The investment income of the trust is taxable at a 35% rate, said Mark M. Gleason, one of the asbestos trust's three trustees. He is also managing director of Gleason & Associates PC, Pittsburgh, a certified public accounting firm and consultant that provides specialized accounting and financial advice in financial reorganization, business valuation and litigation support.
Alan R. Kahn, managing trustee for the DII asbestos trust, said the taxable situation will affect the investment program. But he said no decision has been made on investment policy. He doesn't know how soon it will be finished, or how soon the trust will sell any of the Halliburton stock.
The DII asbestos trust was created, along with DII Industries LLC Silica PI Trust, Cleveland, on Jan. 20 to settle asbestos and silica claims stemming from subsidiaries of Houston-based Halliburton.
Halliburton and subsidiaries funded the asbestos trusts with a total of $2.66 billion in cash, a $30 million one-year note, and the 59.5 million shares of Halliburton stock, which was newly issued.
They funded the silica trust with $125 million in cash and a note for up to $450 million.
The asbestos trust, however, already disbursed the $2.66 billion in cash to pay existing claims, leaving it with the Halliburton stock and note to pay future claims.
The silica trust already disbursed $110 million for existing claims, leaving it with $15 million in cash and the note.
A shareholder agreement between Halliburton and the asbestos trust restricts the sale of the Halliburton shares the trust received. The shares' $2.6 billion value is based on the $43.74 closing price of Halliburton stock March 2.
The trust can sell 5 million shares in the first three months and 10 million more shares in the next three months, according to Beverly Scippa, Halliburton public relations manager. Thereafter, for each three-month period, the trust can sell one percentage point of either outstanding shares or weekly trading volume, whichever is greater. "Therefore, the trust could sell all 59.5 million shares in around a year," she said, "depending on our weekly trading volume."
Within those restrictions, trustees have discretion on if or when to sell any of the shares.
The trust agreement places some restrictions on investments. For example, it bars the trust from holding an interest in a hedge fund or hedge fund of funds that would exceed 12% of the aggregate market value of the trust's assets.
Both trusts are expected to last for some 40 years, as long as necessary to pay future claims, said Eric D. Green, a professor of law at Boston University who represents future claimants for both the asbestos and silica trusts.