TAX AGREEMENT
between
VALHI, INC.
and
TREMONT CORPORATION
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 Tremont
Corporation ("Tremont"), a New Jersey corporation having its principal executive
offices at 0000 Xxxxxxxx, Xxxxx 0000, Xxxxxx, XX 00000.
WHEREAS, VHI and Tremont are eligible to file consolidated returns of
federal income taxes and, subject to certain jurisdictional limitations, will be
subject to combined state and local tax reporting effective January 1, 2001;
WHEREAS, VHI and Tremont wish to provide for the allocation of
liabilities, and procedures to be followed, with respect to federal income taxes
of Tremont and any subsidiaries of Tremont 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 Tremont Group and one or
more members of the VHI Group not included in the Tremont 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) Tremont Group: Tremont Corporation and each direct or
indirect subsidiary of Tremont which would be a member of an affiliated
group, within the meaning of section 1504(a) of the Code, of which
Tremont 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 "Tremont Group"
shall include all direct and indirect subsidiaries of Tremont with
reference to which Combined, Foreign, State and Local taxes are
determined.
(g) Tremont Group Tax Liability: For a taxable period, the
liability for Federal Taxes and Combined Foreign, State and Local
taxes, as applicable, that the Tremont 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 Tremont Group Tax
Liability, to make elections in a reasonable manner so as to minimize
the Tremont Group Tax Liability.
2. Contran as Agent. Contran shall be the sole agent for the Tremont
Group in all matters relating to the Tremont Group Tax Liability. The Tremont
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 Tremont
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 Tremont Group Tax Liability with respect thereto for any taxable period
beginning after December 31, 2000. The Tremont 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 Tremont Group Tax Liability and determination of the proper
liability for such Tremont Group Tax Liability.
3. Liability for Taxes; Refunds.
(a) Valhi, as the common parent of the Tremont 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,
Tremont and each subsidiary of Tremont which is a member of the Tremont
Group shall be severally liable to VHI for the Tremont Group Tax
Liability.
(c) Tremont shall indemnify VHI and hold it and the VHI Group
other than the Tremont Group, harmless from and against any deficiency
in the Tremont Group Tax Liability that may be due to VHI.
(d) VHI shall indemnify Tremont and hold it and the Tremont
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 Tremont Group, as such taxes
are determined under this and other tax sharing agreements.
4. Tax Returns. VHI shall file on behalf of the Tremont Group any and
all federal, foreign, state and local tax returns that are required as they
pertain to the Tremont Group Tax Liability. The Tremont Group, at VHI'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
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 Tremont Group as to
what tax position should be taken with respect to any item or transaction of the
Tremont Group. The preceding sentence is limited to the tax positions that
affect the Tremont Group Tax Liability and the combined VHI Group and Contran
Tax Group. In addition, VHI and members of the VHI Group, including Tremont and
members of the Tremont 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. Tremont shall be solely responsible for all
taxes due for the Tremont Group with respect to tax returns filed by Tremont or
a member of the Tremont Group that are required to be filed on a separate
company basis, independent of VHI.
5. Payment of Tremont 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, Tremont shall pay to VHI an amount
equal to the installment which the Tremont 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 Tremont Group Tax
Liability. Any balance owed with respect to the Tremont 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 Tremont 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 Tremont 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 Tremont Group. As between the
parties to this Agreement, the Tremont Group shall be solely responsible for the
Tremont Group Tax Liability and shall have no responsibility for Federal Taxes
of the VHI Group or the Contran Group other than payment of the Tremont Group
Tax Liability in accordance with the terms of this Agreement.
6. Refunds for Tremont Group Losses and Credits for Federal Taxes. If
the calculation with respect to the Tremont 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 Tremont Group with respect to which the Tremont Group previously made
payments to VHI, then, in that event, VHI shall pay (or credit) Tremont an
amount equal to the tax refund to which the Tremont Group would have been
entitled had the Tremont Group filed a separate consolidated federal income tax
return for such year (but not in excess of the net aggregate amount of the
Tremont Group Tax Liability paid to VHI with respect to the preceding two
taxable periods). If the calculation with respect to the Tremont 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 Tremont Group
with respect to which Tremont 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 Tremont 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 Tremont Group
would have been entitled to a refund of Federal Taxes for any year had the
Tremont Group filed a separate consolidated federal income tax return for the
loss year and the carryback year, VHI shall pay to Tremont the amount which
Tremont 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 Tremont Group loss and credit carrybacks and
carryovers.
7. Payment of Tremont 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
Tremont 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
Tremont Group as constituted during such taxable period, the Tremont 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 Tremont
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 Tremont Group is included in a consolidated or combined tax
return with VHI. VHI shall make such documents available to Tremont at Tremont's
request. VHI shall not dispose of such documents without the permission of
Tremont.
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 its
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 January 1,
2001.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
VALHI, INC.
By:
-------------------------------------
Xxxxxxx X. Xxxxxxxxx
Senior Vice President
[Seal]
ATTEST:
CONTRAN CORPORATION
By:
-------------------------------------
Xxxxxxx X. Xxxxxxxxx
Senior Vice President
[Seal]
ATTEST:
TREMONT CORPORATION
By:
-------------------------------------
Xxxx X. Xxxxxxx
Vice President, Chief Financial
Officer and Treasurer
ATTEST:
