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		As filed with the Securities and Exchange Commission on July 3, 2014		Registration No. 333-

 

 

 

CONFIDENTIAL TREATMENT REQUESTED

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM F-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 

 

Fiat Investments N.V.

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name into English)

 

 

The Netherlands		3711		Not Applicable
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

Fiat House

240 Bath Road

Slough SL1 4DX

United Kingdom

Tel. No. +44 (0) 1753 519581

(Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

 

 

Richard K. Palmer

c/o Chrysler Group LLC

1000 Chrysler Drive

Auburn Hills, MI 48326-2766

Tel. No.: 248-512-2950

(Name, address, including zip code and telephone number including area code, of agent for service)

 

 

Copy to:

 

Scott Miller Sullivan & Cromwell LLP 125 Broad Street New York, NY 10004 Tel. No.: 212-558-4000				Giorgio Fossati Fiat S.p.A. Via Nizza 250 Turin 10126 Italy Tel. No.: +39 011 006 1111

 

 

Approximate date of commencement of proposed sale to the public: As promptly as practicable after the date this Registration Statement becomes effective.

 

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.¨

 

 

CALCULATION OF REGISTRATION FEE

 

Title of each class of Securities to be registered(1)		Amount to be registered(2)		Proposed maximum offering price per share(3)		Proposed maximum aggregate offering price(3)		Amount of registration Fee(4)
Common Shares, nominal value €0.01(5)		375,255,000		Not applicable		3,776,434,136		486,404.72
Special Voting Shares, nominal value €0.01(6)		375,255,000

(1)

This Registration Statement relates to common shares of the Registrant, nominal value €0.01 per share (the “FCA common shares”), to be issued to holders of ordinary shares, par value €3.58 per share (the “Fiat ordinary shares”), of Fiat S.p.A., an Italian joint stock company (Società per Azioni) (“Fiat”), in connection with the proposed merger of Fiat with and into the Registrant.

(2)

Represents the number of FCA common shares and special voting shares expected to be issued in connection with the proposed merger to persons in the United States, plus an additional amount of shares to cover any flowback into the United States based on an exchange ratio of one (1) FCA common share for each Fiat ordinary share outstanding. The remainder of the securities to be issued in connection with the proposed merger outside the United States are not registered under this Registration Statement.

(3)

Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended (referred to as the Securities Act) and computed pursuant to Rules 457(f)(1) and 457(c) under the Securities Act. The aggregate offering price of the FCA common shares was calculated as follows: (a) 375,255,000, the estimated number of Fiat ordinary shares held by U.S. investors to be cancelled and exchanged for the Registrant’s common shares, multiplied by (b) €7.3775 the average of the high and low prices of the Fiat ordinary shares on the Mercato Telematico Azionario on June 27, 2014, multiplied by (c) 1.3641, the Euro to U.S. dollar exchange rate on June 27, 2014, as reported on Bloomberg.

(4)	Calculated at a rate equal to 0.0001288 multiplied by the proposed maximum aggregate offering price.

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(5)	In connection with the merger transactions described in this Registration Statement, the Registrant will issue common shares, nominal value of one Euro cent (€0.01) per share, to each shareholder of Fiat who does not exercise cash exit rights under Italian law.

(6)

In connection with the merger transactions described in this Registration Statement, the Registrant will issue special voting shares, nominal value of one Euro cent (€0.01) per share, to shareholders of Fiat that elect to receive such special voting shares upon closing of the merger transaction in addition to common shares of the Registrant, provided such shareholders meet the conditions more fully described under “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares.” Each special voting shares will grant the holder one vote per special voting share and the special voting shares are designed to provide certain long-term holders of common shares of the Registrant two votes for each common share of the Registrant held.

 

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities offered in this prospectus, passed on the merits or fairness of the transaction or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

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EXPLANATORY NOTE

Fiat Investments N.V., the registrant whose name appears on the cover of this registration statement, expects to change its name to Fiat Chrysler Automobiles N.V. upon effectiveness of the Merger described in the prospectus that forms a part of this registration statement.

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The information contained in this preliminary prospectus is subject to completion or amendment. A registration statement relating to the securities subject to this preliminary prospectus has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This preliminary prospectus shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of such securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to appropriate registration or qualification under the securities laws of such jurisdiction.

 

PRELIMINARY PROSPECTUS

SUBJECT TO AMENDMENT AND COMPLETION, DATED JULY 3, 2014

Merger of Fiat S.p.A. with and into

Fiat Investments N.V.

to be renamed

Fiat Chrysler Automobiles N.V.

(incorporated in the Netherlands as a naamloze vennootschap)

WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY

 

 

This prospectus relates to (i) the common shares (“FCA common shares”) of Fiat Investments N.V. (to be renamed Fiat Chrysler Automobiles N.V. upon effectiveness of the Merger described below) (“FCA”), to be issued by FCA to holders of ordinary shares (“Fiat ordinary shares”) of Fiat S.p.A. (“Fiat”) and (ii) the special voting shares of FCA (“special voting shares”) to be issued by FCA, subject to certain conditions, to eligible electing holders of ordinary shares of Fiat in connection with the proposed merger of Fiat with and into FCA, a wholly owned subsidiary of Fiat organized under Dutch law (the “Merger”). Upon completion of the Merger, FCA will become the holding company of the Group (as defined below).

The Merger is part of a reorganization of the Group following the acquisition by Fiat of the approximately 41.5 percent interest it did not already own in Chrysler Group LLC (“Chrysler”) in January 2014. The purpose of the Merger is the redomiciliation of Fiat in the Netherlands in connection with the Group’s listing on the New York Stock Exchange (the “NYSE”), as more fully described below in this prospectus. The business carried out by FCA and its subsidiaries following the Merger will be the same as the business currently carried out by Fiat and its subsidiaries prior to the Merger. In this prospectus, “Group” refers to the economic entity currently represented by Fiat and its subsidiaries prior to the Merger which, following the Merger, will be represented by FCA and its subsidiaries.

Subject to requisite shareholders’ approval, Fiat shareholders will receive in the Merger one (1) FCA common share for each Fiat ordinary share that they hold. Moreover, under the Articles of Association of FCA, FCA shareholders will receive, if they so elect and are otherwise eligible to participate in the loyalty voting structure described under “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares—Loyalty Voting Structure—Terms and Conditions of the Special Voting Shares,” one (1) FCA special voting share for each FCA common share received in the Merger. The loyalty voting structure is designed to provide eligible long-term FCA shareholders with two votes for each FCA common share held.

Holders of Fiat ordinary shares are to vote on the merger plan (the “merger plan”) at an extraordinary general meeting of Fiat shareholders scheduled for August 1, 2014, on single call. Subject to the satisfaction and/or waiver of the other conditions precedent, the merger plan will become effective if a resolution approving the applicable merger plan is passed at the extraordinary general meeting of Fiat shareholders held on a single call with the affirmative vote of holders of at least two-thirds of the ordinary share capital of Fiat participating in the vote on the resolution, provided that one-fifth or more of the issued share capital is represented at the meeting.

At March 31, 2014, Exor S.p.A. (“Exor”) owned 30.05 percent of Fiat’s share capital and has expressed its intention to vote to approve the merger plan. As of that date, Fiat owned approximately 2.76 percent of its own share capital. Fiat is not entitled to vote these shares.

Upon effectiveness of the Merger, the pre-merger shareholders of Fiat will hold the same percentage of FCA common shares as they held of Fiat ordinary shares before the Merger (subject to adjustments to reflect any exercise of cash exit rights as described under “The Fiat Extraordinary General Meeting—Dissenters’, Appraisal, Cash Exit or Similar Rights”). However, the proportion of voting power in FCA that will be held by pre-merger Fiat shareholders may be affected by the participation of shareholders in the loyalty voting structure as described in more detail in this prospectus. The Merger will become effective as of the date following the date on which the deed of merger is executed. See “The Merger Plan – Effectiveness of the Merger.”

WE ARE NOT ASKING YOU FOR A PROXY, AND YOU ARE REQUESTED NOT TO SEND A PROXY. If you hold Fiat ordinary shares through an intermediary such as a broker/dealer or clearing agency, you should consult with that intermediary about how to obtain information on the relevant shareholders’ meeting of Fiat.

FCA will apply to list the FCA common shares on the NYSE, where trading is expected to commence on the first business day following the effectiveness of the Merger. FCA also intends to apply for admission to listing and trading of the FCA common shares on the Mercato Telematico Azionario (“MTA”) organized and managed by Borsa Italiana S.p.A. The listing on the MTA is expected to occur shortly following the effectiveness of the Merger, subject to the approval by the Dutch and Italian competent authorities.

Neither the Securities and Exchange Commission (“SEC”) nor any state securities commission has approved or disapproved of the securities offered in this prospectus, passed on the merits or fairness of the transaction or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

We encourage you to read this prospectus carefully in its entirety, including the “Risk Factors” section that begins on page 9.

Prospectus dated                     , 2014

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WHERE YOU CAN FIND MORE INFORMATION

FCA has filed a registration statement on Form F-4 to register with the SEC the FCA shares to be issued in the Merger. This prospectus is a part of that registration statement on Form F-4. As permitted by the rules and regulations of the SEC, this prospectus does not contain all the information included in the registration statement. You should refer to the registration statement on Form F-4 (File No. 333-            ), for information omitted from this prospectus.

You may also request a copy of such documents at no cost by calling or writing to Fiat S.p.A., Via Nizza 250, Turin 10126 Italy, Tel. No.: +39 011 006 1111, no later than July 25, 2014 or five business days before the date of the Fiat extraordinary general meeting.

 

 

You should rely only on the information in this prospectus to vote on the Merger. No one has been authorized to provide you with information that is different from that contained in this prospectus. This prospectus is dated                     , 2014. You should not assume that the information contained in this prospectus is accurate as of any date other than that date.

This prospectus is made available by FCA in connection with the Merger pursuant to the U.S. Securities Act of 1933. This prospectus does not constitute an offer to buy or sell, or a solicitation of an offer to buy or sell, any securities, or a solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

This prospectus does not constitute an offer to buy, sell or exchange securities or a solicitation of an offer to buy, sell or exchange any securities in Italy or a solicitation of a proxy under Italian law. This prospectus is not a prospectus or an offer document within the meaning of Italian law and the rules of Commissione Nazionale per le Società e la Borsa (“CONSOB”).

This prospectus does not constitute an offer of securities to the public in the Netherlands within the meaning of article 5:1 of the Dutch Financial Supervision Act (Wet op het financieel toezicht). This prospectus is not a prospectus or an offer document within the meaning of the Prospectus Directive (2003/71/EC), as amended.

 

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		Page

WHERE YOU CAN FIND MORE INFORMATION			i

QUESTIONS AND ANSWERS ABOUT THE MERGER			iii

CERTAIN DEFINED TERMS			xii

NOTE ON PRESENTATION			xiii

MARKET AND INDUSTRY INFORMATION			xiv

CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS			xv

SUMMARY			1

RISK FACTORS			9

THE FIAT EXTRAORDINARY GENERAL MEETING			30

THE MERGER			33

TAX CONSEQUENCES			38

THE MERGER PLAN			67

FIAT CHRYSLER AUTOMOBILES			70

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA			77

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION			80

MARKET PRICES			85

EXCHANGE RATES			86

THE FIAT GROUP			87

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE FIAT GROUP			128

REMUNERATION OF THE MEMBERS OF THE BOARD OF DIRECTORS AND THE GROUP EXECUTIVE COUNCIL OF FCA AND FIAT			213

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			218

THE FCA SHARES, ARTICLES OF ASSOCIATION AND TERMS AND CONDITIONS OF THE SPECIAL VOTING SHARES			220

COMPARISON OF RIGHTS OF SHAREHOLDERS OF FIAT AND FCA			236

LEGAL MATTERS			253

EXPERTS			253

ENFORCEMENT OF CIVIL LIABILITIES			253

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF THE FIAT GROUP			F-1

APPENDIX A – MERGER PLAN			A-1

APPENDIX B—FCA ARTICLES OF ASSOCIATION			B-1

APPENDIX C—FCA TERMS AND CONDITIONS OF SPECIAL VOTING SHARES			C-1

APPENDIX D—SPECIAL VOTING SHARE ELECTION FORM			D-1

 

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QUESTIONS AND ANSWERS ABOUT THE MERGER

The following are some questions that you may have regarding the Merger and the extraordinary general meeting of Fiat called to vote on the merger plan and brief answers to those questions. FCA and Fiat urge you to read carefully the remainder of this prospectus because the information in this section does not provide all the information that might be important to you with respect to the Merger and the extraordinary general meeting. Please see “Where You Can Find More Information.”

References in this prospectus to “FCA” refer to Fiat Investments N.V., a company organized under the laws of the Netherlands. References in this prospectus to “Fiat” refer to Fiat S.p.A., a company organized under the laws of the Republic of Italy. Upon the effectiveness of the Merger described in this prospectus, Fiat Investments N.V. will be renamed Fiat Chrysler Automobiles N.V. References to “we,” “us,” “our,” the “Group” or the “Fiat Group” refer to Fiat and its consolidated subsidiaries prior to the Merger and FCA together with its consolidated subsidiaries following completion of the Merger.

Q:  Why am I receiving this prospectus?

A: You are receiving this prospectus because, as of the record date, you owned ordinary shares of Fiat, par value €3.58 per share (“Fiat ordinary shares”). This prospectus describes the proposal to the shareholders of Fiat to approve the Merger and related matters on which Fiat shareholders are being requested to vote. This prospectus also gives you information about FCA and Fiat and other background information to assist you in making an informed decision.

None of the Merger, the merger plan, or this prospectus constitutes an offer of securities under Italian or Dutch law and this prospectus is not a prospectus or an offering document within the meaning of Italian or Dutch law and the rules of CONSOB, the Italian securities regulator, or the Dutch Authority for the Financial Markets (stichting Autoriteit Financiële Markten, or the “AFM”).

Q:  What is the Merger?

A: The Merger is a transaction in which Fiat will merge with and into FCA, a newly formed, wholly-owned subsidiary of Fiat incorporated under the laws of the Netherlands. If the Merger is approved by the Fiat shareholders and becomes effective, Fiat will cease to exist, and FCA will acquire or succeed to all of the assets and liabilities of Fiat, becoming the new holding company of the Group.

The purpose of the Merger is the creation of FCA as the parent company of the Group organized in the Netherlands following the January 2014 acquisition by Fiat of the approximately 41.5 percent ownership interest it did not already own in Chrysler Group LLC (“Chrysler”) and in connection with the combined Group’s listing on the New York Stock Exchange (“NYSE”), as more fully described in this prospectus. The businesses carried out by FCA and its subsidiaries following the Merger will be the same as the businesses carried out by Fiat and its subsidiaries prior to the Merger. Therefore, FCA and Fiat do not expect that the Merger itself will result in any significant operational cost savings or synergies. For a discussion of the anticipated positive organizational and capital markets impacts, see “The Merger—Reasons for the Merger.”

If the Merger is completed, Fiat ordinary shares will cease to be listed on the Mercato Telematico Azionario (“MTA”), organized and managed by Borsa Italiana S.p.A., although FCA intends to apply for admission to listing and trading of the FCA common shares on the MTA and expects the FCA common shares to be so listed shortly following the effectiveness of the Merger, subject to the approval by the Dutch and Italian competent authorities.

Q:  What will I receive in the Merger?

A: As described in more detail below under “The Merger Plan—Merger Consideration,” upon effectiveness of the Merger, each Fiat ordinary share will entitle its holder to receive one (1) common share of FCA (a “FCA common share”), par value €0.01 per share (the “Merger Consideration”).

 

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Moreover, as described in more detail below and in “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares—Loyalty Voting Structure—Terms and Conditions of the Special Voting Shares,” each Fiat shareholder that is present or represented by proxy at the Fiat extraordinary general meeting to approve the Merger (regardless of how they vote on the Merger) and that continues to own its Fiat ordinary shares through the date of effectiveness of the Merger may elect to participate in the loyalty voting structure and receive one FCA special voting share for each FCA common share received in the Merger, entitling such shareholder to a second vote for each FCA common share owned. Fiat shareholders may transfer any of their Fiat ordinary shares, and, in that case they will be entitled to elect to receive FCA special voting shares only in respect of those Fiat ordinary shares that they continue to own until the effectiveness of the Merger.

Q:  When is the Merger expected to be completed?

A: The Merger is currently expected to be completed before the end of 2014, subject, however, to the satisfaction of certain conditions precedent, several of which are not under the control of Fiat. For additional details regarding these conditions precedent, see “The Merger Plan—Closing Conditions” and “Risk Factors—Risks Related to the Merger and the FCA shares—Failure to timely complete the Merger could negatively affect Fiat’s business plans and operations and have a negative impact on the market price of Fiat’s shares.”

Q:  Will I have the right to elect to participate in the loyalty voting structure?

A: Except as described below, each Fiat shareholder that is present or represented by proxy at the extraordinary general meeting to approve the Merger (regardless of how they vote on the Merger) and that continues to own its Fiat ordinary shares from the record date of the extraordinary general meeting until effectiveness of the Merger may participate in the loyalty voting structure, provided such Fiat shareholder meets the conditions described in “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares.” Fiat shareholders that (i) acquire Fiat ordinary shares after the record date, (ii) exercise cash exit rights or (iii) sell their Fiat ordinary shares prior to the effectiveness of the Merger will not be entitled to receive FCA special voting shares immediately following the Merger with respect to the shares they have so acquired or in respect of which the cash exit right has been exercised or of which they have disposed. All FCA shareholders will be entitled to participate in the loyalty voting structure indefinitely, but the FCA special voting shares are not transferrable (other than, in very limited circumstances, together with the associated FCA common shares) and must be transferred to FCA for no consideration (om niet) if the associated FCA common shares are transferred by the holder. The specific terms of the loyalty voting structure are described in more detail in “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares.”

Following the Merger, FCA shareholders, including any new FCA shareholders, will be entitled to participate in the loyalty voting structure and receive FCA special voting shares by holding FCA common shares continuously for at least three years at any time following the effectiveness of the Merger, as described in more detail in “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares—Special Loyalty Voting Structure—Terms and Conditions of the Special Voting Shares.”

FCA has established the loyalty voting structure to reward long-term ownership of FCA common shares and promote stability of the FCA shareholder base by enabling long-term FCA shareholders to obtain the equivalent of two votes for each FCA common share that they hold. FCA believes that the loyalty voting structure may enhance its flexibility in pursuing future strategic opportunities, because the loyalty voting structure will mitigate the impact of the dilution in the economic interest of Fiat’s controlling shareholder. FCA believes that Fiat has greatly benefited from the long-term support of its largest shareholder and believes that the loyalty voting structure will enable such support to continue in the future without hindering its ability to pursue external growth opportunities. Exor, which as of March 31, 2014, held 30.05 percent of Fiat’s share capital, will hold the same interest in FCA common shares following the Merger (subject to the above mentioned exercise of cash exit rights).

 

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The purpose of the loyalty voting structure is to grant eligible, electing long-term holders of FCA common shares two votes for each FCA common share held. While the same result may be achieved in other jurisdictions by granting certain shares the right to cast two votes per share, in the Netherlands, where FCA is incorporated, the additional voting power is granted through a separate security. The FCA special voting shares are not transferrable (other than, in very limited circumstances, together with the associated FCA common shares) and have only immaterial economic entitlements. Investors should view the FCA special voting shares as a mere additional voting attribute of the qualifying FCA common shares.

Exor S.p.A., which is currently our largest shareholder, has expressed its intention to participate in the loyalty voting structure with respect to all of the FCA common shares it will receive in the Merger.

Exor’s voting power in FCA following the Merger will depend on the extent to which other shareholders participate in the loyalty voting structure. If all other shareholders elect to participate in the loyalty voting structure with respect to all of their FCA common shares, Exor’s voting power will be unchanged. On the other hand, if Exor is the only shareholder electing to participate in the loyalty voting structure, Exor’s voting power in FCA, immediately following completion of the Merger, could be as high as approximately 46 percent (before considering exercise of any cash exit rights). See “Risk Factors—The loyalty voting structure to be implemented in connection with the Merger may concentrate voting power in a small number of FCA shareholders and such concentration may increase over time.”

Q: How do I elect to participate in the loyalty voting structure?

A: Each Fiat shareholder that is present or represented by proxy at the extraordinary general meeting to approve the Merger (regardless of how they vote on the Merger) and that continues to own its Fiat ordinary shares from the record date of the extraordinary general meeting until effectiveness of the Merger may participate in the loyalty voting structure by electing to receive one FCA special voting share in addition to each FCA common share received in the Merger, provided such shareholder meets the conditions described in “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares—Loyalty Voting Structure.” To participate in the loyalty voting structure, Fiat shareholders must complete and send to Fiat (or the attorney appointed by Fiat) an election form and a power of attorney no later than 15 business days after the Fiat extraordinary general meeting, and such election form must be countersigned by the relevant broker/authorized intermediary. The special voting share election form and power of attorney for its shareholders will be made available on Fiat’s website (www.fiatspa.com). By signing the applicable election form, investors also agree to be bound by the terms and conditions of the FCA special voting shares, including the transfer restrictions described above in response to the question “Will I have the right to elect to participate in the loyalty voting structure?”

Q: If the Merger is completed, will my FCA common shares be listed for trading?

A: The FCA common shares will be listed on the NYSE and are expected to be listed on the MTA shortly following the effectiveness of the Merger, subject to approval by the Italian and Dutch competent authorities. It is a condition to closing of the Merger that the FCA common shares be approved for listing on the NYSE, subject to official notice of issuance. The listing on the NYSE and the MTA is intended to enhance liquidity in FCA shares and improve the Group’s access to additional equity and debt financing sources, while preserving current shareholders, access to Fiat’s historic trading market. With a NYSE listing, FCA will seek to attract interest among U.S. investors seeking to gain exposure to an enlarged group with significant operations in, and market exposure to, North America. The shares of the major automotive companies, which have a majority of their sales and profitability located in North America, are listed on the NYSE. The listing on the MTA will facilitate continued engagement by a pan-European investor base, while at the same time reducing the risk of flow-back of shares held by Italian retail investors. Nevertheless, as with the dual listings of certain other issuers, the liquidity in the market for FCA common shares may be adversely affected if trading is split between two markets at least in the short term and could result in price differentials of FCA common shares between the two exchanges. The FCA special voting shares through which the loyalty voting structure will be implemented will not be listed on

 

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the NYSE or MTA and will not be transferrable or tradable (other than, in very limited circumstances, together with the associated FCA common shares). The sole purpose of the FCA special voting shares is to implement the loyalty voting structure under Dutch law whereby eligible electing shareholders effectively receive two votes for each FCA common share held by them. A transfer of the FCA common shares by a FCA shareholder holding FCA special voting shares will result in a mandatory transfer of the FCA special voting shares associated with the transferred FCA common shares by such shareholder to FCA for no consideration (om niet).

Q: When will I receive the Merger Consideration?

A: Assuming the Merger is completed, as of the effective time of the Merger, book-entry positions previously representing Fiat ordinary shares with depository intermediaries participating in the centralized depository and clearing system managed by Monte Titoli S.p.A. will be exchanged for book-entry positions representing FCA common shares issued as Merger Consideration to the Fiat shareholders on the one-for-one basis of the exchange ratio. For more information about the procedure for the exchange of your Fiat ordinary shares, please see “The Merger Plan—Merger Consideration.” For additional information on the book-entry system of the FCA common shares to be listed on NYSE, see “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares—Share Capital.”

Q: Are Fiat shareholders entitled to exercise dissenters’, appraisal, cash exit or similar rights?

A: Under Italian law, Fiat shareholders are entitled to cash exit rights because, as a result of the Merger, the registered office of the surviving company in the Merger, FCA, will be outside of Italy, Fiat ordinary shares will be delisted from the MTA, and FCA will be governed by the laws of a country other than Italy. Cash exit rights may be exercised by Fiat shareholders that did not concur in the approval of the merger plan at the extraordinary general meeting. The exercise of such cash exit rights will be effective subject to completion of the Merger. A Fiat shareholder that has voted shares in favor of the Merger may not exercise any cash exit right in relation to those shares. A Fiat shareholder that properly exercises cash exit rights will be entitled to receive an amount of cash equal to the average closing price per Fiat ordinary share for the six-month period prior to the publication of the notice of call of the extraordinary general meeting which is equal to €7.727 per share. If the aggregate amount of cash to be paid to Fiat shareholders in connection with the exercise by such shareholders of cash exit rights under Italian law and to creditors pursuant to creditor opposition rights proceedings under Italian law and Dutch law, respectively, exceeds €500 million, a condition to closing of the Merger will not be satisfied.

For more information about these cash exit rights, please see “The Fiat Extraordinary General Meeting—Dissenters’, Appraisal, Cash Exit or Similar Rights.”

Q: Does the Fiat Board of Directors recommend the approval of the Merger?

A: Yes. The Fiat Board of Directors has carefully considered the proposed Merger and determined that, taking into account the current circumstances, the Merger, the merger plan and the transactions contemplated by the merger plan, are fair to Fiat shareholders and in the best interest of Fiat, and therefore unanimously approved the merger plan and recommends that Fiat shareholders vote in favor of the Merger and the merger plan. In connection with its approval of the Merger and recommendation to Fiat shareholders, the Fiat Board of Directors did not seek an opinion from a financial advisor that the merger plan and the transactions contemplated by the merger plan are fair, from a financial point of view, to Fiat shareholders.

For additional information regarding the factors and reasons considered by the Fiat Board of Directors and the manner in which the Fiat Board of Directors made its decision, including the interest of certain directors and their affiliates in the Merger, please see “The Merger— Recommendation of the Board of Directors of Fiat,” “The Merger—Reasons for the Merger” and “The Merger—Interests of Certain Persons in the Merger.”

 

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Q: What potential negative consequences did Fiat consider regarding the Merger?

A: The Board of Directors of Fiat also considered potential negative consequences and risks that may arise from the proposed transaction, such as the financial outlay that may be required in connection with the exercise of cash exit rights, the potential adverse impact on trading in FCA common shares that may result initially from the dual listing, and the fact that the loyalty voting structure may discourage or make more difficult a change of control transaction. See “Risk Factors—Risks Related to the Merger and the FCA Shares.” However, the Board of Directors of Fiat concluded unanimously that the expected benefits of the transaction outweigh the potential negative consequences and risks.

Q: Is closing of the Merger subject to the exercise of creditors’ rights?

A: Yes, the effectiveness of the Merger is subject to the exercise of creditors’ rights (if any) pursuant to Italian and Dutch laws for a period of, respectively, (i) 60 days following the registration with the Companies’ Register of Turin (Italy) of the minutes of the extraordinary general meeting of the Fiat shareholders approving the Merger, and (ii) one month following the announcement of the filing of the merger plan with the Dutch Chamber of Commerce. The merger plan was filed with the Dutch Chamber of Commerce on June 20, 2014. Notice of the filing is expected to be published in the Dutch State Gazette (Nederlandse Staatscourant) and Het Financieele Dagblad.

Provided that resolutions approving the Merger are duly adopted by the Fiat shareholders at the Fiat extraordinary general meeting, under Italian law, the resolutions must be registered with the Companies’ Register of Turin (Italy) and a 60-day waiting period from the date of such registration must be observed prior to closing of the Merger. During this waiting period, creditors whose claims precede the registration of the merger plan with the Companies’ Register of Turin (Italy) may challenge the Merger before an Italian court of competent jurisdiction. If a challenge is filed, the court may authorize the closing of the Merger but may require the posting of a bond sufficient to satisfy creditors’ claims.

During the one month waiting period following the announcement of the filing of the merger plan with the Dutch Chamber of Commerce, creditors (if any) whose claims precede the registration of the merger plan with the Dutch Chamber of Commerce may challenge the Merger before the Amsterdam Dutch district court.

If the amount of cash to be paid to creditors pursuant to creditor opposition rights proceedings against Fiat and FCA under Italian and Dutch law, respectively, and to Fiat shareholders in connection with the exercise by such shareholders of cash exit rights under Italian law exceeds, in the aggregate, €500 million, a condition to the closing of the Merger will not be satisfied.

Q: What happens if the Merger is not completed?

A: If the Fiat shareholders do not approve the Merger and related matters at the extraordinary general meeting, or if the Merger is not completed for any other reason, the Fiat shareholders will continue to hold their Fiat ordinary shares, as applicable, and any exercise of cash exit rights by Fiat shareholders will not be effective. In that case, Fiat will remain a publicly traded company listed on the MTA.

Q: Are there any risks in the Merger that I should consider?

A: There are risks associated with all reorganizations, including the Merger. These risks are discussed in more detail in the section entitled “Risk Factors.”

Q: What are the material tax consequences of the Merger to Fiat shareholders?

A: The tax consequences of the Merger for any particular shareholder will depend on the shareholder’s particular facts and circumstances. Moreover, the description below and elsewhere in this prospectus does not relate to the tax laws of any jurisdiction other than the U.S., the U.K., Italy and the Netherlands. Accordingly, shareholders

 

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are urged to consult their tax advisors to determine the tax consequences of the Merger to them in light of their particular circumstances, including the effect of any state, local or national law.

U.S. tax consequences

FCA believes that the Merger constitutes for U.S. federal income tax purposes a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the rules and regulations therein (the “Code”). FCA expects to receive an opinion from Sullivan & Cromwell LLP to the effect that the Merger will qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. As a result, subject to certain exceptions, the U.S. Shareholders (as defined in “Tax Consequences—Material U.S. Federal Income Tax Consequences” below) of Fiat will not be subject to U.S. federal income taxation on the exchange of Fiat ordinary shares for FCA common shares.

A U.S. Shareholder that exercises its cash exit rights and receives cash in respect of its Fiat ordinary shares should recognize gain or loss.

For a further discussion of the material U.S. federal income tax consequences of the Merger and a discussion of the tax treatment of the ownership and disposition of FCA common shares, see “Tax Consequences—Material U.S. Federal Income Tax Consequences” below.

U.K. tax consequences

The Merger is not expected to result in a disposal of Fiat ordinary shares for U.K. tax purposes. The exercise of cash exit rights will, however, give rise to a disposal. See further the discussion at “Tax Consequences—Material U.K. Tax Consequences” below.

Italian tax consequences

FCA believes that Italian Shareholders of Fiat (as defined in “Tax Consequences—Material Italian Tax Consequences”) will not be subject to taxation on the exchange of Fiat ordinary shares for FCA common shares, but such Italian Shareholders will recognize a gain or a loss with respect to any cash received.

Dutch tax consequences

For shareholders subject to Dutch tax, the Merger will result in a disposal of their Fiat ordinary shares for Dutch tax purposes. Roll-over relief may be available. Such roll-over relief will not apply to any cash received pursuant to the exercise of cash exit rights. See further the discussion at “Tax Consequences—Material Netherlands Tax Consequences” below.

Q: What are the tax consequences of an election by Fiat shareholders electing to participate in the loyalty voting structure in connection with the Merger?

A: If a shareholder elects to participate in the loyalty voting structure in connection with the Merger, such shareholder should not recognize significant amounts of gain upon the receipt of FCA special voting shares. However, no statutory, judicial or administrative authority directly discusses how the receipt of special voting shares should be treated for tax purposes, and shareholders are urged to consult their tax advisors as to the tax consequences of receiving special voting shares.

For a further discussion of the material tax consequences of the special voting shares, see “Tax Consequences” below.

Q: When and where will the extraordinary general meeting of the Fiat shareholders be held?

A: The extraordinary general meeting of the Fiat shareholders will be held on August 1, 2014, beginning at 11:00 a.m. (Central European Time) at Centro Congressi Lingotto, 280, Via Nizza, Turin, Italy.

 

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Q: What matters will be voted on at the extraordinary general meeting of the Fiat shareholders?

A: The Fiat shareholders will be asked to consider and vote, among other things, on the following resolutions at the extraordinary general meeting of the Fiat shareholders:

 

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to authorize and approve the merger plan regarding the Merger, which involves the merger of Fiat, as the merging entity, with and into FCA, as the surviving entity; and

 

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to consider related resolutions.

The extraordinary general meeting of Fiat is expected to be held on single call and, accordingly, it will not be adjourned as specified in the notice of call published on Fiat’s website on July 2, 2014 and in La Stampa on July 4, 2014.

Q: Who is entitled to vote the Fiat ordinary shares at the extraordinary general meeting?

A: The Fiat share record date is July 23, 2014, which is the seventh trading day prior to the date of the meeting. Holders of Fiat ordinary shares on the Fiat share record date are entitled to attend and vote at the extraordinary general meeting of the Fiat shareholders. Holders of Fiat ordinary shares may appoint a proxy holder to vote on their behalf.

Q: When will the extraordinary general meeting of the Fiat shareholders be considered regularly convened and the resolutions at such extraordinary general meeting validly adopted?

A: Since the Fiat extraordinary general meeting is expected to be held on single call, it will be considered regularly convened when Fiat shareholders representing at least one-fifth of shares entitled to vote are in attendance. Abstentions and broker non-votes will be included in the calculation of the number of Fiat ordinary shares represented at the extraordinary general meeting for purposes of determining whether a quorum has been achieved. At an extraordinary general meeting of the Fiat shareholders, resolutions are adopted with the favorable vote of at least two-thirds of the shares represented at such extraordinary general meeting. Failures to vote, votes to abstain and broker non-votes will have the same effect as votes “AGAINST” the proposal to approve the merger plan. As of March 31, 2014, Exor owned 30.05 percent of Fiat’s share capital, and Fiat owned approximately 2.76 percent of its own share capital. Fiat is not entitled to vote these shares.

Q: How do I vote my Fiat ordinary shares that are registered in my name?

A: If Fiat ordinary shares are registered in your name as of the Fiat share record date and the authorized intermediary with whom your Fiat ordinary shares are deposited provides Fiat with the necessary communication, you may attend the extraordinary general meeting of the Fiat shareholders and vote in person. Anyone becoming a Fiat shareholder subsequent to the Fiat share record date will not be entitled to attend or vote at the extraordinary general meeting of the Fiat shareholders. As provided by law, if you are entitled to attend the extraordinary general meeting of the Fiat shareholders, you may appoint a proxy in writing, using the proxy form provided on Fiat’s website (www.fiatspa.com).

Fiat has designated Computershare S.p.A. as the representative, pursuant to Article 135-undecies of Italian Legislative Decree 58/98, upon whom holders of voting rights may, by July 30, 2014 (Central European Time), confer therein a proxy and instruct to vote on all or some of the motions on the agenda. Computershare S.p.A. must be appointed proxy in accordance with the instructions and using the proxy form provided on Fiat’s website (as indicated above). Details on how to communicate appointment of a proxy to Fiat electronically are also provided. Proxies are only valid for motions where instructions have been given.

No voting materials will be mailed to you. In order to vote your Fiat ordinary shares at the extraordinary general meeting of the Fiat shareholders, you must either attend the extraordinary general meeting and vote in person or confer your proxy as directed above.

 

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Q: May I change my voting instructions after conferring a proxy on Computershare S.p.A. or withdraw my proxy? May I provide only voting instructions for only some of the motions to be voted at the extraordinary shareholders’ meeting?

A: Pursuant to Article 135-undecies of the Italian Legislative Decree 58/98, the proxy and voting instructions to Computershare S.p.A. may be revoked or changed up to and until two business days before the date of the Fiat extraordinary shareholders’ meeting. The proxy and the voting instructions may be conferred with respect to all or some of the motions on the agenda. The proxy is valid only for the proposals on the agenda for which voting instructions have been given.

Q: If my Fiat ordinary shares are held through a bank or a broker (e.g., in “street name”), will my bank or broker vote my shares for me?

A: If you are a beneficial owner and your Fiat ordinary shares are held through a bank or broker or a custodian (e.g., in “street name”), you will receive or should seek information from the bank, broker or custodian holding your shares concerning how to instruct your bank, broker or custodian as to how to vote your shares. Alternatively, if you wish to vote in person then you need to:

 

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obtain a proxy from your bank, broker or other custodian (the registered shareholder) appointing you to vote the Fiat ordinary shares held on your behalf by that bank, broker or custodian; or

 

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ask your depository bank to deliver to Fiat the communication certifying that Fiat ordinary shares are registered in your name as of the extraordinary general meeting record date.

Q: Will I have to pay brokerage commissions in connection with the exchange of my Fiat ordinary shares?

A: You will not have to pay brokerage commissions as a result of the exchange of your Fiat ordinary shares into FCA common shares in connection with the Merger if your Fiat ordinary shares are registered in your name in the share register of Fiat. If your Fiat ordinary shares are held through a bank or broker or a custodian linked to a stock exchange, you should consult with such bank, broker or custodian as to whether or not such bank, broker or custodian may charge any transaction fee or service charge in connection with the exchange of shares in connection with the Merger.

Q: How can I attend the extraordinary general meeting of the Fiat shareholders in person?

A: The extraordinary general meeting of the Fiat shareholders will be held on August 1, 2014, beginning at 11:00 a.m. (Central European Time), at Centro Congressi Lingotto, 280 Via Nizza, Turin, Italy. If you are a Fiat shareholder and you wish to attend the extraordinary general meeting of the Fiat shareholders in person, you must request the authorized intermediary with whom your Fiat ordinary shares are deposited to deliver to Fiat the communication certifying that the Fiat ordinary shares are registered in your name as of the extraordinary general meeting record date.

Q: Do any of Fiat’s directors or executive officers have interests in the Merger that may differ from those of other shareholders?

A: Yes. Some of Fiat’s directors or executive officers may have interests in the Merger that may differ from, or be in addition to, those of other shareholders, including: the appointment of certain executive officers of Fiat as officers of FCA, the appointment of certain directors of Fiat as directors of FCA and the indemnification of former directors and executive officers of Fiat. Please see “The Merger—Interests of Certain Persons in the Merger” for a more detailed discussion of how some of Fiat’s directors and executive officers have interests in the Merger that are different from, or in addition to, the interests of Fiat other shareholders generally.

 

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Q: How will Fiat’s directors and executive officers vote at the extraordinary general meeting of Fiat shareholders on the resolution to approve the Merger and related matters?

A: Fiat currently expects that all directors and executive officers who beneficially own Fiat ordinary shares will vote all of their Fiat ordinary shares (representing less than one percent of the outstanding Fiat ordinary shares as of March 31, 2014, without taking into consideration Fiat share grants granted to the directors and executive officers) in favor of the resolution to approve the merger plan and related matters.

Q: What do I need to do now?

A: You are urged to carefully read this prospectus, including its appendices. You may also want to review the documents referenced under “Where You Can Find More Information” and consult with your accounting, legal and tax advisors. Once you have considered all relevant information, you are encouraged to vote in person, by proxy, or by instructing your broker, so that your Fiat ordinary shares are represented and voted at the extraordinary general meeting.

If you hold your Fiat ordinary shares in “street name” through a broker or custodian, you must instruct your broker or custodian as to how to vote your Fiat ordinary shares using the instructions provided to you by your broker or custodian.

Q: Who can help answer my questions?

A: If you have any further questions about the Merger or if you need additional copies of this prospectus, please contact:

Fiat S.p.A.

Investor Relations

Via Nizza, 250

10126 Turin, Italy

Tel: +39 011 0062709

Fax: +39 011 0063796

Email: investor.relations@fiatspa.com

Q: Where can I find more information about the companies?

A: You can find more information about FCA and Fiat in the documents described under “Where You Can Find More Information.”

 

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CERTAIN DEFINED TERMS

In this prospectus, unless otherwise specified, the terms “we,” “our,” “us,” the “Group,” the “Fiat Group” and the “Company” refer to Fiat S.p.A. together with its subsidiaries, as the context may require, prior to the Merger described in this prospectus and to FCA (as defined below), together with its subsidiaries, as the context may require, following the Merger. References to “Fiat” refer solely to Fiat S.p.A. prior to the Merger described in this prospectus. In each case, these references reflect the Demerger (as defined below) and include Chrysler Group LLC (together with its direct and indirect subsidiaries, “Chrysler”) following its inclusion in the scope of consolidation of Fiat beginning on June 1, 2011, unless the context otherwise requires. The term “Demerger” refers to the transaction pursuant to which Fiat transferred a portion of its assets and liabilities to Fiat Industrial S.p.A. (“Fiat Industrial”) in the form of a scissione parziale proporzionale (“partial proportionate demerger” in accordance with Article 2506 of the Italian Civil Code, with effect from January 1, 2011 (now known as CNH Industrial N.V. (“CNH Industrial” or the “ CNHI Group”))). The term “FCA” refers to Fiat Investments N.V. (to be renamed Fiat Chrysler Automobiles N.V.), together with its subsidiaries, as the context may require.

See “Note on Presentation” below for additional information regarding the financial presentation.

 

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NOTE ON PRESENTATION

This prospectus includes the consolidated financial statements of the Fiat Group for the years ended December 31, 2013, 2012 and 2011 prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”), which reflect the retrospective application of the amendments to IAS 19 – Employee Benefits (“IAS 19 revised”) and IAS 1 – Presentation of Financial Statements and IFRS 11 – Joint Arrangements (“IFRS 11”), which became effective from January 1, 2013. As allowed by the transition provisions in IFRS 11, this standard was not applied to the consolidated income statement, consolidated statement of comprehensive income/(loss), consolidated statement of cash flows and consolidated statement of changes in equity for the year ended December 31, 2011 which accordingly are not comparable with those for the years ended December 31, 2013 and 2012. We refer to these consolidated financial statements collectively as the “Annual Consolidated Financial Statements.”

This prospectus also includes the unaudited interim consolidated financial statements of the Fiat Group for the three months ended March 31, 2014 prepared in accordance with IAS 34 Interim Financial Reporting. We refer to those interim consolidated financial statements as the “Interim Consolidated Financial Statements.”

On May 24, 2011, the Fiat Group acquired an additional 16 percent (on a fully-diluted basis) of Chrysler, increasing its interest to 46 percent (on a fully-diluted basis). As a result of the potential voting rights associated with options that became exercisable on that date, the Fiat Group was deemed to have obtained control of Chrysler for purposes of consolidation. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—Consolidation of Chrysler and Comparability of Information.” The operating activities from this acquisition date through May 31, 2011 were not material to the Fiat Group. As such, Chrysler was consolidated on a line-by-line basis by Fiat with effect from June 1, 2011. Therefore the results of operations and cash flows for the years ended December 31, 2013 and 2012 are not directly comparable with those for the year ended December 31, 2011. For additional information, see Note “Changes in the Scope of Consolidation” to the Annual Consolidated Financial Statements included elsewhere in this prospectus.

The Fiat Group’s financial information is presented in Euro except that, in some instances, information in U.S. dollars is provided in the Annual Consolidated Financial Statements and information included elsewhere in this prospectus. All references in the prospectus to “Euro” and “€” refer to the currency introduced at the start of the third stage of European Economic and Monetary Union pursuant to the Treaty on the Functioning of the European Union, as amended, and all references to “U.S. dollars,” “U.S.$” and “$” refer to the currency of the United States of America.

The language of the prospectus is English. Certain legislative references and technical terms have been cited in their original language in order that the correct technical meaning may be ascribed to them under applicable law.

Certain totals in the tables included in this prospectus may not add due to rounding.

 

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MARKET AND INDUSTRY INFORMATION

In this prospectus, we include and refer to industry and market data, including market share, ranking and other data, derived from or based upon a variety of official, non-official and internal sources, such as internal surveys and management estimates, market research, publicly available information and industry publications. Market share, ranking and other data contained in this prospectus may also be based on our good faith estimates, our own knowledge and experience and such other sources as may be available. Market share data may change and cannot always be verified with complete certainty due to limits on the availability and reliability of raw data, the voluntary nature of the data-gathering process, different methods used by different sources to collect, assemble, analyze or compute market data, including different definitions of vehicle segments and descriptions and other limitations and uncertainties inherent in any statistical survey of market shares or size. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. Although we believe that this information is reliable, we have not independently verified the data from third-party sources. In addition we normally estimate our market share for automobiles and commercial vehicles based on registration data. In a limited number of markets where registration data are not available, we calculate our market share based on estimates relating to sales to final customers. Such data may differ from data relating to shipments to our dealers and distributors. While we believe our internal estimates with respect to our industry are reliable, our internal company surveys and management estimates have not been verified by an independent expert, and we cannot guarantee that a third party using different methods to assemble, analyze or compute market data would obtain or generate the same result. The market share data presented in this prospectus represents the best estimates available from the sources indicated as of the date hereof but, in particular as they relate to market share and our future expectations, involve risks and uncertainties and are subject to change based on various factors, including those discussed under the caption “Risk Factors.”

For an overview of the automotive industry, see “The Fiat Group—Industry Overview—Our Industry.”

 

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CAUTIONARY STATEMENTS CONCERNING FORWARD-LOOKING STATEMENTS

Statements contained in this prospectus, particularly those regarding possible or assumed future performance, competitive strengths, costs, dividends, reserves and growth of Fiat, industry growth and other trends and projections and estimated company earnings, including those set forth under “The Merger—Fiat’s Reasons for the Merger,” “The Merger—Plans for FCA After the Merger” and “The Merger—Recommendation of the Board of Directors of Fiat” are “forward-looking statements” that contain risks and uncertainties. In some cases, words such as “may,” “will,” “expect,” “could,” “should,” “intend,” “estimate,” “anticipate,” “believe,” “outlook,” “continue,” “remain,” “on track,” “design,” “target,” “objective,” “goal,” “plan” and similar expressions are used to identify forward-looking statements. These forward-looking statements reflect the respective current views of the Fiat Group with respect to future events and involve significant risks and uncertainties that could cause actual results to differ materially. These factors include, without limitation:

 

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our ability to reach certain minimum vehicle sales volumes;

 

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changes in the general economic environment and changes in demand for automotive products, which is subject to cyclicality, in particular;

 

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our ability to enrich our product portfolio and offer innovative products;

 

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the high level of competition in the automotive industry;

 

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our ability to expand certain of our brands internationally;

 

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changes in our credit ratings;

 

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our ability to realize anticipated benefits from any acquisitions, joint venture arrangements and other strategic alliances;

 

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our ability to integrate the Group’s operations;

 

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exposure to shortfalls in the Group’s defined benefit pension plans, particularly those of Chrysler;

 

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our ability to provide or arrange for adequate access to financing for our dealers and retail customers, and associated risks associated with financial services companies;

 

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our ability to access funding to execute our business plan and improve our business, financial condition and results of operations;

 

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various types of claims, lawsuits and other contingent obligations against us, including product liability, warranty and environmental claims and lawsuits;

 

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disruptions arising from political, social and economic instability;

 

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material operating expenditures in relation to compliance with environmental, health and safety regulation;

 

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our timely development of hybrid propulsion and alternative fuel vehicles and other new technologies to enable compliance with increasingly stringent fuel economy and emission standards in each area in which we operate;

 

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developments in our labor and industrial relations and developments in applicable labor laws;

 

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risks associated with our relationships with employees and suppliers;

 

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increases in costs, disruptions of supply or shortages of raw materials;

 

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exchange rate fluctuations, interest rate changes, credit risk and other market risks; and

 

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other factors discussed elsewhere in this prospectus.

Furthermore, in light of ongoing difficult macroeconomic conditions, both globally and in the industries in which we operate, it is particularly difficult to forecast results, and any estimates or forecasts of particular periods that are provided in this prospectus are uncertain. We expressly disclaim and do not assume any liability in connection with any inaccuracies in any of the forward-looking statements in this prospectus or in connection with any use by any third party of such forward-looking statements. Actual results could differ materially from those anticipated in such forward-looking statements. We do not undertake an obligation to update or revise publicly any forward-looking statements.

Additional factors which could cause actual results and developments to differ from those expressed or implied by the forward-looking statements are included in the section “Risk Factors” of this prospectus.

 

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RISK FACTORS

Investing in FCA shares involves risks, some of which are related to the Merger. In considering the proposed Merger you should carefully consider the following information about these risks, as well as the other information included in this prospectus. Our business, our financial condition or our results of operations could be materially adversely affected by any of these risks.

Risks Related to Our Business, Strategy and Operations

Our profitability depends on reaching certain minimum vehicle sales volumes. If our vehicle sales deteriorate, our results of operations and financial condition will suffer.

Our success requires us to achieve certain minimum vehicle sales volumes. As is typical for an automotive manufacturer, we have significant fixed costs and, therefore, changes in vehicle sales volume can have a disproportionately large effect on our profitability. For example, assuming constant pricing, mix and cost of sales per vehicle, that all results of operations were attributable to vehicle shipments and that all other variables remain constant, a ten percent decrease in our vehicle shipments would reduce our EBIT (earnings before interest and taxes) by approximately 40 percent, without accounting for actions and cost containment measures we may take in response to decreased vehicle sales. Further, a shift in demand away from our minivans, larger utility vehicles and pick-up trucks in the NAFTA region towards passenger cars, whether in response to higher fuel prices or other factors, could adversely affect our profitability in the NAFTA region. Our minivans, larger utility vehicles and pick-up trucks accounted for approximately 47 percent of our total U.S. retail vehicle sales in 2013 and the profitability of this portion of our portfolio is approximately 20 percent higher than that of our overall U.S. retail portfolio on a weighted average basis. A shift in consumer preferences in the U.S. vehicle market away from minivans, larger utility vehicles and pick-up trucks and towards passenger cars could adversely affect our profitability. For example, a shift in demand such that U.S. industry market share for minivans, larger utility vehicles and pick-up trucks deteriorated by 10 percentage points and U.S. industry market share for cars and smaller utility vehicles increased by 10 percentage points, whether in response to higher fuel prices or other factors, holding other variables constant, including our market share of each vehicle segment, would have reduced the Group’s EBIT by approximately four percent for 2013. This estimate does not take into account any other changes in market conditions or actions that the Group may take in response to shifting consumer preferences, including production and pricing changes. For additional information on factors affecting vehicle profitability, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—Trends, Uncertainties and Opportunities.” Moreover, we tend to operate with negative working capital as we generally receive payments from vehicle sales to dealers within a few days of shipment, whereas there is a lag between the time when parts and materials are received from suppliers and when we pay for such parts and materials; therefore, if vehicle sales decline we will suffer a significant negative impact on cash flow and liquidity as we continue to pay suppliers during a period in which we receive reduced proceeds from vehicle sales. If vehicle sales do not increase, or if they were to fall short of our assumptions, due to financial crisis, renewed recessionary conditions, changes in consumer confidence, geopolitical events, inability to produce sufficient quantities of certain vehicles, limited access to financing or other factors, our financial condition and results of operations would be materially adversely affected.

Our businesses are affected by global financial markets and general economic and other conditions over which we have little or no control.

Our results of operations and financial position may be influenced by various macroeconomic factors – including changes in gross domestic product, the level of consumer and business confidence, changes in interest rates for or availability of consumer and business credit, energy prices, the cost of commodities or other raw materials, the rate of unemployment and foreign currency exchange rates – within the various countries in which we operate.

Beginning in 2008, global financial markets have experienced severe disruptions, resulting in a material deterioration of the global economy. The global economic recession in 2008 and 2009, which affected most

 

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regions and business sectors, resulted in a sharp decline in demand for automobiles. Although more recently we have seen signs of recovery in certain regions, the overall global economic outlook remains uncertain.

In Europe, in particular, despite measures taken by several governments and monetary authorities to provide financial assistance to certain Eurozone countries and to avoid default on sovereign debt obligations, concerns persist regarding the debt burden of several countries. These concerns, along with the significant fiscal adjustments carried out in several countries, intended to manage actual or perceived sovereign credit risk, have led to further pressure on economic growth and to new periods of recession. For instance, European automotive industry sales have declined over the past several years following a period in which sales were supported by government incentive schemes, particularly those designed to promote sales of more fuel efficient and low emission vehicles. Prior to the global financial crisis, industry-wide sales of passenger cars in Europe were 16 million units in 2007. In 2013, following six years of sales declines, sales in that region had fallen to 12.3 million passenger cars. Similarly, sales of light commercial vehicles in Europe fell from 2.4 million units in 2007 to 1.6 million units in 2013. From 2011 to 2013, our market share of the European passenger car market decreased from 7.0 percent to 6.0 percent, and we have reported losses and negative EBIT in each of the past three years in the Europe, Middle East and Africa, or EMEA, Segment. See “The Fiat Group—Overview of Our Business” for a description of our reportable segments. These ongoing concerns could have a detrimental impact on the global economic recovery, as well as on the financial condition of European institutions, which could result in greater volatility, reduced liquidity, widening of credit spreads and lack of price transparency in credit markets. Widespread austerity measures in many countries in which we operate could continue to adversely affect consumer confidence, purchasing power and spending, which could adversely affect our financial condition and results of operations.

Following our consolidation of Chrysler from June 1, 2011, a majority of our revenues have been generated in the NAFTA segment. Although economic recovery in North America has been slower and less robust than many economic experts predicted, vehicle sales in North America have experienced significant growth from the low vehicle sales volumes in 2009-2010. However, this recovery may not be sustained or may be limited to certain classes of vehicles. Since the recovery may be partially attributable to the pent-up demand and average age of vehicles in North America following the extended economic downturn, there can be no assurances that improvements in general economic conditions or employment levels will lead to corresponding increases in vehicle sales. As a result, North America may experience limited growth or decline in vehicle sales in the future.

In addition, slower expansion is being experienced in major emerging countries, such as China, Brazil and India. In addition to weaker export business, lower domestic demand has also led to a slowing economy in these countries. These factors could adversely affect our financial condition and results of operations.

In general, the automotive sector has historically been subject to highly cyclical demand and tends to reflect the overall performance of the economy, often amplifying the effects of economic trends. Given the difficulty in predicting the magnitude and duration of economic cycles, there can be no assurances as to future trends in the demand for products sold by us in any of the markets in which we operate.

In addition to slow economic growth or recession, other economic circumstances — such as increases in energy prices and fluctuations in prices of raw materials or contractions in infrastructure spending — could have negative consequences for the industry in which we operate and, together with the other factors referred to previously, could have a material adverse effect on our financial condition and results of operations.

Our future performance depends on our ability to enrich our product portfolio and offer innovative products.

Our success depends, among other things, on our ability to maintain or increase our share in existing markets and/or to expand into new markets through the development of innovative, high-quality products that are attractive to customers and provide adequate profitability. Following our January 2014 acquisition of the approximately 41.5 percent interest in Chrysler that we did not already own, we announced our 2014-2018 Strategic Business Plan, or Business Plan, in May 2014. Our Business Plan includes a number of product

 

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initiatives designed to improve the quality of our product offerings and allows us to grow sales in existing markets and expand in new markets.

It generally takes two years or more to design and develop a new vehicle, and a number of factors may lengthen that schedule. Because of this product development cycle and the various elements that may contribute to consumers’ acceptance of new vehicle designs, including competitors’ product introductions, fuel prices, general economic conditions and changes in styling preferences, an initial product concept or design that we believe will be attractive may not result in a vehicle that will generate sales in sufficient quantities and at high enough prices to be profitable. A failure to develop and offer innovative products that compare favorably to those of our principal competitors, in terms of price, quality, functionality and features, with particular regard to the upper-end of the product range, or delays in bringing strategic new models to the market, could impair our strategy, which would have a material adverse effect on our financial condition and results of operations. Additionally, our high proportion of fixed costs, both due to our significant investment in property, plant and equipment as well as the requirements of our collective bargaining agreements, which limit our flexibility to adjust personnel costs to changes in demand for our products, may further exacerbate the risks associated with incorrectly assessing demand for our vehicles.

Further, if we determine that a safety or emissions defect or a non-compliance with regulation exists with respect to a vehicle model prior to the retail launch, the launch of such vehicle could be delayed until we remedy the defect or non-compliance. The costs associated with any protracted delay in new model launches necessary to remedy such defect, and the cost of providing a free remedy for such defects or non-compliance in vehicles that have been sold, could be substantial.

The automotive industry is highly competitive and cyclical and we may suffer from those factors more than some of our competitors.

Substantially all of our revenues are generated in the automotive industry, which is highly competitive, encompassing the production and distribution of passenger cars, light commercial vehicles and components and production systems. We face competition from other international passenger car and light commercial vehicle manufacturers and distributors and components suppliers in Europe, North America, Latin America and the Asia Pacific region. These markets are all highly competitive in terms of product quality, innovation, pricing, fuel economy, reliability, safety, customer service and financial services offered, and many of our competitors are better capitalized with larger market shares.

Competition, particularly in pricing, has increased significantly in the automotive industry in recent years. Global vehicle production capacity significantly exceeds current demand, partly as a result of lower growth in demand for vehicles. This overcapacity, combined with high levels of competition and weakness of major economies, has intensified and may further intensify pricing pressures.

Our competitors may respond to these conditions by attempting to make their vehicles more attractive or less expensive to customers by adding vehicle enhancements, providing subsidized financing or leasing programs, or by reducing vehicle prices whether directly or by offering option package discounts, price rebates or other sales incentives in certain markets. In addition, manufacturers in countries which have lower production costs have announced that they intend to export lower-cost automobiles to established markets. These actions have had, and could continue to have, a negative impact on our vehicle pricing, market share, and results of operations.

In the automotive business, sales to end-customers are cyclical and subject to changes in the general condition of the economy, the readiness of end-customers to buy and their ability to obtain financing, as well as the possible introduction of measures by governments to stimulate demand. The automotive industry is also subject to the constant renewal of product offerings through frequent launches of new models. A negative trend in the automotive business or our inability to adapt effectively to external market conditions coupled with more limited capital than many of our principal competitors could have a material adverse impact on our financial condition and results of operations.

 

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We may be unsuccessful in efforts to expand the international reach of some of our brands that we believe have global appeal and reach.

The growth strategies reflected in our Business Plan will require us to make significant investments, including to expand several brands that we believe to have global appeal into new markets. Such strategies include expanding sales of the Jeep brand globally, most notably through localized production in Asia and Latin America and reintroduction of the Alfa Romeo brand in North America and other markets throughout the world. Further, our efforts to increase our sales of Luxury Brand vehicles includes a significant expansion of our Maserati brand vehicles to cover all segments of the luxury vehicle market. This will require significant investments in our production facilities and in distribution networks in these markets. If we are unable to introduce vehicles that appeal to consumers in these markets and achieve our brand expansion strategies, we may be unable to earn a sufficient return on these investments and this could have a material adverse effect on our financial condition and results of operations.

Our current credit rating is below investment grade and any further deterioration may significantly affect our funding and prospects.

The ability to access the capital markets or other forms of financing and the related costs depend, among other things, on our credit ratings. Following downgrades by the major rating agencies, we are currently rated below investment grade. The rating agencies review these ratings regularly and, accordingly, new ratings may be assigned to us in the future. It is not currently possible to predict the timing or outcome of any ratings review. Any downgrade may increase our cost of capital and potentially limit our access to sources of financing, which may cause a material adverse effect on our business prospects, earnings and financial position. Since the ratings agencies may separately review and rate Chrysler on a stand-alone basis, it is possible that our credit ratings may not benefit from any improvements in Chrysler’s credit ratings or that a deterioration in Chrysler’s credit ratings could result in a negative rating review of us. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—Liquidity and Capital Resources” for more information on our financing arrangements.

We may not be able to realize anticipated benefits from any acquisitions and challenges associated with strategic alliances may have an adverse impact on our results of operations.

We may engage in acquisitions or enter into, expand or exit from strategic alliances which could involve risks that may prevent us from realizing the expected benefits of the transactions or achieving our strategic objectives. Such risks could include:

 

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technological and product synergies, economies of scale and cost reductions not occurring as expected;

 

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unexpected liabilities;

 

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incompatibility in processes or systems;

 

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unexpected changes in laws or regulations;

 

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inability to retain key employees;

 

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inability to source certain products;

 

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increased financing costs and inability to fund such costs;

 

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significant costs associated with terminating or modifying alliances; and

 

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problems in retaining customers and integrating operations, services, personnel, and customer bases.

 

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If problems or issues were to arise among the parties to one or more strategic alliances for managerial, financial or other reasons, or if such strategic alliances or other relationships were terminated, our product lines, businesses, financial position and results of operations could be adversely affected.

We may not achieve the expected benefits from our integration of the Group’s operations.

The January 2014 acquisition of the approximately 41.5 percent interest in Chrysler we did not already own and the related integration of the two businesses is intended to provide us with a number of long-term benefits, including allowing new vehicle platforms and powertrain technologies to be shared across a larger volume, as well as procurement benefits and global distribution opportunities, particularly the extension of brands into new markets. The integration is also intended to facilitate penetration of key brands in several international markets where we believe products would be attractive to consumers, but where we currently do not have significant market penetration.

The ability to realize the benefits of the integration is critical for us to compete with other automakers. If we are unable to convert the opportunities presented by the integration into long-term commercial benefits, either by improving sales of vehicles and service parts, reducing costs or both, our financial condition and results of operations may be materially adversely affected.

We may be exposed to shortfalls in our pension plans.

Our defined benefit pension plans are currently underfunded. As of December 31, 2013, our defined benefit pension plans were underfunded by approximately €4.2 billion (€4.0 billion of which relates to Chrysler’s defined benefit pension plans). Our pension funding obligations may increase significantly if the investment performance of plan assets does not keep pace with benefit payment obligations. Mandatory funding obligations may increase because of lower than anticipated returns on plan assets, whether as a result of overall weak market performance or particular investment decisions, changes in the level of interest rates used to determine required funding levels, changes in the level of benefits provided for by the plans, or any changes in applicable law related to funding requirements. Our defined benefit plans currently hold significant investments in equity and fixed income securities, as well as investments in less liquid instruments such as private equity, real estate and certain hedge funds. Due to the complexity and magnitude of certain investments, additional risks may exist, including significant changes in investment policy, insufficient market capacity to complete a particular investment strategy and an inherent divergence in objectives between the ability to manage risk in the short term and the ability to quickly rebalance illiquid and long-term investments.

To determine the appropriate level of funding and contributions to our defined benefit plans, as well as the investment strategy for the plans, we are required to make various assumptions, including an expected rate of return on plan assets and a discount rate used to measure the obligations under defined benefit pension plans. Interest rate increases generally will result in a decline in the value of investments in fixed income securities and the present value of the obligations. Conversely, interest rate decreases will generally increase the value of investments in fixed income securities and the present value of the obligations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—Critical Accounting Estimates—Pension plans.”

Any reduction in the discount rate or the value of plan assets, or any increase in the present value of obligations, may increase our pension expenses and required contributions and, as a result, could constrain liquidity and materially adversely affect our financial condition and results of operations. If we fail to make required minimum funding contributions, we could be subject to reportable event disclosure to the U.S. Pension Benefit Guaranty Corporation, as well as interest and excise taxes calculated based upon the amount of any funding deficiency. With our ownership in Chrysler now equal to 100 percent, we may become subject to certain U.S. legal requirements making us secondarily responsible for a funding shortfall in certain of Chrysler’s pension plans in the event these pension plans were terminated and Chrysler were to become insolvent.

 

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We may not be able to provide adequate access to financing for our dealers and retail customers.

Our dealers enter into wholesale financing arrangements to purchase vehicles from us to hold in inventory and facilitate retail sales, and retail customers use a variety of finance and lease programs to acquire vehicles.

Unlike many of our competitors, we do not own and operate a controlled finance company dedicated solely to our mass-market operations in the U.S. and certain key markets in Europe. Instead we have elected to partner with specialized financial services providers through joint ventures and commercial agreements. Our lack of a controlled finance company in these key markets may increase the risk that our dealers and retail customers will not have access to sufficient financing on acceptable terms which may adversely affect our vehicle sales in the future. Furthermore, many of our competitors are better able to implement financing programs designed to maximize vehicle sales in a manner that optimizes profitability for them and their finance companies on an aggregate basis. Since our ability to compete depends on access to appropriate sources of financing for dealers and retail customers, our lack of a controlled finance company in those markets could adversely affect our results of operations.

In other markets, we rely on controlled finance companies, joint ventures and commercial relationships with third parties, including third party financial institutions, to provide financing to our dealers and retail customers. Finance companies are subject to various risks that could negatively affect their ability to provide financing services at competitive rates, including:

 

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the performance of loans and leases in their portfolio, which could be materially affected by delinquencies, defaults or prepayments;

 

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wholesale auction values of used vehicles;

 

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higher than expected vehicle return rates and the residual value performance of vehicles they lease; and

 

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fluctuations in interest rates and currency exchange rates.

Any financial services provider, including our joint ventures and controlled finance companies, will face other demands on its capital, including the need or desire to satisfy funding requirements for dealers or customers of our competitors as well as liquidity issues relating to other investments. Furthermore, they may be subject to regulatory changes that may increase their costs, which may impair their ability to provide competitive financing products to our dealers and retail customers.

To the extent that a financial services provider is unable or unwilling to provide sufficient financing at competitive rates to our dealers and retail customers, such dealers and retail customers may not have sufficient access to financing to purchase or lease our vehicles. As a result, our vehicle sales and market share may suffer, which would adversely affect our financial condition and results of operations.

Vehicle sales depend heavily on affordable interest rates for vehicle financing.

In certain regions, financing for new vehicle sales has been available at relatively low interest rates for several years due to, among other things, expansive government monetary policies. To the extent that interest rates rise generally, market rates for new vehicle financing are expected to rise as well, which may make our vehicles less affordable to retail customers or steer consumers to less expensive vehicles that tend to be less profitable for us, adversely affecting our financial condition and results of operations. Additionally, if consumer interest rates increase substantially or if financial service providers tighten lending standards or restrict their lending to certain classes of credit, our retail customers may not desire to or be able to obtain financing to purchase or lease our vehicles. Furthermore, because our customers may be relatively more sensitive to changes in the availability and adequacy of financing and macroeconomic conditions, our vehicle sales may be disproportionately affected by changes in financing conditions relative to the vehicle sales of our competitors.

 

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Limitations on our liquidity and access to funding may limit our ability to execute our business plan and improve our financial condition and results of operations.

Our future performance will depend on, among other things, our ability to finance debt repayment obligations and planned investments from operating cash flow, available liquidity, the renewal or refinancing of existing bank loans and/or facilities and possible access to capital markets or other sources of financing. Although we have measures in place that are designed to ensure that adequate levels of working capital and liquidity are maintained, declines in sales volumes could have a negative impact on the cash-generating capacity of our operating activities. For a discussion of these factors, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—Liquidity and Capital Resources.” We could, therefore, find ourselves in the position of having to seek additional financing and/or having to refinance existing debt, including in unfavorable market conditions, with limited availability of funding and a general increase in funding costs. Any limitations on our liquidity, due to decreases in vehicle sales, the amount of or restrictions in our existing indebtedness, conditions in the credit markets, general economic conditions or otherwise, may adversely impact our ability to execute our business plan and impair our financial condition and results of operations. In addition, any actual or perceived limitations of our liquidity may limit the ability or willingness of counterparties, including dealers, customers, suppliers and financial service providers, to do business with us, which may adversely affect our financial condition and results of operations.

Our ability to achieve cost reductions and to realize production efficiencies is critical to maintaining our competitiveness and long-term profitability.

We are continuing to implement a number of cost reduction and productivity improvement initiatives in our operations, for example, by increasing the number of vehicles that are based on common platforms, reducing dependence on sales incentives offered to dealers and consumers, leveraging purchasing capacity and volumes and implementing World Class Manufacturing, or WCM, principles. WCM principles are intended to eliminate waste of all types, and improve worker efficiency, productivity, safety and vehicle quality as well as worker flexibility and focus on removing capacity bottlenecks to maximize output when market demand requires without having to resort to significant capital investments. As part of our Business Plan, we plan to continue our efforts to extend our WCM programs into all of our production facilities and benchmark across all of our facilities around the world, which is supported by Chrysler’s January 2014 memorandum of understanding with the UAW. Our future success depends upon our ability to implement these initiatives successfully throughout our operations. While some productivity improvements are within our control, others depend on external factors, such as commodity prices, supply capacity limitations, or trade regulation. These external factors may make it more difficult to reduce costs as planned, and we may sustain larger than expected production expenses, materially affecting our business and results of operations. Furthermore, reducing costs may prove difficult due to the need to introduce new and improved products in order to meet consumer expectations.

Our business operations may be impacted by various types of claims, lawsuits, and other contingent obligations.

We are involved in various product liability, warranty, product performance, asbestos, personal injury, environmental claims and lawsuits, governmental investigations, antitrust, intellectual property and other legal proceedings including those that arise in the ordinary course of our business. We estimate such potential claims and contingent liabilities and, where appropriate, record provisions to address these contingent liabilities. The ultimate outcome of the legal matters pending against us is uncertain, and although such claims, lawsuits and other legal matters are not expected individually to have a material adverse effect on our financial condition or results of operations, such matters could have, in the aggregate, a material adverse effect on our financial condition or results of operations. Furthermore, we could, in the future, be subject to judgments or enter into settlements of lawsuits and claims that could have a material adverse effect on our results of operations in any particular period. While we maintain insurance coverage with respect to certain claims, we may not be able to obtain such insurance on acceptable terms in the future, if at all, and any such insurance may not provide adequate coverage against any such claims. See also Notes 26 and 33 to the Annual Consolidated Financial Statements included elsewhere in this prospectus for additional information.

 

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Product recalls and warranty obligations may result in direct costs, and loss of vehicle sales could have material adverse effects on our business.

From time to time, we have been required to recall vehicles to address performance, compliance or safety-related issues. The costs we incur to recall vehicles typically include the cost of replacement parts and labor to remove and replace parts, and may substantially depend on the nature of the remedy and the number of vehicles affected. Product recalls may also harm our reputation and may cause consumers to question the safety or reliability of our products.

Any costs incurred, or lost vehicle sales, resulting from product recalls could materially adversely affect our financial condition and results of operations. Moreover, if we face consumer complaints, or we receive information from vehicle rating services that calls into question the safety or reliability of one of our vehicles and we do not issue a recall, or if we do not do so on a timely basis, our reputation may also be harmed and we may lose future vehicle sales.

We are also obligated under the terms of our warranty agreements to make repairs or replace parts in our vehicles at our expense for a specified period of time. Therefore, any failure rate that exceeds our assumptions may result in unanticipated losses.

Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting, which could harm our business reputation.

We continuously monitor and evaluate changes in our internal controls over financial reporting. In support of our drive toward common global systems, we are extending the current finance, procurement, and capital project and investment management systems to new areas of operations. As appropriate, we continue to modify the design and documentation of internal control processes and procedures relating to the new systems to simplify and automate many of our previous processes. Our management believes that the implementation of these systems will continue to improve and enhance internal controls over financial reporting. Failure to maintain adequate financial and management processes and controls could lead to errors in our financial reporting, which could harm our business reputation.

A disruption in our information technology could compromise confidential and sensitive information.

We depend on our information technology and data processing systems to operate our business, and a significant malfunction or disruption in the operation of our systems, or a security breach that compromises the confidential and sensitive information stored in those systems, could disrupt our business and adversely impact our ability to compete.

Our ability to keep our business operating effectively depends on the functional and efficient operation of our information, data processing and telecommunications systems, including our vehicle design, manufacturing, inventory tracking and billing and payment systems. We rely on these systems to make a variety of day-to-day business decisions as well as to track transactions, billings, payments and inventory. Such systems are susceptible to malfunctions and interruptions due to equipment damage, power outages, and a range of other hardware, software and network problems. Those systems are also susceptible to cybercrime, or threats of intentional disruption, which are increasing in terms of sophistication and frequency. For any of these reasons, we may experience systems malfunctions or interruptions. Although our systems are diversified, including multiple server locations and a range of software applications for different regions and functions, and we are currently undergoing an effort to assess and ameliorate risks to our systems, a significant or large-scale malfunction or interruption of any one of our computer or data processing systems could adversely affect our ability to manage and keep our operations running efficiently, and damage our reputation if we are unable to track transactions and deliver products to our dealers and customers. A malfunction that results in a wider or sustained disruption to our business could have a material adverse effect on our business, financial condition and results of operations.

 

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In addition to supporting our operations, we use our systems to collect and store confidential and sensitive data, including information about our business, our customers and our employees. As our technology continues to evolve, we anticipate that we will collect and store even more data in the future, and that our systems will increasingly use remote communication features that are sensitive to both willful and unintentional security breaches. Much of our value is derived from our confidential business information, including vehicle design, proprietary technology and trade secrets, and to the extent the confidentiality of such information is compromised, we may lose our competitive advantage and our vehicle sales may suffer. We also collect, retain and use personal information, including data we gather from customers for product development and marketing purposes, and data we obtain from employees. In the event of a breach in security that allows third parties access to this personal information, we are subject to a variety of ever-changing laws on a global basis that require us to provide notification to the data owners, and that subject us to lawsuits, fines and other means of regulatory enforcement. Our reputation could suffer in the event of such a data breach, which could cause consumers to purchase their vehicles from our competitors. Ultimately, any significant compromise in the integrity of our data security could have a material adverse effect on our business.

We may not be able to adequately protect our intellectual property rights, which may harm our business.

Our success depends, in part, on our ability to protect our intellectual property rights. If we fail to protect our intellectual property rights, others may be able to compete against us using intellectual property that is the same as or similar to our own. In addition, there can be no guarantee that our intellectual property rights are sufficient to provide us with a competitive advantage against others who offer products similar to ours. Despite our efforts, we may be unable to prevent third parties from infringing our intellectual property and using our technology for their competitive advantage. Any such infringement and use could adversely affect our business, financial condition or results of operations.

The laws of some countries in which we operate do not offer the same protection of our intellectual property rights as do the laws of the U.S. or Europe. In addition, effective intellectual property enforcement may be unavailable or limited in certain countries, making it difficult for us to protect our intellectual property from misuse or infringement there. Our inability to protect our intellectual property rights in some countries may harm our business, financial condition or results of operations.

We are subject to risks relating to international markets and exposure to changes in local conditions.

We are subject to risks inherent to operating globally, including those related to:

 

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exposure to local economic and political conditions;

 

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import and/or export restrictions;

 

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multiple tax regimes, including regulations relating to transfer pricing and withholding and other taxes on remittances and other payments to or from subsidiaries;

 

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foreign investment and/or trade restrictions or requirements, foreign exchange controls and restrictions on the repatriation of funds. In particular, current regulations limit our ability to access and transfer liquidity out of Venezuela to meet demands in other countries and also subject us to increased risk of devaluation or other foreign exchange losses. In December 2010 and February 2013, the Venezuelan government announced devaluations of the official Venezuelan Bolivar (VEF) to U.S. dollar exchange rate, which resulted in devaluation of our VEF denominated balances. In March 2014, the Venezuelan government introduced an additional auction-based foreign exchange system, referred to as the SICAD II rate. The SICAD II rate has ranged from 49 to 51.9 VEF to U.S. dollar in the period since its introduction until June 30, 2014. The SICAD II rate is expected to be used primarily for imports and has been limited to amounts of VEF that can be exchanged into other currencies, such as the U.S. dollar. As a result of the recent exchange agreement between the Central Bank of Venezuela and the Venezuelan government and the

 

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limitations of the SICAD II rate, the Group believes any future remittances of dividends would be transacted at the SICAD I rate. As a result, the Group determined that the SICAD I rate, and not the SICAD II rate, is the most appropriate rate to use, which was 10.7 VEF to U.S. dollar at March 31, 2014; and

 

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the introduction of more stringent laws and regulations.

Unfavorable developments in any one or a combination of these areas (which may vary from country to country) could have a material adverse effect on our financial condition and results of operations.

Our success largely depends on the ability of our current management team to operate and manage effectively.

Our success largely depends on the ability of our senior executives and other members of management to effectively manage the Group and individual areas of the business. In particular, our Chief Executive Officer, Sergio Marchionne, is critical to the execution of our new strategic direction and implementation of the 2014-2018 Business Plan. Although Mr. Marchionne has indicated his intention to remain as our Chief Executive Officer through the period of our 2014-2018 Business Plan, if we were to lose his services or those of any of our other senior executives or other key employees this could have a material adverse effect on our business prospects, earnings and financial position. We have developed succession plans that we believe are appropriate in the circumstances, although it is difficult to predict with any certainty that we will replace these individuals with persons of equivalent experience and capabilities. If we are unable to find adequate replacements or to attract, retain and incentivize senior executives, other key employees or new qualified personnel our business, financial condition and results of operations may suffer.

Developments in emerging market countries may adversely affect our business.

We operate in a number of emerging markets, both directly (e.g., Brazil and Argentina) and through joint ventures and other cooperation agreements (e.g., Turkey, India, China and Russia). Our Business Plan provides for expansion of our existing sales and manufacturing presence in our LATAM and APAC regions. In recent years we have been the market leader in Brazil, which has provided a key contribution to our financial performance. Our exposure to other emerging countries has increased in recent years, as have the number and importance of such joint ventures and cooperation agreements. Economic and political developments in Brazil and other emerging markets, including economic crises or political instability, have had and could have in the future material adverse effects on our financial condition and results of operations. Further, in certain markets in which we or our joint ventures operate, government approval may be required for certain activities, which may limit our ability to act quickly in making decisions on our operations in those markets.

Maintaining and strengthening our position in these emerging markets is a key component of our global growth strategy in our Business Plan. However, with competition from many of the largest global manufacturers as well as numerous smaller domestic manufacturers, the automotive market in these emerging markets is highly competitive. As these markets continue to grow, we anticipate that additional competitors, both international and domestic, will seek to enter these markets and that existing market participants will try to aggressively protect or increase their market share. Increased competition may result in price reductions, reduced margins and our inability to gain or hold market share, which could have a material adverse effect on our financial condition and results of operations.

Our reliance on joint ventures in certain emerging markets may adversely affect the development of our business in those regions.

We intend to expand our presence in emerging markets, including China and India, through partnerships and joint ventures. For instance, in 2010, we entered into a joint venture with Guangzhou Automobile Group Co., Ltd (GAC Group) for the production of engines and vehicles in China for the Chinese market, as well as securing exclusive distribution of our Fiat brand vehicles in China. We have also entered into a joint venture with TATA Motors Limited for the production of certain of our vehicles, engines and transmissions in India.

 

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Our reliance on joint ventures to enter or expand our presence in these markets may expose us to risk of conflict with our joint venture partners and the need to divert management resources to overseeing these shareholder arrangements. Further, as these arrangements require cooperation with third party partners, these joint ventures may not be able to make decisions as quickly as we would if we were operating on our own or may take actions that are different from what we would do on a standalone basis in light of the need to consider our partners’ interests. As a result, we may be less able to respond timely to changes in market dynamics, which could have an adverse effect on our financial condition and results of operations.

Laws, regulations and governmental policies, including those regarding increased fuel economy requirements and reduced greenhouse gas emissions, may have a significant effect on how we do business and may adversely affect our results of operations.

In order to comply with government regulations related to fuel economy and emissions standards, we must devote significant financial and management resources, as well as vehicle engineering and design attention, to these legal requirements. We expect the number and scope of these regulatory requirements, along with the costs associated with compliance, to increase significantly in the future and these costs could be difficult to pass through to customers. As a result, we may face limitations on the types of vehicles we produce and sell and where we can sell them, which could have a material adverse impact on our financial condition and results of operations. For a discussion of these regulations, see “The Fiat Group—Environmental and Other Regulatory Matters.”

Government initiatives to stimulate consumer demand for products sold by us, such as changes in tax treatment or purchase incentives for new vehicles, can substantially influence the timing and level of revenues. The size and duration of such government measures are unpredictable and outside of our control. Any adverse change in government policy relating to those measures could have material adverse effects on our business prospects, financial condition and results of operations.

The financial resources required to develop and commercialize vehicles incorporating sustainable technologies for the future are significant, as are the barriers that limit the mass-market potential of such vehicles.

Our product strategy is driven by the objective of achieving sustainable mobility by reducing the environmental impact of vehicles over their entire life cycle. We therefore intend to continue investing capital resources to develop new sustainable technology. We aim to increase the use of alternative fuels, such as natural gas, by continuing to offer a complete range of dual-fuel passenger cars and commercial vehicles. Additionally, we plan to continue developing alternative propulsion systems, particularly for vehicles driven in urban areas (such as the zero-emission Fiat 500e).

In many cases, technological and cost barriers limit the mass-market potential of sustainable natural gas and electric vehicles. In certain other cases the technologies that we plan to employ are not yet commercially practical and depend on significant future technological advances by us and by suppliers. There can be no assurance that these advances will occur in a timely or feasible manner, that the funds we have budgeted or expended for these purposes will be adequate, or that we will be able to obtain rights to use these technologies. Further, our competitors and others are pursuing similar technologies and other competing technologies and there can be no assurance that they will not acquire similar or superior technologies sooner than we will or on an exclusive basis or at a significant price advantage.

Labor laws and collective bargaining agreements with our labor unions could impact our ability to increase the efficiency of our operations.

Substantially all of our production employees are represented by trade unions, are covered by collective bargaining agreements and/or are protected by applicable labor relations regulations that may restrict our ability to modify operations and reduce costs quickly in response to changes in market conditions. See “The Fiat Group—Employees” for a description of these arrangements. These and other provisions in our collective bargaining agreements may impede our ability to restructure our business successfully to compete more

 

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effectively, especially with those automakers whose employees are not represented by trade unions or are subject to less stringent regulations, which could have a material adverse effect on our financial condition and results of operations.

We depend on our relationships with suppliers.

We purchase raw materials and components from a large number of suppliers and depend on services and products provided by companies outside the Group. Close collaboration between an original equipment manufacturer, or OEM, and its suppliers is common in the automotive industry, and although this offers economic benefits in terms of cost reduction, it also means that we depend on our suppliers and are exposed to the possibility that difficulties, including those of a financial nature, experienced by those suppliers (whether caused by internal or external factors) could have a material adverse effect on our financial condition and/or results of operations.

We face risks associated with increases in costs, disruptions of supply or shortages of raw materials.

We use a variety of raw materials in our business including steel, aluminum, lead, resin and copper, and precious metals such as platinum, palladium and rhodium, as well as energy. The prices for these raw materials fluctuate, and market conditions can affect our ability to manage our cost of sales over the short term. We seek to manage this exposure, but we may not be successful in managing our exposure to these risks. Substantial increases in the prices for raw materials would increase our operating costs and could reduce profitability if the increased costs cannot be offset by changes in vehicle prices or countered by productivity gains. In particular, certain raw materials are sourced from a limited number of suppliers and from a limited number of countries. We cannot guarantee that we will be able to maintain arrangements with these suppliers that assure access to these raw materials, and in some cases this access may be affected by factors outside of our control and the control of our suppliers. For instance, natural or man-made disasters or civil unrest may have severe and unpredictable effects on the price of certain raw materials in the future.

As with raw materials, we are also at risk for supply disruption and shortages in parts and components for use in our vehicles for many reasons including, but not limited to, tight credit markets or other financial distress, natural or man-made disasters, or production difficulties. We will continue to work with suppliers to monitor potential disruptions and shortages and to mitigate the effects of any emerging shortages on our production volumes and revenues. However, there can be no assurances that these events will not have an adverse effect on our production in the future, and any such effect may be material.

Any interruption in the supply or any increase in the cost of raw materials, parts, components and systems could negatively impact our ability to achieve our vehicle sales objectives and profitability. Long-term interruptions in supply of raw materials, parts, components and systems may result in a material impact on vehicle production, vehicle sales objectives, and profitability. Cost increases which cannot be recouped through increases in vehicle prices, or countered by productivity gains, may result in a material impact on our financial condition and/or results of operations.

We are subject to risks associated with exchange rate fluctuations, interest rate changes, credit risk and other market risks.

We operate in numerous markets worldwide and are exposed to market risks stemming from fluctuations in currency and interest rates. The exposure to currency risk is mainly linked to the differences in geographic distribution of our manufacturing activities and commercial activities, resulting in cash flows from sales being denominated in currencies different from those connected to purchases or production activities.

We use various forms of financing to cover funding requirements for our industrial activities and for providing financing to our dealers and customers. Moreover, liquidity for industrial activities is also principally invested in variable-rate or short-term financial instruments. Our financial services businesses normally operate a matching policy to offset the impact of differences in rates of interest on the financed portfolio and related liabilities. Nevertheless, changes in interest rates can affect net revenues, finance costs and margins.

 

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We seek to manage risks associated with fluctuations in currency and interest rates through financial hedging instruments. Despite such hedges being in place, fluctuations in currency or interest rates could have a material adverse effect on our financial condition and results of operations. For example, the weakening of the Brazilian Real against the Euro in 2013 impacted the results of operations of our LATAM segment. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—Results of Operations.”

Our financial services activities are also subject to the risk of insolvency of dealers and retail customers, as well as unfavorable economic conditions in markets where these activities are carried out. Despite our efforts to mitigate such risks through the credit approval policies applied to dealers and retail customers, there can be no assurances that we will be able to successfully mitigate such risks, particularly with respect to a general change in economic conditions.

It may be difficult to enforce U.S. judgments against us.

We are organized under the laws of the Netherlands, and a substantial portion of our assets are outside of the U.S. Most of our directors and senior management and our independent auditors are resident outside the U.S., and all or a substantial portion of their respective assets may be located outside the U.S. As a result, it may be difficult for U.S. investors to effect service of process within the U.S. upon these persons. It may also be difficult for U.S. investors to enforce within the U.S. judgments predicated upon the civil liability provisions of the securities laws of the U.S. or any state thereof. In addition, there is uncertainty as to whether the courts outside the U.S. would recognize or enforce judgments of U.S. courts obtained against us or our directors and officers predicated upon the civil liability provisions of the securities laws of the U.S. or any state thereof. Therefore, it may be difficult to enforce U.S. judgments against us, our directors and officers and our independent auditors.

Risks Related to Taxation

No ruling will be received in respect of the U.S. federal income tax consequences of the Merger.

FCA believes that the Merger constitutes for U.S. federal income tax purposes a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code, of 1986, as amended, or the Code. FCA expects to receive an opinion from Sullivan & Cromwell LLP to the effect that the Merger will qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. This opinion will be based on certain assumptions and on representation letters provided by Fiat and FCA to be delivered at the time of the closing. If any of the assumptions or representations upon which such opinion is based are inconsistent with the actual facts with respect to the Merger, the U.S. federal income tax consequences of the Merger could be adversely affected.

The tax opinion given in connection with the Merger or in connection with the filing of this registration statement will not be binding on the Internal Revenue Service, or IRS. FCA does not intend to request a ruling from the IRS as to the U.S. federal income tax consequences of the Merger, and consequently there is no guarantee that the IRS will treat the Merger in the manner described herein. If the IRS successfully challenges the treatment of the Merger, adverse U.S. federal income tax consequences may result. Shareholders should consult their own tax advisors regarding the U.S. federal, state and local and non-U.S. and other tax consequences of the Merger in their particular circumstances (including the possible tax consequences if the “reorganization” treatment is successfully challenged).

There may be potential “Passive Foreign Investment Company” tax considerations for U.S. Shareholders.

FCA would be a “passive foreign investment company”, or a PFIC, for U.S. federal income tax purposes with respect to a U.S. Shareholder (as defined in “Tax Consequences—Material U.S. Federal Income Tax Consequences” below) if for any taxable year in which such U.S. Shareholder held FCA common shares, after the application of applicable “look-through rules” (i) 75 percent or more of FCA’s gross income for the taxable

 

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year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations), or (ii) at least 50 percent of its assets for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of “passive income.” U.S. persons who own shares of a PFIC are subject to a disadvantageous U.S. federal income tax regime with respect to the income derived by the PFIC, the dividends they receive from the PFIC, and the gain, if any, they derive from the sale or other disposition of their shares in the PFIC. In addition, if Fiat were or had been in the past a PFIC, the exchange of Fiat ordinary shares for FCA common shares could be taxable to U.S. Shareholders.

While FCA believes that its shares are not stock of a PFIC for U.S. federal income tax purposes, this conclusion is a factual determination made annually and thus may be subject to change. Moreover, FCA may become a PFIC in future taxable years if there were to be changes in FCA’s assets, income or operations. In addition, if Fiat were or had been in the past a PFIC, the treatment of the exchange of Fiat ordinary shares for FCA common shares would be uncertain. See “Tax Consequences—Material U.S. Federal Income Tax Consequences—U.S. Shareholders—PFIC Considerations—Consequences of Holding FCA Stock” and “—Consequences of the Merger” for a further discussion.

Tax consequences of the loyalty voting structure are uncertain.

No statutory, judicial or administrative authority directly discusses how the receipt, ownership, or disposition of special voting shares should be treated for Italian, U.K. or U.S. tax purposes and as a result, the tax consequences in those jurisdictions are uncertain.

The fair market value of the FCA special voting shares, which may be relevant to the tax consequences, is a factual determination and is not governed by any guidance that directly addresses such a situation. Because, among other things, the special voting shares are not transferrable (other than, in very limited circumstances, together with the associated FCA common shares) and a shareholder will receive amounts in respect of the special voting shares only if FCA is liquidated, FCA believes and intends to take the position that the value of each special voting share is minimal. However, the relevant tax authorities could assert that the value of the special voting shares as determined by FCA is incorrect.

The tax treatment of the loyalty voting structure is unclear and shareholders are urged to consult their tax advisors in respect of the consequences of acquiring, owning and disposing of special voting shares. See “Tax Consequences” for a further discussion.

FCA intends to operate so as to be treated as exclusively resident in the United Kingdom for tax purposes, but the relevant tax authorities may treat it as also being tax resident elsewhere.

FCA is not a company incorporated in the U.K. Therefore, whether it is resident in the U.K. for tax purposes will depend on whether its “central management and control” is located (in whole or in part) in the U.K. The test of “central management and control” is largely a question of fact and degree based on all the circumstances, rather than a question of law. Nevertheless, the decisions of the U.K. courts and the published practice of Her Majesty’s Revenue & Customs, or HMRC, suggest that FCA, a group holding company, is likely to be regarded as having become U.K.-resident on this basis from incorporation and remaining so if, as FCA intends, (i) most meetings of its Board of Directors are held in the U.K. with a majority of directors present in the U.K. for those meetings; (ii) at those meetings there are full discussions of, and decisions are made regarding, the key strategic issues affecting FCA and its subsidiaries; (iii) those meetings are properly minuted; (iv) at least some of the directors of FCA, together with supporting staff, are based in the U.K.; and (v) FCA has permanent staffed office premises in the U.K.

Even if FCA is resident in the U.K. for tax purposes on this basis, as expected, it would nevertheless not be treated as U.K.-resident if (a) it were concurrently resident in another jurisdiction (applying the tax residence rules of that jurisdiction) that has a double tax treaty with the U.K. and (b) there is a tie-breaker provision in that tax treaty which allocates exclusive residence to that other jurisdiction.

 

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Residence of FCA for Italian tax purposes is largely a question of fact based on all circumstances. A rebuttable presumption of residence in Italy may apply under Article 73(5-bis) of the Italian Consolidated Tax Act, or CTA. However, FCA intends to set up its management and organizational structure in such a manner that it should be deemed resident in the U.K. from its incorporation for the purposes of the Italy-U.K. tax treaty. Because this analysis is highly factual and may depend on future changes in FCA’s management and organizational structure, there can be no assurance regarding the final determination of FCA’s tax residence. Should FCA be treated as an Italian tax resident, it would be subject to taxation in Italy on its worldwide income and may be required to comply with withholding tax and/or reporting obligations provided under Italian tax law, which could result in additional costs and expenses.

Even if its “central management and control” is in the U.K. as expected, FCA will be resident in the Netherlands for Dutch corporate income tax and Dutch dividend withholding tax purposes on the basis that it is incorporated there. Nonetheless, FCA will be regarded as solely resident in either the U.K. or the Netherlands under the Netherlands-U.K. tax treaty if the U.K. and Dutch competent authorities agree that this is the case. FCA intends to seek a ruling on this question from the U.K. and Dutch competent authorities. FCA anticipates that, so long as the factors listed in the third preceding paragraph are present at all material times, it is unlikely that the U.K. and Dutch competent authorities will rule that FCA should be treated as solely resident in the Netherlands. The outcome of that ruling, however, cannot be guaranteed. If there is a change over time to the facts upon which a ruling issued by the competent authorities is based, the ruling may be withdrawn.

Unless and until the U.K. and the Dutch competent authorities rule that FCA should be treated as solely resident in the U.K. for the purposes of the Netherlands-U.K. double tax treaty, the Netherlands will be allowed to levy tax on FCA as a Dutch-tax-resident taxpayer. Furthermore, in these circumstances, dividends distributed by FCA will be subject to Dutch dividend withholding tax.

Should Dutch or Italian withholding taxes be imposed on future dividends or distributions with respect to FCA common shares, whether such withholding taxes are creditable against a tax liability to which a shareholder is otherwise subject depends on the laws of such shareholder’s jurisdiction and such shareholder’s particular circumstances. Shareholders are urged to consult their tax advisors in respect of the consequences of the potential imposition of Dutch and/or Italian withholding taxes.

The U.K.’s controlled foreign company taxation rules may reduce net returns to shareholders.

On the assumption that FCA is resident for tax purposes in the U.K., FCA will be subject to the U.K. controlled foreign company, or CFC, rules. The U.K. government has reformed the CFC rules to target them more narrowly on profits (other than certain capital gains) “artificially diverted” from the U.K. FCA will need to apply the new rules.

The new CFC rules can subject U.K.-tax-resident companies (in this case FCA) to U.K. tax on the profits of certain companies not resident for tax purposes in the U.K. in which they have at least a 25 percent direct or indirect interest. Interests of connected or associated persons may be aggregated with those of the U.K.-tax-resident company when applying this 25 percent threshold. For a company to be a CFC, it must be treated as directly or indirectly controlled by persons resident for tax purposes in the U.K. The definition of control is broad (it includes economic rights) and captures some joint ventures.

Various exemptions are available. One of these is that a CFC must be subject to tax in its territory of residence at an effective rate not less than 75 percent of the rate to which it would be subject in the U.K., after making specified adjustments. Another of the exemptions (the “excluded territories exemption”) is that the CFC is resident in a jurisdiction specified by HMRC in regulations (several jurisdictions in which the Fiat group has significant operations, including Brazil, Italy and the United States, are so specified). For this exemption to be available, the CFC must not be involved in an arrangement with a main purpose of avoiding U.K. tax and the CFC’s income falling within certain categories (often referred to as the CFC’s “bad income”) must not exceed a set limit. In the case of the United States and certain other countries, the “bad income” test need not be met if the CFC does not have a permanent establishment in any other territory and the CFC or persons with an interest in it

 

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are subject to tax in its home jurisdiction on all its income (other than non-deductible distributions). FCA expects that its principal operating activities should fall within one or more of the exemptions from the CFC rules, in particular the excluded territories exemption.

Where the entity exemptions are not available, profits from activities other than finance or insurance will only be subject to apportionment under the CFC rules where:

 

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some of the CFC’s assets or risks are acquired, managed or controlled to any significant extent in the U.K. (a) other than by a U.K. permanent establishment of the CFC and (b) other than under arm’s length arrangements;

 

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the CFC could not manage the assets or risks itself; and

 

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the CFC is party to arrangements which increase its profits while reducing tax payable in the U.K. and the arrangements would not have been made if they were not expected to reduce tax in some jurisdiction.

Profits from finance activities (whether considered trading or non-trading profits for U.K. tax purposes) or from insurance may be subject to apportionment under the CFC rules if they meet the tests set out above or specific tests for those activities. A full or 75 percent exemption may also be available for some non-trading finance profits.

Although FCA does not expect the U.K.’s CFC rules to have a material adverse impact on its financial position, the effect of the new CFC rules is not yet certain. FCA will continue to monitor developments in this regard and seek to mitigate any adverse U.K. tax implications which may arise. However, the possibility cannot be excluded that the reform of the CFC rules may have a material adverse impact on the financial position of FCA, reducing net returns to FCA shareholders.

The existence of a permanent establishment in Italy for FCA after the Merger is a question of fact based on all the circumstances.

Whether FCA maintains a permanent establishment in Italy after the Merger (an “Italian P.E.”) is largely a question of fact based on all the circumstances. FCA believes that, on the understanding that it should be a U.K.-resident company under the Italy-U.K. tax treaty, it is likely to be treated as maintaining an Italian P.E. because it intends to maintain sufficient employees, facilities and activities in Italy to qualify as maintaining an Italian P.E. Should this be the case (i) the embedded gains on FCA’s assets connected with the Italian P.E. will not be taxed upon the Merger; (ii) Fiat’s tax-deferred reserves will not be taxed, inasmuch as they are booked in the Italian P.E.’s financial accounts; and (iii) an Italian fiscal unit, or Fiscal Unit, could be maintained with respect to Fiat’s Italian subsidiaries whose shareholdings are part of the Italian P.E.’s net worth. Because this analysis is highly factual, there can be no assurance regarding FCA’s maintaining an Italian P.E. after the Merger.

The Merger will likely result in the immediate charge of an Italian Exit Tax with respect to capital gains on assets that are expected to be transferred out of the Italian P.E. in connection with the Merger.

The Merger should qualify as a cross-border merger transaction for Italian tax purposes. Italian tax laws provide that such a cross-border merger is tax-neutral with respect to those Fiat assets that remain connected with the Italian P.E., but will result in the realization of capital gains or losses on those Fiat assets that will not be connected with the Italian P.E. (giving rise to an “Italian Exit Tax”).

Under a recently enacted Italian law (Article 166 (2-quater) of the CTA), companies which cease to be Italian-resident and become tax-resident in another EU Member State may apply to suspend any Italian Exit Tax under the principles of the Court of Justice of the European Union case C-371/10, National Grid Indus BV. Italian rules implementing Article 166 (2-quater), issued in August 2013, excluded cross-border merger transactions from the suspension of the Italian Exit Tax. As a result, the Merger will result in the immediate charge of an Italian Exit Tax in relation to those Fiat assets that will not be connected with the Italian P.E.

 

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Whether or not the Italian implementing rules are deemed compatible with EU law is unlikely to be determined before the payment of the Italian Exit Tax is due. Capital gains on certain assets of the Group that are expected to be transferred out of the Italian P.E. in connection with the Merger will be realized for Italian tax purposes. However, Fiat expects that such gains may be largely offset by tax losses available to the Group.

The continuation of the Fiscal Unit in the hands of the Italian P.E. and the tax treatment of the carried-forward tax losses of such Fiscal Unit is uncertain and subject to a mandatory ruling request.

According to Article 124(5) of the CTA, a mandatory ruling request should be submitted to the Italian tax authorities, in order to ensure the continuity, via the Italian P.E., of the Fiscal Unit currently in place between Fiat and Fiat’s Italian subsidiaries. Fiat has filed a ruling request to the Italian tax authorities in respect of the Merger. Depending on the outcome of the ruling, it is possible that the carried-forward tax losses generated by the Fiscal Unit would become restricted losses and they could not be used to offset the future taxable income of the Fiscal Unit. It is also possible that FCA would not be able to offset the Fiscal Unit’s carried-forward tax losses against any capital gains on Fiat’s assets that are not connected with the Italian P.E., despite the continuity of the Fiscal Unit. In the case that the carried-forward tax losses become restricted losses and are not able to be used to offset the future taxable income of the Fiscal Unit or in the case that the carried-forward tax losses would not be able to offset any capital gains on Fiat’s assets, the recoverability of such carried-forward tax losses may be reassessed. The outcome of any reassessment could result in a derecognition of such carried-forward tax losses, which may adversely affect our financial condition or results of operations.

Risks Related to Our Indebtedness

We have significant outstanding indebtedness, which may limit our ability to obtain additional funding on competitive terms and limit our financial and operating flexibility.

The extent of our indebtedness could have important consequences on our operations and financial results, including:

 

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we may not be able to secure additional funds for working capital, capital expenditures, debt service requirements or general corporate purposes;

 

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we may need to use a portion of our projected future cash flow from operations to pay principal and interest on our indebtedness, which may reduce the amount of funds available to us for other purposes;

 

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we may be more financially leveraged than some of our competitors, which may put us at a competitive disadvantage; and

 

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we may not be able to adjust rapidly to changing market conditions, which may make us more vulnerable to a downturn in general economic conditions or our business.

These risks may be exacerbated by volatility in the financial markets, particularly those resulting from perceived strains on the finances and creditworthiness of several governments and financial institutions, particularly in the Eurozone.

Among the anticipated benefits of the corporate reorganization announced in January 2014 is the expected reduction in funding costs over time due to anticipated improved debt capital markets positioning of the combined entity. However, we may not recognize these benefits for some time as we expect to maintain our existing capital structure until it becomes cost effective to modify this structure in light of our existing long-term obligations. However, certain of the circumstances and risks described may delay or reduce the expected cost savings from the future funding structures and the expected cost savings may not be achieved in full or at all. See “The Merger—Reasons for the Merger.”

Even after the January 2014 acquisition of the approximately 41.5 percent interest in Chrysler that we did not already own, Chrysler continues to manage financial matters, including funding and cash management,

 

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separately. Additionally, Fiat has not provided guarantees or security or undertaken any other similar commitment in relation to any financial obligation of Chrysler, nor does it have any commitment to provide funding to Chrysler in the future.

Furthermore, certain bonds issued by Fiat and its subsidiaries include covenants that may be affected by circumstances related to Chrysler. In particular, these bonds include cross-default clauses which may accelerate the relevant issuer’s obligation to repay its bonds in the event that Chrysler fails to pay certain debt obligations on maturity or is otherwise subject to an acceleration in the maturity of any of those obligations. Therefore, these cross-default provisions could require early repayment of those bonds in the event Chrysler’s debt obligations are accelerated or are not repaid at maturity. There can be no assurance that the obligation to accelerate the repayment by Chrysler of its debts will not arise or that it will be able to pay its debt obligations when due at maturity.

In addition, one of Fiat’s existing revolving credit facilities, expiring in July 2016, provides some limits on Fiat’s ability to provide financial support to Chrysler.

Restrictive covenants in our debt agreements could limit our financial and operating flexibility.

The indentures governing certain of our outstanding public indebtedness, and other credit agreements to which companies in the Group are a party, contain covenants that restrict the ability of companies in the Group to, among other things:

 

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incur additional debt;

 

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make certain investments;

 

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enter into certain types of transactions with affiliates;

 

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sell certain assets or merge with or into other companies;

 

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use assets as security in other transactions; and

 

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enter into sale and leaseback transactions.

For more information regarding our credit facilities and debt, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—Liquidity and Capital Resources.”

Restrictions arising out of Chrysler’s debt instruments may hinder our ability to manage our operations on a consolidated, global basis.

Chrysler is party to credit agreements for certain senior credit facilities and an indenture for two series of secured senior notes. These debt instruments include covenants that restrict Chrysler’s ability to pay dividends or enter into sale and leaseback transactions, make certain distributions or purchase or redeem capital stock, prepay other debt, encumber assets, incur or guarantee additional indebtedness, incur liens, transfer and sell assets or engage in certain business combinations, enter into certain transactions with affiliates or undertake various other business activities.

In particular, in January 2014, Chrysler paid a distribution of U.S.$1.9 billion (€1.4 billion) to its members. With certain exceptions, further distributions will be limited to 50 percent of Chrysler’s cumulative consolidated net income (as defined in the agreements) from the period from January 1, 2012 until the end of the most recent fiscal quarter, less the amount of the January 2014 distribution. See “Management’s Discussion and Analysis of Financial Condition and the Results of Operations of the Fiat Group—Liquidity and Capital Resources.”

These restrictive covenants could have an adverse effect on our business by limiting our ability to take advantage of financing, mergers and acquisitions, joint ventures or other corporate opportunities. In particular,

 

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the senior credit facilities contain, and future indebtedness may contain, other and more restrictive covenants. These agreements also restrict Chrysler from prepaying certain of its indebtedness or imposing limitations that make prepayment impractical. The senior credit facilities require Chrysler to maintain borrowing base collateral coverage and a minimum liquidity threshold. A breach of any of these covenants or restrictions could result in an event of default on the indebtedness and the other indebtedness of Chrysler or result in cross-default under certain of its indebtedness.

If Chrysler is unable to comply with these covenants, its outstanding indebtedness may become due and payable and creditors may foreclose on pledged properties. In this case, Chrysler may not be able to repay its debt and it is unlikely that it would be able to borrow sufficient additional funds. Even if new financing is made available to Chrysler in such circumstances, it may not be available on acceptable terms.

Compliance with certain of these covenants could also restrict Chrysler’s ability to take certain actions that its management believes are in Chrysler’s and our best long-term interests.

Should Chrysler be unable to undertake strategic initiatives due to the covenants provided for by the above instruments, our business prospects, financial condition and results of operations could be impacted.

Substantially all of the assets of Chrysler and its U.S. subsidiary guarantors are unconditionally pledged as security under its senior credit facilities and secured senior notes and could become subject to lenders’ contractual rights if an event of default were to occur.

Chrysler and several of its U.S. subsidiaries are obligors or guarantors under Chrysler’s senior credit facilities and secured senior notes. The obligations under the senior credit facilities and secured senior notes are secured by senior and junior priority, respectively, security interests in substantially all of the assets of Chrysler and its U.S. subsidiary guarantors. The collateral includes 100 percent of the equity interests in Chrysler’s U.S. subsidiaries, 65 percent of the equity interests in its non-U.S. subsidiaries held directly by Chrysler and its U.S. subsidiary guarantors, all personal property and substantially all of Chrysler’s U.S. real property other than its Auburn Hills, Michigan headquarters. An event of default under Chrysler’s senior credit facilities and/or secured senior notes could trigger its lenders’ or noteholders’ contractual rights to enforce their security interest in these assets.

Risks Related to the Merger and the FCA shares

The FCA common shares to be received by the Fiat shareholders in connection with the Merger will have different rights from the Fiat ordinary shares.

At the effective time of the Merger, each outstanding Fiat ordinary share will be converted into one FCA common share. As of such time, you will no longer be a holder of Fiat ordinary shares, but will instead be a holder of FCA common shares. There are certain differences between your current rights as a holder of Fiat ordinary shares and the rights to which you will be entitled as a holder of FCA common shares. For a detailed discussion of the differences between the current rights of Fiat shareholders and the rights you can expect as a holder of FCA common shares, please see “Comparison of Rights of Shareholders of Fiat and FCA.”

There is no trading market for the FCA shares, and there can be no assurance that a liquid trading market on the NYSE will develop or be sustained.

Prior to the Merger, there has been no market for the FCA common shares although Fiat ordinary shares will be traded on the MTA until completion of the Merger. Prior to the completion of the Merger, FCA will file a listing application to list the FCA common shares on the NYSE and listing of the FCA common shares on the NYSE will be a condition precedent to the Merger. However, there can be no assurance that an active market for the FCA common shares will develop on the NYSE after closing of the Merger, or that if it develops, the market will be sustained.

 

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FCA’s maintenance of two exchange listings may adversely affect liquidity in the market for FCA common shares and could result in pricing differentials of FCA common shares between the two exchanges.

Shortly following or concurrently with the closing of the Merger and the listing of FCA common shares on the NYSE, FCA expects to list the FCA common shares on the MTA, subject to the approval by the Italian and Dutch competent authorities. It is not possible to predict how trading will develop in these two markets. The dual listing of FCA common shares may split trading between the two markets and adversely affect the liquidity of the shares in one or both markets and the development of an active trading market for FCA common shares on the NYSE and may result in price differentials between the exchanges. Differences in the trading schedules, as well as volatility in the exchange rate of the two trading currencies, among other factors, may result in different trading prices for FCA common shares on the two exchanges.

The market price of FCA common shares may decline following closing of the Merger and the listing of the FCA common shares on the NYSE and the MTA, particularly if the expected benefits of our reorganization fail to materialize.

The market prices of the FCA common shares may decline following closing of the Merger and the listing of the FCA common shares on the NYSE and the MTA, if, among other reasons, FCA does not achieve the expected benefits from the full integration with Chrysler and the other benefits of our reorganization described in this prospectus as rapidly or to the extent anticipated by us. Any of these situations may cause our shareholders to sell a significant number of FCA common shares after consummation of the Merger, which may negatively affect the market price of the FCA common shares.

The loyalty voting structure to be implemented in connection with the Merger may concentrate voting power in a small number of FCA shareholders and such concentration may increase over time.

If Fiat shareholders holding a significant number of Fiat ordinary shares elect to receive special voting shares in connection with the Merger or come to hold special voting shares after the Merger, or if FCA shareholders holding a significant number of FCA common shares for an uninterrupted period of at least three years elect to receive special voting shares, a relatively large proportion of the voting power of FCA could be concentrated in a relatively small number of shareholders who would have significant influence over FCA. Exor, which as of March 31, 2014 held 30.05 percent of Fiat’s share capital, has expressed its intention to elect to receive special voting shares.

The loyalty voting structure may affect the liquidity of the FCA common shares and reduce the FCA common share price.

The implementation of the loyalty voting structure could reduce the liquidity of the FCA common shares and adversely affect the trading prices of the FCA common shares. The loyalty voting structure is intended to reward the Fiat shareholders for maintaining long-term share ownership by granting initial shareholders and persons holding FCA common shares continuously for at least three years at any time following the effectiveness of the Merger the option to elect to receive FCA special voting shares. FCA special voting shares cannot be traded and, immediately prior to the deregistration of FCA common shares from the FCA Loyalty Register, any corresponding FCA special voting shares shall be transferred to FCA for no consideration (om niet). This loyalty voting structure is designed to encourage a stable shareholder base for FCA and, conversely, it may deter trading by those shareholders who are interested in gaining or retaining FCA special voting shares. Therefore, the loyalty voting structure may reduce liquidity in FCA common shares and adversely affect their trading price.

The loyalty voting structure may make it more difficult for FCA shareholders to change FCA’s management or acquire a controlling interest in FCA, and the market price of FCA common shares may be lower as a result.

The provisions of the articles of association of FCA establishing the loyalty voting structure may make it more difficult for a third party to acquire, or attempt to acquire, control of FCA, even if a change of control were considered favorably by shareholders holding a majority of shares of FCA common shares. As a result of

 

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the loyalty voting structure, a relatively large proportion of the voting power of FCA could be concentrated in a relatively small number of shareholders who would have significant influence over FCA. Immediately following the Merger, Exor could have a voting interest in FCA of up to approximately 46 percent if Exor elects to participate in the loyalty voting structure and no other shareholder of Fiat participates (before considering exercise of any cash exit rights). Such shareholders participating in the loyalty voting structure could effectively prevent change of control transactions that may otherwise benefit shareholders of FCA.

The loyalty voting structure may also prevent or discourage shareholders’ initiatives aimed at changes in FCA’s management.

Certain of Fiat’s directors and executive officers have benefit arrangements and other interests that may result in their interests in the Merger being different from those of other Fiat shareholders.

Some of Fiat’s directors who recommend that the Fiat shareholders vote in favor of the merger plan and the transactions contemplated thereby, as well as some of Fiat’s executive officers, have benefit arrangements that provide them with interests in the Merger that may be different from those of other Fiat shareholders. In connection with the Merger, no early acceleration or recognition of stock vesting under employee compensation plans is expected to occur. However, the receipt of compensation or other benefits in connection with the Merger may influence these persons in making their recommendation that the Fiat shareholders vote in favor of approval of the merger plan and the transactions contemplated thereby.

The Merger is not expected to result in any significant operational cost savings or synergies.

Following the Merger, the business and operations of Fiat will be assumed by FCA, but they will remain substantially unchanged. Therefore, FCA and Fiat do not expect that the Merger will result in any significant operational cost savings or synergies. For a discussion of the anticipated organizational and capital markets impacts, see “The Merger—Reasons for the Merger.”

Failure to timely complete the Merger could negatively affect Fiat’s business plans and operations and have a negative impact on the market price of Fiat’s ordinary shares.

The Merger is subject to certain customary closing conditions, some of which are beyond the control of Fiat, including the listing of the FCA common shares on the NYSE and Fiat shareholders and creditors exercising their statutory rights not resulting in a payment of more than €500 million in the aggregate. Our inability to complete the Merger on the expected schedule or at all could negatively affect trading in Fiat’s ordinary shares. Moreover, if the Merger is not completed, we will not achieve the benefits expected from the combination.

The market price of Fiat ordinary shares currently and in the period prior to closing or termination of the Merger may reflect a market assumption that the Merger will occur. If the Merger is not completed, this could result in a negative perception by the stock market of Fiat generally and a decline in the market price of Fiat’s ordinary shares.

In addition, Fiat is a party to joint ventures, license agreements, financing and other agreements and instruments, some of which contain provisions that may be triggered by the Merger, such as default provisions, termination provisions, acceleration provisions and/or mandatory repurchase provisions. If Fiat is unable to obtain any necessary waiver or consent, the operation of such provisions may cause the loss of contractual rights and benefits, the termination of joint venture agreements, supply agreements, licensing agreements or may require the renegotiation of financing agreements and/or the payment of fees.

The Merger could be completed even if one or more of the conditions to the Merger are not satisfied.

Following shareholder approval, the effectiveness of the Merger will be subject to satisfaction or (to the extent permissible by law) waiver of certain of the Merger conditions. Following the approval of the Merger by the Fiat shareholders, in the event that Fiat considers waiving certain of the Merger conditions, shareholder approval of any such waiver may not be required or sought.

 

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THE FIAT EXTRAORDINARY GENERAL MEETING

Date, Time, Place and Matters to Be Considered

At the extraordinary general meeting of Fiat’s shareholders, to be held on August 1, 2014 at 11:00 a.m. at Centro Congressi Lingotto, Via Nizza 280, Turin, Italy, Fiat’s shareholders will vote on the following proposals:

 

Ÿ

approval of the merger plan regarding the cross-border reverse merger of Fiat, as the merging entity with and into FCA, as the surviving entity; and

 

Ÿ

related resolutions.

Single Call—Quorum—Vote Required—Shareholders Entitled to Vote

Since the extraordinary general meeting of Fiat to resolve upon the Merger will be held on single call, according to Article 9 of Fiat’s By-laws, the extraordinary general meeting of Fiat will be considered regularly convened if Fiat shareholders representing at least one-fifth of shares entitled to vote attend. Abstentions and broker non-votes will be included in the calculation of the number of Fiat ordinary shares represented at the extraordinary general meeting for purposes of determining whether a quorum has been achieved. At such an extraordinary general meeting of the Fiat shareholders, resolutions are adopted with the favorable vote of at least two-thirds of the shares represented at such meeting. As of June 27, 2014, there were 1,250,955,773 outstanding Fiat ordinary shares. Each Fiat ordinary share is entitled to one vote. As of the same date, Exor held 30.05 percent of Fiat ordinary shares. The extraordinary general meeting of Fiat will be held on single call and, accordingly, if the necessary quorum is not met, the meeting will not be adjourned. Pursuant to Article 83-sexies (2) of the Italian Unified Financial Act, all persons for which Fiat has received a communication from a relevant authorized intermediary, on the basis of records at the close of business on the seventh trading day prior to the date of the meeting, shall be entitled to attend the shareholders’ meeting. Changes in shareholdings after this deadline are not considered for the purpose of determining voting rights at the relevant shareholders’ meeting and, therefore, any person becoming a shareholder of Fiat after the above deadline will not be entitled to attend the extraordinary general meeting and vote.

Shareholders have been informed of the Fiat extraordinary general meeting by publication of a notice on Fiat website and in La Stampa.

Dissenters’, Appraisal, Cash Exit or Similar Rights

Italian law does not entitle the holders of Fiat ordinary shares to formal appraisal rights in connection with the Merger. Fiat shareholders are, however, entitled to cash exit rights as specified under Italian law.

In particular, shareholders who do not concur in the approval of the extraordinary general meeting’s resolution will be entitled to exercise cash exit rights:

 

(i)

according to Article 2437(1)(c) of the Italian Civil Code, because the registered office of the surviving company in the Merger, FCA, will be outside Italy as a result of the Merger;

 

(ii)

according to Article 2437-quinquies of the Italian Civil Code, because Fiat’s shares will be delisted from the MTA as a consequence of the Merger; and

 

(iii)

according to Article 5 of the Legislative Decree No. 108 of May 30, 2008, because the company resulting from the cross-border merger, FCA, will be governed by the law of a country other than Italy.

 

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Pursuant to Article 2437-ter (3) of the Italian Civil Code, the price to be paid to the shareholders of Fiat who exercise their cash exit rights will be calculated on the basis of the arithmetic average of the closing price of Fiat ordinary shares (as calculated by Borsa Italiana S.p.A.) for the six-month period prior to the date of publication of the notice of call of the extraordinary general meeting of the Fiat shareholders.

For the purposes of the exercise of cash exit rights, qualifying shareholders shall be defined as those who did not concur to the approval of the extraordinary general meeting resolution. Such shareholders must have held their shares on a continuous basis from the date of the extraordinary general meeting held to approve the Merger until the date on which the right of cash exit is exercised.

Pursuant to Article 2437-bis of the Italian Civil Code, qualifying shareholders may exercise their cash exit right for all or a portion of their shares, by giving notice via registered letter to be sent to the registered offices of Fiat no later than 15 days from the day of registration of the extraordinary general meeting resolution with the Companies’ Register of Turin. The notice must contain the following information: the personal data of the shareholder exercising the cash exit rights; Italian tax code (if assigned); domicile (and, where possible, a telephone number) for communications concerning cash exit rights; the number of shares for which cash exit rights are exercised; instructions for crediting the payment for the shares for which cash exit rights are exercised to the withdrawing shareholder’s bank account; and details of the intermediary with which the shares for which cash exit rights are exercised are deposited.

The cash exit rights will be subject to the consummation of the Merger. Therefore, if the Merger does not become effective (for instance, if the conditions precedent to the Merger are not satisfied or waived), the shareholders who exercised the cash exit rights will not be entitled to receive the cash exit price calculated in accordance with Article 2437-ter (3) of the Italian Civil Code and they will continue to be shareholders of Fiat.

The shares with respect to which cash exit rights have been exercised will be offered by Fiat before the Merger becomes effective to its then existing shareholders. Subsequently, if any such shares remain unsold, they may be offered on the market for no less than one trading day. Completion of the share offer and sale procedure, as well as payment of any cash exit right due pursuant to applicable law will be conditional on the closing of the Merger.

On the date of the Merger becoming effective or immediately thereafter, the shareholders who exercised the cash exit rights shall receive the cash exit price via transfer of the appropriate amount to the shareholders’ respective bank accounts indicated in the notice of exercise of the cash exit rights.

Contestation Suits

Under Italian law, Fiat shareholders, as well as directors and members of the board of statutory auditors, may challenge the Merger resolution on the basis of the general rules for the challenge of shareholders’ resolutions (i.e., in case of resolutions adopted in breach of the law or Fiat’s By-laws). In particular, Fiat shareholders who do not concur in the approval of the merger plan and who hold at least 0.001 percent of Fiat ordinary share capital, as well as directors and members of the board of statutory auditors, could challenge the resolution by filing an action within 90 days of the registration of the Merger resolution in the Companies’ Register of Turin (Italy). Such suits could allege a violation of Italian law or Fiat’s By-laws. In addition, in very limited cases relating to material irregularities (such as failure to convene the shareholders’ meeting or illegality of the subject matter of the resolution), any Fiat shareholder, regardless of the amount of shares held, as well as any third party having an interest to challenge the resolution, can challenge the Merger resolution within three years after the registration of such resolution with the Companies’ Register of Turin (Italy). If these Fiat shareholders contest the Merger resolution asserting that they would suffer irreparable harm if the Merger is implemented and succeed in proving the existence of a prima facie case, a competent court could issue, in its discretion, an injunction suspending the effect of the Merger resolution, therefore preventing the consummation of the Merger. If such an injunction is imposed prior to the execution of the Merger deed before a Dutch civil law notary, the implementation of the Merger could be delayed or hindered under Italian law. For as long as the

 

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Merger resolution remains suspended under Italian law, FCA and Fiat would be prevented from registering the Merger in the commercial register for FCA in the Netherlands. Once the Merger deed has been executed before a Dutch civil law notary and has become effective pursuant to Dutch law, the Merger resolution can no longer be declared invalid and challenging shareholders could then only be entitled to monetary damages.

Interests in the Transaction

For a description of the interests of certain directors and executive officers of Fiat in the transaction see “The Merger—Interests of Certain Persons in the Merger.”

Creditor Opposition Rights

The effectiveness of the Merger is subject to the exercise of creditors’ rights pursuant to Italian law for a period of 60 days following the registration with the Companies’ Register of Turin (Italy) of the minutes of the extraordinary general meeting of the Fiat shareholders approving the merger plan.

Provided that resolutions approving the merger plan are duly adopted by the Fiat shareholders at the extraordinary general meeting, under Italian law, the resolutions must be registered with the Companies’ Register of Turin (Italy) and a 60-day waiting period from the date of such registration must be observed prior to closing of the Merger. During this period, creditors whose claims precede the registration of the merger plan with the Companies’ Register of Turin (Italy) may challenge the Merger before an Italian court of competent jurisdiction, unless the relevant creditor has been paid or the payment of the relevant credit has been secured. If a challenge is filed, the court may authorize the effectiveness of the Merger but may require the posting of a bond sufficient to satisfy creditors’ claims.

The effectiveness of the Merger will also be subject to a one month creditor claims period commencing following the announcement of the filing of the merger plan for creditors under Dutch Law without opposition being filed (or if an opposition is filed, such opposition is withdrawn or discharged or proceeding with the Merger is otherwise permitted by law).

Shareholding Structure

Upon effectiveness of the Merger, the pre-Merger shareholders of Fiat will hold the same percentage of FCA common shares as of Fiat ordinary shares held before the Merger (subject to the exercise of cash exit rights, see “—Dissenters’, Appraisal, Cash Exit or Similar Rights”). Exor is currently the largest shareholder of Fiat through its 30.05 percent shareholding interest and will hold the same interest in FCA common shares following the Merger (subject to the exercise of cash exit rights).

However, as a result of the loyalty voting mechanism, the voting power in FCA will depend on the number of special voting shares that will be issued by FCA. If Exor elects to participate in the loyalty voting structure with respect to all of the FCA common shares it will be entitled to receive upon completion of the Merger, and no other shareholder elects to participate in the loyalty voting structure, Exor’s voting power in FCA immediately following completion of the Merger could be as high as approximately 46 percent (without considering exercise of any cash exit rights). The voting power in FCA immediately following the Merger will depend on the elections for FCA special voting shares that eligible Fiat shareholders will make following the relevant extraordinary shareholders meeting.

 

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THE MERGER

The following is a description of the material aspects of the Merger. While FCA believes that the following description covers the material terms of the Merger, the description may not contain all of the information that is important to you. FCA encourages you to carefully read this entire prospectus, including the merger plan attached to this prospectus as Appendix A, for a more complete understanding of the Merger.

Background to the Merger

Over the past several years, we and our management, with the support of Fiat’s largest shareholder, have been pursuing a process of transformation in order to meet the challenges of a changing marketplace characterized by global overcapacity in automobile production and the consequences of economic recession in the European markets on which we have historically depended. The transformation process to date has included several steps.

In 2009, the Fiat Group and Chrysler entered into a global strategic alliance in which the Group contributed rights in various vehicle platforms and technologies to Chrysler and agreed to take on management responsibility for Chrysler, in return for which the Fiat Group received ownership interests in Chrysler and rights to increase that ownership interest and take a controlling interest in Chrysler over time. That alliance grew in strength and scope over the following years, as more fully described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—The Fiat-Chrysler Alliance,” and Fiat obtained additional interests in Chrysler, leading to consolidation of Chrysler’s results into the Fiat Group’s financial statements from June 1, 2011. By January 2012, following achievement of three performance events by Chrysler and the acquisition of interests held by the U.S. Department of the Treasury and Canadian government, the Group’s ownership interest in Chrysler reached 58.5 percent.

In 2010, the capital goods businesses, including the agricultural and construction equipment and commercial vehicles businesses previously integrated within the Group, were demerged into a separate publicly traded entity, now CNH Industrial, so that the different investment cycles, financing needs and investment profiles of those businesses and the remaining Group businesses, respectively, could be addressed more effectively and with greater strategic flexibility. The Demerger was completed on January 1, 2011.

In late 2011, the Fiat Group commenced a process to streamline its capital structure and simplify its governance structure through the conversion of Fiat’s then-outstanding preference shares and savings shares into ordinary shares to create a single, more liquid class of securities. The preference and savings shares had long traded at significant discounts to the ordinary shares and with sustained low trading volumes. The conversion was approved by the required vote of Fiat shareholders in April 2012 and became effective in May 2012.

During 2012 and 2013, while negotiations relating to further steps of the acquisition of the remaining shares in Chrysler were continuing, the Group’s management initiated a review of the most suitable corporate and governance structures for the combined Group, concluding that following the acquisition of the approximately 41.5 percent interest in Chrysler we did not already own, the character of our businesses and capital needs would change significantly. As a majority of our revenues and a substantial majority of our profitability would become attributable to operations in North America, the Group’s management recognized that we would have growing needs for low-cost capital to fund the investments required to secure the assets driving our growth prospects and to make necessary investments in new growth opportunities. In that process, we began to form the view that an Italian headquarters, Italian legal incorporation and sole Italian listing were no longer an adequate reflection of the nature and geographical footprint of the business and did not best serve our capital markets and financing objectives. The Group has continued to be viewed by investors largely as an Italian company, and the trading price of Fiat’s shares has been closely correlated with the Italian stock market index, notwithstanding that a majority of its revenues and profits are derived from North America.

 

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In January 2014, the Fiat Group agreed to purchase from the UAW Retiree Medical Benefits Trust, or the VEBA Trust, all of the VEBA Trust’s equity interests in Chrysler, representing the approximately 41.5 percent interest in Chrysler that it did not already own. The transaction was completed on January 21, 2014, resulting in Chrysler becoming an indirect wholly-owned subsidiary of Fiat. Immediately following that development, Fiat accelerated its plans to reorganize the Group’s structure and governance. Fiat’s management reviewed the experience of Fiat Industrial and CNH Global N.V. (“CNH”), which in 2013 successfully completed a merger resulting in a new combined company, CNH Industrial, organized in the Netherlands, with shares listed in New York and Milan.

Having reviewed various proposals from Fiat’s financial and legal advisors, Fiat determined that, similarly, a redomiciliation into the Netherlands with a listing on the NYSE and an additional listing on the MTA would be the structure most suitable to Fiat’s current and anticipated profile and its strategic and financial objectives. In order to foster the development and continued involvement of a core base of long-term shareholders, Fiat also decided to propose that the redomiciled company would adopt a loyalty voting structure. Other potential options were considered, including a redomiciliation effected by means of an exchange offer by a newly formed entity organized in the Netherlands for shares of Fiat instead of a merger, or a sole listing on the NYSE, but such alternatives were not pursued either because the execution risks were perceived to be higher or the outcome was expected to be less attractive than the Merger.

On January 29, 2014, the Board of Directors of Fiat approved the corporate reorganization of which the Merger forms a part and the formation of FCA as a fully integrated global automaker. On June 15, 2014, the Board of Directors of Fiat unanimously approved the merger plan governing the Merger, including the articles of association that will be adopted by FCA in connection with the Merger. Certain members of the Board of Directors of Fiat, including the Chairman of the Board and the Chief Executive Officer of Fiat, are also directors of Exor, our largest shareholder.

Reasons for the Merger

The Board of Directors of Fiat unanimously approved the merger plan and the transactions contemplated thereby at a meeting held on June 15, 2014. In reaching its decision, the Board of Directors consulted with management and financial and legal advisors and considered a variety of factors, including the material factors described below.

As described above under “—Background to the Merger,” the Board of Directors believes that an Italian holding company and sole Italian listing are no longer optimal for the increasingly global character of our business and in light of the capital markets needs of our businesses. The reorganization of which the merger plan forms a part is expected to have a positive impact on investor perception and valuation, improve our access to capital and expand strategic opportunities for the Group for the following principal reasons.

 

Ÿ

A well-established, investor-friendly corporate form. Following the Merger, Fiat will cease to exist as a standalone entity and will survive in the form of FCA, a Dutch public limited liability company, or naamloze vennootschap, or N.V. The Netherlands is a neutral jurisdiction that is not identified with either of the historical jurisdictions of the largest businesses operated by the Group and provides a governance regime that is expected to be attractive to investors in multinational enterprises. The Board of Directors believes that Dutch incorporation better reflects the increasing international dimension of our business and shareholder base. The Board of Directors also believes that with a Dutch holding company, we will have additional flexibility in raising capital or making strategic acquisitions or investments in the future as well as in issuing equity awards as a tool to incentivize and reward management and employees.

 

Ÿ

Enhanced access to capital. Moving our primary listing to the NYSE, where the shares of the major automotive companies that have the majority of their sales and profitability located in North America are listed, together with a listing on the MTA, is expected to enhance liquidity in our shares and to further our ability to access a deeper pool of equity and debt financing sources.

 

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With a NYSE listing, we will endeavour to attract U.S. retail and institutional investor interest seeking to gain exposure to the business of Chrysler as part of the integrated group to which Chrysler now belongs. Furthermore, a listing on the MTA will facilitate engagement by a pan-European investor base while at the same time discouraging any flowback of shares held by Italian retail investors.

The Board of Directors believes that the Merger, by redomiciling the Group in the Netherlands in the context of the broader Group reorganization following the acquisition of the remaining interest in Chrysler which the Group did not already own, will provide the appropriate conditions and create a natural catalyst to position FCA successfully with a global investor base, historically under-represented in Fiat’s capital, as well as a European investor base.

 

Ÿ

Loyalty Voting to Promote Stable and Supportive Shareholder Base. The Board of Directors believes that a strong base of core shareholders has benefited and will continue to benefit us. Multiple voting mechanisms, particularly those that recognize the importance of core shareholders while encouraging new shareholders to invest for the long term can be effective in promoting long-term stability of a business. These mechanisms in varying form are common in a number of jurisdictions such as the United States, Sweden, France and the Netherlands. Dutch law allows for the creation of multiple voting mechanisms, which are not permitted under Italian law and, therefore, the Merger will enable the adoption of an appropriate multiple voting mechanism.

The Board of Directors believes that the long-term support provided to us by our founding family has been beneficial to our strategic development historically and wishes for such support to continue. We also believe that the loyalty voting structure may provide additional strategic flexibility for us to pursue attractive acquisition and strategic investment opportunities because the loyalty voting structure will ease the impact of any dilution in the economic interest of these core shareholders. Furthermore, the Board of Directors believes that enhancing the stability and loyalty of our broader shareholder base will strengthen the relationship between management and shareholders by limiting the distractions that may tend to arise from opportunistic short-term investors. The loyalty voting mechanism is designed to encourage investment by shareholders whose objectives are aligned with our strategic long-term development plans.

The Board of Directors of Fiat also considered potential negative consequences and risks that may arise from the proposed transaction, such as the financial outlay that may be required in connection with the exercise of cash exit rights, the potential adverse impact on trading in FCA common shares that may result initially from the dual listing, and the fact that the loyalty voting structure may discourage or make more difficult a change of control transaction. See “Risk Factors—Risks Related to the Merger and the FCA Shares.” However, the Board of Directors of Fiat concluded unanimously that the expected benefits of the transaction outweigh the potential negative consequences and risks.

Recommendation of the Board of Directors of Fiat

Fiat’s Board of Directors, having received extensive legal and financial advice, and having given due and careful consideration to strategic and financial aspects and consequences of the proposed Merger, at a meeting held on June 15, 2014, unanimously approved the merger plan. The Board of Directors also determined that, taking into account the current circumstances, the Merger, the merger plan and the transactions contemplated by the merger plan are fair to the Fiat shareholders, including from a financial point of view, and are in the best interest of Fiat. Accordingly, Fiat’s Board of Directors supports and unanimously recommends the Merger and recommends that Fiat shareholders vote “FOR” adoption and approval of the merger plan and the transactions contemplated by the merger plan.

In considering the recommendation of the Board of Directors of Fiat with respect to voting “FOR” adoption and approval of the merger plan, you should be aware that certain members of the Board of Directors and certain executive officers of Fiat may have interests in the transaction that are different from, or in addition

 

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to, your interests. The Board of Directors of Fiat was aware of and considered these interests, among other matters, in evaluating the transaction agreements and the proposed combination and in recommending that the Fiat shareholders vote “FOR” adoption and approval of the merger plan. For a discussion of these interests, see the “The Fiat Extraordinary General Meeting—Interests in the Transaction” section of this prospectus.

Interests of Certain Persons in the Merger

Some of the directors and executive officers of Fiat may have interests in the Merger that are different from, or in addition to, the interests of the other Fiat shareholders. These interests include, but are not limited to, the appointment of certain of our executive officers as officers of FCA, the appointment of certain of our directors as directors of FCA and the indemnification of our former directors and executive officers by FCA. However, the Merger will not result in the early vesting or acceleration of any employee stock options or other incentive compensation. The Fiat Board of Directors was aware of these interests during its deliberations on the merits of the combination.

Positions in FCA

The following directors and executive officers of Fiat are expected to be appointed to the Group Executive Council of FCA, beginning at the time of closing of the Merger:

 

Ÿ

Sergio Marchionne as Chief Executive Officer, Fiat, Chairman and Chief Executive Officer, Chrysler, and Chief Operating Officer of NAFTA;

 

Ÿ

Alfredo Altavilla as Chief Operating Officer Europe, Africa and Middle East (EMEA) and Head of Business Development;

 

Ÿ

Cledorvino Belini as Chief Operating Officer Latin America;

 

Ÿ

Michael Manley as Chief Operating Officer APAC and Head of Jeep Brand;

 

Ÿ

Riccardo Tarantini as Chief Operating Officer Systems and Castings (Comau and Teksid);

 

Ÿ

Eugenio Razelli as Chief Operating Officer Components (Magneti Marelli);

 

Ÿ

Olivier François as Chief Marketing Officer and Head of Fiat Brand;

 

Ÿ

Harald Wester as Chief Technology Officer and Head of Alfa Romeo and Maserati;

 

Ÿ

Reid Bigland as Head of U.S. Sales, Head of Ram Brand and Head of Canada;

 

Ÿ

Pietro Gorlier as Head of Parts & Service (MOPAR);

 

Ÿ

Lorenzo Ramaciotti as Head of Design;

 

Ÿ

Stefan Ketter as Chief Manufacturing Officer;

 

Ÿ

Scott Garberding as Head of Group Purchasing;

 

Ÿ

Doug Betts as Head of Quality;

 

Ÿ

Bob Lee as Head of Powertrain Coordination;

 

Ÿ

Mark Chernoby as Head of Product Portfolio Management;

 

Ÿ

Richard Palmer as Chief Financial Officer;

 

Ÿ

Linda Knoll as Chief Human Resources Officer;

 

Ÿ

Alessandro Baldi as Chief Audit Officer and Sustainability; and

 

Ÿ

Michael J. Keegan as GEC Coordinator.

 

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Plans for FCA After the Merger

Following effectiveness of the Merger, the business of FCA will be the same business as that of Fiat prior to the Merger.

Accounting Treatment

Following the Merger, FCA will prepare its consolidated financial statements in accordance with IFRS. Under IFRS, the Merger consists of a reorganization of existing legal entities that does not give rise to any change of control, and therefore is outside the scope of application of IFRS 3—Business Combinations. Accordingly, it will be accounted for as an equity transaction with no change in the accounting basis.

 

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TAX CONSEQUENCES

Material U.S. Federal Income Tax Consequences

This section describes the material U.S. federal income tax consequences of the Merger and the ownership of FCA stock. It applies solely to persons that hold shares as capital assets for U.S. federal income tax purposes. This section does not apply to members of a special class of holders subject to special rules, including:

 

Ÿ

a dealer in securities or foreign currencies,

 

Ÿ

regulated investment companies,

 

Ÿ

a trader in securities that elects to use a mark-to-market method of accounting for securities holdings,

 

Ÿ

a tax-exempt organization,

 

Ÿ

a bank, financial institution, or insurance company,

 

Ÿ

a person liable for alternative minimum tax,

 

Ÿ

a person that actually or constructively owns 10 percent or more, by vote or value, of Fiat or FCA,

 

Ÿ

a person that holds shares as part of a straddle or a hedging, conversion, or other risk reduction transaction for U.S. federal income tax purposes,

 

Ÿ

a person that acquired shares pursuant to the exercise of employee stock options or otherwise as compensation, or

 

Ÿ

a person whose functional currency is not the U.S. dollar.

This section is based on the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations, published rulings and court decisions, as well as on applicable tax treaties. These laws are subject to change, possibly on a retroactive basis.

If a partnership holds shares, the U.S. federal income tax treatment of a partner will depend on the status of the partner and the tax treatment of the partnership. A partner in a partnership holding shares should consult its tax advisor with regard to the U.S. federal income tax treatment of the Merger and the ownership of FCA stock.

No statutory, judicial or administrative authority directly discusses how the Merger and the ownership of FCA stock should be treated for U.S. federal income tax purposes. As a result, the U.S. federal income tax consequences of the Merger and the ownership of FCA stock are uncertain. Shareholders should consult their own tax advisor regarding the U.S. federal, state and local and foreign and other tax consequences of the Merger and of owning and disposing of FCA stock in their particular circumstances.

To the extent this section consists of a statement as to matters of U.S. tax law, this section is the opinion of Sullivan & Cromwell LLP.

U.S. Shareholders

For the purposes of this discussion, a “U.S. Shareholder” is a beneficial owner of shares that is:

 

Ÿ

an individual that is a citizen or resident of the U.S.,

 

Ÿ

a corporation, or other entity taxable as a corporation, created or organized under the laws of the U.S.,

 

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Ÿ

an estate whose income is subject to U.S. federal income tax regardless of its source, or

 

Ÿ

a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorized to control all substantial decisions of the trust.

Exchange of Shares for FCA Stock Pursuant to the Merger

FCA believes that the Merger constitutes for U.S. federal income tax purposes a “reorganization” within the meaning of Section 368(a) of the Code. FCA expects to receive an opinion from Sullivan & Cromwell LLP to the effect that the Merger will qualify for U.S. federal income tax purposes as a “reorganization” within the meaning of Section 368(a) of the Code. As a result, subject to certain exceptions, the exchange of Fiat ordinary shares for FCA common shares will be tax-free to U.S. Shareholders. Subject to the discussion regarding the loyalty voting structure below, a U.S. Shareholder’s tax basis in FCA common shares received in the Merger will equal such U.S. Shareholder’s basis in the shares exchanged therefor; and a U.S. Shareholder’s holding period for FCA common shares received in the Merger will include the U.S. Shareholder’s holding period in respect of the Fiat ordinary shares exchanged for FCA common shares.

This opinion will be based on certain assumptions and on representation letters provided by Fiat and FCA to be delivered at the time of the closing. If any of the assumptions or representations upon which such opinions are based are inconsistent with the actual facts with respect to the Merger, the U.S. federal income tax consequences of the Merger could be adversely affected.

The tax opinion given in connection with the Merger or in connection with the filing of this registration statement will not be binding on the IRS. FCA does not intend to request any ruling from the IRS as to the U.S. federal income tax consequences of the Merger, and consequently there is no guarantee that the IRS will treat the Merger in the manner described herein. If the IRS successfully challenges the treatment of the Merger, adverse U.S. federal income tax consequences may result. Shareholders should consult their own tax advisors regarding the U.S. federal, state and local and foreign and other tax consequences of the Merger in their particular circumstances (including the possible tax consequences if the “reorganization” treatment is successfully challenged).

A U.S. Shareholder of Fiat that exercises its cash exit rights and receives cash in respect of its Fiat ordinary shares should recognize capital gain or loss equal to the difference between the U.S. dollar amount realized and the U.S. Shareholder’s tax basis, determined in U.S. dollars, in its Fiat ordinary shares. Such capital gain or loss will be long-term capital gain or loss if such person has held its Fiat ordinary shares for more than one year.

The discussion regarding the tax consequences of the Merger is based on determinations by Fiat and FCA that neither of those corporations is or has been a “passive foreign investment company” (“PFIC”) for U.S. federal income tax purposes. See the discussion below under “—PFIC Considerations—Consequences of the Merger” if Fiat or FCA were treated as a PFIC.

Tax Consequences of Owning FCA Stock

Taxation of Dividends. Under the U.S. federal income tax laws, subject to the discussion of PFIC taxation below, a U.S. Shareholder must include in its gross income the gross amount of any dividend paid by FCA out of its current or accumulated earnings and profits (as determined for U.S. federal income tax purposes). Dividends will be taxed as ordinary income to the extent that they are paid out of FCA’s current or accumulated earnings and profits. Dividends paid to a noncorporate U.S. Shareholder by certain “qualified foreign corporations” that constitute qualified dividend income will be taxable to the shareholder at the preferential rates applicable to long-term capital gains provided that the shareholder holds the shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meets other holding period requirements. Subject to the discussion regarding PFIC taxation below, dividends FCA pays with respect to the shares will be qualified dividend income, assuming the holding period requirements are met.

 

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A U.S. Shareholder must include any foreign tax withheld from the dividend payment in this gross amount even though the shareholder does not in fact receive it. The dividend is taxable to a U.S. Shareholder when the U.S. Shareholder receives the dividend, actually or constructively.

The dividend will not be eligible for the dividends-received deduction allowed to U.S. corporations in respect of dividends received from other U.S. corporations.

Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of the U.S. Shareholder’s basis in the shares of FCA stock, causing a reduction in the U.S. Shareholder’s adjusted basis in FCA stock, and thereafter as capital gain.

Subject to certain limitations, any non-U.S. tax withheld and paid over to a non-U.S. taxing authority is eligible for credit against a U.S. Shareholder’s U.S. federal income tax liability except to the extent a refund of the tax withheld is available to the U.S. Shareholder under non-U.S. tax law or under an applicable tax treaty. The amount allowed to a U.S. Shareholder as a credit is limited to the amount of the U.S. Shareholder’s U.S. federal income tax liability that is attributable to income from sources outside the U.S. and is computed separately with respect to different types of income that the U.S. Shareholder receives from non-U.S. sources. Subject to the discussion below regarding Section 904(h) of the Code, dividends paid by FCA will be foreign source income and depending on the circumstances of the U.S. Shareholder, will be either “passive” or “general” income for purposes of computing the foreign tax credit allowable to a U.S. Shareholder.

Under Section 904(h) of the Code, dividends paid by a foreign corporation that is treated as 50 percent or more owned, by vote or value, by U.S. persons may be treated as U.S. source income (rather than foreign source income) for foreign tax credit purposes, to the extent the foreign corporation earns U.S. source income. In most circumstances, U.S. Shareholders would be able to choose the benefits of Section 904(h)(10) of the Code and elect to treat dividends that would otherwise be U.S. source dividends as foreign source dividends, but in such a case the foreign tax credit limitations would be separately determined with respect to such “resourced” income. In general, therefore, the application of Section 904(h) of the Code may adversely affect a U.S. Shareholder’s ability to use foreign tax credits. FCA does not believe that, immediately after the Merger, it will be 50 percent or more owned by U.S. persons, but this conclusion is a factual determination and is subject to change; no assurance can therefore be given that FCA may not be treated as 50 percent or more owned by U.S. persons for purposes of Section 904(h) of the Code. U.S. Shareholders are strongly urged to consult their own tax advisors regarding the possible impact if Section 904(h) of the Code should apply.

Taxation of Capital Gains. Subject to the discussion of PFIC taxation below, a U.S. Shareholder which sells or otherwise disposes of its FCA common shares will recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the amount that the U.S. Shareholder realizes and the U.S. Shareholder’s tax basis in those shares. Capital gain of a noncorporate U.S. Shareholder is taxed at preferential rates when the shareholder has a holding period greater than one year. The gain or loss will be U.S. source income or loss for foreign tax credit limitation purposes. The deduction of capital losses is subject to limitations.

Loyalty Voting Structure

NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE RECEIPT, OWNERSHIP OR DISPOSITION OF SPECIAL VOTING SHARES SHOULD BE TREATED FOR U.S. FEDERAL INCOME TAX PURPOSES AND AS A RESULT, THE U.S. FEDERAL INCOME TAX CONSEQUENCES ARE UNCERTAIN. ACCORDINGLY, WE URGE U.S. SHAREHOLDERS TO CONSULT THEIR TAX ADVISOR AS TO THE TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND DISPOSITION OF SPECIAL VOTING SHARES.

Receipt of Special Voting Shares. If a U.S. Shareholder receives special voting shares in connection with the Merger, the U.S. Shareholder should not recognize gain upon the receipt of special voting shares. A U.S. Shareholder should allocate its basis in its FCA stock between its FCA common shares and its FCA special voting shares on the basis of their respective fair market values. Because, among other things, the special voting

 

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shares are not transferrable and a U.S. Shareholder will receive amounts in respect of the special voting shares only if FCA is liquidated, FCA believes and intends to take the position that the value of each special voting share is minimal. However, because the determination of the fair market value of the special voting shares is factual and is not governed by any guidance that directly addresses such a situation, the IRS could assert that the value of the special voting shares as determined by FCA is incorrect.

If a U.S. Shareholder receives special voting shares after requesting all or some of the number of its FCA common shares be registered on the Loyalty Register, the tax consequences of the receipt of special voting shares is unclear. While distributions of stock are tax-free in certain circumstances, the distribution of special voting shares would be taxable if it were considered to result in a “disproportionate distribution.” A disproportionate distribution is a distribution or series of distributions, including deemed distributions, that have the effect of the receipt of cash or other property by some shareholders of FCA and an increase in the proportionate interest of other shareholders of FCA in FCA’s assets or earnings and profits. It is possible that the distribution of special voting shares to a U.S. Shareholder that has requested all or some of the number of its FCA common shares be registered on the Loyalty Register and a distribution of cash in respect of FCA common shares could be considered together to constitute a “disproportionate distribution.” Unless FCA has not paid cash dividends in the 36 months prior to a U.S. Shareholder’s receipt of special voting shares and FCA does not intend to pay cash dividends in the 36 months following a U.S. Shareholder’s receipt of special voting shares, FCA intends to treat the receipt of special voting shares as a distribution that is subject to tax as described above in “Consequences of Owning FCA Stock—Taxation of Dividends.” The amount of the dividend should equal the fair market value of the special voting shares received. For the reasons stated above, FCA believes and intends to take the position that the value of each special voting share is minimal. However, because the fair market value of the special voting shares is factual and is not governed by any guidance that directly addresses such a situation, the IRS could assert that the value of the special voting shares (and thus the amount of the dividend) as determined by FCA is incorrect.

Ownership of Special Voting Shares. FCA believes that U.S. Shareholders holding special voting shares should not have to recognize income in respect of amounts transferred to the special voting shares dividend reserve that are not paid out as dividends. Section 305 of the Code may, in certain circumstances, require a holder of preferred shares to recognize income even if no dividends are actually received on such shares if the preferred shares are redeemable at a premium and the redemption premium results in a “constructive distribution.” Preferred shares for this purpose refer to shares that do not participate in corporate growth to any significant extent. FCA believes that Section 305 of the Code should not apply to any amounts transferred to the special voting shares dividend reserve that are not paid out as dividends so as to require current income inclusion by U.S. Shareholders because, among other things, (i) the special voting shares are not redeemable on a specific date and a U.S. Shareholder is only entitled to receive amounts in respect of the special voting shares upon liquidation, (ii) Section 305 of the Code does not require the recognition of income in respect of a redemption premium if the redemption premium does not exceed a de minimis amount and, even if the amounts transferred to the special voting shares dividend reserve that are not paid out as dividends are considered redemption premium, the amount of the redemption premium is likely to be “de minimis” as such term is used in the applicable Treasury Regulations. FCA therefore intends to take the position that the transfer of amounts to the special voting shares dividend reserve that are not paid out as dividends does not result in a “constructive distribution,” and this determination is binding on all U.S. Shareholders of special voting shares other than a U.S. Shareholder that explicitly discloses its contrary determination in the manner prescribed by the applicable regulations. However, because the tax treatment of the loyalty voting structure is unclear and because FCA’s determination is not binding on the IRS, it is possible that the IRS could disagree with FCA’s determination and require current income inclusion in respect of such amounts transferred to the special voting shares dividend reserve that are not paid out as dividends.

Disposition of Special Voting Shares. The tax treatment of a U.S. Shareholder that has its special voting shares redeemed for zero consideration after removing its common shares from the Loyalty Register is unclear. It is possible that a U.S. Shareholder would recognize a loss to the extent of the U.S. Shareholder’s basis in its special voting shares, which should equal (i) if the special voting shares were received in connection with the

 

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Merger, the basis allocated to the special voting shares, and (ii) if the special voting shares were received after the requisite holding period on the Loyalty Register, the amount that was included in income upon receipt. Such loss would be a capital loss and would be a long-term capital loss if a U.S. Shareholder has held its special voting shares for more than one year. It is also possible that a U.S. Shareholder would not be allowed to recognize a loss upon the redemption of its special voting shares and instead a U.S. Shareholder should increase the basis in its FCA common shares by an amount equal to the basis in its special voting shares. Such basis increase in a U.S. Shareholder’s FCA common shares would decrease the gain, or increase the loss, that a U.S. Shareholder would recognize upon the sale or other taxable disposition of its FCA common shares.

THE U.S. FEDERAL INCOME TAX TREATMENT OF THE LOYALTY VOTING STRUCTURE IS UNCLEAR AND U.S. SHAREHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS IN RESPECT OF THE CONSEQUENCES OF ACQUIRING, OWNING, AND DISPOSING OF SPECIAL VOTING SHARES.

PFIC Considerations—Consequences of Holding FCA Stock

FCA believes that shares of its stock are not stock of a PFIC for U.S. federal income tax purposes, but this conclusion is a factual determination made annually and thus may be subject to change. As discussed in greater detail below, if FCA were to be treated as a PFIC, gain realized (subject to the discussion below regarding a mark-to-market election) on the sale or other disposition of shares of FCA stock would not be treated as capital gain, and a U.S. Shareholder would be treated as if such U.S. Shareholder had realized such gain and certain “excess distributions” ratably over the U.S. Shareholder’s holding period for its shares of FCA stock and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charge in respect of the tax attributable to each such year. With certain exceptions, a U.S. Shareholder’s shares of FCA stock would be treated as stock in a PFIC if FCA were a PFIC at any time during such U.S. Shareholder’s holding period in the shares. Dividends received from FCA would not be eligible for the special tax rates applicable to qualified dividend income if FCA were treated as a PFIC with respect to such U.S. Shareholder, but instead would be taxable at rates applicable to ordinary income.

FCA would be a PFIC with respect to a U.S. Shareholder if for any taxable year in which the U.S. Shareholder held shares of FCA stock, after the application of applicable “look-through rules”:

 

Ÿ

75 percent or more of FCA’s gross income for the taxable year consists of “passive income” (including dividends, interest, gains from the sale or exchange of investment property and rents and royalties other than rents and royalties which are received from unrelated parties in connection with the active conduct of a trade or business, as defined in applicable Treasury Regulations); or

 

Ÿ

at least 50 percent of its assets for the taxable year (averaged over the year and determined based upon value) produce or are held for the production of passive income.

Because the determination whether a foreign corporation is a PFIC is primarily factual and there is little administrative or judicial authority on which to rely to make a determination, the IRS might not agree that FCA is not a PFIC. Moreover, no assurance can be given that FCA would not become a PFIC for any future taxable year if there were to be changes in FCA’s assets, income or operations.

If FCA were to be treated as a PFIC for any taxable year (and regardless of whether FCA remains a PFIC for subsequent taxable years), each U.S. Shareholder that is treated as owning FCA stock for purposes of the PFIC rules would be liable to pay U.S. federal income tax at the highest applicable income tax rates on ordinary income upon the receipt of excess distributions (the portion of any distributions received by the U.S. Shareholder on FCA stock in a taxable year in excess of 125 percent of the average annual distributions received by the U.S. Shareholder in the three preceding taxable years or, if shorter, the U.S. Shareholder’s holding period for the FCA stock) and on any gain from the disposition of FCA stock, plus interest on such amounts, as if such excess distributions or gain had been recognized ratably over the U.S. Shareholder’s holding period of the FCA stock.

 

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If FCA were to be treated as a PFIC for any taxable year and provided that FCA common shares are treated as “marketable,” which FCA believes will be the case, a U.S. Shareholder may make a mark-to-market election. Under a mark-to-market election, any excess of the fair market value of the FCA common shares at the close of any taxable year over the U.S. Shareholder’s adjusted tax basis in the FCA common shares is included in the U.S. Shareholder’s income as ordinary income. These amounts of ordinary income would not be eligible for the favorable tax rates applicable to qualified dividend income or long-term capital gains. In addition, the excess, if any, of the U.S. Shareholder’s adjusted tax basis at the close of any taxable year over the fair market value of the FCA common shares is deductible in an amount equal to the lesser of the amount of the excess or the amount of the net mark-to-market gains that the U.S. Shareholder included in income in prior years. A U.S. Shareholder’s tax basis in FCA common shares would be adjusted to reflect any such income or loss. Gain realized on the sale, exchange or other disposition of FCA common shares would be treated as ordinary income, and any loss realized on the sale, exchange or other disposition of FCA common shares would be treated as ordinary loss to the extent that such loss does not exceed the net mark-to-market gains previously included by the U.S. Shareholder. It is not expected that the special voting shares would be treated as “marketable” and eligible for the mark-to-market election.

The adverse consequences of owning stock in a PFIC could also be mitigated if a U.S. Shareholder makes a valid “qualified electing fund” election (“QEF election”), which, among other things, would require a U.S. Shareholder to include currently in income its pro rata share of the PFIC’s net capital gain and ordinary earnings, based on earnings and profits as determined for U.S. federal income tax purposes. Because of the administrative burdens involved, FCA does not intend to provide information to its shareholders that would be required to make such election effective.

A U.S. Shareholder which holds FCA stock during a period when FCA is a PFIC will be subject to the foregoing rules for that taxable year and all subsequent taxable years with respect to that U.S. Shareholder’s holding of FCA stock, even if FCA ceases to be a PFIC, subject to certain exceptions for U.S. Shareholders which made a mark-to-market or QEF election. U.S. Shareholders are strongly urged to consult their tax advisors regarding the PFIC rules, and the potential tax consequences to them if FCA were determined to be a PFIC.

PFIC Considerations—Consequences of the Merger

If it were determined that Fiat were a PFIC, then a U.S. Shareholder may be required to recognize gain (but not loss) as a result of the Merger, notwithstanding the Merger’s qualification as a “reorganization” within the meaning of Section 368(a) of the Code. In particular, Section 1291(f) of the Code requires that, to the extent provided in regulations, a U.S. person that disposes of stock of a PFIC recognizes gain notwithstanding any other provision of the Code. No final Treasury Regulations have been promulgated under Section 1291(f). Proposed Treasury Regulations were promulgated in 1992 with a retroactive effective date. If finalized in their current form, these regulations would generally require gain (but not loss) recognition by U.S. persons exchanging shares in a corporation that is a PFIC at any time during such U.S. person’s holding period of such shares. There is an exception to this rule in certain instances where the exchanging shareholder receives shares of another corporation that is a PFIC. Fiat and FCA each believe that it is not and has not been a PFIC. However, as discussed above, the determination whether a foreign corporation is a PFIC is primarily factual and, because there is little administrative or judicial authority on which to rely to make a determination, the IRS might not agree that any of these corporations is not a PFIC. U.S. Shareholders are strongly urged to consult their tax advisors regarding the PFIC rules, and the potential tax consequences to them if the PFIC rules applied to determine the tax consequences to them of the Merger.

Medicare Tax on Net Investment Income

A U.S. person that is an individual or estate, or a trust that does not fall into a special class of trusts that is exempt from such tax, is subject to a 3.8 percent tax (the “Medicare tax”) on the lesser of (i) the U.S. person’s “net investment income” for the relevant taxable year and (ii) the excess of the U.S. person’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals is between U.S.$125,000 and U.S.$250,000, depending on the individual’s circumstances). A shareholder’s net investment

 

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income generally includes its dividend income and its net gains from the disposition of shares, unless such dividends or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). If a shareholder is a U.S. person that is an individual, estate or trust, the shareholder is urged to consult the shareholder’s tax advisors regarding the applicability of the Medicare tax to the shareholder’s income and gains in respect of the shareholder’s investment in FCA stock.

Information with Respect to Foreign Financial Assets

Owners of “specified foreign financial assets” with an aggregate value in excess of U.S.$50,000, (and in some cases, a higher threshold) may be required to file an information report with respect to such assets with their tax returns. “Specified foreign financial assets” include any financial accounts maintained by foreign financial institutions, as well as any of the following, but only if they are held for investment and not held in accounts maintained by financial institutions: (i) stocks and securities issued by non-U.S. persons, (ii) financial instruments and contracts that have non-U.S. issuers or counterparties and (iii) interests in foreign entities. U.S. Shareholders are urged to consult their tax advisors regarding the application of this legislation to their ownership of FCA stock.

Backup Withholding and Information Reporting

Information reporting requirements for a noncorporate U.S. Shareholder, on IRS Form 1099, will apply to:

 

Ÿ

dividend payments or other taxable distributions made to such U.S. Shareholder within the U.S., and

 

Ÿ

the payment of proceeds to such U.S. Shareholder from the sale of FCA stock effected at a U.S. office of a broker.

Additionally, backup withholding (currently at a 28 percent rate) may apply to such payments to a noncorporate U.S. Shareholder that:

 

Ÿ

fails to provide an accurate taxpayer identification number,

 

Ÿ

is notified by the IRS that such U.S. Shareholder has failed to report all interest and dividends required to be shown on such U.S. Shareholder’s federal income tax returns, or

 

Ÿ

in certain circumstances, fails to comply with applicable certification requirements.

A person may obtain a refund of any amounts withheld under the backup withholding rules that exceed the person’s income tax liability by properly filing a refund claim with the IRS.

Non-U.S. Shareholders

For the purposes of this discussion, a “Non-U.S. Shareholder” is a beneficial owner of FCA stock that is not a U.S. person for U.S. federal income tax purposes.

Tax Consequences of Owning FCA Stock

Taxation of Dividends. Dividends paid to a Non-U.S. Shareholder in respect of FCA stock (including a dividend in respect of the receipt of special voting shares, as described above in “—U.S. Shareholders—Loyalty Voting Structure”) will not be subject to U.S. federal income tax unless the dividends are “effectively connected” with the Non-U.S. Shareholder’s conduct of a trade or business within the U.S., and, if required by an applicable income tax treaty as a condition for subjecting the Non-U.S. Shareholder to U.S. taxation on a net income basis, the dividends are attributable to a permanent establishment that the Non-U.S. Shareholder maintains in the U.S.

 

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In such cases a Non-U.S. Shareholder will be taxed in the same manner as a U.S. Shareholder. If a Non-U.S. Shareholder is a corporate Non-U.S. Shareholder, “effectively connected” dividends may, under certain circumstances, be subject to an additional “branch profits tax” at a 30 percent rate or at a lower rate if it is eligible for the benefits of an income tax treaty that provides for a lower rate.

Taxation of Capital Gains. A Non-U.S. Shareholder will not be subject to U.S. federal income tax on gain recognized on the sale or other disposition of the Non-U.S. Shareholder’s FCA stock unless:

 

Ÿ

the gain is “effectively connected” with the Non-U.S. Shareholder’s conduct of a trade or business in the U.S., and, if required by an applicable income tax treaty as a condition for subjecting the shareholder to U.S. taxation on a net income basis, the gain is attributable to a permanent establishment that the Non-U.S. Shareholder maintains in the U.S., or

 

Ÿ

the Non-U.S. Shareholder is an individual, is present in the U.S. for 183 or more days in the taxable year of the sale and certain other conditions exist.

“Effectively connected” gains of a corporate Non-U.S. Shareholder that it recognizes may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30 percent rate or at a lower rate if it is eligible for the benefits of an income tax treaty that provides for a lower rate.

Backup Withholding and Information Reporting

A Non-U.S. Shareholder is exempt from backup withholding and information reporting requirements with respect to:

 

Ÿ

dividend payments made to the Non-U.S. Shareholder outside the U.S., and

 

Ÿ

other dividend payments and the payment of the proceeds from the sale of FCA stock effected at a U.S. office of a broker, as long as the income associated with such payments is otherwise exempt from U.S. federal income tax, and:

 

¡

the payor or broker does not have actual knowledge or reason to know that the shareholder is a U.S. person and the Non-U.S. Shareholder has furnished the payor or broker:

 

¡

an IRS Form W-8BEN or an acceptable substitute form upon which the Non-U.S. Shareholder certifies, under penalties of perjury that the shareholder is a non-U.S. person, or

 

¡

other documentation upon which it may rely to treat the payments as made to a non-U.S. person in accordance with Treasury Regulations, or

 

¡

the Non-U.S. Shareholder otherwise establishes an exemption.

Payment of the proceeds from the sale of FCA stock effected at a foreign office of a broker will not be subject to information reporting or backup withholding. However, a sale of FCA stock that is effected at a foreign office of a broker will be subject to information reporting and backup withholding if:

 

Ÿ

the proceeds are transferred to an account maintained by a Non-U.S. Shareholder in the U.S.,

 

Ÿ

the payment of proceeds or the confirmation of the sale is mailed to the Non-U.S. Shareholder at a U.S. address, or

 

Ÿ

the sale has some other specified connection with the U.S. as provided in Treasury Regulations,

unless the broker does not have actual knowledge or reason to know that the shareholder is a U.S. person and the documentation requirements described above are met or the shareholder otherwise establishes an exemption.

 

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In addition, a sale of FCA stock will be subject to information reporting, but not backup withholding, if it is effected at a foreign office of a broker that is:

 

Ÿ

a U.S. person,

 

Ÿ

a controlled foreign corporation for U.S. federal income tax purposes,

 

Ÿ

a foreign person 50 percent or more of whose gross income is effectively connected with the conduct of a U.S. trade or business for a specified three-year period, or

 

Ÿ

a foreign partnership, if at any time during its tax year:

 

¡

one or more of its partners are “U.S. persons,” as defined in Treasury Regulations, which in the aggregate hold more than 50 percent of the income or capital interest in the partnership, or

 

¡

such foreign partnership is engaged in the conduct of a U.S. trade or business,

unless the broker does not have actual knowledge or reason to know that the person is a U.S. person and the documentation requirements described above are met or the person otherwise establishes an exemption.

Material Netherlands Tax Consequences

This section describes solely the material Dutch tax consequences of (i) the exchange of shares pursuant to the Merger and (ii) the ownership of FCA common shares that are issued pursuant to the Merger. It does not consider every aspect of Dutch taxation that may be relevant to a particular holder of shares in Fiat or FCA in special circumstances or who is subject to special treatment under applicable law. Shareholders should consult their own tax advisor regarding the Dutch tax consequences of (i) the Merger and (ii) of owning and disposing of FCA common shares and, if applicable, FCA special voting shares in their particular circumstances.

Where in this section English terms and expressions are used to refer to Dutch concepts, the meaning to be attributed to such terms and expressions shall be the meaning to be attributed to the equivalent Dutch concepts under Dutch tax law. Where in this section the terms “the Netherlands” and “Dutch” are used, these refer solely to the European part of the Kingdom of the Netherlands. This summary also assumes that FCA is organized, and that the business will be conducted, in the manner outlined in this Form. A change to the organizational structure or to the manner in which FCA conducts its business may invalidate the contents of this section, which will not be updated to reflect any such change.

This description is based on the tax law of the Netherlands (unpublished case law not included) as it stands at the date of this Form. The law upon which this description is based is subject to change, perhaps with retroactive effect. Any such change may invalidate the contents of this description, which will not be updated to reflect such change.

To the extent this section consists of a statement as to matters of Dutch tax law, this section is the opinion of Loyens & Loeff N.V.

Where in this Dutch taxation discussion reference is made to “a holder of shares,” that concept includes, without limitation:

 

1.

an owner of one or more shares who in addition to the title to such shares, has an economic interest in such shares;

 

2.

a person who or an entity that holds the entire economic interest in one or more shares;

 

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3.

a person who or an entity that holds an interest in an entity, such as a partnership or a mutual fund, that is transparent for Dutch tax purposes, the assets of which comprise one or more shares, within the meaning of 1. or 2. above; or

 

4.

a person who is deemed to hold an interest in shares, as referred to under 1. to 3., pursuant to the attribution rules of article 2.14a, of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001), with respect to property that has been segregated, for instance in a trust or a foundation.

Dividend withholding tax in connection with implementation of the Merger

The exchange of Fiat ordinary shares for FCA common shares pursuant to the Merger will not be subject to Dutch dividend withholding tax.

The issuance of special voting shares will not give rise to Dutch dividend withholding tax provided that the par value of the special voting rights is paid-up out of FCA reserves which are recognized as paid-up capital for Dutch dividend withholding tax purposes and otherwise no actual or deemed distribution of profits occurs.

Taxes on income and capital gains in connection with the implementation of the Merger

General

The description set out in this taxation discussion “Taxes on income and capital gains in connection with the implementation of the Merger” applies only to a holder of Fiat ordinary shares who is a “Dutch Individual holder of Fiat ordinary shares,” a “Dutch Corporate holder of Fiat ordinary shares” or a “Non-resident holder of Fiat ordinary shares.”

For the purposes of this taxation section a holder is a “Dutch Individual holder” if such holder satisfies the following tests:

 

a.

such holder is an individual;

 

b.

such holder is a resident, or deemed to be resident, in the Netherlands for Dutch income tax purposes, or has elected to be treated as a resident of the Netherlands for Dutch income tax purposes;

 

c.

such holder’s shares and any benefits derived or deemed to be derived therefrom have no connection with such holder’s past, present or future employment, if any; and

 

d.

such holder’s shares do not form part of a substantial interest (aanmerkelijk belang) or a deemed substantial interest in Fiat or in FCA within the meaning of Chapter 4 of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001).

Generally, if a person holds an interest in Fiat or in FCA, such interest forms part of a substantial interest, or a deemed substantial interest, in these companies if any one or more of the following circumstances is present:

 

1.

Such person – either alone or, in the case of an individual, together with his partner, if any, or pursuant to article 2.14a, of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001) – owns or is deemed to own, directly or indirectly, either a number of shares in Fiat or in FCA representing five percent or more of the total issued and outstanding capital (or the issued and outstanding capital of any class of shares), or rights to acquire, directly or indirectly, shares, whether or not already issued, representing five percent or more of the total issued and outstanding

 

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capital (or the issued and outstanding capital of any class of the shares), or profit-participating certificates (winstbewijzen) relating to five percent or more of the annual profit or to five percent or more of the liquidation proceeds. The ordinary shares and the special voting shares are considered to be separate classes of shares.

 

2.

Such person’s shares, profit-participating certificates or rights to acquire shares in Fiat or in FCA are held by him or deemed to be held by him following the application of a non-recognition provision.

 

3.

Such person’s partner or any of his relatives by blood or by marriage in the direct line (including foster-children) or of those of his partner has a substantial interest (as described under (1) and (2) above) in Fiat or in FCA.

For the purposes of circumstances (1), (2) and (3) above, if a holder is entitled to the benefits from shares or profit-participating certificates (for instance if a holder is a holder of a right of usufruct), such holder is deemed to be a holder of shares or profit-participating certificates, as the case may be, and such holder’s entitlement to benefits is considered a share or profit-participating certificate, as the case may be.

If a Dutch Individual holder of Fiat ordinary shares satisfies test (b), but does not satisfy test (c) and/or test (d) above, such holder’s Dutch income tax position is not discussed in this Form. If a holder is an individual who does not satisfy test (b), please refer to the section “—Non-resident holders of Fiat ordinary shares.”

For the purposes of this section a holder is a “Dutch Corporate holder” if such holder satisfies the following tests:

 

i.

such holder is a corporate entity (lichaam), including an association that is taxable as a corporate entity, that is subject to Dutch corporation tax in respect of benefits derived from its Fiat ordinary shares or FCA shares;

 

ii.

such holder is a resident, or deemed to be resident, in the Netherlands for Dutch corporation tax purposes;

 

iii.

such holder is not an entity that, although subject to Dutch corporation tax, is, in whole or in part, specifically exempt from that tax; and

 

iv.

such holder is not an investment institution (beleggingsinstelling) as defined in article 28 of the Dutch Corporation Tax Act 1969 (Wet op de vennootschapsbelasting 1969).

If a holder is not an individual and if such holder does not satisfy any one or more of these tests, with the exception of test (ii), such holder’s Dutch corporation tax position is not discussed in this Form. If a holder is not an individual and if such holder does not satisfy test (ii), please refer to the section “—Non-resident holders of Fiat ordinary shares.”

For the purposes of this section, a holder is a “Non-resident holder” if such holder satisfies the following tests:

 

a.

such holder is neither resident, nor deemed to be resident, in the Netherlands for purposes of Dutch income tax or corporation tax, as the case may be, and, if such holder is an individual, has not elected to be treated as a resident of the Netherlands for Dutch income tax purposes;

 

b.

such holder’s shares and any benefits derived or deemed to be derived from such shares have no connection with past, present or future employment, management activities and functions or membership of a management board (bestuurder) or a supervisory board (commissaris);

 

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c.

such holder’s shares do not form part of a substantial interest or a deemed substantial interest in Fiat or FCA within the meaning of Chapter 4 of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001), unless such interest forms part of the assets of an enterprise; and

 

d.

if such holder is not an individual, no part of the benefits derived from such holder’s shares is exempt from Dutch corporation tax under the participation exemption as laid down in the Dutch Corporation Tax Act 1969 (Wet op de vennootschapsbelasting 1969).

See above for a description of the circumstances under which shares form part of a substantial interest or a deemed substantial interest.

If a holder satisfies test (a), but does not satisfy any one or more of tests (b), (c), and (d), such holder’s Dutch income tax position or corporation tax position, as the case may be, is not discussed in this Form.

Dutch Individual holders of Fiat ordinary shares deriving profits from an enterprise

For a Dutch Individual holder whose Fiat ordinary shares are attributable to an enterprise from which such holder derives profits, whether as an entrepreneur (ondernemer) or pursuant to a co-entitlement to the net value of an enterprise (other than as an entrepreneur or a shareholder), the exchange of Fiat ordinary shares for FCA common shares is considered to be a disposal of such holder’s Fiat ordinary shares and will result in recognition of a capital gain or a capital loss. Such benefits are generally subject to Dutch income tax at progressive rates. A Dutch Individual holder can opt for application of a roll-over facility for the capital gain if Fiat and FCA are resident in a Member State of the European Union and certain requirements are met. If the roll-over facility is applied, the shares in FCA received as Merger consideration must be reported in the balance sheet for Dutch tax purposes at the same tax book value as the divested shares in Fiat. The roll-over facility does not apply to any cash consideration received.

On receipt of the special voting shares part of the book value for Dutch tax purposes of the FCA common shares will have to be attributed to the special voting shares. The book value for Dutch tax purposes of the FCA common shares will be reduced accordingly.

Dutch Individual holders of Fiat ordinary shares deriving benefits from miscellaneous activities

If a Dutch Individual holder derives or is deemed to derive any benefits from Fiat ordinary shares, that constitute benefits from miscellaneous activities (resultaat uit overige werkzaamheden), the exchange of such holder’s Fiat ordinary shares for FCA common shares is considered to be a disposal of such holder’s Fiat ordinary shares and will result in recognition of a capital gain or a capital loss. Such benefits are generally subject to Dutch income tax at progressive rates. A Dutch Individual holder can opt for application of a roll-over facility for the capital gain if Fiat and FCA are resident in a Member State of the European Union and certain requirements are met. If the roll-over facility is applied, the shares in FCA received as Merger consideration must be reported in the balance sheet for Dutch tax purposes at the same tax book value as the divested shares in Fiat. The roll-over facility does not apply to any cash consideration received.

A Dutch Individual holder may, inter alia, derive or be deemed to derive benefits from Fiat ordinary shares that are taxable as benefits from miscellaneous activities in the following circumstances:

 

a.

such holder’s investment activities go beyond the activities of an active portfolio investor, for instance in the case of use of insider knowledge (voorkennis) or comparable forms of special knowledge; or

 

b.

if any benefits to be derived from such holder’s Fiat ordinary shares, whether held directly or indirectly, are intended, in whole or in part, as remuneration for activities performed by such holder or by a person who is a connected person to such holder as meant by article 3.92b, paragraph 5, of the Dutch Income Tax Act 2001 (Wet inkomstenbelasting 2001).

 

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On receipt of the special voting shares part of the book value for Dutch tax purposes of the FCA common shares will have to be attributed to the special voting shares. The book value for Dutch tax purposes of the FCA common shares will be reduced accordingly.

Other Dutch Individual holders of Fiat ordinary shares

If a Dutch Individual holder’s situation has not been discussed before in this section “—Taxes on income and capital gains in connection with the implementation of the Merger,” benefits from such holder’s Fiat ordinary shares will be taxed annually as a benefit from savings and investments (voordeel uit sparen en beleggen). Such benefit is deemed to be four percent per annum of the holder’s yield basis (rendementsgrondslag) generally to be determined at the beginning of the relevant year, to the extent that such amount exceeds the ‘exempt net asset amount’ (heffingvrij vermogen) for the relevant year. The benefit is taxed at a rate of 30 percent. The value of the shares forms part of the yield basis. Any actual capital gain or loss realised upon the exchange of Fiat ordinary shares for FCA common shares and, if applicable, the receipt of FCA special voting shares is not as such subject to Dutch income tax.

Attribution rule

Benefits derived or deemed to be derived from certain miscellaneous activities by, and yield basis for benefits from savings and investments of, a child or a foster child who is under eighteen years of age are attributed to the parent who exercises, or to the parents who exercise, authority over the child, irrespective of the country of residence of the child.

Dutch Corporate holder of Fiat ordinary shares

For a Dutch Corporate holder, the disposal of such holder’s Fiat ordinary shares in exchange for FCA common shares will result in recognition of a capital gain or a capital loss, except to the extent that the benefits are exempt under the participation exemption as laid down in the Dutch Corporation Tax Act 1969 (Wet op de vennootschapsbelasting 1969). If the participation exemption does not apply in respect of such holder’s Fiat ordinary shares, such holder can opt for application of a roll-over facility for the capital gain if Fiat and FCA are resident in a Member State of the European Union and certain requirements are met. If the roll-over facility is applied, the shares in FCA received as Merger consideration must be reported in the balance sheet for Dutch tax purposes at the same tax book value as the divested shares in Fiat. The roll-over facility does not apply to any cash consideration received.

On receipt of the special voting shares part of the book value for Dutch tax purposes of the FCA common shares will have to be attributed to the special voting shares. The book value for Dutch tax purposes of the FCA common shares will be reduced accordingly.

Non-resident holders of Fiat ordinary shares

A Non-resident holder will not be subject to any Dutch taxes on income or capital gains in respect of the exchange of such holder’s Fiat ordinary shares for FCA common shares unless:

 

1.

such holder derives profits from an enterprise directly, or pursuant to a co-entitlement to the net value of such enterprise, other than as a holder of securities, which enterprise either is managed in the Netherlands or carried on, in whole or in part, through a permanent establishment or a permanent representative which is taxable in the Netherlands and such holder’s Fiat ordinary shares are attributable to such enterprise; or

 

2.

such holder is an individual and such holder derives benefits from Fiat ordinary shares that are taxable as benefits from miscellaneous activities in the Netherlands.

 

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If a holder falls under exception (1) or (2), the disposal of such holder’s Fiat ordinary shares in exchange for FCA common shares will result in recognition of a capital gain or a capital loss. In these two cases and provided that the FCA common shares received as Merger consideration are attributable to such enterprise or such miscellaneous activities in the Netherlands, such holder can opt for application of a roll-over facility for the capital gain if Fiat and FCA are resident in a Member State of the European Union and certain requirements are met. If the roll-over facility is applied, the FCA common shares received as Merger consideration must be reported in the balance sheet for Dutch tax purposes at the same tax book value as the divested shares in Fiat. The roll-over facility does not apply to any cash consideration received.

See above for a description of the circumstances under which the benefits derived from Fiat ordinary shares may be taxable as benefits from miscellaneous activities, on the understanding that such benefits will be taxable in the Netherlands only if such activities are performed or deemed to be performed in the Netherlands.

On receipt of the special voting shares part of the book value for Dutch tax purposes of the FCA common shares will have to be attributed to the special voting shares. The book value for Dutch tax purposes of the FCA common shares will be reduced accordingly.

Attribution rule

Benefits derived or deemed to be derived from certain miscellaneous activities by a child or a foster child who is under eighteen years of age are attributed to the parent who exercises, or the parents who exercise, authority over the child, irrespective of the country of residence of the child.

Other taxes and duties in connection with the implementation of the Merger

No Dutch registration tax, transfer tax, stamp duty or any other similar documentary tax or duty will be payable in the Netherlands in respect of or in connection with the exchange of Fiat ordinary shares for FCA common shares.

Taxes on income and capital gains from the ownership and disposition of FCA common shares and/or special voting shares after implementation of the Merger

General

The description set out in this section “—Taxes on income and capital gains from the ownership and disposition of FCA common shares and/or special voting shares after implementation of the Merger” applies only to a holder of FCA common shares and, if applicable, FCA special voting shares, who is a “Dutch Individual holder” or a “Dutch Corporate holder” or a “Non-resident holder.”

Dutch Individual holders of FCA common shares and/or special voting shares deriving profits or deemed to be deriving profits from an enterprise

If a Dutch Individual holder (as defined above) derives or is deemed to derive any benefits from such holder’s FCA common shares and/or special voting shares, including any capital gain realized on the disposal of such FCA common shares and/or special voting shares, that are attributable to an enterprise from which such holder derives profits, whether as an entrepreneur (ondernemer) or pursuant to a co-entitlement to the net value of an enterprise, other than as a shareholder, such benefits are generally subject to Dutch income tax at progressive rates.

Dutch Individual holders of FCA common shares and/or special voting shares deriving benefits from miscellaneous activities

If a Dutch Individual holder derives or is deemed to derive (as outlined above) any benefits from such holder’s FCA common shares and / or special voting shares, including any gain realized on the disposal of such

 

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FCA common shares and / or special voting shares, that constitute benefits from miscellaneous activities (as outlined above) (resultaat uit overige werkzaamheden), such benefits are generally subject to Dutch income tax at progressive rates.

Other Dutch Individual holders of FCA common shares and/or special voting shares

If a Dutch Individual holder’s situation has not been discussed before in this section “—Taxes on income and capital gains from the ownership and disposition of FCA common shares and/or special voting shares after implementation of the Merger” benefits from such holder’s FCA common shares and / or special voting shares will be taxed annually as a benefit from savings and investments (voordeel uit sparen en beleggen). Such benefit is deemed to be four percent per annum of the holder’s “yield basis” (rendementsgrondslag), generally to be determined at the beginning of the relevant year, to the extent that such yield basis exceeds the “exempt net asset amount” (heffingvrij vermogen) for the relevant year. The benefit is taxed at the rate of 30 percent. The value of a holder’s FCA common shares and / or special voting shares forms part of the holder’s yield basis. Actual benefits derived from such holder’s FCA common shares and/or special voting shares, including any gain realised on the disposal of such FCA common shares and/or special voting shares, are not as such subject to Dutch income tax.

Attribution rule

Benefits derived or deemed to be derived from certain miscellaneous activities by, and yield basis for benefits from savings and investments of, a child or a foster child who is under eighteen years of age are attributed to the parent who exercises, or to the parents who exercise, authority over the child, irrespective of the country of residence of the child.

Dutch Corporate holder of FCA common shares and/or special voting shares

If a holder is a Dutch Corporate Entity, any benefits derived or deemed to be derived by such holder from such holder’s FCA common shares and/or special voting shares, including any gain realised on the disposal thereof, are generally subject to Dutch corporation tax, except to the extent that the benefits are exempt under the participation exemption as laid down in the Dutch Corporation Tax Act 1969 (Wet op de vennootschapsbelasting 1969).

Non-resident holders of FCA common shares and/or special voting shares

A Non-resident holder (as defined above) of FCA common shares and / or special voting shares will not be subject to any Dutch taxes on income or capital gains (other than the dividend withholding tax described below) in respect of any benefits derived or deemed to be derived by such holder from such holder’s FCA common shares and / or special voting shares, including any capital gain realised on the disposal thereof, unless:

 

1.

such holder derives profits from an enterprise directly, or pursuant to a co-entitlement to the net value of such enterprise, other than as a holder of securities, which enterprise either is managed in the Netherlands or carried on, in whole or in part, through a permanent establishment or a permanent representative which is taxable in the Netherlands, and such holder’s FCA common shares and / or special voting shares are attributable to such enterprise; or

 

2.

such holder is an individual and such holder derives benefits from FCA common shares and / or special voting shares that are taxable as benefits from miscellaneous activities in the Netherlands.

See above for a description of the circumstances under which the benefits derived from FCA common shares and / or special voting shares may be taxable as benefits from miscellaneous activities, on the understanding that such benefits will be taxable in the Netherlands only if such activities are performed or deemed to be performed in the Netherlands.

 

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Attribution rule

Benefits derived or deemed to be derived from certain miscellaneous activities by a child or a foster child who is under eighteen years of age are attributed to the parent who exercises, or the parents who exercise, authority over the child, irrespective of the country of residence of the child.

Dividend withholding tax

General

FCA is generally required to withhold Dutch dividend withholding tax at a rate of 15 percent from dividends distributed by it.

As an exception to this rule, FCA may not be required to withhold Dutch dividend withholding tax if it is considered to be a tax resident of both the Netherlands and another jurisdiction in accordance with the domestic tax residency provisions applied by each of these jurisdictions, while an applicable double tax treaty between the Netherlands and such other jurisdiction attributes the tax residency exclusively to that other jurisdiction. This exception does not apply to dividends distributed by FCA to a holder who is resident or deemed to be resident in the Netherlands for Dutch income tax purposes or Dutch corporation tax purposes.

The concept of “dividends distributed by FCA” as used in this section “Material Dutch Tax Consequences” includes, but is not limited to, the following:

 

Ÿ

distributions in cash or in kind, deemed and constructive distributions and repayments of capital not recognised as paid-in for Dutch dividend withholding tax purposes;

 

Ÿ

liquidation proceeds and proceeds of repurchase or redemption of shares in excess of the average capital recognised as paid-in for Dutch dividend withholding tax purposes;

 

Ÿ

the par value of shares issued by FCA to a holder of FCA common shares and / or special voting shares or an increase of the par value of shares, as the case may be, to the extent that it does not appear that a contribution, recognised for Dutch dividend withholding tax purposes, has been made or will be made; and

 

Ÿ

partial repayment of capital, recognised as paid-in for Dutch dividend withholding tax purposes, if and to the extent that there are net profits (zuivere winst), unless (a) the general meeting of FCA’s shareholders has resolved in advance to make such repayment and (b) the par value of the shares concerned has been reduced by an equal amount by way of an amendment to FCA’s articles of association.

Dutch Individuals and Dutch Corporate Entities

If a holder is a Dutch Individual (other than an individual who has elected to be treated as a resident of the Netherlands for Dutch income tax purposes) or a Dutch Corporate Entity, such holder can generally credit Dutch dividend withholding tax against Dutch income tax or Dutch corporation tax liability, as applicable, and such holder is generally entitled to a refund in the form of a negative assessment of Dutch income tax or Dutch corporation tax, as applicable, to the extent such dividend withholding tax, together with any other creditable domestic and/or foreign taxes, exceeds such holder’s aggregate Dutch income tax or aggregate Dutch corporation tax liability.

Pursuant to domestic rules to avoid dividend stripping, Dutch dividend withholding tax will only be credited against Dutch income tax or Dutch corporation tax, as applicable, exempted, reduced or refunded if a holder is the beneficial owner (uiteindelijk gerechtigde) of dividends distributed by FCA. If a holder receives proceeds from FCA common shares and / or special voting shares, such holder will not be recognised as the

 

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beneficial owner of such proceeds if, in connection with the receipt of the proceeds, such holder has given a consideration, in the framework of a composite transaction including, without limitation, the mere acquisition of one or more dividend coupons or the creation of short-term rights of enjoyment of shares (kortlopende genotsrechten op aandelen), whereas it may be presumed that (i) such proceeds in whole or in part, directly or indirectly, inure to a person who would not have been entitled to an exemption from, reduction or refund of, or credit for, dividend withholding tax, or who would have been entitled to a smaller reduction or refund of, or credit for, dividend withholding tax than such holder, the actual recipient of the proceeds; and (ii) such person acquires or retains, directly or indirectly, an interest in FCA common shares and / or special voting shares or similar instruments, comparable to its interest in FCA common shares and / or special voting shares prior to the time the composite transaction was first initiated.

If a holder is an individual who is not resident or deemed to be resident in the Netherlands, but such holder has elected to be treated as a resident of the Netherlands for Dutch income tax purposes, such holder may be eligible for relief from Dutch dividend withholding tax on the same conditions as an individual who is a Non-resident holder of FCA common shares and / or special voting shares, as discussed below.

See “—Dividend withholding tax—General” for a description of the concept “dividends distributed by FCA.”

See “—Taxes on income and capital gains in connection with the implementation of the Merger—General” for a description of the terms Dutch Individual and Dutch Corporate Entity.

Non-resident holders of FCA common shares and / or special voting shares

Relief

If a Non-resident holder of FCA common shares and / or special voting shares is resident in the non-European part of the Kingdom of the Netherlands or in a country that has concluded a double tax treaty with the Netherlands, such holder may be eligible for a full or partial relief from the dividend withholding tax, provided such relief is timely and duly claimed. Pursuant to domestic rules to avoid dividend stripping, dividend withholding tax relief will only be available to a holder if such holder is the beneficial owner of dividends distributed by FCA.

In addition, a Non-resident holder of FCA common shares and / or special voting shares that is not an individual is entitled to an exemption from dividend withholding tax, provided that the following tests are satisfied:

 

1.

such holder is, according to the tax law in a Member State of the European Union or a state designated by ministerial decree, that is a party to the Agreement regarding the European Economic Area, resident there and such holder is not transparent for tax purposes according to the tax law of such state;

 

2.

any one or more of the following threshold conditions are satisfied:

a.   at the time the dividend is distributed by FCA, such holder holds shares representing at least five percent of FCA’s nominal paid-up capital; or

b.   such holder has held shares representing at least five percent of FCA’s nominal paid up capital for a continuous period of more than one year at any time during the four years preceding the time the dividend is distributed by FCA; or

c.   such holder is connected with FCA within the meaning of article 10a, paragraph 4, of the Dutch Corporation Tax Act 1969 (Wet op de Vennootschapsbelasting 1969); or

 

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d.   an entity connected with such holder within the meaning of article 10a, paragraph 4, of the Dutch Corporation Tax Act 1969 (Wet op de Vennootschapsbelasting 1969) holds at the time the dividend is distributed by FCA, shares representing at least five percent of FCA’s nominal paid-up capital;

 

3.

such holder is not considered to be resident outside the Member States of the European Union or the states designated by ministerial decree, that are a party to the Agreement regarding the European Economic Area, under the terms of a double tax treaty concluded with a third State; and

 

4.

such holder does not perform a similar function to an investment institution (beleggingsinstelling) as meant by article 6a or article 28 of the Dutch Corporation Tax Act 1969 (Wet op de vennootschapsbelasting 1969).

The exemption from dividend withholding tax is not available if a holder is a Non-resident holder of FCA common shares and / or special voting shares and pursuant to a provision for the prevention of fraud or abuse included in a double tax treaty between the Netherlands and such holder’s country of residence, such holder would not be entitled to the reduction of tax on dividends provided for by such treaty. Furthermore, the exemption from dividend withholding tax will only be available to a holder if such holder is the beneficial owner of dividends distributed by FCA, as described above. If a holder is a Non-resident holder of FCA common shares and / or special voting shares and such holder is resident in a Member State of the European Union with which the Netherlands has concluded a double tax treaty that provides for a reduction of tax on dividends based on the ownership of the number of voting rights, the test under (2)(a) above is also satisfied if such holder owns five percent of the voting rights in FCA.

Credit

If a Non-resident Holder of FCA common shares and/or special voting shares is subject to Dutch income tax or Dutch corporation tax in respect of any benefits derived or deemed to be derived from such holder’s FCA common shares and / or special voting shares, including any capital gain realized on the disposal thereof, such holder can generally credit Dutch dividend withholding tax against Dutch income tax or Dutch corporation tax liability, as applicable, and such holder is generally entitled to a refund pursuant to a negative tax assessment if and to the extent the dividend withholding tax, together with any other creditable domestic and/or foreign taxes, exceeds such holder’s aggregate Dutch income tax or aggregate Dutch corporation tax liability, respectively.

See “—Dividend withholding tax—Dutch Individuals and Dutch Corporate Entities” for a description of the term beneficial owner.

See “—Dividend withholding tax—General” for a description of the concept “dividends distributed by FCA.”

See the section “—Taxes on income and capital gains in connection with the implementation of the Merger—General” for a description of the term Non-resident holder of FCA common shares and/or special voting shares.

See the section “—Taxes on income and capital gains from the ownership and disposition of FCA common shares and / or special voting shares after implementation of the Merger—Non-resident holders of FCA common shares and / or special voting shares” for a description of the circumstances in which a Non-resident holder of FCA common shares and / or special voting shares is subject to Dutch income tax or Dutch corporation tax.

Other taxes and duties after implementation of the Merger

No Dutch registration tax, transfer tax, stamp duty or any other similar documentary tax or duty, other than court fees, is payable in the Netherlands by a holder in respect of or in connection with (i) the subscription, issue,

 

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placement or allotment of FCA common shares and / or special voting shares, (ii) the enforcement by way of legal proceedings (including the enforcement of any foreign judgment in the courts of the Netherlands) of the documents relating to the issue of FCA common shares and / or special voting shares or the performance by FCA of FCA’s obligations under such documents, or (iii) the transfer of FCA common shares and / or special voting shares.

Material U.K. Tax Consequences

This section describes the material United Kingdom tax consequences of the Merger and the ownership of FCA common shares. It does not purport to be a complete analysis of all potential U.K. tax consequences of holding Fiat and FCA common shares. This section is based on current U.K. tax law and what is understood to be the current practice of H.M. Revenue and Customs, as well as on applicable tax treaties. This law and practice and these treaties are subject to change, possibly on a retroactive basis. Specifically, under draft legislation put before the U.K. Parliament (and likely to be enacted), a U.K. shareholder (as defined below) would not be entitled to credit against its U.K. tax liability for foreign tax withheld from dividends to the extent that a refund of the tax is available under non-U.K. tax law or an applicable treaty even to a person not connected to the U.K. shareholder in some circumstances. This change would be effective for payments made by a tax authority on or after December 5, 2013.

This section applies only to shareholders of Fiat and FCA that are U.K. Shareholders, as defined below, (except where express reference is made to the treatment of non-U.K. residents), that hold their shares as an investment (other than through an individual savings account), and that are the absolute beneficial owner of both the shares and any dividends paid on them. This section does not apply to members of any special class of shareholders subject to special rules, such as:

 

Ÿ

a pension fund,

 

Ÿ

a charity,

 

Ÿ

persons acquiring their shares in connection with an office or employment,

 

Ÿ

a dealer in securities,

 

Ÿ

an insurance company, or

 

Ÿ

a collective investment scheme.

In addition, this section may not apply to:

 

Ÿ

a person that holds shares as part of or pertaining to or attributable to a fixed base or permanent establishment in a non-U.K. jurisdiction,

 

Ÿ

any shareholders that, either alone or together, with one or more associated persons, such as personal trusts and connected persons, control directly or indirectly at least ten percent of the voting rights or of any class of share capital of Fiat or FCA, or

 

Ÿ

any person holding shares as a borrower under a stock loan or an interim holder under a repo.

Shareholders of Fiat should consult their own tax advisors on the U.K. tax consequences of the Merger and of owning and disposing of FCA common shares in their particular circumstances.

For the purposes of this discussion, a “U.K. Shareholder” is a beneficial owner of shares that is resident, and in the case of individual shareholders domiciled, for tax purposes in (and only in) the U.K. Shareholders that meet only one of these criteria should consult their own tax advisors.

 

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To the extent this section consists of a statement as to matters of U.K. tax law, this section is the opinion of Sullivan & Cromwell LLP.

Exchange of Fiat ordinary shares for FCA common shares; Exercise of Cash Exit Rights

Taxation of Capital Gains

U.K. Shareholders. The exchange of Fiat ordinary shares for FCA common shares pursuant to the Merger should not be treated as a disposal of Fiat ordinary shares for U.K. tax purposes (“no disposal” treatment), subject to certain conditions. If “no disposal” treatment applies, the FCA common shares will be treated as having been acquired by a U.K. Shareholder at the same time and for the same consideration as that U.K. Shareholder’s Fiat ordinary shares.

Where a U.K. Shareholder, together with its connected parties, does not hold more than five percent of the shares in Fiat, FCA has been advised that “no disposal” treatment should apply.

Where a U.K. Shareholder holds, alone or together with its connected parties, more than five percent of the shares in Fiat, “no disposal” treatment will only apply if the transaction is effected for bona fide commercial purposes and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is avoidance of U.K. corporation tax or capital gains tax.

Fiat intends to apply for written confirmation from HMRC that the Merger is effected for bona fide commercial purposes and does not form part of a scheme or arrangement of which the main purpose, or one of the main purposes, is avoidance of U.K. corporation tax or capital gains tax.

The exercise by a U.K. Shareholder of Fiat of its cash exit rights will, however, constitute a disposal.

For a shareholder that is (at any time in the relevant U.K. tax year) resident in the U.K. for tax purposes, a disposal may, depending upon the shareholder’s circumstances and subject to any available exemption or relief (such as the annual exempt amount for individuals, or indexation for corporate shareholders), give rise to a chargeable gain or an allowable loss for the purposes of U.K. taxation of capital gains.

A U.K. Shareholder of Fiat which exercises its cash exit rights and receives cash in respect of that U.K. Shareholder’s Fiat ordinary shares should, subject to the following paragraphs, recognize a capital gain or loss equal to the difference between the amount realized (converted into pounds sterling at the spot rate at the date of disposal of those Fiat ordinary shares) and the U.K. Shareholder’s base cost (determined in pounds sterling at the spot rate on the acquisition date) in those Fiat ordinary shares.

Corporate shareholders. For corporate shareholders only, to the extent that their Fiat ordinary shares are redeemed by Fiat, rather than sold to other shareholders or sold in the market, part of the proceeds is likely to be treated as a distribution for U.K. corporation tax purposes. This element of the proceeds may fall within one or more classes of dividend qualifying for exemption from corporation tax. While one would expect most corporate U.K. Shareholders to qualify for such an exemption, the exemptions are not comprehensive and are subject to anti-avoidance rules. The amount of the disposal proceeds for chargeable gains purposes may not be reduced by any amount treated as a distribution. U.K. Shareholders within the charge to corporation tax should consult their own professional advisors in relation to the implications of the legislation. For corporate shareholders only, indexation allowance on the relevant proportion of the original allowable cost should be taken into account for the purposes of calculating a chargeable gain (but not an allowable loss) arising on a disposal or part-disposal of Fiat ordinary shares.

Individual shareholders temporarily non-resident in the U.K. A shareholder of Fiat ordinary shares that is an individual and that is temporarily non-resident in the U.K. for a period of less than five complete tax years may, under anti-avoidance legislation, still be liable to U.K. taxation on that U.K. Shareholder’s return to the United Kingdom on a chargeable gain realized on the disposal or part-disposal of the Fiat ordinary shares during the period when he or she is non-resident.

 

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Non-U.K.-resident shareholders. A disposal of Fiat ordinary shares by a shareholder that is not resident in the United Kingdom for tax purposes but that carries on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment (excluding, if certain conditions are met, an independent broker or investment manager) and has used, held or acquired Fiat ordinary shares for the purposes of that trade, profession or vocation or that branch, agency or permanent establishment may, depending on individual circumstances, give rise to a chargeable gain or allowable loss.

Stamp duty and stamp duty reserve tax (“SDRT”)

Fiat does not and will not maintain any share register in the U.K. and, accordingly, no liability to U.K. stamp duty or SDRT will arise to shareholders on the tendering or cancellation of Fiat ordinary shares in the course of the Merger.

Tax Consequences of Owning FCA common shares

Taxation of Dividends

Withholding from dividend payments. Dividend payments may be made without withholding or deduction for or on account of U.K. income tax.

Individual U.K. Shareholders. Dividends received by individual U.K. Shareholders will be subject to U.K. income tax. The dividend is taxable in the tax year when the dividend is payable. The tax is charged on the gross amount (translated into sterling at the spot rate when the dividend is payable) of any dividend paid as increased for any U.K. tax credit available as described below (the “gross dividend”). A U.K. Shareholder must include any foreign tax withheld from the dividend payment in the gross dividend even though the shareholder does not in fact receive it.

Subject to certain limitations, any non-U.K. tax withheld and paid over to a non-U.K. taxing authority will be eligible for credit against a U.K. Shareholder’s U.K. tax liability except to the extent that a refund of the tax withheld is available under non-U.K. tax law or under an applicable tax treaty to the shareholder or a connected person. If a refund becomes available after the U.K. Shareholder has submitted its tax return, the U.K. Shareholder will be required to notify HMRC and will lose the credit to the extent of the refund.

Individual U.K. Shareholders and some non-U.K.-resident individual shareholders of FCA common shares will be entitled to a non-repayable U.K. tax credit equal to one-ninth of the amount of the dividend received and brought into the charge to tax including any foreign tax withheld (or ten percent of the aggregate of that dividend and tax credit).

An individual U.K. Shareholder that is subject to income tax at a rate or rates not exceeding the basic rate will be liable to tax on the gross dividend at the rate of ten percent and will therefore have no further U.K. income tax liability to pay. Where the tax credit exceeds the U.K. Shareholder’s tax liability, the U.K. Shareholder cannot claim repayment of the tax credit from HMRC.

An individual U.K. Shareholder that is subject to income tax at the higher rate or the additional rate will be liable to income tax on the gross dividend at the rate of 32.5 percent or 37.5 percent respectively to the extent that the gross dividend, when treated as the top slice of that U.K. Shareholder’s income, falls above the threshold for higher rate or additional rate income tax. After taking into account the ten percent tax credit, a higher rate taxpayer will therefore be liable to additional income tax of 22.5 percent of the gross dividend, equal to 25 percent of the dividend ignoring the U.K. tax credit. After taking into account the ten percent tax credit, an additional rate taxpayer will be liable to additional income tax of 27.5 percent of the gross dividend, which is equal to approximately 30.6 percent of the dividend ignoring the U.K. tax credit.

Corporate U.K. Shareholders. Dividends paid on the FCA common shares to corporate U.K. Shareholders may fall within one or more classes of dividend qualifying for exemption from corporation tax. While one would expect most corporate U.K. Shareholders to qualify for such an exemption, the exemptions

 

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are not comprehensive and are subject to anti-avoidance rules. Where a U.K. Shareholder benefits from exemption, no credit will be available for any non-U.K. tax withheld and paid over to a non-U.K. taxing authority. U.K. Shareholders within the charge to corporation tax should consult their own professional advisors in relation to the implications of the legislation.

Non-U.K.-resident shareholders. A shareholder of FCA common shares that is not resident in the U.K. for U.K. tax purposes will not be liable to account for income or corporation tax in the U.K. on dividends paid on the shares unless the shareholder carries on a trade (or profession or vocation) in the U.K. and the dividends are either a receipt of that trade or, in the case of corporation tax, the shares are held by or for a U.K. permanent establishment through which the trade is carried on (unless, if certain conditions are met, the trade is carried on through an independent broker or investment manager).

Non-U.K.-resident shareholders that are not otherwise liable to income or corporation tax on dividends will not generally be able to claim repayment of any significant part of the tax credit attaching to dividends received from FCA as the U.K. will levy income tax at the source to offset the amount of the credit. In exceptional circumstances, such a shareholder may be entitled to a cash payment of a small part of the tax credit.

A shareholder that is resident outside the United Kingdom for tax purposes should consult its own tax advisor as to its tax position on dividends received from FCA.

Taxation of Capital Gains

U.K. Shareholders. A disposal or deemed disposal of FCA common shares by a shareholder that is (at any time in the relevant U.K. tax year) resident in the U.K. for tax purposes, may, depending upon the shareholder’s circumstances and subject to any available exemption or relief (such as the annual exempt amount for individuals, or indexation for corporate shareholders), give rise to a chargeable gain or an allowable loss for the purposes of U.K. taxation of capital gains.

A shareholder of FCA common shares that is an individual and that is temporarily non-resident in the U.K. for a period of less than five complete tax years may, under anti-avoidance legislation, still be liable to U.K. taxation on that U.K. Shareholder’s return to the United Kingdom on a chargeable gain realized on the disposal or part-disposal of the common shares during the period when he or she is non-U.K.-resident.

Non-U.K.-resident shareholders. A disposal of FCA common shares by a shareholder that is not resident in the United Kingdom for tax purposes but that carries on a trade, profession or vocation in the United Kingdom through a branch, agency or permanent establishment (excluding, if certain conditions are met, an independent broker or investment manager) and has used, held or acquired FCA common shares for the purposes of that trade, profession or vocation or that branch, agency or permanent establishment may, depending on individual circumstances, give rise to a chargeable gain or allowable loss.

Corporate shareholders. For corporate shareholders only, indexation allowance on the relevant proportion of the original allowable cost should be taken into account for the purposes of calculating a chargeable gain (but not an allowable loss) arising on a disposal or part-disposal of FCA common shares.

Stamp duty and stamp duty reserve tax

No liability to U.K. stamp duty or SDRT will arise on the issue of FCA common shares to shareholders. FCA will not maintain any share register in the U.K. and, accordingly, (i) U.K. stamp duty will not normally be payable in connection with a transfer of common shares, provided that the instrument of transfer is executed and retained outside the U.K. and no other action is taken in the U.K. by the transferor or transferee, and (ii) no U.K. SDRT will be payable in respect of any agreement to transfer FCA common shares.

 

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Tax Consequences of Participating in the Loyalty Voting Structure

NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE RECEIPT, OWNERSHIP OR DISPOSAL OF SPECIAL VOTING SHARES SHOULD BE TREATED FOR U.K. TAX PURPOSES AND AS A RESULT THE U.K. TAX CONSEQUENCES ARE UNCERTAIN. ACCORDINGLY, WE URGE U.K. HOLDERS TO CONSULT THEIR TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND DISPOSAL OF SPECIAL VOTING SHARES.

Receipt of Special Voting Shares

The receipt of special voting shares is expected to be treated as a capital distribution of “small” value in respect of the relevant FCA common shares held on the Loyalty Register. On that basis, a U.K. Shareholder should not be treated as making a taxable part-disposal of its common shares. Rather, it should attribute base cost to special voting shares equal to the fair market value of the special voting shares at the time of issue and the base cost in the common shares should be reduced by the same amount. FCA believes and intends to take the position that the value of each special voting share is minimal.

Ownership of Special Voting Shares

U.K. Shareholders of special voting shares should not have to recognize income in respect of any amounts transferred to the special voting shares dividend reserve but not paid out as dividends in respect of the special voting shares.

Disposal of Special Voting Shares

A U.K. Shareholder that has its special voting shares redeemed for zero consideration after removing its shares from the Loyalty Register should recognize a loss accordingly; the loss may be allowable. On the basis that the value of each special voting share is minimal, however, the amount of the loss should be minimal.

Stamp duty and stamp duty reserve tax

FCA will not maintain any share register in the U.K. and, accordingly, no liability to U.K. stamp duty or SDRT will arise to shareholders on the issue or repurchase of special voting shares.

Material Italian Tax Consequences

This section describes the material Italian tax consequences of the Merger and of the ownership and transfer of FCA common shares. The following description does not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to own or dispose of the shares (such as Italian inheritance and gift tax considerations, and transfer tax considerations) and, in particular does not discuss the treatment of shares that are held in connection with a permanent establishment or a fixed base through which a non-Italian resident shareholder carries on business or performs personal services in Italy.

To the extent this section consists of a statement as to matters of Italian tax law, this section is the opinion of Maisto e Associati.

For the purposes of this discussion, an “Italian Shareholder” is a beneficial owner of shares that is:

 

Ÿ

an Italian-resident individual, or

 

Ÿ

an Italian-resident corporation.

This section does not apply to shareholders subject to special rules, including:

 

Ÿ

non-profit organizations, foundations and associations that are not subject to tax,

 

Ÿ

Italian commercial partnerships and assimilated entities (società in nome collettivo, in accomandita semplice),

 

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Ÿ

Italian noncommercial partnerships (società semplice),

 

Ÿ

Individuals holding the shares in connection with the exercise of a business activity,

 

Ÿ

Italian real estate investment funds (fondi comuni di investimento immobiliare), and

 

Ÿ

shareholders not resident in Italy.

This discussion is limited to Italian Shareholders that hold their shares directly and whose shares represent, and have represented in any 12-month period preceding each disposal: (i) a percentage of voting rights in the ordinary shareholders’ meeting not greater than two percent for listed shares; or (ii) a participation in the share capital not greater than five percent for listed shares.

In addition, where specified, this section also applies to Italian pension funds, Italian investment funds (fondi comuni di investimento mobiliare) and Società di Investimento Collettivo A Capitale Variabile (SICAVs).

This section is based upon tax laws and applicable tax treaties and what is understood to be the current practice in Italy in effect on the date of this prospectus which may be subject to changes in the future, even on a retroactive basis. Italian Shareholders should consult their own advisors as to the Italian tax consequences of the ownership and disposal of FCA common shares in their particular circumstances.

Italian tax consequences of the Merger on FCA

Tax consequences on Fiat and FCA

Merger. The Merger should be qualified as a cross-border merger transaction within the meaning of Article 178 of the CTA, implementing the Directive 90/434/EEC of 23 July 1990 (codified in the Directive 2009/133/CE, the Merger Directive).

Under recently enacted Italian law (Article 166 (2-quater) of the CTA), companies that cease to be Italian-resident and become tax-resident in another EU Member State may apply to suspend any Italian Exit Tax under the principles of the Court of Justice of the European Union case C-371/10, National Grid Indus BV. Italian rules implementing Article 166 (2-quater), issued in August 2013, excluded cross-border merger transactions from the suspension of the Italian Exit Tax. As a result, the Merger will result in the immediate charge of an Italian Exit Tax in relation to those Fiat assets that will not be connected with the Italian P.E. Whether or not the Italian implementing rules are deemed compatible with EU law is unlikely to be determined before the payment of the Italian Exit Tax is due.

FCA intends to maintain a permanent establishment in Italy. See paragraph “Risk Factors—Risks Related to Taxation—The existence of a permanent establishment in Italy for FCA after the Merger is a question of fact based on all the circumstances.”

The Merger is tax neutral with respect to Fiat’s assets that will remain connected with the Italian P.E., such as the shareholdings in Fiat’s Italian subsidiaries. Conversely, such merger will trigger the realization of capital gains or losses embedded in Fiat’s assets that will not be connected with the Italian P.E. Capital gains on certain assets of the Group that are expected to be transferred out of the Italian P.E. in connection with the Merger will be realized for Italian tax purposes. However, Fiat expects that such gains may be largely offset by tax losses available to the group.

Pursuant to Article 180 of the CTA, the tax-deferred reserves included in Fiat’s net equity before the Merger should be included in the Italian P.E.’s net equity after the Merger, so as to preserve their tax-deferred status.

Pursuant to Article 181 of the CTA any of Fiat S.p.A.’s carried-forward losses not generated within the Fiscal Unit and those generated within the Fiscal Unit which upon possible termination of such Fiscal Unit would

 

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be attributable to Fiat S.p.A., if any, can be carried forward by the Italian P.E. after the Merger, subject to Article 172(7) of the CTA, in proportion to the difference between the assets and liabilities connected with the Italian P.E. and within the limits of the said difference.

A fixed registration tax of €200 is due in Italy in respect of the Merger.

Tax consequences of the Merger on Fiat’s Fiscal Unit

Fiat has filed a ruling request to the Italian tax authorities in respect of the Merger. According to Article 124(5) of the CTA, a mandatory ruling request should be submitted to the Italian tax authorities in order to ensure the continuity, via the Italian P.E., of the Fiscal Unit currently in place between Fiat and Fiat’s Italian subsidiaries. Depending on the outcome of the ruling, it is possible that carried-forward tax losses generated by the Fiscal Unit would become restricted losses and they could not be used to offset the future taxable income of the Fiscal Unit. It is also possible that FCA would not be able to offset the Fiscal Unit’s carried-forward tax losses against any capital gains on Fiat‘s assets that are not connected with the Italian P.E., despite the continuity of the Fiscal Unit.

Exchange of Shares for FCA Stock Pursuant to the Merger

Currently Fiat is resident in Italy for tax purposes.

On April 1, 2014, Fiat incorporated a wholly-owned company, FCA, with legal seat in the Netherlands under the name of Fiat Investments N.V. For the purposes of the Italy-U.K. tax treaty, FCA is expected to be resident in the United Kingdom from its incorporation.

According to Italian tax laws, the Merger will not trigger any taxable event for Italian income tax purposes for Fiat Italian Shareholders. FCA common shares received by such Fiat shareholders at the effective time of the Merger would be deemed to have the same aggregate tax basis as the FCA common shares or Fiat ordinary shares held by the said Italian Shareholders prior to the Merger.

Italian Shareholders that receive cash in lieu of fractional interests in FCA common shares sold in the market for cash will recognize a capital gain or loss equal to the difference between the amount received and their tax basis in such fractional interests (see —Taxation of Capital Gains” for further discussion).

Fiat Italian Shareholders that exercise their cash exit rights shall be entitled to receive an amount of cash per share of Fiat ordinary shares under Article 2437-ter of the Italian Civil Code (“cash exit price”).

Italian Shareholders that receive the cash exit price as a consideration for their shares being sold to other Fiat shareholders or to the market will recognize a capital gain or loss equal to the difference between the amount received and their tax basis in their Fiat ordinary shares (see “—Taxation of Capital Gains” for further discussion).

Italian resident individual shareholders of Fiat that have their shares redeemed and cancelled pursuant to their cash exit rights will be subject to a 26 percent final withholding tax on any profits derived from such redemption, which profits will be deemed equal to the difference between the cash exit price and their tax basis in their Fiat ordinary shares (see “—Tax Consequences of Owning FCA Stock—Italian resident individual shareholders” for further discussion). Any losses are not deductible (unless an election is made for Regime del Risparmio Gestito, discussed further below).

Italian resident corporate shareholders of Fiat that have their shares redeemed and cancelled pursuant to their cash exit rights will recognize gain or loss equal to the difference between the cash exit price (or portion thereof) which is paid out of share capital and capital reserves and their tax basis in their Fiat ordinary shares (see “—Taxation of Capital Gains—Italian resident corporations” for further discussion), while the portion of the cash exit price (if any) which is paid out of annual profit or profit reserves will be treated as a dividend distribution (see “—Tax Consequences of Owning FCA Stock—Italian resident corporations” for further discussion).

 

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Italian Shareholders should consult their tax advisor in connection with any exercise of cash exit rights in their particular circumstances.

Tax Consequences of Owning FCA Stock

Taxation of Dividends. The tax treatment applicable to dividend distributions depends upon the nature of the dividend recipient, as summarized below.

Italian resident individual shareholders. Dividends paid by a non-Italian-resident company, such as FCA, to Italian resident individual shareholders are subject to a 26 percent tax. Such tax (i) may be applied by the taxpayer in its tax assessment or (ii) if an Italian withholding agent intervenes in the collection of the dividends, may be withheld by such withholding agent.

In the event that a taxpayer elects to be taxed under the “Regime del Risparmio Gestito” (discussed below in the paragraph entitled “Taxation of Capital Gains—Italian resident individual shareholders”), dividends are not subject to the 26 percent tax, but are subject to taxation under such “Regime del Risparmio Gestito.”

Italian resident corporations. Subject to the paragraph below, Italian Shareholders subject to Italian corporate income tax (“IRES”) should benefit from a 95 percent exemption on dividends. The remaining five percent of dividends are treated as part of the taxable business income of such Italian resident corporations, subject to tax in Italy under the IRES.

Dividends, however, are fully subject to tax in the following circumstances: (i) dividends paid to taxpayers using IAS/IFRS in relation to shares accounted for as “held for trading” on the balance sheet of their statutory accounts; (ii) dividends which are considered as “deriving from” profits accumulated by companies or entities resident for tax purposes in States or Territories with a preferential tax system; or (iii) dividends paid in relation to shares acquired through repurchase transactions, stock lending and similar transactions, unless the beneficial owner of such dividends would have benefited from the 95 percent exemption described in the above paragraph. In the case of (ii), 100 percent of the dividends are subject to taxation, unless a special ruling request is filed with the Italian tax authorities in order to prove that the shareholding has not been used to enable taxable income to build up in the said States or Territories.

For certain companies operating in the financial field and subject to certain conditions, dividends are included in the tax base for IRAP purposes (Imposta regionale sulle attività produttive).

Italian pension funds. Dividends paid to Italian pension funds (subject to the regime provided for by article 17 of Italian legislative decree No. 252 of 5 December 2005) are not subject to any withholding tax, but must be included in the result of the relevant portfolio accrued at the end of the tax period, subject to substitute tax at the rate of 11 percent (11.5 percent in 2014).

Italian investment funds (fondi comuni di investimento mobiliare) and SICAVs. Dividends paid to Italian investment funds and SICAVs are not subject to any withholding tax nor to any taxation at the level of the fund or SICAV. A withholding tax may apply in certain circumstances at the rate of up to 26 percent on distributions made by the Fund or SICAV.

Taxation of Capital Gains

Italian resident individual shareholders. Capital gains realized upon disposal of shares or rights by an Italian resident individual shareholder are subject to Italian final substitute tax (imposta sostitutiva) at a 26 percent rate.

Capital gains and capital losses realized in the relevant tax year have to be declared in the annual income tax return (regime di tassazione in sede di dichiarazione dei redditi). Losses in excess of gains may be carried forward against capital gains realized in the four subsequent tax years. While losses generated as of July 1, 2014

 

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can be carried forward for their entire amount, losses realized until December 31, 2011 can be carried forward for 48.08 percent of their amount only and losses realized between January 1, 2012 and June 30, 2014 for 76.92 percent of their amount.

As an alternative to the regime di tassazione in sede di dichiarazione dei redditi described in the above paragraph, Italian resident individual shareholders may elect to be taxed under one of the two following regimes:

 

(i)

Regime del Risparmio Amministrato: under this regime, separate taxation of capital gains is allowed subject to (i) the shares and rights in respect of the shares being deposited with Italian banks, società di intermediazione mobiliare or certain authorized financial intermediaries resident in Italy for tax purposes and (ii) an express election for the Regime del Risparmio Amministrato being timely made in writing by the relevant shareholder. Under the Regime del Risparmio Amministrato, the financial intermediary is responsible for accounting for the substitute tax in respect of capital gains realized on each sale of the shares or rights on the shares, and is required to pay the relevant amount to the Italian tax authorities on behalf of the taxpayer, deducting a corresponding amount from the proceeds to be credited to the shareholder. Under the Regime del Risparmio Amministrato, where a sale of the shares or rights on the shares results in a capital loss, such loss may be deducted (up to 48.08 percent for capital losses realized until December 31, 2011 and up to 76.92 percent for capital losses realized between January 1, 2012 and June 30, 2014) from capital gains of the same kind subsequently realized under the same relationship of deposit in the same tax year or in the four subsequent tax years. Under the Regime del Risparmio Amministrato, the shareholder is not required to declare the capital gains in its annual tax declaration;

 

(ii)

Regime del Risparmio Gestito: under this regime, any capital gains accrued to Italian resident individual shareholders, that have entrusted the management of their financial assets, including the shares and rights in respect of the shares, to an authorized Italian-based intermediary and have elected for the Regime del Risparmio Gestito, are included in the computation of the annual increase in value of the managed assets accrued, even if not realized, at year-end, subject to the substitute tax to be applied on behalf of the taxpayer by the managing authorized Italian-based intermediary. Under the Regime del Risparmio Gestito, any fall in value of the managed assets accrued at year-end may be carried forward (up to 48.08 percent if accrued until December 31, 2011 and up to 76.92 percent if accrued between January 1, 2012 and June 30, 2014) and set against increases in value of the managed assets which accrue in any of the four subsequent tax years. Under the Regime del Risparmio Gestito, the shareholder is not required to report capital gains realized in its annual tax declaration.

Italian resident corporations. Capital gains realized through the disposal of FCA common shares by Italian Shareholders which are companies subject to IRES benefit from a 95 percent exemption (referred to as the “Participation Exemption Regime”), if the following conditions are met:

 

(i)

the shares have been held continuously from the first day of the 12th month preceding the disposal; and

 

(ii)

the shares were accounted for as a long term investment in the first balance sheet closed after the acquisition of the shares (for companies adopting IAS/IFRS, shares are considered to be a long term investment if they are different from those accounted for as “held for trading”).

Based on the assumption that FCA should be resident in the U.K. and that its shares will be listed on a regulated market, the two additional conditions set forth by Article 87 of the CTA in order to enjoy the Participation Exemption Regime (i.e., the company is not resident in a State with a preferential tax system and carrying on a business activity) are both met.

The remaining five percent of the amount of such capital gain is included in the aggregate taxable income of the Italian resident corporate shareholders and subject to taxation according to ordinary IRES rules and rates.

 

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If the conditions for the Participation Exemption Regime are met, capital losses from the disposal of shareholdings realized by Italian resident corporate shareholders are not deductible from the taxable income of the company.

Capital gains and capital losses realized through the disposal of shareholdings which do not meet at least one of the aforementioned conditions for the Participation Exemption Regime are, respectively, fully included in the aggregate taxable income and fully deductible from the same aggregate taxable income, subject to taxation according to ordinary rules and rates. However, if such capital gains are realized upon disposal of shares which have been accounted for as a long-term investment on the last three balance sheets, then if the taxpayer so chooses the gains can be taxed in equal parts in the year of realization and the four following tax years.

The ability to use capital losses to offset income is subject to significant limitations, including provisions against “dividend washing.” In addition, Italian resident corporations that recognize capital losses exceeding €50,000 are subject to tax reporting requirements. Italian resident corporations that recognize capital losses should consult their tax advisors as to the tax consequences of such losses. For certain types of companies operating in the financial field and subject to certain conditions, the capital gains are included in the net production value subject to the regional tax on productive activities.

Italian pension funds. Capital gains realized by Italian pension funds are not subject to any withholding or substitute tax. Capital gains and capital losses must be included in the result of the relevant portfolio accrued at the end of the tax period, which is subject to an 11 percent substitute tax (11.5 percent in 2014).

Italian investment funds (fondi comuni di investimento mobiliare) and SICAVs. Capital gains realized by Italian investment funds and SICAVs are not subject to any withholding or substitute tax. Capital gains and capital losses must be included in the fund’s or SICAV’s annual result, which is not subject to tax. A withholding tax may apply in certain circumstances at the rate of up to 26 percent on distributions made by the fund or SICAV.

IVAFE-Imposta sul Valore delle Attività Finanziarie detenute all’Estero

According to Article 19 of the Decree of 6 December 2011, No. 201 (“Decree No. 201/2011”), converted with Law of 22 December 2011, No. 214, Italian resident individuals holding financial assets – including shares – outside the Italian territory are required to pay a special tax (IVAFE). From 2013, such tax is applied at the rate of 0.20 percent. The tax applies to the market value at the end of the relevant year of such financial assets held outside the Italian territory. Taxpayers may deduct from the tax a tax credit equal to any wealth taxes paid in the State where the financial assets are held (up to the amount of the Italian tax due).

Stamp Duty (Imposta di bollo)

According to Article 19 of Decree No. 201/2011, a proportional stamp duty applies on a yearly basis on the market value of any financial product or financial instruments. From 2013 the stamp duty applies at the rate of 0.20 percent and cannot be lower than €34.2 but, in respect of Italian shareholders other than individuals, it cannot exceed €14,000. The stamp duty applies with respect to any Italian Shareholders (other than banks, insurance companies, investments and pension funds and certain other financial intermediaries) to the extent that the shares are held through an Italian-based banking or financial intermediary or insurance company.

Financial Transaction Tax

According to Art. 1 of the Law of December 24, 2012, No. 228, an Italian Financial Transaction tax (“FTT”) shall apply as of 1 March 2013 on the transfer of property rights in shares issued by Italian resident companies, such as Fiat, regardless of the tax residence of the parties and/or where the transaction is entered into. If a holder of Fiat ordinary shares exercises its cash exit rights, according to Italian law such holder must first offer its Fiat ordinary shares for sale to the holders of Fiat ordinary shares that have not chosen to exercise cash exit rights. Shareholders of Fiat that purchase shares of a holder exercising its cash exit rights may be subject to

 

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the FTT. In 2013, the FTT applies at a rate of 0.20 percent, reduced to 0.10 percent if the transaction is executed on a regulated market or a multilateral trading system, as defined by the law. The taxable base is the transaction value, which is defined as the consideration paid for the transfer or as the net balance of the transactions executed by the same subject in the course of the same day. The FTT is due by the party that acquires the shares and shall be levied by the financial intermediary (or by any other person) that is involved, in any way, in the execution of the transaction. Specific exclusions and exemptions are set out by the law by Decree 21 February 2013 which also regulates in detail other aspects of the FTT. Specific rules apply for the application of the FTT on derivative financial instruments having as underlying instruments shares issued by Italian resident companies and on high frequency trading transactions.

Loyalty Voting Structure

NO STATUTORY, JUDICIAL OR ADMINISTRATIVE AUTHORITY DIRECTLY DISCUSSES HOW THE RECEIPT, OWNERSHIP OR DISPOSAL OF SPECIAL VOTING SHARES SHOULD BE TREATED FOR ITALIAN INCOME TAX PURPOSES AND AS A RESULT, THE ITALIAN TAX CONSEQUENCES ARE UNCERTAIN. ACCORDINGLY, WE URGE ITALIAN SHAREHOLDERS TO CONSULT THEIR TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE RECEIPT, OWNERSHIP AND DISPOSAL OF SPECIAL VOTING SHARES.

Receipt of Special Voting Shares. An Italian Shareholder that receives special voting shares issued by FCA should in principle not recognize any taxable income upon the receipt of special voting shares. Under a possible interpretation, the issue of special voting shares can be treated as the issue of bonus shares free of charge to the shareholders out of existing available reserves of FCA. Such issue should not have any material effect on the allocation of the tax basis of an Italian Shareholder between its FCA common shares and its FCA special voting shares. Because the special voting shares are not transferrable and their limited economic rights can be enjoyed only at the time of the liquidation of FCA, FCA believes and intends to take the position that the fair market value of each special voting share is minimal. However, because the determination of the fair market value of the special voting shares is not governed by any guidance that directly addresses such a situation and is unclear, the Italian tax authorities could assert that the value of the special voting shares as determined by FCA is incorrect.

Ownership of Special Voting Shares. Italian Shareholders of special voting shares should not have to recognize income in respect of any amount transferred to the special voting shares dividend reserve, but not paid out as dividends, in respect of the special voting shares.

Disposition of Special Voting Shares. The tax treatment of an Italian Shareholder that has its special voting shares redeemed for no consideration (om niet) after removing its shares from the Loyalty Register is unclear. It is possible that an Italian Shareholder should recognize a loss to the extent of the Italian Shareholder’s tax basis (if any). The deductibility of such loss depends on individual circumstances and conditions required by Italian law. It is also possible that an Italian Shareholder would not be allowed to recognize a loss upon the redemption of its special voting shares and instead should increase its basis in its FCA common shares by an amount equal to the tax basis (if any) in its special voting shares.

 

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THE MERGER PLAN

The following summary of the Cross-Border Merger Terms for the Merger, or the merger plan, is qualified in all respects by reference to the complete text of the merger plan, which is incorporated by reference herein in its entirety and attached to this prospectus as Appendix A. You should read the merger plan carefully as it is a legal document that governs the terms of the Merger.

Transaction Structure and Effectiveness of the Merger

If the Merger is approved by the requisite votes of the Fiat shareholders and the other conditions precedent to the Merger are satisfied or, to the extent permitted by applicable law, waived, Fiat will be merged with and into FCA. The Merger will be carried out as a cross-border reverse merger of Fiat, a company incorporated under Italian law, as merging entity, and FCA, a company incorporated under Dutch law, as surviving entity.

The closing of the Merger shall take place at a date and time to be specified by Fiat after satisfaction or, to the extent permitted by applicable law, waiver of the closing conditions described below under “—Closing Conditions.”

The Merger shall be effective as of the date following the date on which the deed of Merger is executed. Following the Merger, the separate corporate existence of Fiat shall cease, and FCA shall continue as the sole surviving corporation, and, by operation of law (subject to certain exceptions), FCA, as successor to Fiat, shall succeed to and assume all of the rights and obligations, as well as the assets and liabilities, of Fiat under universal title, in accordance with Dutch law and Italian law.

Merger Consideration

At the effective time of the Merger, by virtue of such merger and without any action on the part of FCA or any holder of Fiat ordinary shares, the Fiat shareholders will receive one (1) FCA common share for each one (1) Fiat ordinary share that they hold.

Treatment of Equity Awards

At the effective time of the Merger, each option of Fiat, whether vested or unvested, outstanding immediately prior to the effective time of the Merger shall be replaced by an option, with respect to a number of FCA common shares equal to the equivalent number of ordinary shares of Fiat and at the same exercise price of such options immediately prior to the effective time of the Merger. Following the effective time of the Merger, each such option shall be governed by equivalent terms and conditions as were applicable to such option immediately prior to the effective time of the Merger.

Closing Conditions

The completion of the Merger is subject to certain closing conditions, including:

 

Ÿ

FCA common shares which are to be allotted to Fiat shareholders in connection with the Merger shall have been approved for listing on the NYSE, subject to official notice of issuance;

 

Ÿ

no governmental entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any order which is in effect and prohibits consummation of the Merger in accordance with the terms set forth herein and no order shall have been enacted, entered, promulgated or enforced by any governmental entity which prohibits or makes illegal the consummation of the Merger; and

 

Ÿ

the amount of cash, if any, to be paid to Fiat shareholders exercising cash exit rights under Italian law and/or to creditors pursuant to creditor opposition rights proceeding under Italian and Dutch law does not exceed, in the aggregate, €500 million.

 

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In addition, under Italian law, the Merger effectiveness will be subject to the approval of the merger plan by Fiat shareholders.

The Merger shall not be effectuated until after:

 

Ÿ

the 60-day creditor claims period following the date upon which the resolution of the Fiat extraordinary general meeting has been registered with the Companies’ Register of Turin shall have expired without any creditors having opposed the Merger or, where an opposition is filed, such opposition has been withdrawn or discharged or the closing of the Merger is otherwise permitted by law; and

 

Ÿ

the one-month creditor claims period for creditors under Dutch law commencing following the announcement of the filing of the merger plan shall have expired or been terminated pursuant to applicable law without opposition being filed (or if an opposition is filed, such opposition is withdrawn or discharged or proceeding with the Merger is otherwise permitted by law).

Amendment

The merger plan may be amended at any time before or after the approval of the Merger by the Fiat shareholders, but after the approval of the Fiat shareholders has been obtained no amendment may be made to the merger plan that by law requires further approval by the Fiat shareholders without first obtaining the requisite approval of such shareholders.

The Merger Plan

The merger plan governing the Merger was approved by the Board of Directors of FCA on May 27, 2014, and by the Board of Directors of Fiat on June 15, 2014. The merger plan sets out the main terms and conditions of the Merger to comply with the requirements of Dutch and Italian law, as applicable.

The merger plan is drafted in accordance with and pursuant to the mandatory Dutch law provisions of Title 7 of Book 2 of the Dutch Civil Code and in accordance with the mandatory Italian law provisions of Italian Legislative Decree no. 108 of May 30, 2008. The merger plan sets out the main terms and conditions of the Merger, as mandatorily prescribed by the applicable provisions of Dutch and Italian law, and of formally informing the shareholders and creditors of each of Fiat and FCA on a list of matters concerning the Merger.

The Merger

The Merger entails the transfer of the entire business, assets, liabilities, rights and obligations of Fiat to FCA, whereby Fiat will cease to exist as a standalone entity. As a result of FCA being a 100 percent owned direct subsidiary of Fiat, the Merger constitutes a reverse intra-group merger. An exchange ratio of 1:1 will be applied for the allotment of shares in the capital of FCA to shareholders of Fiat. The entire share capital of Fiat will be cancelled upon the effectiveness of the Merger.

Immediately prior to the effectiveness of the Merger, Fiat will own 35,000,000 FCA common shares, which is approximately equal to the number of shares currently held by Fiat in its own capital. In addition, FCA after the date of this document may issue to Fiat additional common shares (including shares issued to Fiat, before the Merger effective date, in an amount equal to the number of Fiat shares that may be acquired by Fiat in connection with the exercise of cash exit rights by Fiat shareholders; which will be cancelled as a result of the Merger). Such FCA shares will not be cancelled, but will continue to exist as common shares held by FCA in its own capital, until transferred, otherwise disposed of or cancelled in accordance with the applicable provisions of Dutch law and FCA’s Articles of Association. As a result, the number of issued common shares in FCA will be substantially the same as the number of issued Fiat ordinary shares prior to the Merger.

The Merger will result in the successor company to Fiat being domiciled in a different jurisdiction and, consequently, will give rise to certain cash exit rights. See “The Fiat Extraordinary General Meeting—Dissenters’, Appraisal, Cash Exit or Similar Rights.”

 

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Effectiveness of the Merger

The merger plan provides that the Merger will be effected by means of a notarial deed of merger to be executed by Fiat and FCA before a civil law notary in the Netherlands.

The Merger will become effective as of the date following the date on which the deed of Merger is executed. Following the Merger, FCA will prepare its consolidated financial statements in accordance with IFRS. Under IFRS, the Merger consists of a reorganization of existing legal entities that does not give rise to any change of control, and therefore is outside the scope of application of IFRS 3—Business Combinations. Accordingly, it will be accounted for as an equity transaction with no change in the accounting basis.

Upon the Merger becoming effective in accordance with Dutch law and Italian law, Fiat will cease to exist as a standalone entity.

Further, the notarial deed of merger must be executed within six months from the day of public announcement of the filing of the merger plan with the Dutch Chamber of Commerce, which is before December 20, 2014 or, if due to creditor opposition procedures such six months’ period could not be met, within one month from closing of such opposition procedures.

Effectiveness of the Merger will be recorded with the trade register of the Dutch Chamber of Commerce within eight days after the execution of the notarial deed of merger. The Dutch registrar will subsequently inform the Italian Registrar of Companies that the cross-border Merger has become effective.

The new FCA Articles of Association and Terms and Conditions of Special Voting Shares will enter into force at the effective time of the Merger. See “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares” for additional information.

Exchange Ratio Expert Report by Independent Auditors

As required under Dutch law, the exchange ratio is to be accompanied by a report by an independent auditor with respect to the reasonableness of the exchange ratio. Reconta Ernst & Young S.p.A. (“RE&Y”) was appointed the independent auditor to issue the Fiat exchange ratio report and KPMG Accountants N.V. was appointed the independent auditor to issue the FCA exchange ratio report.

The Board of Directors of Fiat did not rely on the Fiat exchange ratio report in recommending the Merger to Fiat shareholders. The exchange ratio was determined by Fiat without any recommendation, analysis or advice from RE&Y, whose report was issued after the Board of Directors of Fiat determined to recommend the Merger. The reports were not prepared for use in connection with this Registration Statement and were prepared solely for compliance with Dutch law.

The Fiat Exchange Ratio Report

On June 18, 2014, RE&Y issued its written report to the Fiat Board of Directors with respect to the reasonableness and non-arbitrariness of the valuation methods adopted by the Fiat Board of Directors to determine the Fiat exchange ratio, or the Fiat exchange ratio report. RE&Y was appointed by Fiat as expert, which, under Italian law, must be an external firm of auditors and is usually the auditor of the company. The Fiat exchange ratio report is filed as an exhibit to this Registration Statement and is also available at the offices of Fiat, on the website of Fiat (www.fiatspa.com) and will be available at the Turin Chamber of Commerce.

 

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FIAT CHRYSLER AUTOMOBILES

Group Structure

Following the Merger, the principal subsidiaries of Fiat identified under the caption “The Fiat Group—Principal Subsidiaries” will be the principal subsidiaries of FCA.

Share Buy-Backs

Under Dutch law, a public company with limited liability (naamloze vennootschap), may acquire its own shares, subject to certain provisions of Dutch law and the FCA Articles of Association, if (i) the company’s stockholders’ equity less the payment required to make the acquisition does not fall below the sum of paid-up and called-up capital and any reserved capital required by Dutch law or the FCA Articles of Association, and (ii) FCA and its subsidiaries would not thereafter hold shares or hold a pledge over shares with an aggregate nominal value exceeding 50 percent of its issued share capital. Subject to certain exceptions under Dutch Law, FCA may only acquire its shares if its general meeting of shareholders has granted the FCA Board of Directors the authority to effect such acquisitions, such authority to be valid for a maximum period of eighteen (18) months.

No votes can be cast at a general meeting of shareholders on FCA shares held by FCA or its subsidiaries. Nonetheless, the holders of a right of usufruct or pledge in respect of shares held by FCA and its subsidiaries in its share capital are not excluded from the right to vote such shares, if the right of usufruct or pledge was granted prior to the time such shares were acquired by FCA or its subsidiaries. Neither FCA nor any of its subsidiaries may cast votes in respect of a share on which it or its subsidiaries holds a right of usufruct or pledge.

Directors and Management of FCA

Set forth below are the names, year of birth and position of each of the persons currently serving as directors of FCA. Unless otherwise indicated, the business address of each person listed below will be c/o FCA, Fiat House, 240 Bath Road, Slough SL1 4DX, United Kingdom.

 

Name		Year of Birth		Position with FCA		Citizenship
Sergio Marchionne		1952		Chairman		Dual Canadian and Italian citizen
Richard K. Palmer		1966		Director		British citizen
Derek Neilson		1970		Director		British citizen

Summary biographies for Mssrs. Marchionne, Palmer and Neilson are included below.

Sergio Marchionne—Mr. Marchionne is Chairman of FCA, and currently serves as Chief Executive Officer of Fiat and Chairman, Chief Executive Officer and Chief Operating Officer of Chrysler. Mr. Marchionne leads Fiat’s Group Executive Council, and has been Chief Operating Officer of its NAFTA region since September 2011. He also serves as Chairman of CNH Industrial. He was Chairman of Fiat Industrial and CNH until the integration of these companies into CNH Industrial.

Prior to joining Fiat, Mr. Marchionne served as Chief Executive Officer of SGS SA, Chief Executive Officer of the Lonza Group Ltd., and Chief Executive Officer of Alusuisse Lonza (Algroup). He also served as Vice President of Legal and Corporate Development and Chief Financial Officer of the Lawson Group after serving as Vice President of Finance and Chief Financial Officer of Acklands Ltd. and Executive Vice President of Glenex Industries. Mr. Marchionne holds a Bachelor of Laws from Osgoode Hall Law School at York University in Toronto, Canada and a Master of Business Administration from the University of Windsor, Canada. Mr. Marchionne also holds a Bachelor of Arts with a major in Philosophy and minor in Economics from the University of Toronto.

 

 

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Mr. Marchionne serves on the Board of Directors of Philip Morris International Inc. and as Chairman of SGS SA headquartered in Geneva. Additionally, Mr. Marchionne serves as Executive Chairman of CNH Industrial, and as a director of Exor, a shareholder of Fiat and CNH Industrial. Mr. Marchionne is on the Board of Directors of ACEA (European Automobile Manufacturers Association). He previously served as appointed non-executive Vice Chairman and Senior Independent Director of UBS AG as well as a director of Fiat Industrial.

Richard K. Palmer—Mr. Palmer is a director of FCA. Mr. Palmer is Chief Financial Officer of Chrysler and Chief Financial Officer of Fiat. He became Chief Financial Officer of Chrysler in 2009 and Chief Financial Officer of Fiat in 2011. Mr. Palmer was appointed to the Board of Directors of Chrysler Group LLC in June 2014. Prior to joining Chrysler, Mr. Palmer was Chief Financial Officer of Fiat Group Automobiles, where he held the position of Chief Financial Officer since December 2006. He joined the Fiat Group in 2003 as Chief Financial Officer of Comau, and later moved to Iveco in the same role. From 1997 until 2003, Mr. Palmer was Finance Manager for several business units at General Electric Oil and Gas. Mr. Palmer spent the first years of his career in Audit with UTC and Price Waterhouse. Mr. Palmer is a member of the Board of Directors of R.R. Donnelley & Sons Co. Mr. Palmer holds a Bachelor of Science degree in Microbiology and Microbial Technology from the University of Warwick (UK).

Derek Neilson—Mr. Neilson is a director of FCA. Mr. Neilson is Chief Manufacturing Officer of CNH Industrial. Mr. Neilson has more than 20 years of experience in production and manufacturing engineering. He first joined CNH in 1999 with responsibility for the Basildon (UK) Plant Engine Manufacturing Business Unit. He later advanced to take the lead of the Tractor Manufacturing Business Unit. In 2004, Mr. Neilson was appointed Plant Manager of CNH’s Basildon (UK) tractor facility. After several years in this role, he became Vice President of Agricultural Manufacturing, Europe, where he served until assuming global responsibilities as Senior Vice President of Agricultural Manufacturing for CNH in 2010. Mr. Neilson holds a BTEC HNC in Mechanical and Production Engineering.

FCA has not yet determined who will serve on the Board of Directors at the effective time of and following the Merger. Before completion of the Merger, FCA expects to designate the individuals who will serve on its Board of Directors from the completion of the Merger, including independent directors under applicable law, the regulations of the securities exchanges on which the FCA common shares will be listed and the Dutch Corporate Governance Code.

Upon completion of the Merger, FCA expects to form a managerial body led by FCA’s Chief Executive Officer or a Group Executive Council, which FCA expects will include persons who are currently members of the senior management of Fiat and its subsidiaries.

Summary biographies for the persons who are currently members of the Fiat Group Executive Council are included below.

Alfredo Altavilla—Mr. Altavilla has been Chief Operating Officer Europe, Africa and Middle East (EMEA) since November 2012. He has also been a member of the Fiat Group Executive Councel (GEC) and Head of Business Development since September 2011. He began his career as an assistant at Università Cattolica, Milan. In 1990, he joined Fiat Auto, where he initially focused on international ventures in the area of strategic planning and product development. In 1995, he was appointed head of Fiat Auto’s Beijing office and in 1999 head of Asian Operations. He has been involved in Business Development since 2001, becoming responsible for coordination of the alliance with General Motors in 2002 and, in 2004, being assigned responsibility for management of all alliances. In September 2004, Mr. Altavilla was appointed Chairman of FGP (Fiat/GM Powertrain JV) and Senior Vice President of Business Development of Fiat Auto. From July 2005 to November 2006, he was Chief Executive Officer of Türk Otomobil Fabrikasil A.S. (TOFAS)—a 50-50 joint venture between Fiat Auto and Koç Holding listed on the Istanbul stock exchange—while retaining his role as head of Business Development. From November 2006 to October 2009, he was Chief Executive Officer of FPT—Fiat Powertrain Technologies. From July 2009 to June 2013, he was a member of the Board of Directors of Chrysler Group LLC. From October 2009 to November 2012 he was Executive Vice President of Business

 

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Development for Fiat Group. From November 2010 to November 2012 he was President and Chief Executive Officer of Iveco. He was also a member of the Fiat Industrial Executive Council (FIEC) from January 2011 to November 2012. Mr. Altavilla holds a degree in Economics from Università Cattolica, Milan.

Cledorvino Belini—Mr. Belini has been Chief Operating Officer Latin America and a member of the Fiat GEC since September 2011. He was appointed President of FIASA in 2004, and, in 2005, he also became President of Fiat Group Latin America and President of Fiat Finance Brazil. He currently also serves as Chairman of the Board of Fidis Bank Brazil. Mr. Belini started his career in 1967 in the Human Resources department at I.R.F. Matarazzo in Brazil. In 1970, he assumed a new role in the Systems & Methods department which he held until 1972. He joined the Fiat Group at Fiat Allis Brazil (CNH Brazil) where, from 1973 to 1986, he made a significant contribution in various roles including: Production Planning Director, Purchasing Director, Fiat Allis Logistic Director, Tractor Sales General Manager, Spare Parts Manager and Systems & Methods. In 1987, he joined Fiat Automóveis (FIASA) as Purchasing Director and was appointed Commercial Director in 1994. In 1997, Mr. Belini was made President of Magneti Marelli Latin America, a role which he held until 2003. Mr. Belini is a graduate in Business Administration. He also holds a Masters in Finance and an advanced MBA from INSEAD/FDC (France).

Michael Manley—Mr. Manley has been President and Chief Executive Officer—Jeep^® Brand since June 2009. Mr. Manley was appointed to the Board of Directors of Chrysler Group LLC in June 2014. Mr. Manley was also the lead Chrysler Group executive for the international activities of Chrysler outside of NAFTA where he was responsible for implementing the co-operation agreements for distribution of Chrysler Group products through Fiat’s international distribution network. Previously, Mr. Manley was Executive Vice President—International Sales and Global Product Planning Operations at Chrysler from December 2008. In this position, he was responsible for product planning and all sales activities outside North America. Mr. Manley joined DaimlerChrysler in 2000 as Director of Network Development of DaimlerChrysler United Kingdom, Ltd., bringing with him extensive experience in the international automobile business at the distributor level. He holds a Master of Business Administration from Ashridge Management College.

Riccardo Tarantini—Mr. Tarantini has been Chief Operating Officer of Systems and Castings and a member of the Fiat GEC since September 2011. He was Managing Director and General Manager of Teksid from February 2003 to September 2011. From August 2006 to September 2011 he was also Chief Executive Officer of Comau. Mr. Tarantini joined 3M Italia in 1974, as a plant controller. The following year he moved to Delchi S.p.A. (Westinghouse Electric) in charge of Corporate Reporting, later becoming Head of Control and Finance. He joined Teksid in 1979 as Central Controller for the Diversified products grouping, later taking charge of Administration and Control, first of the Tube and Pipe division and then of the Aluminium Foundry division. He worked for Toro for two years (1985-1986) as head of the Management Control Project, and returned to Teksid in 1987 in other management positions. After four years of managerial experience in the U.S.A., he was appointed head of the Aluminium Foundries division and then Assistant General Manager of the Metallurgical Products Sector, responsible for New Initiatives and International Development. Mr. Tarantini has a degree in the Economics of Industrial Companies from the Bocconi University of Milan. He has also taken specialization courses in Milan and Fontainebleau.

Eugenio Razelli—Mr. Razelli has been Chief Operating Officer of Components and a member of the Fiat GEC since September 2011. He was appointed Chief Executive Officer of Magneti Marelli in April 2005. He began his career at Fiat Auto and Zanussi, going on to become Chief Executive Officer of Gilardini Industriale in 1983. Mr. Razelli subsequently held positions of growing responsibility at Comind (General Manager of Stars and Politecna) and Magneti Marelli. At the Components Sector of Fiat Group, in particular, he served as General Manager of the Electronic Components Division, Executive Vice President Manufacturing for the Electromechanical Components Group and, later on, General Manager of the same Group. In 1991, he was appointed President of Engine Control Systems. He moved to Pirelli Cavi in 1993 as Vice President Manufacturing, and was later appointed President and Chief Executive Officer of Pirelli Cable North America. Upon his return to Italy in 1997, Mr. Razelli continued to work at Pirelli Cavi, serving first as Senior Executive Vice President, Telecom Division and then as Senior Executive Vice President, Energy Division. From 2001 to

 

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2003, he was President and Chief Executive Officer of Fiamm. From May 2003 to March 2005, Mr. Razelli served as Senior Vice President of Business Development at Fiat. He holds a degree in Electrical Engineering.

Olivier François—Mr. François has been Head of Fiat brand, Chief Marketing Officer and a member of the Fiat Group Executive Council since September 2011. Previously, Mr. François was President and Chief Executive Officer for the Chrysler brand from October 2009 to September 2011. Prior to that, he was President and Chief Executive Officer for the Lancia brand. He was also the lead marketing executive at Chrysler Group with responsibility for marketing strategies, brand development and advertising for the Chrysler Group and Fiat Group Automobiles brands. He has been the lead executive for Fiat Group Automobiles’ Lancia brand since September 2005. To enhance the effectiveness of Fiat Group Automobiles and further strengthen synergies within the company, from January 2009 to March 2013 he was head of Brand Marketing Communication with responsibility for coordinating communication activities for all brands. Before joining Fiat in 2005, Mr. François worked in positions of increasing responsibility at Citroën. He holds a degree in economy, finance and marketing from Dauphine University and a diploma from the IEP (Institute des Sciences Politiques) in Paris.

Harald Wester—Mr. Wester has been Chief Technology Officer since September 2007. He has also been Head of Alfa Romeo and Maserati and a member of the Fiat GEC since September 2011. While holding his role as Chief Technology Officer, in August 2008 he was appointed Chief Executive Officer of Maserati and in January 2009 was appointed Chief Executive Officer of Abarth & C. S.p.A. From 2011 to 2013 he was Chief Executive Officer of Alfa Romeo Automobiles. Mr. Wester started his professional career at Volkswagen AG in Wolfsburg, where he was General Manager of the Vehicle Research & New Concepts department from 1991 to 1995. Later that year, he joined Audi AG in Ingolstadt where he became Program Manager for the A2 models & Special Vehicles, a position that he held until January 1999. Subsequently, he joined Ferrari S.p.A. at Maranello as Director of Product Development, where he remained until January 2002. Mr. Wester was then hired by Magna Steyr AG, Magna AG (Graz, Vienna) as Group President Engineering and Chief Technical Officer (Research, Development and Technologies). In 2004 he joined the Fiat Group where he took on the role of Chief Technical Officer of Fiat Group Automobiles. Mr. Wester holds a Masters in Mechanical Engineering from Braunschweig University.

Reid Bigland—Mr. Bigland has been Head of Ram Truck Brand since April 2013 and a member of the Fiat GEC since September 2011. Mr. Bigland was appointed to the Board of Directors of Chrysler Group LLC in June 2014. Bigland was appointed President and Chief Executive Officer of Ram Truck Brand in April 2013. He was named Head of U.S. sales in June 2011. In that capacity, he has full responsibility for the Ram Truck brand and is in charge of sales strategy, dealer relations and operations, order facilitation, incentives and field operations in the U.S. He remains President and Chief Executive Officer of Chrysler Canada, a position he was named to in July 2006. Mr. Bigland also serves as Chairman of Chrysler Canada. He was Head of Dodge Brand until April 2013. Previously, he was President of Freightliner Custom Chassis Corporation, a South Carolina-based company. During Mr. Bigland’s career he has had responsibility for all aspects of Management, including Human Resources, Sales and Marketing, Manufacturing, Engineering, Product Planning, Customer Service and Distribution in both Canada and the U.S. Mr. Bigland has served on the Board of Directors of the University of Windsor since 2006. He received a Bachelor of Arts from the University of British Columbia. Mr. Bigland holds both American and Canadian citizenship.

Pietro Gorlier—Mr. Gorlier has been Head of Parts & Service (MOPAR) and a member of the Fiat GEC since September 2011. Mr. Gorlier was appointed President and Chief Executive Officer of MOPAR Brand Service, Parts and Customer Care, Chrysler , in June 2009. He had shared accountability with the brands, and was responsible for parts and services growth and delivery and developing an integrated world class approach to customer support. He joined Chrysler from Fiat Group Automobiles and CNH , where he previously served as head of the Network and Owned Dealerships organization. Mr. Gorlier joined the Fiat Group in 1989 as a Market Analyst in Iveco and held various positions in Logistics, After Sales, and Customer Care before joining Fiat Group Automobiles in 2006 in Network Development. He holds a Master of Economics from the University of Turin.

 

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Lorenzo Ramaciotti—Mr. Ramaciotti has been Head of Design and a member of the Fiat GEC since September 2011. Mr. Ramaciotti was Head of Style for Fiat Group Automobiles from June 2007 to September 2011. He has a broad professional experience in automobile styling from his time at Pininfarina. He joined Pininfarina in 1973 and was soon responsible for producing models and prototypes. In 1982 he was appointed Deputy Manager of Pininfarina Studi e Ricerche at Cambiano. Six years later he became General Manager, and in 1994, he became a member of the Board of Directors. In 2002 he was appointed Chief Executive Officer of Pininfarina Ricerca e Sviluppo S.p.A. During the 17-year-period in which he headed the Pininfarina design, he developed approximately 20 concept cars, several of which were awarded at the international level, and directed successful automobile projects on behalf of several manufacturers. He developed the Maserati Quattroporte, as well as some of the most beautiful Ferrari models: the 550 Maranello, the 360 Modena, the Ferrari Enzo, and the current Ferrari F430 and 612 Scaglietti. Mr. Ramaciotti graduated in Mechanical Engineering at the Turin Polytechnic.

Stefan Ketter—Mr. Ketter has been Chief Manufacturing Officer and a member of the Fiat GEC since September 2011. He was appointed Chief Manufacturing Officer of the Fiat Group in January 2008. Mr. Ketter entered BMW Munich in 1986 as a trainee and held positions of growing responsibility in the technical area until 1996, when he was appointed Quality Manager. In 1996 Mr. Ketter joined AUDI and, in 1997, he became Quality Director of America Latina VW Group. In this framework, he was charged with the launch of a new plant in Brazil for export to the United States. From 2002 to 2004, he was responsible for Quality & Service of Volkswagen of America, where he integrated Group activities and regional operations. From 2004 to 2008 he was head of Quality at Fiat Group Automobiles, and from 2005 to 2008 was responsible for Manufacturing. From 2006 to 2008 he also took on responsibility for coordinating implementation of World Class Manufacturing for the Fiat Group. Mr. Ketter holds a degree in Mechanical Engineering at the Technical University of Munich and took Business Management courses at Insead in France.

Scott R. Garberding—Mr. Garberding has been Fiat Chrysler Head of Group Purchasing and a member of the Fiat GEC since September 2013. From 2009 to 2013 he was Senior Vice President of Manufacturing/World Class Manufacturing at Chrysler. In this position, he was responsible for all assembly, stamping, and powertrain manufacturing operations worldwide as well as implementation of the World Class Manufacturing system at all Chrysler manufacturing facilities. He was also Head of Manufacturing/World Class Manufacturing at Chrysler from 2009. Prior to that, he was Senior Vice President and Chief Procurement Officer of Chrysler from June 2009. He also held the position of Senior Vice President and Chief Procurement Officer at Chrysler from 2008, with responsibility for all global sourcing activities worldwide. He previously served as Vice President of Global Alliance Operations in 2008 and prior to that as Vice President of Supply and Supplier Quality of Chrysler beginning in 2007. Mr. Garberding joined Chrysler Corporation in 1993 in the Manufacturing organization. He holds a Bachelor of Science degree in Electrical Engineering from the University of Texas (1986) and a Master of Business Administration degree in Management from the Massachusetts Institute of Technology (MIT) (1993).

Doug Betts—Mr. Betts has been Head of Quality and a member of the Fiat GEC since September 2011. Mr. Betts was appointed Senior Vice President of Quality, Chrysler in June 2009, with responsibility for corporate quality. Previously, Mr. Betts was Vice President and Chief Customer Officer for Chrysler from November 2007 to June 2009, with responsibility for improving the company’s overall quality and customer satisfaction. He joined Chrysler in November 2007 with more than 21 years of quality assurance expertise gained in similar positions at Nissan and Toyota. Prior to joining Chrysler, he had worked at Nissan America as Senior Vice President of Total Customer Satisfaction from April 2006, where he was responsible for all business activities related to satisfying customers with product or service quality in North and South America. Mr. Betts holds a Bachelor of Science degree in mechanical engineering from Georgia Tech University in Atlanta.

Robert (Bob) Lee—Mr. Lee has been Head of Powertrain Coordination and a member of the Fiat GEC since September 2011. He was appointed Vice President and Head of Engine and Electrified Propulsion Engineering at Chrysler in July 2011, with responsibility for directing the design, development and release of all

 

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engines and electrified propulsion systems for Chrysler products. Mr. Lee joined the company in 1978 as an engineer-in-training in the Chrysler Institute of Engineering program and has since held a variety of positions in different areas of Powertrain. He has been an active member of the Society of Automotive Engineers (SAE) since 1978 and is a founding member of the SAE North American International Powertrain Conference Leadership Team where he served as the 2007 NAIPC Conference Chairman. Mr. Lee is known for leading many new engine programs including the rebirth of the HEMI^® V-8 engine in 2003 and the new Pentastar V-6 engine in 2010. Mr. Lee holds a Master of Business Administration degree from Michigan State University, a Master of Science degree in Mechanical Engineering from the University of Michigan and a Bachelor of Science degree in Mechanical Engineering from Ohio State University.

Mark Chernoby—Mr. Chernoby has been Head of Product Portfolio Management and a member of the Fiat GEC since September 2011. He was also appointed Senior Vice President of Engineering at Chrysler in April 2012. He also currently serves as Product Committee Coordinator for the NAFTA Region. Prior to his current role, Mr. Chernoby was Head of Vehicle Engineering. Since joining Chrysler Corporation in 1985 as a powertrain engineer, Mr. Chernoby has made use of his experience in focused component engineering, advanced vehicle programs and vehicle homologation for Chrysler, Jeep^® and Dodge products. In 2005, Mr. Chernoby was elected chair for the SAE Technical Standards Board, and in 2007, he served as a member of the Hydrogen Technology Advisory Committee reporting to the U.S. Secretary of Energy. He holds a master’s degree in business administration from the University of Michigan and a master’s degree in mechanical engineering from the University of Michigan. His studies began with a bachelor’s degree in mechanical engineering from Michigan State University.

Linda Knoll—Ms. Knoll has been Chief Human Resources Officer and a member of the Fiat GEC since September 2011. Concurrently, she has been Senior Vice President of Human Resources for CNH since September 2007 and Chief Human Resources Officer for Fiat Industrial since January 2011. She is also a member of the CNHI Group Executive Council. Ms. Knoll first joined CNH in 1994 from the Land Systems Division of General Dynamics Corporation. Since then, she has held numerous roles at CNH, which ultimately culminated in a variety of high-level leadership appointments. Her first position was with Case Corporation as Manager of Development for Production Programs in 1994. In 1995, she was appointed Director of Supply Chain Planning, and in 1996, Product Development Director for Advanced Farming Systems (AFS). With the formation of CNH in 1999, she became Vice President and General Manager of the Crop Production Global Product Line. From 2003-2005, she served as Vice President, North America Agricultural Industrial Operations. For the following two years, 2005-2007, she served as Executive Vice President for Worldwide Agricultural Manufacturing and then briefly as Executive Vice President, Agricultural Product Development. Ms. Knoll served as interim President of CNH Parts and Service from 2010-2011. She represented CNH on the National Association of Manufacturers (NAM)’s Board of Directors from 2007-2011. Ms. Knoll holds a Bachelor of Science degree in Business Administration from Central Michigan University.

Alessandro Baldi—Mr. Baldi has been Head of Audit & Compliance since February 2013. He also coordinates the Fiat Group’s sustainability initiative. He began his professional career in 1981 as an auditor at Ernst & Young in Zurich, and subsequently became Senior Manager. In 1989, he joined the Internal Audit department at Alusuisse Lonza in Zurich (Algroup), and later became head of the department. In 1994, he was appointed Group Controller at Algroup. In 1997, Mr. Baldi became Chief Financial Officer of Algroup’s Aluminum Sector and the following year resumed his previous role as Group Controller. In 1999, he was appointed Group Controller for Lonza Group, the company formed through the demerger of the chemical and energy businesses of Algroup. In 2002, he moved to Société Générale Services (SGS) in Geneva to serve as Group Controller. Mr. Baldi was Head of Fiat Group Control from August 2004 to August 2011 and Head of Fiat Services & Holdings from September 2011 to January 2013. He was also Group Executive Council Coordinator. Mr. Baldi is a Swiss Chartered Accountant.

Michael J. Keegan—Mr. Keegan has been Group Executive Counsel Coordinator and a member of the Fiat GEC since October 2013. He was also appointed Senior Vice President—Human Resources, Chrysler

 

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effective January 2014. Mr. Keegan was appointed to the Board of Directors of Chrysler Group LLC in June 2014. From 2009 to 2013 he covered the role of Senior Vice President Supply Chain Management in Chrysler. In this position he was responsible for critical volume planning and logistics functions in close coordination with the Brand Chief Executive Officers, establishing consistent and effective supply chain processes. Prior to his current role, Mr. Keegan was Volume Planning and Sales Operations Vice President. Mr. Keegan was also appointed Corporate Sustainability Officer for Chrysler Group in November 2012. In this role, Mr. Keegan leads Chrysler’s activities with respect to sustainable development, encompassing the areas of economic success, environmental stewardship, and social responsibility. Since joining Chrysler Corporation in 1990 as a Finance Controller, Mr. Keegan has held various roles in Finance, Sales & Marketing controlling, Strategic Planning and Post Demerger Integration. Mr. Keegan earned a Bachelor of Business Administration degree in Accounting from the University of Michigan (1988). He also earned a Master of Business Administration degree in Finance from Indiana University (1990).

Committees

Effective on or about the completion of the Merger, FCA expects that its Board of Directors will establish an Audit Committee, a Compensation Committee and a Governance and Sustainability Committee. The functions that these committees shall perform and their powers and responsibilities will be determined by the board of directors in light of the group size and structure and the provisions of the Dutch Corporate Governance Code.

Loyalty Voting Structure

For a description of the loyalty voting system of FCA please read “The FCA Shares, Articles of Association and Terms and Conditions of the Special Voting Shares—Loyalty Voting Structure.”

Voting—Shareholders Entitled to Vote

At general meetings, resolutions are adopted with the favorable vote of an absolute majority of votes validly cast at the meeting, unless otherwise provided for under the FCA Articles of Association or Dutch law.

In the event that a shareholder is unable to attend a general meeting, the shareholder may appoint another person to attend on his or her behalf by returning a completed and signed proxy form to FCA. Only persons in attendance at a general meeting who are either registered shareholders or holding proxies of registered shareholders as of the record date are entitled to vote at that general meeting. Persons with the right to vote or attend a general meeting shall be those persons who, as of the record date for attendance at that general meeting, are registered in FCA’s register of shareholders, if they are shareholders, and in the general meeting register, designated by the Board of Directors for such purpose, if they are not shareholders.

Record Date

The record date for a general meeting of FCA’s shareholders is 28 days prior to the date of that general meeting.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

The following tables set forth selected historical consolidated financial and other data of the Fiat Group and has been derived from:

 

Ÿ

the Interim Consolidated Financial Statements for the three months ended March 31, 2014 and 2013, included elsewhere in this prospectus;

 

Ÿ

the Annual Consolidated Financial Statements for the years ended December 31, 2013, 2012 and 2011, included elsewhere in this prospectus; and

 

Ÿ

the annual consolidated financial statements of the Fiat Group for the years ended December 31, 2010 and 2009, which are not included in this prospectus.

The accompanying Interim Consolidated Financial Statements have been prepared on the same basis as the Annual Consolidated Financial Statements and include all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Interim Consolidated Financial Statements. Interim results are not necessarily indicative of results that may be expected for a full year or any future interim period.

The following information should be read in conjunction with “Note on Presentation,” “Risk Factors,” “Unaudited Pro Forma Condensed Consolidated Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group,” the Interim Consolidated Financial Statements and the Annual Consolidated Financial Statements included elsewhere in this prospectus. Historical results for any period are not necessarily indicative of results to be expected for any future period.

Consolidated Income Statement Data

 

		For the three months ended March 31,
		2014				2013
		(€ million, except per share data)
Net revenues			22,125				19,707
EBIT			270				607
Profit/(loss) before taxes			(223)				164
Profit/(loss) from continuing operations			(173)				31
Net profit/(loss)			(173)				31
Attributable to:
Owners of the parent			(189)				(83)
Non-controlling interest			16				114
Basic and diluted loss from continuing operations per ordinary share (in Euro)			(0.155)				(0.068)
Basic and diluted loss per ordinary share (in Euro)			(0.155)				(0.068)
Dividends paid per ordinary share (in Euro)(1)			-				-
Other Statistical Information:
Shipments (in thousands of units)			1,113				1,020
Number of employees at period end			230,454				219,376

 

(1)	Dividends paid represent cash payments in the applicable year that generally relates to earnings of the previous year.

 

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Consolidated Statement of Financial Position Data

 

		At March 31, 2014				At December 31, 2013
		(€ million, except share data)
Cash and cash equivalents			17,500				19,455
Total assets			87,523				87,214
Debt			31,439				30,283
Total equity			9,713				12,584
Equity attributable to owners of the parent			9,386				8,326
Non-controlling interests			327				4,258
Share capital			4,478				4,477
Ordinary shares issued (in thousands of shares)(1):			1,250,803				1,250,688

 

(1)	Treasury shares at March 31, 2014 were 34,578 thousand. Book value per ordinary share (net of treasury shares) at March 31, 2014 amounted to €7.717.

Consolidated Income Statement Data

 

		For the years ended December 31,
		2013				2012				2011(1)				2010(2)				2009(2)
		(€ million, except per share data)
Net revenues			86,624				83,765				59,559				35,880				32,684
EBIT			3,002				3,434				3,291				1,106				455
Profit before taxes			1,015				1,524				1,932				706				103
Profit/(loss) from continuing operations			1,951				896				1,398				222				(345)
Profit/(loss) from discontinued operations			-				-				-				378				(503)
Net profit/(loss)			1,951				896				1,398				600				(848)
Attributable to:
Owners of the parent			904				44				1,199				520				(838)
Non-controlling interest			1,047				852				199				80				(10)
Earnings/(loss) from continuing operations (in Euro)
Basic per ordinary share			0.744				0.036				0.962				0.130				(0.302)
Diluted per ordinary share			0.736				0.036				0.955				0.130				(0.302)
Basic per preference share			-				-				0.962				0.217				(0.302)
Diluted per preference share			-				-				0.955				0.217				(0.302)
Basic per savings share			-				-				1.071				0.239				(0.302)
Diluted per savings share			-				-				1.063				0.238				(0.302)
Earnings/(loss) per share (in Euro)
Basic per ordinary share			0.744				0.036				0.962				0.410				(0.677)
Diluted per ordinary share			0.736				0.036				0.955				0.409				(0.677)
Basic per preference share			-				-				0.962				0.410				(0.677)
Diluted per preference share			-				-				0.955				0.409				(0.677)
Basic per savings share			-				-				1.071				0.565				(0.677)
Diluted per savings share			-				-				1.063				0.564				(0.677)
Dividends paid per share (in Euro)(3)
Ordinary share			-				-				0.090				0.170				-
Preference share(4)			-				0.217				0.310				0.310				-
Savings share(4)			-				0.217				0.310				0.325				0.310
Other Statistical Information (unaudited):
Shipments (in thousands of units)			4,352				4,223				3,175				2,094				2,161
Number of employees at period end			229,053				218,311				197,021				137,801				128,771

 

(1)	The amounts reported include seven months of operations for Chrysler.

(2)	CNH Industrial was reported as discontinued operations in 2010 and 2009 as a result of the Demerger. For additional information on the Demerger, see Note Changes in the Scope of Consolidation to the Annual Consolidated Financial Statements included elsewhere in this prospectus.

 

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(3)	Dividends paid represent cash payments in the applicable year that generally relates to earnings of the previous year.

(4)

In accordance with the resolution adopted by the shareholders’ meeting on April 4, 2012, Fiat’s preference and savings shares were mandatorily converted into ordinary shares. For additional information on the shareholders’ resolution on the mandatory conversion, see Notes 12 and 23 to the Annual Consolidated Financial Statements included elsewhere in this prospectus.

Consolidated Statement of Financial Position Data

 

		At December 31,
		2013				2012				2011(1)(2)				2010				2009(3)
		(€ million, except share data)
Cash and cash equivalents			19,455				17,666				17,526				11,967				12,226
Total assets			87,214				82,633				80,379				73,442(2)				67,235
Debt			30,283				28,303				27,093				20,804				28,527
Total equity			12,584				8,369				9,711				12,461(2)				11,115
Equity attributable to owners of the parent			8,326				6,187				7,358				11,544(2)				10,301
Non-controlling interests			4,258				2,182				2,353				917(2)				814
Share capital			4,477				4,476				4,466				6,377				6,377
Shares issued (in thousands of shares):
Ordinary(4)			1,250,688				1,250,403				1,092,681				1,092,247				1,092,247
Preference(5)			-				-				103,292				103,292				103,292
Savings(5)			-				-				79,913				79,913				79,913

 

(1)

The amounts at December 31, 2011 are equivalent to those at January 1, 2012 derived from the Annual Consolidated Financial Statements.

(2)

The amounts at December 31, 2011 include the consolidation of Chrysler.

(3)

Includes assets and liabilities of CNH Industrial which was demerged from the Group at January 1, 2011. For additional information on the Demerger, see Note “Changes in the Scope of Consolidation” to the Annual Consolidated Financial Statements included elsewhere in this prospectus.

(4)

Treasury shares at December 31, 2013 were 34,578 thousand. Book value per ordinary share (net of treasury shares) at December 31, 2013 amounted to €6.846.

(5)

In accordance with the resolution adopted by the shareholders’ meeting on April 4, 2012, Fiat’s preference and savings shares were mandatorily converted into ordinary shares. For additional information on the shareholders’ resolution on the mandatory conversion, see Notes 12 and 23 to the Annual Consolidated Financial Statements included elsewhere in this prospectus.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated financial information (the “Unaudited Pro Forma Condensed Consolidated Financial Information”) for the year ended December 31, 2013 and for the three months ended March 31, 2014 has been prepared by applying unaudited pro forma adjustments to the historical consolidated income statement for the year ended December 31, 2013 included in the Annual Consolidated Financial Statements and the historical interim consolidated income statement for the three months ended March 31, 2014, included in the Interim Consolidated Financial Statements, respectively appearing elsewhere in this prospectus.

The Unaudited Pro Forma Condensed Consolidated Financial Information for the year ended December 31, 2013 and the three months ended March 31, 2014 gives effect to the following transactions:

 

(i)

The agreement with the VEBA Trust pursuant to which Fiat North America LLC (“FNA”) acquired the remaining approximately 41.5 percent interest in Chrysler held by the VEBA Trust (the “VEBA Transaction”), inclusive of approximately 10 percent of previously exercised options, the interpretation of which was subject to ongoing litigation, which closed on January 21, 2014;

 

(ii)

concurrent with the closing of the VEBA Transaction, Chrysler and the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) entered into a contractually binding and legally enforceable Memorandum of Understanding (“MOU”) to supplement Chrysler’s existing collective bargaining agreement. Under the MOU, the UAW committed to (i) use its best efforts to cooperate in the continued roll-out of Chrysler’s World Class Manufacturing (“WCM”) programs, (ii) actively participate in benchmarking efforts associated with implementation of WCM programs across all Fiat-Chrysler manufacturing sites to ensure objective competitive assessments of operational performance and provide a framework for the proper application of WCM principles, and (iii) actively assist in the achievement of Chrysler’s long-term business plan. In exchange for these legally binding commitments, Chrysler agreed to make payments to a UAW-organized, independent VEBA Trust totaling U.S.$700 million (€518 million at the transaction date) to be paid in four equal annual installments. The first installment was paid on January 21, 2014 ; and

 

(iii)

the subsequent prepayment by Chrysler of amounts outstanding under the senior unsecured note issued June 10, 2009 to the VEBA Trust, with an original face amount of U.S.$4,587 million, or VEBA Trust Note, with proceeds from the issuance of new debt on February 7, 2014 (the “Chrysler Refinancing”).

As the VEBA Transaction and the MOU were executed contemporaneously among related parties, they are accounted for as a single commercial transaction with multiple elements.

The unaudited pro forma condensed consolidated income statements have been prepared assuming that the events set forth above had occurred on January 1, 2013. The Unaudited Pro Forma Condensed Consolidated Financial Information does not purport to represent what our actual results of operations would have been if the VEBA Transaction, the MOU, and the Chrysler Refinancing had actually occurred on the dates assumed, nor is it necessarily indicative of future consolidated results of operations or financial condition. The Unaudited Pro Forma Condensed Consolidated Financial Information is presented for informational purposes only. The historical consolidated income statement and interim consolidated income statement have been adjusted in the Unaudited Pro Forma Condensed Consolidated Financial Information to give effect to pro forma events that are (1) directly attributable to the VEBA Transaction, the MOU, and Chrysler Refinancing, (2) factually supportable, and (3) expected to have a continuing impact on the consolidated financial results. The Unaudited Pro Forma Condensed Consolidated Financial Information does not include a pro forma statement of financial position as the transactions referred to above have been fully reflected in the Group’s interim consolidated statement of financial position as of March 31, 2014, included in the Interim Consolidated Financial Statements included elsewhere in this prospectus.

 

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The Unaudited Pro Forma Condensed Consolidated Financial Information should be read in conjunction with the information contained in “Selected Historical Consolidated Financial and Other Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group,” the Annual Consolidated Financial Statements and the Interim Consolidated Financial Statements appearing elsewhere in this prospectus. All unaudited pro forma adjustments and their underlying assumptions are described more fully in the footnotes to our Unaudited Pro Forma Condensed Consolidated Financial Information.

Pro forma adjustments relating to the unaudited pro forma condensed consolidated income statements have been translated into Euro using the applicable average exchange rates of U.S.$1.328 per €1 for the year ended December 31, 2013, U.S.$1.370 per €1 for the three months ended March 31, 2014 and U.S.$1.379 per €1 at March 31, 2014 .

 

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Unaudited Pro Forma Condensed Consolidated Income Statement

for the year ended December 31, 2013

 

						Unaudited Pro forma adjustments
(€ million)		Fiat Group Historical						VEBA  Transaction								Chrysler Refinancing								Unaudited Pro forma year ended December 31, 2013
Net revenues			86,624						-								-								86,624
Cost of sales			74,326						-								-								74,326
Selling, general and administrative costs			6,702						-								-								6,702
Research and development costs			2,236						-								-								2,236
Other income/(expenses)			77						-								-								77
Result from investments			84						-								-								84
Gains on the disposal of investments			8						-								-								8
Restructuring costs			28						-								-								28
Other unusual income/(expenses)			(499)						56				(1)				-								(443)
EBIT			3,002						56								-								3,058
Net financial income/(expenses)			(1,987)						-								123				(3)				(1,864)
Profit before taxes			1,015						56								123								1,194
Tax (income)/expenses			(936)						17				(1)				45				(3)				(874)
Profit from continuing operations			1,951						39								78								2,068
Net profit			1,951						39								78								2,068
Net profit attributable to:
Owners of the parent			904						1,031				(2)				78								2,013
Non-controlling interests			1,047						(992)				(2)				-								55
Earnings per ordinary share (in €)
Basic			0.744																						1.656
Diluted			0.736																						1.638
Weighted average ordinary shares outstanding (in thousands)
Basic			1,215,921																						1,215,921
Diluted			1,228,926																						1,228,926

 

(1)

This adjustment reflects the elimination of the write-off related to the equity recapture agreement right recorded within other unusual expenses in the year ended December 31, 2013 that would not have been recognized if the VEBA Transaction had occurred on January 1, 2013 (see Note 8 to the Annual Consolidated Financial Statements included elsewhere in this prospectus), as the write-off was directly attributable to the VEBA Transaction and was non-recurring in nature. The tax effect on such adjustment amounted to €17 million calculated using the effective tax rate applicable to FNA (to which the pro forma adjustments relate) of 36.98 percent, comprising U.S. federal income tax rate of 35.00 percent and state income tax rate of 1.98 percent.

(2)	This adjustment reflects the following eliminations:

Ÿ

The elimination reflects the amount attributable to the non-controlling interests related to Chrysler of €992 million (which is calculated as approximately 41.5 percent of Chrysler’s net profit of €2,392 million) that had been recorded in the historical consolidated income statement for the year ended December 31, 2013 (see Note “Scope of Consolidation—Non-controlling interests” to the Annual Consolidated Financial Statements included elsewhere in this prospectus); and

Ÿ

expenses related to the Equity Recapture Agreement net of tax effect as described in footnote (1) above.

 

(3)	This adjustment includes the following:

 

Ÿ

a net reduction of €123 million of interest expense due to the Chrysler Refinancing that was completed on February 7, 2014. In particular:

€326 million relates to the elimination of interest expense recognized by the Group in the consolidated income statement for the year ended December 31, 2013 on the VEBA Trust Note which was calculated using the weighted average principal amount outstanding throughout the year amounting to approximately U.S.$4.8 billion, the effective interest rate of 9.0 percent, translated into Euro using the average exchange rate of U.S.$1.328; and

€206 million relates to the interest expense on the new financing transactions calculated as follows:

 

Ÿ

New Senior Credit Facilities—U.S.$250 million (€181 million) incremental term loan under Chrysler’s existing tranche B term loan facility that matures on May 24, 2017 using an assumed interest rate of 3.50 percent and a new U.S.$1.75 billion (€1.3 billion) term loan credit facility that matures on December 31, 2018 using an assumed interest rate of 3.25 percent;

 

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Ÿ

Secured Senior Notes due 2019—issuance of an additional U.S.$1.375 billion (€1.0 billion) aggregate principal amount of 8.0 percent secured senior notes due June 15, 2019, at an issue price of 108.25 percent of the aggregate principal amount; and

 

Ÿ

Secured Senior Notes due 2021—issuance of an additional U.S.$1.380 billion (€1.0 billion) aggregate principal amount of 8.25 percent secured senior notes due June 15, 2021 at an issue price of 110.50 percent of the aggregate principal amount, which along with the Secured Senior Notes due 2019, we refer to as the Secured Senior Notes.

The principal amounts set forth above have been translated into Euro using the applicable exchange rate at December 31, 2013 for illustrative purposes only.

 

Ÿ

The tax effect on such adjustment which has been calculated using the effective tax rate applicable to FNA (to which the pro forma adjustments relate) of 36.98 percent, comprising U.S. federal income tax rate of 35.00 percent and state income tax rate of 1.98 percent.

If the VEBA Transaction and the MOU which are accounted for as a single commercial transaction had occurred on January 1, 2013 the Group would have recorded a non-recurring expense of €495 million in connection with the execution of the MOU and a non-recurring, non-taxable gain of €223 million in connection with the remeasurement to fair value of the previously exercised options on approximately 10 percent of Chrysler’s membership interests in connection with the equity purchase agreement. These items have not been adjusted in the unaudited pro forma consolidated income statement for the year ended December 31, 2013 as they are non-recurring items which are directly attributable to the transactions referred to above and will not have a continuing impact on the consolidated financial results of the Group. See Note 7 to the Interim Consolidated Financial Statements and Notes 1 and 2 to the Unaudited Pro Forma Condensed Consolidated Income Statement for the three months ended March 31, 2014 for further details of these items.

 

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Unaudited Pro Forma Condensed Consolidated Income Statement

for the three months ended March 31, 2014

 

								Unaudited Pro forma adjustments
(€ million)		Fiat Group Historical						VEBA Transaction								MOU								Chrysler Refinancing								Unaudited Pro forma for the three months ended March 31, 2014
Net revenues			22,125						-								-								-								22,125
Cost of sales			19,237						-								-								-								19,237
Selling, general and administrative costs			1,662						-								-								-								1,662
Research and development costs			626						-								-								-								626
Other income/(expenses)			22						-								-								-								22
Result from investments:			33						-								-								-								33
Gains on the disposal of investments			8						-								-								-								8
Restructuring costs			10						-								-								-								10
Other unusual income/(expenses)			(383)						(223)				(1)				495				(2)				-								(111)
EBIT			270						(223)								495								-								542
Net financial expenses			(493)						-								-								12				(3)				(481)
Profit/(loss) before taxes			(223)						(223)								495								12								61
Tax (income)/expenses			(50)						-								183				(2)				4				(3)				137
Profit/(loss) from continuing operations			(173)						(223)								312								8								(76)
Net profit/(loss)			(173)						(223)								312								8								(76)
Attributable to owners of the Parent			(189)						(223)								312								8								(92)
Attributable to non-controlling interests			16						-								-								-								16
Basic and diluted loss per ordinary share (in €)			(0.155)																														(0.076)
Weighted average ordinary shares outstanding (thousands)
Basic and diluted			1,216,148																														1,216,148

 

(1)

This adjustment reflects the elimination of the non-taxable €223 million gain recorded in the interim consolidated income statement for the three months ended March 31, 2014, which we recognized in connection with the remeasurement to fair value of the previously exercised options on approximately 10 percent of Chrysler’s membership interests in connection with the equity purchase agreement (See Note 7 to the Interim Consolidated Financial Statements included elsewhere in this prospectus). The gain from the fair value remeasurement has been eliminated as it is a non-recurring item which is directly attributable to the VEBA Transaction and therefore will not have a continuing impact on the consolidated financial results of the Group.

(2)

This adjustment reflects the elimination of the €495 million expense recorded in the interim consolidated income statement for the three months ended March 31, 2014 which were recognized in connection with the execution of the MOU and recorded within other unusual expense (see Note 7 to the Interim Consolidated Financial Statements included elsewhere in this prospectus). The expenses under the MOU were fully recorded in the interim consolidated income statement for the three months ended March 31, 2014 and have been eliminated as they represent material non-recurring charges which are directly attributable to the VEBA Transaction as the equity purchase agreement and the MOU are accounted for as a single commercial transaction with multiple elements and as execution of the MOU was a condition precedent to the consummation of the VEBA Transaction. The interest to be accreted over the payment period is considered to be immaterial. The tax effect on such adjustment amounted to €183 million calculated using the effective tax rate applicable to FNA (to which the pro forma adjustments relate) of 36.98 percent, comprising U.S. federal income tax rate of 35.00 percent and state income tax rate of 1.98 percent.

(3)	This adjustment includes the following:

 

Ÿ

a net reduction of €12 million of interest expense due to the Chrysler Refinancing that was completed on February 7, 2014. In particular:

€32 million relates to the elimination of interest expense recognized by the Group in the consolidated income statement for the three months ended March 31, 2014 on the VEBA Trust Note which was calculated using the weighted average principal amount outstanding during the period of 37 days (from January 1, 2014 to February 7, 2014) amounting to approximately U.S.$4.7 billion, the effective interest rate of 9.0 percent, translated into Euro using the average exchange rate of U.S.$1.370; and

€20 million relates to the interest expense for the period of 37 days on the new financing transactions calculated as follows:

 

Ÿ

New Senior Credit Facilities—U.S.$250 million (€181 million) incremental term loan under Chrysler’s existing tranche B term loan facility that matures on May 24, 2017 using an assumed interest rate of 3.50 percent and a new U.S.$1.75 billion (€1.3 billion) term loan credit facility that matures on December 31, 2018 using an assumed interest rate of 3.25 percent;

 

Ÿ

Secured Senior Notes due 2019—issuance of an additional U.S.$1.375 billion (€1.0 billion) aggregate principal amount of 8.0 percent secured senior notes due June 15, 2019, at an issue price of 108.25 percent of the aggregate principal amount; and

 

Ÿ

Secured Senior Notes due 2021—issuance of an additional U.S.$1.38 billion (€1.0 billion) aggregate principal amount of 8.25 percent secured senior notes due June 15, 2021 at an issue price of 110.50 percent of the aggregate principal amount, which along with the Secured Senior Notes due 2019, we refer to as the Secured Senior Notes.

The principal amounts set forth above have been translated into Euro using the applicable exchange rate at March 31, 2014 for illustrative purposes only.

 

Ÿ

The tax effect on such adjustment which has been calculated using the effective tax rate applicable to FNA (to which the pro forma adjustments relate) of 36.98 percent, comprising U.S. federal income tax rate of 35.00 percent and state income tax rate of 1.98 percent.

 

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MARKET PRICES

Fiat ordinary shares are listed and traded on the MTA under the symbol “Fiat.”

On January 28, 2014 (the last full trading day prior to the first public announcement of the proposed transaction on January 29, 2014), the closing sale price of Fiat ordinary shares (as reported by MTA) was €7.55.

The following table presents for the periods indicated the closing market prices per share as reported on the MTA for Fiat ordinary shares:

 

		Price per Fiat ordinary share on the MTA
		High				Low
		(in €)
Year ended December 31, 2009			4.739				3.178
Year ended December 31, 2010			6.641				3.251
Year ended December 31, 2011			7.937				3.312
Year ended December 31, 2012			4.842				3.314
First Quarter 2012			4.482				3.730
Second Quarter 2012			4.354				3.326
Third Quarter 2012			4.836				3.704
Fourth Quarter 2012			4.476				3.314
Year ended December 31, 2013			6.450				3.890
First Quarter 2013			4.724				3.890
Second Quarter 2013			6.325				3.974
Third Quarter 2013			6.450				5.285
Fourth Quarter 2013			6.405				5.245
Month ended
January 2014			7.620				6.580
February 2014			7.740				7.135
March 2014			8.450				7.410
April 2014			9.070				8.310
May 2014			8.710				7.130
June 2014			7.965				7.210
July 2014 (through July 2, 2014)			7.485				7.450

On July 2, 2014, the closing market price per share as reported on the MTA for Fiat Ordinary Shares was €7.485.

 

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EXCHANGE RATES

The table below shows the high, low, average and period end noon buying rates in The City of New York for cable transfers in foreign currencies as certified for customs purposes by the Federal Reserve Bank of New York for U.S.$ per €1.00. The average is computed using the noon buying rate on the last business day of each month during the period indicated.

 

Period		Low		High		Average		Period End
Year ended December 31, 2009		1.2547		1.5100		1.3936		1.4332
Year ended December 31, 2010		1.1959		1.4536		1.3262		1.3269
Year ended December 31, 2011		1.2926		1.4875		1.3931		1.2973
Year ended December 31, 2012		1.2062		1.3463		1.2859		1.3186
Year ended December 31, 2013		1.2774		1.3816		1.3281		1.3779

The table below shows the high and low noon buying rates for Euro for each month during the six months prior to the date of this prospectus.

 

Period		Low		High
December 2013		1.3552		1.3816
January 2014		1.3500		1.3779
February 2014		1.3500		1.3806
March 2014		1.3731		1.3927
April 2014		1.3740		1.3898
May 2014		1.3596		1.3924
June 2014 (through June 27, 2014)		1.3522		1.3639

On June 27, 2014, the noon buying rate for U.S. dollars was €1.00 = U.S.$1.3631.

 

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THE FIAT GROUP

We are an international automotive group engaged in designing, engineering, manufacturing, distributing and selling vehicles, components and production systems. We are the seventh largest automaker in the world based on total vehicle sales in 2013. We have operations in approximately 40 countries and our products are sold directly or through distributors and dealers in more than 150 countries. We design, engineer, manufacture, distribute and sell vehicles for the mass market under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat, Fiat Professional, Jeep, Lancia and Ram brands and the SRT performance vehicle designation. We support our vehicle sales by after-sales services and products worldwide under the Mopar brand and, in certain markets, by retail and dealer financing, leasing and rental services, which we make available through our subsidiaries, joint ventures and commercial arrangements. We also design, engineer, manufacture, distribute and sell luxury vehicles under the Ferrari and Maserati brands, which we support with financial services provided to our dealers and retail customers. We operate in the components and production systems sectors under the Magneti Marelli, Teksid and Comau brands.

Our activities are carried out through six reportable segments: four regional mass-market vehicle segments (NAFTA, LATAM, APAC and EMEA), a global Luxury Brands segment and a global Components segment (see “—Overview of Our Business” for a description of these reportable segments).

In 2013, we shipped 4.4 million vehicles. For the year ended December 31, 2013, we reported net revenues of €86.6 billion, EBIT of €3.0 billion and net profit of €2.0 billion. At March 31, 2014 we had available liquidity of €20.8 billion (including €3.0 billion available under undrawn committed credit lines) and had 230,454 employees. At March 31, 2014 we had net industrial debt of €10.0 billion. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—Non-GAAP Financial Measures—Net Industrial Debt”.

History of the Fiat Group and the Fiat-Chrysler Alliance

We were founded as Fabbrica Italiana Automobili Torino, or FIAT, on July 11, 1899 in Turin, Italy as an automobile manufacturer. We opened our first factory in 1900 in Corso Dante in Turin with 150 workers producing 24 cars. In 1902 Giovanni Agnelli, our founder, became the Managing Director of the company.

From the beginning of the twentieth century and up to the post-World War II period, we grew to become a conglomerate that, in addition to automobiles, also manufactured agricultural and construction equipment, trains, trucks, ships, airplanes and other products. Over time, we streamlined our businesses, and by 2008 we were focused on automobiles and our industrial business of trucks and agricultural and construction equipment.

Since 2008, we have pursued a process of transformation in order to meet the challenges of a changing marketplace characterized by global overcapacity in automobile production and the consequences of economic recession that has persisted particularly in the European markets on which we had historically depended. As part of our efforts to restructure our operations, we have worked to expand the scope of our automotive operations, having concluded that significantly greater scale was necessary to enable us to be a competitive force in the increasingly global automotive markets.

Towards that end, we began exploring an alliance with Chrysler in 2008. In the second half of 2008, the North American automotive industry experienced a dramatic decline in vehicle sales in conjunction with the global credit crisis and a deep recession in the U.S., which heavily impacted Old Carco LLC (formerly Chrysler LLC), or Old Carco. Old Carco traced its roots to the company originally founded by Walter P. Chrysler in 1925 that, since that time, expanded through the acquisition of the Dodge and Jeep brands. Following Daimler AG’s sale of a majority interest of Old Carco in 2007, Old Carco was particularly vulnerable to the recession, the restricted availability of credit and changes in consumer preferences due to its dependence on larger, less fuel-efficient vehicles and its focus primarily on the North American market. Old Carco was less able to take advantage of developing markets and its smaller scale affected its ability to dedicate sufficient resources to

 

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research and development to maintain competitiveness and to invest in common architectures and more flexible manufacturing plants. An alliance with Chrysler presented significant opportunities, as the two companies each had a product and technology portfolio and geographic scope that were highly complementary with one another, with the Fiat Group having a leading position in small vehicle platforms and fuel-efficient powertrains and a substantial presence in Europe and Latin America, with minimal presence in North America, while Chrysler had focused on larger vehicles, including sport utility vehicles, light trucks and minivans in the North American markets.

In April 2009, we and Old Carco entered into a master transaction agreement, pursuant to which an entity we formed, now known as Chrysler Group LLC, agreed to purchase the principal operating assets of Old Carco and to assume certain of Old Carco’s liabilities in a transaction contemplated by the Master Transaction Agreement pursuant to Section 363 of the U.S. Bankruptcy Code, which we refer to as the 363 Transaction.

Following the closing of the transaction on June 10, 2009, we held an initial 20 percent ownership interest in Chrysler, with the VEBA Trust, the U.S. Treasury and the Canadian governments holding the remaining interests. Chrysler’s operations were funded with financing from the U.S. Treasury and Canadian government. In addition, we held several options to acquire additional ownership interests in Chrysler. We also entered into a master industrial agreement and certain related ancillary agreements, or the Master Industrial Agreement, pursuant to which an alliance, which we refer to as the Fiat-Chrysler Alliance, was formed.

With the Fiat-Chrysler Alliance providing enhanced operating scale in the automotive sector, in 2010 we demerged our capital goods businesses, including the agricultural and construction equipment and commercial vehicles businesses previously integrated within the Group, into a separate publicly traded entity, now known as CNH Industrial N.V., or the CNHI Group, so that the different investment cycles, financing needs and investment profiles of those businesses and our remaining automotive and related component and production systems businesses, respectively, could be addressed more effectively and with greater strategic flexibility. The Demerger was completed on January 1, 2011.

Under the Master Industrial Agreement between the Fiat Group and Chrysler, the companies have been collaborating on a number of fronts, including product and platform sharing and development, global distribution, procurement, information technology infrastructure, management services and process improvement. Our main objectives in establishing the Fiat-Chrysler Alliance were:

 

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Product and Platform Sharing — including co-developing and sharing platforms to save on the cost of development and parts, to improve quality and time-to-market and to simplify manufacturing processes.

 

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Shared Technology — extending a number of key automotive technologies into each others’ vehicles to improve competitiveness and lower the effective costs of new technologies through joint development and application across higher volume platforms.

 

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Global Distribution — leveraging each other’s historical capabilities to extend our respective products into markets in which we did not have a significant presence, including jointly undertaking efforts to develop our presence in Asia under a common distribution strategy.

 

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Procurement — pursuing joint purchasing programs designed to yield short- and long-term savings and efficiencies through negotiations with common suppliers, as well as expanding the use of shared parts and components and leveraging volume bundling opportunities.

 

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World Class Manufacturing — extending our World Class Manufacturing, or WCM, principles into all of our assembly, powertrain and stamping facilities to eliminate waste of all types, which ultimately enhances worker efficiency, productivity, safety and vehicle quality, and subsequent extension of WCM principles to certain of our suppliers.

 

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Information and Communication Technology — aligning our information and communication technology systems and related business processes across our extended industrial, commercial and corporate administrative functions in order to facilitate intragroup collaboration, and to support our drive toward common global systems.

The Fiat-Chrysler Alliance grew in strength and scope over the following years and we acquired additional ownership interests in Chrysler, leading to majority ownership and full consolidation of Chrysler’s results into our financial statements from June 1, 2011. On May 24, 2011, Chrysler refinanced the U.S. and Canadian government loans, and, in July 2011, we acquired the ownership interests in Chrysler held by the U.S. Treasury and Canadian government.

In January 2014, we agreed to purchase all of the VEBA Trust’s equity interests in Chrysler, which represented the approximately 41.5 percent of Chrysler interest not then held by us. The transaction was completed on January 21, 2014, resulting in Chrysler becoming an indirect 100 percent owned subsidiary of Fiat.

Following our acquisition of the remaining equity interests in Chrysler in January 2014, we expect to be able to capitalize on our position as a single integrated automaker to become a leading global automaker.

Industry Overview

Vehicle Segments and Descriptions

We manufacture and sell passenger cars, light trucks and light commercial vehicles covering all market segments.

Passenger cars can be divided among seven main groups, whose definition could slightly vary by region. Mini cars, known as “A segment” vehicles in Europe and often referred to as “city cars,” are between 2.7 and 3.7 meters in length and include three- and five-door hatchbacks. Small cars, known as “B segment” vehicles in Europe and “sub-compacts” in the U.S., range in length from 3.7 meters to 4.4 meters and include three- and five-door hatchbacks and sedans. Compact cars, known as “C segment” vehicles in Europe, range in length from 4.3 meters to 4.7 meters, typically have a sedan body and mostly include three- and five-door hatchback cars. Mid-size cars, known as “D segment” vehicles in Europe, range between 4.7 meters to 4.9 meters, typically have a sedan body or are station wagons. Full-size cars range in length from 4.9 meters to 5.1 meters and are typically sedan cars or, in Europe, station wagons. Minivans, also known as multi-purpose vehicles, or MPVs, typically have seating for up to eight passengers. Utility vehicles include sport utility vehicles, or SUVs, which are four-wheel drive with true off-road capabilities, and cross utility vehicles, or CUVs, which are not designed for heavy off-road use, but offer better on-road ride comfort and handling compared to SUVs.

Light trucks may be divided between vans (also known as light commercial vehicles), which typically are used for the transportation of goods or groups of people and have a payload capability up to 4.2 tons, and pick-up trucks, which are light motor vehicles with an open-top rear cargo area and which range in length from 4.8 meters to 5.2 meters (in North America, the length of pick-up trucks typically ranges from 5.5 meters to 6 meters). In North America, minivans and utility vehicles are categorized within trucks. In Europe, vans and pick-up trucks are categorized as light commercial vehicles.

We characterize a vehicle as “new” if its vehicle platform is significantly different from the platform used in the prior model year and/or has had a full exterior renewal. We characterize a vehicle as “significantly refreshed” if it continues its previous vehicle platform but has extensive changes or upgrades from the prior model.

Our Industry

Designing, engineering, manufacturing, distributing and selling vehicles require significant investments in product design, engineering, research and development, technology, tooling, machinery and equipment, facilities and marketing in order to meet both consumer preferences and regulatory requirements. Automotive

 

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original equipment manufacturers, or OEMs, are able to benefit from economies of scale by leveraging their investments and activities on a global basis across brands and models. The automotive industry has also historically been highly cyclical, and to a greater extent than many industries, is impacted by changes in the general economic environment. In addition to having lower leverage and greater access to capital, larger OEMs that have a more diversified revenue base across regions and products tend to be better positioned to withstand industry downturns and to benefit from industry growth.

Most automotive OEMs produce vehicles for the mass market and some of them also produce vehicles for the luxury market. Vehicles in the mass market are typically intended to appeal to the largest number of consumers possible. Intense competition among manufacturers of mass market vehicles, particularly for non-premium brands, tends to compress margins, requiring significant volumes to be profitable. As a result, success is measured in part by vehicle unit sales relative to other automotive OEMs. Luxury vehicles on the other hand are designed to appeal to consumers with higher levels of disposable income, and can therefore more easily achieve much higher margins. This allows luxury vehicle OEMs to produce lower volumes, enhancing brand appeal and exclusivity, while maintaining profitability.

In 2013, 81.3 million automobiles were sold around the world. Although China has become the largest single automotive sales market, with approximately 17 million passenger cars sold, the majority of automobile sales are still in the developed markets, including North America, Western Europe and Japan. Growth in other emerging markets, particularly India and Brazil, has also played an increasingly important part in global automotive demand in the recent years.

The automotive industry is highly competitive, especially in our key markets, such as the U.S., Brazil and Europe. Vehicle manufacturers must continuously improve vehicle design, performance and content to meet consumer demands for quality, reliability, safety, fuel efficiency, comfort, driving experience and style. Historically, manufacturers relied heavily upon dealer, retail and fleet incentives, including cash rebates, option package discounts, guaranteed depreciation programs, and subsidized or subvented financing or leasing programs to compete for vehicle sales. Since 2009, manufacturers generally have worked to reduce reliance on pricing-related incentives as competitive tools in the North American market, while pricing pressure, under different forms, is still affecting sales in the European market since the inception of the financial crisis. However, an OEM’s ability to increase or maintain vehicle prices and reduce reliance on incentives is limited by the competitive pressures resulting from the variety of available competitive vehicles in each segment of the new car market as well as continued global manufacturing overcapacity in the automotive industry. At the same time, OEMs generally cannot effectively lower prices as a means to increase vehicle sales without adversely affecting profitability, since the ability to reduce costs is limited by commodity market prices, contract terms with suppliers, evolving regulatory requirements and collective bargaining agreements and other factors that limit the ability to reduce labor expenses.

OEMs generally sell vehicles to dealers and distributors, which then resell vehicles to retail and fleet customers. Retail customers purchase vehicles directly from dealers, while fleet customers purchase vehicles from dealers or directly from OEMs. Fleet sales comprise three primary channels: (i) daily rental, (ii) commercial and (iii) government. Vehicle sales in the daily rental and government channels are extremely competitive and often require significant discounts. Fleet sales are an important source of revenue and can also be an effective means for marketing vehicles. Fleet orders can also help normalize plant production as they typically involve the delivery of a large, pre-determined quantity of vehicles over several months. Fleet sales are also a source of aftermarket service parts revenue for OEMs and service revenue for dealers.

Financial and Customer Services

Because dealers and retail customers finance the purchase of a significant percentage of the vehicles sold worldwide, the availability and cost of financing is one of the most significant factors affecting vehicle sales volumes. Most dealers use wholesale or inventory financing arrangements to purchase vehicles from OEMs in order to maintain necessary vehicle inventory levels. Financial services companies may also provide working

 

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capital and real estate loans to facilitate investment in expansion or rationalization of the dealers’ premises. Financing may take various forms, based on the nature of creditor protection provided under local law, but financial institutions tend to focus on maximizing credit protection on any financing originated in conjunction with a vehicle sale. Financing to retail customers takes a number of forms, including simple installment loans and finance leases. These financial products are usually distributed directly by the dealer and have a typical duration of three to five years. OEMs often use retail financing as a promotional tool, including through campaigns offering below market rate financing, known as subvention programs. In such situations, an OEM typically compensates the financial services company up front for the difference between the financial return expected under standard market terms and the terms offered to the customer within the promotional campaign.

Most automakers rely on wholly-owned or controlled finance companies to provide this financing. In other situations, OEMs have relied on joint ventures or commercial relationships with banks and other financial institutions in order to provide access to financing for dealers and retail customers. The model adopted by any particular OEM in a particular market depends upon, among other factors, its sales volumes and the availability of stable and cost-effective funding sources in that market, as well as regulatory requirements.

Financial services companies controlled by OEMs typically receive funding from the OEM’s central treasury or from industrial and commercial operations of the OEM that have excess liquidity. However, they also access other forms of funding available from the banking system in each market, including sales or securitization of receivables either in negotiated sales or through securitization programs. Financial services companies controlled by OEMs compete primarily with banks, independent financial services companies and other financial institutions that offer financing to dealers and retail customers. The long-term profitability of finance companies also depends on the cyclical nature of the industry, interest rate volatility and the ability to access funding on competitive terms.

In addition to providing access to financial services for their dealers and retail customers, OEMs also support their vehicle sales through the sale of related service parts and accessories, as well as pre-paid service contracts.

Overview of Our Business

We design, engineer, develop and manufacture vehicles, components and production systems worldwide through 159 manufacturing facilities around the world and 78 research and development centers.

Our activities are carried out through six reportable segments: four regional mass-market vehicle segments, a global Luxury Brands segment and a global Components segment as discussed below.

Our four regional mass-market vehicle reportable segments deal with the design, engineering, development, manufacturing, distribution and sale of passenger cars, light commercial vehicles and related parts and services in specific geographic areas: NAFTA (U.S., Canada and Mexico), LATAM (South and Central America, excluding Mexico), APAC (Asia and Pacific countries) and EMEA (Europe, Middle East and Africa). We also operate on a global basis in the luxury vehicle and components sectors. In the luxury vehicle sector, we have the operating segments Ferrari and Maserati, while in the components sector we have the operating segments Magneti Marelli, Teksid and Comau. These operating segments did not meet the quantitative thresholds required in IFRS 8 – Operating segments for separate disclosure. Therefore, based on their characteristics and similarities, they are presented as the following reportable segments: “Luxury Brands” and “Components”. We support our mass-market vehicle sales with the sale of related service parts and accessories, as well as service contracts under the Mopar brand name. In support of our vehicle sales efforts, we make available dealer and retail customer financing either through subsidiaries or joint ventures and strategic commercial arrangements with third party financial institutions.

For our mass-market brands, we have centralized design, engineering, development and manufacturing operations, which allow us to efficiently operate on a global scale.

 

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The following list sets forth our reportable segments:

 

(i)

NAFTA: our operations to support distribution and sales of mass-market vehicles in the United States, Canada and Mexico, the segment that we refer to as NAFTA, primarily through the Chrysler, Dodge, Fiat, Jeep and Ram brands.

 

(ii)

LATAM: our operations to support the distribution and sale of mass-market vehicles in South and Central America (excluding Mexico), the segment that we refer to as LATAM, primarily under the Chrysler, Dodge, Fiat, Jeep and Ram brands, with the largest focus of our business in the LATAM segment in Brazil and Argentina.

 

(iii)

APAC: our operations to support the distribution and sale of mass-market vehicles in the Asia Pacific region (mostly in China, Japan, Australia, South Korea and India), the segment we refer to as APAC, carried out in the region through both subsidiaries and joint ventures, primarily under the Abarth, Alfa Romeo, Chrysler, Dodge, Fiat and Jeep brands.

 

(iv)

EMEA: our operations to support the distribution and sale of mass-market vehicles in Europe (which includes the 28 members, 27 prior to December 31, 2013, of the European Union and the members of the European Free Trade Association), the Middle East and Africa, the segment we refer to as EMEA, primarily under the Abarth, Alfa Romeo, Chrysler, Fiat, Fiat Professional, Jeep and Lancia brand names.

 

(v)

Luxury Brands: design, engineering, development, manufacturing, worldwide distribution and sale of luxury vehicles under the Ferrari and Maserati brands, management of the Ferrari racing team and supply of financial services offered in conjunction with the sale of Ferrari-branded vehicles.

 

(vi)

Components: production and sale of lighting components, engine control units, suspensions, shock absorbers, electronic systems, and exhaust systems and activities in powertrain (engine and transmissions) components, engine control units, plastic molding components and in the after-market carried out under the Magneti Marelli brand name; cast iron components for engines, gearboxes, transmissions and suspension systems, and aluminum cylinder heads under the Teksid brand name; and design and production of industrial automation systems and related products for the automotive industry under the Comau brand name.

The following chart sets forth the vehicle brands we sell in each regional segment:

 

		NAFTA		LATAM		APAC		EMEA
Abarth								X
Alfa Romeo						X		X
Chrysler		X		X		X		X
Dodge		X		X		X
Fiat		X		X		X		X
Fiat Professional						X		X
Jeep		X		X		X		X
Lancia								X
Ram		X		X

 

Note: Presence determined by sales in the regional segment, if material, through dealer entities of our dealer network.

 

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We also hold interests in companies operating in other activities and businesses that are not considered part of our six reportable segments. These activities are grouped under “Other Activities,” which primarily consists of companies that provide services, including accounting, payroll, tax, insurance, purchasing, information technology, facility management and security, to our Group and also the CNHI Group, manage central treasury activities (excluding Chrysler, which are handled separately) and operate in media and publishing (La Stampa daily newspaper).

Mass-Market Vehicles

Mass-Market Vehicle Brands

We design, engineer, manufacture, distribute and sell vehicles and service parts under 11 mass-market brands and designations. We believe that we can continue to increase our vehicle sales by building the value of our mass-market brands in particular by ensuring that each of our brands has a clear identity and market focus. In connection with our multi-year effort to clearly define each of our brands’ identities, we have launched several advertising campaigns that have received industry accolades. We are reinforcing our effort to build brand value by ensuring that we introduce new vehicles with individualized characteristics that remain closely aligned with the unique identity of each brand.

 

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Abarth: Abarth, named after the company founded by Carlo Abarth in 1949, specializes in performance modification for on-road sports cars since the brand’s re-launch in 2007 through performance modifications on classic Fiat models such as the 500 (including the 2012 launch of the Fiat 500 Abarth) and Punto, as well as limited edition models that combine design elements from Luxury Brands such as the 695 Edizione Maserati and 695 Tributo Ferrari, for consumers seeking customized vehicles with steering and suspension geared towards racing.

 

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Alfa Romeo: Alfa Romeo, founded in 1910, and part of the Fiat Group since 1986, is known for a long, sporting tradition and Italian design. Vehicles currently range from the three door premium MiTo and the lightweight sports car, the 4c, to the compact car, the Giulietta. The Alfa Romeo brand is intended to appeal to drivers seeking high-level performance and handling combined with attractive and distinctive appearance.

 

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Chrysler: Chrysler, named after the company founded by Walter P. Chrysler in 1925, aims to create vehicles with distinctive design, craftsmanship, intuitive innovation and technology standing as a leader in design, engineering and value, with a range of vehicles from mid-size sedans (Chrysler 200) to full size sedans (Chrysler 300) and minivans (Town & Country).

 

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Dodge: With a traditional focus on “muscle car” performance vehicles, the Dodge brand, which began production in 1914, offers a full line of cars, CUVs and minivans, mainly in the mid-size and large size vehicle market, that are sporty, functional and innovative, intended to offer an excellent value for families looking for high performance, dependability and functionality in everyday driving situations.

 

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Fiat: Fiat brand cars have been produced since 1899. The brand has historically been strong in Europe and the LATAM region and is currently primarily focused on the mini and small vehicle segments. Current models include the mini-segment 500 and Panda, the small-segment Punto and the compact-segment Bravo. The brand aims to make cars that are flexible, easy to drive, affordable and energy efficient. The brand reentered the U.S. market in 2011 with the 500 model, and Fiat recently launched the new 500L in Europe and the NAFTA region and the new Uno and the new Palio in the LATAM region.

 

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Fiat Professional: Fiat Professional, launched in 2007 to replace the “Fiat Veicoli Commerciali” brand, offers light commercial vehicles and MPVs ranging from large vans (capable of carrying up to 4.2 tons) such as the Ducato, to panel vans such as the Doblò and Fiorino for commercial use by

 

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small to medium size business and public institutions. Fiat Professional vehicles are often readily fitted as ambulances, tow trucks, school buses and people carriers (especially suitable for narrow streets) and as recreational vehicles such as campers and motor homes, where Fiat Professional is the market leader. For the second consecutive year, the Fiat Professional brand was named “LCV Manufacturer of the Year” at the GreenFleet Awards 2013.

 

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Jeep: Jeep, founded in 1941, is a globally recognized brand focused exclusively on the SUV and off-road vehicles market. The Jeep Grand Cherokee is the most awarded SUV ever. The brand’s appeal builds on its heritage associated with the outdoors and adventurous lifestyles, combined with the safety and versatility features of the brand’s modern vehicles. Jeep introduced the all-new 2014 Jeep Cherokee in October 2013 and recently unveiled the Jeep Renegade, a small segment SUV designed in the U.S. and to be manufactured in Italy, beginning in the second half of 2014. Jeep set an all-time brand record in 2013 with over 732 thousand vehicles sold.

 

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Lancia: Lancia, founded in 1906, and part of the Fiat Group since 1969, covers the spectrum from small segment cars to mid-size and full-size sedans and convertibles and large MPVs, targeted towards the Italian market. As Lancia shares strong connections with the Chrysler brand, certain models are currently rebadged in order to expand the Lancia brand offering, including the Lancia Flavia (based on the Chrysler 200), the Lancia Voyager (based on the Chrysler Town & Country) and the Thema, Lancia’s flagship vehicle (based on the Chrysler 300).

 

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Ram: Ram, established as a standalone brand separate from Dodge in 2009, offers a line of full-size trucks, including light- and heavy-duty pick-up trucks such as the Ram 1500 pick-up truck, which recently became the first truck to be named Motor Trend’s “Truck of the Year” for two consecutive years, and cargo vans. By investing substantially in new products, infusing them with great looks, refined interiors, durable engines and features that further enhance their capabilities, we believe Ram has emerged as a market leader in full size pick-up trucks. Ram customers, from half-ton to commercial, have a demanding range of needs and require their vehicles to provide high levels of capability.

We also leverage the 75-year history of the Mopar brand to provide a full line of service parts and accessories for our mass-market vehicles worldwide. As of December 31, 2013, we had 50 parts distribution centers throughout the world to support our customer care efforts in each of our regions. Our Mopar brand accessories allow our customers to customize their vehicles by including after-market sales of products from side steps and lift-kits, to graphics packages, such as racing stripes, and custom leather interiors. Further, through the Mopar brand, we offer vehicle service contracts to our retail customers worldwide under the “Mopar Vehicle Protection” brand, with the majority of our service contract sales in 2013 in the U.S. and Europe. Finally, our Mopar customer care initiatives support our vehicle distribution and sales efforts in each of our mass-market segments through 27 call centers located around the world.

Mass-Market Vehicle Design and Manufacturing

Our mass-market brands target different groups of consumers in different regions. Leveraging the potential of our broad portfolio of brands, a key component of our strategic plan is to offer vehicles that appeal to a wide range of consumers located in each regional market. In order to optimize the mix of products we design and manufacture, a number of factors are considered, including:

 

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consumer tastes, trends and preferences for certain vehicle types which varies based on geographic region, as well as regulatory requirements affecting our ability to meet consumer demands in those regions;

 

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demographic trends, such as age of population and rate of family formation;

 

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economic factors that affect preferences for optional features, affordability and fuel efficiency;

 

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competitive environment, in terms of quantity and quality of competitors’ vehicles offered within a particular segment;

 

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our brand portfolio, as each of our brands targets a different group of consumers, with the goal of avoiding overlapping product offerings or creating internal competition among brands and products;

 

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our ability to leverage synergies with existing brands, products, platforms and distribution channels;

 

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development of a diversified portfolio of innovative technology solutions for both conventional engine technologies and alternative fuels and propulsion systems; and

 

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manufacturing capacity, regulatory requirements and other factors that impact product development, including ability to minimize time-to-market for new vehicle launches.

We also consider these factors in developing a mix of vehicles within each brand, with an additional focus on ensuring that the vehicles we develop further our brand strategy.

We sell mass-market vehicles in all segments of the passenger car and truck markets. Our passenger car product portfolio includes vehicles such as the iconic Fiat 500 (which has sold more than 1 million units globally since its launch in 2007), Alfa Romeo Giulietta, Dodge Charger, Chrysler 200 and Lancia Ypsilon. Our light commercial vehicles include vans such as the Fiat Professional Doblò, Fiat Professional Ducato and Ram ProMaster, and light and heavy-duty pick-up trucks such as the Ram 1500 and 2500/3500. We also sell SUVs and CUVs in a number of vehicle segments, such as the Jeep Grand Cherokee, including expanding into the small SUV segment market with the recently-unveiled Jeep Renegade. As we seek to broaden our portfolio, we are investing in developing our efforts to become more competitive in the passenger car segment, which includes a significant investment to design, engineer and manufacture the all-new 2015 Chrysler 200 that launched in the second quarter of 2014.

We are increasingly building our vehicles using common vehicle platforms jointly developed under the Fiat-Chrysler Alliance. For instance, we use the Compact U.S. Wide platform, or CUSW, in the Dodge Dart, which was launched in 2012. The CUSW was used in vehicles made under the Alfa Romeo brand, and has since been used in the Fiat Viaggio (launched in the APAC region in 2012), the all-new Jeep Cherokee (launched in the NAFTA region in 2013) and Fiat Ottimo (launched in the APAC region in March 2014). The CUSW will also be used in the all-new 2015 Chrysler 200.

In order to leverage our brand recognition and names in various regions, we rebadge certain vehicles manufactured and sold in a region under one brand for sale in another region under a different brand based on brand recognition and equity in the particular region. For instance, certain vehicles sold in the NAFTA region under the Chrysler brand are sold in Europe under the Lancia brand, and we sell a rebadged version of the Dodge Journey as the Fiat Freemont in several markets outside the NAFTA region.

We also make use of common technology and parts in our vehicles. For example, we manufacture and use the Pentastar V-6 engine in a number of our vehicles. This engine was named by WardsAuto as one of its “10 Best Engines” for three consecutive years beginning with the 2011 model year for its refinement, power, fuel efficiency and low emissions. Since 2010, we have produced three million Pentastar V-6 engines, for use in the Jeep Grand Cherokee, the Ram 1500 and 15 other vehicles. Because we designed this engine with flexible architecture, we can use it in a range of models, potentially with a variety of advanced technologies, such as direct injection or turbocharging.

Our efforts to respond to customer demand have led to a number of important initiatives, including our plans to begin building a Jeep vehicle in China to be sold in China, which will leverage the Jeep brand’s name recognition in that market.

 

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Throughout our manufacturing operations, we have deployed WCM principles. WCM principles were developed by the WCM Association, a non-profit organization dedicated to developing superior manufacturing standards. We are the only automotive OEM that is a member of the WCM Association. WCM fosters a manufacturing culture that targets improved safety, quality and efficiency, as well as the elimination of all types of waste. Unlike some other advanced manufacturing programs, WCM is designed to prioritize issues to focus on those initiatives believed likely to yield the most significant savings and improvements, and to direct resources to those initiatives. Concurrently with our January 2014 acquisition of the 41.5 percent of Chrysler owned by the VEBA Trust, Chrysler entered into a memorandum of understanding to supplement the existing collective bargaining agreement with the International Union, United Automobile, Aerospace and Agricultural Implement Workers of America, or the UAW, and provide for a specific commitment to support the implementation of our WCM principles throughout Chrysler’s manufacturing facilities, to facilitate benchmarking across all of our manufacturing plants and actively assist in the achievement of Chrysler’s long-term business plan. Beginning in 2006, we engaged key suppliers in the pilot phase of WCM Lite, a program through which suppliers can learn and incorporate WCM principles into their own operations.

Vehicle Sales Overview

We are the seventh largest automotive OEM in the world based on worldwide new vehicle sales for the year ended December 31, 2013. We compete with other large OEMs to attract vehicle sales and market share. Many of these OEMs have more significant financial or operating resources and liquidity at their disposal, which may enable them to invest more heavily on new product designs and manufacturing or in sales incentives.

Our new vehicle sales represent sales of vehicles primarily through dealers and distributors, or in some cases, directly by us, to retail customers and fleet customers. Our sales include mass-market and luxury vehicles manufactured at our plants, as well as vehicles manufactured by our joint ventures and third party contract manufacturers. Our sales figures exclude sales of vehicles that we contract manufactured for other OEMs. While our vehicle sales are illustrative of our competitive position and the demand for our vehicles, sales are not directly correlated to our revenues, cost of sales or other measures of financial performance, as such results are primarily driven by our vehicle shipments to dealers and distributors. For a discussion of our shipments, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the Fiat Group—Trends, Uncertainties and Opportunities—Shipment Information.” The following table shows our new vehicle sales by geographic market for the periods presented. Results presented in this section for 2011 include full year sales for Chrysler.

 

		For the Year Three Months Ended March 31,
Segment		2014				2013
		Millions of units
NAFTA			0.6				0.5
LATAM			0.2				0.2
APAC			0.06				0.04
EMEA			0.3				0.3
Total Mass-Market Brands			1.1				1.1
Luxury Brands			0.01				0.00
Total Worldwide			1.1				1.1

 

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		For the Year Ended December 31,
Segment		2013				2012				2011
		Millions of units
NAFTA			2.1				2.0				1.7
LATAM			0.9				1.0				0.9
APAC			0.2				0.1				0.1
EMEA			1.1				1.2				1.4
Total Mass-Market Brands			4.4				4.3				4.0
Luxury Brands			0.02				0.01				0.01
Total Worldwide			4.4				4.3				4.1

NAFTA

NAFTA Sales and Competition

The following table presents our mass-market vehicle sales and market share in the NAFTA segment for the periods presented:

 

		For the Three Months Ended March 31,
		2014(1),(2)								2013(1),(2)
NAFTA		Group Sales				Market Share				Group Sales				Market Share
		Thousands of units (except percentages)
U.S.			476				12.5%				428				11.4%
Canada			61				16.6%				58				16.0%
Mexico			19				7.2%				21				8.4%
Total			555				12.5%				508				11.6%

 

(1)	Certain fleet sales that are accounted for as operating leases are included in vehicle sales.

(2)	Our estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Global Insight, Ward’s Automotive, R.L. Polk Data, Urban Science and Experian.

 

		For the Year Ended December 31,
		2013(1),(2)								2012(1),(2)								2011(1),(2)
NAFTA		Group Sales				Market Share				Group Sales				Market Share				Group Sales				Market Share
		Thousands of units (except percentages)
U.S.			1,800				11.4%				1,652				11.2%				1,369				10.5%
Canada			260				14.6%				244				14.2%				231				14.3%
Mexico			87				7.9%				93				9.1%				85				9.0%
Total			2,148				11.5%				1,989				11.3%				1,685				10.8%

 

(1)	Certain fleet sales that are accounted for as operating leases are included in vehicle sales.

(2)	Our estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Global Insight, Ward’s Automotive, R.L. Polk Data, Urban Science and Experian.

 

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The following table presents our new vehicle market share information and our principal competitors in the U.S., our largest market in the NAFTA segment:

 

		For the Year Ended December 31,
U.S.		2013		2012		2011
Automaker		Percentage of industry
GM		17.6%		17.6%		19.2%
Ford		15.7%		15.2%		16.5%
Toyota		14.1%		14.1%		12.6%
Our Group		11.4%		11.2%		10.5%
Honda		9.6%		9.6%		8.8%
Hyundai/Kia		7.9%		8.6%		8.7%
Nissan		7.9%		7.7%		8.0%
Other		15.9%		16.0%		15.7%
Total		100.0%		100.0%		100.0%

U.S. automotive market sales have steadily improved after a sharp decline from 2007 to 2010. U.S. industry sales, including medium- and heavy-duty vehicles, increased from 10.6 million units in 2009 to 15.9 million units in 2013, an increase of approximately 50 percent. Both macroeconomic factors, such as growth in per capita disposable income and improved consumer confidence, and automotive specific factors, such as the increasing age of vehicles in operation, improved consumer access to affordably priced financing and higher prices of used vehicles, contributed to the strong recovery. Despite the recent improvement, the 2013 U.S. industry sales volume of 15.9 million light-, medium- and heavy-duty vehicles remains below the pre-financial crisis level of 17.0 million vehicles, which represents the average annual sales volume from 2003 to 2007.

Our vehicle line-up in the NAFTA segment leverages the brand recognition of the Chrysler, Dodge, Jeep and Ram brands to offer cars, utility vehicles, pick-up trucks and minivans under those brands, as well as vehicles in smaller segments, such as the mini-segment Fiat 500 and the small & compact MPV segment Fiat 500L. With the reintroduction of the Fiat brand in 2011 and the launch of the Dodge Dart in 2012, we now sell vehicles in all vehicle segments. Our vehicle sales and profitability in the NAFTA segment are generally weighted towards larger vehicles such as utility vehicles, trucks and vans, while overall industry sales in the NAFTA segment generally are more evenly weighted between smaller and larger vehicles. In recent years, we have increased our sales of mini, small and compact cars in the NAFTA segment.

NAFTA Distribution

In the NAFTA segment, our vehicles are sold primarily to dealers in our dealer network for sale to retail customers and fleet customers. The following table sets forth the number of independent entities in our dealer and distributor network in the NAFTA segment. The table counts each independent dealer entity, regardless of the number of contracts or points of sale the dealer operates. Where we have a relationship with a general distributor, this table reflects that general distributor as one distribution relationship:

 

Distribution Relationships		At December 31,
		2013		2012		2011
NAFTA		3,204		3,156		3,044

In the NAFTA segment, fleet sales in the commercial channel are typically more profitable than sales in the government and daily rental channels since they more often involve customized vehicles with more optional features and accessories; however, vehicle orders in the commercial channel are usually smaller in size than the orders made in the daily rental channel. Fleet sales in the government channel are generally more profitable than fleet sales in the daily rental channel primarily due to the mix of products included in each respective channel. Rental car companies, for instance, place larger orders of small and mid-sized cars and minivans with minimal options, while sales in the government channel often involve a higher mix of relatively more profitable vehicles such as pick-up trucks, minivans and large cars with more options.

 

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NAFTA Segment Mass-Market Dealer and Customer Financing

In the NAFTA segment, we do not have a captive finance company or joint venture and instead rely upon independent financial service providers, primarily our strategic relationship with Santander Consumer USA Inc., or SCUSA, to provide financing for dealers and retail customers in the U.S. Prior to the agreement with SCUSA, we principally relied on Ally Financial Inc., or Ally, for dealer and retail financing and support. Additionally, we have arrangements with a number of financial institutions to provide a variety of dealer and retail customer financing programs in Canada. There are no formal retail financing arrangements in Mexico at this time, although CF Credit provides nearly all dealer financing and about half of all retail financing of Chrysler products in Mexico.

In February 2013, we entered into a private label financing agreement with SCUSA, or the SCUSA Agreement, under which SCUSA provides a wide range of wholesale and retail financial services to our dealers and retail customers in the U.S., under the Chrysler Capital brand name. The financial services include credit lines to finance dealers’ acquisition of vehicles and other products that we sell or distribute, retail loans and leases to finance retail customer acquisitions of new and used vehicles at dealerships, financing for commercial and fleet customers, and ancillary services. In addition, SCUSA offers dealers construction loans, real estate loans, working capital loans and revolving lines of credit.

Under the financial services arrangement, SCUSA agreed to specific transition milestones for the initial year following launch. We deemed SCUSA’s performance toward the milestones satisfactory and agreed that the SCUSA Agreement will have a ten year term from February 2013, subject to early termination in certain circumstances, including the failure by a party to comply with certain of its ongoing obligations under the SCUSA Agreement. In accordance with the terms of the agreement, SCUSA provided us an upfront, nonrefundable payment in May 2013 which is being amortized over ten years.

Under the SCUSA Agreement, SCUSA has certain rights, including limited exclusivity to participate in specified minimum percentages of certain retail financing rate subvention programs. SCUSA’s exclusivity rights are subject to SCUSA maintaining price competitiveness based on market benchmark rates to be determined through a steering committee process as well as minimum approval rates.

The SCUSA Agreement replaced an auto finance relationship with Ally, which was terminated in 2013. As of December 31, 2013, Ally was providing wholesale lines of credit to approximately 43 percent of our dealers in the U.S. For the year ended December 31, 2013, we estimate that approximately 81 percent of the vehicles purchased by our U.S. retail customers were financed or leased through our dealer network, of which approximately 22 percent were financed or leased through subvention programs.

LATAM

LATAM Sales and Competition

The following table presents our mass-market vehicle sales and market share in the LATAM segment for the periods presented:

 

		For the Three Months Ended March 31,
		2014(1)				2013(1)
LATAM		Group Sales		Market Share		Group Sales		Market Share
		Thousands of units (except percentages)
Brazil		176		22.7%		181		22.9%
Argentina		28		13.2%		29		12.2%
Other LATAM		10		3.2%		12		3.8%
Total		214		16.4%		222		16.5%

 

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(1)	Our estimated market share data presented are based on management’s estimates of industry sales data, which use certain data provided by third-party sources, including IHS Global Insight, National Organization of Automotive Vehicles Distribution and Association of Automotive Producers.

 

For the Year Ended December 31,