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EXHIBIT 11
STATE OF MICHIGAN
DEPARTMENT OF COMMERCE
INSURANCE BUREAU
BEFORE THE COMMISSIONER OF INSURANCE
IN THE MATTER OF A DISCLAIMER
BY TRACINDA CORPORATION WITH
RESPECT TO ITS ACQUISITION OF AN ORDER NO. 95-368-M
ADDITIONAL 14 MILLION SHARES OF
THE COMMON STOCK OF CHRYSLER
CORPORATION
ISSUED AND ENTERED
THIS 27TH DAY OF JUNE 1995
BY D. JOSEPH OLSON
COMMISSIONER OF INSURANCE
ORDER APPROVING DISCLAIMER
I
BACKGROUND
Tracinda Corporation ("Tracinda") currently owns 9.75% of the common stock
of Chrysler Corporation ("Chrysler"). On June 26, 1995, Tracinda announced a
tender offer by which it plans to acquire an additional 14 million shares of the
common stock of Chrysler. The acquisition will raise its percentage of ownership
of the outstanding shares of Chrysler's common stock to approximately 13.5%
Chrysler owns two Michigan domiciled insurance companies, Chrysler
Insurance Company and Chrysler Life Insurance Company (the "Insurers"). Before
the change in control of a Michigan insurer, the acquiring party must secure the
approval of the Commissioner of Insurance ("commissioner"). This applies also
where a person acquires control of a corporation, such as Chrysler, that owns or
controls a Michigan domestic insurer. There is a presumption of control if any
person owns 10% or more of the voting securities of a corporation.
In letters to the commissioner dated June 26, 1995 (the "Petition for
Disclaimer"), Tracinda contends that it will not control Chrysler or the
Insurers by its acquisition of the 14 million additional shares of common stock.
If so, the acquisition of these additional shares is not subject to the approval
of the commissioner. Tracinda the same date also filed a lawsuit in federal
district court challenging the validity of the applicable state laws.
II
ISSUE
This key issue in this matter is whether, by its acquisition of 14 million
additional shares of Chrysler common stock, Tracinda will gain control of
Chrysler as "control" is defined in Section 115 of the insurance Code of 1956,
as amended ("Code"), MCL 500.115; MSA 24.1115.
III
ANALYSIS
The acquisition of control of a Michigan domestic insurer is governed by
the Holding Company Act, which is contained in Chapter 13 of the Insurance Code
of 1956, as amended ("Code"), MCL 500.1301 et seq.; MSA 24.11301 et seq.
According to Section 1311(1) of the Code, MCL 500.1311(1);
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Tracinda Order
June 27, 1995
Page 2
MSA 24.11311(1), this may occur through the direct acquisition of control of the
insurer or by acquiring control of a person, such as Chrysler, that controls an
insurer:
A person shall not enter into an agreement to merge with or otherwise
to acquire control of a domestic insurer or any person controlling a
domestic insurer unless, at the time and offer, request, or invitation is
made or an agreement is entered into, or prior to the acquisition of the
securities if no offer of agreement is involved, the person has filed with
the commissioner and has sent to the insurer which has sent to its
shareholders, a statement containing the information required by this
chapter and the offer, request, invitation, agreement or acquisition has
been approved by the commissioner in the manner prescribed in this chapter.
If Tracinda's purchase of an additional 14 million shares of Chrysler
common stock will give it control of Chrysler, then it must secure the
commissioner's approval of the tender offer. The definition of "control" is set
forth in Section 115(b) of the Code, MCL 500.115(b); MSA 24.1115(b), as follows:
"Control" including the terms "controlling", "controlled by", and
"under common control with" mean the possession or the contingent or
noncontingent right to acquire possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of a
person, whether through the ownership of voting securities, by contract
including acquisition of assets or bulk reinsurance, other than a
commercial contract for goods or nonmanagement services, by pledge or
securities, or otherwise, unless the power is the result of an official
position with or corporate office held by the person. Control is presumed
to exist if any person, by formal or informal arrangement, device, or
understanding, directly or indirectly, owns, controls, holds with the power
to vote, or holds proxies representing 10% or more of the voting securities
of any other person or for a mutual insurer owns 10% or more of the
insurer's surplus through surplus notes, guarantee fund certificates or
other evidence of indebtedness issued by the insurer. This presumption may
be rebutted by a showing made in the manner provided by Section 1332 that
control does not in fact exist. The commissioner may determine after
furnishing to all persons in interest notice and an opportunity to be heard
and making specific findings of fact to support the determination that
control in fact exists notwithstanding the absence of a presumption to that
effect.
After the purchase of the additional shares, Tracinda will own
approximately 13.5% of the common stock of Chrysler. Thus, control of Chrysler
would be presumed to exist. However, Tracinda has sought to rebut this
presumption by its Petition for Disclaimer filed in accordance with Section 1332
of the Code, MCL 500.1332; MSA 24.11332, which provides:
Any person may file with the commissioner a petition for disclaimer of
affiliation with an authorized insurer or an insurer or any member of an
insurance holding company system may file such a petition for disclaimer.
The petition for disclaimer shall fully disclose all material relationships
and bases for affiliation between the person and the insurer as well as the
basis for disclaiming the affiliation and shall be subject to approval by
the commissioner. The burden of proof for establishing that an affiliation
does not exist shall rest with the petitioner. After a petition for
disclaimer is filed with and approved by the commissioner, the insurer is
relieved of any duty to register or report under this chapter that may
arise out of the insurer's relationship with the person unless the
commissioner subsequently disallows the disclaimer. The commissioner may
disallow a disclaimer that has been previously approved only after
furnishing all parties in interest with notice and opportunity to be heard
and after making specific findings of fact to support the disallowance.
Tracinda sets forth several bases for disclaiming that its purchase of the
additional shares will give it control of Chrysler or the Insurers. By
information presented in its Petition for Disclaimer, Tracinda has met its
Burden of Proof. Principal reasons for this are as follows:
1. Under Chrysler's certificate of incorporation and bylaws, in most
cases the taking of any action by shareholders requires the approval of a
majority of the shares of common stock present and voting.
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Tracinda Order
June 27, 1995
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2. Chrysler has resisted Tracinda attempts to purchase a majority of
its common stock. It has a "poison pill" shareholder rights plan. On
December 1, 1994, Chrysler raised the trigger point for the poison pill
from 10% to 15%. This shows that Chrysler itself does not believe that
Tracinda will obtain control by attaining 13.5% of its common stock.
3. Approximately five times the number of shares held by Tracinda are
owned by independent financial institutions and investment funds. Tracinda
reports that it has no control over how they vote their shares and does not
have any arrangement with any of those institutions or funds with respect
to their Chrysler shares.
4. Tracinda has no officers or directors on the boards of Chrysler or
its Insurers.
In addition to establishing that it will not obtain control of Chrysler or
the Insurers by its purchase of an additional 14 million shares of Chrysler's
common stock, Tracinda provides certain assurances in its Petition for
disclaimer regarding its future conduct with respect to the Insurers. For the
protection of policyholders and securityholders of the Insurers, it is
appropriate to condition any approval of the disclaimer upon Tracinda's formal
agreement to adhere to those assurances. It should be further conditioned upon
Tracinda's agreement to immediately take action to dismiss the federal lawsuit
in its entirety. Lastly, it should also be provided that this order approving
the disclaimer is limited to the stock purchase described in the Petition for
Disclaimer.
IV
ORDER
Therefore, it is ORDERED that:
1. The scope of this approval is strictly limited to Tracinda's
proposed acquisition of 14 million additional shares of Chrysler common
stock described in its Petition for Disclaimer. This approval does not
apply to any other future activity Tracinda may choose to pursue with
respect to Chrysler, including the purchase of additional Chrysler shares
or undertaking a proxy or consent solicitation in which Tracinda would name
a slate of candidates for the Chrysler board.
2. The Petition for Disclaimer is approved effective the date that
Tracinda agrees to adhere to the conditions set forth below.
3. Tracinda shall not take any of the following actions with respect
to the Insurers without first obtaining the consent of the commissioner:
a. change management personnel or otherwise be involved with the
Insurers,
b. seek any extraordinary dividends or distributions; or
c. pledge the assets or stock.
4. Tracinda shall immediately take action to dismiss without prejudice
the federal lawsuit in its entirety.
D. JOSEPH OLSON
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D. Joseph Olson
Commissioner of Insurance
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Tracinda Order
June 27, 1995
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AGREEMENT
In consideration of the commissioner's issuing and entering this Order
Approving Disclaimer, Tracinda agrees to adhere to the conditions set forth
immediately above in Part IV of this order. In consideration of Tracinda's
dismissing without prejudice the federal lawsuit in its entirety, the
commissioner agrees to give Tracinda ten (10) calendar days' notice of intent to
file any lawsuit in state court against Tracinda to enforce provisions of the
Michigan Insurance Holding Company Act and further agrees that if such a lawsuit
is filed he will not oppose its removal to federal court. The commissioner
further agrees he will not raise federal constitutional issues in any lawsuit
filed in state court with respect to Tracinda or contend what such federal
constitutional issues should be litigated in state court.
D. JOSEPH OLSON SCOTT L. MANDEL
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D. Joseph Olson Scott L. Mandel
Commissioner of Insurance Foster, Swift, Collins & Smith, P.C.
Attorneys for Tracinda
Date signed: June 27, 1995 Date signed: 6/27/95