TAX AGREEMENT
BETWEEN
NL INDUSTRIES, INC.
AND
COMPX INTERNATIONAL INC.
This Agreement is executed on October 5, 2004 but effective as of October
1, 2004 by and among NL Industries, Inc. ("NL"), 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, Xxxxx 00000 and CompX International Inc.
("CompX"), a Delaware corporation having its principal executive offices at
Three Lincoln Centre, 0000 XXX Xxxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000.
Recitals
A. NL and CompX are eligible to file consolidated returns of federal
income taxes and, subject to certain jurisdictional limitations, will be subject
to, or continue to be subject to, combined state and local tax reporting
effective October 1, 2004.
B. NL and CompX wish to provide for the allocation of liabilities, and
procedures to be followed, with respect to federal income taxes of CompX and any
subsidiaries of CompX and with respect to certain combined foreign, state and
local taxes on the terms of this Agreement.
Agreement
The parties hereto agree as follows:
Section 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 CompX Group, one or more
members of the NL Group and one or more members of the Contran Group not
included in the CompX 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 and certain combined state and local returns.
(d) Federal Taxes: All federal income taxes, together with all
interest and penalties with respect thereto.
(e) NL Group: NL 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 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 "NL
Group" shall include all direct and indirect subsidiaries of NL with
reference to which Combined Foreign, State and Local Taxes are
determined.
(f) CompX Group: CompX International Inc. and each direct or
indirect subsidiary of CompX which would be a member of an affiliated
group, within the meaning of section 1504(a) of the Code, of which CompX
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 "CompX Group" shall include
all direct and indirect subsidiaries of CompX with reference to which
Combined, Foreign, State and Local taxes are determined.
(g) CompX Group Tax Liability: For a taxable period, the liability
for Federal Taxes and Combined Foreign, State and Local taxes, as
applicable, that the CompX Group would have had if it were not a member
of the NL Group or the Contran 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 October 1, 2004); 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
Group will make those tax elections that are beneficial to the Contran
Group on a consolidated basis. Nevertheless, Contran will use its best
efforts in the case of those elections which affect the computation of
the CompX Group Tax Liability, to make elections in a reasonable manner
so as to minimize the CompX Group Tax Liability.
Section 2. Contran as Agent. Contran shall be the sole agent for the
CompX Group in all matters relating to the CompX Group Tax Liability. The CompX
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 CompX
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 CompX Group Tax Liability with respect thereto for any taxable period
beginning after October 1, 2004. The CompX 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 CompX Group Tax Liability and determination of the proper
liability for such CompX Group Tax Liability.
Section 3. Liability for Taxes; Refunds.
(a) NL, as the common parent of the CompX Group, shall be
responsible for, and shall pay to Contran or a taxing authority, as
applicable, the consolidated tax liability for the NL 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, CompX
and each subsidiary of CompX which is a member of the CompX Group shall
be severally liable to NL for the CompX Group Tax Liability.
(c) CompX shall indemnify NL and hold it and the NL Group other
than the CompX Group, harmless from and against any deficiency in the
CompX Group Tax Liability that may be due to NL.
(d) NL shall indemnify CompX and hold it and the CompX Group
harmless from and against any Federal Taxes and Combined Foreign, State
and Local Taxes attributable to the NL Group or any other member of the
Contran Group, other than the CompX Group, as such taxes are determined
under this and other tax sharing agreements.
Section 4. Tax Returns. NL shall file on behalf of the CompX Group any
and all federal, foreign, state and local tax returns that are required as they
pertain to the CompX Group Tax Liability. The CompX Group, at NL's request,
shall join in any applicable consolidated returns of Federal Taxes and any
returns of Combined 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
NL's Tax Director(or any other officer so designated by NL) with responsibility
for tax matters shall, subject to the provisions of this Agreement, be binding
in any dispute between NL and the CompX Group as to what tax position should be
taken with respect to any item or transaction of the CompX Group. The preceding
sentence is limited to the tax positions that affect the CompX Group Tax
Liability and the combined NL Group and Contran Group. In addition, NL and
members of the NL Group, including CompX and members of the CompX 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.
CompX shall be solely responsible for all taxes due for the CompX Group with
respect to tax returns filed by CompX or a member of the CompX Group that are
required to be filed on a separate company basis, independent of NL.
Section 5. Payment of CompX 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, CompX shall pay to NL an amount equal
to the installment which the CompX 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 CompX Group Tax
Liability. Any balance owed with respect to the CompX Group Tax Liability for
such taxable period shall be paid to NL 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 CompX 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 NL and (ii) in the case of an overpayment, be
promptly refunded or applied against the estimated CompX Group Tax Liability for
the immediately following tax period, at the option of NL. If the overpayment is
not applied to the immediately following tax period, such overpayment shall be
promptly refunded to the CompX Group. As between the parties to this Agreement,
the CompX Group shall be solely responsible for the CompX Group Tax Liability
and shall have no responsibility for Federal Taxes of the NL Group or the
Contran Group other than payment of the CompX Group Tax Liability in accordance
with the terms of this Agreement.
Section 6. Refunds for CompX Group Losses and Credits for Federal Taxes.
If the calculation with respect to the CompX 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 CompX Group with respect to which the CompX Group previously made payments
to NL, then, in that event, NL shall pay (or credit) CompX an amount equal to
the tax refund to which the CompX Group would have been entitled had the CompX
Group filed a separate consolidated federal income tax return for such year (but
not in excess of the net aggregate amount of the CompX Group Tax Liability paid
to NL with respect to the preceding two taxable periods). If the calculation
with respect to the CompX 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 CompX Group with respect to which CompX made payments to NL or
is not carried back because the Contran 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 CompX 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 CompX
Group would have been entitled to a refund of Federal Taxes for any year had the
CompX Group filed a separate consolidated federal income tax return for the loss
year and the carryback year, NL shall pay to CompX the amount which CompX 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 NL 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 CompX Group loss and credit carrybacks and carryovers.
Section 7. Payment of CompX 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 NL Group and any member of the
CompX Group that is not also a member of the NL Group, which may be filed.
Section 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 NL Group in respect of any taxable period subject to this
Agreement, which, in any such case, affects or relates to any member of the
CompX Group as constituted during such taxable period, the CompX 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 CompX 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.
Section 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.
Section 10. Retention of Records. NL 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 CompX Group is included in a consolidated or combined tax
return with NL. NL shall make such documents available to CompX at CompX's
request. NL shall not dispose of such documents without the permission of CompX.
Section 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.
Section 12. Governing Law. This Agreement shall be construed and enforced
in accordance with the laws of the State of Delaware without regard to its
conflicts of laws provisions.
Section 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.
Section 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.
Section 15. Effective Date. This Agreement shall be effective as of
October 1, 2004.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
October 5, 2004 but effective October 1, 2004.
NL INDUSTRIES, INC.
By:
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Xxxxx X. Xxxxxxx
Tax Director
[Seal]
ATTEST:
CONTRAN CORPORATION
By:
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Xxxxxxx X. Xxxxxxxxx
Senior Vice President
[Seal]
ATTEST:
COMPX INTERNATIONAL INC.
By:
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Xxxxxx X. Xxxxxxx
Vice President, Chief Financial Officer and
Controller
[Seal]
ATTEST:
