Chrysler 2003 Annual Report Download - page 166

165 Fiat S.p.A. Financial Statements at December 31, 2003
Notes to the Financial Statements
They are represented by 3 billion euros for the mandatory convertible facility granted pursuant to the Framework Agreement of May
27, 2002 with Capitalia, Banca Intesa, SanPaolo IMI, and Unicredit Banca (the Lending Banks) for the purpose of providing the
Fiat Group with the financial support it needs to implement its industrial plan. The facility was disbursed on September 24, 2002
by a pool of banks comprising the lending banks and BNL, Monte dei Paschi di Siena, ABN Amro, BNP Paribas, Banco di Sicilia,
and Banca Toscana (hereinafter referred to as “the Banks”). They also include the commissions contractually owed for the first year
(30,000 thousand euros). The principal characteristics of the Mandatory Convertible Facility are as follows:
❚The facility has a term of three years, it expires on September 16, 2005 and it may be repaid with newly issued Fiat S.p.A. ordinary
shares. Moreover, Fiat may elect to repay the facility in cash at an earlier date, even partially, on a six-monthly basis on condition
that, even after the repayment, its rating remains at least equal to the investment grade level. Any residual liability for principal
will be repaid with ordinary shares of Fiat S.p.A., which the banks have agreed to underwrite and offer pre-emptively to all Fiat
stockholders. The issue price per share will be the average of 14.4409 euros (in accordance with the rules of the Italian Association
of Financial Analysts – AIAF – the value has been adjusted with respect to the original value of 15.50 euros following the capital
increase of Fiat S.p.A.) and the average stock market price in the last three or six months, depending on the case, preceding the
facility repayment date. The same formula will be applied in the event of an earlier expiration date.
❚The capital increase shall be approved at the expiration of the three-year term of the facility, for an amount equal to the
outstanding balance of the facility.
❚Conditions giving rise to an earlier expiration date of the facility include the occurrence of an event that creates a serious crisis
for the company, such as the request for a court-appointed administrator or other proceedings of composition with creditors,
a bankruptcy filing, or one of the causes of business dissolution set forth in Article 2484 of the Italian Civil Code (formerly Article
2448). In addition, the Banks have the authority to demand early repayment of the entire amount of the facility and proceed with
the conversion of the debt into capital in the following cases:
– Fiat Group companies have not fulfilled their duty to repay liquid and current financial obligations of an aggregate amount
of more than 1 billion euros;
– the external auditors have issued a negative opinion on the consolidated financial statements, unless new auditors, who must
have accepted the assignment within 30 days, issue a favorable opinion no later than 60 days thereafter;
– Fiat becomes the target of a take-over bid in accordance with Article 106 and 107 of the Consolidated Law on Financial
Intermediation by third parties.
❚Lastly, the Banks also have the right but are not obliged to demand early repayment of a portion of the amount of the facility, up
to a maximum of 2 billion euros, after 24 months have elapsed from the signing of the agreement (and, therefore, beginning from
July 26, 2004), in the event that at least one of the leading international rating agencies does not maintain the “investment grade”
rating and, after 18 months have elapsed from the signing of the agreement (January 26, 2004), in the event that the level of net
and/or gross financial indebtedness (respectively in the definitions of “net financial position” and “financial payables” used by the
Group and detailed in the Report on Operations) is more than 20% higher than the corresponding level established by the
Financial Objectives stipulated in the facility agreement.
❚The aforementioned Financial Objectives refer, in particular, to the reduction of the negative balance of the net financial position
to less than 3 billion euros by the date the Board of Directors approves the 2002 financial statements and the maintenance of that
level until the expiration of the facility. Pursuant to the agreement, the proceeds generated from the transactions related to the
sale of the investment in Italenergia Bis S.p.A. are also considered, including those connected with the Citigroup facility of 1,150
million euros, and the financial effects arising from binding contracts for the sale of assets (equity investments, companies, plant
and equipment, etc.), including those not yet executed. The agreement also states that gross indebtedness must be reduced by 12
billion euros, compared to March 31, 2002, by the date the Board of Directors approves the 2002 financial statements and must
be maintained at less than 23.6 billion euros until the expiration of the facility.
The Group confirms that it has met the Financial Objectives agreed to with the lending banks under the mandatory convertible facility,
in terms of both reduction of the net financial position to 3 billion euros and reduction of gross indebtedness to 23.6 billion euros.
At December 31, 2003, ratings assigned to the Group by the leading rating agencies were as follows:
Short-term Medium-term
Moody’s Investors Service Not Prime Ba3
Standard & Poor’s Rating Services B BB-
Fitch Ratings BBB
The ratings of the Group shown in the above table are non-investment grade ratings.
Should this condition persist, as of July 26, 2004 the banks will have the right but not the obligation to demand early repayment of
the facility and proceed with the conversion of the debt into capital for an amount up to 2 billion euros.