I hereby certify - Fiat SpA
I hereby certify - Fiat SpA
I hereby certify - Fiat SpA
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PROSPECTUS<br />
for the<br />
OFFERING TO STOCKHOLDERS OF OPTION RIGHTS TO<br />
PURCHASE 291,828,718 FIAT ORDINARY SHARES<br />
The shares subject of the offer were subscribed on September 20, 2005 in accordance<br />
with Article 2441, paragraph seven, of the Italian Civil Code by<br />
CAPITALIA S.p.A., BANCA INTESA S.p.A., SANPAOLO IMI S.p.A.,<br />
UNICREDIT BANCA D’IMPRESA S.p.A., BANCA NAZIONALE DEL LAVORO S.p.A.,<br />
BANCA MONTE DEI PASCHI DI SIENA S.p.A., ABN AMRO BANK N.V.,<br />
BANCA TOSCANA S.p.A. and BNP PARIBAS SUCCURSALE ITALIA<br />
at a price of 10.28 euros per share<br />
Offer Price<br />
10.28 euros for each ordinary share, par value 5 euros<br />
This Prospectus was filed with CONSOB on November 22, 2005 and is available there<br />
Publication of this Prospectus does not imply the issuance of an opinion by the CONSOB regarding the suitability of the<br />
proposed investment or the merit of the data and information contained herein.<br />
<strong>Fiat</strong> S.p.A. – Registered Office in Turin, Via Nizza 250<br />
Capital Stock 6,377,257,130 – Entered in the Turin Company Register – Fiscal Code 00469580013<br />
The Italian text of this Prospectus is the legally binding one.<br />
The English translation is for convenience only.
CONTENTS<br />
GLOSSARY AND DEFINITIONS............................................................................................................................ 6<br />
SUMMARY NOTES................................................................................................................................................. 8<br />
RISK FACTORS.................................................................................................................................................... 14<br />
SECTION ONE ...................................................................................................................................................... 19<br />
I. INFORMATION ABOUT THE PARTIES RESPONSIBLE FOR THIS PROSPECTUS........................... 19<br />
1.1 PARTIES RESPONSIBLE FOR SECTION ONE OF THIS PROSPECTUS .................................................... 19<br />
1.2 CERTIFICATION OF LIABILITY........................................................................................................... 19<br />
II. INFORMATION ABOUT EXTERNAL AUDITORS .................................................................................. 19<br />
2.1 EXTERNAL AUDITORS..................................................................................................................... 19<br />
III. SELECTED OPERATING AND FINANCIAL HIGHLIGHTS ................................................................... 19<br />
3.1 SELECTED OPERATING AND FINANCIAL HIGHLIGHTS FOR FISCAL 2002, 2003 AND 2004.................... 19<br />
3.2 SELECTED INFRA-ANNUAL OPERATING HIGHLIGHTS .......................................................................... 21<br />
3.2.1 Selected operating highlights for the first half of 2005 compared with results of the<br />
same period in 2004 and selected financial highlights at June 30, 2005 compared with<br />
results at December 31, 2004.........................................................................................21<br />
3.2.2 Selected operating highlights for the third quarter of 2005 compared with results of the<br />
same period in 2004 and selected financial highlights at September 30, 2005<br />
compared with results at December 31, 2004. ...............................................................22<br />
IV. RISK FACTORS....................................................................................................................................... 22<br />
V. INFORMATION ABOUT THE ISSUER.................................................................................................... 23<br />
5.1 HISTORY AND EVOLUTION OF THE ISSUER........................................................................................ 23<br />
5.2 INVESTMENTS ................................................................................................................................ 23<br />
VI. DESCRIPTION OF ACTIVITIES .............................................................................................................. 24<br />
6.1 PRINCIPAL ACTIVITIES..................................................................................................................... 24<br />
6.2 PRINCIPAL MARKETS ...................................................................................................................... 25<br />
6.3 EXTRAORDINARY EVENTS THAT HAD AN IMPACT ON THE ACTIVITIES OF THE ISSUER AND/OR THE<br />
MARKETS IN WHICH IT OPERATES..................................................................................................... 26<br />
6.4 DEPENDENCY ON INDUSTRIAL PROPERTY RIGHTS ........................................................................... 27<br />
6.5 INFORMATION ABOUT THE COMPETITIVE POSITION OF THE ISSUER IN REGARD TO THE MARKETS IN<br />
WHICH IT OPERATES ....................................................................................................................... 27<br />
VII. ORGANIZATIONAL STRUCTURE.......................................................................................................... 27<br />
7.1 DESCRIPTION OF THE FIAT GROUP.................................................................................................. 27<br />
7.2 STRUCTURE OF THE FIAT GROUP.................................................................................................... 28<br />
VIII. PROPERTY, PLANT AND EQUIPMENT................................................................................................. 28<br />
8.1 FIXED ASSETS ............................................................................................................................... 28<br />
8.2 ENVIRONMENT ............................................................................................................................... 29<br />
IX. REVIEW OF THE OPERATING AND FINANCIAL PERFORMANCE .................................................... 29<br />
9.1 FINANCIAL REVIEW......................................................................................................................... 29<br />
9.2 OPERATING PERFORMANCE............................................................................................................ 30<br />
1
X. FINANCIAL RESOURCES ...................................................................................................................... 38<br />
10.1 SHORT AND LONG TERM FINANCIAL RESOURCES OF THE ISSUER....................................................... 38<br />
10.2 CASH FLOWS................................................................................................................................. 39<br />
10.3 INDICATION OF THE ISSUER’S BORROWING REQUIREMENTS AND FINANCING STRUCTURE .................... 40<br />
10.4 LIMITS ON USE OF FINANCIAL RESOURCES ....................................................................................... 40<br />
10.5 INFORMATION ON THE EXPECTED SOURCES OF FINANCING TO FULFILL COMMITMENTS FOR<br />
INVESTMENTS AND FIXED ASSETS.................................................................................................... 40<br />
XI. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES ......................................................... 40<br />
XII. INFORMATION ON EXPECTED OUTLOOK .......................................................................................... 42<br />
12.1 RECENT OUTLOOK ......................................................................................................................... 42<br />
12.2 OUTLOOK FOR THE BALANCE OF THE YEAR ...................................................................................... 43<br />
XIII. FORECASTS OR ESTIMATES OF PROFITS......................................................................................... 44<br />
XIV. BOARD OF DIRECTORS, MANAGEMENT OR SUPERVISORY BODIES AND TOP<br />
EXECUTIVES........................................................................................................................................... 44<br />
14.1 BOARD OF DIRECTORS, MANAGEMENT AND SUPERVISORY BODIES .................................................. 44<br />
14.2 CONFLICTS OF INTEREST................................................................................................................ 51<br />
XV. COMPENSATION AND BENEFITS......................................................................................................... 52<br />
15.1 COMPENSATION AND BENEFITS FOR EACH MEMBER OF THE BOARD OF DIRECTORS AND OF<br />
MANAGEMENT AND SUPERVISORY BODIES ...................................................................................... 52<br />
15.2 SOCIAL SECURITY BENEFITS ........................................................................................................... 53<br />
XVI. FUNCTIONING OF THE BOARD OF DIRECTORS................................................................................ 53<br />
16.1 TERM OF OFFICE ............................................................................................................................ 53<br />
16.2 AGREEMENTS MADE WITH DIRECTORS FOR SEVERANCE INDEMNITIES................................................ 53<br />
16.3 INTERNAL CONTROL COMMITTEE AND NOMINATING AND COMPENSATION COMMITTEE....................... 53<br />
16.4 CERTIFICATION OF COMPLIANCE WITH CORPORATE GOVERNANCE RULES .......................................... 54<br />
XVII. EMPLOYEES ........................................................................................................................................... 55<br />
17.1 EMPLOYEES................................................................................................................................... 55<br />
17.2 SHARES HELD AND STOCK OPTIONS ................................................................................................ 55<br />
XVIII. MAIN STOCKHOLDERS ......................................................................................................................... 56<br />
18.1 MAIN STOCKHOLDERS.................................................................................................................... 56<br />
18.2 SPECIAL VOTING RIGHTS HELD BY THE PRINCIPAL STOCKHOLDERS.................................................... 57<br />
18.3 ENTITY EXERCISING CONTROL OVER THE ISSUER ............................................................................. 57<br />
18.4 AGREEMENTS WHOSE EXECUTION CAUSE CHANGES IN THE CONTROLLING STRUCTURE OF THE<br />
ISSUER AFTER PUBLICATION OF THE PROSPECTUS........................................................................... 57<br />
XIX. RELATED PARTIES ................................................................................................................................ 57<br />
XX. OPERATING AND FINANCIAL INFORMATION REGARDING ASSETS AND LIABILITIES.<br />
FINANCIAL POSITION AND PROFIT AND LOSS OF THE GROUP..................................................... 58<br />
20.1 OPERATING AND FINANCIAL INFORMATION OF PREVIOUS YEARS ........................................................ 58<br />
20.2 PRO-FORMA OPERATING AND FINANCIAL INFORMATION..................................................................... 58<br />
20.3 ANNUAL REPORTS ......................................................................................................................... 58<br />
2
20.4 REVIEW OF OPERATING AND FINANCIAL INFORMATION ...................................................................... 58<br />
20.5 DATE OF THE LATEST OPERATING AND FINANCIAL INFORMATION........................................................ 59<br />
20.6 INTERIM FINANCIAL INFORMATION AND OTHER FINANCIAL INFORMATION............................................. 59<br />
20.7 DIVIDENDS POLICY ......................................................................................................................... 59<br />
20.8 LAWSUITS AND ARBITRATION PROCEEDINGS .................................................................................... 59<br />
20.9 SIGNIFICANT CHANGES IN THE FINANCIAL OR COMMERCIAL SITUATION OF THE ISSUER........................ 59<br />
XXI. SUPPLEMENTAL INFORMATION.......................................................................................................... 60<br />
21.1 CAPITAL STOCK ............................................................................................................................. 60<br />
21.2 MEMORANDUM OF ASSOCIATION AND ARTICLES OF ASSOCIATION .................................................... 61<br />
XXII. SIGNIFICANT CONTRACTS ................................................................................................................... 65<br />
XXIII. INFORMATION PROVIDED BY THIRD PARTIES, EXPERT OPINIONS, AND<br />
CERTIFICATIONS OF INTEREST........................................................................................................... 68<br />
23.1 THIRD PARTY OPINIONS ATTACHED TO SECTION ONE OF THIS PROSPECTUS...................................... 68<br />
23.2 STATEMENT RELATED TO INFORMATION DERIVING FROM THIRD PARTIES IN SECTION ONE OF THIS<br />
PROSPECTUS ................................................................................................................................ 68<br />
XXIV. DOCUMENTS ACCESSIBLE TO THE PUBLIC ..................................................................................... 68<br />
XXV. INFORMATION ON EQUITY INVESTMENTS......................................................................................... 68<br />
SECTION TWO ..................................................................................................................................................... 69<br />
I. INFORMATION ON THE PARTIES RESPONSIBLE FOR SECTION TWO OF THE<br />
PROSPECTUS......................................................................................................................................... 69<br />
1.1 PARTIES RESPONSIBLE FOR SECTION TWO OF THE PROSPECTUS .................................................... 69<br />
1.2 CERTIFICATION OF LIABILITY ........................................................................................................... 70<br />
II. RISK FACTORS....................................................................................................................................... 70<br />
III. BASIC INFORMATION ............................................................................................................................ 70<br />
3.1 CERTIFICATION OF CASH FLOWS ..................................................................................................... 70<br />
3.2 STOCKHOLDERS’ EQUITY AND NET DEBT.......................................................................................... 70<br />
3.3 INTERESTS OF NATURAL PERSONS AND LEGAL ENTITIES PARTICIPATING IN THE ISSUANCE OF THE<br />
SHARES AND THE OFFER................................................................................................................ 70<br />
3.4 REASONS FOR THE OFFER AND USE OF PROCEEDS.......................................................................... 71<br />
IV. INFORMATION ON THE FINANCIAL INSTRUMENTS TO BE OFFERED............................................ 71<br />
4.1 CLASS OF SHARES ISSUED.............................................................................................................. 71<br />
4.2 STATUTES ACCORDING TO WHICH THE SHARES WERE CREATED ....................................................... 71<br />
4.3 CHARACTERISTICS OF THE SHARES ................................................................................................ 71<br />
4.4 ISSUE CURRENCY OF SHARES......................................................................................................... 71<br />
4.5 RIGHTS ASSIGNED TO THE SHARES. LIMITATIONS............................................................................ 71<br />
4.6 RESOLUTIONS PURSUANT TO WHICH THE SHARES WERE ISSUED ...................................................... 72<br />
4.7 ISSUE DATE OF THE SHARES........................................................................................................... 72<br />
4.8 TRANSFERABILITY OF THE SHARES ................................................................................................. 72<br />
4.9 APPLICABILITY OF REGULATIONS GOVERNING TENDER OFFERS AND/OR RESIDUARY TENDER<br />
OFFERS ......................................................................................................................................... 72<br />
3
4.10 PREVIOUS TENDER OFFERS ............................................................................................................ 73<br />
4.11 TAX TREATMENT ............................................................................................................................ 73<br />
V. CONDITIONS OF THE OFFER................................................................................................................ 78<br />
5.1 CONDITIONS, ENVISAGED CALENDAR, AND TERMS AND CONDITIONS FOR SUBSCRIPTION OF THE<br />
OFFER .......................................................................................................................................... 78<br />
5.2 ALLOCATION AND ASSIGNMENT PLAN............................................................................................... 79<br />
5.3 OFFER PRICE................................................................................................................................. 80<br />
5.4 PLACEMENT AND SUBSCRIPTION ..................................................................................................... 80<br />
VI. LISTING AND TERMS AND CONDITIONS FOR TRADING .................................................................. 81<br />
6.1 LISTING OF THE SHARES COVERED BY THE OFFER ........................................................................... 81<br />
6.2 OTHER PLACEMENTS OF SHARES OR OTHER FINANCIAL INSTRUMENTS OF THE ISSUER....................... 81<br />
6.3 STABILIZATION ............................................................................................................................... 81<br />
VII. OWNERS OF FINANCIAL INSTRUMENTS EXECUTING THE OFFER ................................................ 81<br />
7.1 INFORMATION ON THE OFFERORS.................................................................................................... 81<br />
7.2 NUMBER OF SHARES COVERED BY THE OFFER ................................................................................ 82<br />
7.3 LOCK-UP AGREEMENTS .................................................................................................................. 82<br />
VIII. EXPENSES CONNECTED WITH ISSUANCE OF THE SHARES AND THE OFFER............................ 82<br />
8.1 AGGREGATE AMOUNT OF NET PROCEEDS AND EXPENSES FOR ISSUANCE OF THE SHARES AND<br />
OFFER .......................................................................................................................................... 82<br />
IX. DILUTIVE EFFECTS................................................................................................................................ 83<br />
9.1 AMOUNT AND PERCENTAGE OF THE IMMEDIATE DILUTION DERIVING FROM THE OFFER ....................... 83<br />
9.2 DILUTIVE EFFECTS IF THE OFFER IS NOT SUBSCRIBED ...................................................................... 83<br />
X. SUPPLEMENTAL INFORMATION.......................................................................................................... 83<br />
CERTIFICATIONS OF LIABILITY ........................................................................................................................ 84<br />
INFORMATION INCORPORATED BY REFERENCE<br />
The following documents, which (i) are filed at the Company’s registered office, (ii) have been made<br />
available to the public at Borsa Italiana through the NIS online system, (iii) are available on the<br />
Company’s website www.fiatgroup.com and (iv) will be delivered upon request, are incorporated in this<br />
Prospectus by reference.<br />
1. The Statutory and Consolidated Financial Statements with the Reports on Operations for fiscal<br />
2002, 2003 and 2004;<br />
2. The First-half Report at June 30, 2005 (subject to limited review as prescribed by regulations<br />
currently in force);<br />
3. The first, second and third Quarter 2005 Reports (not subject to review, as prescribed by<br />
regulations currently in force);<br />
4. The Annual Report on Corporate Governance;<br />
5. The documentation illustrating the operating, capital and financial situation in the first three quarters<br />
of 2005;<br />
6. The supporting documentation for the presentation to the Italian Government, Local Institutions and<br />
Trade Unions of the 2005-2008 Development Plan.<br />
4
Exclusion of Those Markets Where the Offer Is Prohibited Without the Prior Authorization of the<br />
Regulatory Authorities<br />
The Offer is being made in Italy and is addressed, indiscriminately and on equal terms, to all holders of <strong>Fiat</strong><br />
shares of any class.<br />
This Prospectus does not represent an offer of financial instruments in the United States of America or in any<br />
other country (including, among others, France and Germany) where such an Offer is prohibited without the<br />
prior authorization of the regulatory authorities (the “Other Countries”).<br />
The Shares and option rights may not be offered or traded in the United States of America or the Other<br />
Countries without the specific authorizations required by the laws in force in each of those countries or in<br />
absence of a waiver of said laws.<br />
The Shares and option rights have not been and will not be registered under the United States Securities Act of<br />
1933, as amended (the “Securities Act”), or pursuant to the corresponding laws in force in the Other Countries.<br />
Accordingly, the Shares and the option rights may not be offered or sold, nor may the option rights be<br />
exercised, in the United States of America or the Other Countries, except in transactions exempt from or not<br />
subject to the registration requirements of the Securities Act or the relevant provisions of applicable laws in the<br />
Other Countries. The Shares and option rights are being offered (i) to non-U.S. persons who purchase these<br />
financial instruments outside the United States within the meaning of Regulation S under the Securities Act or<br />
(ii) in private placements exempt from registration under the Securities Act to qualified institutional buyers (as<br />
defined in Rule 144A under the Securities Act).<br />
It is <strong>hereby</strong> pointed out that in France and Germany the Issuer has not submitted the application for listing of the<br />
new Shares issued as part of the Offer envisaged in § 6.902/1 of the Règles de Marché d’Euronext and § 69 of<br />
the Börsenzulassungsverordnung, respectively.<br />
5
GLOSSARY AND DEFINITIONS<br />
“Powertrain Operations” Research, development, industrialization, manufacturing and sale of<br />
powertrains and transmissions.<br />
“Capital Increase” The increase in the capital stock of the Issuer for consideration,<br />
resolved by the Board of Directors on September 15, 2005 from<br />
4,918,113,540 euros to 6,377,257,130 euros, and therefore for<br />
1,459,143,590 euros, through the issuance of 291,828,718 ordinary<br />
shares with a par value of 5 (five) euros each, having the same<br />
characteristics of those already outstanding, including enjoyment at<br />
January 1, 2005. Said shares were subscribed by the Banks on<br />
September 20, 2005 in accordance with Article 2441, paragraph<br />
seven, of the Italian Civil Code at a price of 10.28 euros, 5.28 euros<br />
of which represent share premium. The Banks are obliged to offer<br />
the Company’s stockholders an option to purchase these shares in<br />
accordance with Article 2441, paragraph seven, of the Italian Civil<br />
Code and therefore in compliance with the first three paragraphs of<br />
the aforementioned article and the first paragraph of Article 134 of<br />
the Consolidated Law on Financial Intermediation.<br />
“Shares” The 291,828,718 <strong>Fiat</strong> ordinary shares with a par value of 5 (five)<br />
euros each, having the same characteristics of those already<br />
outstanding, including dividend rights from January 1, 2005, issued<br />
on September 20, 2005 in execution of the Capital Increase.<br />
“Banks” Capitalia S.p.A., with registered office in Rome, via Marco<br />
Minghetti 17 (“Capitalia”), Banca Intesa S.p.A., with registered<br />
office in Milan, Piazza Paolo Ferrari 10 (“Banca Intesa”), SanPaolo<br />
IMI S.p.A., with registered office in Turin, Piazza San Carlo 156<br />
(“SanPaolo IMI”), UniCredit Banca d’Impresa S.p.A., with<br />
registered office in Verona, Via Garibaldi 1 (“UniCredit Banca<br />
d’Impresa”), Banca Nazionale del Lavoro S.p.A., with registered<br />
office in Rome, Via Vittorio Veneto 119 (“BNL”), Banca Monte dei<br />
Paschi di Siena S.p.A., with registered office in Siena, Piazza<br />
Salimbeni 3 (“Banca Monte dei Paschi”), ABN AMRO Bank N.V.,<br />
with registered office in Amsterdam, Gustav Mahlerlaan 10, and<br />
with a branch office in Milan, via Meravigli 7 (“ABN AMRO”), Banca<br />
Toscana S.p.A., with registered office in Florence, Via del Corso 6<br />
(“Banca Toscana”) and BNP Paribas Succursale Italia, with<br />
registered office in Milan, Piazza San Fedele 2 (“BNP Paribas”).<br />
“Mandatory Convertible Facility<br />
Agreement”<br />
“<strong>Fiat</strong>” or the “Issuer” or the<br />
“Company”<br />
“Group” or “<strong>Fiat</strong> Group” <strong>Fiat</strong> and its subsidiaries.<br />
The Mandatory Convertible Facility Agreement of 3,000,000,000<br />
euros signed on July 26, 2002 between <strong>Fiat</strong> and the Banks.<br />
<strong>Fiat</strong> S.p.A., an Italian company headquartered in Turin, Via Nizza<br />
250.<br />
“IFI” IFI – Istituto Finanziario Industriale S.p.A., Italian company<br />
headquartered in Turin, Corso Matteotti 26.<br />
“IFIL” IFIL Investments S.p.A., Italian company headquartered in Turin,<br />
Corso Matteotti 26.<br />
“Offer” The offer to <strong>Fiat</strong> stockholders of options rights to purchase Shares<br />
in accordance with Article 2441, paragraph seven, of the Italian Civil<br />
6
“Offer Price” and/or “Subscription<br />
price”<br />
“International Financial Reporting<br />
Standards” or “IFRS”<br />
Code and therefore in compliance with the first three paragraphs of<br />
the aforementioned article and with the first paragraph of Article 134<br />
of the Consolidated Law on Financial Intermediation.<br />
10.28 (ten point twenty-eight) euros, equal to the arithmetical<br />
average between 14.4409 (fourteen point four thousand four<br />
hundred and nine) euros which derives from the price of 15.50<br />
(fifteen point fifty) euros defined in the Mandatory Convertible<br />
Facility Agreement and adjusted following the capital increase of<br />
<strong>Fiat</strong> in July 2003, and the weighted average of the official prices of<br />
<strong>Fiat</strong> shares posted on the Mercato Telematico Azionario di Borsa<br />
Italiana S.p.A. (Borsa Italiana’s Electronic Equity Market) in the 6<br />
(six) months preceding the fifth working day preceding the maturity<br />
of the Mandatory Convertible Facility Agreement, which fell due on<br />
September 20, 2005 (i.e. from March 14, 2005 to September 12,<br />
2005 included).<br />
The International Accounting Standards (IAS), International<br />
Financial Reporting Standards (IFRS) and the related<br />
interpretations (SIC/IFRIC interpretations) issued by the<br />
International Accounting Standards Board (IASB).<br />
“Italian Accounting Standards” The accounting standards governed by the regulations contained in<br />
Italian Legislative Decree no. 127 of April 9, 1991, interpreted and<br />
supplemented by accounting standards issued by the Boards of<br />
Dottori Commercialisti and of Ragionieri and, where are none and<br />
not at variance, by those laid down by the International Accounting<br />
Standards Board (IASB).<br />
“Consolidated Law on Financial<br />
Intermediation”<br />
The Italian Legislative Decree no. 58 of February 24, 1998<br />
(Consolidated Law on provisions regarding financial intermediation),<br />
as subsequently amended.<br />
“Issuers Regulation” Regulation for the implementation of Italian Legislative Decree no.<br />
58 of February 24, 1998, on the activities of the issuers of securities<br />
adopted by Consob with resolution no. 11971 of May 14, 1999, as<br />
subsequently amended.<br />
“Commission Regulation (EC) No.<br />
809/2004”<br />
“Italian Income Tax Consolidation<br />
Act”<br />
Commission Regulation (EC) No. 809/2004 of April 29, 2004 with<br />
modalities for implementing Directive 2003/71/EC of the European<br />
Parliament and of the Council as regards information contained in<br />
prospectuses as well as the format, incorporation by reference,<br />
publication of such prospectuses and dissemination of<br />
advertisements.<br />
Presidential Decree no. 917 of December 22, 1986 (Italian Income<br />
Tax Consolidation Act).<br />
7
SUMMARY NOTES<br />
This Section, called “Summary Notes”, has been prepared in accordance with the provisions of Article 24 of the<br />
EC Regulation 809/2004 and it briefly describes the main risks and characteristics connected to the Issuer and<br />
the financial instruments.<br />
NOTICE FOR THE READER<br />
The purpose of these Summary Notes is to briefly describe in a non-technical language the main characteristics<br />
of the Issuer, the financial instruments object of the Offer and the main risks connected to the Issuer and the<br />
market in which it operates.<br />
These Summary Notes are only meant to be an introduction to this Prospectus and therefore any decision to<br />
invest in the offered financial instruments must be based on an analysis of the entire Prospectus.<br />
If a lawsuit is filed in court regarding the information set forth in this Prospectus, the plaintiff might be required to<br />
pay for translation of the Prospectus before the proceeding commences.<br />
The individuals who authored the Summary Notes are liable only if said Notes are misleading, inaccurate, or<br />
inconsistent with respect to the other parts of the Prospectus.<br />
GENERAL INFORMATION ON THE ISSUER FIAT S.P.A.<br />
Description of the Issuer and its activities<br />
The name of the Issuer is <strong>Fiat</strong> S.p.A. The Issuer is a società per azioni, or joint-stock company, organized under<br />
the laws of the Republic of Italy and entered in the Turin Company Register with the number 00469580013. Its<br />
registered office is in Turin, via Nizza 250. <strong>Fiat</strong> was established in Turin on March 8, 1906 and has a duration<br />
expiring on December 31, 2100.<br />
<strong>Fiat</strong> was one of the founders of the European automotive industry. Over time, the company has had a multiform<br />
approach to the automotive world: from cars to trucks, tractors, marine and aircraft engines.<br />
Starting in 2003, the Group redefined its business scope. As part of this process, it refocused on its core<br />
automotive business. Today, Group’s activities are represented by the following business areas:<br />
• Automobiles: cars under the <strong>Fiat</strong>, Lancia and Alfa Romeo brands and light commercial vehicles under<br />
the <strong>Fiat</strong> brand. The Automobiles Sector provides financing services to its dealers.<br />
The <strong>Fiat</strong> Group also controls Ferrari and Maserati that produce luxury sports cars.<br />
<strong>Fiat</strong> Powertrain Technologies, established in the first half of 2005, controls automobile powertrain<br />
operations. The powertrain operations of Iveco, Magneti Marelli and the research activities will<br />
subsequently be transferred to <strong>Fiat</strong> Powertrain Technologies.<br />
• Agricultural and Construction Equipment: tractors and agricultural equipment through the Case IH,<br />
New Holland and Steyr brands and construction equipment through the Case, New Holland, New<br />
Holland Construction and Kobelco brands. The Sector’s financial services provide support to end<br />
customers and to its dealers.<br />
• Commercial Vehicles: commercial vehicles (Iveco and Seddon Atkinson brands), busses (Iveco and<br />
Irisbus brands), firefighting vehicles (Camiva, Iveco and Magirus brands). The Sector provides a full<br />
range of financial services.<br />
• Components and Production Systems<br />
- Components: Magneti Marelli designs, produces and sells automotive modules and components for<br />
lighting systems, exhaust systems, suspensions and shock absorbers, engine control units, and<br />
electronic systems.<br />
- Metallurgical Products: Teksid designs, produces and sells engine blocks, cylinder heads and other<br />
components for cast-iron engines; cast-iron components for transmissions, gearboxes and<br />
suspensions; and magnesium bodywork components.<br />
8
- Production Systems: Comau produces industrial automation systems for the automotive industry in<br />
the areas of product and process engineering, logistics and management, manufacturing, installation,<br />
production startup and maintenance.<br />
• Other Businesses. Other Businesses include: (i) the Services Sector mainly active within the Group,<br />
(ii) the Publishing and Communications Sector which includes publication of the La Stampa newspaper,<br />
and sale of advertising space for multimedia customers through Publikompass; and (iii) Holding<br />
Companies and Other Companies, with the remaining activities and equity investments of the Group.<br />
Operating and financial information<br />
Following is an overview of the main consolidated operating information of the <strong>Fiat</strong> Group for the first half and<br />
third quarter of 2005 compared with the results of the same periods of 2004, prepared in accordance with IFRS,<br />
as well as the main consolidated financial information of the <strong>Fiat</strong> Group at June 30, 2005 and at September 30,<br />
2005 compared with the results at December 31, 2004, prepared in accordance with IFRS.<br />
Operating highlights (in millions of euros)<br />
9<br />
1 st half<br />
2004<br />
(IFRS)<br />
1 st half<br />
2005<br />
(IFRS)<br />
3 rd<br />
quarter<br />
2004<br />
(IFRS)<br />
3 rd<br />
quarter<br />
2005<br />
(IFRS)<br />
Net revenues 23,033 22,807 10,386 10,597<br />
Trading profit 205 407 (30) 232<br />
Operating result 125 1,445 (122) 409<br />
Net result before minority interest (638) 510 (380) 826<br />
Group interest in net result (680) 475 (404) 818<br />
Cash flow<br />
(Net result before minority interest plus depreciation and amortization)<br />
540 1,797 193 1,525<br />
Earnings per share (in euros) (1) (0.695) 0.485 (0.412) 0.796<br />
Diluted earnings per share (in euros) (1) (0.695) 0.456 (0.412) 0.796<br />
(1) The calculation of diluted earnings per share for the first half of 2005 takes into account the potential effects of the conversion of the<br />
Mandatory Convertible Facility at that date.<br />
In accordance with IAS 33, the dilutive effects of this facility have not been taken into consideration in the calculation of earnings per share<br />
for the first half and third quarter of 2004 as there was a loss for the periods.<br />
Financial highlights (in millions of euros)<br />
12/31/2004<br />
(IFRS)<br />
06/30/2005<br />
(IFRS)<br />
09/30/2005<br />
(IFRS)<br />
Total assets 62,522 64,195 60,536<br />
- of which: Non current assets 22,228 21,886 21,753<br />
Net debt 25,423 23,724 19,105<br />
Stockholders’ equity before minority interest 4,928 6,124 9,277<br />
Group interest in stockholders’ equity 4,304 5,460 8,608<br />
Main operating and financial indexes<br />
1 st half<br />
2004<br />
(IFRS)<br />
1 st half<br />
2005<br />
(IFRS)<br />
3 rd quarter<br />
2004<br />
(IFRS)<br />
3 rd quarter<br />
2005<br />
(IFRS)<br />
Trading profit / Net revenues (R.O.S.) 0.890% 1.785% -0.289% 2.189%<br />
Net result before minority interest / Net revenues -2.770% 2.236% -3.659% 7.795%<br />
Net result / Group interest in average stockholders’ equity (R.O.E.) - 9.730% - -<br />
Investments / Depreciation (Fixed assets net of vehicles sold under<br />
buy-back commitments)<br />
0.805 0.738 0.714 1.117<br />
Net debt / Stockholders’ equity before minority interest (1) 5.159 3.874 5.159 2.060<br />
Net debt of Industrial Activities / Stockholders’ equity before<br />
minority interest<br />
(1) at December 31, 2004, at June 30 and September 30, 2005<br />
1.917 1.496 1.917 0.502
The following table shows the structure of the <strong>Fiat</strong> Group net debt:<br />
(in millions of euros) Notes At 12.31.2004 At 09.30.2005<br />
Debt (32,191) (25,465)<br />
- Asset-backed financing (10,174) (9,660)<br />
- Other Debt (22,017) (15,805)<br />
Other financial liabilities (1) (203) (196)<br />
Other financial assets (1) 851 583<br />
Current securities 353 504<br />
Cash and cash equivalents 5,767 5,469<br />
Net debt (25,423) (19,105)<br />
Industrial Activities (2) (9,447) (4,658)<br />
Financial Services (2) (15,976) (14,447)<br />
(1) Includes the positive and negative fair value of derivative financial instruments.<br />
(2) Explanation for the segmented representation of Industrial Activities and Financial Services is provided in Section One, Chapter X,<br />
Paragraph 10.1<br />
At September 30, 2005, the net debt of the <strong>Fiat</strong> Group totaled 19.1 billion euros (4.7 billion euros in net debt for<br />
industrial activities and 14.4 billion euros in net debt for financial services).<br />
Conclusion of the Italenergia transaction and conversion of the Mandatory Convertible Facility in September<br />
2005 reduced net debt by approximately 4.8 billion euros. It is expected that the net debt of the Group at<br />
December 31, 2005 will be lower than at December 31, 2004.<br />
In the first nine months of the year, the <strong>Fiat</strong> Group and all of its main Sectors sharply improved their operating<br />
performance and financial results.<br />
Since the beginning of the year, the Group also succeeded in finding optimal solutions to pending financial<br />
issues. With net stockholders’ equity exceeding 9 billion euros and net industrial debt of less than 5 billion<br />
euros, <strong>Fiat</strong> can now focus on its manufacturing infrastructure, distribution networks, and product offerings.<br />
In the last quarter of this year, most of <strong>Fiat</strong>’s business sectors expect to continue operating in a highly<br />
competitive economic climate. Nonetheless, the Group confirms its commitment to the achievement of its stated<br />
2005 objectives of a positive net income, for the Company as well, after unusual items, and an improved trading<br />
result.<br />
Turnaround efforts currently underway call for an investment plan (including R&D activities) for the 2005-2008<br />
period worth approximately 18 billion euros, 10 billion euros of which earmarked for <strong>Fiat</strong> Auto. Investments<br />
carried out, underway or scheduled for the near future are described in Section One, Chapter V, Paragraph 5.2.<br />
Capital stock<br />
The capital stock, fully paid-in, of the Issuer, at the date of publication of this Prospectus (and therefore after the<br />
subscription of the Shares that took place on September 20, 2005) amounts to 6,377,257,130 euros and<br />
consists of:<br />
• 1,092,246,316 ordinary shares<br />
• 103,292,310 preference shares<br />
• 79,912,800 savings shares<br />
all with a par value of 5 euros each.<br />
Main stockholders of the Issuer<br />
Giovanni Agnelli & C. S.a.p.az., through the subsidiaries IFI and IFIL, owns 30.06% of the ordinary stock of <strong>Fiat</strong><br />
and 30.09% of the preference stock of <strong>Fiat</strong>. This investment remained unaltered after the Capital Increase as a<br />
result of the transaction announced on September 15 by IFIL which also communicated that it had resolved to<br />
sell to Merrill Lynch International all the option rights it is entitled to in connection with this Offer.<br />
10
The table below lists the stockholders who, as of September 20, 2005, held directly or indirectly 2% or more of<br />
the Issuer’s voting stock. This information is based on the data entered in the Stockholders’ Register, official<br />
communications received by the Company and other information available to the Company. The table also<br />
includes those stockholders whose stake in the Issuer’s voting capital exceeded 2% before the Capital Increase<br />
– and has decreased as a result of it – and which could again exceed said threshold if said stockholders accept<br />
the Offer.<br />
Stockholder Total ordinary<br />
shares<br />
11<br />
% of the<br />
ordinary stock<br />
Number of<br />
preference<br />
shares<br />
% of the<br />
voting stock<br />
IFIL S.p.A. 328,333,447 30.06 31,082,500 30.06<br />
Intesa Group 66,950,778* 6.13 401,260 5.63<br />
Unicredito Italiano Group 63,608,016* 5.82 220,127 5.34<br />
SanPaolo IMI Group 49,961,102* 4.57 668,421 4.23<br />
Capitalia Group 41,620,723* 3.81 71,174 3.49<br />
Banca Nazionale del Lavoro 29,928,545* 2.74 9,780 2.50<br />
Monte dei Paschi Group 29,735,841* 2.72 154,110 2.50<br />
Assicurazioni Generali Group 26,001,817 2.38 291,800 2.20<br />
Lybian Arab Foreign Inv. Co. (Lafico) 21,670,105 1.98 1,046,935 1.90<br />
Mediobanca S.p.A. 21,152,587 1.94 0 1.77<br />
Merrill Lynch & Co. Inc. 8,764,377 0.80 0 0.73<br />
* Number of shares includes the shares subscribed pursuant to Article 2441, paragraph seven, of the Italian Civil Code, deprived of voting<br />
rights until expiration of the Offer, and shown in the table present in Section Two, Paragraph 3.4.<br />
Board of Directors and supervisory bodies<br />
The Board of Directors in office is composed of 15 members (three executive directors and 12 non-executive<br />
directors, i.e. who do not hold delegated authority or perform executive functions in the Company or the Group,<br />
eight of whom are independent), whose term of office will expire on the date of the Stockholders Meeting called<br />
to approve the Financial Statements at December 31, 2005. The executive directors are the Chairman, the Vice<br />
Chairman, who substitutes for the Chairman if the latter is absent or prevented from acting, and the Chief<br />
Executive Officer.<br />
The directors currently in office are: Chairman, Luca Cordero di Montezemolo; Vice Chairman, John Elkann;<br />
Chief Executive Officer, Sergio Marchionne; Directors: Andrea Agnelli, Angelo Benessia, Tiberto Brandolini<br />
d’Adda, Flavio Cotti, Luca Garavoglia, Gian Maria Gros-Pietro, Hermann-Josef Lamberti, Virgilio Marrone,<br />
Vittorio Mincato, Pasquale Pistorio, Daniel John Winteler and Mario Zibetti.<br />
The following Committees have been created by the Board of Directors: the Internal Control Committee, the<br />
Nominating and Compensation Committee and the Strategic Committee.<br />
The Board of Statutory Auditors in office until the approval of the statutory financial statements at December<br />
31, 2005 is composed of: Cesare Ferrero, Chairman; Giorgio Ferrino and Giuseppe Camosci, Statutory<br />
Auditors.<br />
The Articles of Associations contain provisions for the election of a statutory auditor by minority stockholders<br />
representing at least 1% of the capital stock with voting rights in ordinary stockholders meetings.<br />
The audits of the Company’s annual statutory and consolidated financial statements at December 31, 2002,<br />
December 31, 2003 and December 31, 2004, were performed by the External Auditors Deloitte & Touche<br />
S.p.A. (Deloitte & Touche Italia S.p.A. for financial statements at December 31, 2002), with registered office in<br />
Milan, Via Tortona 25. The limited reviews of the Company’s interim financial statements at June 30, 2005 were<br />
also performed by Deloitte & Touche S.p.A.
Reasons for the Offer<br />
INFORMATION ON THE OFFER AND FINANCIAL INSTRUMENTS<br />
The Offer originates with the Mandatory Convertible Facility, pursuant to which the Issuer’s debt of 3 billion<br />
euros in principal to the Banks was reimbursed on the September 20, 2005 due date with newly issued ordinary<br />
shares of <strong>Fiat</strong> stock.<br />
The capital increase for the Shares that are the object of the Offer was resolved by the Board of Directors of<br />
<strong>Fiat</strong> S.p.A. on September 15, 2005 pursuant to the delegation of authority granted by the Extraordinary<br />
Stockholders Meeting on September 12, 2002 pursuant to Article 2443 of the Italian Civil Code.<br />
The Shares were issued on September 20, 2005 in execution of the abovementioned resolution of September<br />
15, 2005 and were subscribed by the Banks pursuant to Article 2441, paragraph seven, of the Italian Civil Code,<br />
with the obligation of offering Company stockholders option rights to purchase said shares pursuant to the first<br />
three paragraphs of Article 2441 of the Italian Civil Code and paragraph one of Article 134 of the Consolidated<br />
Law on Financial Intermediation.<br />
Consequently, the payable for subscription of the Shares by each Bank was set off by the receivable of each<br />
one of them from the Company for the amount of the Mandatory Convertible Facility, and thus the funds<br />
deriving from the Capital Increase fully set off the principal of the loan under the Mandatory Convertible Facility<br />
Agreement.<br />
Characteristics of the Offer<br />
The Offer is unconditional and irrevocable.<br />
The offer is comprised by 291,828,718 ordinary shares with a par value of 5 euros each, and thus for a total par<br />
value of 1,459,143,590 euros.<br />
The Shares are offered at the price of 10.28 euros each for a total Offer of approximately 3,000,000,000 euros.<br />
The Offer Price is higher than the current market quotations of the Shares object of the Offer.<br />
The option rights are represented by coupon no. 10 of <strong>Fiat</strong> ordinary, preference, and savings shares.<br />
The Offer is open to all <strong>Fiat</strong> stockholders, without limit on quantity, in the ratio of 149 Shares for every 500 <strong>Fiat</strong><br />
shares of any class owned.<br />
The following table summarizes the envisaged calendar for the Offer:<br />
Publication of the Prospectus November 22, 2005<br />
Start of the Offer period and first day of trading of the option rights November 28, 2005<br />
Last day of trading of the option rights December 7, 2005<br />
Expiration of Offer period and final deadline for payment of shares December 14, 2005<br />
The option rights may be exercised at any authorized intermediary participating in the central depository system<br />
of Monte Titoli S.p.A including <strong>Fiat</strong> itself (the “Authorized Intermediaries”).<br />
The Shares must be paid for in full upon exercise of the option rights, and in any event within the date of the<br />
abovementioned expiration of the Offer at the Authorized Intermediary through which the transaction is<br />
executed. No additional costs or expenses are envisaged for those who accept the Offer.<br />
The Shares shall be made available to those with title thereto by the third day on which the stock exchange is<br />
open after the aforementioned deadline for payment, after confirmation of crediting through registration at Monte<br />
Titoli on the accounts held at it by the respective Authorized Intermediaries.<br />
Any option rights not exercised within the expiration of the Offer period will be offered on the Stock Exchange<br />
for five sessions, pursuant to Article 2441, paragraph three, of the Italian Civil Code.<br />
By the day before commencement of the offer of unexercised option rights, a notice will be published in the<br />
newspapers Il Sole 24 Ore and La Stampa indicating the number of unexercised option rights to be offered on<br />
the Mercato Telematico Azionario pursuant to Article 2441, paragraph three, of the Italian Civil Code and the<br />
dates of the sessions at which the Offer will be made.<br />
12
Characteristics of the Shares<br />
The Shares are newly issued <strong>Fiat</strong> ordinary shares with the same characteristics of those already outstanding<br />
and with regular rights of enjoyment. Thus, the Shares are registered, issued in dematerialized form on the<br />
central depository system of Monte Titoli S.p.A., and listed for trading on the Mercato Telematico Azionario of<br />
Borsa Italiana (ISIN code IT0001976403).<br />
The Shares were created pursuant to Italian law and the issue currency is the euro.<br />
Pursuant to Article 2441, paragraph seven, of the Italian Civil Code, the Banks may not exercise the voting<br />
rights stemming from the Shares between the time that they enter into possession thereof and expiration of this<br />
Offer.<br />
No restrictions are imposed on free transfer of the Shares included in the Offer by stockholders who accept the<br />
Offer.<br />
RISK FACTORS<br />
With reference to the investment object of the Offer, the Issuer has identified the following risk factors that must<br />
be taken into consideration by investors before making any decision in this regard.<br />
Risk factors associated with the Issuer: Risks connected to the results of the Issuer and the Group, Risks<br />
connected to the Issuer’s Financing Needs, Risks connected to the Refocusing on the Automotive Business,<br />
Risks connected to the Issuer’s Rating, Forward-Looking Statements, Risks connected to the relationships with<br />
employees and suppliers, Risks connected to changes in management.<br />
Risk Factors associated with the industries in which the Issuer operates: Risks connected to <strong>Fiat</strong>’s<br />
operations and the economic conditions, Risks connected to the high competitiveness of the automotive market,<br />
Market risks, Risks connected to <strong>Fiat</strong>’s operations in international markets, Risks connected to the presence of<br />
the Group in emerging markets, Risks connected to fluctuations in exchange and interest rates, Risks<br />
connected to government policies and applicable norms, Risks connected to environmental regulations.<br />
Risk factors associated with the financial instruments object of the Offer regard the Offer Price, the<br />
Dilutive effects of the Capital Increase, the interests of the offering Banks and the non-submission of the<br />
application for listing of the Shares in France and Germany.<br />
Additional information on the risk factors is found in the Section “Risk Factors” of this Prospectus.<br />
13
RISK FACTORS<br />
NOTICE TO INVESTORS<br />
THE TRANSACTION DESCRIBED IN THIS PROSPECTUS (THE “PROSPECTUS”) IS SUBJECT TO THE RISKS THAT ARE<br />
INHERENT IN INVESTMENTS IN EQUITY SECURITIES. CONSEQUENTLY, INVESTORS ARE ADVISED TO TAKE INTO<br />
CONSIDERATION THE INFORMATION PROVIDED BELOW WHEN ASSESSING THE MERITS OF THIS INVESTMENT.<br />
THE GENERAL AND SPECIFIC RISK FACTORS THAT INVESTORS SHOULD TAKE INTO ACCOUNT BEFORE MAKING ANY<br />
INVESTMENT DECISION ARE LISTED BELOW. THEY INCLUDE THOSE RELATING TO THE ISSUER FIAT S.P.A. (THE “ISSUER”<br />
OR “FIAT” OR THE “COMPANY”), THE MARKETS IN WHICH THE COMPANY AND ITS SUBSIDIARIES (THE “GROUP” OR THE<br />
“FIAT GROUP”) OPERATE AND THE FINANCIAL INSTRUMENTS THAT ARE BEING OFFERED. THE INFORMATION PROVIDED IN<br />
THIS NOTICE MUST BE READ IN CONJUNCTION WITH THE DATA PROVIDED ELSEWHERE IN THIS PROSPECTUS.<br />
RISK FACTORS ASSOCIATED WITH THE ISSUER<br />
RISKS CONNECTED TO THE RESULTS OF THE ISSUER AND THE GROUP<br />
IN 2002, 2003 AND 2004, FIAT’S OPERATING PERFORMANCE WAS AFFECTED BY THE UNFAVORABLE BUSINESS<br />
ENVIRONMENT THAT PERSISTED IN THE AUTOMOTIVE MARKET AND THE NEGATIVE PERFORMANCE OF THE FIAT AUTO<br />
SUBSIDIARY. IN SAID YEARS THE GROUP RECORDED NET LOSSES OF 3,948 MILLION EUROS, 1,900 MILLION EUROS, AND<br />
1,586 MILLION EUROS (UNDER ITALIAN ACCOUNTING STANDARDS) AND 1,634 MILLION EUROS IN 2004 (UNDER<br />
INTERNATIONAL ACCOUNTING STANDARDS).<br />
IN CONNECTION WITH THESE UNFAVORABLE CONDITIONS, THE GROUP ADOPTED A SERIES OF ORGANIZATIONAL AND<br />
INDUSTRIAL INITIATIVES INTENDED TO BRING IT BACK TO PROFITABILITY. THESE INITIATIVES ARE FOCUSED ON ACHIEVING<br />
SIGNIFICANT IMPROVEMENTS IN THE RESULTS OF THE FIAT GROUP OVER THE PERIOD THROUGH 2007, IN PARTICULAR BY<br />
RESTORING FIAT AUTO TO PROFITABILITY AND REORGANIZING GROUP BUSINESSES, WHILE REINFORCING ITS CAPITAL<br />
STRUCTURE AND MAINTAINING A COMFORTABLE LIQUIDITY POSITION. THEY ALSO PROVIDE FOR SIGNIFICANT COST<br />
SAVINGS TO BE GENERATED THROUGH COST STRUCTURE RATIONALIZATION AND IMPROVED MANUFACTURING EFFICIENCY,<br />
FURTHER SYNERGIES FROM INDUSTRIAL AGREEMENTS, AND THE ADOPTION OF A MORE DYNAMIC AND EFFICIENT<br />
MANAGEMENT STRUCTURE.<br />
IN THE FIRST HALF OF 2005 THE FIAT GROUP MADE SIGNIFICANT PROGRESS TOWARDS THE ACHIEVEMENT OF SET<br />
OPERATING AND FINANCIAL OBJECTIVES (SEE SECTION ONE, CHAPTER IX). THESE PROGRESSES WERE CONFIRMED BY<br />
THE RESULTS FOR THE THIRD QUARTER OF 2005 (SEE SECTION ONE, CHAPTER IX AND XII).<br />
FOR FISCAL 2005 THE GROUP CONFIRMS ITS COMMITMENT TO THE ACHIEVEMENT OF THE STATED OBJECTIVE OF A<br />
POSITIVE NET INCOME, FOR THE COMPANY AS WELL, AFTER UNUSUAL ITEMS, AND AN IMPROVED TRADING RESULT.<br />
NEVERTHELESS THE ACHIEVEMENT OF SET OBJECTIVES AND RESULTS WILL DEPEND ON THE SUCCESS OF THESE<br />
INITIATIVES AND OF THE INDUSTRIAL PLAN, AS WELL AS ON GENERAL ECONOMIC AND BUSINESS CONDITIONS IN THE<br />
MARKETS IN WHICH THE GROUP OPERATES. ANY FAILURE TO IMPLEMENT SAID INITIATIVES, OR A PORTION OF THEM,<br />
COULD HAVE A NEGATIVE IMPACT ON THE OPERATING AND FINANCIAL RESULTS OF THE COMPANY. THERE CAN BE NO<br />
ASSURANCE THAT THE ACTIONS TAKEN BY THE COMPANY WILL PRODUCE POSITIVE FINANCIAL RESULTS. CONSEQUENTLY,<br />
THE ISSUER’S OPERATING AND FINANCIAL RESULTS COULD DIFFER FROM THOSE FORECASTED.<br />
RISKS CONNECTED TO THE ISSUER’S FINANCING NEEDS<br />
AT SEPTEMBER 30, 2005, THE NET DEBT OF THE FIAT GROUP AMOUNTED TO 19,105 MILLION EUROS (NET DEBT OF<br />
INDUSTRIAL ACTIVITIES AND FINANCIAL SERVICES WAS AT 4,658 MILLION EUROS AND 14,447 MILLION EUROS,<br />
RESPECTIVELY), APPROXIMATELY 6.3 BILLION EUROS LOWER THAN THE 25,423 MILLION EUROS RECORDED AT<br />
DECEMBER 31, 2004. CONCLUSION OF THE ITALENERGIA TRANSACTION AND CONVERSION OF THE MANDATORY<br />
CONVERTIBLE FACILITY IN SEPTEMBER 2005 REDUCED NET DEBT BY APPROXIMATELY 4.8 BILLION EUROS. IT IS<br />
EXPECTED THAT THE NET DEBT OF THE GROUP AT DECEMBER 31, 2005 WILL BE LOWER THAN AT DECEMBER 31, 2004.<br />
MOST OF THE BONDS ISSUED BY THE GROUP CONTAIN COMMITMENTS BY THE ISSUER AND, IN CERTAIN CASES, BY FIAT<br />
AS GUARANTOR (“COVENANTS”) THAT ARE TYPICAL IN INTERNATIONAL PRACTICE FOR BOND ISSUES OF THIS TYPE BY<br />
ISSUERS IN THE SAME INDUSTRIAL SECTOR AS THAT OF THE GROUP, WHICH SPECIFICALLY INCLUDE: (I) NEGATIVE<br />
PLEDGES THAT REQUIRE EXTENSION TO BONDS OF THE SAME GRADE OF EVENTUAL PRESENT OR FUTURE COLLATERAL<br />
SECURITY GIVEN ON THE ASSETS OF THE ISSUER AND/OR FIAT IN CONNECTION WITH OTHER BONDS AND OTHER<br />
SECURITIES, (II) PARI PASSU CLAUSES, ACCORDING TO WHICH SENIOR OBLIGATIONS WITH RESPECT TO THE ISSUED<br />
14
BONDS MAY NOT BE ASSUMED, (III) PERIODIC DISCLOSURE OBLIGATIONS, (IV) FOR CERTAIN BOND ISSUES, CROSS<br />
DEFAULT CLAUSES, WHICH ENTAIL IMMEDIATE REIMBURSEMENT OF THE BONDS IN THE EVENT OF CERTAIN DEFAULTS<br />
INVOLVING OTHER FINANCIAL INSTRUMENTS ISSUED BY THE GROUP, AND (V) OTHER CLAUSES THAT ARE GENERALLY<br />
FOUND IN ISSUES OF THIS TYPE.<br />
FUTURE CHANGES IN THE GROUP’S FINANCIAL POSITION DEPEND ON NUMEROUS FACTORS, IN PARTICULAR, THE<br />
ACHIEVEMENT OF THE OBJECTIVES OF THE ORGANIZATIONAL AND INDUSTRIAL INITIATIVES THAT HAVE BEEN IMPLEMENTED<br />
AND AN OVERALL IMPROVEMENT OF THE CONDITIONS EXISTING IN THE ECONOMY IN GENERAL AND THE AUTOMOTIVE<br />
INDUSTRY IN PARTICULAR.<br />
MOREOVER, THE MANAGEMENT AND DEVELOPMENT OF THE BUSINESSES IN WHICH THE GROUP OPERATES,<br />
PARTICULARLY THE AUTOMOTIVE OPERATIONS, REQUIRE LARGE CAPITAL INVESTMENTS. TURNAROUND EFFORTS<br />
CURRENTLY UNDERWAY CALL FOR AN INVESTMENT PLAN (INCLUDING R&D ACTIVITIES) FOR THE 2005-2008 PERIOD<br />
WORTH APPROXIMATELY 18 BILLION EUROS, 10 BILLION EUROS OF WHICH EARMARKED FOR FIAT AUTO.<br />
THE FIAT GROUP EXPECTS TO MEET ITS BORROWING REQUIREMENTS STEMMING FROM MATURING FINANCIAL PAYABLES<br />
AND EXPECTED INVESTMENTS WITH CURRENTLY AVAILABLE CASH, THE RENEWAL OR REFINANCING OF BANK LOANS,<br />
EVENTUAL RECOURSE TO THE CAPITAL MARKET, AND OPERATING CASH FLOWS. CONSEQUENTLY, THE GROUP MAY FIND<br />
IT NECESSARY TO SECURE ADDITIONAL FINANCING AND TO REFINANCE ITS OUTSTANDING DEBT (SEE SECTION ONE,<br />
CHAPTER X).<br />
RISKS CONNECTED TO THE REFOCUSING ON THE AUTOMOTIVE BUSINESS<br />
AT THE PRESENT TIME, THE ISSUER IS WORKING TO STRENGTHEN THE GROUP’S CAPITAL AND FINANCIAL STRUCTURE. IN<br />
PURSUIT OF THIS GOAL, DURING THE PAST FEW YEARS IT IMPLEMENTED A PLAN TO SELL CERTAIN EQUITY INVESTMENTS IN<br />
INDUSTRIES OTHER THAN THE AUTOMOTIVE BUSINESS WITHIN THE FRAMEWORK OF A STRATEGY TO FOCUS THE GROUP’S<br />
EFFORTS ON AUTOMOBILES, AGRICULTURAL AND CONSTRUCTION EQUIPMENT, COMMERCIAL VEHICLES AND AUTOMOTIVE<br />
COMPONENTS.<br />
IN FEBRUARY 2005 THE COMPANY TERMINATED THE MASTER AGREEMENT, SIGNED BY FIAT AND GENERAL MOTORS ON<br />
MARCH 13, 2000 (THE “MASTER AGREEMENT”), WHICH GOVERNED THE INDUSTRIAL ALLIANCE BETWEEN FIAT AND<br />
GENERAL MOTORS. AS A CONSEQUENCE OF THE TERMINATION, THE POWERTRAIN JOINT-VENTURE, ESTABLISHED FOR<br />
THE PRODUCTION OF ENGINES (WITH THE EXCEPTION OF THE BIELSKO BIALA PLANT IN POLAND), AND THE PURCHASING<br />
JOINT-VENTURE, ESTABLISHED FOR THE PURCHASING AREA (FOR FURTHER INFORMATION SEE SECTION ONE, CHAPTER<br />
XXII), WERE ALSO TERMINATED.<br />
THE GROUP INTENDS TO SEEK OPPORTUNITIES TO SET UP JOINT-VENTURES AND INDUSTRIAL AGREEMENTS IN THE<br />
AUTOMOTIVE SECTOR. THERE CAN BE NO ASSURANCE THAT THE GROUP WILL BE ABLE TO ENTER INTO SUCH<br />
TRANSACTIONS WITHOUT ENCOUNTERING ADMINISTRATIVE, TECHNICAL, POLITICAL OR FINANCIAL DIFFICULTIES OR THAT<br />
THE REALIZATION OF SUCH TRANSACTIONS WILL BRING THE EXPECTED BENEFITS.<br />
RISKS CONNECTED TO THE ISSUER’S RATING<br />
THE ABILITY TO ACCESS THE CAPITAL MARKETS, THE AVAILABILITY OF FINANCING AND THE COST THEREOF DEPEND ON<br />
THE CREDIT RATING ASSIGNED TO THE COMPANY.<br />
THE ISSUER IS CURRENTLY RATED BELOW INVESTMENT GRADE. AT PRESENT MOODY'S INVESTORS SERVICE INC.<br />
("MOODY'S"), STANDARD & POOR'S RATING SERVICES ("STANDARD & POOR'S") AND FITCH RATINGS (“FITCH” AND<br />
JOINTLY WITH MOODY’S AND STANDARD & POOR’S, THE "RATING AGENCIES") ASSIGNED THE FOLLOWING RATINGS TO<br />
THE COMPANY: BA3 WITH NEGATIVE OUTLOOK, BB- WITH STABLE OUTLOOK, AND BB- WITH NEGATIVE OUTLOOK,<br />
RESPECTIVELY.<br />
THE CURRENT RATING AND ANY FURTHER DOWNGRADES BY THE RATING AGENCIES COULD LIMIT THE COMPANY’S<br />
ACCESS TO CAPITAL MARKETS AND INCREASE ITS COST OF FUNDS THEREBY NEGATIVELY AFFECTING THE OPERATING,<br />
CAPITAL AND FINANCIAL SITUATION OF THE COMPANY.<br />
FORWARD-LOOKING STATEMENTS<br />
THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS ON THE OUTLOOK AND TRENDS IN THE PERFORMANCE OF THE<br />
GROUP FOR THIS YEAR. THESE STATEMENTS ARE BASED ON THE EXPERTISE AND KNOWLEDGE OF THE COMPANY AND ON<br />
AVAILABLE HISTORICAL DATA FOR THE INDUSTRIES IN WHICH THE GROUP OPERATES. THE COMPANY CANNOT ASSURE<br />
THAT THE OUTLOOK CONTAINED IN THESE FORWARD-LOOKING STATEMENTS WILL PROVE TO BE CORRECT OR WILL BE<br />
CONFIRMED, GIVEN THE POSSIBLE OCCURRENCE OF UNFORESEEABLE EVENTS AND OF OTHER RISK FACTORS, SOME OF<br />
WHICH HAVE BEEN DESCRIBED IN THIS NOTICE TO INVESTORS, OR DUE TO CONDITIONS IN THE MARKETS WHERE THE<br />
GROUP OPERATES.<br />
15
RISKS CONNECTED TO THE RELATIONSHIPS WITH EMPLOYEES AND SUPPLIERS<br />
IN MANY OF THE COUNTRIES WHERE THE GROUP OPERATES, ITS EMPLOYEES ARE PROTECTED BY VARIOUS LAWS AND/OR<br />
COLLECTIVE BARGAINING AGREEMENTS, WHICH GIVE GROUP EMPLOYEES THE RIGHT TO BE CONSULTED, THROUGH THEIR<br />
LOCAL AND NATIONAL REPRESENTATIVES, WITH REGARD TO SUCH SPECIFIC ISSUES AS DOWNSIZING PROGRAMS,<br />
DEPARTMENT CLOSURES AND LAYOFFS. THESE LAWS AND/OR COLLECTIVE BARGAINING AGREEMENTS, INSOFAR AS THEY<br />
APPLY TO THE GROUP, COULD LIMIT THE GROUP’S FLEXIBILITY IN REDEFINING AND/OR STRATEGICALLY REPOSITIONING<br />
ITS OPERATIONS.<br />
FIAT’S ABILITY TO REDUCE ITS STAFF OR TAKE OTHER PERMANENT OR TEMPORARY TERMINATION MEASURES AS PART OF<br />
THE GROUP’S RESTRUCTURING PROCESS IS PREDICATED ON SECURING THE NECESSARY GOVERNMENT AUTHORIZATIONS<br />
AND THE AGREEMENT OF LABOR UNIONS. THE GROUP IS ALSO DEPENDENT ON GOODS AND SERVICES PROVIDED BY<br />
OTHER HIGHLY UNIONIZED INDUSTRIES.<br />
LABOR UNREST IN INDUSTRIES UPON WHICH THE GROUP DEPENDS COULD HAVE A MATERIAL ADVERSE EFFECT ON ITS<br />
BUSINESS.<br />
RISKS CONNECTED TO CHANGES IN MANAGEMENT<br />
MOST OF THE CURRENT SENIOR MANAGERS WERE APPOINTED TO THEIR CURRENT POSITIONS DURING THE LAST 18<br />
MONTHS. THE FIAT CHAIRMAN, LUCA CORDERO DI MONTEZEMOLO, AND THE CHIEF EXECUTIVE OFFICER, SERGIO<br />
MARCHIONNE, WERE APPOINTED IN JUNE 2004. IN FEBRUARY 2005, MR. MARCHIONNE ASSUMED THE ADDITIONAL<br />
POSITION OF CHIEF EXECUTIVE OFFICER OF FIAT AUTO, PAOLO MONFERINO, WHO WAS CHIEF EXECUTIVE OFFICER OF<br />
CNH, BECAME CHIEF EXECUTIVE OFFICER OF IVECO, AND HAROLD BOYANOVSKY BECAME CHIEF EXECUTIVE OFFICER<br />
OF CNH. IN 2005, FOLLOWING THE CREATION OF FIAT POWERTRAIN TECHNOLOGIES, MANAGEMENT AT CERTAIN OTHER<br />
GROUP SECTORS WAS ALSO RESHUFFLED.<br />
THE SUCCESS OF THE GROUP DEPENDS IN LARGE PART ON THE ABILITY OF ITS MANAGEMENT TEAM TO OPERATE AND<br />
MANAGE THE GROUP EFFECTIVELY.<br />
RISK FACTORS ASSOCIATED WITH THE INDUSTRIES IN WHICH THE ISSUER OPERATES<br />
RISKS CONNECTED TO FIAT’S OPERATIONS AND THE ECONOMIC CONDITIONS<br />
THE FIAT GROUP MAINLY OPERATES ON THE INTERNATIONAL AUTOMOTIVE MARKET, WHICH EMBRACES SECTORS THAT<br />
HAVE HISTORICALLY BEEN HIGHLY CYCLICAL: AUTOMOBILE, COMMERCIAL VEHICLE, AGRICULTURAL AND CONSTRUCTION<br />
EQUIPMENT, AND VEHICLE COMPONENTS MANUFACTURING AND DISTRIBUTION, AS WELL AS THE PROVISION OF RELATED<br />
SERVICES. A SUBSTANTIAL PORTION OF THE GROUP’S REVENUES IS GENERATED IN WESTERN EUROPE, MORE<br />
PARTICULARLY IN ITALY. DEMAND FOR AUTOMOBILES GREW ONLY MODESTLY IN WESTERN EUROPE AS A WHOLE AND<br />
REMAINED FLAT IN ITALY IN 2004, AFTER WEAKENING IN THE PRIOR FEW YEARS, WHILE FIAT AUTO’S MARKET SHARE IN<br />
2004 DECLINED SLIGHTLY IN WESTERN EUROPE AND REMAINED STABLE IN ITALY IN SPITE OF DECLINES IN THE PRIOR<br />
FEW YEARS. HOWEVER, IN THE FIRST HALF OF 2005, FIAT AUTO SUFFERED LOSSES IN MARKET SHARE IN ITALY IN A<br />
DECLINING MARKET, WHILE ALSO LOSING FURTHER MARKET SHARE IN WESTERN EUROPE. (SEE SECTION ONE, CHAPTER<br />
IX). ANY EVENT ADVERSELY AFFECTING THE MARKETS FOR AUTOMOBILES, COMMERCIAL VEHICLES OR AGRICULTURAL<br />
AND CONSTRUCTION EQUIPMENT - SUCH AS AN ECONOMIC DOWNTURN IN A KEY MARKET OR IN A KEY MERCHANDISE<br />
SECTOR, AN INCREASE IN ENERGY PRICES, FLUCTUATIONS IN THE PRICES OF RAW MATERIALS - OR ADVERSE SHIFTS IN<br />
SECTOR-SPECIFIC FACTORS SUCH AS WEATHER, REAL ESTATE MARKET, GOVERNMENT POLICIES, ETC., COULD<br />
NEGATIVELY AFFECT THE ACTIVITIES AND OPERATING AND FINANCIAL RESULTS OF THE GROUP.<br />
THE FINANCING SERVICES BUSINESS ENTAILS RISKS RELATED TO FLUCTUATIONS IN INTEREST RATES AND THE RATE OF<br />
INFLATION, THE SOLVENCY OF DEALERS AND CUSTOMERS, AND THE GENERAL ECONOMIC CONDITIONS EXISTING IN THE<br />
COUNTRIES WHERE THE BUSINESSES ARE CARRIED OUT.<br />
RISKS CONNECTED TO THE HIGH COMPETITIVENESS OF THE AUTOMOTIVE MARKET<br />
AT JUNE 30, 2005 AUTOMOTIVE OPERATIONS REPRESENT APPROXIMATELY 90% OF NET SALES AND TOTAL ASSETS OF<br />
THE GROUP’S BALANCE SHEET. THIS MARKET IS HIGHLY COMPETITIVE IN TERMS OF PRODUCT QUALITY, INNOVATION,<br />
ECONOMIC CONDITIONS, FUEL ECONOMY, RELIABILITY, SAFETY AND CUSTOMER SERVICE. IN THE AUTOMOBILE<br />
MANUFACTURING AND DISTRIBUTION SECTOR, THE GROUP COMPETES IN EUROPE AND LATIN AMERICA WITH OTHER<br />
INTERNATIONALLY PROMINENT GROUPS. IN THE OTHER SECTORS, THE FIAT GROUP HAS TO COMPETE ALSO WITH LOCAL<br />
MANUFACTURERS IN EUROPE, NORTH AMERICA, AND LATIN AMERICA.<br />
MANUFACTURING CAPACITY IN THE GLOBAL AUTOMOTIVE INDUSTRY EXCEEDS CURRENT DEMAND. THIS OVERCAPACITY,<br />
COMBINED WITH ALREADY INTENSE COMPETITION IN THE AUTOMOTIVE INDUSTRY AND PERSISTENT WEAKNESS IN THE<br />
16
GLOBAL ECONOMY, MAY INTENSIFY PRICING PRESSURES AND CONSEQUENTLY REDUCE REVENUES AND PROFITABILITY OF<br />
THE GROUP.<br />
THE GROUP’S ABILITY TO MAINTAIN OR IMPROVE THE QUALITY OF ITS PRODUCTS, INCREASE MARKET SHARE AND<br />
IMPROVE PROFITABILITY IN THE FACE OF STRONG COMPETITIVE PRICING PRESSURES WILL BE FUNDAMENTAL TO ITS<br />
FUTURE SUCCESS.<br />
MARKET RISKS<br />
THE GROUP’S ABILITY TO MAINTAIN AND IMPROVE ITS POSITION WITHIN MARKET SEGMENTS IN WHICH IT CURRENTLY<br />
OPERATES AND/OR EXPAND INTO NEW MARKETS THROUGH THE DEVELOPMENT OF INNOVATIVE HIGH QUALITY PRODUCTS<br />
WILL HAVE A SIGNIFICANT IMPACT ON ITS FUTURE PERFORMANCE. FAILURE TO DEVELOP AND OFFER PRODUCTS THAT<br />
COMPARE FAVORABLY TO THOSE OF COMPETITORS IN TERMS OF PRICE, QUALITY, FUNCTIONALITY OR OTHERWISE, OR<br />
POTENTIAL DELAYS IN BRINGING TO MARKET NEW VEHICLES THAT ARE STRATEGIC FOR THE GROUP’S BUSINESS MAY<br />
RESULT IN LOWER MARKET SHARE IN THE AUTOMOBILE MARKET AND MAY HAVE A SUBSTANTIAL ADVERSE EFFECT ON THE<br />
GROUP’S OPERATING AND FINANCIAL RESULTS.<br />
RISKS CONNECTED TO FIAT’S OPERATIONS IN INTERNATIONAL MARKETS<br />
THE FIAT GROUP OPERATES ON THE MARKETS OF NUMEROUS COUNTRIES AND FOR THIS REASON IT IS EXPOSED TO<br />
MULTIPLE RISKS CONNECTED WITH, AMONG OTHER THINGS, LOCAL ECONOMIC AND POLITICAL CONDITIONS, STATUTORY<br />
CHANGES LIMITING FOREIGN INVESTMENTS AND/OR COMMERCIAL TRADE, OR THE INTRODUCTION OF TAXES ON PAYMENTS<br />
BY THE FOREIGN SUBSIDIARIES OR ASSOCIATED COMPANIES TO THE PARENT COMPANY. THE OCCURRENCE OF SUCH<br />
EVENTS, WHOSE EFFECTS VARY ACCORDING TO THE INDIVIDUAL COUNTRIES WHERE THE FIAT GROUP OPERATES, COULD<br />
HAVE A NEGATIVE EFFECT ON THE OPERATING AND FINANCIAL RESULTS OF THE GROUP.<br />
RISKS CONNECTED TO THE PRESENCE OF THE GROUP IN EMERGING MARKETS<br />
THE FIAT GROUP OPERATES IN A NUMBER OF EMERGING MARKET COUNTRIES, MAINLY IN BRAZIL. IT IS ALSO ACTIVE IN<br />
TURKEY AND CHINA BY MEANS OF JOINT VENTURES. THE BRAZILIAN OPERATIONS, OF WHICH 60% ARE AUTOMOBILE<br />
OPERATIONS AND 20% AGRICULTURAL AND CONSTRUCTION EQUIPMENT OPERATIONS, ACCOUNTED FOR APPROXIMATELY<br />
7% OF GROUP REVENUES IN 2004. AS A RESULT, ECONOMIC AND POLITICAL DEVELOPMENTS IN THESE COUNTRIES,<br />
INCLUDING FUTURE ECONOMIC CRISES AND POLITICAL INSTABILITY, COULD HAVE AN ADVERSE EFFECT ON THE BUSINESS<br />
AND OPERATING AND FINANCIAL RESULTS OF THE FIAT GROUP.<br />
RISKS CONNECTED TO FLUCTUATIONS IN EXCHANGE AND INTEREST RATES<br />
THE FIAT GROUP, WHICH OPERATES ON VARIOUS MARKETS WORLDWIDE, IS NATURALLY EXPOSED TO MARKET RISKS<br />
STEMMING FROM FLUCTUATIONS IN EXCHANGE AND INTEREST RATES. ITS EXPOSURE TO EXCHANGE RATE RISKS IS<br />
CONNECTED MAINLY WITH THE DIFFERENT REGIONAL DISTRIBUTION OF ITS MANUFACTURING AND SALES ACTIVITIES,<br />
WHICH RESULT IN IT HAVING EXPORT FLOWS DENOMINATED IN CURRENCIES OTHER THAN THOSE OF THE PRODUCTION<br />
AREA. IN PARTICULAR, THE GROUP IS MAINLY EXPOSED TO NET EXPORTS FROM THE EUROZONE TO OTHER CURRENCY<br />
AREAS (PRINCIPALLY THE U.S. DOLLAR AND THE BRITISH POUND) AND TO EXPORTS FROM POLAND TO THE EUROZONE.<br />
THE FIAT GROUP USES VARIOUS FORMS OF FINANCING TO COVER THE BORROWING REQUIREMENTS OF ITS INDUSTRIAL<br />
ACTIVITIES AND FINANCING OFFERED TO CUSTOMERS AND DEALERS. CHANGES IN INTEREST RATES CAN INCREASE OR<br />
REDUCE THE COST OF FINANCING OR MARGINS OF THE FINANCIAL SERVICES COMPANIES.<br />
CONSISTENTLY WITH ITS RISK MANAGEMENT POLICIES, THE FIAT GROUP ATTEMPTS TO COPE WITH THE RISKS<br />
ASSOCIATED WITH FLUCTUATIONS IN EXCHANGE AND INTEREST RATES THROUGH RECOURSE TO HEDGING FINANCIAL<br />
INSTRUMENTS. HOWEVER, IN SPITE OF THESE HEDGING TRANSACTIONS, SUDDEN CHANGES IN EXCHANGE AND INTEREST<br />
RATES MIGHT NEGATIVELY AFFECT THE OPERATING AND FINANCIAL RESULTS OF THE GROUP.<br />
RISKS CONNECTED TO GOVERNMENT POLICIES AND APPLICABLE NORMS<br />
GOVERNMENT POLICIES, SUCH AS CHANGES IN TAX POLICY, COULD LEAD TO LOWER DEMAND FOR GROUP PRODUCTS.<br />
CONSEQUENTLY, THESE POLICIES, WHICH CAN BE NEITHER PREDICTED NOR INFLUENCED, MIGHT NEGATIVELY AFFECT<br />
THE OPERATING AND FINANCIAL RESULTS OF THE GROUP.<br />
RISKS CONNECTED TO ENVIRONMENTAL REGULATIONS<br />
FIAT GROUP PRODUCTS AND OPERATIONS ARE SUBJECT TO NUMEROUS LAWS AND REGULATIONS, INCLUDING<br />
ENVIRONMENTAL LAWS, WHICH ARE BECOMING INCREASINGLY STRINGENT IN MANY OF THE COUNTRIES WHERE THE FIAT<br />
GROUP OPERATES. SUCH REGULATIONS GOVERN, AMONG OTHER THINGS, VEHICLE EMISSIONS, FUEL ECONOMY, SAFETY<br />
OF MACHINERY, AND THE LEVEL AND TYPE OF POLLUTANTS PRODUCED BY INDUSTRIAL MANUFACTURING PLANTS. THE<br />
FIAT GROUP EXPENDS SIGNIFICANT RESOURCES TO COMPLY WITH SUCH REGULATIONS, AND EXPECTS TO CONTINUE TO<br />
17
INCUR SUBSTANTIAL COSTS IN THE FUTURE. AT THIS TIME, NO LIABILITIES ARE EXPECTED IN CONNECTION WITH<br />
ENVIRONMENTAL RISKS FOR AMOUNTS EXCEEDING PREVIOUSLY ALLOCATED RESERVES.<br />
RISKS FACTORS ASSOCIATED WITH THE FINANCIAL INSTRUMENTS<br />
OFFER PRICE<br />
THE SHARES ARE BEING OFFERED AT A PRICE OF 10.28 EUROS EACH, WITH NO COST OR CHARGE DUE FROM THE<br />
STOCKHOLDERS ACCEPTING THE OFFER. THIS PRICE IS EQUAL TO THE PRICE PAID BY THE BANKS TO SUBSCRIBE THE<br />
SHARES IN ACCORDANCE WITH ARTICLE 2441, PARAGRAPH SEVEN, OF THE ITALIAN CIVIL CODE AND WAS DETERMINED<br />
AS PER THE MANDATORY CONVERTIBLE FACILITY AGREEMENT. IT CORRESPONDS TO THE ARITHMETICAL AVERAGE<br />
BETWEEN 14.4409 EUROS AND THE WEIGHTED AVERAGE OF THE OFFICIAL PRICES OF FIAT ORDINARY SHARES POSTED<br />
ON THE MERCATO TELEMATICO AZIONARIO DI BORSA ITALIANA S.P.A. (BORSA ITALIANA’S ELECTRONIC EQUITY<br />
MARKET) OVER THE 6 MONTHS PRECEDING THE FIFTH WORKING DAY PRECEDING SEPTEMBER 20, 2005. AT THE TIME OF<br />
PUBLICATION OF THIS PROSPECTUS THE OFFER PRICE IS SIGNIFICANTLY HIGHER THAN THE MARKET PRICE OF THE<br />
SHARES SUBJECT OF THE OFFER (SEE SECTION TWO, PARAGRAPH 5.3).<br />
DILUTIVE EFFECTS<br />
THE CAPITAL INCREASE WILL HAVE A DILUTIVE EFFECT ON THE INTEREST HELD IN THE COMPANY’S CAPITAL STOCK BY<br />
STOCKHOLDERS WHO DO NOT EXERCISE THEIR OPTION RIGHTS, OR EXERCISE THEM ONLY IN PART. FURTHERMORE,<br />
SINCE THE OFFER CALLS FOR FIAT ORDINARY SHARES TO BE OFFERED TO HOLDERS OF FIAT PREFERENCE AND SAVINGS<br />
SHARES AS WELL, THE CAPITAL INCREASE WILL HAVE A DILUTIVE EFFECT ON THE PERCENTAGE INTEREST HELD IN FIAT’S<br />
CAPITAL STOCK BY THE HOLDERS OF FIAT ORDINARY SHARES (SEE SECTION TWO, CHAPTER IX).<br />
THE CAPITAL INCREASE WILL NOT HAVE A DILUTIVE EFFECT ON STOCKHOLDERS’ EQUITY PER SHARE FOR THOSE<br />
STOCKHOLDERS WHO DO NOT EXERCISE, OR EXERCISE ONLY IN PART, THEIR OPTION RIGHTS.<br />
INTERESTS OF THE OFFERING BANKS<br />
THE SHARES INVOLVED IN THE OFFER ARE OWNED BY THE BANKS, WHICH SUBSCRIBED THEM ON SEPTEMBER 20, 2005<br />
PURSUANT TO ARTICLE 2441, PARAGRAPH SEVEN, OF THE ITALIAN CIVIL CODE, WITH THE OBLIGATION, PURSUANT TO ARTICLE<br />
2441, PARAGRAPH SEVEN, OF THE ITALIAN CIVIL CODE, TO OFFER THEM IN OPTION TO SHAREHOLDERS OF THE ISSUER. EACH<br />
BANK HAS ITS OWN SPECIFIC INTEREST IN THE OFFER, INSOFAR AS THE PROCEEDS FROM THE OFFER WILL BE OWED ON A<br />
PER-SHARE BASIS TO EACH BANK, AND EACH BANK WILL ACQUIRE FULL DISPOSITION ON A PER-SHARE BASIS OF THE SHARES<br />
FOR WHICH THE OPTION RIGHT IS NOT EXERCISED.<br />
FURTHERMORE, THE BANKS HAVE, OR IN THE LAST THREE YEARS HAVE HAD SIGNIFICANT RELATIONSHIPS WITH THE FIAT<br />
GROUP (SEE SECTION TWO, PARAGRAPH 7.1) AND MAY HAVE OTHER DIRECT INTERESTS IN THE OFFER, INSOFAR AS SOME OF<br />
THEM OR CERTAIN COMPANIES BELONGING TO THEIR RESPECTIVE GROUPS ARE ISSUERS OF FINANCIAL INSTRUMENTS<br />
(COVERED WARRANTS, CERTIFICATES) CONNECTED WITH THE SHARES OF THE ISSUER (SEE SECTION TWO, PARAGRAPH 3.3).<br />
STOCKHOLDERS DOMICILED ABROAD<br />
THOSE STOCKHOLDERS DOMICILED IN COUNTRIES WHOSE LAWS PROHIBIT ACCEPTANCE OF THE OFFER WITHOUT<br />
AUTHORIZATION BY THE SUPERVISORY AUTHORITY MUST CONSIDER THAT, HAVING ASCERTAINED THE NEGATIVE DIFFERENCE<br />
BETWEEN THE OFFER PRICE AND CURRENT STOCK MARKET QUOTATIONS AND THE CONSEQUENT LACK OF MATERIAL<br />
ECONOMIC INTEREST ON THE PART OF THOSE FIAT STOCKHOLDERS RECIPIENTS OF THE OFFER, BECAUSE THE THEORETICAL<br />
VALUE OF THE SUBSCRIPTION RIGHT IS NIL, THE ISSUER HAS DECIDED NOT TO REQUEST AUTHORIZATION FROM CONSOB FOR<br />
RECOGNITION OF THE PROSPECTUS BY THE CORRESPONDING AUTHORITIES IN FRANCE AND GERMANY, WHERE, IN<br />
CONSEQUENCE OF THE SAME CONSIDERATIONS SET FORTH HEREINABOVE, THE ISSUER HAS DECIDED NOT TO APPLY FOR<br />
LISTING OF THE NEW SHARES AS ENVISAGED IN THE RULES OF THE RESPECTIVE STOCK EXCHANGES (§ 6.902/1 OF THE<br />
RÈGLES DE MARCHÉ D’EURONEXT AND § 69 OF THE BÖRSENZULASSUNGSVERORDNUNG), NOR REQUEST REGISTRATION AT<br />
THE SEC, SINCE FIAT SHARES ARE LISTED IN THE UNITED STATES AS ADRS, NOR REQUEST AUTHORIZATION FROM THE<br />
AUTHORITIES IN ANY OTHER COUNTRY.<br />
18
Section One<br />
I. INFORMATION ABOUT THE PARTIES RESPONSIBLE FOR THIS PROSPECTUS<br />
1.1 Parties responsible for Section One of this Prospectus<br />
<strong>Fiat</strong> S.p.A., with registered office in Turin, Via Nizza 250, assumes responsibility for Section One of this<br />
Prospectus.<br />
1.2 Certification of Liability<br />
Certifications of liability are provided at the end of this Prospectus.<br />
II. INFORMATION ABOUT EXTERNAL AUDITORS<br />
2.1 External Auditors<br />
The audits of the Company’s annual statutory and consolidated financial statements at December 31, 2002,<br />
December 31, 2003 and December 31, 2004, were performed by the external auditors Deloitte & Touche S.p.A.<br />
(Deloitte & Touche Italia S.p.A. for financial statements at December 31, 2002), with registered office in Milan,<br />
Via Tortona 25. The limited reviews of the Company’s interim financial statements at June 30, 2005 were also<br />
performed by Deloitte & Touche S.p.A.<br />
III. SELECTED OPERATING AND FINANCIAL HIGHLIGHTS<br />
Since <strong>Fiat</strong> prepares and publishes the consolidated financial statements of the Group, it has been decided to<br />
omit the financial figures of the parent company <strong>Fiat</strong> S.p.A. as they do not furnish significant additional<br />
information with respect to the consolidated Group figures. This information is, nevertheless, available to the<br />
public at the registered office of the Company in Via Nizza 250, Turin, and may be viewed at the Company’s<br />
website www.fiatgroup.com.<br />
3.1 Selected Operating and Financial Highlights for fiscal 2002, 2003 and 2004<br />
The following tables show the consolidated operating and financial highlights of the <strong>Fiat</strong> Group, which are based<br />
on the corresponding financial statements that are included and published in the annual reports for the<br />
respective fiscal years, which were prepared in accordance with Italian Accounting Standards. The figures for<br />
fiscal 2004 also include the effects of the restatements carried out to make them compliant with the International<br />
Accounting Standards (IFRS), as published in the quarterly report at March 31, 2005. The Issuer has decided to<br />
omit multipliers as it does not consider them to be particularly significant because, on the one hand, the offer<br />
price is not truly comparable with other market data and, on the other, the Company is an industrial holding<br />
company with a portfolio of operations that is not easily comparable with those of other publicly traded holding<br />
companies.<br />
19
Financial Highlights (in millions of euros)<br />
2002 2003 2004<br />
Italian<br />
Standards<br />
20<br />
Italian<br />
Standards<br />
Italian<br />
Standards<br />
Adjust.<br />
IFRS IFRS<br />
Net revenues 55,649 47,271 46,703 (1,066) 45,637<br />
Operating result (Italian Standards) /<br />
Trading profit /(loss) (IFRS)<br />
(762) (510) 22 28 50<br />
Net result before minority interest (4,263) (1,948) (1,548) (31) (1,579)<br />
Group interest in net result (3,948) (1,900) (1,586) (48) (1,634)<br />
Cash flow<br />
(Net result before minority interest plus depreciation<br />
and amortization)<br />
(1,649) 321 620 172 792<br />
Total assets (1) 84,294 53,835 47,598 14,924 62,522<br />
Net debt 24,594 15,542 13,883 11,540 25,423<br />
Stockholders’ equity before minority interest 8,679 7,494 5,757 (829) 4,928<br />
Group interest in stockholders’ equity 7,641 6,793 5,099 (795) 4,304<br />
(1) With reference to data according to Italian Accounting Standards, net of "Advances on contract work " for 8,227 million euros at<br />
December 31 2002, 8,876 million euros at December 31, 2003, and 9,645 million euros at December 31, 2004.<br />
2002 2003 2004<br />
Number of employees at year end 186,492 162,237 160,549<br />
Highlights per share (in euros) 2002 2003 2004<br />
Number of shares at year end (no./000) 616,425 983,623 983,623<br />
Of which: - Ordinary 433,220 800,418 800,418<br />
- Preference 103,292 103,292 103,292<br />
- Savings 79,913 79,913 79,913<br />
Italian<br />
Standards<br />
Italian<br />
Standards<br />
Italian<br />
Standards<br />
Earnings per share (6.660) (2.412) (1.620)<br />
Stockholders’ equity per share at 12/31 13.489 8.623 5.209<br />
Main operating and financial indexes<br />
2002 2003 2004<br />
Italian<br />
Standards<br />
Italian<br />
Standards<br />
Italian<br />
Standards<br />
Operating result / Net revenues (R.O.S.) (1.4%) (1.1%) -<br />
Net result before minority interest / Net revenues (7.7%) (4.1%) (3.3%)<br />
Net result / Group interest in average stockholders’ equity (R.O.E.) (39.9%) (26.3%) (26.7%)<br />
Investments (Fixed assets) / Depreciation 1.37 1.15 1.25<br />
Net debt / Stockholders’ equity before minority interest (1) 2.834 2.074 2.411<br />
Net debt of Industrial Activities / Stockholders’ equity before minority interest<br />
0.854 0.679 1.026<br />
(1) Information on the segmented representation of industrial activities is provided in Section One, Chapter X, Paragraph 10.1
3.2 Selected infra-annual operating highlights<br />
3.2.1 Selected operating highlights for the first half of 2005 compared with results of the same period<br />
in 2004 and selected financial highlights at June 30, 2005 compared with results at December 31,<br />
2004.<br />
The following table shows the <strong>Fiat</strong> Group operating highlights for the first half of 2005 compared with those<br />
reported in the same period of 2004, prepared in accordance with IFRS.<br />
Operating highlights (in millions of euros)<br />
The following table shows the <strong>Fiat</strong> Group financial highlights at June 30, 2005 compared with those reported at<br />
December 31, 2004, prepared in accordance with IFRS.<br />
The following table shows the main operating and financial indexes of the <strong>Fiat</strong> Group for the first half of 2005,<br />
compared with the same period of 2004, prepared in accordance with IFRS.<br />
21<br />
1 st half 2004<br />
(IFRS)<br />
1 st half 2005<br />
(IFRS)<br />
Net revenues 23,033 22,807<br />
Trading profit 205 407<br />
Operating result 125 1,445<br />
Net result before minority interest (638) 510<br />
Group interest in net result (680) 475<br />
Cash flow (Net result before minority interest plus depreciation and amortization) 540 1,797<br />
Earnings per share (in euros) (1) (0.695) 0.485<br />
Diluted earnings per share (in euros) (1) (0.695) 0.456<br />
(1) The calculation of diluted earnings per share for the first half of 2005 takes into account the potential effects of the conversion of the<br />
Mandatory Convertible Facility at that date.<br />
In accordance with IAS 33, the dilutive effects of this facility have not been taken into consideration in the calculation of earnings per share<br />
for the first half of 2004 as there was a loss for the period.<br />
Financial highlights (in millions of euros)<br />
12.31.2004<br />
(IFRS)<br />
06.30.2005<br />
(IFRS)<br />
Total assets 62,522 64,195<br />
- of which: Non current assets 22,228 21,886<br />
Net debt 25,423 23,724<br />
Stockholders’ equity before minority interest 4,928 6,124<br />
Group interest in stockholders’ equity 4,304 5,460<br />
Main operating and financial indexes<br />
1 st half<br />
2004<br />
(IFRS)<br />
1 st half<br />
2005<br />
(IFRS)<br />
Trading profit / Net revenues (R.O.S.) 0.890% 1.785%<br />
Net result before minority interest / Net revenues -2.770% 2.236%<br />
Net result / Group interest in average stockholders’ equity (R.O.E.) N.A. 9.730%<br />
Investments / Depreciation (Fixed assets net of vehicles sold under buy-back commitments) 0.805 0.738<br />
Net debt / Stockholders’ equity before minority interest (1) 5.159 3.874<br />
Net debt of Industrial Activities / Stockholders’ equity before minority interest<br />
(1) at December 31, 2004 and at June 30, 2005.<br />
1.917 1.496<br />
Information on the segmented representation of industrial activities is provided in Section One, Chapter X, Paragraph 10.1
3.2.2 Selected operating highlights for the third quarter of 2005 compared with results of the same<br />
period in 2004 and selected financial highlights at September 30, 2005 compared with results at<br />
December 31, 2004.<br />
The following table shows the <strong>Fiat</strong> Group operating highlights for the third quarter of 2005 compared with those<br />
reported in the corresponding period of 2004, prepared in accordance with IFRS.<br />
Operating highlights (in millions of euros)<br />
22<br />
3 rd quarter<br />
2004<br />
(IFRS)<br />
3 rd quarter<br />
2005<br />
(IFRS)<br />
Net revenues 10,386 10,597<br />
Trading profit (30) 232<br />
Operating result (122) 409<br />
Net result before minority interest (380) 826<br />
Group interest in net result (404) 818<br />
Cash flow (Net result before minority interest plus depreciation and amortization) 193 1,525<br />
Earnings per share (in euros) (1) (0.412) 0.796<br />
Diluted earnings per share (in euros) (1) (0.412) 0.796<br />
(1) In accordance with IAS 33, the dilutive effects of the Mandatory Convertible facility have not been taken into consideration in the<br />
calculation of earnings per share for the third quarter of 2004 as there was a loss for the period.<br />
The following table shows the <strong>Fiat</strong> Group financial highlights at September 30, 2005 compared with those<br />
reported at December 31, 2004, prepared in accordance with IFRS.<br />
Financial highlights (in millions of euros)<br />
12.31.2004<br />
(IFRS)<br />
09.30.2005<br />
(IFRS)<br />
Total assets 62,522 60,536<br />
- of which: Non current assets 22,228 21,753<br />
Net debt 25,423 19,105<br />
Stockholders’ equity before minority interest 4,928 9,277<br />
Group interest in stockholders’ equity 4,304 8,608<br />
The following table shows the main operating and financial indexes of the <strong>Fiat</strong> Group for the third quarter of<br />
2005, compared with the corresponding period of 2004, prepared in accordance with IFRS.<br />
Main operating and financial indexes<br />
3 rd quarter<br />
2004<br />
(IFRS)<br />
3 rd quarter<br />
2005<br />
(IFRS)<br />
Trading profit / Net revenues (R.O.S.) -0.289% 2.189%<br />
Net result before minority interest / Net revenues -3.659% 7.795%<br />
Investments / Depreciation (Fixed assets net of vehicles sold under buy-back commitments) 0.714 1.117<br />
Net debt / Stockholders’ equity before minority interest (1) 5.159 2.060<br />
Net debt of Industrial Activities / Stockholders’ equity before minority interest 1.917 0.502<br />
(1) at December 31, 2004 and at September 30, 2005.<br />
Information on the segmented representation of industrial activities is provided in Section One, Chapter X, Paragraph 10.1.<br />
IV. RISK FACTORS<br />
The information on the significant risk factors affecting the Issuer is found in the Section “Factor Risks”, to which<br />
the reader is referred.
V. INFORMATION ABOUT THE ISSUER<br />
5.1 History and evolution of the Issuer<br />
The name of the Issuer is <strong>Fiat</strong> S.p.A. The Issuer is a società per azioni, or joint-stock company, organized under<br />
the laws of the Republic of Italy and entered in the Turin Company Register with the number 00469580013. Its<br />
registered office and corporate domicile are in Turin, via Nizza 250 (telephone no. 011-0061111). <strong>Fiat</strong> was<br />
established in Turin on March 8, 1906 and has a duration expiring on December 31, 2100.<br />
<strong>Fiat</strong> was one of the founders of the European automotive industry. Right from its inception, the company<br />
followed a two-pronged strategy of growth that defined its subsequent evolution: penetration of foreign markets<br />
and focus on innovation, which was expressed in the technological quality of its products and the adoption of<br />
cutting-edge industrial and organizational systems. However, in more than one century’s activity <strong>Fiat</strong> has meant<br />
much more than cars alone. The company had an original approach to car making, with a commitment to all<br />
forms of mobility for people and goods: from cars to trucks, tractors, marine engines, aircraft engines, and,<br />
more recently, space launch systems.<br />
Starting in 2003, the Group redefined its business scope. As part of this process, it refocused on its core<br />
automotive business. Today, Group’s activities are represented by the following business areas: Automobiles,<br />
Agricultural and Construction Equipment, Commercial Vehicles, Components and Production Systems and<br />
Other Businesses. Additional information about areas and sectors in which the <strong>Fiat</strong> Group operates is present in<br />
Section One, Chapter VI, Paragraph 6.1.<br />
5.2 Investments<br />
Investments carried out<br />
The following table shows the amount of investments in property, plant and equipment and in intangible fixed<br />
assets carried out by the Group in its business areas during the first half of 2005, first half of 2004, and entire<br />
fiscal 2004. All the data are calculated in accordance with IFRS.<br />
Investments by area of business<br />
(net of vehicles sold by Iveco under buyback<br />
commitments)<br />
(in millions of euros)<br />
First Half 2005 First Half 2004 Fiscal 2004<br />
Tangible<br />
Assets<br />
Intangible<br />
Assets<br />
23<br />
Tangible<br />
Assets<br />
Intangible<br />
Assets<br />
Tangible<br />
Assets<br />
Intangible<br />
Assets<br />
Automobiles<br />
Agricultural and Construction<br />
435 243 499 323 1,343 643<br />
Equipment<br />
71 17 77 17 210 33<br />
Commercial Vehicles 63 100 43 71 149 181<br />
Components and Production Systems 91 47 65 48 246 101<br />
Other Businesses and Eliminations 16 7 -22 11 -14 23<br />
TOTAL<br />
676 414 662 470 1,934 981<br />
For information regarding investments carried out in fiscal 2004 and in the two previous fiscal years, reference<br />
should be made to the data provided in the relevant consolidated financial statements.<br />
As for the first half of 2005, investments in tangible assets include for 182 million euros (292 million euros in<br />
2004, 137 million euros of which in the first half) vehicles manufactured by the <strong>Fiat</strong> Group and sold under long<br />
term leasing agreements to customers. The remainder, for an amount of approximately 500 million euros, were<br />
aimed mainly at the production of new models (<strong>Fiat</strong> Croma, Grande Punto, Alfa Romeo 159 accounted for the<br />
most significant investments).<br />
Investments in intangible assets were almost all entirely represented by developing costs for new models, of<br />
which approximately 60% related to the Automobile Sector and approximately 25% to the Commercial Vehicles<br />
Sector. The range of Agricultural and Construction Equipment product range was renewed more recently.
In the third quarter of 2005 Group investments in tangible and intangible assets totaled 642 million euros (488<br />
million euros in the same period of 2004).<br />
Investments underway or scheduled for the near future<br />
The main investment initiatives that are currently being implemented (mainly concentrated in Italy) are listed<br />
below, broken down by business area and main products:<br />
• Automobiles: completion of the SUV 4x4 (launch scheduled for February 2006), development of the D200<br />
(in Brazil and, in joint venture, in Turkey), and a segment C model that will replace the Stilo. In the field of<br />
commercial vehicles, the Sector will develop in joint venture the new Scudo, the new Ducato and the<br />
Minicargo, a new light commercial vehicle. In the field of engines (Powertrain Technologies), a new Fire 1.4liter<br />
16-valve gasoline turbo engine and a new 1.6-liter 4-cylinder diesel engine are being developed, in<br />
addition to a new 6 gear-transmission for commercial vehicles.<br />
• Agricultural and Construction Equipment: implementation of the Tier-3 regulation, completion of the All-<br />
Purpose-Heavy tractor range, upgrade of the Crash Crop High tractor range with more than 200 hp,<br />
improvement of the grape harvester range.<br />
• Commercial Vehicles: revamping of the light-vehicle range, streamlining and unification of the urban,<br />
suburban and tourist bus ranges. Implementation of the Euro 4 and Euro 5 regulations, development of a<br />
new Cursor engine.<br />
• Components: manufacturing by Magneti Marelli of suspension crossbars for a new Peugeot model, of the<br />
infrared headlamp system for the Mercedes S-Class (first world application), of a new generation of<br />
telematic systems (<strong>Fiat</strong> Auto, PSA), strengthening of the industrial presence for the start-up of new orders in<br />
Poland (shock absorbers), Turkey and Mexico (Lighting).<br />
• Other Businesses: replacement of the web offset presses for the “La Stampa” daily.<br />
Investments scheduled for the near future coincide to a large extent with those for the initiatives mentioned<br />
above.<br />
Investments and R&D activities scheduled for the 2005-2008 period totals approximately 18 billion euros, 10<br />
billion euros of which earmarked for the relaunch of <strong>Fiat</strong> Auto, as illustrated to the Institutional Authorities and<br />
Trade Unions (see Section One, Chapter XII). The documentation presented on said occasion is available on<br />
the www.fiatgroup.com website. Information on financial coverage is found in Section One, Chapter X,<br />
Paragraph 10.5 to which the reader is referred.<br />
In the 2002-2004 period (figures under Italian Accounting Standards) investments amounted to 8.1 billion euros<br />
(1.6 billion euros earmarked for long-term leasing), while research and development outlays amounted to 5.3<br />
billion euros. During the same period, the investments and R&D outlays of <strong>Fiat</strong> Auto amounted to 3.5 billion<br />
euros and 2.8 billion euros, respectively.<br />
VI. DESCRIPTION OF ACTIVITIES<br />
6.1 Principal activities<br />
The <strong>Fiat</strong> Group performs its industrial and services operations in the automotive sector in more than 190<br />
countries around the globe. At the date of this Prospectus, the structure of the <strong>Fiat</strong> Group is the one described<br />
below, which is the result of the strategy to refocus on the automotive business started by the Group in 2003:<br />
• Automobiles. The Group’s automobile operations are managed primarily by its Automobiles Sector. The<br />
Sector markets automobiles under the <strong>Fiat</strong>, Lancia and Alfa Romeo brands and light commercial vehicles<br />
under the <strong>Fiat</strong> brand. The Automobiles Sector provides financing services to its dealers and suppliers and<br />
offers motorists a comprehensive line of mobility services.<br />
Ferrari and Maserati are also part of the <strong>Fiat</strong> Group. They produce luxury sports cars that excel for their<br />
exclusive characteristics, technology and performance.<br />
<strong>Fiat</strong> Powertrain Technologies established in the first half of 2005, controls automobile powertrain<br />
operations. The powertrain operations of Iveco, Magneti Marelli and the research activities will<br />
subsequently be transferred to <strong>Fiat</strong> Powertrain Technologies.<br />
24
• Agricultural and Construction Equipment. This Sector, which is led by CNH Global N.V., is active in the<br />
field of tractors and agricultural equipment through the Case IH, New Holland and Steyr brands and in the<br />
construction equipment business through the Case, New Holland, New Holland Construction and Kobelco<br />
brands. The Sector’s financial services provide support to end customers and to its dealers.<br />
• Commercial Vehicles. Iveco S.p.A. is the lead company of the Commercial Vehicles Sector. This Sector<br />
designs, produces and sells complete lines of commercial vehicles (Iveco and Seddon Atkinson brands),<br />
busses (Iveco and Irisbus brands), firefighting vehicles (Camiva, Iveco and Magirus brands). The Sector<br />
provides a full range of financial services.<br />
• Components and Production Systems<br />
- Components. The Sector, headed by Magneti Marelli Holding S.p.A., designs, produces and sells:<br />
automotive modules and components for lighting systems, exhaust systems, suspensions and shock<br />
absorbers, engine control units, and electronic systems.<br />
- Metallurgical Products. The Sector, headed by Teksid S.p.A., designs, produces and sells: engine<br />
blocks, cylinder heads and other components for cast-iron engines; cast-iron components for<br />
transmissions, gearboxes and suspensions; and magnesium bodywork components.<br />
- Production Systems. The Sector, headed by Comau S.p.A., produces: industrial automation systems<br />
for the automotive industry in the areas of product and process engineering, logistics and management,<br />
manufacturing, installation, production startup and maintenance.<br />
• Other Businesses<br />
Other Businesses include: (i) the Services Sector, headed by Business Solutions S.p.A., that provides,<br />
mainly within the Group, services in the areas of personnel administration, facility management,<br />
administrative and corporate finance consulting, information and communication technology, purchasing,<br />
and e-procurement; (ii) the Publishing and Communications Sector, headed by Itedi S.p.A., which includes<br />
publication of the La Stampa newspaper, and sale of advertising space for multimedia customers through<br />
Publikompass; and (iii) Holding Companies and Other Companies, with the remaining activities and equity<br />
investments of the Group.<br />
6.2 Principal markets<br />
Following is a breakdown of net revenues from sales and services by business area for fiscal 2002, 2003 and<br />
2004, calculated in conformity with Italian Accounting Standards:<br />
Italian Accounting Standards<br />
Net revenues by Business area (in millions of euros) 2002 2003 2004<br />
Automobiles (<strong>Fiat</strong> Auto, Ferrari - Maserati) 23,355 21,271 22,051<br />
Agricultural and Construction Equipment (CNH) 10,513 9,418 9,796<br />
Commercial Vehicles (Iveco) 9,136 8,440 9,292<br />
Components and Production Systems (M. Marelli, Teksid, Comau) 7,147 6,343 6,431<br />
Other Businesses (Services, Publishing and Communications,<br />
Holding Companies and Other Companies) 3,056 2,878 2,555<br />
Aviation (<strong>Fiat</strong>Avio) (*) 1,534 625 -<br />
Insurance (Toro Assicurazioni) (**) 4,916 1,654 -<br />
Eliminations (4,008) (3,358) (3,422)<br />
Total 55,649 47,271 46,703<br />
(*) Data for the Aviation Sector are shown until the date of its sale (July 1, 2003)<br />
(**) Data for the Insurance Sector are shown until the date of its sale (May 2, 2003)<br />
Following is a breakdown of net revenues (calculated in conformity with Italian Accounting Standards), by<br />
geographical region for fiscal 2002, 2003 and 2004:<br />
25
Italian Accounting Standards<br />
Net revenues by area of destination (in millions of euros) 2002 2003 2004<br />
Italy 20,120 16,381 15,618<br />
Europe (excluding Italy) 21,072 18,884 18,180<br />
North America 7,411 5,920 5,857<br />
Mercosur 3,268 2,595 3,196<br />
Other regions 3,778 3,491 3,852<br />
Total 55,649 47,271 46,703<br />
Following is a breakdown by business area of revenues from sales and services in the first half of 2005,<br />
calculated in accordance with IFRS, and compared with the same period of 2004 and full 2004 fiscal year:<br />
Net revenues by Business area (in millions of euros)<br />
Following is a breakdown by business area of revenues from sales and services in the third quarter of 2005,<br />
calculated in accordance with IFRS, and compared with the corresponding period of 2004:<br />
A breakdown of revenues by geographical area at June 30 and September 30, 2005 is not available.<br />
6.3 Extraordinary events that had an impact on the activities of the Issuer and/or the markets in which<br />
it operates<br />
The Issuer specifies that the information provided in Paragraphs 6.1 and 6.2 of this Chapter VI were not<br />
affected by extraordinary events.<br />
26<br />
1 st half<br />
2004<br />
IFRS<br />
2004<br />
1 st half<br />
2005<br />
Automobiles (<strong>Fiat</strong> Auto, Maserati, Ferrari and <strong>Fiat</strong> Powertrain Technologies) 10,719 21,208 10,609<br />
Agricultural and Construction Equipment (CNH) 5,165 9,983 5,172<br />
Commercial Vehicles (Iveco) 4,504 9,047 4,667<br />
Components and Production Systems (M. Marelli, Teksid, Comau) 3,213 6,416 3,186<br />
Other Businesses (Services, Publishing and Communications,<br />
Holding Companies and Other Companies)<br />
1,001 2,003 787<br />
Eliminations (1,569) (3,020) (1,614)<br />
Total 23,033 45,637 22,807<br />
Net revenues by Business area (in millions of euros)<br />
IFRS<br />
3 rd quarter 2004 3 rd quarter 2005<br />
Automobiles (<strong>Fiat</strong> Auto, Maserati, Ferrari and <strong>Fiat</strong> Powertrain Technologies) 4,635 4,882<br />
Agricultural and Construction Equipment (CNH) 2,457 2,456<br />
Commercial Vehicles (Iveco) 2,023 2,055<br />
Components and Production Systems (M. Marelli, Teksid, Comau) 1,528 1,597<br />
Other Businesses (Services, Publishing and Communications,<br />
Holding Companies and Other Companies)<br />
517 392<br />
Eliminations (774) (785)<br />
Total 10,386 10,597
6.4 Dependency on Industrial Property Rights<br />
In its capacity as parent company, the activity of <strong>Fiat</strong> S.p.A. does not depend to a significant extent on patents,<br />
licenses, or other industrial agreements.<br />
Various Group companies are heavily involved in research and development activities in innovative sectors that<br />
require patent protection. In this context, research plays a major role in Group strategies and development<br />
plans and is supported by the highly innovative and interdisciplinary activities undertaken by the Centro<br />
Ricerche <strong>Fiat</strong> (<strong>Fiat</strong> Research Center - “C.R.F.”) and Elasis.<br />
Nonetheless, <strong>Fiat</strong> Group business and profitability do not significantly depend on the use of patents, licenses,<br />
industrial, commercial, or financial agreements, or on manufacturing procedures.<br />
6.5 Information about the competitive position of the Issuer in regard to the markets in which it<br />
operates<br />
The market in which <strong>Fiat</strong> operates is highly competitive in terms of product quality, innovation, economic<br />
conditions, fuel economy, reliability, safety and customer service.<br />
In the automobile manufacturing and distribution sector, the Group competes in Europe and Latin America with<br />
other internationally prominent groups. In the other sectors, the <strong>Fiat</strong> Group has to compete also with local<br />
manufacturers in Europe, North America, and Latin America.<br />
Additional information on the competitive position of the Business areas and Sectors of the Group are available<br />
in the report on operations included in the Annual Report.<br />
VII. ORGANIZATIONAL STRUCTURE<br />
7.1 Description of the <strong>Fiat</strong> Group<br />
The Issuer is the industrial holding company <strong>Fiat</strong> S.p.A., parent company of the <strong>Fiat</strong> Group. The chart below<br />
provides an overview of the current structure of the Group.<br />
FIAT AUTO<br />
100%<br />
MAGNETI<br />
MARELLI<br />
100%<br />
FERRARI<br />
56%<br />
TEKSID<br />
80,5%<br />
MASERATI<br />
100%<br />
CENTRO<br />
RICERCHE FIAT<br />
100%<br />
FIAT<br />
S.P.A.<br />
COMAU<br />
100%<br />
27<br />
CNH<br />
84%<br />
ELASIS<br />
100%<br />
IVECO<br />
100%<br />
ITEDI<br />
100%<br />
FIAT POWERTRAIN<br />
TECHNOLOGIES<br />
100%<br />
BUSINESS<br />
SOLUTIONS<br />
100%
7.2 Structure of the <strong>Fiat</strong> Group<br />
The <strong>Fiat</strong> Group is divided into business areas and operating Sectors (Section One, Chapter VI, Paragraph 6.1).<br />
The Group also includes companies that, because of their specialized nature, are able to provide administrative,<br />
training, and other support services to the operating units in such a way as to allow them to pursue continuous<br />
improvements in quality and economies of scale.<br />
Transactions between Group companies, whether they result from vertical manufacturing integration or from the<br />
provision of services, are carried out at competitive terms, considering the quality of the goods or services<br />
involved.<br />
The following table shows the main subsidiaries of the Issuer. As a rule, these subsidiaries are subject to<br />
direction and coordination activities performed by the Issuer pursuant to Article 2497 and following articles of<br />
the Italian Civil Code. This activity consists in indicating the general strategic and operating guidelines of the<br />
Group and takes concrete form in the definition and updating of the corporate governance and internal control<br />
model, issuance of a Code of Conduct adopted at the Group level, and elaboration of the general policies for<br />
the management of human and financial resources, purchasing of factors of production, and communication.<br />
Furthermore, coordination of the Group envisages centralized management, through dedicated companies, of<br />
cash management, corporate and administrative, internal audit, and training services.<br />
Subsidiary Registered Office Capital Stock<br />
VIII. PROPERTY, PLANT AND EQUIPMENT<br />
% of Group<br />
consolidation<br />
% interest<br />
held<br />
<strong>Fiat</strong> Auto S.p.A. Turin, Italy € 2,500,000,000 100 100 100<br />
8.1 Fixed Assets<br />
Property, plant and equipment booked as assets in the consolidated financial statements amounted to<br />
approximately 11.4 billion euros at September 30, 2005 (10.1 billion euros at December 31, 2004). These<br />
amounts include vehicles sold under long-term leasing for approximately 700 million euros and those sold by<br />
Iveco under buy-back commitments for approximately 1.1 billion euros.<br />
The remainder is represented mainly by manufacturing sites (industrial facilities, plants and equipment).<br />
The following table summarizes manufacturing plants and R&D centers by geographical area at December 31,<br />
2004:<br />
(number) Manufacturing plants R&D centers<br />
Italy 54 52<br />
Europe excluding Italy 56 33<br />
North America 28 17<br />
Mercosur 19 10<br />
Rest of the world 23 9<br />
Total 180 121<br />
28<br />
% of<br />
voting<br />
rights<br />
CNH Global NV Amsterdam, Netherlands € 320,415,989 84.26 84.28 (*) 84.263<br />
Iveco S.p.A. Turin, Italy € 858,400,000 100 100 100<br />
Ferrari S.p.A. Modena, Italy € 20,000,000 56 56 56<br />
Maserati S.p.A. Modena, Italy € 40,000,000 100 100 100<br />
Magneti Marelli Holding S.p.A. Corbetta, Italy € 254,324,998 99.99 99.99 100<br />
Comau S.p.A. Grugliasco, Italy € 140,000,000 100 100 100<br />
<strong>Fiat</strong> Powertrain Technologies S.p.A. Orbassano, Italy € 5,120,000 100 100 100<br />
Teksid S.p.A. Turin, Italy € 113,624,939 80.48 80.48 80.48<br />
Business Solutions S.p.A. Turin, Italy € 10,000,000 100 100 100<br />
Itedi S.p.A. Turin, Italy € 5,980,000 100 100 100<br />
(*) of which 0.109 are treasury stock
8.2 Environment<br />
During 2004 and the first half of 2005, the Sectors of the <strong>Fiat</strong> Group launched products on the market that were<br />
characterized by a further reduction in the environmental impact in terms of lower fuel consumption and<br />
emissions and improved efficiency. Corresponding improvements were made in manufacturing processes. For<br />
both products and processes, these achievements stem from the kind of innovation that can only be made<br />
possible by continuing research, and the dedication of all the people involved. The Group’s research work is<br />
spearheaded by the CRF, Elasis and the Center for the Study of Transportation Systems, that work in<br />
partnership with public and private organizations as well as with the R&D teams at each of the Group’s<br />
companies.<br />
Further information is contained in the Sustainability Report that the Issuer published together with the 2004<br />
Annual Report and that illustrates the most important initiatives in the areas of social, economic and<br />
environmental responsibility, as well as major achievements in 2004.<br />
IX. REVIEW OF THE OPERATING AND FINANCIAL PERFORMANCE<br />
9.1 Financial Review<br />
The main transactions occurred in fiscal 2002, 2003 and 2004 which affected the scope of operations or which<br />
had a material impact on the results and financial position are described in-depth in the relevant Consolidated<br />
Financial Statements of the <strong>Fiat</strong> Group.<br />
In order to allow comparison of data with reference to the first half of 2005, the following transactions are worth<br />
mentioning:<br />
• In February 2004, 70% of <strong>Fiat</strong> Engineering S.p.A. was sold, and the company was therefore<br />
deconsolidated as of the beginning of the year. <strong>Fiat</strong> holds put and call options and bank guarantees on the<br />
remaining 30%, in consequence of which the sale was considered to have been completed in 2004, in<br />
accordance with IFRS. Thus, a total gain of 81 million euros has been posted for the first half of 2004 (net<br />
of the expenses connected with the transaction). During 2005, the put option was fully exercised.<br />
• In September 2004, Magneti Marelli sold 100% of the activities of Midas (a provider of automotive repair<br />
and maintenance services) in Europe and Latin America. These activities were deconsolidated effective<br />
September 30, 2004.<br />
• As part of the agreement for the sale of the European activities of <strong>Fiat</strong> Auto Holdings in the field of retail<br />
consumer financing for automobile purchases to Fidis Retail Italia S.p.A., sale of the equity investment in<br />
the financial company active in the United Kingdom to Fidis Retail Italia S.p.A. was completed in the fourth<br />
quarter of 2004.<br />
• In the first quarter of 2005, Magneti Marelli increased its equity investment and thus acquired control of the<br />
automotive lighting manufacturer Mako Elektrik Sanayi Ve Ticaret A.S. from the Turkish group Koç. The<br />
company, previously accounted for by using the equity method, was consolidated line by line effective<br />
January 1, 2005.<br />
• In the first months of 2005, a controlling interest of the temporary employment agency WorkNet was sold.<br />
This activity was deconsolidated effective January 1, 2005.<br />
• On June 1, 2005, Iveco sold to Barclays Asset and Sales Finance a 51% stake of Iveco Finance Holdings<br />
Ltd, which comprised certain financial services companies of Iveco operating in France, Germany, Italy,<br />
Switzerland and the United Kingdom. As of that date, Iveco Finance Holdings was deconsolidated and<br />
accounted for by using the equity method.<br />
• The operations that had previously been transferred to the <strong>Fiat</strong>-GM Powertrain joint venture were<br />
consolidated in <strong>Fiat</strong> Powertrain Technologies (Automobiles business area) as of May 2005. <strong>Fiat</strong> re-acquired<br />
full control of these operations upon termination of the Master Agreement with General Motors, with the<br />
sole exception of the Polish operations that continue to be jointly managed with General Motors.<br />
<strong>Fiat</strong> Group revenues totaled 22.807 million euros in the first half of 2005, 1% less than in the same period of<br />
2004. The downturn was caused mainly by lower sales at <strong>Fiat</strong> Auto (declining in the first quarter and recovering<br />
in the second quarter of 2005). The increase in revenues at Iveco partially compensated for this reduction.<br />
29
The trading profit for the period (407 million euros) almost doubled with respect to the 205 million euros<br />
reported in the first half of 2004. The Automobiles business area reported an improvement of 200 million euros,<br />
and reduced its trading loss to 225 million euros thanks to the restructuring operations implemented and that<br />
are still underway. The improvements at CNH and Iveco were offset by the decrease posted in the Components<br />
and Production Systems business area.<br />
Unusual income, net of unusual expenses, amounted to 1,038 million euros and included the gain on the<br />
transaction following the termination of the Master Agreement for an amount of 1,134 million euros.<br />
Net financial expenses in the first half of 2005 totaled 436 million euros, 184 million euros less than the<br />
corresponding figure for the first half of 2004, which reflected 150 million euros in expenses generated by the<br />
closing of the equity swap agreement on General Motors shares.<br />
Consolidated net income before minority interests in the first half of 2005 was 510 million euros, as against a<br />
loss of 638 million euros in the same period of 2004.<br />
In addition to the transactions described above, the following transactions that occurred during the first half of<br />
2005 are worth mentioning:<br />
• On February 13, 2005 the Boards of Directors of <strong>Fiat</strong> and General Motors approved the Termination<br />
Agreement that defined the cancellation of the Master Agreement and the unwinding of the <strong>Fiat</strong>-GM<br />
Powertrain and GM-<strong>Fiat</strong> Worldwide Purchasing joint ventures. The agreement envisaged that General<br />
Motors pays to <strong>Fiat</strong> 1.56 billion euros to terminate the Master Agreement, including cancellation of the put<br />
option and the unwinding of all joint ventures (see Section One, Chapter XXII).<br />
Subsequently, on May 13, 2005, the two companies signed the Separation Agreement pursuant to which<br />
they agreed to dissolve the purchasing and powertrain joint ventures and regain ownership of all assets<br />
they respectively contributed to the joint ventures. On that same date, GM completed the payment to <strong>Fiat</strong> as<br />
provided in the Termination Agreement.<br />
• On March 21, 2005 <strong>Fiat</strong> exercised the put option on Electricité de France (“EDF”) relating to the 24.6%<br />
interest held in Italenergia Bis S.p.A., as well as the put option on the 14% interest sold to the three Banks<br />
(Banca Intesa, IMI Investimenti and Capitalia) in 2002. The transaction was concluded on September 9,<br />
2005 (see Section One, Chapter XII).<br />
• In April 2005, the ownership of Maserati, until then wholly owned by Ferrari, was transferred to <strong>Fiat</strong><br />
Partecipazioni. The transaction envisaged that Alfa Romeo and Maserati will co-operate closely technically<br />
and commercially particularly in important international markets. Maserati will continue its co-operation with<br />
Ferrari, which has helped re-vitalize the marque, especially in industrial, technical, engine and sales<br />
network terms.<br />
The documentation illustrating the financial review of the Group during the first two quarters of 2005 is available<br />
on the internet at the address www.fiatgroup.com. These data were also presented to the financial community.<br />
9.2 Operating performance<br />
The following table shows the operating performance of the Group in the first half of 2005. All data were<br />
determined on the basis of IFRS.<br />
30
Fiscal 2004 (in millions of euros) 1 st half 2005 1 st half 2004<br />
45,637 Net revenues 22,807 23,033<br />
38,711 Cost of sales 19,420 19,572<br />
4,602 Selling, General & Administrative costs 2,240 2,279<br />
1,349 Research and development 681 691<br />
(925) Other income (expenses) (59) (286)<br />
50 Trading profit 407 205<br />
150 Gain (loss) on the disposal of equity investments 20 91<br />
542 Restructuring costs 82 121<br />
(243) Other unusual income (expenses) 1,100 (50)<br />
(585) Operating result 1,445 125<br />
(1,179) Financial income (expenses) (436) (620)<br />
135 Result of equity investments 25 100<br />
(1,629) Result before taxes 1,034 (395)<br />
(50) Income taxes 524 243<br />
(1,579) Result of continued operations 510 (638)<br />
- Result of discontinued operations - -<br />
(1,579) Net result before minority interest 510 (638)<br />
55 Minority interest in net result 35 42<br />
(1,634) Group interest in net result 475 (680)<br />
Net revenues<br />
Net revenues of the Group, including changes in contract work in progress, totaled 22,807 million euros in the<br />
first six months of 2005. The decrease of 1% with respect to the 23,033 million euros recorded in the first half of<br />
2004 is mainly attributable to the Automobiles business area, Other Businesses and, to a lesser degree, to the<br />
Components and Production Systems business area, and was set off in part by the increase at Iveco.<br />
Revenues by Business area<br />
1 st Fiscal<br />
2004 (in millions of euros) 2005 2004<br />
half<br />
%<br />
change<br />
21,208 Automobiles (<strong>Fiat</strong> Auto, Maserati, Ferrari and <strong>Fiat</strong> Powertrain Technologies) 10,609 10,719 -1.0<br />
9,983 Agricultural and Construction Equipment (CNH) 5,172 5,165 0.1<br />
9,047 Commercial Vehicles (Iveco) 4,667 4,504 3.6<br />
6,416 Components and Production Systems (M. Marelli, Teksid, Comau) 3,186 3,213 -0.8<br />
Other Businesses (Services, Publishing, Holding Companies<br />
2,003 and Other Companies) 787 1,001 -21.4<br />
(3,020) Eliminations (1,614) (1,569) n.a.<br />
45,637 Total for the Group 22,807 23,033 -1.0<br />
Automobiles<br />
Fiscal 1 st half<br />
2004 (in millions of euros) 2005 2004 % change<br />
19,696 <strong>Fiat</strong> Auto 9,630 9,984 -3.5<br />
409 Maserati 296 171 +73.1<br />
1,175 Ferrari 605 591 +2.4<br />
- <strong>Fiat</strong> Powertrain Technologies 483 - n.a.<br />
(72) Eliminations (405) (27) n.a.<br />
21,208 Total 10,609 10,719 -1.0<br />
31
During the first six months of 2005, revenues of the Automobiles business area totaled 10,609 million euros,<br />
down 1% from the first half of 2004. in particular:<br />
• <strong>Fiat</strong> Auto closed the first half of 2005 with revenues of 9,630 million euros, down 3.5% (the decrease was<br />
concentrated in the first quarter, while the second quarter saw an increase) from the first six months of 2004,<br />
when revenues amounted to 9,984 million euros. The contraction in volumes was partially set off by the<br />
positive foreign exchange impact in Brazil and Poland and the preference for more profitable sales channels.<br />
During the first six months of 2005, deliveries by <strong>Fiat</strong> Auto totaled approximately 851,600 units, down 8.4%<br />
with respect to the first half of 2004. In Western Europe, 558,300 units were delivered, down 12.9%. Sales<br />
performance was negatively impacted by the unfavorable trend of the Italian market, intense competition,<br />
and the expected introduction of new models. Sales were down in the principal countries of Europe, with a<br />
9.2% decrease in Italy, a 10.3% decrease in Spain, a 21.5% decrease in Germany, and a 39.8% decrease in<br />
Great Britain. France represented an exception, where deliveries rose by 10%. <strong>Fiat</strong> Auto had a market<br />
share of 27.7% in Italy in the first half of 2005, compared with 28.3% in the same period of 2004, while its<br />
share was 6.6% in Western Europe, or 1 percentage point less with respect to the same period of 2004.<br />
In an unfavorable market environment, sales in Poland decreased sharply (56.2%). The positive trend of the<br />
Brazilian market enabled <strong>Fiat</strong> Auto to increase its sales volumes (+13.5%) as well as its market share, which<br />
rose by one percentage point to 24.4%.<br />
• Maserati reported revenues of 296 million euros in the first half of 2005, reflecting a strong increase<br />
(+73.1%) with respect to the first half of 2004. The increase is attributable to higher volumes achieved thanks<br />
to the continuing success of the Quattroporte model and sales of the special MC12 highway model.<br />
• In the first six months of 2005, Ferrari’s revenues reached 605 million euros, up 2.4% with respect to the<br />
first half of 2004. The increase was mainly attributable to the sales of the new F430 model and higher sales<br />
of the 612 Scaglietti. These improvements were partly offset by the negative foreign exchange impact<br />
determined by the trend of the US dollar.<br />
• <strong>Fiat</strong> Powertrain Technologies, where the businesses of which <strong>Fiat</strong> regained control in May 2005 after the<br />
termination of the Master Agreement with General Motors were transferred, reported revenues of 483 million<br />
euros. Part of this production is destined to the Automobiles Sector, while 118 million euros represent sales<br />
to third parties.<br />
Agricultural and Construction Equipment<br />
CNH closed the first half of 2005 with revenues of 5,172 million euros, in line with the first half of 2004, even<br />
when the values are restated on a comparable exchange rate basis. The sharp increase in sales of construction<br />
equipment in the Americas set off the decrease in sales of agricultural equipment in the main geographical<br />
areas.<br />
In the agricultural equipment segment sales volumes were 8% lower than those reported in the first half of 2004<br />
due to a sluggish market. Both tractors and combine harvesters sales fell in North America and in Western<br />
Europe, while in Latin America volumes were practically halved. The sole exception was the good performance<br />
in the rest of the world.<br />
In the first half of 2005, sales of construction equipment increased by approximately 7% with respect to the<br />
corresponding period of 2004. The overall increase in demand for light-range equipment enabled the Sector to<br />
record extremely buoyant sales performance in Latin America and positive performances in North America and<br />
in the rest of the world, while sales remained stable in Western Europe. Sales of heavy-range equipment<br />
increased in the Americas thanks to the favorable market environment but decreased in Western Europe.<br />
CNH is intensifying its efforts to achieve as scheduled the expected efficiency and profitability levels, with the<br />
aim of matching the best-in-class.<br />
Commercial Vehicles<br />
Iveco closed the first half of 2005 with revenues of 4,667 million euros, posting a 3.6% increase (+5.2% if<br />
industrial activities alone are considered) with respect to the same period of 2004. The increase in revenues<br />
was essentially the result of higher sales volumes.<br />
32
Moreover, the volumes reflect vehicles billed, while, under the new IFRS, only rental revenues can be reported<br />
for vehicles sold with a buy back commitment, with the rent being equal to the difference between the sale price<br />
and the buy back price, as allocated over the term of the contract. Consequently, sales volumes might not<br />
correlate immediately with revenue volumes.<br />
In the first half of 2005, Iveco delivered a total of 87,500 vehicles, approximately 7,200 of which with buy back<br />
commitments, up 10.4% from the same period of 2004. In Western Europe, approximately 70,000 vehicles were<br />
sold; the 7.3% increase, driven by market expansion, was realized with the contribution of all the main product<br />
lines, except for buses and special vehicles. At the individual country level, major improvements were reported<br />
in Great Britain (+37%), Germany (+16.4%) and Spain (+10.9%). Strong sales were also reported in France<br />
(+5.7%). In contrast, deliveries in Italy (-4.6%) suffered from a weak demand in the mid-range vehicle segment<br />
which was followed by a decrease in light vehicles, only in part offset by improvements in the heavy-vehicle<br />
segment.<br />
In Western Europe, Iveco had a market share of 10.8%, slightly down (-0.1 percentage points) compared to the<br />
first half of 2004, due to the decrease of the market shares in the medium-vehicle segment and, to a lower<br />
extent, in the heavy-vehicle segment, against a growing market share in the light-vehicle segment.<br />
Iveco recorded significant growth rates in Eastern Europe and Latin America with respect to the same period of<br />
2004.<br />
During the first half of 2005, 228,789 engines were produced, in line with the first half of 2004, for an aggregate<br />
value of 1,359 million euros (+10.9%). Approximately 63% of this production output was destined for use in<br />
vehicles manufactured by Sector companies.<br />
Components and Production Systems<br />
Fiscal 1 st half<br />
2004 (in millions of euros) 2005 2004 % change<br />
3,795 Components (Magneti Marelli) 1,996 1,974 +1.1<br />
910 Metallurgical Products (Teksid) 521 466 +11.8<br />
1,711 Production Systems (Comau) 669 773 -13.5<br />
6,416 Total 3,186 3,213 -0.8<br />
The revenues for the Components and Production Systems business area amounted to 3,186 million euros<br />
in the first half of 2005, a slight decrease (-0.8%) with respect to the first half of 2004. In particular:<br />
• With revenues of 1,996 million euros, Magneti Marelli reported an increase of 1.1% with respect to the first<br />
half of 2004, partly as a result of the consolidation of the Mako company effective January 1, 2005. On a<br />
comparable consolidation and foreign exchange rate basis, revenues decreased slightly (-1.4%). The<br />
reduction in sales to <strong>Fiat</strong> Group companies was partially set off by the strong performance of Telematica<br />
product sales to other customers. Volumes also expanded in Brazil. In the first half of 2005, the powertrain<br />
operations reported revenues of 396 million euros (-6% with respect to the first half of 2004).<br />
• Teksid closed the first half of 2005 with revenues of 521 million euros, up 11.8% with respect to the same<br />
period of the previous year. This result was due to the good performance of the Cast Iron Business Unit<br />
that reported higher volumes (+4%) stemming from sales to non-captive customers in North America and<br />
Brazil, and recovered higher raw material costs through sales prices. The positive foreign exchange effect<br />
also contributed to the increase in revenues recorded by the Sector. The Magnesium Business Unit<br />
reported a 13% contraction in sales volumes, due in particular to the slowdown in demand for SUV’s in<br />
North America.<br />
• Comau reported revenues of 669 million euros in the first half of 2005, down 13.5% with respect to the first<br />
half of 2004. This decrease was in part due to the transfer to the Iveco, Magneti Marelli, and CNH Sectors<br />
of its service activities in Europe. Excluding this effect, the decrease in revenues was due to lower contract<br />
work in North America.<br />
33
Other Businesses<br />
Fiscal 1 st half<br />
2004 (in millions of euros) 2005 2004 % change<br />
976 Services (Business Solutions) 353 508 -30.5<br />
407 Publishing and Communications (Itedi) 203 221 -8.1<br />
620 Holding Companies and Other Companies 231 272 -15.1<br />
2,003 Total 787 1,001 -21.4<br />
Other Businesses reported 787 million euros in revenues during the first half of 2005, down by 21.4% with<br />
respect to the same period in 2004. In particular:<br />
• In the first half of 2005, Business Solutions reported revenues of 353 million euros, a decrease of 30.5%<br />
from the same period of 2004 that was partly due to the change in the scope of consolidation (principally<br />
the sale of the WorkNet temporary employment agency). On a comparable basis, revenues decreased by<br />
approximately 15% due to lower volumes of activity in the Administration area connected with the<br />
redefinition and consequent downsizing of services provided to Group companies.<br />
• Itedi had revenues of 203 million euros during the first half of 2005. The 8.1% decrease from the first half<br />
of 2004 was caused by lower advertising revenues due to the termination of an important concession<br />
agreement, lower daily newspaper sales, and to a more accurate selection of brand stretching initiatives.<br />
Trading profit<br />
The trading profit for the period (407 million euros) almost doubled with respect to the 205 million euros<br />
reported in the first half of last year. The improvement is attributable to sharply lower trading losses at the<br />
Automobiles business area and the positive performance of CNH and Iveco. The trading profit of the<br />
Components and Production Systems business area and that of Other Businesses decreased.<br />
Trading profit by Business area<br />
1 st Fiscal<br />
half<br />
2004 (in millions of euros) 2005 2004 Change<br />
(805) Automobiles (<strong>Fiat</strong> Auto, Maserati, Ferrari and <strong>Fiat</strong> Powertrain Technologies) (225) (425) +200<br />
467 Agricultural and Construction Equipment (CNH) 405 366 +39<br />
371 Commercial Vehicles (Iveco) 175 149 +26<br />
166 Components and Production Systems (Magneti Marelli, Teksid, Comau) 79 107 -28<br />
Other Businesses (Services, Publishing, Holding Companies and<br />
(149) Other Companies) and Eliminations (27) 8 -35<br />
50 Total for the Group 407 205 +202<br />
Automobiles<br />
Fiscal 1 st half<br />
2004 (in millions of euros) 2005 2004 Change<br />
(822) <strong>Fiat</strong> Auto (217) (384) +167<br />
(124) Maserati (53) (58) +5<br />
141 Ferrari 32 17 +15<br />
- <strong>Fiat</strong> Powertrain Technologies 13 - +13<br />
(805) Total (225) (425) +200<br />
34
The Automobiles business area registered in the first six months of 2005 a trading loss of 225 million euros,<br />
against a trading loss of 425 million euros in the corresponding period in 2004. In particular:<br />
• In the first six months of 2005 <strong>Fiat</strong> Auto had a trading loss of 217 million euros, representing a sharp<br />
improvement from the loss of 384 million euros reported in the corresponding period of 2004. The result<br />
was positively impacted by significant cost containment, especially on overhead and manufacturing costs,<br />
the streamlining of research and development activities and the preference for highly profitable sales<br />
channels that more than offset the effects of lower sales volumes.<br />
• Maserati posted a trading loss of 53 million euros in the first six months of 2005. The improvement with<br />
respect to the loss of 58 million euros in the same period of 2004 was due to growth in volumes and the<br />
more favorable sales mix, partially offset by the negative foreign exchange effect.<br />
• Ferrari closed the first half of 2005 with a trading profit of 32 million euros, against a profit of 17 million<br />
euros in the same period of 2004. The improvement is mainly attributable to higher sales volumes and<br />
major efficiency gains, which were partially set off by the negative foreign exchange effect.<br />
• <strong>Fiat</strong> Powertrain Technologies has posted a trading profit of 13 million euros since the beginning of May<br />
2005.<br />
Agricultural and Construction Equipment<br />
CNH closed the first half of 2005 with a trading profit of 405 million euros, compared with a trading profit of 366<br />
million euros in the first half of 2004. The increased sales prices in both the agricultural and construction<br />
equipment segments, production cost efficiency gains and higher sales of construction equipment more than<br />
offset the increase in raw material costs and the contraction in agricultural segment volumes, which was also<br />
penalized by a less favorable product mix. In 2005, the Sector also benefited from a reduction in current health<br />
care costs in North America on an ongoing basis, by which an 83 million euros reversal of previously accrued<br />
reserves was also accounted for in the first half of the year.<br />
Commercial vehicles<br />
In the first six months of 2005, Iveco had a trading profit of 175 million euros, an improvement of 26 million<br />
euros with respect to the corresponding period of 2004. The positive contribution from the increase in volumes<br />
was partly absorbed by increased raw material prices and expenses for the support of sales activities. The<br />
powertrain operations had a trading profit of 45 million euros in the first half of 2005, compared with the 47<br />
million euros posted in the first half of 2004.<br />
Components and Production Systems<br />
Fiscal 1 st half<br />
2004 (in millions of euros) 2005 2004 Change<br />
165 Components (Magneti Marelli) 75 82 -7<br />
(39) Metallurgical Products (Teksid) 19 25 -6<br />
40 Production Systems (Comau) (15) - -15<br />
166 Total 79 107 -28<br />
The Components and Production Systems business area posted a trading profit of 79 million euros in the<br />
first half of 2005, compared to a trading profit of 107 million euros in the first half of 2004. In particular:<br />
• Magneti Marelli reported a trading profit of 75 million euros in the first six months of 2005 down from the<br />
82 million euros of the corresponding period of 2004. Changes in the scope of consolidation had a positive<br />
effect of 4 million euros. On a comparable basis, the decrease was 11 million euros and stemmed from the<br />
unfavorable price/cost ratio due to higher raw material prices, which was partially set off by efficiency gains<br />
realized on production costs. The Powertrain operations generated a trading profit of 10 million euros in<br />
the first half of 2005, down from the profit of 28 million euros posted in the same period of 2004 due to a<br />
less favorable mix and lower sales prices that were only partially recovered through efficiency gains.<br />
• Teksid closed the first half of 2005 with a trading profit of 19 million euros, down from the 25 million euros<br />
reported for the same period of 2004. The decrease is attributable to lower volumes at the Magnesium<br />
35
Business Unit and lower sundry income compared to the first half of 2004. The Sector more than recovered<br />
the increase in raw material prices through its sales prices, and benefited from the positive effect of higher<br />
volumes at the Cast Iron Business Unit.<br />
• Comau reported a trading loss of 15 million euros in the first half of 2005, while it reached break-even in<br />
the same period of 2004. In addition to the reduced scope of operations, the change is the result of strong<br />
competitive pressure on prices and lower profitability resulting from a contract work of the Bodywork<br />
business line.<br />
Other Businesses<br />
Fiscal 1 st half<br />
2004 (in millions of euros) 2005 2004 Change<br />
41 Services (Business Solutions) 8 20 -12<br />
11 Publishing and Communications (Itedi) 12 10 +2<br />
(201) Holding Companies, Other Companies and Eliminations (47) (22) -25<br />
(149) Total (27) 8 -35<br />
Other Businesses reported a trading loss of 27 million euros for the first half of 2005, against a trading profit of<br />
8 million euros in the first half of 2004.<br />
• Business Solutions reduced its trading profit from 20 million euros in the first half of 2004 to 8 million<br />
euros in the first half of 2005, mainly due to the negative impact of lower activity levels in the Administration<br />
area.<br />
• Itedi had a trading profit of 12 million euros in the first half of 2005, an increase of 2 million euros compared<br />
to the same period of 2004, due to the improved margins of brand extension activities and cost cutting<br />
measures which more that offset the negative impact of lower revenues.<br />
• Holding Companies and Other Companies closed the first half of 2005 with a trading loss of 47 million<br />
euros. The change from the trading loss of 22 million euros reported in the first half of 2004 is due to lower<br />
volumes of activities of the High Speed Railway (“Treno Alta Velocità” - TAV) contract and the different mix<br />
of services rendered by these companies to the Group Sectors.<br />
Operating Result<br />
During the first half of 2005, the Operating Result was a positive 1,445 million euros, compared to 125 million<br />
euros in the corresponding period of last year. This significant increase is attributable for 1,150 million euros to<br />
the change in other unusual income (expenses). The operating result also benefited for 202 million euros from<br />
the improvement in trading profit and lower restructuring expenses; these positive effects were however partially<br />
offset by lower gains on the disposal of equity investments.<br />
Other unusual income (expenses) amounted to 1,100 million euros in the first half of 2005, and reflected in<br />
particular the gain on the transaction following the termination of the Master Agreement with General Motors for<br />
an amount of 1,134 million euros (net of correlated costs). The item Other unusual income (expenses) also<br />
includes the gain of 117 million euros realized upon final disposal of real estate properties that had been<br />
securitized in 1998. Unusual expenses include additional costs connected with the process of reorganization<br />
and streamlining of relationships with Group suppliers, launched in 2004, and with <strong>Fiat</strong> Auto dealers for a total<br />
of 66 million euros. They also include 71 million euros for the indemnity granted to Global Value for unwinding of<br />
the joint-venture with IBM, and 8 million euros in indemnities paid to counterparties in satisfaction of guarantees<br />
envisaged in the contracts of sale of businesses from previous years.<br />
Net gains on the disposal of equity investments, equal to 20 million euros, includes the 23 million euro gain<br />
realized upon sale of Palazzo Grassi S.p.A. The 71 million euro decrease with respect to the same period of<br />
2004 is attributable to the gain of 81 million euros that had been reported, in the first half of 2004, on the sale of<br />
<strong>Fiat</strong> Engineering S.p.A.<br />
Restructuring expenses, totaling 82 million euros, mainly regarded <strong>Fiat</strong> Auto, for restructuring of the <strong>Fiat</strong>-GM<br />
Powertrain activities (the joint-venture unwound at the beginning of May), and the launch of new plans for the<br />
36
eorganization of the Sector’s corporate structures. The decrease from the 121 million euros recorded in the first<br />
half of 2004 is due to the lower costs at CNH.<br />
Net Result<br />
Net financial expenses totaled 436 million euros in the January-June 2005 period, compared with 620 million<br />
euros in the first half of 2004. In the first half of 2004, the unwinding of the equity swap agreement on General<br />
Motors shares resulted in a net loss of about 150 million euros in accordance with IFRS. Excluding this<br />
component, the improvement was due to lower net borrowings by the Group’s industrial companies and a more<br />
efficient composition of borrowings, despite higher borrowing costs stemming from the increase in interest rates<br />
(particularly in the dollar area).<br />
Financial expenses include interest costs on pension and other post employment benefits to employees,<br />
amounting to about 62 million euros in the first half of 2005 (62 million euros in the same period of 2004).<br />
The Group’s Income (loss) before taxes rose from a loss of 395 million euros in the first half of 2004 to an<br />
income of 1,034 million euros in the first half of 2005. The 1,429 million euro improvement is attributable for<br />
1,320 million euros to higher operating income, for 184 million euros to lower net financial expenses, against a<br />
decrease of 75 million euros in the Result of equity investments. In the first half of 2004, this last item<br />
included, among other things, the positive adjustment of 27 million euros for Italenergia Bis S.p.A., an equity<br />
investment that is now reported under Assets held for sale and consequently no longer accounted for by using<br />
the equity method. In addition, 35 million euros in various risks and charges were also posted in the first half of<br />
2005 for an equity investment in China.<br />
In the first half of 2005, Income taxes amounted to 524 million euros and included the reversal of 277 million<br />
euros in deferred tax assets posted at the end of 2004 by <strong>Fiat</strong> S.p.A., in consequence of the gain on the<br />
termination of the Master Agreement with General Motors. IRAP amounted to 55 million euros. The remaining<br />
192 million euros reflect current and deferred tax charges, referring principally to foreign subsidiaries. In the first<br />
six months of 2004, income taxes amounted to 243 million euros, 67 million euros of which for IRAP.<br />
Net income before minority interest in the first half of 2005 was 510 million euros, against a loss of 638<br />
million euros in the same period of 2004.<br />
Group interest in net income amounted to 475 million euros in the first half of 2005, against a loss of 680<br />
million euros in the same period of 2004.<br />
***<br />
The results for the third quarter of 2005, which are included and analyzed in detail in the Third Quarter 2005<br />
Report, may be summarized as follows:<br />
• Group revenues in the third quarter of 2005 totaled 10.6 billion euros, up 2% over the corresponding<br />
period last year as a consequence of the increase reported in the Automobiles and Components and<br />
Production Systems business areas which offset the decrease of the Other Businesses.<br />
• Group trading profit was 232 million euros in the third quarter, compared with a loss of 30 million euros in<br />
the same period of 2004. The improvement was due to a reduction in trading losses at <strong>Fiat</strong> Auto combined<br />
with the positive performance of the other industrial Sectors.<br />
• The operating result was a positive 409 million euros compared with a loss of 122 million euros in the<br />
corresponding period of 2004 and reflects increased trading profit as well as the gain realized on the<br />
closing of the Italenergia Bis transaction (878 million euros).<br />
• The result for the quarter also absorbed 420 million euros in restructuring charges and other unusual costs<br />
(284 million euros) connected with the Group’s ongoing reorganization and rationalization processes.<br />
• Consolidated net income was 0.8 billion euros as against a net loss of 0.4 billion euros in the<br />
corresponding period of 2004.<br />
37
X. FINANCIAL RESOURCES<br />
10.1 Short and long term financial resources of the Issuer<br />
At September 30, 2005 consolidated net debt totaled 19,105 million euros, or 6,318 million euros lower than the<br />
25,423 million euros reported at December 31, 2004.<br />
In the first six months of 2005, the net debt of the Group decreased by 1,699 million euros as a result of the<br />
collection both of 1.56 billion euros from General Motors (partially reduced by the effect of the consolidation of<br />
the powertrain operations) and of approximately 2 billion euros in financings previously extended by the Group<br />
centralized cash management to the financial services companies that have been sold to Barclays, which were<br />
only partially offset by funds required by the seasonal increase in working capital and by foreign currencies<br />
translation differences.<br />
In the third quarter of 2005, net debt was reduced by 4,619 million euros, 3 billion euros of which due to<br />
reimbursement of the Mandatory Convertible Facility. Furthermore, upon conclusion of the Italenergia Bis<br />
transaction, through sale to EDF of the 24.6% shareholding owned by the <strong>Fiat</strong> Group, the financing of 1,147<br />
million euros extended by Citigroup and a restricted pool of banks was reimbursed. Additionally, the payable of<br />
approximately 600 million euros recorded in respect of the bank shareholders of Italenergia Bis that purchased<br />
14% of the shares of Italenergia Bis from <strong>Fiat</strong> in 2002 was written back with the simultaneous execution of a<br />
series of options expiring in 2005. Given the existence of these options, it had been deemed that the sale of the<br />
14% shareholding did not satisfy the revenue requirements of IAS 18.<br />
Cash position (cash, cash equivalents and current securities), which totaled 5,973 million euros at the end of<br />
September, decreased by 147 million euros with respect to December 31, 2004<br />
At September 30, 2005, “Cash and cash equivalents” included approximately 1,160 million euros (approximately<br />
600 million euros at the end of 2004) specifically earmarked for the repayment of the debt related to<br />
securitizations posted mainly under “Asset-backed financing”.<br />
The following table shows the structure of the <strong>Fiat</strong> Group net debt:<br />
(in millions of euros) Notes At 12.31.2004 At 09.30.2005<br />
Debt (32,191) (25,465)<br />
- Asset-backed financing (10,174) (9,660)<br />
- Other Debt (22,017) (15,805)<br />
Other financial liabilities (1) (203) (196)<br />
Other financial assets (1) 851 583<br />
Current securities 353 504<br />
Cash and cash equivalents 5,767 5,469<br />
Net debt (25,423) (19,105)<br />
Industrial Activities (9,447) (4,658)<br />
Financial Services (15,976) (14,447)<br />
(1) Includes the positive and negative fair value of derivative financial instruments.<br />
Detailed information on the main items is found in Paragraph 10.3 of this Prospectus.<br />
The classification between Industrial Activities and Financial Services was realized by defining specific<br />
subconsolidated financial statements according to the normal business performed by each Group Company. In<br />
particular, Financial Services mainly include the retail financing, leasing, and rental companies of <strong>Fiat</strong> Auto,<br />
CNH and Iveco.<br />
38
10.2 Cash Flows<br />
The following table shows the consolidated statement of cash flows of the <strong>Fiat</strong> Group in the first nine months of<br />
2005 and in the corresponding period of 2004.<br />
1.1 – 09.30 1.1 – 09.30<br />
(in millions of euros)<br />
2005 2004<br />
A) Cash and cash equivalents at period-start<br />
B) Cash flows provided by (used in) operating activities:<br />
5,767 6,845<br />
Net result before minority interest 1,336 (1,018)<br />
Amortization and depreciation (net of vehicles sold under buy-back commitments) 1,880 1,643<br />
Gain/loss and other non monetary items (1) (1,604) (301)<br />
Dividends received 24 11<br />
Change in provisions 632 (71)<br />
Change in deferred income taxes 392 89<br />
Change in items due to buy-back commitments (2) (204) (87)<br />
Change in working capital (1,205) (675)<br />
Total<br />
C) Cash flows provided by (used in) investment activities:<br />
Investments in:<br />
1,251 (409)<br />
- Tangible and intangible assets (net of vehicles sold under buy-back commitments) (1,732) (1,620)<br />
- Equity investments (30) (175)<br />
Proceeds from the sale of fixed assets 214 330<br />
Net change in receivables from financing activities 522 1,921<br />
Change in current securities (108) 72<br />
Other changes 2,452 250<br />
Total<br />
D) Cash flows provided by (used in) financing activities:<br />
1,318 778<br />
Net change in financial payables and other financial assets/liabilities (3) (3,148) (2,594)<br />
Increase in capital stock (3) 9 13<br />
Dividends paid (27) (10)<br />
Total (3,166) (2,591)<br />
Translation exchange differences 299 47<br />
E) Total change in cash and cash equivalents (298) (2,175)<br />
F) Cash and cash equivalents at period-end 5,469 4,670<br />
(1) This includes, amongst other items, the unusual financial income of 858 million euros arising from the extinguishment of the Mandatory Convertible facility<br />
and the gain of 878 million euros realized on the sale of the investment in Italenergia Bis.<br />
(2) The cash flows for the two periods generated by the sale of vehicles with a buy-back commitment, net of the amount already included in the result, are<br />
included in operating activities for the period, in a single item which includes the change in working capital, investments, depreciation, gains and losses and<br />
proceeds from sales, at the end of the contract term, relating to assets included in “Property, plant and equipment”.<br />
(3) Net of the repayment of the Mandatory Convertible facility of 3 billion euros and of the debt of approximately 1.8 billion euros connected with the Italenergia<br />
Bis operation, as neither of these gave rise to cash flows.<br />
The cash generated by operating activities during the first nine months of 2005 totaled 1,251 million euros.<br />
The income flow, or in other words net income plus depreciation, amortization, and changes in reserves and<br />
items relating to sales with buy-back commitments, net of “Gains/losses and other non-monetary items”<br />
(including the gain realized upon sale of the equity investment in Italenergia Bis for 878 million euros and the<br />
unusual financial income of 858 million euros deriving from the capital increase serving the Mandatory<br />
Convertible Facility), totaled 2,432 million euros. This flow was partially offset by the increase in working<br />
capital, which, on a comparable consolidation and exchange rate basis, absorbed a total of 1,205 million euros<br />
39
in cash. The cash flows provided by operating activities of the period included collection of approximately 1.1<br />
billion euros, corresponding to the gain resulting from the termination of the Master Agreement with General<br />
Motors.<br />
Investment activities provided liquidity for a total of 1,318 million euros. Net of the increase in current securities<br />
(108 million euros), which mainly represent a temporary investment of funds, investment activities generated a<br />
total of 1,426 million euros. Reimbursement of financings previously extended by the Group centralized cash<br />
management to the financial services companies sold by Iveco resulted in a cash-in of approximately 2 billion<br />
euros, while unwinding of the joint ventures with GM contributed approximately 500 million euros. These<br />
amounts are included under the item “Other changes” which totaled 2,452 million euros. The reduction in<br />
“Receivables from financing activities,” which refers in part to the collection of financial receivables and in part to<br />
the decrease in loans made to <strong>Fiat</strong> Auto network and suppliers, generated a positive flow of 522 million euros.<br />
Investments in tangible assets (including vehicles for long-term leasing operations) and intangible assets totaled<br />
1,732 million euros.<br />
Financing activities absorbed a total of 3,166 million euros, mainly due to the repayment of bonds on maturity<br />
for approximately 1.6 billion euros, the repayment of other loans and, for the remainder, to the reduction of<br />
asset-backed financing.<br />
10.3 Indication of the Issuer’s borrowing requirements and financing structure<br />
Debt of the <strong>Fiat</strong> Group at September 30, 2005 totaled 25,465 million euros (32,191 million euros at December<br />
31, 2004), of which 9,660 million euros (10,174 million euros at December 31, 2004) concerning asset-backed<br />
financing (securitization and factoring operations that do not comply with IFRS requirements for reclassification<br />
of these assets from the balance sheet).<br />
The remaining other debt, totaling 15,805 million euros (22,017 million euros at December 31, 2004), refers to<br />
bonds for 7,908 million euros (9,326 million euros at December 31, 2004), bank borrowings for 5,289 million<br />
euros (10,450 million euros at December 31, 2004), debt for banking activities of Banca Unione di Credito for<br />
1,236 million euros (1,326 million euros at December 31, 2004) and other debt for 1,372 million euros (915<br />
million euros at December 31, 2004).<br />
The schedule of maturities of bonds which total approximately nominal 7.4 billion euros, net of fair value<br />
valuations and amortized cost adjustments (8.8 billion euros at December 31, 2004), is as follows:<br />
(in billions of euros) 4 th quarter 2005 2006 2007 beyond<br />
Bonds 0.3 2.3 0.3 4.5<br />
The <strong>Fiat</strong> Group intends to repay the issued bonds upon maturity using available cash.<br />
10.4 Limits on use of financial resources<br />
The Issuer notes that there are no limits on the use of financial resources that had or could have a significant<br />
direct or indirect impact on the activity of the Issuer.<br />
10.5 Information on the expected sources of financing to fulfill commitments for investments and fixed<br />
assets<br />
The <strong>Fiat</strong> Group expects to meet its borrowing requirements stemming from maturing financial payables and<br />
expected investments with currently available cash, the renewal or refinancing of bank loans, eventual recourse<br />
to the capital market, and operating cash flows. It does not rule out the possibility of issuing bonds if market<br />
conditions are favorable.<br />
XI. RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES<br />
In 2004, investments in research and development amounted to 1,810 million euros or about 4% of net<br />
revenues of industrial activities (1,349 million euros booked in the 2004 Income Statement pursuant to IFRS).<br />
Overall, R&D activities involved approximately 12,400 people at 121 centers in Italy and abroad.<br />
40
In 2004, the Group’s R&D companies, the CRF and Elasis, intensified their interactions with each other and with<br />
the operating sectors’ engineering services. Better coordination of policies, objectives and initiatives made it<br />
possible to rationalize skills and make the most of each center’s areas of excellence.<br />
Centro Ricerche <strong>Fiat</strong> (<strong>Fiat</strong> Research Center - CRF)<br />
Environmentally-friendly engines, innovative vehicle structures, electronic chassis control systems, telematic<br />
applications, integrated transportation safety, environmental protection and advanced manufacturing methods.<br />
These are the fields where the CRF concentrated its work in 2004, increasing its activities by 10% above those<br />
of the previous year. With a staff of around 930 employees at December 31, 2004 the CRF made significant<br />
progress during the year, with R&D output totaling over 470 projects. 118 new patent applications were filed,<br />
bringing the total number of patents held by the Center to 1,211.<br />
These activities benefited the 430 clients of the CRF, 150 of whom are outside the Group and include <strong>Fiat</strong><br />
suppliers and other small and medium enterprises.<br />
Of the many awards testifying to the high quality of the Center’s work, one of the year’s most important was<br />
“Italy 2004 – Best Innovator Award” promoted by A.T. Kearney and by the newspaper Il Sole 24 Ore with the<br />
cooperation of Confindustria, the Federation of Italian Industries. The award honors outstanding achievements<br />
in strategic innovations.<br />
Elasis<br />
Elasis, with a staff of around 800 employees at its two sites in Pomigliano and Lecce, is a highly specialized<br />
research center. Its work addresses technological innovation, complete vehicle development, mobility and its<br />
environmental impact, and traffic safety. It is provided with sophisticated computer-aided design tools and<br />
advanced physical and virtual testing equipment which are based on an ability to develop and manage<br />
information systems that puts Elasis in the front ranks of the world’s R&D centers.<br />
Elasis’s primary mission, like that of the CRF, is to improve the <strong>Fiat</strong> Group’s competitiveness. In addition, it<br />
contributes to strengthening the entire Italian research system by working together with the Italian Ministries of<br />
Education, Universities and Research, Production Activities, and the Environment, as well as with major public<br />
and private research institutions in Italy and abroad.<br />
In line with the Group’s strategic policy framework, in 2004 Elasis focused its efforts on methodologies, design<br />
and technologies.<br />
Product and process methodologies. Work continued on developing an innovative design system based on<br />
archetypes, or in other words on models containing engineering know-how in the form of design rules. Virtual<br />
product analysis techniques were used in the areas of occupant compartment design and occupant/pedestrian<br />
impact protection, as well as to assess vehicle body aerodynamic performance and interior flow dynamics. The<br />
Virtual Car simulator made it possible to reduce validation times for electrical and electronic components, and to<br />
apply the benefits of robust design to the infotelematic and navigation system installed on the new models that<br />
will be put on the market in 2005.<br />
Engines. Further improvements were made to the FIRE series of engines. For the 1.4-liter unit in particular,<br />
consumption was trimmed 7% by reducing friction and pumping losses and increasing volumetric efficiency. In<br />
addition, a turbocharged 1.4-liter FIRE engine was developed that not only offers higher performance than<br />
conventional powerplants – even those with larger displacements – but also uses 9% less fuel. Major<br />
accomplishments were also made in improving transmissions, where special-purpose components were<br />
developed and noise measurement methods were fine-tuned using specially designed test benches that are<br />
unmatched anywhere else in the automotive industry.<br />
Vehicles. Vehicle design work in 2004 focused on a number of important initiatives for <strong>Fiat</strong> Auto, Ferrari and<br />
Maserati. In particular, Elasis developed a high-performance sports car prototype, the Alfa Romeo 8 C, whose<br />
engineering solutions will be used on future <strong>Fiat</strong> Auto models.<br />
Together with the CRF, Elasis designed a modular platform that can be used for vehicles with different<br />
wheelbases and for low environmental impact propulsion systems (natural gas, hybrids, etc.). The platform is<br />
designed with an eye to compatibility with current body framing lines and maximizes component<br />
standardization.<br />
Traffic safety and mobility. During the year, Elasis once again partnered with the Provinces of Milan and<br />
Perugia, by conducting joint projects for improving mobility and safety conditions on the road network which also<br />
involved infrastructure operators. These projects, which integrated telematic systems and new technologies,<br />
41
helped instill a culture of safety among road users. Similar projects involving other Italian city administrations<br />
are now in the pipeline.<br />
ICT. In this area, Elasis continued to hone its skills in Product Lifecycle Management by developing application<br />
solutions and integrating systems and process analysis with a view to developing common standards for the<br />
<strong>Fiat</strong> Group. Advantages include shorter development times, no duplication of information, and optimized<br />
documentation.<br />
XII. INFORMATION ON EXPECTED OUTLOOK<br />
12.1 Recent outlook<br />
The main events that occurred since June 30, 2005 are the following:<br />
• In July, <strong>Fiat</strong> signed a 1 billion euro Credit Facility agreement with 11 international and 5 Italian banks. The<br />
three-year Multicurrency Revolving Credit Facility (in replacement of a credit facility of 1.7 billion euros),<br />
which is currently undrawn, will provide <strong>Fiat</strong> with adequate financial flexibility.<br />
• Also in July, the Piedmontese Local Authorities (Region of Piedmont, Province of Turin and the City of<br />
Turin) and <strong>Fiat</strong> reached an agreement in principle to enhance the value of the Mirafiori industrial area,<br />
support the automotive allied industry and promote personnel training and the activities of research and<br />
technological development. Under the agreement, <strong>Fiat</strong> will sell certain areas (approximately 300,000<br />
square meters) of the Mirafiori premises as well as a large area, not used for industrial activities, between<br />
the cities of Turin and Collegno. The total value of the transaction will amount to approximately 70 million<br />
euros. <strong>Fiat</strong> announced its intention to locate its own high level flagship store in the Mirafiori area.<br />
• At the beginning of August, during a meeting with Government, Local Authorities and Trade Unions, the<br />
Chief Executive Officer of <strong>Fiat</strong> illustrated the current situation of the Group, particularly as it relates to the<br />
2005–2008 Development Plan for <strong>Fiat</strong> Auto, including production allocation for 2005-2006, the investment<br />
program and the conditions for its realization. In particular:<br />
- Plants: <strong>Fiat</strong> reaffirmed its commitment not to shut down any plant in Italy, and announced that the<br />
production of one of the new scheduled models will be allocated to the Mirafiori plant in 2008. The<br />
future A segment <strong>Fiat</strong> city car (“500”) will be manufactured in the Polish plant of Tichy.<br />
- Product range plan: the 2005-2008 product range plan calls for the launch of 20 new models and 23<br />
restylings of existing models of the three brands.<br />
- Investments: in order to support the turnaround efforts, <strong>Fiat</strong> Auto expects to invest approximately 10<br />
billion euros, 4 billions of which will be earmarked for research and development. For the <strong>Fiat</strong> Group<br />
as a whole, investments (including research and development activities) for the 2005-2008 period<br />
are expected to amount to approximately 18 billion euros.<br />
- <strong>Fiat</strong> Powertrain Technologies: <strong>Fiat</strong> announced the development of: a Fire 1.4 16 v Turbo engine to<br />
be manufactured at the Termoli plant starting in 2007; a 1.6 four cylinder diesel engine to be<br />
manufactured in Pratola Serra starting in 2007; and a 6-speed transmission for commercial vehicles<br />
to be produced at the Termoli plant from 2006. Studies are also underway to develop a small two or<br />
three cylinder engine with low environmental impact.<br />
- Social shock absorbers: <strong>Fiat</strong> reiterated the priority need to find organizational solutions that enable it<br />
to optimize use of personnel and plants and at the same time face the issue of over-sized business<br />
governance costs.<br />
The documentation presented in said occasion is available on the internet site www.fiatgroup.com<br />
• As a consequence of the notification by EDF of its intention to withdraw its arbitration claim, on September<br />
9, 2005 <strong>Fiat</strong> sold 24.6% of the share capital of Italenergia Bis S.p.A. to EDF at a price of 1,147 million<br />
euros. Concurrently the Citigroup financing of the same amount that had been extended in September<br />
2002 was reimbursed. On the same date, the financial institutions that had acquired 14% of Italenergia Bis<br />
S.p.A. in 2002, sold their stake to EDF. Consequently, the possibility that <strong>Fiat</strong> be required to repurchase<br />
said stake was eliminated. This possibility had entailed for <strong>Fiat</strong> the recognition of a financial debt of<br />
approximately 600 million euros in the financial statements prepared under IFRS. As a result of these two<br />
42
transactions, <strong>Fiat</strong> booked a net gain of 878 million euros in its consolidated income statement prepared<br />
under IFRS, while the Group net debt will decrease by approximately 1.8 billion euros.<br />
• Also on September 9, <strong>Fiat</strong> confirmed that a Memorandum of Understanding was signed with Ford to<br />
pursue joint development of a future “A segment” car. The strategic collaboration will bring to the market<br />
two new vehicles that will feature highly differentiated designs: for <strong>Fiat</strong> a new 500 and for Ford a<br />
replacement for the current Ka. The synergies deriving from the projects under development will be<br />
reflected in reduced development and material costs. The final agreement was signed on November 7,<br />
2005.<br />
• On September 22, 2005 <strong>Fiat</strong> and Tata Motors (primary Indian automotive Group) signed a Memorandum of<br />
Understanding (MoU) to analyze the feasibility of cooperation in the area of automobiles that would<br />
encompass development, manufacturing, components, sourcing and distribution of products. If the<br />
outcome of this analysis is positive, the two companies will enter into definitive agreements in the coming<br />
months.<br />
• On September 30, 2005 <strong>Fiat</strong> and Enel reached an agreement for the sale of the interest held by Enel in<br />
Leasys (49%). Under the agreement, which is subject to approval by antitrust authorities, <strong>Fiat</strong> will increase<br />
its interest in Leasys from 51% to 100%, for a consideration of 33.5 million euros.<br />
With reference to Group performance in the third quarter of 2005, it is pointed out that all of the main<br />
businesses continued to improve their performances. Revenues totaled 10.6 billion euros, reflecting the typical<br />
negative seasonality associated with the third quarter. The Group achieved a slight (+2%) increase in revenues<br />
over the comparable 2004 quarter despite the impact of announced new model launches (<strong>Fiat</strong> Grande Punto<br />
and Alfa 159) on sales of existing products.<br />
Group trading profit was 232 million euros, compared with a loss of 30 million euros in the third quarter of 2004.<br />
The 262 million euro increase in trading profit was due to a 197 million euro reduction in trading losses at <strong>Fiat</strong><br />
Auto combined with positive performance of all other industrial Sectors. CNH improved its trading profit by 21<br />
million euros, from 112 million euros to 133 million euros, Iveco by 28 million euros, from 74 million euros to 102<br />
million euros, and Components and Production Systems by 21 million euros, from 56 million euros to 77 million<br />
euros.<br />
<strong>Fiat</strong> Auto reduced its trading loss by more than two-thirds, from 282 million euros in the third quarter of 2004 to<br />
85 million euros in the third quarter of 2005; this sharp drop, and the expected benefit to the fourth quarter of<br />
2005 results from the contribution of the new car models launched since September, underscores that the<br />
Sector is on track to achieve its 2005 targets.<br />
Group results for the third quarter of 2005 benefited from non-recurring income, including the gain realized on<br />
sale of the investment in Italenergia Bis (878 million euros) and unusual financial income of 858 million euros<br />
related to the capital increase of September 20, 2005 following conversion of the Mandatory Convertible Loan.<br />
The result for the quarter also absorbed 420 million euros in restructuring charges and other unusual costs (284<br />
million euros) connected with the Group’s ongoing reorganization and rationalization processes.<br />
Net income for the quarter was 0.8 billion euros.<br />
12.2 Outlook for the balance of the year<br />
With respect to the outlook for the balance of the year, the following information is provided in the Third Quarter<br />
2005 Report that was approved on October 26, 2005:<br />
“In the first nine months of the year, the <strong>Fiat</strong> Group and all of its main Sectors sharply improved their<br />
operating performance and financial results. Consequently, <strong>Fiat</strong> is on track towards achieving its stated<br />
targets.<br />
Since the beginning of the year, the Group also succeeded in finding optimal solutions to pending financial<br />
issues. With net stockholders’ equity exceeding 9 billion euros and net industrial debt of less than 5 billion<br />
euros, <strong>Fiat</strong> can now focus on its manufacturing infrastructure, distribution networks, and product offerings.<br />
43
In particular, <strong>Fiat</strong> Auto drastically reduced its losses, while introducing a host of new models that have been<br />
very well received by customers. As part of its aggressive program to renew its product range, <strong>Fiat</strong> is<br />
planning on launching 20 new models and restyling an additional 23. Between 2005 and 2008, <strong>Fiat</strong> will<br />
invest 10 billion euros to support this plan, including 4 billion euros in R&D.<br />
So as to further strengthen the Automobile Sector, <strong>Fiat</strong> continued to seek strategic alliances with major<br />
partners. <strong>Fiat</strong> recently signed two memoranda of understanding, with Ford and with the Indian group Tata<br />
Motors Ltd, to study collaboration opportunities. The talks with Ford are aimed at assessing the feasibility of<br />
jointly developing two new vehicles in the small car segment (the future <strong>Fiat</strong> 500 and the successor to the<br />
Ford Ka), while the agreement with Tata would focus on broader cooperation in the automotive arena,<br />
including development, manufacturing, components, purchasing and distribution.<br />
In October, <strong>Fiat</strong> signed a letter of intent with Suzuki Motor Corporation (SMC) to study the feasibility of<br />
licensed manufacture of the new Euro 5-compliant 2.0 JTD Multijet diesel engine, developed by <strong>Fiat</strong><br />
Powertrain Technologies. Production of the new engine will start in Italy in 2008, and pursuant to the letter<br />
of intent, manufacturing in Asia could commence in 2010, with a targeted volume of approximately 100,000<br />
units.<br />
These agreements represent further steps in the alliance strategy implemented with PSA Peugeot Citroën<br />
and Tofas for the joint development and production of a light commercial vehicle, and with Suzuki to develop<br />
and manufacture an SUV that will debut in conjunction with the Turin Winter Olympics in the first quarter of<br />
2006.<br />
Based on the promising results achieved to date, <strong>Fiat</strong> Auto can confirm its 2005 target of reducing its trading<br />
loss to approximately 1.5% of revenues.<br />
The other Sectors are proceeding with their own profit improvement plans, and charges have been booked<br />
in the third quarter to reflect the acceleration of their restructuring activities.<br />
The <strong>Fiat</strong> Group can therefore be cautiously optimistic about its future and confirms its 2005 targets.”<br />
It is pointed out that the Group’s stated objectives for 2005 are the achievement of a positive net result after<br />
unusual items and an improvement of the trading result.<br />
XIII. FORECASTS OR ESTIMATES OF PROFITS<br />
The Issuer has decided not to include estimates of results in this Prospectus. For information on the outlook for<br />
the balance of the year the reader is referred to the excerpt of the press release of the Issuer of October 26,<br />
2005 in Section One, Chapter XII.<br />
XIV. BOARD OF DIRECTORS, MANAGEMENT OR SUPERVISORY BODIES AND TOP<br />
EXECUTIVES<br />
14.1 Board of Directors, Management and Supervisory Bodies<br />
Board of Directors<br />
Following the Stockholders Meeting of June 23, 2005 the number of members of the Board of Directors in office<br />
is set at 15, and they will remain in office until the date of the Stockholders Meeting called to approve the<br />
Financial Statements at December 31, 2005.<br />
The Board is comprised by three executive directors and eight non-executive directors – that is, who do not hold<br />
delegated authority or perform executive functions in the Company or the Group – eight of whom are<br />
independent. The executive directors are the Chairman, the Vice Chairman, who substitutes for the Chairman if<br />
the latter is absent or prevented from acting, and the Chief Executive Officer. They also hold management<br />
positions in subsidiaries: Luca Cordero di Montezemolo is Chairman and Chief Executive Officer of Ferrari<br />
S.p.A., John Elkann is Chairman of Itedi S.p.A., and Sergio Marchionne, in addition to being Chairman of the<br />
principal subsidiaries, is also Chief Executive Officer of <strong>Fiat</strong> Auto S.p.A.<br />
44
The current members of the Board of Directors are as follows:<br />
Position First Name and Last Name Place of birth Date of birth<br />
Chairman Luca Cordero di Montezemolo Bologna (ITA) 08/31/1947<br />
Vice Chairman John Elkann New York (USA) 04/01/1976<br />
Chief Executive Officer Sergio Marchionne Chieti (ITA) 06/17/1952<br />
Director Andrea Agnelli Turin (ITA) 12/06/1975<br />
Director Angelo Benessia* Turin (ITA) 10/18/1941<br />
Director Tiberto Brandolini d’Adda Lausanne (CH) 03/08/1948<br />
Director Flavio Cotti* Muralto (CH) 10/18/1939<br />
Director Luca Garavoglia* Milan (ITA) 02/27/1969<br />
Director Gian Maria Gros-Pietro* Turin (ITA) 02/04/1942<br />
Director Hermann-Josef Lamberti* Boppard (GER) 02/05/1956<br />
Director Virgilio Marrone Savona (ITA) 08/02/1946<br />
Director Vittorio Mincato* Torrebelvicino (ITA) 05/14/1936<br />
Director Pasquale Pistorio* Agira (ITA) 01/06/1936<br />
Director Daniel John Winteler Pittsburgh (USA) 05/15/1963<br />
Director<br />
*Independent Directors<br />
Mario Zibetti* Turin (ITA) 10/03/1939<br />
For the purposes of their office, all Directors list their domicile at the Company’s registered office.<br />
The following members of the Board of Directors are related to each other up to the sixth degree: John Elkann,<br />
Andrea Agnelli, and Tiberto Brandolini d’Adda.<br />
The Board of Directors identified the eight directors considered to be independent in compliance with the<br />
requirements adopted by the Board with its resolution of May 10, 2005 which are more stringent than the ones<br />
envisaged in the Corporate Governance Code.<br />
The Board of Directors appointed the members of the Internal Control Committee and of the Nominating and<br />
Compensation Committee (see Section One, Chapter XVI, Paragraph 16.3). The Board of Directors appointed<br />
Directors Luca Cordero di Montezemolo, John Elkann, Sergio Marchionne, Vittorio Mincato and Pasquale<br />
Pistorio as members of the Strategic Committee and Mr. Franzo Grande Stevens as Secretary of the Board of<br />
Directors and of the three committees mentioned above.<br />
Following are brief resumes of the current members of the Board of Directors and the respective positions in<br />
other listed companies or positions that are of significance.<br />
Luca Cordero di Montezemolo: Born in Bologna (Italy) in 1947. Mr. Cordero di Montezemolo joined Ferrari in<br />
1973 and held the post of Team Manager until 1977. From 1977 to 1981 he was Head of External Relations for<br />
the <strong>Fiat</strong> Group. Mr. Cordero di Montezemolo was Chief Executive Officer of Itedi from 1981 to 1983 and<br />
Managing Director of Cinzano International S.p.A. from 1984 to 1985. From 1986 to 1990, he chaired the<br />
organizing committee for the Italia ‘90 Soccer World Cup. He has been Chairman and Chief Executive Officer<br />
of Ferrari S.p.A. since 1991. He is Chairman of the Bologna International Trade Fair and President of LUISS<br />
Guido Carli (Libera Università Internazionale degli Studi Sociali – Independent International University of Social<br />
Sciences). Mr. Cordero di Montezemolo is also a member of the Board of Directors of La Stampa, of the<br />
French Group PPR (Pinault-Printemps-Redoute), of Tod’s, of Indesit Company and of the Bologna Calcio<br />
soccer team. On May 26, 2004, he also became President of Confindustria, the Federation of Italian Industries.<br />
He has been a member of the <strong>Fiat</strong> Board of Directors since February 28, 2003. He has been Chairman of <strong>Fiat</strong><br />
since May 30, 2004.<br />
Andrea Agnelli: Born in Turin (Italy) on December 6, 1975. Mr. Agnelli has held various positions at several<br />
companies, both in Italy and abroad, including at Iveco, Piaggio S.p.A., Auchan S.A., Juventus F.C. S.p.A.,<br />
Ferrari S.p.A. and Philip Morris International Inc. He has been in charge of Strategic Development at IFIL since<br />
January 2005. He has been a member of the <strong>Fiat</strong> Board of Directors since May 30, 2004.<br />
Angelo Benessia: Born in Turin (Italy) in 1941. Mr. Benessia graduated in law from Turin University in 1965.<br />
He is a partner of the law firm Studio Benessia - Maccagno in Turin as a solicitor specializing in civil-commercial<br />
aspects, with particular regard for company law, securities and brokerage. From 1991 to 1999, he was<br />
chairman of Unigest S.p.A. From 1999 to 2001 he was member of the Board of Directors of Telecom Italia<br />
S.p.A. and Chairman of its Audit Committee. He has been a statutory auditor of Turin Polytechnic, a director of<br />
45
Saiag S.p.A. and a director of the Piedmont Association of Economic and Social Sciences “Antonio Gramsci”<br />
since 1991. Since 2001, he has been a member of the Board and Vice Chairman of R.C.S. Quotidiani S.p.A. He<br />
has been a member of the <strong>Fiat</strong> Board of Directors since June 2001.<br />
Tiberto Brandolini d’Adda: Born in Lausanne (Switzerland) on March 8, 1948. Mr. Brandolini d’Adda graduated<br />
in commercial law from the University of Parma in 1971. From 1972 to 1974, he worked for <strong>Fiat</strong> S.p.A’s<br />
international activities department, and for Lazard Frères in London. In 1975, he was appointed assistant to the<br />
Director General for Enterprise Policy at the European Economic Commission in Brussels. He joined Ifint<br />
Company in 1976, as General Manager of Ifint France, and became General Manager of Ifint Europe in 1985.<br />
In 1993, Mr. Brandolini d’Adda became Managing Director of the Exor Group (formerly Ifint) and was appointed<br />
Vice Chairman and Managing Director in 2003. He is currently Chairman and CEO of Sequana Capital, as well<br />
as General Partner of Giovanni Agnelli e C. S.a.p.a.z., and a member of the executive committee of IFIL S.p.A.<br />
He has been a member of the <strong>Fiat</strong> Board of Directors since May 30, 2004.<br />
Flavio Cotti: Born in Muralto (Switzerland) on October 18, 1939. Mr. Cotti graduated in law from the University<br />
of Fribourg in 1964. He practiced law and was a notary public in Locarno from 1965 until 1975. He was a<br />
member of the Locarno Town Council from 1964 to 1975 and of the Great Council of the Swiss canton of Tessin<br />
from 1967 to 1975. From 1975 to 1983, he was a member of the government of the Swiss canton of Tessin.<br />
President of the canton of Tessin in 1977 and 1981, from 1983 to 1986, he was a Member of Parliament of the<br />
Swiss Confederation. In 1991 and in 1998, he was President of the Swiss Confederation. In 1996, he was<br />
appointed President of the Organization for Security and Cooperation in Europe. He is currently Chairman of<br />
the Advisory Board of the Credit Suisse Group. He has been a member of the <strong>Fiat</strong> Board of Directors since<br />
June 2000.<br />
John Elkann: Born in New York, (USA) in 1976. Mr. Elkann graduated in industrial engineering from Turin<br />
Polytechnic in 2000. He has been a member of the Board of Directors of <strong>Fiat</strong> since 1997. He is General<br />
Partner and Vice Chairman of Giovanni Agnelli e C. S.a.p.a.z. and member of the Board of Directors of the Exor<br />
Group S.A., Ifi and IFIL. He is also a member of the Board of Directors of RCS MediaGroup. He has been Vice<br />
Chairman of <strong>Fiat</strong> since May 30, 2004.<br />
Luca Garavoglia: Born in Milan (Italy) in 1969. Mr. Garavoglia graduated in economics from the Bocconi<br />
University in Milan in 1994. He has been Chairman of Davide Campari-Milano S.p.A., the parent company of<br />
the Campari Group, since 1994. He is on the Executive Committee of Assonime (the Association of Italian jointstock<br />
companies). He has been a member of the <strong>Fiat</strong> Board of Directors since May 2003.<br />
Gian Maria Gros-Pietro: Born in Turin (Italy) on February 4, 1942. Mr. Gros-Pietro has a degree in economics<br />
from the University of Turin. He has been a senior lecturer in business economics since 1972, and is currently<br />
practicing at the LUISS Guido Carlo University in Rome. He was Chairman and CEO of IRI S.p.A. from 1997 to<br />
1999, and Chairman of Eni S.p.A. from 1999 to 2002. Currently, Mr. Gros-Pietro is Chairman of Autostrade<br />
S.p.A. and President of Federtrasporto (the Italian association of transportation companies). He is also a<br />
member of the Board of SEAT Pagine Gialle S.p.A, the Executive Committee and the General Council of the<br />
Aspen Institute Italia, the International Business Council of the World Economic Forum as well as Vice<br />
President of I.G.I. (Istituto Grandi Infrastrutture - Great Infrastructures Institute) and Senior Advisor for Italy of<br />
Société Générale Corporate & Investment Banking. He has been a member of the <strong>Fiat</strong> Board of Directors since<br />
June 23, 2005.<br />
Hermann-Josef Lamberti: Born in Boppard (Germany) in 1956. Mr. Lamberti studied business administration in<br />
Cologne and Dublin and received a master’s degree in Business Administration in 1981. For 14 years, unitl<br />
1999, Mr. Lamberti held various management positions at IBM in Germany, France and the United States. He<br />
joined Deutsche Bank AG in 1998 as an executive Vice President and became Chief Operating Officer and a<br />
member of the Board of Managing Directors in 1999. He is currently also Chairman of the Supervisory Board of<br />
Deutsche Bank Privat- und Geschäftskunden AG, of the Supervisory Board of Schering AG and Carl Zeiss AG,<br />
and a non-executive director of Euroclear plc and Euroclear Bank S.A. He has been a member of the <strong>Fiat</strong><br />
Board of Directors since May 2002.<br />
Sergio Marchionne: Born in Chieti (Italy) in 1952. Mr. Marchionne received a master’s degree in Business<br />
Administration from the University of Windsor, Canada in 1980 and graduated in law from the University of<br />
Toronto in 1983. He is a licensed barrister and solicitor and a chartered accountant. From 1990 to 1992 he was<br />
Vice President of Finance and Chief Financial Officer at Acklands Limited. Still in Toronto, from 1992 to 1994 he<br />
was Vice President for Legal and Corporate Development, Chief Financial Officer and Secretary of the Lawson<br />
Group, which was acquired by Alusuisse Lonza in 1994. Between 1994 and 2000 he was Executive Vice<br />
46
President for Corporate Development, Chief Financial Officer and then Chief Executive Officer of the<br />
corporation Algroup of Zurich. He was at the helm of the Lonza Group Ltd., which had spun off from Alusuisse<br />
Lonza, first as Chief Executive Officer (from 2000 to early 2002) and then as Chairman (2002). Before<br />
becoming Chief Executive Officer of <strong>Fiat</strong>, he became Chief Executive Officer of the SGS Group of Geneva, a<br />
world leader in the field of company verification, testing and certification services. He is a permanent member of<br />
the Fondazione Giovanni Agnelli, and a member of the General Council of Assonime (Association for Italy’s joint<br />
stock companies) and of ACEA (European Automobile Manufacturers Association). He has been a member of<br />
the <strong>Fiat</strong> S.p.A. Board of Directors since May 2003 and was appointed Chief Executive Officer of <strong>Fiat</strong> S.p.A. on<br />
June 1, 2004. In February 2005, he also assumed the role of Chief Executive Officer of <strong>Fiat</strong> Auto.<br />
Virgilio Marrone: Born in Savona (Italy) on August 2, 1946, Mr. Marrone has a degree in management and<br />
business administration from Università Commerciale Luigi Bocconi in Milan. From 1973 to 1985, he was<br />
assistant to the Chief Executive Officer of IFI and from 1985 to 1993, he was General Secretary of IFI. From<br />
1993 to 2002, Mr. Marrone was Joint General Manager and Head of Development of IFI, and from 2002 to the<br />
present, he has been General Manager of IFI. Mr. Marrone is currently a member of the boards of SanPaolo<br />
IMI S.p.A. and the Exor Group S.A. He has been a member of the <strong>Fiat</strong> Board of Directors since June 23, 2005.<br />
Vittorio Mincato: Born in Torrebelvicino (Italy) on May 14, 1936. Mr. Mincato worked at Eni S.p.A. for nearly 50<br />
years, serving in a variety of positions before becoming Chief Executive Officer in 1998. He held that position<br />
until 2005, when he became Chairman of Poste Italiane S.p.A., the Italian postal service. In addition, from 2002<br />
to 2004, he was a member of CNEL (the National Council for Economies and Labour). In 2005, Mr. Mincato<br />
was appointed Chairman of Assonime, and is also currently a member of the Executive Board of Confindustria,<br />
Vice President of the Unione degli Industriali di Roma (the territorial association representing enterprises active<br />
in Rome) and a member of the Board of Directors of the Teatro alla Scala Foundation, of the Accademia<br />
Nazionale di Santa Cecilia and of the Accademia Olimpica. He is also a member of the Board of Directors of<br />
Parmalat S.p.A. and the publishing company Neri Pozza. He has been a member of the <strong>Fiat</strong> Board of Directors<br />
since June 23, 2005.<br />
Pasquale Pistorio: Born in Agira (Italy) on January 6, 1936. Mr. Pistorio graduated in electrical engineering from<br />
the Polytechnic of Turin. In 1967, he joined Motorola Corporation, where he held various management<br />
positions. In July 1980 he became President and Chief Executive Officer of the SGS Group, an Italian<br />
microelectronics company. Following that company’s merger in 1987 with Thomson Semiconducteurs, Mr.<br />
Pistorio became President and Chief Executive Officer of the new company SGS-THOMSON Microelectronics<br />
(renamed STMicroelectronics in 1998). Upon his resignation from that position in 2005, Mr. Pistorio was<br />
appointed Honorary Chairman. Mr. Pistorio is a member of numerous organizations, including the International<br />
Advisory Council of the World Economic Forum. He is also Chairman of ENIAC, and Vice President of<br />
Confindustria for innovation and research. He has been a member of the <strong>Fiat</strong> Board of Directors since<br />
December 2004.<br />
Daniel John Winteler: Born in Pittsburgh (USA) on May 15, 1963. Mr. Winteler has a degree in business<br />
administration from the Bocconi University in Milan. He worked for over 10 years in the CibaGeigy/Novartis AG<br />
Group till he became Vice President of Mergers and Acquisitions. He then became Chief Executive Officer of<br />
Ciba Specialty Chemicals – Water Treatment Division. In 2000 he joined IFIL as Senior Vice President for<br />
Strategy and Business Development, in 2002 he was appointed General Manager of the company and in 2004<br />
Managing Director. Mr. Winteler also sits on the Board of Directors of Alpitour, Club Méditerranée, Juventus<br />
F.C. and Sequana Capital S.A. He has been a member of the <strong>Fiat</strong> Board of Directors since December 2002.<br />
Mario Zibetti: Born in Turin (Italy) on October 3, 1939. Mr. Zibetti has a degree in economics and business<br />
administration from the University of Turin. Until 2000, Mr. Zibetti was a senior partner at Arthur Andersen<br />
S.p.A., where he had worked for more than 40 years. He is currently a member of the Board of Directors of<br />
Ersel Finanziaria S.p.A., Comital – Cofresco S.p.A. and Fabio Perini S.p.A. (Koeber AG Group). He has been a<br />
member of the <strong>Fiat</strong> Board of Directors since June 23, 2005.<br />
Apart from what has been stated above, the Directors of the Issuer currently in office do not and have not in the<br />
five years preceding the date of this Prospectus exercised activities outside the Group that are of significance to<br />
the Issuer.<br />
In the five years preceding the date of this Prospectus, the Directors of the Issuer who are currently in office<br />
have not performed management, executive, or controlling functions in companies subjected to bankruptcy,<br />
compulsory winding-up, extraordinary administration, or equivalent procedures. In the five years preceding the<br />
date of this Prospectus, none of the Directors of the Issuer currently in office has been sentenced for criminal<br />
47
offenses involving fraud, indicted, and/or penalized by public authorities or associations or professional rolls,<br />
and none of them has been disqualified from serving as member of the Board of Directors or of management<br />
and supervisory bodies or from performing managing or operating activities.<br />
Board of Statutory Auditors<br />
The Board of Statutory Auditors currently in force was appointed by the Stockholders Meeting held on May 13,<br />
2003 with a term of three years and i.e. until the approval of the financial statements at December 31, 2005.<br />
At the date of this Prospectus, the members of the Board of Statutory Auditors are as follows.<br />
Position First Name and Last Name Place of birth Date of birth<br />
Chairman Cesare Ferrero Turin 11/02/1936<br />
Statutory Auditor Giorgio Ferrino Turin 06/17/1939<br />
Statutory Auditor Giuseppe Camosci Salerno 02/24/1947<br />
The alternate auditors are: Natale Ignazio Girolamo, Piero Locatelli and Giorgio Giorgi.<br />
For the purposes of their office, all Statutory Auditors list their domicile as the Company’s registered office.<br />
Following are brief resumes of the current members of the Board of Statutory Auditors and the respective<br />
positions in other listed companies or positions that are of significance.<br />
Cesare Ferrero: Dr. Ferrero has been a member of the Turin Accountants Association since 1958 and the Turin<br />
Professional Accountants Association since 1962, has been entered on the Register of Auditors since 1995,<br />
and is also entered on the Register of Expert Witness of the Court of Turin. He is mainly involved in general<br />
corporate affairs, including tax advice, contracts, and civil and criminal code advice on corporate and accounting<br />
law. He is Chairman of the Turin Accountants Association. He holds the following positions in listed companies:<br />
Chairman of the Board of Statutory Auditors of FIAT S.p.A. and IFI S.p.A., Statutory Auditor of IFIL, Director of<br />
Pininfarina S.p.A., Autostrada Torino-Milano S.p.A. and Davide Campari – Milano S.p.A.. He is also Chairman<br />
of the Board of Statutory Auditors of Giovanni Agnelli & C. S.a.p.az.., FIAT Auto S.p.A., Ferrero S.p.A., Emilio<br />
Lavazza & C. S.a.p.az., Alberto Lavazza &C. S.a.p.az., ERSEL Finanziaria S.p.A., ERSEL SIM S.p.A. and<br />
FIDERSEL S.p.a.. He is a Statutory Auditor of Toro Assicurazioni S.p.A, Ferrero & C. S.p.A., Banca Passadore<br />
S.p.A. and RCS Investimenti S.p.A. He is Vice Chairman of PKP S.p.A.<br />
Giorgio Ferrino: Dr. Ferrino has been a Professional Accountant since 1965 and entered on the Register of<br />
Auditors since 1995, and is also an expert consultant to the Court of Turin. He is a member of the Chamber of<br />
Arbitration of the Turin Chamber of Commerce. He is a Statutory Auditor of <strong>Fiat</strong> S.p.A. and Chairman of the<br />
Board of Statutory Auditors of C.B.I. Factor, Banca Finconsumo, Ipermercati Carrefour (S.S.C.), Ersel Asset<br />
Management, G.B. Paravia, F.lli Carli, Fincarta. He is a director and member of the steering committee of<br />
Banca del Piemonte, director of Finconfienza S.p.A. and Chairman of Simon Fiduciaria S.p.A.. He is an auditor<br />
of the Istituto per la Ricerca e la Cura del Cancro – I.R.C.C. (Institute for Cancer Research and Treatment) in<br />
Candiolo and of the Associazione tra le Casse di Risparmio del Piemonte.<br />
Giuseppe Camosci: He is entered in the Register of Lawyers at the Court of Milan and since 1996 in the Special<br />
Register of Attorneys Admitted to Plead before the Supreme Court of Cassation and higher jurisdictions.<br />
Entered in the Register of Auditors. He is a founding member of the Associated Law and Tax Firm “Camosci<br />
Guareschi Piantanida e Associati” (established in January 1990). From 1971 to 1981 he worked for Sandoz<br />
S.p.A., from 1978 as executive supervisor in charge of corporate, legal, and tax issues of certain subsidiaries of<br />
the Sandoz Group in Italy and from 1981 to 1984 for RIA S.p.A. – Independent auditor of the BNL Group, Milan<br />
– as executive supervisor in charge of statutory and tax issues. From 1984 to 1990 he was Senior Partner in<br />
the “Studio di Consulenza Fiscale e Societaria” of Milan, the correspondent of Arthur Andersen in Italy. He is<br />
currently Chairman of the Board of Statutory Auditors of Samsung Electronics Italia S.p.A. and Statutory Auditor<br />
of BNP Paribas Holding S.p.A., BNP Lease Group S.p.A., WestLB Italia Finanziaria S.p.A.<br />
There are no familial relationships among the statutory auditors of the Issuer currently in office.<br />
Apart from what has been stated above, the Statutory Auditors of the Issuer currently in office do not and have<br />
not in the five years preceding the date of this Prospectus exercised activities outside the Group that are of<br />
significance to the Issuer.<br />
48
In the five years preceding the date of this Prospectus, the Statutory Auditors of the Issuer who are currently in<br />
office have not performed management, executive, or controlling functions in companies subjected to<br />
bankruptcy, compulsory winding-up, extraordinary administration, or equivalent procedures. In the five years<br />
preceding the date of this Prospectus, none of the Statutory Auditors of the Issuer currently in office has been<br />
sentenced for criminal offenses involving fraud, indicted, and/or penalized by public authorities or associations<br />
or professional rolls, and none of them has been disqualified from serving as member of the Board of Directors<br />
or of management and supervisory bodies or from performing managing or operating activities.<br />
Top Executives<br />
During 2004, in order to make its organizational and management model more modern and in tune with the<br />
current competitive environment, the <strong>Fiat</strong> Group established a new governance body, the Group Executive<br />
Council (GEC). The function of GEC, which consists of the Chief Executive Officer of <strong>Fiat</strong>, certain Heads of<br />
Functions, and the Heads of the Operating Sectors, will be to share best practices, evaluate opportunities and<br />
risks for Group companies and maximize Group synergies.<br />
The current organizational structure of the <strong>Fiat</strong> Group does not include a Chief Operating Officer.<br />
At the date of this Prospectus, the members of the GEC, apart from the Chief Executive Officer Sergio<br />
Marchionne, are as follows:<br />
First Name and Last Name Place of birth Date of birth Position<br />
Ernesto Auci Rome 02/09/1946 Institutional Relations<br />
Domenico Bordone Turin 04/09/1946 Group Purchasing Coordinator and Chief Executive<br />
Officer of <strong>Fiat</strong> Powertrain Technologies S.p.A.<br />
Harold Boyanovsky Oregon (USA) 08/15/1944 Chief Executive Officer CNH Global N.V.<br />
Ferruccio Luppi Turin 11/03/1950 Business Development<br />
Mario Mairano Turin 12/26/1951 Human Resources<br />
Gian Carlo Michellone Cambiano 03/27/1940 Chief Executive Officer C.R.F.<br />
Paolo Monferino Novara 12/15/1946 Chief Executive Officer Iveco S.p.A.<br />
Daniele Pecchini Florence 07/12/1950 Chief Executive Officer Comau S.p.A.<br />
Eugenio Razelli Genova 06/18/1950 Chief Executive Officer Magneti Marelli S.p.A.<br />
Riccardo Tarantini Corato 04/05/1949 Chief Executive Officer Teksid S.p.A.<br />
Apart from the above members of the GEC, the other top executives of the Issuer are as follows:<br />
First Name and Last Name Place of birth Date of birth Position<br />
Alessandro Baldi Prato Leventina (CH) 08/29/1952 Group Control<br />
Mauro Di Gennaro Rome 09/30/1961 Internal Audit<br />
Maurizio Francescatti Rome 05/01/1962 Treasury<br />
Simone Migliarino Villanova d’Asti 08/07/1947 Communications<br />
Paolo Rebaudengo Asti 09/07/1947 Industrial Relations<br />
Roberto Russo Turin 07/18/1959 Senior Counsel<br />
There are no familial relationships among the above mentioned top executives of the Issuer.<br />
Following are brief resumes of the members of the GEC and of the other top executives.<br />
Ernesto Auci: Mr. Auci began his training as journalist at “Il Globo” in 1969. He continued his career there until<br />
1984, when he was nominated Director of the External Relations Department at Confindustria. In 1992, he<br />
joined <strong>Fiat</strong> External Relations and Communications as Head of Information and Press. In 1997, he was<br />
appointed Editor of Italian financial daily Il Sole 24 Ore. He returned to the <strong>Fiat</strong> Group in 2002 as Chief<br />
Executive Officer of Itedi and La Stampa and in 2004 he was appointed Head of Institutional Relations of <strong>Fiat</strong>.<br />
Domenico Bordone: Mr. Bordone joined <strong>Fiat</strong> in 1963 in the Foundries Department. During his many years’ stay<br />
with the Group he has held various important positions, among which Chief Executive Officer of Magneti Marelli<br />
(1992). In 2005 he left Magneti Marelli to become Chief Executive Officer of <strong>Fiat</strong> Powertrain Technologies<br />
S.p.A.<br />
49
Harold Boyanovsky: In a career spanning over 35 years, Harold Boyanovsky has acquired a vast array of<br />
experience in the agricultural and construction equipment business, including managing production,<br />
implementation of supply chain strategies and the development of new product programs. He joined J.I. Case<br />
in 1985 as Managing Director. In 1994, he was promoted Vice President product support, and in 1996 was<br />
appointed Senior Vice President and General Manager of the Case construction business in North America. In<br />
1998 he became Senior Vice President and General Manager for the North American region. In 1999 he was<br />
appointed President worldwide agricultural equipment products. In March 1, 2005 he was appointed President<br />
and Chief Executive Officer of CNH.<br />
Ferruccio Luppi: From 1984 to 1996 Mr. Luppi worked in IFIL first as Head of Equity Investments Control then<br />
as Head of the IFIL’s Development and Control Department. In 1997 he became Head of the Industrial<br />
Investments Control Department at the Worms Group. In 1998, he was appointed Managing Director and<br />
member of the Directoire of the Worms Group. He became the Chief Financial Officer of <strong>Fiat</strong> S.p.A in 2002 and<br />
was appointed Chief Executive Officer of Business Solutions in 2004. In addition to his role as Chief Executive<br />
Officer of Business Solutions, in 2005 he was appointed Senior Vice President of Business Development and<br />
Strategies of <strong>Fiat</strong> S.p.A.<br />
Mario Mairano: Mr. Mairano joined <strong>Fiat</strong> in 1974 as Assistant to Head of Personnel at Commercial Vehicles<br />
Central Functions. From 1975 to 1983, he held several positions at Iveco, and in 1984 became Head of Iveco<br />
Personnel Department. In 1987, Mr. Mairano joined <strong>Fiat</strong> Auto (Human Resources) and in 1991 he took on the<br />
responsibility of Development, Training and Communication. In 1993, he became Head of Personnel at Ferrari<br />
S.p.A. and in 1997 was appointed Head of Personnel of Maserati too. In 2000, he joined Banca di Roma Group<br />
as Head of Personnel and in 2002 became Head of Human Resources of Capitalia Group. In 2004, he returned<br />
to <strong>Fiat</strong> Group as Senior Vice President of Human Resources at <strong>Fiat</strong> Auto and is currently in charge of Human<br />
Resources of the <strong>Fiat</strong> Group.<br />
Gian Carlo Michellone: Mr. Michellone joined the <strong>Fiat</strong> Group in 1966 as an R&D Specialist, where he was<br />
responsible for overseeing scientific research related to the design and testing of new technologies. In<br />
connection with this research, he spent several years in Chicago from 1971 to 1976. In 1977 he was appointed<br />
Head of New Products at the Centro Ricerche <strong>Fiat</strong> (<strong>Fiat</strong> Research Center). In 1979 he moved to Iveco S.p.A<br />
and in 1980 he became Chief Executive Officer of the Iveco-Rockwell subsidiary. In 1984 he returned to <strong>Fiat</strong><br />
Auto S.p.A to manage the Innovation Department and in 1989 he assumed the position of President and Chief<br />
Executive Officer of the Centro Ricerche <strong>Fiat</strong>.<br />
Paolo Monferino: Mr. Monferino joined <strong>Fiat</strong> in 1973 in charge of the design and implementation of foundry<br />
plants. From 1978 to 1981 he held several positions in the Purchasing and Procurement Department at Teksid.<br />
From 1981 he became Head of Worldwide Purchasing and Procurement at <strong>Fiat</strong>Allis, joint venture between <strong>Fiat</strong><br />
and the US Group Allis Chalmers and from 1983 to 1987 he served as Managing Director of <strong>Fiat</strong>Allis Latin<br />
America. Mr. Monferino became Chief Operating Officer of <strong>Fiat</strong>Agri in 1987 and served in that position until<br />
1991. In 1991 he became Executive Vice President of New Holland, and from 1996 to 2000, was Executive Vice<br />
President of Automotive Components and Industrial Diversified Sectors at the <strong>Fiat</strong> Group: production of<br />
automotive components (Magneti Marelli), metallurgical products (Teksid), industrial automation systems<br />
(Comau-Pico), aviation (<strong>Fiat</strong>Avio), and Centro Ricerche <strong>Fiat</strong>. He became President and Chief Executive Officer<br />
of CNH in 2000, and was appointed Chief Executive Officer of Iveco on March 1, 2005.<br />
Daniele Pecchini: Mr. Pecchini joined the <strong>Fiat</strong> Group in 1978 as Head of the “Steel for bearings” product line,<br />
later becoming Long Products Marketing Manager and Head of Organization for the Special Steels Grouping. In<br />
1981 he moved to the Construction Machinery Sector (<strong>Fiat</strong> Allis) as Head of Organization. From 1986 to 2002<br />
he held various important positions in Magneti Marelli. In 1996 he was appointed Vice President of Magneti<br />
Marelli Technical and Commercial Activities, and in 1998 he assumed the position of Vice President of Magneti<br />
Marelli’s Powertrain Business Unit. He became Chief Executive Officer of Comau S.p.A in March 2003.<br />
Eugenio Razelli: Mr. Razelli joined <strong>Fiat</strong> Auto in 1977 as Manager at the Mirafiori plant. In 1980, he became Vice<br />
President of Manufacturing for the washing machines division of Industrie Zanussi. In 1983 Mr. Razelli was<br />
appointed Chief Executive Officer of Gilardini Industriale and became General Manager of Stars and Politecna -<br />
<strong>Fiat</strong> Comind in 1985. From 1986 to 1993, he held various management positions with Magneti Marelli. Mr.<br />
Razelli became Vice President of Manufacturing at Pirelli Cavi in 1993 and then President and Chief Executive<br />
Officer of Pirelli Cable North America. In 1997 he retuned to Italy and became Senior Executive Vice President<br />
at Pirelli Cavi, first in the Telecom division and then in the Energy division. Mr. Razelli was President and Chief<br />
Executive Officer of Fiamm S.p.A. from 2001 to 2003. He held the position of Senior Vice President of Business<br />
50
Development and Strategies at <strong>Fiat</strong> S.p.A. from May 2003 to March 2005. In April 2005, he became Chief<br />
Executive Officer of Magneti Marelli.<br />
Riccardo Tarantini: Mr. Tarantini joined Delchi S.p.A. in 1975 as Head of Corporate Reporting and later became<br />
Controller. In 1979 he moved to Teksid as Controller for the Diversified Operations Grouping and in 1980 he<br />
became Head of Administration in the Aluminum Foundry Division. From 1985 to 1986 he worked at Toro<br />
Assicurazioni S.p.A with responsibility for the Corporate Control Project. In 1987 he returned to Teksid where he<br />
held several important positions. After a 4-year experience in the USA he was appointed Head of the Aluminum<br />
Foundry Division and then Sector Deputy Managing Director and Head of New Initiatives and International<br />
Development. In 2001 he was appointed Head of the Iron Business Unit and in 2003 he became President and<br />
Chief Executive Officer of Teksid S.p.A.<br />
Alessandro Baldi: Mr. Baldi joined Atag Ernst & Young Zurich in 1981 as Auditor and was subsequently<br />
promoted to Manager. In 1989 he moved to the Algroup Group in Zurich where he was Head of Internal Audit<br />
and later Group Controller. When the chemical operations were demerged (Lonza Group LTD of Basle) he held<br />
the position of Group Controller in the new Company. In 2002 he joined the SGS Group in Geneva in charge of<br />
Group Controlling. In August 2004 he joined <strong>Fiat</strong> S.p.A. as Assistant to the Group Controller and subsequently<br />
became Head of the Department.<br />
Mauro di Gennaro: Mr. Di Gennaro joined Price Waterhouse in 1987 as Assistant Auditor and was subsequently<br />
promoted to Senior Manager. In 1994, he became Head of Internal Audit at Stet S.p.A. In 1997, he joined<br />
Telecom Italia, where he held several positions, including Head of Internal Operations and Head of International<br />
Internal Auditing. In 2002, he was appointed Head of Internal Audit at the RAS Group. On January 1, 2004, he<br />
joined <strong>Fiat</strong> S.p.A. as Chief Audit Executive and Compliance Officer.<br />
Maurizio Francescatti: He began his career in 1989 in G.F.T. Gruppo Finanziario Tessile. In 1997 he joined the<br />
<strong>Fiat</strong> Group as Head of Banking Relations. In 2004 he was appointed Group Treasurer.<br />
Simone Migliarino: Mr. Migliarino joined <strong>Fiat</strong> S.p.A.’s Press Office and External Relations department in 1973.<br />
Subsequent positions at the <strong>Fiat</strong> Group included Responsible for Relations with Provincial Press in Italy (1980-<br />
1984), Head of Automobile Press Coordination (1990-1994) and, at the Information and Media sector, Head of<br />
Corporate Edition Press Office (1995-2001) and Head of Communications and Media Relations (2001-2004). In<br />
December 2004, he was appointed Head of Communications of <strong>Fiat</strong> S.p.A.<br />
Paolo Rebaudengo: in 1973 he began his professional career at the Group and four years later he was<br />
appointed Head of Personnel at Weber. After seven years of service at <strong>Fiat</strong> S.p.A. he became Head of<br />
Personnel of the Tractors and Earthmoving Equipment Sector. He has been Head of the Industrial Relations<br />
Department of the <strong>Fiat</strong> Group since 1996.<br />
Roberto Russo: Mr. Russo began his career as an attorney at the law firm Studio Legale L. Longhetto in Turin in<br />
1984. In 1986, he joined <strong>Fiat</strong> S.p.A. Legal Affairs. In 2001, he was nominated Mergers and Acquisitions Lead<br />
Counsel, and in 2004 he was appointed Senior Counsel of <strong>Fiat</strong> S.p.A.<br />
Apart from what has been stated above, the top executives of the Issuer currently in office do not and have not<br />
in the five years preceding the date of this Prospectus exercised activities outside the Group that are of<br />
significance to the Issuer.<br />
In the five years preceding the date of this Prospectus, none of the top executives of the Issuer performed<br />
management, executive, or controlling functions in companies subjected to bankruptcy, compulsory winding-up,<br />
extraordinary administration, or equivalent procedures. In the five years preceding the date of this Prospectus,<br />
none of the top executives of the Issuer currently in office has been sentenced for criminal offenses involving<br />
fraud, indicted, and/or penalized by public authorities or associations or professional rolls, and none of them has<br />
been disqualified from serving as member of the Board of Directors or of management and supervisory bodies<br />
or from performing managing or operating activities.<br />
For a comprehensive description of the Company’s Corporate Governance System the reader is referred to the<br />
Annual Report on Corporate Governance available on the Internet at www.fiatgroup.com.<br />
14.2 Conflicts of Interest<br />
None of the members of the Board of Directors currently in force, the Statutory Auditors of the Issuer currently in<br />
force and of the other executives of the Issuer as of Paragraph 14.1 has interests, on his own behalf or on<br />
51
ehalf of third parties, that are in potential conflict with the interests of the Issuer and/or with their obligations<br />
vis-à-vis the Issuer.<br />
XV. COMPENSATION AND BENEFITS<br />
15.1 Compensation and benefits for each member of the Board of Directors and of Management and<br />
Supervisory Bodies<br />
The compensation for the members of the Board of Directors resolved by the Stockholders Meeting of May 13,<br />
2003 is equal to 50,000 euros per year plus an attendance fee of 3,000 euros for every board or committee<br />
meeting attended by the director.<br />
The following table shows the individual compensation paid in fiscal 2004 to the members of the Board of<br />
Directors of the Issuer currently in office (amounts in thousands of euros):<br />
First name and last name Office held Term of office Expiration Compensation<br />
for office held<br />
Daniel John Winteler Director 1/1-12/31 2006 92.0<br />
6)<br />
26.9<br />
1) The gross annual compensation for the office of Chairman amounts to 500,000 euros.<br />
2) The compensations for the offices held in the subsidiaries Itedi (143,200 euros) and Ferrari (6,517,000 euros), the<br />
latter inclusive of the variable compensation and a result-related bonus.<br />
3) The gross annual compensation for the office of Vice Chairman amounts to 500,000 euros.<br />
4) The gross fixed annual compensation for the office of Chief Executive Officer amounts to 1,600,000 euros, while<br />
the variable compensation can be equal to at the maximum 100% of fixed compensation.<br />
5) Compensation for office held at the subsidiary IHF S.A. (171,700 euros) and annual provisions for severance<br />
indemnities (334,600 euros).<br />
6) Compensation reserved to IFIL Investments S.p.A.<br />
The directors currently in office Gian Maria Gros-Pietro, Vittorio Mincato, Virgilio Marrone and Mario Zibetti were<br />
appointed on June 23, 2005.<br />
The following table shows the individual compensation paid in fiscal 2004 to the members of the Board of<br />
Statutory Auditors (amounts in thousands of euros):<br />
52<br />
Non-cash<br />
benefits<br />
Bonuses<br />
and other<br />
incentives<br />
Other<br />
compensation<br />
Luca Cordero di Director 1/1-5/30 2006 354.3 54.2 6,660.2<br />
Montezemolo<br />
Chairman 5/30-12/31<br />
1)<br />
2)<br />
John Elkann Director 1/1-5/30 2006 354.3 27.5<br />
Vice Chairman 5/30-12/31<br />
3)<br />
Sergio Marchionne Director 1/1-5/30 2006 1,948.0 26.9 506.3<br />
Chief Executive<br />
Officer<br />
6/1-12/31<br />
4)<br />
5)<br />
Andrea Agnelli Director 5/30-12/31 2005 47.5 4.0<br />
Angelo Benessia Director 1/1-12/31 2006 98.0 26.9<br />
Tiberto Brandolini d’Adda Director 5/30-12/31 2005 47.5 4.0<br />
Flavio Cotti Director 1/1-12/31 2006 92.0 26.9<br />
Luca Garavoglia Director 1/1-12/31 2006 98.0 26.9<br />
Hermann-Josef Lamberti Director 1/1-12/31 2006 95.0 26.9<br />
Pasquale Pistorio Director 12/23-12/31 2005 4.2 -<br />
First name and last<br />
name<br />
Office held Term of<br />
office<br />
Cesare Ferrero Chairman of the<br />
Board of Statutory<br />
Auditors<br />
Expiration Compensation<br />
for office held<br />
Giuseppe Camosci Auditor 1/1-12/31 2006 42.0<br />
Giorgio Ferrino Auditor 1/1-12/31 2006 42.0<br />
(*) Compensation for positions held in subsidiaries.<br />
Non-cash<br />
benefits<br />
Bonuses and<br />
other<br />
incentives<br />
Other<br />
compensation<br />
1/1-12/31 2006 63.0 30.0 (*)
During fiscal 2004, the compensation accrued by top executives of the Issuer currently in office (who are not<br />
also members of the Issuer’s Board of Directors) listed in Section One, Chapter XIV, Paragraph 14.1, totaled<br />
9.65 million euros, including provisions and indemnities accrued for employee pensions and similar obligations<br />
(totaling 2.47 million euros).<br />
15.2 Social security benefits<br />
The Group recognizes various forms of defined benefit and defined contribution pension plans, in line with the<br />
conditions and local practices of the countries where it conducts business. The defined benefit pension plans<br />
are based on the working life of the employee and the compensation received by the employee during a<br />
predetermined period of service.<br />
Furthermore, the Group recognizes certain defined benefit plans following the employment relationship,<br />
particularly health insurance plans. Finally, the Italian companies pay their employees employee severance<br />
indemnities as envisaged by law.<br />
The reserves for employee benefits reported on the consolidated balance sheet at September 30, 2005, as<br />
indicated in the third quarter report, totaled 3,861 million euros (3,682 million euros at December 31, 2004,<br />
stated in accordance with IFRS).<br />
XVI. FUNCTIONING OF THE BOARD OF DIRECTORS<br />
16.1 Term of office<br />
The term of office of the members of the Board of Directors currently in office of the Issuer expires on the date<br />
of the Stockholders Meeting that will be called to approve the Annual Report at December 31, 2005 and that will<br />
be convened in the second quarter of 2006.<br />
16.2 Agreements made with directors for severance indemnities<br />
Upon conclusion of his professional relationship with <strong>Fiat</strong>, the Chief Executive Officer, Mr. Sergio Marchionne,<br />
will have the right to an indemnity in proportion to the period he actually worked and equal to a maximum,<br />
attainable after ten years, of five times his annual fixed compensation as well as, in specific cases of<br />
termination, two years of salary.<br />
16.3 Internal Control Committee and Nominating and Compensation Committee<br />
Internal Control Committee<br />
The Internal Control Committee is composed of at least three independent directors (at present Mario Zibetti,<br />
Chairman, Angelo Benessia and Hermann-Josef Lamberti) and its mission is to assist the Board of Directors in<br />
discharging its own duties by providing it with advice and proposals on the reliability of the accounting system<br />
and financial information; the Internal Control System; the choice and supervision of the work of the external<br />
auditors; and supervision of the activities of the Internal Audit.<br />
In particular, the Committee shall:<br />
• Assist the Board of Directors in defining guidelines for the Internal Control System.<br />
• Assist the Board of Directors with periodic audits of the appropriate and actual functioning of the Internal<br />
Control System to ensure identification and proper handling of the principal risks faced by the company.<br />
• Assess the operating plan prepared by the Compliance Officer and receive his/her periodic reports.<br />
• Report to the Board of Directors on the adequacy of the Internal Control System at least once every six<br />
months, at the time the annual report and first half report are approved.<br />
53
• Assess the organizational position and ensure the actual independence of the Compliance Officer in the<br />
performance of his/her duties in accordance with, among other things, Legislative Decree No. 231/2001<br />
on the administrative liability of companies.<br />
• Assess the Whistleblowings Management Procedure and, with the support of the Compliance Officer,<br />
review the reports received with the aim of monitoring the adequacy of the Internal Control System.<br />
• Assess, in collaboration with the Chief Administrative Officer and the external auditors: (a) the adequacy<br />
of adopted accounting standards and (b) their uniformity in view of preparation of the consolidated<br />
financial statements.<br />
• With the assistance of the Chief Administrative Officer and the head of Internal Audit, assess the<br />
proposals submitted by candidates for the position of external auditors and present to the Board of<br />
Directors an opinion on the motion for retention of the external auditors to be submitted by the Board of<br />
Directors to the Stockholders Meeting.<br />
• Assess the audit operating plan and the results set forth in the audit report and letter of suggestions.<br />
• Review, with the support of the Compliance Officer, proposals for the assignment of non-audit services to<br />
the external auditors or other entities that have continued relationships with them. These services must<br />
nevertheless be allowed under applicable norms and, if necessary, they shall be submitted for approval<br />
by the Board of Directors with the favorable opinion of the Board of Statutory Auditors.<br />
• Review with the external auditors issues connected with the financial statements of <strong>Fiat</strong> S.p.A. and of the<br />
main companies of the Group.<br />
• Assess the Internal Audit operating plan.<br />
• Assess the position and organizational structure responsible for Internal Audit.<br />
The Head of Internal Audit is empowered to make available to the Committee, on its request, the professional<br />
resources of <strong>Fiat</strong> Revi and to retain, at the Company’s expense and on instruction of the Committee,<br />
independent consultants identified by the Committee, to provide services on matters relating to its duties.<br />
The Committee shall meet on convocation by its Chairman whenever he deems it appropriate, but at least once<br />
every six months, or whenever the Chairman of the Board of Statutory Auditors or the Compliance Officer so<br />
request.<br />
The Statutory Auditors and the Compliance Officer shall participate in Committee meetings.<br />
The Chief Executive Officer, the external auditors and Heads of Company functions of the Parent Company and<br />
of subsidiaries shall participate in Committee meetings upon invitation by the Chairman of the Committee.<br />
Nominating and Compensation Committee<br />
The Nominating and Compensation Committee is currently comprised of the following directors: John Elkann<br />
(Chairman), Flavio Cotti, Luca Garavoglia, Gian Maria Gros-Pietro and Daniel John Winteler.<br />
The basic rules governing the composition, duties, and functioning of the Committee are provided in the Charter<br />
of the Nominating and Compensation Committee. In particular, under these provisions, the Committee<br />
expresses its opinions on proposals regarding the general compensation policies applicable to senior<br />
management and appointment of the executive directors at the principal subsidiaries. It participates in the<br />
definition and preparation of stock option plans to be submitted to the Board of Directors for approval and<br />
prepares proposals to be submitted to the Board, in the absence of the interested parties, on the individual<br />
compensation of the directors with particular offices.<br />
16.4 Certification of compliance with corporate governance rules<br />
The Issuer adopted and abides by the Corporate Governance Code, which is mentioned as a model in the<br />
regulations issued by Borsa Italiana (Italian Stock Exchange) on corporate governance.<br />
54
XVII. EMPLOYEES<br />
17.1 Employees<br />
At September 30, 2005, the Group had 174,183 employees, 13,600 more than the 160,549 employees at<br />
December 31, 2004.<br />
The increase with respect to December 31, 2004 is almost entirely due to changes in the scope of<br />
consolidation. The consolidation of activities that had previously been transferred to the <strong>Fiat</strong>-GM Powertrain<br />
joint-venture, the consolidation of Mako by Magneti Marelli and the sale of WorkNet largely account for this<br />
change.<br />
The following table shows the number of <strong>Fiat</strong> Group’s employees at December 31, 2002, 2003 and 2004, and at<br />
September 30, 2005 broken down by Business Area.<br />
Employees by Business Area (number) 2002 2003 2004<br />
Automobiles (<strong>Fiat</strong> Auto, Maserati, Ferrari and <strong>Fiat</strong> Powertrain<br />
Technologies)<br />
55<br />
At September<br />
30, 2005<br />
52,440 47,531 48,443 59,588<br />
Agricultural and Construction Equipment (CNH) 28,528 26,825 25,746 25,598<br />
Commercial Vehicles (Iveco) 38,113 31,511 30,771 32,643<br />
Components and Production Systems (M. Marelli, Teksid, Comau) 46,270 44,810 43,767 45,714<br />
Other Businesses (Services, Publishing and Communications,<br />
Holding Companies and Other Companies)<br />
12,994 11,560 11,822 10,640<br />
Aviation (<strong>Fiat</strong>Avio) 5,049 - - -<br />
Insurance (Toro Assicurazioni) 3,098 - - -<br />
Total 186,492 162,237 160,549 174,183<br />
The following table shows the number of <strong>Fiat</strong> Group employees at December 31, 2002, 2003 and 2004, broken<br />
down by geographical area:<br />
Employees by Geographical area (number) 2002 2003 2004<br />
Italy 87,789 73,553 71,329<br />
Europe (excluding Italy) 51,733 44,870 42,879<br />
North America 14,739 12,835 12,400<br />
Mercosur 21,782 21,980 24,229<br />
Other areas 10,449 8,999 9,712<br />
Total 186,492 162,237 160,549<br />
17.2 Shares held and stock options<br />
<strong>Fiat</strong> shares held by Directors and Statutory Auditors at the date of this Prospectus are shown in the following<br />
table:<br />
First name and Last name Number of <strong>Fiat</strong> ordinary shares<br />
Luca Cordero di Montezemolo 19,172<br />
Sergio Marchionne 220,000<br />
Cesare Ferrero 1<br />
The top executives of the Issuer listed in Paragraph 14.1 as well as other senior managers members of the <strong>Fiat</strong><br />
Auto Steering Committee, following purchases that they made in coordination with each other to give proof of<br />
the management team’s confidence in the Group’s turnaround, hold approximately 190,000 <strong>Fiat</strong> ordinary<br />
shares.<br />
The Issuer’s Board of Directors has approved stock option plans (the “Plans”) that have been made available to<br />
an aggregate of approximately 900 managers at the Group’s Italian and foreign companies, specifically those
who have the title of “direttore” or who have been included in a management development program for highpotential<br />
managers. The terms of the various stock option plans generally include the following:<br />
• Options are granted to individual managers on the basis of objective parameters that take into account the<br />
level of responsibility assigned to each individual, as well as his or her performance.<br />
• If employment is terminated or an employee’s relationship with the Group is otherwise severed, options that<br />
are not exercisable become null and void. However, vested options may be exercised within 30 days from<br />
the date of termination, subject to certain exceptions.<br />
• The option exercise price is determined based on the average price of ordinary shares on the Italian Stock<br />
Exchange for the month preceding the option grant, and is subject to adjustment in certain circumstances<br />
involving a change in the share capital of the company. The exercise price must be paid in cash upon<br />
purchase of the underlying shares.<br />
• The options are normally exercisable starting one year after they are granted and for a period of eight years<br />
thereafter; however, during the first four years during which exercise is permitted, exercise is limited to<br />
annual tranches, which are cumulative, of no more than 25% of the total number of options granted.<br />
In consideration of the options that expired upon termination of employment, a total of 10,502,543 options for<br />
the same number of treasury shares were outstanding at December 31, 2004, to be sold to the holders of the<br />
options envisaged in the respective Stock Option Plan Regulations.<br />
In addition, in 2004 the Board of Directors of the Company has resolved to grant to the Chief Executive Officer,<br />
Mr. Sergio Marchionne, options for the purchase of 10,670,000 <strong>Fiat</strong> ordinary shares at the price of €6.583 per<br />
share, exercisable from June 1, 2008, for a period expiring on January 1, 2011. In each of the first three years<br />
following the date of the grant, Mr. Marchionne will acquire the right to purchase, with the exception of specific<br />
cases of early termination, a maximum of 2,370,000 shares per year, all of which will be exercisable only from<br />
June 1, 2008. The remaining one-third of the options to be granted, for the purchase of 3,560,000 shares, will<br />
vest on June 1, 2008, subject to the satisfaction of certain predetermined profitability targets prior to that date.<br />
XVIII. MAIN STOCKHOLDERS<br />
18.1 Main Stockholders<br />
The table below lists the stockholders who, on September 20 2005, held directly or indirectly 2% or more of the<br />
Issuer’s voting stock. This information is based on the data entered in the Stockholders’ Register, official<br />
communications received by the Company and other information available to the Company. The table also<br />
includes those stockholders whose stake in the Issuer’s voting capital exceeded 2% before the Capital Increase<br />
– and has decreased as a result of it – and which could again exceed said threshold if the stockholders involved<br />
accept the Offer.<br />
Stockholder Total ordinary<br />
shares<br />
56<br />
% of the<br />
ordinary stock<br />
Number of<br />
preference shares<br />
% of the<br />
voting stock<br />
IFIL S.p.A. 328,333,447 30.06 31,082,500 30.06<br />
Intesa Group 66,950,778* 6.13 401,260 5.63<br />
Unicredito Italiano Group 63,608,016* 5.82 220,127 5.34<br />
SanPaolo IMI Group 49,961,102* 4.57 668,421 4.23<br />
Capitalia Group 41,620,723* 3.81 71,174 3.49<br />
Banca Nazionale del Lavoro 29,928,545* 2.74 9,780 2.50<br />
Monte dei Paschi Group 29,735,841* 2.72 154,110 2.50<br />
Assicurazioni Generali Group 26,001,817 2.38 291,800 2.20<br />
Lybian Arab Foreign Inv. Co. (Lafico) 21,670,105 1.98 1,046,935 1.90<br />
Mediobanca S.p.A. 21,152,587 1.94 0 1.77<br />
Merrill Lynch & Co. Inc. 8,764,377 0.80 0 0.73<br />
* Number of shares includes the shares subscribed pursuant to Article 2441, paragraph seven, of the Italian Civil Code, deprived of voting<br />
rights until expiration of the Offer, and shown in the table present in Section Two, Paragraph 3.4.
18.2 Special voting rights held by the principal stockholders<br />
For a description of the rights granted to the Issuer’s various classes of stock, reference is made to Section<br />
One, Chapter XXI, Paragraph 21.2. The principal stockholders listed in the table in Section One, Chapter XVIII,<br />
Paragraph 18.1 do not have rights in addition to or other than those granted by law or the articles of association<br />
to the respective class of stock.<br />
The shares subscribed by the Banks are deprived of voting rights until expiration of this Offer.<br />
18.3 Entity exercising control over the Issuer<br />
At the date of this Prospectus, Giovanni Agnelli & C. S.a.p.az., through the subsidiaries IFI and IFIL, owns<br />
30.06% of the ordinary stock of <strong>Fiat</strong> and 30.09% of the preference stock of <strong>Fiat</strong>. Giovanni Agnelli & C. S.a.p.az.<br />
owns 100% of the ordinary stock of IFI. At the date of this Prospectus, IFI owns 63.6% of the ordinary stock of<br />
IFIL.<br />
Within the framework of the transaction announced on September 15, 2005 which enabled Giovanni Agnelli &<br />
C. S.a.p.az. and IFIL to maintain their interest in the Issuer unaltered after the Capital Increase, the stockholder<br />
IFIL communicated that it had resolved to sell to Merrill Lynch International all the option rights it is entitled to in<br />
connection with this Offer.<br />
<strong>Fiat</strong> is not subject to direction and coordination activities by companies or entities pursuant to Article 2497 of the<br />
Italian Civil Code.<br />
18.4 Agreements whose execution cause changes in the controlling structure of the Issuer after<br />
publication of the Prospectus<br />
As of the date of this Prospectus, the Company is aware of an agreement among the following stockholders:<br />
IFI/IFIL, Assicurazioni Generali, Deutsche Bank and Imi Investimenti (SanPaolo IMI Group). It is also aware of<br />
another agreement between IFIL and SanPaolo IMI involving cross ownership positions, as defined in Article<br />
121 of the Consolidated Law on Financial Intermediation. These agreements were disclosed to CONSOB and<br />
published pursuant to Article 122 of the Consolidated Law on Financial Intermediation. An abstract of said<br />
agreements is available at the www.consob.it website.<br />
As far as the Company knows, there are no agreements that could cause changes in the controlling structure of<br />
the Issuer after publication of the Prospectus.<br />
XIX. RELATED PARTIES<br />
Transactions among Group companies, whether they are made to support vertical manufacturing integration or<br />
to provide services, are carried out at terms that, considering the quality of the goods or services involved, are<br />
competitive with those available in the marketplace.<br />
The specific mission of a Group Sector is to provide services to other members of the Group through companies<br />
which, because of their specialized nature, are able to achieve continuous improvements in quality and<br />
economies of scale.<br />
Within this framework, the main transactions between the Parent Company <strong>Fiat</strong> S.p.A. and its subsidiaries and<br />
associated companies are summarized below:<br />
• Licensing of the right to use the <strong>Fiat</strong> trademark, for a consideration based on a percentage of sales, to<br />
<strong>Fiat</strong> Auto S.p.A.<br />
• Services provided by <strong>Fiat</strong> management personnel to <strong>Fiat</strong> Auto S.p.A., Iveco S.p.A., Teksid S.p.A.,<br />
Magneti Marelli Holding S.p.A., Comau S.p.A., Business Solutions S.p.A., C.R.F. Società Consortile per<br />
Azioni, and other Group companies.<br />
• Grant of suretyships and guarantees in connection with the issuance of billets de trésorerie (<strong>Fiat</strong> France<br />
S.A.), bonds and credit lines (<strong>Fiat</strong> Finance and Trade Ltd and other Group companies), and to secure<br />
bank loans (<strong>Fiat</strong> Auto S.p.A., Teksid S.p.A., <strong>Fiat</strong> Partecipazioni S.p.A., <strong>Fiat</strong> Automoveis S.A., Banco CNH<br />
57
Capital S.A., CNH America LLC, and other Group companies), and payment obligations under building<br />
rental contracts (Ingest Facility S.p.A., <strong>Fiat</strong> Auto S.p.A., Isvor <strong>Fiat</strong> Società consortile di sviluppo e<br />
addestramento industriale per Azioni, Editrice La Stampa S.p.A., <strong>Fiat</strong> Automobil Vertriebs GmbH,<br />
International Metropolitan Automotive Promotion (France) S.A., <strong>Fiat</strong> Motor Sales Ltd, and other Group<br />
companies).<br />
• Rental of buildings to Ingest Facility S.p.A. and <strong>Fiat</strong> Information & Communication Services società<br />
consortile per azioni.<br />
• Loans granted to <strong>Fiat</strong> Ge.Va. S.p.A.<br />
• Purchase of support and consulting services provided by <strong>Fiat</strong> Gesco S.p.A. (corporate, fiscal and<br />
administrative issues), KeyG Consulting S.p.A. (administration), <strong>Fiat</strong> Ge.Va. S.p.A. (financial services).<br />
• Purchase of inspection and internal auditing services from <strong>Fiat</strong> Revi S.c.r.l.<br />
• Purchase of information technology services provided by Global Value S.p.A. and eSPIN S.p.A.<br />
• Purchase of external relations services provided by <strong>Fiat</strong> Information & Communication Services S.c.p.a.<br />
• Purchase of office space, personal and real property maintenance services provided by Ingest Facility<br />
S.p.A., and other general services provided by <strong>Fiat</strong> Servizi per l’Industria S.c.p.a.<br />
• Purchase of personnel training services provided by Isvor <strong>Fiat</strong> S.c.p.a.<br />
• Purchase of automobiles from <strong>Fiat</strong> Auto S.p.A.<br />
<strong>Fiat</strong> S.p.A., as consolidating company, and almost all its Italian subsidiaries decided to comply with the fiscal<br />
consolidated report according to articles 177/129 of the Italian Income Tax Consolidation Act.<br />
Transactions with related parties to be mentioned include professional services rendered by Franzo Grande<br />
Stevens (consultancies and activities performed in his capacity as secretary of the Board of Directors) to <strong>Fiat</strong><br />
S.p.A. for a total of 432 thousand euros in the first half of 2005).<br />
Based on the information received from the various Group companies, there were no atypical or unusual<br />
transactions during the first half of the year.<br />
Among the most significant transactions among Group companies and with related parties, it is pointed out that,<br />
as announced in April, the ownership of Maserati S.p.A. was transferred from Ferrari S.p.A. to <strong>Fiat</strong><br />
Partecipazioni S.p.A.<br />
With regard to transactions with related parties for fiscal years 2002, 2003 and 2004 reference should be made<br />
to the information published in the relevant Annual Reports.<br />
XX. OPERATING AND FINANCIAL INFORMATION REGARDING ASSETS AND LIABILITIES.<br />
FINANCIAL POSITION AND PROFIT AND LOSS OF THE GROUP<br />
20.1 Operating and financial information of previous years<br />
With regard to the operating and financial information of the fiscal years 2002, 2003 and 2004 reference should<br />
be made to the Annual Reports published by the Issuer for fiscal 2002, 2003 and 2004, filed at the Issuer’s<br />
headquarters and available at the www.fiatgroup.com website.<br />
20.2 Pro-forma operating and financial information<br />
The transaction object of this Prospectus does not require the preparation of pro-forma operating and financial<br />
information.<br />
20.3 Annual Reports<br />
Annual Reports of the Issuer for the fiscal years 2002, 2003 and 2004 approved and published by the Issuer are<br />
available at the Issuer’s headquarters and at the www.fiatgroup.com website.<br />
20.4 Review of operating and financial information<br />
The Annual Reports of the Issuer for the fiscal years 2002, 2003 and 2004 were audited by the External<br />
Auditors.<br />
58
The operating and financial information contained in this Prospectus regarding fiscal years 2002, 2003 and<br />
2004 are taken from in the Issuer’s relevant Annual Reports which were audited by the External Auditors.<br />
The operating and financial information contained in this Prospectus regarding results for the first half of 2005<br />
are taken from the Issuer’s First-half Report at June 30, 2005, which was subjected to limited review by the<br />
External Auditors, as prescribed by regulations currently in force.<br />
The operating and financial information contained in this Prospectus regarding results for the third quarter of<br />
2005 are taken from the Issuer’s Third Quarter 2005 Report, which was not subjected to limited review by the<br />
External Auditors, as prescribed by regulations currently in force.<br />
Furthermore, the independent auditor has audited the reconciliations from Italian Accounting Standards to IFRS<br />
of the financial statement balances at January 1 and December 31, 2004, as well as the reconciliations of the<br />
operating balances for fiscal 2004, accompanied by the relative notes, which were the source for the operating<br />
and financial information provided in this Prospectus.<br />
20.5 Date of the latest operating and financial information<br />
The Annual Report at December 31, 2004 (complete review) and the First-half Report at June 30, 2005 (limited<br />
review) were the latest operating and financial information of the Issuer to be subjected to audit review<br />
(complete or limited review).<br />
20.6 Interim financial information and other financial information<br />
The consolidated first half report on the first half of 2005 and the third quarter 2005 report of the Issuer, to which<br />
the reader is referred, were approved by the Issuer’s Board of Directors on September 15 and October 26,<br />
2005, respectively. They were published by the Issuer and are available at the Issuer’s headquarters and on the<br />
www.fiatgroup.com website.<br />
20.7 Dividends policy<br />
The distribution of net income as reported on the annual financial statements is proposed by the Board of<br />
Directors and subject to resolution and approval by the Ordinary Stockholders Meeting of the Issuer. The<br />
provisions of Article 20 of the <strong>Fiat</strong> Articles of Association must be complied with for the distribution of net income<br />
(see Section One, Chapter XXI, Paragraph 21.2).<br />
Dividends distributed in the past few years<br />
The net losses recorded in the fiscal years 2002, 2003 and 2004 prevented the Issuer from distributing<br />
dividends to stockholders for said fiscal years.<br />
20.8 Lawsuits and arbitration proceedings<br />
The parent company and certain of its subsidiaries are parties to various lawsuits and controversies. However,<br />
it is believed that the resolution of these controversies will not generate significant liabilities for which specific<br />
risk reserves have not already been set aside.<br />
20.9 Significant changes in the financial or commercial situation of the Issuer<br />
Without prejudice to what is set forth in the Issuer’s first-half report at June 30, 2005 and third quarter 2005<br />
report, no significant changes in the financial or commercial situation of the Group occurred after December 31,<br />
2004.<br />
As regards significant events occurred after September 30, 2005 see Section One, Chapter XII.<br />
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XXI. SUPPLEMENTAL INFORMATION<br />
21.1 Capital stock<br />
Issued and Authorized Capital<br />
The capital stock, fully paid-in, of the Issuer, at the date of this Prospectus amounts to 6,377,257,130 euros and<br />
consists of:<br />
• 1,092,246,316 ordinary shares<br />
• 103,292,310 preference shares<br />
• 79,912,800 savings shares<br />
all with a par value of 5 euros each.<br />
With reference to the capital stock, it should be borne in mind that:<br />
• Pursuant to resolutions passed by the Board of Directors on December 10, 2001 and June 26, 2003, the<br />
capital may be further increased for consideration for a maximum of 82 million euros, with the issuance of<br />
a maximum of 16,377,292 ordinary shares at a par value of 5 euros each on February 1, 2007, following<br />
exercise of the residual “FIAT ordinary share warrants 2007” issued as part of the capital increase of<br />
February 2002 and still outstanding. It should be recalled that <strong>Fiat</strong> reserved the right to pay the warrant<br />
holders in cash, starting on January 2, 2007, in lieu of the shares to be issued (Shares in Exchange for<br />
Warrants), for the difference between the arithmetic average of the official market price of <strong>Fiat</strong> ordinary<br />
shares in December 2006 and the warrant exercise price, unless this difference exceeds the maximum<br />
amount set and previously communicated by <strong>Fiat</strong>, in which case the holder of the warrants may opt to<br />
subscribe to the Shares in Exchange for Warrants.<br />
• Pursuant to the resolution by the Extraordinary Stockholders Meeting on September 12, 2002, the Board<br />
of Directors has the right to increase the capital one or more times by September 11, 2007, up to a<br />
maximum of 8 billion euros.<br />
At December 31, 2004 the fully paid-in capital stock amounted to 4,918,113,540 euros. The increase of<br />
1,459,143,590 euros was executed on September 20, 2005 through the issue of 291,828,718 ordinary shares<br />
which were issued and subscribed on the basis of the resolution passed by the Issuer’s Board of Directors on<br />
September 15, 2005 that was adopted in accordance with article 2441, paragraph seven, of the Italian Civil<br />
Code on the basis of which the shares will be offered in option to stockholders.<br />
Evolution of Capital Stock<br />
The capital stock of the Issuer underwent the following changes in the period to which the financial information<br />
contained in this Prospectus refers:<br />
• On February 21, 2002 the capital was increased from 2,753,025,000 euros to 3,082,128,000 euros<br />
through the issuance of 65,820,600 ordinary shares at a price of 15.5 euros each offered in option to<br />
stockholders in the ratio of 3 new ordinary shares and 3 “FIAT ordinary share warrants 2007” every 25<br />
shares of any class held;<br />
• On August 29, 2003 the capital was increased to 4,918,113,540 euros through the issuance of<br />
367,197,108 ordinary shares at a price of 5.00 euros each offered in option to stockholders in the ratio of 3<br />
new ordinary shares every 5 shares of any class held;<br />
• On September 20, 2005 a capital increase to 6,377,257,130 euros was executed as described in this<br />
Prospectus.<br />
Treasury Stock<br />
As of the date of this Prospectus, the Issuer treasury stock consisted of 4,331,708 <strong>Fiat</strong> ordinary shares.<br />
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Other rights and/or obligations on the capital stock<br />
Except for what is envisaged by this Paragraph, there does not exist any commitment to increase the Issuer’s<br />
capital stock.<br />
21.2 Memorandum of Association and Articles of Association<br />
Company Object<br />
On the basis of Article 3 of the Issuer’s Articles of Association (the “Articles of Association”), the objects of the<br />
Company are: the carrying out, through wholly or partially owned companies or other entities, or directly, of<br />
activities relating to the passenger and commercial vehicles, transport, mechanical engineering, agricultural<br />
equipment, energy and propulsion industries, as well as any other manufacturing, commercial, financial or other<br />
activities and services.<br />
In order to achieve the above objects and within their scope the Company may:<br />
• operate, among others, in the mechanical, electrical, electromechanical, thermomechanical, electronic,<br />
nuclear, chemical, mining, steel and metallurgical industries, as well as in the fields of<br />
telecommunications, civil, industrial and agricultural engineering, publishing, information services, tourism<br />
and other activities in the field of services;<br />
• acquire shareholdings and equity interests in companies and enterprises of any kind and form; purchase,<br />
sell and place shares, quotas and bonds;<br />
• finance wholly or partially owned companies and entities, and carry on the technical, commercial,<br />
financial and administrative coordination of their activities;<br />
• acquire, in its own interest and in the interests of wholly or partially owned companies and entities,<br />
ownership of rights on intangible assets providing for their use by such companies and entities;<br />
• promote and ensure the performance of research and development activities, as well as the use and<br />
exploitation of the results thereof;<br />
• carry out, in its own interest and in the interests of wholly or partially owned companies and entities, any<br />
transaction whatsoever concerning personal and real property, finance, trade, and association including<br />
loans and financing in general and granting, also in favor of third parties, of guarantees, suretyships and<br />
warranties, secured and unsecured by mortgage.<br />
Board of Directors<br />
Following is a brief description of the provisions of the Articles of Association concerning the duties, composition<br />
and the functioning of the Company’s Board of Directors:<br />
• Pursuant to Article 11 of the Articles of Association, the Company is managed by a Board of Directors<br />
consisting of a number varying from nine to fifteen members, as determined by the Stockholders Meeting.<br />
No one over the age of 75 shall be appointed as a Director. The appointment, revocation, expiration of the<br />
term of office, replacement or lapsing of Directors is governed by the applicable statutes. However, if as a<br />
result of resignations or other reasons the majority of the Directors elected by the Stockholders Meeting is<br />
no longer in office, the term of office of the entire Board of Directors will be deemed to have expired, and a<br />
Stockholders Meeting will be convened on an urgent basis by the Directors still in office for the purpose of<br />
electing a new Board of Directors.<br />
• Pursuant to Article 12 of the Articles of Association, the Board of Directors shall appoint from among its<br />
members a Chairman, a Vice Chairman, if deemed advisable, and one or more Chief Executive Officers. In<br />
the case of the absence or incapacity of the Chairman, the Vice Chairman, if appointed, will assume his<br />
functions. The Board of Directors may set up an Executive Committee and/or other Committees with<br />
specific functions and tasks, fixing its/their composition and operating procedures. More specifically, the<br />
Board of Directors shall establish a Committee to supervise the Internal Control System and Committees<br />
for the nomination and compensation of Directors and senior managers with strategic responsibilities. The<br />
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Board of Directors may also appoint one or more Chief Operating Officers and may designate a Secretary,<br />
who need not be a member of the Board.<br />
• Pursuant to Article 13 of the Articles of Association, meetings of the Board of Directors are convened by<br />
the Chairman at least once every quarter and whenever the Chairman deems it appropriate, or when<br />
requested by at least three Directors or by one of the Directors to whom powers have been delegated. The<br />
Board of Directors can also be called, after the Chairman has been informed, by at least two statutory<br />
auditors. Meetings are called by written notice, containing all elements necessary for the discussion, to be<br />
sent at least five days before the day on which the meeting is to be held, except in cases of urgency.<br />
Meetings are presided over by the Chairman or, in his absence, by the Vice Chairman, if appointed; in their<br />
absence the Chair shall be taken by another Director designated by the Board.<br />
• Pursuant to Article 14 of the Articles of Association, the Board's resolutions shall be valid if the majority of<br />
Directors in office are present. Resolutions are passed by an absolute majority of votes of the Directors<br />
present. In the case of a tie, the Chairman of the meeting shall have the casting vote.<br />
• Pursuant to Article 15 of the Articles of Association, the Board is vested, without any limitation, with full<br />
powers for the ordinary and extraordinary management of the Company, with the authority to carry out all<br />
transactions, including disposals, deemed appropriate to achieve the Company's purposes, excluding and<br />
excepting none, apart for those transactions which are reserved by law to the competence of the<br />
Stockholders Meeting.<br />
In addition to the power to issue nonconvertible bonds, the Board of Directors is also authorized to adopt<br />
resolutions concerning:<br />
- The absorption and demerger of companies, when specifically allowed by law;<br />
- The opening or closing of secondary offices;<br />
- The designation of Directors empowered to represent the Company;<br />
- The reduction of capital stock when stockholders exercise the right to have their shares redeemed;<br />
- The amendment of the Articles of Association that reflect changes in the law;<br />
- The transfer of the Company’s registered office to another location in Italy.<br />
Board of Statutory Auditors<br />
Following is a brief description of the provisions of the Articles of Association concerning the duties, composition<br />
and the functioning of the Company’s Board of Statutory Auditors:<br />
• Pursuant to Article 17 of the Articles of Association, the Board of Statutory Auditors is composed of 3<br />
regular members and 3 alternate members. The minority has the right to appoint one regular and one<br />
alternate auditor. All statutory auditors must be entered in the register of auditors and possess at least<br />
three years’ experience as a statutory account auditor.<br />
The Board of Statutory Auditors is appointed on the basis of lists presented by stockholders on which<br />
candidates are listed in numerical order. The list consists of two sections: one for candidates to the office<br />
of regular auditor, the other for candidates to the office of alternate auditor. Only those stockholders who,<br />
alone or with others, hold in total voting shares representing at least 1% of the ordinary shares have the<br />
right to present lists of candidates. No single stockholder, nor stockholders belonging to the same group,<br />
can present, even by means of third parties or a trustee company, more than one list, nor can they vote for<br />
different lists. Each candidate can be present in one list only, otherwise he will be considered ineligible.<br />
Candidates who already serve as Statutory Auditors in five other publicly traded companies, not counting<br />
the controlling companies and subsidiaries of <strong>Fiat</strong> S.p.A., or fail to meet the requirements of integrity,<br />
professionalism and independence set forth in the pertinent statute and this article may not be included in<br />
lists of candidates. Statutory Auditors whose term of office has expired may be reelected.<br />
The statutory auditors are elected as follows:<br />
1. two regular auditors and two alternate auditors are drawn from the list that has obtained most votes at<br />
the Stockholders Meeting, on the basis of the numerical order under which they appear in each section<br />
of the list;<br />
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2. the remaining regular auditor and the other alternate auditor are drawn from the second list that has<br />
obtained most votes at the Stockholders Meeting, on the basis of the numerical order under which they<br />
appear in each section of the list.<br />
The chairmanship of the Board of Statutory Auditors will go to the first candidate from the list that has<br />
obtained most votes.<br />
Should it be impossible to proceed with the appointment according to the above described system, the<br />
Stockholders Meeting shall resolve by relative majority.<br />
Where the requirements of the law or company articles are not met, the statutory auditor forfeits his office.<br />
In the event of a statutory auditor being replaced, the first alternate auditor, if available, belonging to the<br />
same list as the auditor being substituted and after having confirmed the existence of the prescribed<br />
requirements, will join the Board for the remainder of the auditors’ term of office. In the event of a<br />
replacement of the Chairman, the office will be taken over by the other regular statutory auditor belonging<br />
to the same list.<br />
Prior conditions in matters of the appointment of statutory auditors do not apply to Statutory Meetings that<br />
have to appoint alternate auditors in the case only one auditor has remained in office. In such cases, the<br />
Stockholders Meeting resolves by relative majority.<br />
Legal representation<br />
Pursuant to Article 16 of the Articles of Association, the representation of the Company is invested in the<br />
Directors who serve as Chairman of the Board, Vice Chairman and Chief Executive Officer, separately, for the<br />
execution of the resolutions of the Board of Directors and in legal proceedings, as well as for the execution of<br />
the powers conferred on them by the Board. The Board of Directors may also delegate to other Directors the<br />
power granted to it to represent the Company vis-à-vis third parties and in legal proceedings.<br />
Independent Audits<br />
Pursuant to Article 18 of the Articles of Association, independent audits are performed by external auditors who<br />
meet statutory requirements.<br />
Shares<br />
Pursuant to Article 6 of the Articles of Association, ordinary and preference shares are registered shares.<br />
Savings shares can be either bearer or registered shares, at the option of their holder or as required by law. All<br />
shares are issued in dematerialized form.<br />
Each share conveys the right to a proportionate share of the earnings available for distribution and of the<br />
residual net assets upon liquidation, without harming the rights of preference and savings shares.<br />
Each ordinary share conveys the right to vote without any restrictions whatsoever. Each preference share<br />
conveys the right to vote only on issues that are within the purview of the Extraordinary Stockholders Meeting<br />
and on resolutions concerning Regulations for Stockholders Meetings. Savings shares are not entitled to vote.<br />
When the capital stock is increased, the holders of each class of shares have the right to receive a<br />
proportionate number of newly issued shares of the same class, or of another class (or classes) if shares of the<br />
same class are not available or their number is insufficient.<br />
The Company’s capital stock may also be increased by issuing ordinary and/or preference and/or savings<br />
shares in exchange for the contribution of assets or the cancellation of accounts payable.<br />
Resolutions authorizing the issuance of new preference or savings shares with the same characteristics as<br />
those already outstanding in connection with capital increases and the conversion of shares into shares of<br />
another class do not require further approval by Special Stockholders Meetings.<br />
If the savings shares are delisted, they shall be transformed into registered shares if originally bearer shares,<br />
and they shall have the right to a higher dividend increased by 0.175 euros, rather than 0.155 euros, with<br />
respect to the dividend received by the ordinary and preference shares.<br />
If the ordinary shares are delisted, the higher dividend received by the savings shares with respect to the<br />
dividend received by ordinary and preference shares shall be increased by 0.2 euros per share.<br />
The outlays needed to safeguard the common interests of the holders of preference and savings shares, which<br />
are financed with reserves established for that purpose by the respective Special Stockholders Meetings, shall<br />
be borne by the Company up to a maximum annual amount of 30,000 euros for each class of shares.<br />
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Furthermore, on the basis of Article 20 of the Articles of Association, the net income for the year resulting from<br />
the annual financial statements shall be allocated as follows:<br />
• to the Legal Reserve, 5% of net income until this reserve reaches one fifth of the capital stock;<br />
• to savings shares, a dividend of up to 0.31 euros per share;<br />
• to the Legal Reserve (additional allocation), to the Extraordinary Reserve and/or to retained earnings,<br />
such allocations as shall be decided by the Stockholders Meeting;<br />
• to preference shares, a dividend of up to 0.31 euros per share;<br />
• to ordinary shares, a dividend of up to 0.155 euros per share;<br />
• to savings shares and ordinary shares, in equal proportions, an additional dividend of up to 0.155 euros<br />
per share;<br />
• to each ordinary, preference and savings shares, in equal proportions, the balance of the net income<br />
which the Stockholders Meeting resolves to distribute.<br />
When the dividend paid to savings shares in any year amounts to less than 0.31 euros, the difference shall be<br />
added to the preferred dividend to which they are entitled in the following two years. In case of modification of<br />
the par value of shares, the abovementioned amounts will be on a pro-rata basis.<br />
Dividends not collected within five years from the day they became payable shall be forfeited to the benefit of<br />
the Company.<br />
The right of stockholders to have their shares redeemed is governed by the applicable statute, it being<br />
understood that this right is not available to stockholders who, either because absent or dissenting, did not vote<br />
in support of resolutions extending duration or introducing or removing restrictions on the circulation of shares.<br />
The terms and procedures for the exercise of this right, the criteria used to determine share values and the<br />
share redemption process are governed by the applicable statute.<br />
The stockholders domicile, for all matters concerning his or her relationship with the Company, is that recorded<br />
in the book of stockholders.<br />
Stockholders Meeting<br />
The Stockholders Meeting may be convened at the Company’s Registered Office, or elsewhere in Italy, by<br />
means of a Notice published within statutory deadlines in the newspapers La Stampa and Il Sole 24 Ore or, if<br />
both these newspapers are not published, in the Official Gazette of the Republic of Italy. The Notice may<br />
provide for a second call and, in the case of Extraordinary Stockholders Meetings only, a third call.<br />
Since the company is required to prepare consolidated financial statements, it must convene an Ordinary<br />
Stockholders Meeting within 180 days after the end of the fiscal year.<br />
A Stockholders Meeting may also be convened whenever the Board of Directors deems it appropriate and must<br />
be convened when required by law.<br />
Stockholders who are entitled to vote may attend the Meeting or be represented at it pursuant to law if they<br />
have obtained certification from an authorized intermediary, and if this has been communicated to the Company<br />
ahead of time in accordance with the applicable statute. This certificate must attest to their right to attend the<br />
Meeting and to the deposit of their dematerialized shares at least two non-holidays before the Meeting.<br />
Stockholders may attend Meetings from multiple contiguous or remote locations that are linked by means of<br />
telecommunication systems, acting in accordance with the rules of collegiality, the principles of good faith and<br />
equal treatment for all stockholders.<br />
In such cases:<br />
• The Notice of the Stockholders Meeting must list the audio/video linkup locations where the attendees<br />
can convene, and the Meeting will be deemed to have been held at the location where the Chairman<br />
and the person drawing up the Minutes of the Meeting are present;<br />
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• The Chairman of the Meeting, using the resources of his/her office, or the officers of the Meeting who<br />
are present at the various linkup locations, shall ensure that the meeting is duly convened, ascertain<br />
the identity of the attendees and their right to attend the Meeting, manage the Meeting and verify the<br />
results of any votes;<br />
• The person drawing up the Minutes of the Meeting must be able to adequately hear and see<br />
sufficiently well any Meeting developments that require inclusion in the Minutes;<br />
• The attendees must be allowed to participate in the discussion and cast votes simultaneously on the<br />
items on the Agenda.<br />
Resolutions adopted by the Stockholders Meeting pursuant to law and these Articles of Association are binding<br />
on all stockholders, including those who are absent or dissenting.<br />
Ordinary Meetings are properly constituted on first call by the attendance of stockholders representing at least<br />
one half of the capital stock entitled to vote; on second call, by the attendance of stockholders representing any<br />
portion of the capital stock entitled to vote. Resolutions are always adopted by an absolute majority of the votes,<br />
except for the election of Directors, which requires only a relative majority, and the election of Statutory<br />
Auditors, which is governed by the provisions of Article 17 of the Articles of Association.<br />
An Extraordinary Stockholders Meeting is duly convened, on the first call, if stockholders representing at least<br />
half of the voting capital are present. On the second call and third call, the stockholders in attendance must<br />
represent more than one-third and at least one-fifth, respectively, of the voting capital.<br />
An Extraordinary Stockholders Meeting can adopt a resolution, on the first, second and third call, with the<br />
favorable vote of at least two-thirds of the capital represented at the Meeting.<br />
The foregoing provisions have no effect on special majorities required pursuant to law or on the provisions that<br />
govern Special Meetings for holders of shares of a single class.<br />
Special Provisions<br />
The Articles of Association do not envisage provisions that might delay, postpone, or prevent a change in the<br />
controlling structure of the Issuer.<br />
The Articles of Association do not contain provisions governing the threshold of stock ownership above which<br />
public notice must be made of the percentage of stock owned. The Issuer is subject to the statutory rules<br />
envisaged in the Consolidated Law on Financial Intermediation and related regulations.<br />
The Articles of Association do not contain conditions governing changes in capital stock that are more restrictive<br />
than statutory conditions. Moreover, pursuant to Article 21 of the Articles of Association, the right of withdrawal<br />
is regulated by law, without prejudice to the fact that the stockholders who did not vote for resolutions regarding<br />
extension of the deadline and introduction or removal of restrictions on the circulation of shares do not enjoy the<br />
right of withdrawal. The terms and conditions for exercising the right of withdrawal, the principles for<br />
determining the value of shares, and the procedure for liquidation thereof are regulated by law.<br />
XXII. SIGNIFICANT CONTRACTS<br />
Relations with General Motors<br />
On February 13, 2005 the Boards of Directors of <strong>Fiat</strong> and General Motors approve a contract to terminate the<br />
Master Agreement and related joint ventures between the two companies.<br />
Under the terms of this agreement, GM paid <strong>Fiat</strong> 1.56 billion euros to terminate the Master Agreement, including<br />
the cancellation of the put option and the unwinding of the joint ventures. In more detail, the agreement includes<br />
the following items: (i) GM will pay to <strong>Fiat</strong> 1.56 billion euros; (ii) GM will return its 10% stake in <strong>Fiat</strong> Auto<br />
Holdings B.V. to <strong>Fiat</strong>; (iii) GM will own 50% of the Bielsko Biala, Poland, plant which manufactures the 1.3 liter<br />
Diesel engine as well as 50% of the related intellectual property; (iv) GM will co-own JTD engine technology<br />
while continuing to take most of its European requirements from the <strong>Fiat</strong> plant in Pratola Serra (notwithstanding<br />
co-ownership of the intellectual property rights, GM cannot manufacture JTD Diesel engines outside Europe<br />
that are to be exported to Europe); (v) Both <strong>Fiat</strong> and GM will continue to support the joint development of<br />
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existing platforms; (vi) <strong>Fiat</strong> will continue to sell engineering support to GM for the development of diesel<br />
technology. The Parties executed the agreement in accordance with its terms.<br />
Ferrari<br />
A summary is presented below of the rights arising from the purchase in 2002 of 34% of the capital stock of<br />
Ferrari S.p.A. for 775 million euros by Mediobanca S.p.A., within the framework of a consortium set up for the<br />
acquisition and placement of the Ferrari shares. <strong>Fiat</strong> realized a gain of 671 million euros on this sale, net of<br />
selling expenses. The sale contract sets out the following principal elements:<br />
• Mediobanca assumed the responsibility of sole Global Coordinator in charge of coordinating and<br />
leading the consortium.<br />
• Mediobanca cannot sell its Ferrari shares to another group in the automobile industry for as long as the<br />
<strong>Fiat</strong> Group maintains a 51% controlling interest in Ferrari. Barring certain specific assumptions, the <strong>Fiat</strong><br />
Group can not reduce its investment in Ferrari below 51% until the end, depending on the case, of the<br />
third or fourth year subsequent to signing the contract.<br />
• <strong>Fiat</strong> holds a call option that allows it to repurchase the Ferrari shares at any time before June 30, 2006,<br />
except during the five months subsequent to the presentation of an IPO application to the competent<br />
authorities. The option exercise price is equal to the original price at which the shares were sold plus<br />
interest during the period based on the BOT yield plus 4%.<br />
• Mediobanca, moreover, does not hold any put option to resell the purchased Ferrari shares to <strong>Fiat</strong>,<br />
even in the event that the IPO does not occur or is not completed.<br />
• <strong>Fiat</strong> may share, in declining percentages, in any gain realized by Mediobanca and the other members<br />
of the consortium in the event of an IPO.<br />
Teksid<br />
Teksid S.p.A. is party to a Put and Call contract with the partner Norsk Hydro concerning the subsidiary<br />
Meridian Technologies Inc. (held 51% by the Teksid Group and 49% by the Norsk Hydro Group). In particular,<br />
should there be a strategic deadlock in the management of the company during the joint venture period (namely<br />
in all those cases in which a unanimous vote in favor is not reached by the directors of the board as regards<br />
certain strategic decisions disciplined by the contract between the stockholders such as amendments to the<br />
Articles of Associations, unwinding of the company, disposal of significant assets and other events of particular<br />
corporate significance), the following rights would arise:<br />
• Put Option of Norsk Hydro with Teksid on the 49% holding: the sale price would be commensurate with<br />
the initial investment made in 1998 (approximately 119 million euros), revalued pro rata temporis, net of<br />
dividends paid.<br />
• Call Option of Teksid with Norsk Hydro on the 49% holding (exercisable whenever Norsk Hydro<br />
renounces its right to exercise the Put Option described above): the sale price would be the higher<br />
value between the initial investment made by Norsk Hydro in 1998, calculated according to the criteria<br />
expressed previously, and 140% of the Fair Market Value determined by an independent expert (in this<br />
regard, an increase of 2% per year is established in the event the option is exercised from the start of<br />
2008 until 2013, thus up to 150% of the relative value).<br />
It should be pointed out that so far the conditions that would give rise to the strategic deadlock are considered<br />
to be quite remote.<br />
<strong>Fiat</strong> S.p.A. is party to a put contract with Renault (in reference to the original investment of 33.5% in Teksid,<br />
now 19.52%).<br />
In particular, Renault would acquire the right, to which it is entitled as long as it maintains its investment, to<br />
exercise an option to sell its investment to <strong>Fiat</strong>, in the following cases:<br />
• in the event of nonfulfillment in the application of the protocol of the agreement or admission to<br />
receivership or any other redressment procedure;<br />
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• in the event Renault’s investment in Teksid falls below 15%, either due to its will or to objective<br />
circumstances, or Teksid decides to invest in a structural manner outside the foundry sector;<br />
• should <strong>Fiat</strong> be the object of the acquisition of control by another car manufacturer.<br />
• The exercise price of the option is established as follows:<br />
− for 6.5% of the share capital of Teksid (approximately 63 million euros), the initial investment price<br />
increased pro rata temporis;<br />
− for the remaining amount of share capital of Teksid, the share of the accounting net equity at the<br />
exercise date.<br />
Fidis Retail Italia (FRI)<br />
Fidis Retail Italia S.p.A. (“FRI”) was set up in 2003 to take over the European activities of the Automobile Sector<br />
in the area of consumer financing for retail automobile purchases. To this end, those activities performed by<br />
various companies operating in different countries in Europe were gradually sold to FRI, after obtaining the<br />
necessary authorizations from the local regulatory agencies. As envisaged by the Framework Agreement<br />
signed on May 27, 2002 by <strong>Fiat</strong> and the “Lending Banks” (Capitalia, Banca Intesa, SanPaolo IMI and later<br />
Unicredito Italiano), on May 27, 2003, the <strong>Fiat</strong> Group sold 51% of FRI’s shares and, as a result, the relative<br />
control, to Synesis Finanziaria S.p.A., an Italian company held equally by the four Banks, at the price of 370<br />
million euros. This transaction led to a loss of 15 million euros that had already been set aside in a specific<br />
reserve for risks in the consolidated financial statements at December 31, 2002, based upon the binding<br />
agreements signed by the parties at that time. Put and Call rights are envisaged, which can be summarized as<br />
follows:<br />
• Call Option by <strong>Fiat</strong> Auto to purchase 51% of Fidis Retail Italia, held by Synesis Finanziaria, exercisable<br />
quarterly (in January, April, July and October) up to January 31, 2008 (initially up to January 31, 2006,<br />
before the extension agreed on February 4, 2005) at a price determined according to the exercise<br />
period (in any case higher than the sale price) plus additional payments net of any distributions.<br />
• Synesis Finanziaria’s right to require <strong>Fiat</strong> Auto to exercise the above purchase option on 51% of Fidis<br />
Retail Italia if, by January 31, 2008 (January 31, 2006, before the above mentioned extension) there is<br />
a change in control of <strong>Fiat</strong> or <strong>Fiat</strong> Auto (also through the sale of a substantial part of the companies<br />
owned by <strong>Fiat</strong> Auto or one of its brands <strong>Fiat</strong>, Alfa and Lancia) as set forth in the relative stockholders<br />
agreement between <strong>Fiat</strong> Auto, Synesis Finanziaria and the four lending banks.<br />
• So-called “tag along” option on behalf of Synesis Finanziaria (i.e Synesis Finanziaria’s right of co-sale)<br />
if the same events referred to in the preceding point occur after January 31, 2008 (originally January<br />
31, 2006).<br />
• So-called “drag along” option on behalf of <strong>Fiat</strong> Auto (i.e. Synesis Finanziaria’s obligation of co-sale if<br />
requested by <strong>Fiat</strong> Auto) in the event of the sale of the investment after January 31, 2008 (January 31,<br />
2006, before the above mentioned extension).<br />
Iveco / Barclays<br />
During the first half of 2005, Iveco and Barclays Asset and Sales Finance finalized an alliance to combine their<br />
respective strengths by creating Iveco Finance Holdings, a new venture that will provide commercial vehicle<br />
financing and leasing solutions to Iveco customers in France, Germany, Italy, Switzerland and the UK. Iveco<br />
transferred certain of its financing subsidiaries to Iveco Finance Holdings. Barclays acquired a 51% controlling<br />
stake in such company for a consideration of 119 million euros. Iveco will hold the remaining 49%.<br />
The purpose of IVECO Finance Holdings is to provide Iveco’s customers with competitive commercial vehicle<br />
financing by combining Barclays’ strength and competitiveness in the financing business with Iveco’s expertise<br />
in the research, development, design, manufacture and sales and marketing of commercial vehicles.<br />
Barclays Asset and Sales Finance already has a strong presence in many of Iveco’s principal markets and<br />
Iveco Finance Holdings will provide opportunities for further expansion of existing operations as well as the<br />
67
development of new markets. It also serves Barclays strategic aim of developing retail and commercial banking<br />
activities in selected markets outside the UK.<br />
The new company will maintain the operational and business structure of Iveco’s previous captive financing<br />
company. It will offer hire purchase, finance leasing and long-term contract hire solutions to Iveco dealers, large<br />
fleets and retail customers in France, Germany, Italy, Switzerland and the United Kingdom. As of December 31,<br />
2004, Iveco Finance Holdings managed a fleet of 88,700 financed units, representing a managed outstanding in<br />
excess of 2 billion euros.<br />
XXIII. INFORMATION PROVIDED BY THIRD PARTIES, EXPERT OPINIONS, AND CERTIFICATIONS<br />
OF INTEREST<br />
23.1 Third party opinions attached to Section One of this Prospectus<br />
In this Prospectus there are no expert opinions or reports.<br />
23.2 Statement related to information deriving from third parties in Section One of this Prospectus<br />
The operating and financial information contained in this Prospectus with regard to 2002, 2003 and 2004 are<br />
taken from the consolidated financial statements of the Issuer, while the operating and financial information<br />
contained in this Prospectus with regard to the first half of 2004 and the first half of 2005 and the third quarter<br />
and first nine months of 2004 and 2005 are taken from the respective first-half and quarterly reports of the<br />
Issuer.<br />
All the information contained in this Prospectus was provided by the Issuer or by Group Companies. This<br />
Prospectus contains no information provided by third parties not belonging to the Group.<br />
XXIV. DOCUMENTS ACCESSIBLE TO THE PUBLIC<br />
The Issuer points out that the following documents (or copies of them) are available at the Company’s<br />
Headquarters, Via Nizza 250, Turin, and at the www.fiatgroup.com website:<br />
a) the Articles of Association of the Issuer;<br />
b) the 2002, 2003 and 2004 annual reports including the reports on operations, the consolidated and<br />
statutory financial statements, the reports of the external auditors and of the statutory auditors;<br />
c) the quarterly and first-half reports for fiscal 2002, 2003, 2004 and 2005;<br />
d) the resolutions of the Extraordinary Stockholders Meeting of the Issuer of September 12, 2002 and of<br />
the Board of Directors of September 15, 2005.<br />
XXV. INFORMATION ON EQUITY INVESTMENTS<br />
The information contained in this Prospectus refers to the <strong>Fiat</strong> Group as a whole and to its areas and sectors of<br />
activity. It is not therefore necessary to include information on the single companies controlled by the Issuer.<br />
68
Section Two<br />
I. INFORMATION ON THE PARTIES RESPONSIBLE FOR SECTION TWO OF THE PROSPECTUS<br />
1.1 Parties Responsible for Section Two of the Prospectus<br />
The following parties assume responsibility for the completeness and truthfulness of the figures and information<br />
contained in this Section of the Prospectus, but only for and limited to their respective applicable parts.<br />
PARTY RESPONSIBLE APPLICABLE PARTS<br />
<strong>Fiat</strong> S.p.A.,<br />
with registered office in Turin, Via Nizza n. 250<br />
Capitalia S.p.A.,<br />
with registered office in Rome, Via Marco Minghetti n. 17<br />
Banca Intesa S.p.A.,<br />
with registered office in Milan, Piazza Paolo Ferrari n. 10<br />
San Paolo IMI S.p.A.,<br />
with registered office in Turin, Piazza San Carlo n. 156<br />
UniCredit Banca d’Impresa S.p.A.,<br />
with registered office in Verona, Via Garibaldi n. 1<br />
Banca Nazionale del Lavoro S.p.A.,<br />
with registered office in Rome, Via Vittorio Veneto n. 119<br />
Banca Monte dei Paschi di Siena S.p.A.,<br />
with registered office in Siena, Piazza Salimbeni n. 3<br />
ABN AMRO Bank N.V.,<br />
with registered office in Amsterdam, Gustav Mahlerlaan 10,<br />
and with a branch office in Milan, via Meravigli n. 7<br />
69<br />
Entire Section Two<br />
Applicable parts of Section Two:<br />
Chapter II and Paragraphs: 3.3; 3.4;<br />
4.1; 4.2; 4.3; 4.4; 4.5; 4.7; 4.8; 5.1; 5.2,<br />
letter a); 5.3; 5.4; 6.2; 6.3; 7.1; 7.2; 7.3;<br />
8.1<br />
Applicable parts of Section Two:<br />
Chapter II and Paragraphs: 3.3; 3.4;<br />
4.1; 4.2; 4.3; 4.4; 4.5; 4.7; 4.8; 5.1; 5.2,<br />
letter a); 5.3; 5.4; 6.2; 6.3; 7.1; 7.2; 7.3;<br />
8.1<br />
Applicable parts of Section Two:<br />
Chapter II and Paragraphs: 3.3; 3.4;<br />
4.1; 4.2; 4.3; 4.4; 4.5; 4.7; 4.8; 5.1; 5.2,<br />
letter a); 5.3; 5.4; 6.2; 6.3; 7.1; 7.2; 7.3;<br />
8.1<br />
Applicable parts of Section Two:<br />
Chapter II and Paragraphs: 3.3; 3.4;<br />
4.1; 4.2; 4.3; 4.4; 4.5; 4.7; 4.8; 5.1; 5.2,<br />
letter a); 5.3; 5.4; 6.2; 6.3; 7.1; 7.2; 7.3;<br />
8.1<br />
Applicable parts of Section Two:<br />
Chapter II and Paragraphs: 3.3; 3.4;<br />
4.1; 4.2; 4.3; 4.4; 4.5; 4.7; 4.8; 5.1; 5.2,<br />
letter a); 5.3; 5.4; 6.2; 6.3; 7.1; 7.2; 7.3;<br />
8.1<br />
Applicable parts of Section Two:<br />
Chapter II and Paragraphs: 3.3; 3.4;<br />
4.1; 4.2; 4.3; 4.4; 4.5; 4.7; 4.8; 5.1; 5.2,<br />
letter a); 5.3; 5.4; 6.2; 6.3; 7.1; 7.2; 7.3;<br />
8.1<br />
Applicable parts of Section Two:<br />
Chapter II and Paragraphs: 3.3; 3.4;<br />
4.1; 4.2; 4.3; 4.4; 4.5; 4.7; 4.8; 5.1; 5.2,<br />
letter a); 5.3; 5.4; 6.2; 6.3; 7.1; 7.2; 7.3;<br />
8.1
Banca Toscana S.p.A.,<br />
with registered office in Florence, Via del Corso n. 6<br />
BNP Paribas Succursale Italia,<br />
with registered office in Milan, Piazza San Fedele n. 2<br />
1.2 Certification of liability<br />
Certifications of liability are provided at the end of this Prospectus.<br />
II. RISK FACTORS<br />
70<br />
Applicable parts of Section Two:<br />
Chapter II and Paragraphs: 3.3; 3.4;<br />
4.1; 4.2; 4.3; 4.4; 4.5; 4.7; 4.8; 5.1; 5.2,<br />
letter a); 5.3; 5.4; 6.2; 6.3; 7.1; 7.2; 7.3;<br />
8.1<br />
Applicable parts of Section Two:<br />
Chapter II and Paragraphs: 3.3; 3.4;<br />
4.1; 4.2; 4.3; 4.4; 4.5; 4.7; 4.8; 5.1; 5.2,<br />
letter a); 5.3; 5.4; 6.2; 6.3; 7.1; 7.2; 7.3;<br />
8.1<br />
The information on the significant risk factors affecting the financial instruments covered by the Offer is found in<br />
the Paragraph “Risk factors associated with the financial instruments” of the Section entitled “Risk Factors”, to<br />
which the reader is referred.<br />
III. BASIC INFORMATION<br />
3.1 Certification of cash flows<br />
The Issuer certifies that, in its opinion, its cash flows are sufficient to meet its current financial needs.<br />
The information on Group cash flows is contained in Section One, Chapter X, Paragraph 10.2. of the<br />
Prospectus.<br />
3.2 Stockholders’ equity and net debt<br />
At September 30, 2005, the stockholders’ equity of the Group totaled 9,277 million euros and net debt totaled<br />
19,105 million euros (of which 4,658 million euros for industrial activities).<br />
The financial payables of the <strong>Fiat</strong> Group backed by secured guarantees totaled 685 million euros at September<br />
30, 2005 and 2,510 million euros at December 31, 2004. Approximately 1.8 billion euros of this reduction refer<br />
to the financing secured as part of the Italenergia Bis S.p.A. transaction, extinguished in September 2005, as<br />
described in Section One, Chapter XII of the Prospectus.<br />
3.3 Interests of natural persons and legal entities participating in the issuance of the Shares and the<br />
Offer<br />
The Shares involved in the Offer are owned by the Banks, which subscribed them on September 20, 2005<br />
pursuant to Article 2441, paragraph seven, of the Italian Civil Code, with the obligation, pursuant to Article 2441,<br />
paragraph seven, of the Italian Civil Code, to offer them in option to shareholders of the Issuer. Each Bank has<br />
its own specific interest in the Offer, insofar as the proceeds from the Offer will be owed on a per-share basis to<br />
each Bank, and each Bank will acquire full disposition on a per-share basis of the Shares for which the option<br />
right is not exercised.<br />
Furthermore, the Banks have, or in the last three years have had significant relationships with the <strong>Fiat</strong> Group<br />
(see Section Two, Paragraph 7.1) and may have other direct interests in the Offer, insofar as some of them or<br />
certain companies belonging to their respective groups are issuers of financial instruments (covered warrants,<br />
certificates) connected with the shares of the Issuer.
3.4 Reasons for the Offer and use of proceeds<br />
The Offer originates from the Mandatory Convertible Facility Agreement, pursuant to which the Issuer’s debt of 3<br />
billion euros in principal to the Banks was reimbursed on the September 20, 2005 due date with newly issued<br />
ordinary shares of <strong>Fiat</strong> stock.<br />
Consequently, on September 20, 2005 each Bank subscribed, pursuant to Article 2441, paragraph seven, of the<br />
Italian Civil Code, the number of shares shown in the following table.<br />
Subscribing Bank Number of Shares subscribed pursuant to Article<br />
2441, paragraph seven, of the Italian Civil Code<br />
Banca Intesa S.p.A. 63,229,555<br />
Capitalia S.p.A. 41,342,402<br />
SanPaolo IMI S.p.A. 38,910,496<br />
UniCredit Banca d’Impresa S.p.A. 60,797,649<br />
Banca Nazionale del Lavoro S.p.A. 29,182,872<br />
Banca Monte dei Paschi di Siena S.p.A. 24,319,060<br />
ABN AMRO Bank N.V. 14,591,436<br />
BNP Paribas S.A. 14,591,436<br />
Banca Toscana S.p.A. 4,863,812<br />
Total 291,828,718<br />
The debt of each Bank subscribing the Shares was therefore offset by the credit claimed by each of them vis-àvis<br />
the Company for the corresponding amount of the Mandatory Convertible Facility Agreement.<br />
The funds deriving from the Capital Increase fully offset the principal of the loan owed by <strong>Fiat</strong> to the Banks under<br />
the Mandatory Convertible Facility Agreement.<br />
IV. INFORMATION ON THE FINANCIAL INSTRUMENTS TO BE OFFERED<br />
4.1 Class of shares issued<br />
<strong>Fiat</strong> S.p.A. ordinary shares are the object of this Offer.<br />
4.2 Statutes according to which the Shares were created<br />
The Shares were created pursuant to Italian law. In particular, they were issued and subscribed pursuant to<br />
Article 2441, paragraph seven, of the Italian Civil Code.<br />
4.3 Characteristics of the Shares<br />
The Shares are newly issued <strong>Fiat</strong> ordinary shares with the same characteristics of those already outstanding<br />
and with regular rights of enjoyment. The Shares are registered, issued in dematerialized form on the central<br />
depository system of Monte Titoli S.p.A., and listed for trading on the Mercato Telematico Azionario (MTA) of<br />
Borsa Italiana (ISIN code IT0001976403).<br />
4.4 Issue currency of Shares<br />
The issue currency of the Shares is the euro.<br />
4.5 Rights assigned to the Shares. Limitations<br />
The information for which <strong>Fiat</strong> is responsible regarding the rights assigned to <strong>Fiat</strong> ordinary shares are set forth in<br />
Section One, Chapter XXI, Paragraph 21.2, to which the reader is referred.<br />
The Articles of Association do not envisage limitations to the rights of <strong>Fiat</strong> ordinary shares.<br />
71
Pursuant to Article 2441, paragraph seven, of the Italian Civil Code, the Banks may not exercise the voting rights<br />
stemming from the Shares between the time that they enter into possession thereof and expiration of this Offer.<br />
4.6 Resolutions pursuant to which the Shares were issued<br />
The capital increase for the Shares that are the object of the Offer was resolved by the Board of Directors of <strong>Fiat</strong><br />
S.p.A. on September 15, 2005 pursuant to the delegation of authority granted by the Extraordinary Stockholders<br />
Meeting on September 12, 2002 pursuant to Article 2443 of the Italian Civil Code.<br />
In particular, the <strong>Fiat</strong> Board of Directors resolved:<br />
• to increase the capital for consideration from 4,918,113,540 euros to 6,377,257,130 euros, and thus by<br />
1,459,143,590 euros, through the issuance of 291,828,718 ordinary shares with a par value of 5 euros<br />
each with the same characteristics as those already outstanding, including enjoyment at January 1,<br />
2005, to be reserved for subscription by the Banks pursuant to Article 2441, paragraph seven, of the<br />
Italian Civil Code, with the obligation of offering Company stockholders option rights to purchase said<br />
shares pursuant to Article 2441, paragraph seven, of the Italian Civil Code (and thus in compliance with<br />
the first three paragraphs of the aforementioned article) and the first paragraph of Article 134 of the<br />
Consolidated Law on Financial Intermediation;<br />
• to define, in compliance the Extraordinary Stockholders Meeting resolution of September 12, 2002, the<br />
unit price for issuance of the Shares in the amount of 10.28 euros, of which 5.28 euros as a share<br />
premium, with this price being the arithmetic average of 14.4409 euros and the weighted average of<br />
official prices of ordinary <strong>Fiat</strong> shares reported on the Mercato Telematico Azionario of Borsa Italiana<br />
S.p.A. in the six months preceding the fifth banking day preceding the maturity of the Mandatory<br />
Convertible Facility Agreement, September 20, 2005;<br />
• to release the Shares exclusively through set-offs, in compliance with the provisions of the Mandatory<br />
Convertible Facility Agreement, with the payable for a total of 3,000,000,000 euros in principal owed to<br />
the Banks pursuant to the Mandatory Convertible Facility Agreement granted to the Company that<br />
matured on September 20, 2005 by assigning to each one of the Banks a quantity of Shares in<br />
proportion to its own participation in the Mandatory Convertible Facility Agreement, with rounding to the<br />
nearest unit as necessary;<br />
• to envisage execution of subscription by the aforementioned Banks on September 20, 2005, pursuant to<br />
the provisions of Article 2436 of the Italian Civil Code;<br />
• to envisage furthermore that the Shares would be offered to the stockholders of the Company at a price<br />
equal to the Subscription Price of 10.28 euros each, in the ratio of 149 new ordinary shares for every<br />
500 shares owned in any class.<br />
The Board of Directors resolution of September 15, 2005 was deposited at the Turin Company Register on<br />
September 16, 2005 and registered on September 19, 2005.<br />
4.7 Issue date of the Shares<br />
The Shares were issued on September 20, 2005 in execution of the aforementioned resolution by the <strong>Fiat</strong> Board<br />
of Directors of September 15, 2005.<br />
4.8 Transferability of the Shares<br />
No restrictions are imposed on free transfer of the Shares.<br />
4.9 Applicability of regulations governing tender offers and/or residuary tender offers<br />
The Shares are subject to the regulations governing tender offers and residuary tender offers envisaged in the<br />
Consolidated Law on Financial Intermediation and relevant enacting regulations.<br />
72
4.10 Previous tender offers<br />
No tender offers for the financial instruments issued by the Issuer were made during the past fiscal year or the<br />
current fiscal year.<br />
4.11 Tax treatment<br />
The following paragraphs describe the tax treatment that is applicable, pursuant to current regulations, to the<br />
dividends distributed by a company domiciled in Italy and whose shares are listed on regulated markets, as well<br />
as the gains (and/or losses) realized upon sale of the equity holdings in the aforementioned company, but<br />
without implying that this description is complete for all classes of investors.<br />
The applicable tax treatment varies according to whether the holdings generating the dividends and/or whose<br />
sale generates gains are considered qualified or not.<br />
With reference to a listed company, qualified holdings are considered to be those comprised by shares other<br />
than savings shares, as well as by securities and rights through which these holdings can be acquired and which<br />
together represent a percentage of voting rights exercisable at the ordinary stockholders meeting in excess of<br />
2%, or an equity holding in excess of 5%. Instead, unqualified holdings are considered to be savings shares and<br />
ordinary shares that do not exceed these thresholds for voting or equity holdings.<br />
Furthermore, in order to determine whether the sold equity holding is qualified or not, the percentage of the<br />
equity holding is determined by taking into account all the sales made during the twelve months, both before and<br />
after the sale, even if to different parties. However, this rule applies only starting on the date on which the<br />
securities and rights held represent a percentage that involves a qualified holding. In the event of sale of rights<br />
or securities through which holdings can be acquired, determination of the sold percentage takes into account<br />
the voting right and holding percentages that might be connected with the holdings that these securities and<br />
rights allow one to acquire.<br />
Dividends<br />
Pursuant to Legislative Decree no. 213 of June 24, 1998, starting on January 1, 1999 the shares of Italian<br />
companies traded on regulated markets must be deposited in dematerialized form on the central depository<br />
system. Accordingly, pursuant to Article 27-ter of Presidential Decree no. 600 of September 29, 1973, as<br />
amended by Article 2 of Legislative Decree no. 344 of December 12, 2003, the profits generated by shares<br />
deposited on the central depository system operated by Monte Titoli S.p.A. and paid to natural persons<br />
domiciled in Italy in connection with unqualified holdings that do not regard sole proprietorships are subject, in<br />
lieu of the ordinarily envisaged withholding, to a substitute income tax at the same rates and at the same<br />
conditions envisaged for application of the aforesaid withholding.<br />
The substitute tax is applied by the entities that participate in the central depository system operated by Monte<br />
Titoli S.p.A. where the securities are deposited, or by the depositaries of the securities that are not domiciled in<br />
Italy but which participate (directly or indirectly) through central foreign depositaries in the central depository<br />
system of Monte Titoli S.p.A. If the securities are deposited with the entities not domiciled in Italy as indicated<br />
hereinabove, satisfaction of the tax obligations connected with application of the substitute tax must be assigned<br />
to a tax representative in Italy that is designated by the aforementioned entities pursuant to Article 27-ter,<br />
paragraph 8 of Presidential Decree no. 600 of September 29, 1973. These tax representatives shall be<br />
responsible for satisfaction of their duties by the same deadlines and with the same responsibilities envisaged<br />
for entities domiciled in Italy (whether they be banks and investment management companies domiciled in Italy<br />
or the permanent organizations in Italy of banks or foreign investment firms that are not domiciled in Italy, or the<br />
central depository of financial instruments authorized pursuant to Article 80 of Legislative Decree no. 58 of<br />
February 24, 1998).<br />
The substitute tax applies in the following cases and in the following amounts:<br />
(i) profits distributed to natural persons domiciled in Italy in connection with unqualified holdings, on<br />
condition that these holdings are not connected with a business as envisaged in Article 65 of<br />
Presidential Decree no. 917 of December 22, 1986 (“Italian Income Tax Consolidation Act”). The<br />
substitute tax is 12.50%. The stockholders are not obligated to report the collected dividends on their<br />
73
income tax return since they have already been taxed on a final basis. The substitute tax is not<br />
charged if the natural person who is a stockholder and domiciled in Italy granted an authorized<br />
intermediary a mandate for management of the shares (the “managed investment treatment,” see<br />
hereunder);<br />
(ii) profits distributed to persons domiciled in Italy that are exempt from corporate income tax. The<br />
substitute tax is 27%;<br />
(iii) profits distributed to persons that are not domiciled in Italy and do not have a permanent organization in<br />
Italy to which the holdings are actually connected. The substitute tax is 27%. The amount of<br />
withholding is reduced to 12.50% in the case of dividends paid to savings stockholders. Persons not<br />
domiciled in Italy that are not holders of savings shares have the right to refund, up to 4/9 of the<br />
substitute tax, of the tax that they prove having paid abroad on a final basis for the same profits,<br />
through certification by the competent tax office of the foreign state. In any event, this is without<br />
prejudice to application of the reduced rates envisaged by applicable international conventions against<br />
double taxation. These international conventions generally envisage the right of a non-resident<br />
stockholder to request refund of the amount in excess of the 27% withholding applied pursuant to<br />
Italian law with respect to the amount applicable pursuant to the convention. Nevertheless, Article 27–<br />
ter of Presidential Decree no. 600 of September 29, 1973 envisages that the entities where the<br />
securities are deposited (and belonging to the central depository system operated by Monte Titoli<br />
S.p.A.) can directly apply the rate envisaged in the convention if they have obtained:<br />
a. certification by the person who is not domiciled in Italy and is the actual beneficiary of the profits<br />
that contains the personal identification of that individual, satisfaction of all the conditions to<br />
which application of treatment pursuant to the convention is subject, and any information as<br />
necessary to determine the amount of the rate applicable pursuant to the convention;<br />
b. certification by the competent tax authority of the state where the actual beneficiary is domiciled<br />
(which remains valid until March 31 of the year after the year in which it is submitted), attesting<br />
to domicile in that state for the purposes of the convention.<br />
Note that the benefits envisaged in the convention are alternative to refund of four ninths of the<br />
aforementioned withholding.<br />
The substitute tax is not applied instead on natural persons who, when they receive the profits, <strong>certify</strong> that they<br />
regard a qualifying holding. In both of these cases, 40% of these profits are counted towards gross income (as<br />
unearned income) subject to personal income tax, pursuant to the ordinary rules envisaged for this tax.<br />
Analogously, the substitute tax is not applied to those natural persons who, when they receive the dividends,<br />
<strong>certify</strong> that they refer to their own productive business activity. In this case, 40% of the amount of these<br />
dividends is counted towards the business income of these natural persons.<br />
Furthermore, the substitute tax does not apply in the following cases:<br />
(i) the recipient is a general partnership, a limited partnership, and equivalent entities as envisaged in<br />
Article 5 of the Italian Income Tax Consolidation Act. In this case, the collected profits are counted<br />
towards the aggregate taxable income of the recipient, limited to 40% of their amount;<br />
(ii) the recipient is a joint-stock company or an entity as envisaged in Article 73, paragraph 1, letter b) of<br />
the Italian Income Tax Consolidation Act whose tax domicile is in Italy. In this case, the profits received<br />
will contribute to calculation of business income taxed at the rate of 33% on only 5% of their amount;<br />
(iii) the recipient is an entity domiciled in Italy as envisaged in Article 73, paragraph 1, letter c) of the Italian<br />
Income Tax Consolidation Act (public and private entities that have their tax domicile in Italy other than<br />
companies or entities whose exclusive or principal object is the operation of commercial activities,<br />
including non-profit organizations [ONLUS]). In this case, 5% of the received profits are counted<br />
towards the taxable income of the recipient. This system is applicable as long as the aforementioned<br />
entities are not included among the persons subject to personal income tax as envisaged in Article 3,<br />
paragraph 1, letter (a) of Law no. 80 of April 7, 2003;<br />
(iv) the recipient is exempt from corporate income tax (IRES) pursuant to Article 74, paragraph 1 of the<br />
Italian Income Tax Consolidation Act (State bodies and administrations, including those with<br />
autonomous organization, even if they are vested with legal personality, municipalities, consortia<br />
comprised of local entities, associations and entities that operate state property, mountain communities,<br />
provinces, and regions – see Resolution no. 113/E of July 6, 2001);<br />
(v) the recipient of dividends is a natural person domiciled in Italy who opted, for the holdings to which the<br />
dividends refer, for application of managed investment treatment (see herein). In this case, these<br />
74
dividends are counted towards the operating result, with consequent application of the substitute tax of<br />
12.50%;<br />
(vi) the recipient is a collective investment undertaking for securities that is domiciled in Italy. In this case,<br />
the profits that are paid are counted towards the operating result that is accrued in each tax period and<br />
subject to the substitute tax of 12.50% that is charged by the management company. Pursuant to<br />
Article 12 of Decree Law no. 269 of September 30, 2003, this rate is reduced to 5% if the collective<br />
investment undertaking invests at least 2/3 of the total investment in the shares of small or medium<br />
sized companies whose securities are listed on at least one of the regulated markets of the Member<br />
States of the European Union. In this regard, the European Commission issued a decision in<br />
September 2005 that found this measure incompatible with EU regulations, considering it to be State<br />
aid. The Republic of Italy was thus asked to eliminate this subsidy;<br />
(vii) the recipient is a pension fund subject to the treatment envisaged in Articles 14, 14-ter, and 14-quater,<br />
paragraph one of Legislative Decree no. 124 of April 21, 1993. In this case, the paid profits are<br />
counted towards the operating result that is accrued in each tax period subject to the substitute tax of<br />
11% charged by the management company;<br />
(viii) the recipient is a real estate trust as envisaged in Decree Law no. 351 of September 25, 2001. In this<br />
case, the paid profits are counted towards the operating result of the trust.<br />
Gains<br />
The gains on qualified holdings - other than those realized in the course of operating commercial enterprises -<br />
realized by natural persons domiciled in Italy (as sell as simple partnerships and associations considered<br />
equivalent thereto) are counted towards aggregate income in the amount of 40% of their total and are subject to<br />
personal income tax at the progressive rates envisaged for this tax.<br />
The gains on qualified holdings realized by non-commercial entities, including non-profit organizations (ONLUS),<br />
are counted towards aggregate income in the amount of 40% of their total and are subject to IRES at the rate of<br />
33%. This treatment is applicable as long as these entities are not included among those subject to personal<br />
income tax pursuant to Article 3, paragraph 1, letter (a) of Law no. 80 of April 7, 2003.<br />
The gains on unqualified holdings - other than those realized in the course of operating commercial enterprises -<br />
realized by natural persons domiciled in Italy (as well as non-commercial entities, simple partnerships, and<br />
associations considered equivalent thereto, including non-profit organizations – ONLUS) through the sale for<br />
consideration of holdings, as well as securities and rights through which these holdings can be acquired, are<br />
subject to a substitute tax in lieu of income tax at the rate of 12.50%.<br />
In regard to the terms and conditions for application of the substitute tax of 12.50%, in addition to the ordinary<br />
treatment that consists of reporting gains on the income tax return, two alternative systems are envisaged, which<br />
are applied following exercise of the option by the taxpayer: administered investment treatment and managed<br />
investment treatment.<br />
A) Ordinary treatment<br />
The taxpayer must report the gains realized during the year on his income tax return. For the purpose<br />
of applying the substitute tax of 12.50%, the gains are added algebraically to the relative losses. If the<br />
aggregate amount of the losses is higher, the excess, which is calculated for each class of losses, can<br />
be deducted up to their entire amount from the gains realized in up to but no more than four tax<br />
periods thereafter, on condition that this excess has been reported on the income tax return for the tax<br />
period in which the losses were realized. The substitute tax must be paid pursuant to the terms and<br />
conditions envisaged for payment of the balance of income taxes on the basis of the income tax<br />
return.<br />
B) Administered investment treatment<br />
The taxpayer has the right to opt for application of the substitute tax in the amount of 12.50% on each<br />
gain realized, on condition that the possessed shares are deposited for safekeeping or administration<br />
at authorized intermediaries (banks and investment management companies). The option is<br />
75
exercised by the taxpayer with a statement signed at the same time as the mandate is granted and<br />
opening of the deposit or current account or, for existing relationships, prior to the start of the tax<br />
period, it applies to the entire tax period and can be revoked by the end of each calendar year,<br />
effective for the following tax period. The realized losses are deductible up to their entire amount from<br />
gains of the same type realized from subsequent transactions carried out as part of the same<br />
relationship in the same and up to but no more than four tax periods thereafter. The substitute tax is<br />
paid directly by the intermediary involved in the transaction, who withholds the amount from each gain<br />
realized or receives the relative sum therefor from the taxpayer by the fifteenth day of the second<br />
month after that in which the same tax was levied. The taxpayer is consequently not required to<br />
include these gains and/or losses on his income tax return. If the custodial or administrative<br />
relationship is terminated, any losses can be deducted from the gains realized by the taxpayer as part<br />
of another administered investment relationship registered in the name of the same taxpayer, or they<br />
can be deducted on his income tax return, but no later than the fourth tax period after the one in which<br />
the losses were realized, provided that the losses are reported on the taxpayer’s income tax return.<br />
C) Managed investment treatment<br />
Taxpayers who have commissioned an entity authorized pursuant to Legislative Decree no. 415 of<br />
July 23, 1996 (now Legislative Decree no. 58 of February 24, 1998) to manage portfolios comprised of<br />
cash, shares, and other non-business related assets may opt for application of the substitute tax at the<br />
rate of 12.50% on the result of the managed individual portfolio. The option is exercised by the<br />
taxpayer with a signed statement issued to the portfolio manager when the management agreement is<br />
executed or, for existing relationships, prior to the start of the tax period, it applies to the entire tax<br />
period, and can be revoked by the end of each calendar year, effective in the following tax period. If<br />
the aforementioned option is exercised, the income that is counted towards the operating result is not<br />
subject to income tax or the substitute tax envisaged at point A) hereinabove. Consequently, the<br />
taxpayer is not required to include this income on his annual income tax return.<br />
The operating result is comprised by the difference between the value of the managed portfolio at the<br />
end of each calendar year and the value of the portfolio at the beginning of the year. In particular, the<br />
value of the portfolio managed at the end of each calendar year is counted gross of the substitute tax,<br />
increased by withdrawals and reduced by contributions made during the year, as well as the income<br />
accrued during the period and subject to tax withholding, the income that contributes to the aggregate<br />
income of the taxpayer, exempt income or income not subject to taxation and accrued during the<br />
period, the income generated by collective investment undertakings subject to substitute tax, and by<br />
shares in real estate investment trusts. The result is calculated net of the expenses and commissions<br />
for the managed portfolio. Any operating loss that is posted during a year reduces the operating result<br />
of following tax periods, but no later than the fourth one, for the entire amount that can be deducted in<br />
each of those years.<br />
The substitute tax is deducted by the portfolio manager, who pays it to the competent tax collector by<br />
February 16 of the year after the one in which the related liability arose, or by the sixteenth day of the<br />
month after the one in which the management mandate was revoked.<br />
For those persons not domiciled in Italy and without a permanent organization in Italy but to whom the holdings<br />
are actually connected pursuant to Article 23 of the Italian Income Tax Consolidation Act, the gains that they<br />
realized through sale for a consideration of unqualified holdings in Italian companies traded on regulated<br />
markets are exempt from taxation in Italy, wherever the holdings are kept.<br />
Thus, all other types of gains are generally subject to taxation in Italy. Nevertheless, most international<br />
conventions against double taxation made by Italy envisage that these gains be taxed exclusively in the country<br />
where the foreign person is domiciled.<br />
The gains deriving from the sale of qualified and unqualified holdings of listed shares in Italian companies<br />
realized by natural persons domiciled in Italy as part of their business activity or by partnerships (excluding<br />
simple partnerships) are respectively counted towards the business income and the total taxable income (as<br />
other income) of the recipient in the amount of 40% of their total and are subject to taxation at the proportional<br />
76
ate, for transparency by the partners in the case of partnerships. The related losses and costs specifically<br />
connected with realization of these holdings are deductible according to the same proportion. This treatment is<br />
applicable on condition that the holdings subject to sale satisfy the following requirements:<br />
(i) uninterrupted possession from the first day of the twelfth month prior to the month in which the sale<br />
took place;<br />
(ii) classification under financial fixed assets on the first financial statement closed during the period of<br />
ownership.<br />
Sixty per cent of the losses realized on investments that satisfy the requirement indicated at point (ii)<br />
hereinabove and that were held without interruption from the first day of the twelfth month preceding the month<br />
in which the sale was effected cannot be deducted.<br />
The gains that do not satisfy the requirements envisaged at the preceding points (i) and (ii) are counted entirely<br />
towards the taxable income of the recipient according to ordinary rules. In this event, the related losses and<br />
costs specifically connected with realization of these holdings can be fully deducted.<br />
The gains resulting from sale of qualified and unqualified holdings of shares in listed Italian companies satisfying<br />
the requirements envisaged at points (i) and (ii) hereunder realized by joint-stock companies (e.g. “società per<br />
azioni,” “società a responsabilità limitata”) and commercial entities domiciled in Italy do not count towards the<br />
taxable income of the recipient in the amount of 95% insofar as they are exempt. The costs that specifically<br />
pertain to these holdings are not deductible. The exemption treatment is applicable to holdings that satisfy the<br />
following requirements:<br />
(i) uninterrupted possession from the first day of the eighteenth month prior to the month in which the sale<br />
took place;<br />
(ii) classification under financial fixed assets on the first financial statement closed during the period of<br />
ownership.<br />
If the requirement envisaged at point (ii) is not satisfied, the losses can be fully deducted from business income.<br />
Conversely, if – in the case envisaged at point (ii) hereinabove – sale of the relative securities takes place<br />
starting on the first day after expiration of the term of twelve months following purchase, the losses resulting from<br />
sale of the aforementioned investments are entirely non-deductible.<br />
The gains that do not satisfy the requirements envisaged at points (i) and (ii) hereinabove count entirely towards<br />
the taxable income of the recipient and will be subject to corporate income tax (IRES) at the rate of 33%<br />
according to the ordinary rules. For holdings reported on the last three annual financial statements as financial<br />
fixed assets, the gains may, at the discretion of the taxpayer, be spread out in even amounts in the year they<br />
were realized and for up to but no more than the four following fiscal years. For certain taxpayers and in certain<br />
cases, the gains realized on the sale of shares also count towards the relative net production value subject to<br />
the regional tax on production activity (IRAP).<br />
At the date this Prospectus was drafted, the Italian Parliament was examining more detailed regulations<br />
containing measures that, if they were finally approved, could cause significant changes in the extent and<br />
requirements for exemption of gains (and the related non-deductibility of losses) described hereinabove in<br />
regard to business owners.<br />
The gains produced by qualified and unqualified holdings held by the following Italian institutional investors are<br />
subject to specific tax treatment: mutual funds as envisaged in Law no. 77 of March 23, 1983, mutual funds as<br />
envisaged in Law no. 344 of August 14, 1993, open-end investment companies (SICAV) as envisaged in Law<br />
no. 84 of January 25, 1992, the real estate trusts envisaged in Law no. 86 of January 25, 1994, the pension<br />
funds envisaged in Legislative Decree no. 124 of April 21, 1993, and the gains realized on “historic Luxembourg”<br />
mutual funds as envisaged in Article 11-bis of Legislative Decree no. 512 of September 30, 1983, converted into<br />
Law no. 649 of November 25, 1983.<br />
Tax on stock market contracts<br />
77
Pursuant to Royal Decree no. 3278 of December 30, 1923, as amended by Article 1 of Legislative Decree no.<br />
435 of November 21, 1997, the tax on stock market contracts is applied to contracts executed in Italy whose<br />
object is the transfer of shares, quotas, or equity holdings in all types of companies. For application of the tax on<br />
stock market contracts, contracts made between residents and non-residents are in all cases considered to be<br />
executed in Italy. Furthermore, contracts executed abroad are legally enforceable in Italy provided that they are<br />
subject to the tax on stock market contracts.<br />
The applicable tax rates vary according to the persons between whom these agreements are made, and in<br />
particular:<br />
a) agreements made directly between the contracting parties or with the participation of persons other than<br />
authorized intermediaries (banks or persons authorized to provide professional investment services to<br />
the public, pursuant to Legislative Decree no. 58 of February 24, 1998, or stock brokers): 0.072 euros<br />
for every 51.65 euros or fraction thereof of the price of shares;<br />
b) agreements made between private citizens and authorized intermediaries, or between private citizens<br />
with the participation of authorized intermediaries: 0.0258 euros for every 51.65 euros or fraction<br />
thereof of the price of shares;<br />
c) agreements made between authorized intermediaries: 0.0062 euros for every 51.65 euros or fraction<br />
thereof of the price of shares.<br />
The following agreements are instead exempt from the tax on stock market contracts:<br />
(i) agreements made on regulated markets;<br />
(ii) agreements whose object is securities listed on regulated markets and made outside of those markets:<br />
(a) between authorized intermediaries;<br />
(b) between authorized intermediaries and persons not domiciled in Italy;<br />
(c) between authorized intermediaries, including non-residents and collective investment<br />
undertakings (“OICR”);<br />
(iii) agreements involving offers for sale for listing on regulated markets or whose object is financial<br />
instruments already listed on those markets;<br />
(iv) agreements whose object is securities not listed on regulated markets and made between persons not<br />
domiciled in Italy and authorized intermediaries;<br />
(v) agreements whose amount does not exceed 206.58 euros;<br />
(vi) financing agreements for securities and every agreement that pursues the same economic purpose.<br />
Finally, the tax on stock market contracts excludes contracts for transfers of shares made between persons,<br />
companies, or entities between which there is a controlling relationship pursuant to Article 2359, paragraph 1,<br />
numbers 1) and 2) of the Italian Civil Code, or between companies that are directly or indirectly controlled by the<br />
same entity pursuant to the aforementioned provisions.<br />
V. CONDITIONS OF THE OFFER<br />
5.1 Conditions, envisaged calendar, and terms and conditions for subscription of the Offer<br />
The Offer is unconditional and irrevocable.<br />
a) Total amount of the Offer<br />
The object of the Offer is 291,828,718 Shares with a par value of 5 euros each.<br />
b) Period of Offer and terms and conditions of acceptance<br />
The option rights are represented by coupon no. 10 of <strong>Fiat</strong> ordinary, preference, and savings shares.<br />
78
The Offer is open to all <strong>Fiat</strong> stockholders, without limit on quantity, in the ratio of 149 Shares for every 500 <strong>Fiat</strong><br />
shares of any class owned.<br />
The following table summarizes the envisaged calendar for the Offer:<br />
Publication of the Prospectus November 22, 2005<br />
Start of the Offer period and first day of trading of the option rights November 28, 2005<br />
Last day of trading of the option rights December 7, 2005<br />
Expiration of Offer period and final deadline for payment of shares December 14, 2005<br />
The option rights may be exercised at any of the authorized intermediaries participating in the central depository<br />
system of Monte Titoli S.p.A. (the “Authorized Intermediaries”), including <strong>Fiat</strong> itself, in compliance with the<br />
service rules that Monte Titoli S.p.A. will issue shortly before the transaction and using the exercise form<br />
prepared by the Authorized Intermediaries. At the very least, this exercise form must identify the operation and<br />
contain the following information reproduced with a font size that permits easy reading:<br />
- notice that the accepting party can receive a free copy of this Prospectus;<br />
- reference to the Section named “Risk Factors” of this Prospectus.<br />
Neither <strong>Fiat</strong> nor the Banks are liable for any delays attributable to the Authorized Intermediaries in execution of<br />
the orders given by the applicants upon acceptance of the Offer. The Authorized Intermediaries themselves will<br />
verify that the acceptances they receive are proper and correct.<br />
Given the Offer ratio of 149 new ordinary shares for every 500 shares of any class owned, and given the Offer<br />
Price, the minimum amount of Shares that can be subscribed is 149 ordinary shares for a minimum investment<br />
countervalue of 1,531.72 euros. There is no maximum acceptance amount either in terms of the number of<br />
financial instruments or the aggregate amount to be invested.<br />
c) Terms and conditions for payment and delivery of the Shares<br />
The Shares must be paid for in full upon exercise of the option rights, and in any event within the final deadline<br />
for payment at the Authorized Intermediary through which the transaction is executed. No additional costs or<br />
expenses are envisaged for those who accept the Offer.<br />
The subscribed Shares shall be made available to those with title thereto by the third day on which the stock<br />
exchange is open after the aforementioned deadline for payment, after confirmation of crediting through<br />
registration at Monte Titoli on the accounts held at it by the respective Authorized Intermediaries.<br />
d) Results of the Offer<br />
As this is a rights offering, the Issuer will communicate the results of the Offer to the public, Consob, and Borsa<br />
Italiana S.p.A., by means of a press release issued in compliance with Article 66 of the “Issuers Regulation”.<br />
e) Preemption right and treatment of unexercised rights<br />
There is no preemption right.<br />
Any option rights not exercised within the expiration of the Offer period will be offered on the Stock Exchange<br />
through the financial intermediary UniCredit Banca Mobiliare S.p.A. (UBM) for five sessions, pursuant to Article<br />
2441, paragraph three of the Italian Civil Code and will give the right to subscribe the Shares at the price of<br />
10.28 euros per Share.<br />
By the day before commencement of the offer of unexercised option rights, the Issuer will publish a notice in the<br />
newspapers Il Sole 24 Ore and La Stampa indicating the number of unexercised option rights to be offered on<br />
the Mercato Telematico Azionario pursuant to Article 2441, paragraph three of the Italian Civil Code and the<br />
dates of the sessions at which the Offer will be made.<br />
5.2 Allocation and assignment plan<br />
a) Persons to whom the Shares are offered<br />
The Offer is made in Italy without distinction and on equal terms to all holders of any class of <strong>Fiat</strong> stock.<br />
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This Prospectus does not represent an offer of financial instruments in the United States of America or in other<br />
countries.<br />
The Shares and option rights may not be offered or sold in the United States of America or other countries<br />
without specific authorization in compliance with the applicable laws of each country, or without an exception<br />
from those laws.<br />
The Shares and option rights were not and will not be registered pursuant to the United States Securities Act of<br />
1933, as amended, or pursuant to the corresponding laws in effect in the other countries, and they consequently<br />
cannot be offered or delivered directly or indirectly in the United States of America or other countries without<br />
specific exceptions from the registration or authorization requirements envisaged in the applicable laws.<br />
b) Subscription commitments<br />
Within the framework of the transaction announced on September 15, 2005 IFIL communicated that it had<br />
resolved to “(…) sell to Merrill Lynch all the option rights it is entitled to in connection with the <strong>Fiat</strong> capital<br />
increase (…)” (see Section One, Chapter XVIII, Paragraph 18.3).<br />
The Issuer is not informed of the intentions of the other principal stockholders, and it does not know whether the<br />
members of the boards, management, or supervisory bodies of the Issuer intend to accept the Offer, or if any<br />
other person plans to subscribe to more than 5% of the Offer.<br />
5.3 Offer price<br />
The Shares are offered at a unit price of 10.28 euros each, of which 5 euros par value and 5.28 euros share<br />
premium, at no additional charge or expense to the persons accepting the Offer. This price is equal to the price<br />
of subscription by the Banks determined pursuant to the Mandatory Convertible Facility Agreement, and i.e. the<br />
arithmetic average between 14.4409 euros, which is derived from the amount of 15.50 euros envisaged in the<br />
Mandatory Convertible Facility Agreement as adjusted following the <strong>Fiat</strong> capital increase of July 2003, and the<br />
weighted average of the official market prices of <strong>Fiat</strong> ordinary shares reported on the Mercato Telematico<br />
Azionario of Borsa Italiana S.p.A. in the six months preceding the fifth banking day prior to September 20, 2005<br />
(6.1211 euros).<br />
The Offer Price of 10.28 euros is significantly higher than the official stock market price of <strong>Fiat</strong> shares recently<br />
recorded: in the session of November 14, 2005 the official price was 7.20 euros.<br />
The Offer Price of 10.28 euros is significantly higher than the weighted average of the official prices of <strong>Fiat</strong><br />
shares recorded in the last three months, from August 16, 2005 to November 14, 2005 (equal to 7.25 euros), in<br />
the last six months, from May 16, 2005 to November 14, 2005 (equal to 6.82 euros), in the last year, from<br />
November 15, 2004 to November 14, 2005 (equal to 6.21 euros).<br />
With reference to the Offer Price, each stockholder will have to assess with particular attention whether, at the<br />
time of acceptance of the Offer, the price of <strong>Fiat</strong> shares on the stock exchange is more favorable than the Offer<br />
Price of 10.28 euros per Share (see Paragraph “Risk factors associated with the financial instruments” of the<br />
Section “Risk Factors” of this Prospectus).<br />
5.4 Placement and subscription<br />
All the Shares covered by the Offer were subscribed by the Banks at the Subscription Price on September 20,<br />
2005 pursuant to Article 2441, paragraph seven, of the Italian Civil Code in the amount indicated at Paragraph<br />
7.2. Until expiration of the Offer, the Shares are held by the Banks to service the Offer. Pursuant to Article<br />
2441, paragraph seven, of the Italian Civil Code, the Banks do not enjoy the voting rights pertaining to the<br />
Shares until expiration of the Offer.<br />
At the expiration of the Offer, each Bank will acquire full disposition and ownership of the Shares (including the<br />
related voting rights) for which the option right will not be exercised in proportion to the Shares subscribed by<br />
each one of them pursuant to Article 2441, paragraph seven, of the Italian Civil Code.<br />
80
VI. LISTING AND TERMS AND CONDITIONS FOR TRADING<br />
6.1 Listing of the Shares covered by the Offer<br />
<strong>Fiat</strong> ordinary shares are already listed on the Mercato Telematico Azionario organized and operated by Borsa<br />
Italiana S.p.A., as well as the Paris Stock Exchange, the Frankfurt Stock Exchange, and, in the form of ADR, on<br />
the New York Stock Exchange.<br />
6.2 Other placements of Shares or other financial instruments of the Issuer<br />
As far as <strong>Fiat</strong> and each of the Banks know, financial instruments in the same class of the Shares are neither<br />
subscribed nor placed, nor are financial instruments in other classes created for public or private placement at<br />
the same time or almost at the same time as the Offer, with the exception of warrants and certificates issued by<br />
some of the Banks or by companies belonging to the respective groups.<br />
6.3 Stabilization<br />
Not applicable.<br />
VII. OWNERS OF FINANCIAL INSTRUMENTS EXECUTING THE OFFER<br />
7.1 Information on the offerors<br />
On the basis of a resolution passed by the Board of Directors on September 15, 2005, <strong>Fiat</strong> S.p.A., with<br />
registered office in Turin, Via Nizza 250, is offeror and issuer of the Shares pursuant to the first three paragraphs<br />
of Article 2441 of the Italian Civil Code and the first paragraph of Article 134 of the Consolidated Law on<br />
Financial Intermediation.<br />
Each of the Banks is subscriber and offeror of the Shares pursuant to Article 2441, paragraph seven, of the<br />
Italian Civil Code in the amounts shown in the following table:<br />
Bank Number of Shares<br />
Banca Intesa S.p.A., with registered office in Milan, Piazza Paolo Ferrari n. 10 63,229,555<br />
UniCredit Banca d’Impresa S.p.A., with registered office in Verona, Via Garibaldi n. 1 60,797,649<br />
Capitalia S.p.A., with registered office in Rome, via Marco Minghetti n. 17, 41,342,402<br />
SanPaolo IMI S.p.A., with registered office in Turin, Piazza San Carlo n. 156 38,910,496<br />
Banca Nazionale del Lavoro S.p.A., with registered office in Rome, Via Vittorio Veneto n. 119 29,182,872<br />
Banca Monte dei Paschi di Siena S.p.A., with registered office in Siena, Piazza Salimbeni n. 3 24,319,060<br />
ABN AMRO Bank N.V., with registered office in Amsterdam, Gustav Mahlerlaan 10, and<br />
with a branch office in Milan, via Meravigli 7<br />
81<br />
14,591,436<br />
BNP Paribas Succursale Italia, with registered office in Milan, Piazza San Fedele n. 2 14,591,436<br />
Banca Toscana S.p.A., with registered office in Florence, Via del Corso n. 6 4,863,812<br />
Total 291,828,718<br />
As prescribed in Article 2441, paragraph seven, of the Italian Civil Code, and in the Mandatory Convertible<br />
Facility Agreement, the Shares shall be offered in option to stockholders pursuant to the first three paragraphs of<br />
Article 2441 of the Italian Civil Code and the first paragraph of Article 134 of the Consolidated Law on Financial<br />
Intermediation. The Banks that hold the Shares pursuant to the above mentioned Article 2441, paragraph seven,
of the Italian Civil Code, keep the Shares in deposit at Monte Titoli S.p.A to service of the option rights of<br />
stockholders until the end of the offer period.<br />
Within the framework of the commitments undertaken with the abovementioned Mandatory Convertible Facility<br />
Agreement, the Issuer gave Banca Intesa, Capitalia, SanPaolo IMI and Unicredito Italiano a mandate of “Global<br />
Advisory” (which has now been terminated). Among other things, this mandate regarded the disposals to be<br />
carried out for the achievement of set financial objectives. The main and most significant consulting services<br />
provided by said banks regarded the disposal of Toro Assicurazioni S.p.A. in 2003 (MCC – Capitalia Group), the<br />
disposal of <strong>Fiat</strong> Engineering S.p.A. in 2004 (UBM –Unicredito Italiano Group), the disposal of IPI S.p.A. in 2003<br />
(Banca IMI –SanPaolo IMI Group).<br />
In addition to the equity investments already owned by the Banks in the capital of <strong>Fiat</strong> before the Capital<br />
Increase, all of which were less than 2% of the capital with voting rights (see Section One, Chapter XVIII), the<br />
other more significant relationships between the Issuer and one or more Banks (or companies belonging to the<br />
respective bank groups) over the past three years were as follows:<br />
− relationships involving banking, financing, deposit, collection, and payment transactions carried out as part<br />
of the characteristic activity of the commercial banks in Italy and abroad;<br />
− structured financing transactions (e.g. securitization of receivables, financing for import and export);<br />
− transactions involving derivative instruments for the hedging of exchange rate and interest rate risks;<br />
− participation, through Synesis Finanziaria S.p.A., and related commercial and stockholder agreements in<br />
Fidis Retail Italia S.p.A. by Banca Intesa, Capitalia, SanPaolo IMI, and Unicredito Italiano (see Section One,<br />
Chapter XXII), which also have significant financial relationships with the group owned by Fidis Retail Italia<br />
S.p.A.;<br />
− participation in CNH Capital Europe S.A.S., and relative commercial and stockholder agreements, with BNP<br />
Paribas through BNP Paribas Lease Group;<br />
− participation in Italenergia Bis and the related put and call agreements (which have already been fully<br />
exercised) with Banca Intesa, Capitalia, and Imi Investimenti S.p.A. (SanPaolo IMI Group) (see Section<br />
One, Chapter XII);<br />
− participation of the Banks or companies belonging to the respective groups in the underwriting syndicate<br />
upon the capital increase of the Issuer carried out in July 2003.<br />
7.2 Number of Shares covered by the Offer<br />
The object of the Offer is 291,828,718 <strong>Fiat</strong> ordinary shares held by the Banks pursuant to Article 2441,<br />
paragraph seven, of the Italian Civil Code, in the amounts shown in the table found in Paragraph 7.1 of Section<br />
Two.<br />
7.3 Lock-up agreements<br />
There are no lock-up agreements applying to the Shares at the date of this Prospectus.<br />
VIII. EXPENSES CONNECTED WITH ISSUANCE OF THE SHARES AND THE OFFER<br />
8.1 Aggregate amount of net proceeds and expenses for issuance of the Shares and Offer<br />
The amount of the Capital Increase involving the Shares was used to set off the principal of the debt of <strong>Fiat</strong><br />
arising from the Mandatory Convertible Facility Agreement.<br />
The net proceeds of the Offer, to be cashed-in by the Banks, cannot be reasonably estimated, because the Offer<br />
Price is higher than the stock quotations at the time of publication of this Prospectus.<br />
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The aggregate amount of expenses including, among other things, the fees paid to the Banks pursuant to the<br />
Mandatory Convertible Facility Agreement (for a total of 210 million euros) and the commissions and expenses<br />
to be paid to the retained intermediaries (pursuant to the applicable rates of Monte Titoli S.p.A.), is estimated to<br />
be a maximum of approximately 211 million euros and will be paid by the Issuer.<br />
IX. DILUTIVE EFFECTS<br />
9.1 Amount and percentage of the immediate dilution deriving from the Offer<br />
The Capital Increase did not have a dilutive effect on stockholders’ equity per share.<br />
9.2 Dilutive effects if the Offer is not subscribed<br />
The Capital Increase will have a dilutive effect on the interest held in the company’s capital stock by<br />
stockholders who do not exercise their option rights, or exercise them only in part. Since the Offer calls for <strong>Fiat</strong><br />
ordinary shares to be offered to holders of <strong>Fiat</strong> preference and savings shares as well, the Capital Increase will<br />
have a dilutive effect on the percentage interest held in <strong>Fiat</strong>’s capital stock by the holders of <strong>Fiat</strong> ordinary shares.<br />
X. SUPPLEMENTAL INFORMATION<br />
None.<br />
83
CERTIFICATIONS OF LIABILITY<br />
<strong>Fiat</strong> S.p.A. certifies – for the parts for which it is responsible and limited strictly to those – that, having exercised<br />
all reasonable diligence in this regard, the information contained in this Prospectus is, as far as it knows, true<br />
and accurate and does not contain omissions that would alter its sense.<br />
<strong>Fiat</strong> S.p.A.<br />
Signed by Signed by<br />
The Chief Executive Officer The Chairman of the Board of<br />
Statutory Auditors<br />
Capitalia S.p.A., with registered office in Rome, Via Marco Minghetti n. 17, certifies – for the parts for which it is<br />
responsible as expressly indicated in Section Two, Paragraph 1.1 and limited strictly to those – that, having<br />
exercised all reasonable diligence in this regard, the information contained in this Prospectus is, as far as it<br />
knows, true and accurate and does not contain omissions that would alter its sense.<br />
Capitalia S.p.A.<br />
Signed by Signed by<br />
The Chief Executive Officer The Chairman of the Board of<br />
Statutory Auditors<br />
Banca Intesa S.p.A., with registered office in Milan, Piazza Paolo Ferrari n. 10, certifies – for the parts for which<br />
it is responsible as expressly indicated in Section Two, Paragraph 1.1 and limited strictly to those – that, having<br />
exercised all reasonable diligence in this regard, the information contained in this Prospectus is, as far as it<br />
knows, true and accurate and does not contain omissions that would alter its sense.<br />
Banca Intesa S.p.A.<br />
Signed by Signed by<br />
The Chief Executive Officer The Chairman of the Board of<br />
Statutory Auditors<br />
San Paolo IMI S.p.A., with registered office in Turin, Piazza San Carlo n. 156, certifies – for the parts for which it<br />
is responsible as expressly indicated in Section Two, Paragraph 1.1 and limited strictly to those – that, having<br />
exercised all reasonable diligence in this regard, the information contained in this Prospectus is, as far as it<br />
knows, true and accurate and does not contain omissions that would alter its sense.<br />
San Paolo IMI S.p.A.<br />
Signed by Signed by<br />
The Chief Executive Officer The Chairman of the Board of<br />
Statutory Auditors<br />
UniCredit Banca d’Impresa S.p.A., with registered office in Verona, Via Garibaldi n. 1, certifies – for the parts for<br />
which it is responsible as expressly indicated in Section Two, Paragraph 1.1 and limited strictly to those – that,<br />
having exercised all reasonable diligence in this regard, the information contained in this Prospectus is, as far as<br />
it knows, true and accurate and does not contain omissions that would alter its sense.<br />
UniCredit Banca d’Impresa S.p.A.<br />
Signed by Signed by<br />
The Chief Executive Officer The Chairman of the Board of<br />
Statutory Auditors<br />
84
Banca Nazionale del Lavoro S.p.A., with registered office in Rome, Via Vittorio Veneto n. 119, certifies – for the<br />
parts for which it is responsible as expressly indicated in Section Two, Paragraph 1.1 and limited strictly to those<br />
– that, having exercised all reasonable diligence in this regard, the information contained in this Prospectus is,<br />
as far as it knows, true and accurate and does not contain omissions that would alter its sense.<br />
Banca Nazionale del Lavoro S.p.A.<br />
Signed by Signed by<br />
The Chief Executive Officer The Chairman of the Board of<br />
Statutory Auditors<br />
Banca Monte dei Paschi di Siena S.p.A., with registered office in Siena, Piazza Salimbeni n. 3, certifies – for the<br />
parts for which it is responsible as expressly indicated in Section Two, Paragraph 1.1 and limited strictly to those<br />
– that, having exercised all reasonable diligence in this regard, the information contained in this Prospectus is,<br />
as far as it knows, true and accurate and does not contain omissions that would alter its sense.<br />
Banca Monte dei Paschi di Siena S.p.A.<br />
Signed by Signed by<br />
The Chief Executive Officer The Chairman of the Board of<br />
Statutory Auditors<br />
ABN AMRO Bank N.V., with registered office in Amsterdam, Gustav Mahlerlaan 10, and branch office in Milan,<br />
Via Meravigli n. 7, certifies – for the parts for which it is responsible as expressly indicated in Section Two,<br />
Paragraph 1.1 and limited strictly to those – that, having exercised all reasonable diligence in this regard, the<br />
information contained in this Prospectus is, as far as it knows, true and accurate and does not contain omissions<br />
that would alter its sense.<br />
ABN AMRO Bank N.V.<br />
Signed by<br />
The Legal Representative<br />
Banca Toscana S.p.A., with registered office in Florence, Via del Corso n. 6, certifies – for the parts for which it<br />
is responsible as expressly indicated in Section Two, Paragraph 1.1 and limited strictly to those – that, having<br />
exercised all reasonable diligence in this regard, the information contained in this Prospectus is, as far as it<br />
knows, true and accurate and does not contain omissions that would alter its sense.<br />
Banca Toscana S.p.A.<br />
Signed by Signed by<br />
The Chief Executive Officer The Chairman of the Board of<br />
Statutory Auditors<br />
BNP Paribas Succursale Italia, with registered office in Milan, Piazza San Fedele n. 2, certifies – for the parts for<br />
which it is responsible as expressly indicated in Section Two, Paragraph 1.1 and limited strictly to those – that,<br />
having exercised all reasonable diligence in this regard, the information contained in this Prospectus is, as far as<br />
it knows, true and accurate and does not contain omissions that would alter its sense.<br />
BNP Paribas Succursale Italia<br />
Signed by<br />
The Legal Representative<br />
85