Tax Sharing Agreement - LSB Industries Inc. and ClimaChem Inc.
TAX SHARING AGREEMENT
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THIS TAX SHARING AGREEMENT ("Agreement") is entered into this 21st day of
November, 1997, between LSB INDUSTRIES, INC., a Delaware corporation ("LSB"),
and CLIMACHEM, INC., an Oklahoma corporation ("ClimaChem").
W I T N E S S E T H:
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WHEREAS, LSB owns 100% of the issued and outstanding shares of capital
stock of ClimaChem, and ClimaChem owns, directly or through intermediaries, 100%
of the issued and outstanding shares of capital stock of the entities listed on
Schedule 1 attached hereto (the "ClimaChem Subsidiaries");
WHEREAS, LSB, ClimaChem, and the ClimaChem Subsidiaries are members of the
affiliated group of corporations of which LSB is the common parent
(collectively, the "LSB Consolidated Group") within the meaning of (S) 1504(a)
of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, ClimaChem and the ClimaChem Subsidiaries (collectively, the
"ClimaChem Group") would be members of an affiliated group of corporations of
which ClimaChem would be the common parent within the meaning of (S) 1504(a) of
the Code if ClimaChem were not a subsidiary of LSB; and
WHEREAS, it is the intent and desire of the parties hereto that a method be
established for determining the rights and obligations among the LSB
Consolidated Group, the ClimaChem Group, and the members of the LSB Consolidated
Group which are not members of the ClimaChem Group (the "LSB Group") as to tax
liabilities, refunds and related administrative matters.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, the parties hereto agree as follows:
1. Filing of Tax Returns. The tax returns of LSB and the ClimaChem Group will
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be filed as follows:
1.1 Consolidated Federal Returns. LSB will have exclusive authority to
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file consolidated federal income tax returns pursuant to (S) 1502 of
the Code on behalf of the LSB Consolidated Group which includes, but
is not limited to, the ClimaChem Group ("Consolidated Federal
Returns").
1.2 Composite Returns. LSB, or a member of the LSB Group designated by
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LSB, will have exclusive authority to file each state, local or
foreign income tax return or other tax return required to be filed by
any member of the ClimaChem Group which computes taxes payable to a
taxing jurisdiction in respect of the income, operations or assets of
two or more corporations (including at least
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one member of the ClimaChem Group and one member of the LSB Group)
based on combined or consolidated reporting or apportionment of
business income under the unitary business concept ("Composite
Return").
1.3 All Other Returns. Except as otherwise provided in paragraphs 11 and
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12 of this Agreement, LSB, or a member of the LSB Group designated by
LSB, will have exclusive authority to file all income tax or franchise
tax returns with respect to the income, operations or assets of the
LSB Consolidated Group or any member thereof, including, but not
limited to, the ClimaChem Group and any member of such group.
1.4 Tax Information. To facilitate the preparation and filing of
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Consolidated Federal Returns, Corporate Returns and other returns,
ClimaChem will, on a timely basis, provide LSB with all information
reasonably required by LSB with respect to the income, operations and
assets of each member of the ClimaChem Group.
2. Tax Controversies.
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2.1 Tax Returns. LSB or its designee will have exclusive authority to
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represent each member of the LSB Consolidated Group, including, but
not limited to, members of the ClimaChem Group, before any
governmental agency or any court regarding tax matters related to any
Consolidated Federal Return, Composite Return or any other tax return
including, but not limited to, (a) the exclusive control of any
response to any examination by any taxing authority, and (b) the
exclusive control over any contest of any issue therein through a
Final Determination (as defined below), including, but not limited to,
whether, and in what form, to conduct such contest and whether, and on
what basis, to settle such contest. For purposes of this paragraph 2,
the term "Final Determination" means with respect to any issue or item
for any period, (a) in the context of federal income taxes, (i) a
final, nonappealable decision by a court of competent jurisdiction,
(ii) the expiration of the time for assessment of taxes or filing a
claim for refund or, if a refund claim has been timely filed, the
expiration of the time for instituting suit in respect of such refund
claim, if no further adjustment to the items of income, gain,
deduction, loss, or credit for such period may thereafter be made,
(iii) the execution of a closing agreement under (S) 7121 of the Code,
(iv) the acceptance by the IRS or its counsel of a tender pursuant to
an
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offer in compromise pursuant to (S) 7122 of the Code, (v) the
execution of a Form 870A, or (vi) any other final and irrevocable
determination of taxes for any period, and (b) in the context of other
taxes, any comparable, final, nonappealable, and irrevocable
determination of taxes for such period.
2.2 Notification of Controversy. LSB or its designee will timely notify
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ClimaChem of any correspondence and tax controversies with any taxing
authority relating to items of any member of the ClimaChem Group and
will promptly provide ClimaChem with copies of all such correspondence
upon the request of ClimaChem. Subject to LSB's exclusive authority as
provided herein, ClimaChem will have the right exercisable on a timely
basis to consult with LSB with respect to the handling of any such
correspondence or controversies. LSB or its designee will permit
ClimaChem or its representative to attend any hearing or other
proceedings relating to such controversies to the extent that the
subject of such hearings or proceeding relates to a member of the
ClimaChem Group.
3. Tax Sharing.
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3.1 ClimaChem Payment Obligation. ClimaChem shall pay to LSB the dollar
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value of any federal, state or local income tax liability (including,
without limitation, deficiencies, interest and penalties) relating to
the ClimaChem Group and its respective businesses and operations with
respect to any taxes of the ClimaChem Group for any taxable year or
period ending on or prior to December 31, 2007. Such tax liability of
the ClimaChem Group will be calculated as if the ClimaChem Group was a
separate consolidated tax group and not part of the LSB Consolidated
Group (the resulting amount is referred to as the "ClimaChem Stand-
Alone Tax Liability").
3.2 Payments by ClimaChem of ClimaChem Stand-Alone Tax Liability. The
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ClimaChem Stand-Alone Tax Liability will be paid to LSB pursuant to
this paragraph 3.2. On or before each March 31, June 30, September 30,
and December 31 of each year, LSB will make a good faith estimate of
the ClimaChem Stand-Alone Tax Liability for the current tax quarter
(the amount of each such estimate is the "Tax Estimate"), and will
promptly provide ClimaChem with a summary of the calculation of the
Tax Estimate (the "Tax Notice"). Notwithstanding any objection by
ClimaChem to
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the calculation of the Tax Estimate, within 15 days after the date of
the Tax Notice, ClimaChem will pay to LSB the Tax Estimate for the
period set forth in the Tax Notice (the "Quarterly Payment"). LSB will
adjust the amount of the Tax Estimate as may be necessary from time to
time during the tax year, and ClimaChem agrees that the one or more
Quarterly Payments will be increased or decreased, as appropriate, to
account for the adjustments, if any, in the amount of the Tax
Estimate. If the sum of all Quarterly Payments during a tax year is
less than the ClimaChem Stand-Alone Tax Liability for such year, as
determined by LSB, then ClimaChem will, within 15 days after receipt
of notice by LSB, pay to LSB, the amount equal to the deficiency. If
the amount of all Quarterly Payments during a tax year is greater than
the ClimaChem Stand-Alone Tax Liability for such year, as determined
by LSB, then LSB will, within 15 days of the determination of the
ClimaChem Stand-Alone Tax Liability, pay to ClimaChem the amount of
such excess.
3.3 Objection to Calculations. The calculations made by LSB for each tax
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year pursuant to this paragraph 3 will be conclusive as to ClimaChem,
unless written objection is received by LSB within 30 days after the
end of such tax year. If written objection is timely made by
ClimaChem, and the parties are unable to agree upon the correct
calculations, the disputed issue will be submitted to Ernst & Young,
L.P. or other accounting firm of recognized national standing selected
by LSB in its reasonable discretion, whose determination will be
final. All costs and expenses relating to the accounting firm's
determination will be paid by ClimaChem. In the event the parties
agree to a different determination or the accounting firm's review
results in a different calculation, appropriate payments will be made
in the amount of payment.
3.4 Earnings and Profits Allocation. The parties understand that the
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method of allocation of federal income tax liabilities used for the
determination of earnings and profits for federal income tax purposes
under governing law may differ from the methods prescribed herein for
sharing of economic burdens of such taxes. To the extent permitted by
governing law and not otherwise inconsistent with the best interests
of LSB, LSB agrees to make an election or take any other action
permitted under governing law which would cause such method of
allocation to resemble as closely as practical the method of sharing
the economic burdens of such tax hereunder.
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4. Administrative Matters.
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4.1 General. The provisions of this Agreement will be administered by
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LSB. Except as otherwise expressly governed by the terms of this
Agreement, LSB or its designee may use any reasonable method in making
any computations or allocations hereunder.
4.2 Power of Attorney. In order to carry out the purposes and intent of
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this Agreement, ClimaChem hereby grants, and agrees that it will cause
each member of the ClimaChem Group to grant, to LSB and to appropriate
officers of LSB a power of attorney to undertake in the name of the
appropriate member of the ClimaChem Group any action contemplated
herein, including, without limitation, the filing of returns and
claims for refund, making of elections, handling of controversies, and
receipt of funds. To the extent that such power of attorney is not
recognized or respected, ClimaChem agrees to take, and to cause each
member of the ClimaChem Group to take, such further actions, including
grants to LSB of additional powers of attorney or execution of returns
or other documents as may be reasonably requested by LSB to carry out
the provisions of this Agreement.
4.3 Payments. Amounts owed by either party hereto in respect of tax
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refunds or credits received by such party to which the other party is
entitled hereunder will be paid by the party receiving the refund to
the other party within five days after the receipt or credit of such
refund, and amounts owed by either party hereto in respect of tax
increases will be paid by such party to the other party within 30 days
after the Final Determination with respect thereto. If not timely
paid, any amounts payable hereunder will bear interest from the date
due at one percent in excess of the Prime Rate as published in The
Wall Street Journal from time to time.
4.4 Records. LSB and ClimaChem agree that all records, including, but not
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limited to, returns, supporting schedules, workpapers, correspondence
and other documents within the possession of either, and relating to
the tax liabilities or refunds of either, will be retained by each for
as long as they may be material to the determination of such
liabilities or refunds and will be made reasonably available to either
party upon request.
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4.5 Return Preparation and Defense.
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4.5.1 In General. Each party hereto agrees that it will cooperate
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with the other, and its representatives, in a prompt and timely
manner, in connection with (a) the preparation and filing of,
and (b) any administrative or judicial proceeding involving,
any Consolidated Federal Return, Composite Return or other tax
return filed, or required to be filed, by LSB, ClimaChem or
members of their respective Groups. Such cooperation will
include, but not be limited to, the making available to the
other party, during normal business hours, of all books,
records (including, but not limited to, workpapers and
schedules), information, officers, and employees (without
substantial interruption of employment) reasonably requested
and necessary or useful in connection with any tax filing,
inquiry, audit, investigation, dispute, litigation, or other
matter.
4.5.2 Consistency. In filing any Consolidated Federal Return or
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Composite Return, LSB will make all computations of taxable
amounts and tax on a basis consistent with the computations of
such amounts in prior tax returns for the respective taxing
jurisdictions except to the extent otherwise required by the
laws, rules, or regulations of the respective taxing
jurisdictions or other applicable authority or as a result of a
change in factual circumstances. In determining how to treat
any matter for which there is no precedent in prior returns or
controlling legal authority, LSB will, in good faith, take into
account the reasonable interests of ClimaChem after due
consultation with ClimaChem.
5. Miscellaneous.
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5.1 Term. This Agreement is effective as to the taxable years (or
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portions thereof) commencing after December 31, 1996, and will
continue for a period of ten years or at such time as ClimaChem is no
longer included in LSB's consolidated federal tax return or state
consolidated,
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combined or unitary tax returns, if earlier, unless sooner terminated
pursuant to the terms of this paragraph 5. Notwithstanding the
foregoing, LSB may terminate this Agreement on 60 days' written notice
to ClimaChem if ClimaChem defaults under any of the terms or
provisions of this Agreement or if LSB sells all, or substantially
all, of the issued and outstanding stock of ClimaChem. Unless
otherwise agreed in writing by the parties, this Agreement will remain
in force and be binding so long as the statutory period for
assessments or refunds under applicable law remains unexpired for any
taxable period as to which either party may have a claim against the
other under this Agreement.
5.2 Expenses. ClimaChem will reimburse or pay to LSB ClimaChem's
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allocable share of all expenses (including professional fees) incurred
by LSB or its designee in connection with the preparation or audit of
Consolidated Federal Returns, Composite Returns, or other returns or
contests or controversies related to such returns. The allocation of
such expenses between LSB and ClimaChem will be made to LSB in its
sole discretion.
5.3 Successors and Assigns. This Agreement will bind and inure to the
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benefit of the respective successors and assigns of the parties
hereof, but no assignment will relieve any party of its obligations
hereunder without the written consent of the other parties.
5.4 Notices. All notices and other communications hereunder will be in
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writing and will be delivered by hand or mailed by registered or
certified mail (return-receipt requested) to the parties at the
following addresses (or at such other addresses for a party as will be
specified by like notice) and will be deemed given on the date on
which such notice is received:
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To LSB or any member LSB Industries, Inc.
of the LSB Group: 16 South Pennsylvania
Post Office Box 754
Oklahoma City, Oklahoma 73101
Attention: Chief Financial
Officer
To ClimaChem or any member ClimaChem, Inc.
of the ClimaChem Group: 16 South Pennsylvania
Post Office Box 754
Oklahoma City, Oklahoma 73101
Attention: President
5.5 Governing Law. This Agreement will be construed and enforced in
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accordance with the laws of the State of Oklahoma, without giving
effect to the principles of conflicts of laws. The parties consent to
the jurisdiction of any court in Oklahoma County, Oklahoma, with
subject matter jurisdiction for any action arising out of matters
related to this Agreement, and waive the right to commence any action
arising out of matters related to this Agreement in any court outside
Oklahoma County, Oklahoma.
IN WITNESS WHEREOF, the parties hereto have caused their names to be
subscribed and executed by their respective authorized officers on the dates
indicated.
LSB INDUSTRIES, INC.,
a Delaware corporation
By_____________________________
Jim D. Jones
Vice President and Controller
CLIMACHEM, INC.,
an Oklahoma corporation
By_____________________________
David R. Goss
Vice President
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