Chrysler 2004 Annual Report Download - page 107

105
Consolidated Financial Statements at December 31, 2004 – Notes to the Consolidated Financial Statements
In conclusion, the 14% holding in Italenergia Bis sold by Fiat is subject to Put options exercisable in 2005 by each of the Banks.
Nevertheless, the effects of the sale were considered final and the resulting gain realized in 2002, in that Fiat had contemporaneously
stipulated a put option with EDF that will give it the right, in the event that the Banks ask to purchase said shares, to sell them to EDF
at the same price conditions as the EDF Put.
In order to complete disclosure, it should be pointed out that in December 2004 Fiat received a letter in which EDF advised that it
intends to invoke the arbitration rights available under the Put Option Agreement signed in September 2002 with Fiat. EDF claims
that certain recent changes to Italian legislation have raised uncertainty regarding the nature and extent of the rights and interests
that it would acquire under the Put Option Agreement. Fiat has reviewed its legal position on the issues raised by EDF and it
believes that its rights under the Put Option Agreement are unaffected by the position communicated by EDF. At the end of
December 2004, EDF asked the organization which administers arbitration proceedings – the London Court of International
Arbitration – to commence arbitration for the above reasons. Fiat has presented its defense case before the Court. It is probable that
the arbitration will end by the end of the year.
Again in December, EDF initiated arbitration proceedings against Fiat with regard to the Put on the 14% holding sold to the three Banks
in 2002 and functionally at the service of the tag-along/drag-along right granted to the same Banks in the event of exercising the Put
Option relative to the 24.6% holding. In this request, too, EDF claims that certain recent changes to Italian legislation have raised
uncertainty regarding the nature and extent of the rights and interests that it would acquire under the Put Option Agreement. Also in
this case, Fiat has reviewed its legal position on the issues raised by EDF and it believes that its rights under the Put Option Agreement
are well-founded. The arbitration is under the administration of the International Chamber of Commerce and in its initial stages.
The legal steps taken by EDF are to be associated with similar actions undertaken by EDF with regard to the other stockholders of
Italenergia Bis and with the well-known initiatives, according to press reports, advanced in relation to other operators in the sector
and financial operators aimed at identifying an industrial or financial partner in Italenergia Bis. Press sources have also revealed that
negotiations are underway between the Italian and French governments concerning the reciprocal opening of the electricity market.
On March 21, 2005 Fiat exercised the Put option relating to 24.6% of the shares as well as the Put on the 14% holding sold to the
three banks in 2002.
Fidis Retail Italia (FRI)
With reference to the associated company Fidis Retail Italia S.p.A. (“FRI”), this company was set up to take over the European
activities of the Automobile Sector in the area of consumer financing for retail automobile purchases. To this end, those activities,
performed by various companies operating in different countries in Europe, were gradually sold to FRI, after obtaining the necessary
authorizations from the local regulatory agencies. As envisaged by the Framework Agreement signed on May 27, 2002 by Fiat and
the “Money Lending Banks” (Capitalia, Banca Intesa, SanPaolo IMI and later Unicredito Italiano), on May 27, 2003, the Fiat Group
sold 51% of FRI’s shares and, as a result, the relative control, to Synesis Finanziaria S.p.A., an Italian company held equally by the four
Banks, at the price of 370 million euros. This transaction led to a loss of 15 million euros that had already been set aside in a specific
reserve for risks in the consolidated financial statements at December 31, 2002, based upon the binding agreements signed by the
parties at that time. The sale contract calls for Put and Call options that can be summarized as follows:
■Call Option by Fiat Auto to purchase 51% of Fidis Retail Italia, held by Synesis Finanziaria, exercisable quarterly up to January 31,
2008 (initially up to January 31, 2006, before the extension agreed on February 4, 2005) at a price increased prorata temporis over
the sales price plus additional payments less any distributions.
■Synesis Finanziaria’s right to ask Fiat Auto to exercise the above purchase option on 51% of Fidis Retail Italia in the event of
which, by January 31, 2008 (January 31, 2006, before the above mentioned extension) there is a change in control of Fiat or Fiat
Auto (also through the sale of a substantial part of the companies owned by Fiat Auto or one of its brands Fiat, Alfa and Lancia)
as set forth in the relative stockholders agreement between Fiat Auto, Synesis Finanziaria and the four money lending banks.
■So-called “tag along” option on behalf of Synesis Finanziaria if the same events referred to in the preceding point occur after
January 31, 2008 (originally January 31, 2006).
■So-called “drag along” option on behalf of Fiat Auto in the event of the sale of the investment after January 31, 2008 (January 31,
2006, before the above mentioned extension).
As a result of the transaction, FRI was deconsolidated and has repaid all the loans it previously obtained from the centralized treasury
department of the Group.