirc-
meni. ifii ciisis in an). St:iie. ivhich nia) noi hciniposirihit the individual
conccrncd hc a Cinitcd Siair.\ iitixcn
Counierparts ofthi, pr<i\,ision rrJniing naiionxl ireaimeni uith respcii IO
the practicc of professions are coitaincd in at least 10 treaties between the
United States and other countries to which the advice and consent of the
Senatehavebeengiven alter full consideration. Theseare the treaties hetween
the United States and Germnny of 1923 (Art. 1,para. 1); with Auslria of
1928 (Art. 1,para. 1); with El Salvador of 1926 (Art. 1, para. 1); with
Honduras of 1927(Art. 1,para. 1); with Hungary of 1925(Art. 1,para. 1);
with Liberia of 1938(Art. 1,para. 1); with Uruguay of 1949(Art. V, para. I
(a)); with Ircland of 1950 (Art. VI, para. I (a), exccpting only law); and
with Italy of 1948 (Art. 1,para. 2 (a), exceptingonly law). It isalsocontained
in the trealr with Colombia (Executive M. 82d Cong.. 1st sess..Art. VII.
p;ir;i. )u hi-h is prcsrnily hcing considercd b! yo~r committee
Thc pr;iciiccciithe UniieJ Statci Goicrnmcni. to incluJc national tre.it-
mcnt nrdi.ijions rcspcciing the ~ctr.iic~.~)I'pr~fesion~ in bil3ier;il fricndhir,
and cimmerce treaiies ha; thui been followed for nearlv 30 vears. and bai
ken kpeatedly approved by the &nate in ils advicesand consent; to ratifi-
cations of thesetreaties. The practice was established and has been followed
kcausc it is in the interest of the Government and oeoole of the United
States.Amcricans are cngagedin businessand professions al1over ihe world.
They have requested. and the United States Governrnent kas deerned it
aon;ooriate tosuonort. efforts to orotect them in their rieht freclv to oursue
.. . .. - . .
legitimate businessand professional activities without discrimination on ac-
count of their American citizenshi~. Sincc firm commitments in treaties be-
tween foreign countries and the ~Gted Statesrespectingthis right is the most effectivemanner hy which those rights may be secured, the United Stateshas
sought and achieved the execution of treaties with foreign countries which
contain such commitments.
Since treaties involve reciorocal obligations. the United States cannot ex-
pcci idrecure the proiesii<>noi righi, i,iAmerisdn cilizciir tu prdctice proies.
,ions :ihro~ii.or 1~ cng;igc in ~thcr ~iinful pur*uiis. \iithoui bciiig prcpcircd
to accord recinriic.iltrentmcni in ihz I.'niicdSiaie,10 naiional ~~iihennriicu-
lar foreien cointrv. Fortunatelv. the United States is able to accord Fecinro-
<il)UIII; mininii!I;i inicr~crcnc~uiih 10c:il1cg1;I;iiion.\incc Ourcounir< hds
;iIii~i!shecn hospiidhlc i,psrhons uhse<~nirihuic i<the building oi:i hcnlihy
and exoandinz -conomv.~As a conseauence of this traditiond hos~italitv.
therc arc on ihc riholc fcu .inJ rcl;iii\el) minor Icg~lrc\rriciioiis impo,cd hy
lacal laivi <in.ii,..runi oi.rlicnagci.il'eirr.rihan src io hc round in the lau,
of almost al1other countries. As a result, by these reciprocal treaty commit-
ments. the United States has eained most of the advantaees for Amencau
citizeis. A reversal of this esiablished United States prGtice would he a
retrogressive ster,inconsistent with and harmful to the interests of the United
~tatei and of Amencan citizens.
Sincerelyyours,
Jack B.TATE.
ActingLexalAdviser
NationalTreafmenrwirhRe.~pecr roScientifc, Educational,Religiousand
PhilanrhropicAcrivities
SenarorHickenlooper:Article VIII, section 3:
Nationals and comnanies oieither oartv.shal, be accorded national treat-
mcni ;,nd mosi-F.i\orcd-n:iiion iredimeni s.ith r:,pc:i 161enpglng in \cicii-
iiîii. r.du<:iiion.il,reli~iaus 2nd phil;inihr<~pic-irii\iiics witliin the icrrir<>rir.i
toiihc oihcr Pdrii. and shtill hc a.wrdcj ihe neht io i&irm.irsocisiions for
that purpose undér the laws of such other pa;ty. Nothing in the present
treaty shall be deemed to grant or imply any right to engage in political
activities.
1sthat an innovation in treaties?
Mr. Linder: No, sir; it is not. It was in the Uruguayan Treaty and the ltalian
and Irish treaties.
SenarorHickenlooper:It is not in the other treaties heretofore, historically?
Mr Linder: 1 don't know how far hack, but 1 know il was in those three
treaties.
SenarorHickenlooper:Well then, as 1 understand il, in thesc treaties that we
have formerly adopted. and in these treaties that are now proposed, any organiza-
lion or group of people from any of the treaty countries can come here and they
have a guaranteed right under this treaty 10form such organizations engaged in
scientific,educational, religious, or philanthropic activities as they please so long,
1assume, as they do not violate criminal laws of some kind. But there isvery little
limit to this thing.
Mr. Linder: As 1 understand it, Senator, it says that they may do the same
things that a national of this country may do in that respect, and that wemay do ANNEXES TO THE MEMORIAL 437
the same things as a national of their country may do, and that in any event, if
any other foreign country is given more advantageous treatment, we shall share
in that treatment and, by the same token, if wegivemore advantageous treatment
to a third countr. the.willhave the benefit of that more advantae-ous treatment.
SenatorHickenloopr: 1wasnot aware that that provision had been inexistence
with other countries. It has fascinating possibilities.
Mr. Linder: It has on the whole been one that we have sought. Wehave sought
it for our missionary activities, and I think is has been harder for us to obtain
rather than the reverse.
SenatorHickenlooper: That is all, thank you.
As 1say,this inquirywas made on the request of another Senator, asking that 1
inquire into this matter.
SenarorSpurkrnan: May I ask ;isimple question for the record? An alien is a
person who was horn ahroad and lias not been naturalized?
Mr. Linder: That is right.
SenutorSparkmdn: After he is naturalized he is no longer an alien?
Mr. Linder: That iscorrect.
(The following communications were received for insertion subsequent to the
hearing:)
The Secretary of Commerce,
Washington 25, D.C., May 12, 1952.
Hon. Tom Connally,
Chuirman,Cornmitteeon Foreign Relations
UniredSluresSenurr,Washington 25, D.C.
Dear Mr. Chairman: 1am glad to have this opportunity again to endorse
the program for the negotiation of modernised gen-ral commercial treaties
with intërested foreien &untries.
Asiilc irom ccri.iin rclinciiient\ 3n.i \ari:it~on, in det:iil. I iin~lcrst~ndthnt
four urthe ii~eionimcrcial trs:itie; ihat hd\c becn ciinclurlcdduring thc p:tst
vear - those with Colombia, Greece, Israel. and Denmark - contain sub-
stantially the same provisions as the general commercial treaties with lreland
and Uruguay, to which the Senate gave its consent in 1950.The fifth, that
with Ethiopia, is an abridged form designed to achieve the same general
objective. In addition, theres the ltalian supplementary agreement which is
intended to bring the 1948treaty with that country abreast of later develop-
ments.
American businessmen who have investment or trade relations with these
countries. or who are contem~latine such relationshios. have a eenuine stake
in numcruus pro\ision\ uCthcw irr..ltics.The,? pri)iisions incl~Je the onci
u,hich c,in:crn thc protection <IIthcir pcr;dns :incl proptri) in the othcr
. countries involved. the permitted range of their activiiies-in those areas, the
conditions of theirinvestmeni and wi&drawal of funds, and the treatment of
imports and exports.
As you may know, the Department of Commercehas recently been giving
snecial attention to the oroblems of facilitatine mutuallv nrofitable nrivate
unilcd State, in\esinicn;s in f,ireign ciiuntrir.s'~hc cc,ndii;i.ns ~nilc; \\,hich
forcign enterpri,er mJ? hc eiiahli\hed .ind .)pcr~icdin thc \ari<iui suuiitric,.
the i)hligationi u,hich the) niusi ssaunic. dnd thc riglits oi which the! i,infeel assured, are outstanding among these problems. It is therefore particu-
larly gratifying that the modernized commercial treaties contain enplicit pro-
visions on these questions. In Our opinion, they should go far toward
cieating - so far as governmental agreements can - that much desired
~.vorable climate necessarvto attract Ame~~can caoital~~ ~ technoloe~~ u,
These commercial treaties can do no more, of 'course,than establish the
standards to he applied reciprocally by the contracting governments in these
matters. Variousother favorableconditions mus1beoresent before individual
firnir will launrh \cnture> u,herc ihrrc Ii\.;ur.inser<:inLonieinit>play Ilri*-
cver, uur disciissions uiih Anierirdn bu,inïssmcn h;i\.e rr.vr.aledihcir br.lief
that the conclusion of commercial treaties of the tvm now before vour com-
mittee iione of the mort uscful step, the Cio\zrn&ni can iske io ;id privalc
L'nircdStatcr iorr.ign inverturi. I .in1sure the) niII iiclcumc ~ppro\,al
of these treaties.
Sincerelyyours,
Charles SAWYER,
Secreiaryof Commerce.
American Arbitration Association
New York 20,N.Y., May 14,1952.
Hon. Tom Connally,
Chairman,CommirreeonForeignRelations,
UnitedSraresSenate,WashingtonD , C.
41) I>ex Senrtur: Your cummiiice iscunsiderin$ the ireaiici ofcommer~c.
Iricndship anil n;i%igationuhich ihr Ilnitcd Siaie, re~cnll) c<inclu~leJ\iiih
I>enmark, Isr.iel. ('ol<imbi;iand Grecie. and ihr. dareeii-eni ~uo~lcnie..ina .
the commercial treaty with Italy.
All these treaties contain a provision facilitating the mutual enforcement
of arbitration agreements and awardsin commercial disputes between citizens
of the respectivecountries. The State Department is fo he highly commcnded
for introducing this modern feature in hilateral treaties, thus making a real
contribution to the advancement and use of arbitration.
This association, which has been dealing with international commercial
arbitration in the interests of American trade and commerce for more than
25 years, considers this provision of the treaties a valuable feature and a
successfuleffort in the protection of American trade interests.
The standard arbitration provisions in these treaties will guarantee the
American trader the effective useof arbitration ahroad. When, on the other
hand, execution of awards rendered in a forcign country is sought in any
State of the Union, they are subject to the law prevailing in the respective
State and have to comply with its requirements. Thus, the rights of the States
of the Union are preserved, in regard to the application of thcir arbitration
laws.
The association welcomesthe efforts, as embodied in the treaties, to secure
the enforcement of -arbitration agreements and awards in the interests of
American trade. It recommends in this respect favorableconsideration of the
treaties.
Very sincerelyyours,
A. C. CROFT,
President. ANNEXES TO THE MEMORLAL 439
(Note. - The subcommittee then considered the consular conventions. This
portion of the hearing was printedas appendix to Ex. Rept. 8, 82d Cong., 2d
sess., ConsularConventionswith lceland and with GreatBritain.)
SenarorSparkrnan:Thankyou verymuch.
(Thehearingwasadjournedat 12.10p.m.) ELETTRONICA StCULA
Annex 87
"COMMERCIA TLEATY PROCRAM OF THE UNITEDSTATES"D , EPARTMEN OT
STATE PUBLICATIO6 N565,COMMERCIA PLLICY SERIES 163,IANUARY 1958
In furtherance of a policy that goes hack to the birth of Our Repuhlic, the
United States since the end of the Second World War has negotiated treaties of
friendship, commerce and navigation with 16 countnes. Most of these treaties
have gone ihrough the process of ratification and are now in force. The new
treaty partners are in every major area of the globe and in almost every stage of
political and economic development. They make up a cross section of the world
-~~si-~ ih~ l~on~ ~rla....
This posiwar reries marks significliniprogress in iheconinieriilil iredty priigram
which the I)cpartment of Siaie hli, been carrsing on for nilins veiirs.The aim of
the nr--ram /s~t~ use the tre~ ~,D.oces~~o assuie a er-ater méasureof securitv
for US ciiizens ;inJ US intercria in forcign souniries lind11lidvance the gcnerdl
ohlccti\cs of the Nation's forcign policy. Though commrriial treniics are negoii-
aicd and siened u,iihout f3nfare. ih.v ;ire imnorr3ni to ihr.welfare oi'ihe counirv
as a wholer~he~ also have an immediate bersonal interest for an ever-growini
number of our citizens. This isespeciallytrue for the American who goes abroad,
whether he goes only briefly as a tourisl or student or whether he goes to live
there and trade or run a business.
Treofy Protectionfor AmericanCitizens
When an American is in a foreign country, these treaties serve as a charter of
his rights. Their aim is 10 assure him much the same fundamental personal
liberties that he eniovs in this countrv. Thev ~ledre constant orotection and
wuni? ior hisPersJi :inJ propcrty. 7'hs)<onli'.oi hini ihe righiIO engage in
ihc norniiil run{iicL.unoniiipursuits, uheihcr by himsrli or in association uiih
others. and in general assure to him the privileges necessarv to carrv on his
business efectivëly. When he goes to a treaiy couitry he receibesthese ihings as
a matter of right, duly agreed to by his Government and that of the other treaty
country and given the sïatus of a solemn international obligation.
The numher and extent of these personal rights are by no means negligihle.
They include freedom of travel and residence; liberty of conscience; the right 10
hold religious services; the right to communicate freely with others hoth inside
and outside the country; and the right to gather and report news. Furthermore,
these treaiics seek io protect the individual in encounters with the law. They
provide guaranties of decent and humane treatment when in police custody, a
prompt trial, and the services of competent counsel. They also assure him access
to the courts of justice for al1legitimate ends.
Following these fundamental guaranties come assurances of protection and
securitv for the individual in his canacitv as orooertv holder. These include
freedoh from unlawful visit and sea;ch if his home or place of business, the
right to iusi compensation if his property is taken by the State, and certain rights
inconnëction iith acquiring, holding, disposing of hoth real and personal
property.
It is no accident that these treaties begin with such guaranties, for implicit in
them is the belief that good international relations, like good government at ANNEXES TO THE MEMORlAL 441
home, can have no stronger foundation than respect for the person and property
of the individual.
Code of Fair Treaimentfor the Businrssman
Guaranties of security of rights in property, of course. are of specialimportance
to the American who goes abroad as a businessman. Without such guaranties
the economic privileges given to him by a treaty would lose much of their
meaning. With them, however, the treaty cornes to he a code of fair treatment
for the American businessman who seeks to trade, to invest, or to run a husiness
in a foreien countrv.
The trGty comm&nents which make up the bulk of this code confer upon the
American husinessman a very substdntial body of economic privilegesin foreign
countries.They are probahly~thestrongest treaty provisions ever proposed in this
field for negotiation on a worldwide basis. They are designed to assure to
economic enterprises thc ability to operate in a foreign country on a basis of true
cornpetitive equality with local concerns.
By these provisions the American husinessman obtains the right, in a foreign
country, to engage in a wide range of commercial and industrial activities on
tems as favorable as those enjoyed hy citizens of that country. This is the basic
economic commitment.
Other economic rights accorded hy the treaties, though important in themselves,
are mainlv desianed to render the basic commitment truly effective. Thus an
-
,\mirisan bu,in-\.mdn cnyging in an cntcrprisc pcrmiiicrl undcr the irelit? is
<is,urcd frcedom 1,)nianage the .iiïttiror his cnierprisc Iiï is alloricd tiiïnicr
ihc ILIL..lIaIhor ni3rkc12nd cngdgc pers,>nncloihischoics Hc 1. pr~~ir.acd;igain.t
di~criiiiin;itor) i:ix<iiion.Ilc is pcrmiiticiuiihdr:iri his cdpil.11;ind c.iri1ingsto
ihc Cullesiclient iedsihlc in Iighi,>iihc f~rcignexch~np posilion oiihc countr)
These orovisions are intended to gain for the ~merican businessman what
might be'decrihed as equality of com~etitive opportunity with his local counter-
part. In the modern world, however, the local competitor often is the State itself.
Treaties of friendship, commerce and navigation recognize this special situation
and seek to reduce the hazards of unfair competition from state-controlled
enterprises. They provide guaraiities of non-discriminatory treatment in the
awarding of eovernment contracts and concessions and in the carrvine out of
n.iii<~n~Ii/~tionprogrJm>. Of cwn gic.iicr rigiiilicancc in iliirsonneciion 1, 3
pro\,iion. an innoiliiit~nin trc;it!-m;ikingrihi~hassures 10 American comnier<ial
enterprises which must compete with slate-controlled foreign concerns the same
economic favors that the latter receive from their government.
Furthemore, the provisions constiluting a code of fair treatment for the
American businessman operating abroad apply to the corporation equally with
the individual. In a sense, this is little more than simple recognition of the
predominant role of the corporation in modern business affairs. Such recognition
requires that the American businessman be assured wide latitude in utilizing the
cornorate device in his fore-.n onerations. In facl. the ereatlv exoanded scooe of
the'provisions of our postwar treaties as they affect Grpo&tiok may pe;haps
be regarded as the most sign.ficant advance made bv this new series over earlier
treatiës of this type.
Treaties as Guardiansof Foreignersin the United States
So far treaties have heen spoken of exclusivelyin terms of the rights they give
and the protection they assure to American citizens and businesses in foreign442 ELETTRONICA SlCULA
couniries. Bu1these treaiies uork boih ways They :iredrîun up in mulunl terms.
and nghts assured to Americans in foreign counine, are assurcd in Iike nianner
to foreigners in this country. The treaty serves the foreigner as a guide to the
treatment to which he is entitled in the United States. The value of such a guide
is apparent when it is recalled ihat the newcomer to this country is confronted
not only with the complexities of Federal law and administration but also with
the systems of 48 States.
Actually, these treaiies reinforce in terms of international obligation the posi-
tion of the Federal Government as guardian of the nghts of foreigners in this
country. They ihus reRecta domestic policy that has developed through the years
in conformity with the Constitution and Federal law. They confer upon qualified
aliens the privilege of indefinite sojourn for purposes of foreign trade. They
safeguard aliens from a treaty country, on a basis of reciprocity, against a number
of leeal restrictions to which aliens from non-treatv countries are or mav become
subjfft. Moreover, the slates themselves on occaiion voluntarily exteid by law
more favorabletreatment to treaty aliens than isgranted other foreigners, particu-
larlv in the matter of land ownershi~. In eenerac therefore. the treatv alien tends
to be better oit'in the United ~tate; thanthe foreigner who cornes ?rom a non-
treaty country. Thus commercial treaties provide for the conduct of day-10-day
relations betwecn the United States and foreign countries on the sound basis of
mutual advantage.
TraditionalRole of CommercialTreoties
The neaotiation of treaties of this kind has lona been traditional amona nations.
Dealing as they do with the protection of perso-nsand property and thégeneral
principles ofeconomicconduct, ihey are the sort of thing that countries normally
turn to in the interest of assuring good order in their everyday relations with one
another.
In faci, commercial treaties go back in origin several centuries to a time when
it was customary to look upon the stranger with great hostility and suspicion
and to enaci harsh laws against him. Under such conditions ordinary commercial
intercourse was almost impossible unless the merchant could be confident ihat
while abroad he would be protected -
from moleslation of his person or his property;
from official ~ersecution or mob violence caused by the fact that his religious
beliefs or oraitices differed from those of the dace where he traded:
from arbitrary interference with, or seizure of, his goods and ships;
from confiscation of his estate in case of death.
Governments, seeking trade advantage, recognized the need and sought the
remedy by treaty.
The United Stdles. in comDan. wi.h other res~onsible members of the com-
munii) of naiionr. h3s long Ijlloi\.ed 3 poliiy ofi~nclu~in~ irelitici of fricndrhip.
conimcrcr.and n.it.ig3iion on as uids a basis 3. poisible This p~ilic).in idci, had
il. beginnincs in the earls da,> oiour ~ndcnenden<r..The 1ir.t trtai, of this kind
to beentered into by thé~nited States wa; signed with France on ihe same day
in 1778 ihat the two countries concluded their histonc alliance. It has been
followed by more than 130other treaties. Many times the very first treaty 10be
concluded between the United States and a foreign country has ken a treaty of
friendship, commerce and navigation, and the signature of such a treaty has often
ken the prelude to a long period of friendly political and economic relations. ANNEXES IO THE MEMORIAL 443
Our earliest treaties with European powers were usually commercial treaties,
and treaties of this kind were entered into with most of the Latin American
countries while they were still engaged in their struggle for independence. As
early as 1832 President Andrew Jackson sent a special agent to the Orient to
negotiate treaties with Siam and Muscat. A leading objective ofCaleb Cushing's
mission to China in 1844was to ohtain a commercial treaty.
Some of these early treaties are still in effect, including some with important
commercial and industrial countries. The treaty with Great Britain, which goes
back to 1815,is among these. No fewer than nine treaties now in force are over
a century old.
Treatiesand Aids Io ForeignEconomicPolicy
In the fore.oine-wehave emohasized the ereat function of orotectine American
citiLcn,and Interssis in iorcign counirie, F\,cr)\vhcre iuch ire4iir.jc:in \ircnfihsn
the haiid of the Dcp:irtnieni oi St.iie in gl\ing clk:iii~c diplom.iiic protection IO
Americans when thev need it abroad. In fact, this protective function hecomes
increasine&. imoo.tant vear hv ve. . as more Ameriians travel or live ahroad. as
Aiiicri~3nbusincss inicrc.tr oper~iicmore extcnii\cl! in fureign L..>unirierx , ndai
,iimc iorcign iduniriss scck 1,)cir.rcije cI<hcrCIIIII~OImer the ii:iiiiticr ,~i.ili:ns.
But itshould niii bc o\crl<~okcJ1h.11in perit)riiiing [hi. iunciion. 1hc.e irediici
;iljo iuriher oihcr imporimi i~hjc~ii\ssJI i<ireipnpolicy. < oni~itenily, ir<>m
ihc carlj ddys oiitur ii.iiion.11indclisiidcnïc. the pra isioni oirlmcrtc.in c<>mmcr-
1131 treillerhdv: rcflcctcd thç pcinhir) 31nliof Am:ri<dn poli:). .ind h3\c contri-
buted materiallv to attainine <hem
Imniedi.iiclyalter the 3igning~iih: 1)cilir:ition ui InJcpcndcnic. the eiiiph.i,ii
\\as upon obi:iininx ioreign rciiign.tisn of iiur indepen<l:nic and upon ~lc\eltipiiiy
new markets to reolace those loit when ties with Great Britain were severed
During the first ha~fof the 19thcentury, the emphasis shifted to the safeguard-
ing of American vessels against discriminatory treatment in foreign ports. This
was the era of the clipper ship, when the American flag was familiar to every
,ort~ ~ ~~ ~ ~ ~ld~ ~
Ai ihc.5xmr.iiiiic. ,iiIIoihcr oblccti\,e, \\ers piiriucd. The cl.ih,~r<itcpro\iji.>n>
in ire:itics sfihi, ncri<>Jdc:ilin,!rriih incuir:~lrightr on ihc hich rc~iclc.irlv rctlc~ci
the difficultiesex~rrienced bv ,me~ ~n commerce durine LheNaool-onk Wars
and represent an effort to promote more enlightened concepts of international
law.The extensive treatv-makinp.with Latin American countries during the 1820s.
which was a part of O& recognition of those States, was in substance a
quiet but eîiective holstenng of the Monroe Doctrine.
After the Civil War, interest in treaty-making decreased withthe dwindling of
our merchant marine and with the growing national absorption in industrializa-
tion and the development of Our natural resources.
After World War 1,however, the United States, now a creditor nation, found
itself interested once more in pronioting foreign trade. Ever-increasing industrial
production required new outlets in the form of foreign markets. Other countries,
burdened with heavy obligations to this country, needed access to the United
States domestic market if they were to meet those obligations. Accordingly,
treaties concluded between the two world wars tended to emphasize the encour-
agement of trade. In particular, lhey provided, for the first time in our history,
that the clause granting most-favored-nation treatment in tariiï matters should
be unconditional in its application.
This meant that each party agreed to grant to the other, simultaneously and
unconditionally,without request and without compensation,any trade concessionthat it mi~ht erant al anv lime 10a third countrv. (. .n a most-favored-nation
claux way co~dition;il. is tn Unitcd Siates commcrcial trcatics beforc the 1920s.
cach counin said to ihc oiher. in cfcct: "lrwc griini 3 iradc concession IO ans
third country we willgive the same concession toyou, on condition that you gi&
us an equivalent concession in return.")
Promotion of Private Capital lnvcstment
After World War II increasing emphasis came Io he placed on the encourage-
ment and protection of investment. The ~romotion of trade remained an imoor-
tant featuÏe of Our policy, and strong p;ovisions in furtherance of liberal tiade
principles have been included in al1the postwar treaties. Moreover, the protection
of the American merchant marine has assumed greater importance since the war
because of the spread of discriminatory shipping practices throughout the world;
and the treaty provisions on navigation have been strengthened.
The United States, however, had become the principal capital-exporting coun-
try of the world. To encourage the invesiment of American private funds in the
actual oroducine -f raw materials. -oods. and services in foreie- countries was
î niattcr <ifimpori3ncc from ihc siïndpoini <iIour domcsiic cconomy îs wcll as
ut' ihc cconomic dci,elopmcnt of ihc rorcign couniricç concerncd. Invcsimcnis
leading to increased productivity and higher living standards ahroad promised
wider markets for American eoods and further oooortunities for fruitful invcst-
" ~ ~ ~ r r ~ ~ ~ ~~ ~ ~ ~
ment. Moreover, the United States was the major source of venture capital not
depleted by the war. The employment of that capital in advancing the economic
d&elopment of our friends would promote the commoo defense aswell as further
Ourown prosperity in the course of furthering theirs.
In seeking to promote the economic development of other countries through
private capital the United States is applying the lessons of its own national
experience. Since the early days of the Republic, this country has followed a
policy of welcoming foreign capital. Events have proved the soundness of this
policy, for foreign capital has played a vital role in our economic development.
Railroading, mining, ranching, textilemanufacturing, and other important Ameri-
can industries owe much of their initial progress to the willingness ofthe foreign
investor 10 risk his funds inside this country. An important clcment in the
willingness of foreign venture capital IO invest in the United States, of course,
was the existence of conditions of security for the investor and his enterprise.
In the present treaty program, therefore, emphasis has been placed upon
expanding and improving the provisions dealing with the rights of American
citizens and their entcrprises abroad. The principal objective has ben to develop,
to the extent that this can be done by treaty, an environment in foreign countries
that will he more conducive to the flow of American private capital.
Special attention has been given to afording American investors a proper
measure of security against undue risks likely to plague their foreign operations.
It has not been intended to shield the investor aeainst the economic risks to
which venture capital is subjcct but to reduce tKe special hazards to which
overseas investment may be exposed hy reason of unfavorable laws or juridical
conditions. Rigid exchange controls,inequitable tax statutes, or drasticexpropria-
tion laws are not conducive to the free flow of capital, and it is against obstacles
of this kind that these trealies are directed.
In the field of investment, as in trade and shipping, the aim of these treaties is
to strengthen the hand of the Government in carrying out its obligation to
safeguard American citizens and thcir interests in foreign countries. Hence the
first thought is effective protection for investment enlerprises when they have ANNEXES TO THE MEMORtAL 445
become established abroad, without immediate regard to ways and means of
encouraging those merely planning a foreign venture.
In view of this practical need, it is of basic importance to have firm assurances
of equal treatment for American business enterprises after they have entered a
foreign country. With unfavorable legal and juridical conditions for the forcign
investor so commonplace a matter, such assurances become the key to effective
protection tbrough the treaty process.
To establish such ~rotection for the enterprise in beina often necessitates a
pragmatic approach. in the giveand take of négotiatingunder prescnt conditions
itisnot always possible to obtain tlie sum total of thc provisions that are regarded
as ideal in ~romotine new investments abroad. Onen. for exam~le. itis not
possible to work out entirely satisfactory commitments on the employment of
American engineers and tcchnicians. On occasion it is not possible Io assure a
whollv unrestricted rieht of entrv for new investment enter&ises. In vicw of the
tradiconal role of thGe treaties and of the nature of the G&ernment's responsi-
bility towards ils citizens. however, the proteciive function mus1take precedence
ove; matters of promotion, even though the value of the latter funetion is fully
recognized.
In anv event there can be little in the wav of effective~romotion unless there
is effectLveprotection, for newcapital is unl<kelyto venture where existingcapital
is ill-treated. Hence the emphasis on the protective feature of the lreaty provisions
on investments is essentialiy a matter or placing first things first. ~ ~
The contribution these trcatics can make to the economic developnicnt of
foreian countries is a matter of vcry real importance both to ourselves and to the
rest of the free world. These treaiies offer'a means whcreby the resources and
abilities of American private enterprise may work more effectivelyabroad. Private
entemrise can nlace on an endurine b-sis the work undertaken under emcreencv -.
circumstances by the economic-assistance programs.
It has been recognized [rom the start that private enterprise isequipped to play
a mai>- role in .ro-rams devoted to the economicde~elo~meniof underdevelooed
countries. Government projects are necessarily limitedin character and duration.
Direct orivate investment. however, can command larae and varied resources and
by ils Gerynature is normally a long-term undertaking carrying with it its own
technical know-how and skills.The greater the extent to which the private investor
enters into the work of economic development abroad the less the burden on the
public treasury and the greater the benefits to the country as a whole.
That treaties of this kind have an important role in economic development
abroad has received exnlicit rccoe-ition bv both Coneress and the President. In
FactCongrerr in ihc \lutu.il Sc'curiiyArt of 1954 ~pcciiic:ill)Jirc~tcd ihc c~c~iit~\c
hranrh IO s~:elr.r;itcihe Drogr;iiiiCorticgoti:iiingwrh trediiss in ordcIO cnrour-
age and facilitate the flow o? private investment to countries participating in the
mutual security program. The President himself has specifically endorsed the
treat. ..~roach as a means of cstablishina common rulcs for the fair trcatment
<iiiiirsign intcstnients In 3ddiiion. in pribits bur,ncss circles .inuniber of the
Iradine trade and in\esiment group in ihir country arc advocaici and supporters
of thetreaty program
FriendshipAmong the Nations
The Department of State intends to continue pressing ahead with the treaty
program. The United States stands willing to negotiate treaties of this kind with
al1friendly, like-minded countries.446 ELETTRONICA SICULA
Though commercial treaties deal with practical matters such as the status of
foreignersand the conduct of general economic relations, these treaties are, above
~ ~,~treaties of friendshi~. Their fundamental ohiectives - mutual orotection of
the foreigncr. mliintendnie uigood ordsr in ever!.<lü)bu~ine\ :ifiirs, encourdgc-
ment of ei<>numicde\elupmcnt. strengthening of the rule of 13\iin the Jcülingi
oione n~tionuith anuthcr - IIIire manifesiüiii)ni:of friendsliir,bet\ieen rir.orilr.s.
Thus commercial treaties are examples of how nations can act togethe;, under
law, for their own and the common good.
Annex
The treaties of friendship, commerce and navigation or comparable treaties
dealing with general economic relations which are currently in effectbetween the
United States and various foreign countries are listed below'. In addition, those
treaties which have been signedsince 1945but are not in force have been included.
In usine this list it should be borne in mind that these treaties. while dealine
with the same general range of suhject-matter, were concluded over a span d
more than 140years and under widelydiffenng circumstances, and that there is
naturally considerable variance among them from the standpoint of responsive-
ness to present-day conditions.
Treoiiessince1945
Republic of China, Treaty of friendship, commerce and navigation signed at
Nanking, Novemher 4, 1946(in force November 30, 1948).
Colombia,Treaty of friendship, commerce and navigation signed at Washington,
April 26, 1951(not in force).
Denmark, Treaty of friendship, commerce and navigation signed at Copenhagen,
October 1, 1951(not in force).
Ethiopia, Treaty of amity and economic relations signedat Addis Ahaba, Septem-
ber 7, 1951(in force October 8, 1953).
Federal Republic of Germany, Treaty of friendship, commerce and navigation
signed at Washington, October 29, 1954(in force July 14, 1956).
Greece, Treaty of friendship, commerce and navigation signed at Athens, August
3, 1951(in force October 13, 1954).
Haiti, Treaty of friendship, commerce and navigation signed at Port-au-Prince,
March 3,1955(not in force).
Iran, Treaty of amity, economic relations and consular rights signed at Tehran,
August 15, 1955(in force June 16, 1957).
Ireland, Treaty of friendship, commerce and navigation signedat Dublin, lanuary
21, 1950(in force September 14, 1950).
Israel, Treaty of friendship, commerce and navigation signed at Washington,
August 23, 1951(in forceApril 3, 1954).
Italy, Treaty of friendship, commerce and navigation signed at Rome, February
2, 1948(in force July 26, 1949).
' This lisis currentas of December1957.Sincethe treaty programis beingactively
pursued!the listwillof course,requirerevisionfrom timeta timeas new signaturesand
rattficatiooccur. ANNEXES 70 THE MEMORIAL 447
Italy, Agreement supplementing the treaty of friendship, commerce and naviga-
tion of 1948,signed at Washington, September 26, 1951(not in force).
Japan, Treaty of friendship, commerce and navigation signed at Tokyo, April 2,
1953(in force October 30, 1953).
Korea, Treaty of friendship,commerceand navigation signedat Seoul,November
28, 1956(in force Novemher 7, 1957).
Netherlands, Treatyof friendship,commerceand navigation signed a!The Hague,
March 27, 1956(in force December 5, 1957).
Nicaragua, Treaty of friendship, commerce and navigation signed at Managua,
January 21, 1956(not in force).
Uruguay, Treaty of friendship, commerce and economic development signedat
Montevideo, November 23, 1949(not in force).
TrealiesConcluded1920-1945
Austria, Treaty of friendship, commerce and consular rights signed al Vienna,
June 19, 1928.
El Salvador, Treaty of friendship, commerce and consular rights signed at San
Salvador, February 22, 1926.
Estonia, Treaty of friendship, commerce and consular rights signed at Washing-
ton, December 23, 1925.
Finland, Treaty of friendship, commerce and consular rights signed at Washing-
ton, February 13, 1934.
Honduras, Treaty of friendship, commerce and consular rights signed at Teguci-
galpa, December 7, 1927.
Latvia, Treaty of friendship, commerce and consular rights signedat Riga, Apnl
20, 1928.
Liberia, Treaty of friendship, commerce and navigation signed at Monrovia,
August 8, 1938.
Norway, Treaty of friendship, commerce and consular rights signed at Washing-
ton, June 5, 1928.
Thailand, Treaty of friendship, commerce and navigation signed at Bangkok,
Novemher 13, 1937.
TreariesCbncludedBejbre 1920
Argentina, Treaty of friendship, commerce and navigation signed at San José,
July 27, 1853.
Belgium, Treaty of commerce and navigation signed at Washington, March 8,
1x75
Bolivia,Treaty of peace, friendship, commerce and navigation signed at La Paz,
May 13, 1858.
Brunei, Convention of amity, commerce and navigation signed at Brunei, June
23, 1850.
Colombia, Treaty of peace, amity, navigation and commerce signed at Rogota,
Decem ber 12. ~ ~6~
Costa Rica, Treaty of friendship,commerceand navigation signedat Washington,
July IO,1851.
Denmark, Convention of friendship, commerce and navigation signed at Wash-
ington, April 26, 1826.
Morocco, Treaty of peace and friendship signed at Meknes, September 16,
."A".
Muscat-Zanzibar, Treaty of amity and commerce signed at Muscat, September
21, 1833.448 ELETTRONICA SICULA
Paraguay, Treaty of friendship, commerce and navigation signed at Asuncion,
Febuary 4, 1859.
Spain, Treaty of friendship and general relations signed at Madrid, July 3,
-~02~
Switzerland, Convention of friendship, commerce and extradition signed at Bern,
Noveniber 25, 1850.
United Yingdom, Convention to regulate commerce and navigation signed at
London, July 3, 1815.
Yugoslavia, Treaty of commerce and navigation signed at Belgrade, October 14,
In addition, there are currently in force treatiesealing in lesscomprehensive
fashion with commerce and general economic relations with France (1822). Iraq
(1938), and Turkey (1929, 1931). ANNEXES TO THE MEMORIAL
Annex88
AGREEMENTSUPPLEMGNTING THE TREATY OF FRIENDSHI P,MMERCEAND
NAVIGATION WlTH ITALIAN REPUBLIC
Message,fiomthePresidentof the UnitedStates
Transmittingan AgreementSupplementing the TreatyO/
Friendship,Commerce, andNavigationbetweenthe United
States($Amerka and the ltalian Republic. Signed al
Washingtot:S, eptember26, 1951
January 29, 1952.The Agreement was read the first timeand the injunciion of
secrecywas removed therefrom, and together with al1accompanying papers was
reierred to the Committee on Foreign Relations and ordered to be printed for
the use of the Senate.
The White House, January 29, 1952
To the Senate of the United States:
With a view to receiving the advice and consent of the Senate ta ratification,
1 transmit herewith an agreement supplementing the treaty of friendship, com-
merce, and navigation hetween the United States of America and the Italian
Repuhlic, signed at Washington on September 26, 1951.
1transmit also, for the information of the Senate, the report by the Secretary
of State with respectto the agreement.
Harry S. TRUMAN.
(Enclosures: (1) Report of the Secretaryof State; (2)agreement supplementing
the treaty of friendship, commerce, and navigation hetween the United States
and Italy, signed at Washington, September 26. 1951.)
Department of State,
Washington, January 25, 1952.
The President,
The White House:
The undersigned, the Secretary<ifState, has the honor to submit to the Presi-
dent, with a view to its transmission to the Senate to receive the advice and
consent of that body to ratification, if thePresident approve thereof, an agreement
supplementing the treaty of friendship, commerce, and navigation between the450 ELETTRONICA SICULA
United States of Americaandthe ltalian Republic,signedat Washington, Septem-
ber26, 1951.
For the mosl part, the provisions of the agreement represent amplificationsof
the treaty of friendship, commerce, and navigation with Italy, which was signed
at Rome on February 2, 1948,and entered into force on July 26, 1949(S. Ex.E,
80th Cong., 2d sess.).Such provisions are in keeping with improvements incorpo-
rated in treaties of this type formulated sincesignature of the 1948treaty, includ-
ing (a) the treaty of friendship, commerce, and economic development with
Uruguay, signed at Montevideo on November 23, 1949(S. Ex. D, 81st Cong., 2d
sess.),and the treaty of friendship, commerce,and navigation with Ireland, signed
at Dublin on Ianuary 21, 1950(S. Ex. H, 81st Cong., 2d sess.), both of which
treaties have receivedSenate adviceand consent to ratification; and (b) the treaty
of friendship, commerce, and navigation with Colombia, signed at Washington
on April 26, 1951 (S. Ex. M. 82d Cong., 1st sess.), and the treaty of friendship,
commerce, and navigation with Israel, signed at Washington on August 23, 1951
(S. Ex. R, 82d Cong., 1st sess.), which treaties were submitted to the Senate on
June 13, 1951, and October 18, 1951, resoectivelv, for advice and consent to
ratification. The supplementary agreement'with l&ly will bring the 1948treaty
abreasi of the more rccent treaties of this type and, by rounding out the compre-
hensive rules governing general economic relations established by that treaty,
further encouraee nrivate canital investments.
The f.illouing articles of tlic ;igrccincntçont;iin pruviriuns ,IOithusc lirrt
introduccd in thc 1'149trcdty with Urugu~y Article 1.uhich sakgunrds nationdls
and companies of each party from arbitrary infringements of their established
interests in the territories of the other; Article II, which givescertain assurances
regarding the employment of technical personnel; and Articles III and IV, which
provide for the remittance of earnings and the transferability of capital. The
provisions of Article VI, regarding the enforceability of commercial arbitration
contracts and awards, were firstintroduced in the 1950treaty with Ireland. Provi-
sions similar to the foregoing are to be found in al1subsequent comprehensive
treaties of this type signed on behalf of the United States with other countries, as
are also the.orovi~ ~ ~ of Article VII,. w~ ~r~~~ovide for consultatio~~-~e~rd..e ~
problems that may anse in the application or interpretation of the treaty.
Article V of the agreement, in which confirmation is eiven that United States
investments in ltaly iill receiveadvantages conferred by ipecial Italian legislation
for the development of southern ltaly and particular industrial areas, is unique.
Anolher provision incorporated for the first lime in an agreement 10which the
United States is a party is that contained in Article VII. By this article the Iwo
Governments, in conformity with standards prescribcd therein, are empowered to
enter into reciprocal arrangements whereby in certain situations social insurance
protection accumulated by nationals of either country under systems of both
countries mav be comhined. lhus avoidine loss of social securitv benefits on the
part of in~ividuairuho hlii,cuorkcd ;it~ihrrnt tinies in both su;ntric\.
II15proi,idsd in the agrccmenlthdt thr agrccmcnl shall cntcr intilime on the
dav of exchanee of ratifications and shall thereu~on constitutc an i-.eeral nart of
thé1948treati.
Respectfullysubmitted.
Dean Ac~~sor;.
(Enclosure: Agreement supplemenling the treaty of friendship, commerce, and
navigation between the United States and Italy, signed al Washington, September
26, 1951.) ANNEXES TO THE MEMORIAL 451
The United States of America and the Italian Repuhlic, desirous of giving
added encouragement to investments of the one countrv in useful undertakings in
-
ihc othcr soLniry. .inJ heinp cugni*ml JI ihc c~iiiir~buii~)\n !hich nid! hc m:idc
toearJ [hi. ciid h) ;iniplifiç~iionoi ihr principlc, ,~fcquiixblc ircAiiiicni\ci igirih
in the'rrcati or IFriendihi~.Cornnierce.ind N;ii,iciiion sidnr.J 31 Rui~ieon Fchru-
ary 2, 1948;have resolved to conclude a supplementary Xgreement, and for that
purpose have appointed as their Plcnipotentiaries,
The President of the United Statesof America:
Dean Acheson, Secretary of State of the United States of America, and
The President ofthe ltalian Republic:
Giuseppe Pella, Minister of the Budgetof the Italian Republic,
Who, having conimunicated to each other their full powers found to be in due
form, have agreed as follows:
ARTICLE 1
Ihe nriion;il~.c<irpor;iii<>n~,nd;is~oci<iiions oieiihcr lliph C,~nir:iciingl'art)
\hall iioi he \uhjccicd io ~rbitr~ryor discriniin.iror) me,isiircsmiihinihe rrrriiories
of the other ~ieh Contractine P-.tv resultine oar&cularlvin: la) oreventine their
effectivecontri and management of enterpFiSeswhich ihey ha"e'been perktted
Io establish oracuuire therein: or, (6) imoairinn their other legallvacquired riehts
and interests in such enterprises orin ihe iniestments which ihey have made,
whether inthe form of funds (loans, shares or otherwise), materials, equipme. .
hcr\iccc.procc\~c~,pJicni,. trchiiiqiie,:itr <iilierui~c.E~slilligh C<~niraainpPari)
uiideriakc~nui to Ji,~.riinin,iic~~~iiisr ~i:iri,iri.:orp<iriiitiris ancl a,ro.x;iiions
oiihc uihcr Ilizh Ci>ntrditina l'art! di io iheir obidinin~ un& nornidl ttriiis ihe
capital, manuf~cturing proce&es, ikills and technology which may he needed for
economic development.
ARTICLE II
With reference to Article 1,paragraph 2 (c),of the said Treaty of Friendship,
Commerce and Navigation, laws regarding qualifications for the practice of a
orofession shall ~o~oÏevent the natioials. c.r6~.ations a~~ associations of either
High ContractingParty from engdging,or contractingfor the servicesof, technical
and administrativeexoerts for the narticular ouroose ofmakinn. exclusivelvwithin
theenterprise, examiAtions, audits and technicil inve~ti~ationsfor,and rendering
reports to, such nationals, corporations and associations in connection with the
planning and operation of their enterprise, and enterprises in which they havea
financialinterest, within the territories of the other High Contracting Party.
ARTICLE III
1. Reeardine the transferabilitv of caoital invested hv~,ationals. c.roor.tions
and associations of either High contrackg Party in the territories of the other,
and the returns thereon. the Hieh Contractine Parties undertake to erant each
-
other the most liberal treatrnent iracticable.452 ELETTRONICA SICULA
2. Each High Contracting Party will permit the nationals, corporations and
associations of the other High Contracting Party to transfer freely, by obtaining
exchangc in the currency of their own country:
((1) Earnings, whether in the formof salaries,interest, dividends, commis-
sions, royalties, payments for technical services,or othenvise, and funds for
amortization of loans and depreciation of direct investments, and
(h) Funds for capital transfers.
If more than one rate of exchange is in force. the rate applicable to transfers
referred to in the oresent.oar-eraüh shall be a rate which is-ioecific.ll..onroved
by the lriternational Monetary ~Lnd for such transactions &, in the absence of
such specificallyapproved rate, an effective rate which, inclusive of any tax or
surchaiges on exchange transfers, isjust and reasonable.
ARTICLE IV
1.Notwithstanding the provisions of Article III of the present Agreement, each
Hieu Co~ ~acting -art~~.hall retain the riehu ,in oe.iods of foreien -xchanee -
stringency, to apply: (a) exchange restrictions to the extent necessary to assure
the availability offoreign exchange for payments for goods and services essential
to the healthand welfare of its people; (b) exchange restrictions to the extent
necessary to prevent its monetary reserves from falling to a very low level or to
effect a moderate increase in very low monetary reserves; and (c) particular
enchange restrictions specifically authorized or requested by the International
Monetarv Fund. In the event that ei~~er HieL Contractine Partv ,oo..es exchanee-
rçsiriciions.it>hall~iithinA pcriod ol ihrcc monihs make re:ijonahlc ünd spcciii:
pro\ision\ ior the ir.in\iers rcfcrrcd Io in Ariiclc III, p~rdgrsp? lir ,togrther
u.ith >uchoro\,iii,ns for ihç tr.insfcri rcferre,l io in Ariicl..III.-r>.r:irr. ..
as may be feasible, giving consideration to special needs for other transactions,
and shall afford the other High Contracting Party adequate opportunity for con-
sultation at any time regarding such provisions and other matters affecting such
transfers. Such provisions shall be reviewedin consultation with such other High
Contracting Party at intervals of not more than twelvemonths.
paragraph Irov(f)o,f the said Treaty, shall govern as to the matters treated in the
present Agreement.
ARTICLE V
In addition, and without prejudice to the other provisions of the present
Agreement or of the said Treaty, there shall be applied to the investments made
in ltaly the regulations covering the special advanfages set forth in the fields of
taxation, customs and transportation rates, for the industrialization of Southern
Italy under Law No. 1598of Decemher 14, 1948,and for the development of the
Apuanian industrial area and the industrial areas of Verona, Gorizia, Trieste,
Leghorn, Marghera, Bolzano and other area covered by the Italian legislation
now existing or which may in the future be adopted.
ARTICLE VI
The cl;iiis:s ul'.-onirÿciscnisrrd inio het\ieen n;ition~lr.corpor;iilon. and tisso-
ci3tion, ofciiher High Conirncting Pdri), 2nd nxiionals. corpor.ilioiir ~nil;isioci-
aiion5 of ihe othcr llich Ciintrüctiiix Part). thai proride for ihc ,rtilenicnt b!
arbitration of controveisies. shall notbe deemed uninforceable within the territo- ANNEXES T0 THE MEMORIAL 453
ries of the other High Contracting Party merely on the grounds that the place
designated for the arbitration proceedings is outside such territories, or that the
nationaliiy of one or more of the arbitrators is not ihat of such other High
Contracting Party. No award duly rendered pursuant to any such contractual
clause, which is final and enforceable under the laws of the place where rendered,
shall be deemed invalid or denied effective means of enforcement within the
territories of either High Contracting Party merely on the grounds that the place
where such award was rendered is outside such territories or that the nationality
of oneor more of the arbitrators is no1that of such High Contracting Party. It is
understood that nothing herein shall be construed to entitle an award to be
executed within the territories of either High Contracting Party until after it has
been duly declared enforceable therein.
ARTICLE VI1
1. The two High Contracting Parties, in order lo prevent gaps in the social
insurance protection of their respectivenationals who ai different limes accumu-
late substantial periods of coverage under the principal old-age and survivors
insurance system ofone High Contracting Party and also under the corresponding
system of the other High Contracting Party, declare their adherence to a policy of
permitting al1such periods to be iaken inio account under either such system in
determining the rights of such nationals and of their families. The High Con-
tracting Parties will make the necessary arrangements to carry out this policy in
accordance with the followingprinciples:
(a) Such periods of coverage shall be combined only to the entent that
they do not overlap or duplicate each other. and only in so far as both
systems provide comparable types of benefits.
(6) In cases wherean individual's periods of coverage are combined, the
amount of benefits, if any, payable to him by either High Contracting Party
shall be determined in such a manner as 10 represent, so far as practicable
and equitable, that proportion of the individual's combined coveragcwhich
was accumulated under the system of that High Contracting Party.
(c) An individual may elect to have his right to benefits,and the amount
thereof, determined without regard to the provisions of the present para-
graph.
Such arrangements may provide for the extension of the present paragraph 10
one or more special old-age and survivors insurance sysiems of either High Con-
tracting party; or to permanent or extended disahility;nsurance systems oleither
High Contracting Party.
2. At such lime as the Maintenance of Migrants' Pension Riahts Convention of
1935cniers inio forcc with rc\pi io boih ~igh ~ontraciing~;irtics. the provis-
ions ol ihat Convention shall supcrjede. io the client thdt they are inconsistent
therewith, paragraph 1of the preSentArticle and arrangements made thereunder.
ARTICLE Vlll
Each High Contracting Party shall accord sympathetic consideration to, and
shall afford adeauate ov..rtunitv for consultation rea-rding,.such questions as
the oihcr High Coniractinp Party ma). raise slith rcsp~c10 an) matter all;.iting
the operation of the prcssnt Agrcçment or ofthe said Treai)454 ELETTRONICA SICULA
ARTICLE IX
The ores~ ~ ~er~-ment shall he ratified. and the ratifications thereof sh~~~ ~ ~ ~ ~-~
erchÿnged ai Wrrhingiiin 3, joon as p~~ssihlc .i ih:ill enter into furcc on the d.4)
of exchangr oi rÿiiti:ations. and \hall ihcreupon consiiiutç in integral pari JI ihz
said Treaiy of I:riend,hip, Comnierce and Navig.irii~n.
ln wirness whereof the respective Plenipotentiaries have signed the present
Agreement and have affixedhereunto their seals.
Duni,in dupliîaie, in th: Englishand Iialiïn 13ng~~gcsh . oth equall! ;iiiiheniic,
ai Washington, th15iiieniy-sixih da) of Septeinber. unc ihou~and ninc hundrcd
fifty-one
For the United States of Amenca,
Dean ACHESON [SEAL].
For the Italian Republic,
Giuseppe PELLA [SEAL] ANNEXES T0 THE MEMORIAL
Annex89
SENAT OF THEREPUBLIPC, RLIAMENTA PRYOCEEDINGLS,GISLAT~1R1E1,BILLS
AND REPORTS-DOCUMENT 1958-1960N.931-A,PAGE2,SENTTO THEOFFICE
OF THEPRWIDEN ON 1[8JULY1960
[SecCounrer-Memoriolojlraly, A131x
Annex90
CHAMBE OF DEPUTIESP,ARLIAMENTA PRYCEEDING LE,GISLATUIIE,
DOCUMEN TSBILLSANDREPORTS N,. 537, PA3,PRESENTETDTHE OFFICOF
THEPRESIDEN 8T, OVEMBE1958
Annex 91
UNITED STA~ CODET , IT5,SEC.706(2)(A)(1982)
[Nor reproducedl
Annex 92
DELAWAR CODE ANNOTATE TI, 8, SECS.71,275(198AND SUPP.1986)
[Nor reproducedl ELETTRONIC SlCULA
Annex93
[Nor reproduced]
Annex94
DELAWAC ROEDANNOTATE TI,L10,SECS.101-6115(1975)
[Nor reproduced] ANNEXES TO THE MEMORIAL
Annex 95
EXCERPTSFROMTHEITALIANCRIMINALCODE
(I'ABOU TIOI.ATIONSINPARTICULAR")
508. (Arbitrary Intrusion and Occupation of Agricultural or Industrial Facili-
ties. Sabotage). Anyone who, for the sole purpose of impeding or disturhing the
normal course of work, invades or occupiessomeone else'sagricultural or indus-
trial nremises or avails himselfor someone else'smachines. materials.eauioment
or instruments designedfor agricultural or industrial production, willbepuhished
hy incarceration of up to three years and a fineof not lessthan one thousand lire
(nownot lessthan eight thousand lire).
The penalty will be between six months and four years and a fine of no1less
than fivethousand lire(now noi lessthan 40,000 lire)ifthe aci does not constitute
a more serious ofîence or crime involving damage to buildings used for agricul-
tural or industrial operations, or other property referred to in the preceding
provisions (Arts. 510-512).
Article 40 of the Constiiution recognizes the right to strike withoui, however,
diminishing the validity of the provisions governing violationswhich, committed
during a strike, encroach on other rights of freedom and property. It followsthat
the provisions of Article 508. designed 10 guarantee the freedom to work, are
perfectlyconsistent with the newconstitutional principles.
The provisions relaiing to the trespassing of a residence apply, rather than
those covering arbitrary intrusion in the buildings of others or seizure of an
industrial facility, whenever someone enters or stays in an industrial facility,
against the willof the person entitled to deny such admittance, not for the purpose
of deriving gains from the intrusion or seizure or of impeding the normal course
of work but for affirming and obtaining recognition of his own right of union
representation.
614. (Trespassing). Anyone who enters the residence or private ahode or
property of others, against the express or tacit will or approval of the person
who has the right to deny admittance, or whoever enters by stealth or dcceit, is
punished hy incarceration of up to three years.
Article 14of the Constitution stipulates:
The domicile(home) is inviolable.
Inspection, search or sequestration are not permissihleexcept in cases and
in the form determined bv the law inconformance with the euarantees estab-
Iished for tlic pro~cction'of'pc~son~freedoni Conirol\ and inspîrtions for
rcasons OCpublic health and sal'etyor for economlc and Fiscalpurposes arc
governed hy speciallaws.
A private residence is also a place in which the private person and his
industrial co-workers or employees perform their work . . .The industrial
facility (Cass. 23 March 1953,Belloni,etc. Also cited iCiusr.Pen. 1953,II,
878, note by Bnttaglini, 14July 1953,Reggiani, rbid.,1954,11,204. Versus:
Terni Court 3 May 1954,Franchi er ul.. ibid1954,Il, 831,note C. Testi).458 ELETTRONICA SICULA
615. (Trespassing hy a public official). A public official (Art. 357) who, in
abusing the authority inherent in his functions, enters or stays in placesindicated
in the preceding article, is punished by incarceration of between one and five
years.
633.(Intrusion in buildings or land). Anyone who arhitrarily intrudes in huild-
ings or land owned hy others, public or private, for the purpose of occupying the
same or othenvise deriving gains therefrom, will be puni-heif sued hy the
owner (Art. 120; c.p.p., Art- 9hy incarceration of up Io two years or with a
finefrom one thousand to ten thousand lire(now 8,000to 80,000lire).
The penalty appliesjointly, with appropriate court action, if the act is commit-
ted hy more than five persons of which a1least one is visiblyarmed, or hy more
than ten persons evenif unarmed (Art. 649).
634. (Violent disturhance of real property). Anyone who, outside of cases as
outlined in the mecedine. article. disturhs the oeace on or i. .eal nrooertv of
oihcrs, commitiing or thkdtcning pcr\ondl haA (i,iolcn!iiIbe puiiishsd h)
incarccrrtiiin of up tu ruo )'cars4ntine oi'betiieen one ihou\lind and ihrce
ihou.and lire(now 8.UOto 24,OUOlire).
The aci 1sconsidcred a>committcJ rviih\iulenie or forcc or thrzùt oi~iolcncc
u.hcn perpciratcd hy mure thdn i:n persoiis.
Annex 96
TABLE OF UNITED STATE PRIME RATES COVERIN THE PERIOD FROM JANUARY 1964
TOMARCH 1987
[Nol reproduced]
Memorial of the United States of America