AMENDED
TAX AGREEMENT
Between
VALHI, INC.
and
NL INDUSTRIES, INC.
AGREEMENT dated as of December 1, 2003 amends and supercedes the prior
agreement dated as of January 1, 2001 by and among Valhi, Inc. ("VHI"), a
Delaware corporation having its principal executive offices at Three Lincoln
Centre, 0000 XXX Xxxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000, Contran Corporation
("Contran"), a Delaware corporation having its principal executive offices at
Three Lincoln Centre, 0000 XXX Xxxxxxx, Xxxxx 0000, Xxxxxx, XX 00000 and NL
Industries, Inc. ("NL"), a New Jersey corporation having its principal executive
offices at 00000 Xxxxxxxxxx Xxxxx, Xxxxx 0000, Xxxxxxx, Xxxxx 00000.
WHEREAS, VHI and NL are eligible to file consolidated returns of
federal income taxes and, subject to certain jurisdictional limitations, have
been subject to combined state and local tax reporting effective January 1,
2001;
WHEREAS, VHI and NL wish to provide for the allocation of liabilities,
and procedures to be followed, with respect to federal income taxes of NL and
any subsidiaries of NL and with respect to certain combined state and local
taxes on the terms of this Agreement.
NOW, THEREFORE, in consideration of the promises and agreements herein
contained, the parties hereto agree as follows:
1. Definitions. As used in this Agreement, the following terms have the meanings
set forth below:
(a) Code: The Internal Revenue Code of 1986, as amended, and with
respect to any section thereof any successor provisions under such Code or
any successor Code.
(b) Combined Foreign, State and Local Taxes: For a taxable period, the
amount of all foreign, state and local taxes, together with all interest
and penalties with respect thereto, for which liability is computed (1) on
the basis of a combined, unitary or consolidated return (whether at the
initiative of the tax authority or of the taxpayer) and (2) by reference to
one or more members of the NL Group and one or more members of the VHI
Group not included in the NL Group.
(c) Contran Corporation: A Delaware corporation that is the common
parent of a group of corporations electing to file a consolidated federal
income tax return.
(d) Federal Taxes: All federal income taxes, together with all
interest and penalties with respect thereto.
(e) VHI Group: VHI and those of its direct and indirect subsidiaries
which join in the filing of a consolidated federal income tax return with
its common parent, Contran (the "Contran Tax Group"), as such Group is
constituted from time to time. For purposes of this Agreement (to the
extent related to Combined Foreign, State and Local Taxes), the term "VHI
Group" shall include all direct and indirect subsidiaries of VHI with
reference to which Combined Foreign, State and Local Taxes are determined.
(f) NL Group: NL Industries, Inc. and each direct or indirect
subsidiary of NL which would be a member of an affiliated group, within the
meaning of section 1504(a) of the Code, of which NL was the common parent,
as such Group is constituted from time to time. For purposes of this
Agreement (to the extent related to Combined Foreign, State and Local
Taxes) , the term "NL Group" shall include all direct and indirect
subsidiaries of NL with reference to which Combined, Foreign, State and
Local taxes are determined.
(g) NL Group Tax Liability: Except as provided in subparagraph (h),
for a taxable period, the liability for Federal Taxes and Combined Foreign,
State and Local taxes, as applicable, that the NL Group would have had if
it were not a member of the VHI Group during such taxable period (or during
any taxable period prior thereto), and instead filed a separate
consolidated return for such taxable period (and during all prior taxable
periods beginning after December 31, 2000); provided, however, that for
purposes of determining such liability for a taxable period all tax
elections shall be consistent with the tax elections made by Contran for
such period. In making such tax elections it is understood the Contran
Corporation will make those tax elections which are beneficial to the
Contran Tax Group on a consolidated basis. Nevertheless, Contran will use
its best efforts in the case of those elections which affect the
computation of the NL Group Tax Liability, to make elections in a
reasonable manner so as to minimize the NL Group Tax Liability.
(h) NL Group Tax Liability Payment Deferral. For the taxable period
ending December 31, 2003, the NL Group shall not be required to make a tax
payment to Valhi pursuant to this agreement in regard to the Section 311
(b) Gain (the "Payment Deferral"), as defined in the Code, realized on the
December 8, 2003 distribution of shares of Kronos Worldwide Services, Inc.
(the "Distribution", as set forth in the NL's Information Statement dated
November 10, 2003), but only to the extent such gain is attributable to
shares distributed to members of the Contran Tax Group (the "Deferred
Intercompany Gain").
(i) Deferred Intercompany Gain Recognition. In the event, NL's
Deferred Intercompany Gain is recognized under the Code, the NL Group Tax
Liability shall include such gain in the taxable period in which the
recognition event occurs for purposes of determined the NL Group Tax
Liability.
2. Contran as Agent. Contran shall be the sole agent for the NL Group in
all matters relating to the NL Group Tax Liability. The NL Group shall not (a)
terminate such agency or (b) without the consent of Contran, participate, or
attempt to participate, in any matters related to the NL Group Tax Liability,
including, but not limited to, preparation or filing of, or resolution of
disputes, protests or audits with the Internal Revenue Service, state or local
taxing authorities concerning, the Contran Group's consolidated returns of
Federal Taxes, returns of Combined Foreign, State and Local Taxes or the NL
Group Tax Liability with respect thereto for any taxable period beginning after
December 31, 2000. The NL Group shall cooperate fully in providing Contran with
all information and documents necessary or desirable to enable Contran to
perform its obligations under this Section, including completion of Internal
Revenue Service and state or local tax audits in connection with such NL Group
Tax Liability and determination of the proper liability for such NL Group Tax
Liability.
3. Liability for Taxes; Refunds.
(a) VHI, as the common parent of the NL Group, shall be responsible
for, and shall pay to Contran or a taxing authority, as applicable, the
consolidated tax liability for the VHI Group and has the sole right to any
refunds received from Contran or a taxing authority, as applicable, subject
to the provisions of Sections 5 and 6 of this Agreement.
(b) Notwithstanding any other provision of this Agreement, NL and each
subsidiary of NL which is a member of the NL Group shall be severally
liable to VHI for the NL Group Tax Liability.
(c) NL shall indemnify VHI and hold it and the VHI Group other than
the NL Group, harmless from and against any deficiency in the NL Group Tax
Liability that may be due to VHI.
(d) VHI shall indemnify NL and hold it and the NL Group harmless from
and against any Federal Taxes and Combined Foreign, State and Local Taxes
attributable to the VHI Group or any other member of the Contran Tax Group,
other than the NL Group, as such taxes are determined under this and other
tax sharing agreements.
4. Tax Returns. VHI shall file on behalf of the NL Group any and all
federal, foreign, state and local tax returns that are required as they pertain
to the NL Group Tax Liability. The NL Group, at VHI's request, shall join in any
applicable consolidated returns of Federal Taxes and any returns of Combined
Foreign, State and Local Taxes (for which returns have not been theretofore
filed) and execute its consent to each such filing on any form as may be
prescribed for such consent if such consent is required. The decision of VHI's
Senior Vice President (or any other officer so designated by VHI) with
responsibility for tax matters shall, subject to the provisions of this
Agreement, be binding in any dispute between VHI and the NL Group as to what tax
position should be taken with respect to any item or transaction of the NL
Group. The preceding sentence is limited to the tax positions that affect the NL
Group Tax Liability and the combined VHI Group and Contran Tax Group. In
addition, VHI and members of the VHI Group, including NL and members of the NL
Group, shall provide each other with such cooperation, assistance and
information as each of them may request of the other with respect to the filing
of any tax return, amended return, claim for refund or other document with any
taxing authority. NL shall be solely responsible for all taxes due for the NL
Group with respect to tax returns filed by NL or a member of the NL Group that
are required to be filed on a separate company basis, independent of VHI.
5. Payment of NL Group Tax Liability for Federal Taxes. On or before each
date, as determined under section 6655 of the Code, for payment of an
installment of estimated Federal Taxes, NL shall pay to VHI an amount equal to
the installment which the NL Group would have been required to pay as an
estimated payment of Federal Taxes to the Internal Revenue Service if it were
filing a separate consolidated return in respect of the NL Group Tax Liability
(as determined under paragraphs 1(g), 1(h), or 1(i)). Any balance owed with
respect to the NL Group Tax Liability for such taxable period shall be paid to
VHI on or before the 15th day of the third month after the close of such taxable
period. If it is not possible to determine the amount of such balance on or
before such day, (a) a reasonable estimate thereof shall be paid on or before
such day, (b) the amount of such balance shall be finally determined on or
before the earlier of; (i) the 15th day of the ninth month after the close of
such taxable period and (ii) the date on which the consolidated tax return
containing the NL Group for such period is filed with the Internal Revenue
Service, and (c) any difference between the amount so determined and the
estimated amount paid shall; (i) in the case of an underpayment, be promptly
paid to VHI and (ii) in the case of an overpayment, be promptly refunded or
applied against the estimated NL Group Tax Liability for the immediately
following tax period, at the option of VHI. If the overpayment is not applied to
the immediately following tax period, such overpayment shall be promptly
refunded to the NL Group. As between the parties to this Agreement, the NL Group
shall be solely responsible for the NL Group Tax Liability and shall have no
responsibility for Federal Taxes of the VHI Group or the Contran Group other
than payment of the NL Group Tax Liability in accordance with the terms of this
Agreement.
6.Refunds for NL Group Losses and Credits for Federal Taxes
(a) General Provision. If the calculation with respect to the NL Group
Tax Liability for Federal Taxes results in a net operating loss ("NOL") for
the current tax period that, in the absence of a Code Section 172(b)(3)
election made by Contran, is carried back under Code Sections 172 and 1502
to a prior taxable period or periods of the NL Group with respect to which
the NL Group previously made payments to VHI, then, in that event, VHI
shall pay (or credit) NL an amount equal to the tax refund to which the NL
Group would have been entitled had the NL Group filed a separate
consolidated federal income tax return for such year (but not in excess of
the net aggregate amount of the NL Group Tax Liability paid to VHI with
respect to the preceding two taxable periods). If the calculation with
respect to the NL Group Tax Liability results in an NOL for the current tax
period, that subject to the Code Section 172(b)(3) election made by
Contran, is not carried back under Code Sections 172 and 1502 to a prior
taxable period or periods of the NL Group with respect to which NL made
payments to VHI or is not carried back because the Contran Tax Group does
not have a consolidated net operating loss for the current tax period,
then, in that event such NOL shall be an NOL carryover to be used in
computing the NL Group Tax Liability for future taxable periods, under the
law applicable to NOL carryovers in general, as such law applies to the
relevant taxable period. Furthermore, if the NL Group would have been
entitled to a refund of Federal Taxes for any year had the NL Group filed a
separate consolidated federal income tax return for the loss year and the
carryback year, VHI shall pay to NL the amount which NL would have received
as a refund from the Internal Revenue Service. Payments made pursuant to
this Section 6 shall be made on the date that Contran (or any successor
common parent of a tax group to which the VHI Group is a member) files its
consolidated federal income tax return for the taxable period involved.
Principles similar to those discussed in this Section 6 shall apply in the
case of the utilization of all NL Group loss and credit carrybacks and
carryovers.
(b) Limitation on NL Group Losses. Notwithstanding the provisions set
forth in paragraph 6(a) and in exchange for the Payment Deferral, NL Group
Losses generated in the taxable periods ending after December 31, 2003 may
not be carried back to the taxable period ending December 31, 2003. NL will
not be entitled to any refund for the taxable period ending December 31,
2003, if such refund is attributable to NL Group Losses generated in a
succeeding taxable period regardless of whether such losses are carried
back first to a taxable period ending before January 1, 2003.
7. Payment of NL Group Tax Liability for Foreign, State and Local Taxes.
The foregoing principles contained in Sections 5 and 6 shall apply in similar
fashion to any consolidated or combined foreign, state or other local income tax
returns, containing any member of the VHI Group and any member of the NL Group
that is not also a member of the VHI Group, which may be filed.
8. Subsequent Adjustments. If any settlement with the Internal Revenue
Service, foreign, state or local tax authority or court decision which has
become final results in any adjustment to any item of income, deduction, loss or
credit to the VHI Group in respect of any taxable period subject to this
Agreement, which, in any such case, affects or relates to any member of the NL
Group as constituted during such taxable period, the NL Tax Group Liability
shall be redetermined to give effect to such adjustment as if it had been made
as part of or reflected in the original computation of the NL Tax Group
Liability and proper adjustment of amounts paid or owing hereunder in respect of
such liability and allocation shall be promptly made in light thereof.
9. Amendments. This Agreement may be amended, modified, superseded or
cancelled, and any of the terms, covenants, or conditions hereof may be waived,
only by a written instrument specifically referring to this Agreement and
executed by both parties (or, in the case of a waiver, by or on behalf of the
party waiving compliance). The failure of either party at any time or times to
require performance of any provision of this Agreement shall in no manner affect
the right at a later time to enforce the same. No waiver by either party of any
condition, or of any breach of any term or covenant, contained in this
Agreement, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach, or a waiver of any
other condition or of any breach of any other term or covenant.
10. Retention of Records. VHI shall retain all tax returns, tax reports,
related workpapers and all schedules (along with all documents that pertain to
any such tax returns, reports or workpapers) that relate to a taxable period in
which the NL Group is included in a consolidated or combined tax return with
VHI. VHI shall make such documents available to NL at NL's request. VHI shall
not dispose of such documents without the permission of NL.
11. Headings. The headings of this Agreement are for convenience of
reference only, and shall not in any way affect the meaning or interpretation of
this Agreement.
12. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Delaware without regard to conflicts of
laws provisions.
13. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be an original, but all of which shall constitute but one
agreement.
14. Successors. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective subsidiaries, and their
respective successors and assigns.
15. Effective Date. This Agreement shall be effective as of December 1,
2003.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
VALHI, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxxx
Senior Vice President
CONTRAN CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxxx
Senior Vice President
NL INDUSTRIES, INC.
By: /s/ Xxxxx X. Xxxxxxx
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Xxxxx X. Xxxxxxx
Tax Director
