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In September 1983, while the ESOP was in place, Chrysler
renegotiated its collective bargaining contracts with its
employees who were members of the United Automobile, Aerospace
and Agricultural Implement Workers of America (UAW). The
renegotiation resulted in a contract extending through October
1985. In 1985, when the collective bargaining contracts were
again renegotiated, Chrysler agreed as part of those contracts to
terminate the ESOP and to allow the participants either to keep
the Chrysler common stock in the ESOT allocated to them or to
allow Chrysler to redeem that stock at a per-share price equal to
the applicable closing price on the New York Stock Exchange. In
December 1985, Chrysler redeemed just over 9.58 million shares of
its common stock from the ESOT for a total cost to Chrysler of
$426,969,582.2 The ESOP participants who opted not to sell their
stock received over 3.2 million shares of Chrysler common stock
from the ESOT.
On its 1985 Federal income tax return, Chrysler claimed a
deduction of $327,595,421 associated with its redemption of its
common stock from the ESOT. According to Chrysler’s computation,
the deduction was less than the redemption price so as not to
duplicate the tax benefits Chrysler had previously received by
2 These figures include 172,135 shares redeemed by Chrysler
attributable to employees whose employment was terminated during
1985. Chrysler included the redemption price of these shares in
the amount of its claimed deduction.
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Last modified: May 25, 2011