TAX AGREEMENT
Between
VALHI, INC.
and
KRONOS, INC.
AGREEMENT dated as of ____________ 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 Kronos,
Inc. ("KI"), a Delaware corporation having its principal executive offices at
Three Lincoln Centre, 0000 XXX Xxxxxxx, Xxxxx 0000, Xxxxxx, XX 00000.
WHEREAS, VHI and KI file consolidated returns of federal income taxes and,
subject to certain jurisdictional limitations, are subject to combined state and
local tax reporting;
WHEREAS, the tax sharing agreement between KI and NL Industries, Inc.
("NL") shall terminate effective _______________;
WHEREAS, VHI and KI wish to provide for the allocation of liabilities, and
procedures to be followed, with respect to federal income taxes of KI and any
subsidiaries of KI 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 KI Group and one or more members of the VHI
Group not included in the KI 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) KI Group: Kronos, Inc. and each direct or indirect subsidiary of
KI which would be a member of an affiliated group, within the meaning of
section 1504(a) of the Code, of which KI 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
"KI Group" shall include all direct and indirect subsidiaries of KI with
reference to which Combined, Foreign, State and Local taxes are determined.
(g) KI Group Tax Liability: For a taxable period, the liability for
Federal Taxes and Combined Foreign, State and Local taxes, as applicable,
that the KI 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 _________ when the KI
Group was part of the consolidated federal income tax group of which NL was
the common parent ("NL Group")); 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 Contran 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 KI Group Tax Liability, to
make elections in a reasonable manner so as to minimize the KI Group Tax
Liability.
2. Contran as Agent. Contran shall be the sole agent for the KI Group in
all matters relating to the KI Group Tax Liability. The KI 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 KI 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 KI
Group Tax Liability with respect thereto for any taxable period beginning after
_________. The KI 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 KI Group Tax
Liability and determination of the proper liability for such KI Group Tax
Liability.
3. Liability for Taxes; Refunds.
(a) VHI, as the common parent of the KI 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, KI and each
subsidiary of KI which is a member of the KI Group shall be severally
liable to VHI for the KI Group Tax Liability.
(c) KI shall indemnify VHI and hold it and the VHI Group other than
the KI Group, harmless from and against any deficiency in the KI Group Tax
Liability that may be due to VHI.
(d) VHI shall indemnify KI and hold it and the KI 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 KI Group, as such taxes are determined under this and other
tax sharing agreements.
4. Tax Returns. VHI shall file on behalf of the KI Group any and all
federal, foreign, state and local tax returns that are required as they pertain
to the KI Group Tax Liability. The KI 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, if such consent has not previously been
executed, 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 KI Group as to what tax position should be taken with respect to any
item or transaction of the KI Group. The preceding sentence is limited to the
tax positions that affect the KI Group Tax Liability and the combined VHI Group
and Contran Tax Group. In addition, VHI and members of the VHI Group, including
KI and members of the KI 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. KI shall be solely responsible for all taxes
due for the KI Group with respect to tax returns filed by KI or a member of the
KI Group that are required to be filed on a separate company basis, independent
of VHI.
5. Payment of KI 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, KI shall pay to VHI an amount equal to
the installment which the KI 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 KI Group Tax Liability.
Any balance owed with respect to the KI 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 KI 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 KI 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 KI Group. As between the parties to this Agreement,
the KI Group shall be solely responsible for the KI Group Tax Liability and
shall have no responsibility for Federal Taxes of the VHI Group or the Contran
Group other than payment of the KI Group Tax Liability in accordance with the
terms of this Agreement.
6. Refunds for KI Group Losses and Credits for Federal Taxes. If the
calculation with respect to the KI 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 KI Group with
respect to which the KI Group previously made payments to VHI, then, in that
event, VHI shall pay (or credit) KI an amount equal to the tax refund to which
the KI Group would have been entitled had the KI Group filed a separate
consolidated federal income tax return for such year (but not in excess of the
net aggregate amount of the KI Group Tax Liability paid to VHI with respect to
the preceding two taxable periods). If the calculation with respect to the KI
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 KI
Group with respect to which KI 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 KI 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 KI Group would have
been entitled to a refund of Federal Taxes for any year had the KI Group filed a
separate consolidated federal income tax return for the loss year and the
carryback year as part of the NL Group, VHI shall pay to KI the amount which KI
would have received as a refund from NL. 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 KI
Group loss and credit carrybacks and carryovers.
7. Payment of KI 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 KI 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 KI
Group as constituted during such taxable period, the KI 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 KI 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 all parties (or, in the case of a waiver, by or on behalf of the
party waiving compliance). The failure of any 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 any 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 KI Group is included in a consolidated or combined tax return with
VHI. VHI shall make such documents available to KI at KI's request. VHI shall
not dispose of such documents without the permission of KI.
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 _________.
--------------
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
[Seal]
ATTEST:
CONTRAN CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxxx
-------------------------------
Xxxxxxx X. Xxxxxxxxx
Senior Vice President
[Seal]
ATTEST:
KRONOS, INC.
By: /s/ Xxxxx X. Xxxxxxx
-------------------------------
Xxxxx X. Xxxxxxx
Tax Director
