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, 5430 LBJ Freeway, Suite
1700, Dallas, Texas 75240, Contran Corporation ("Contran"), a Delaware
corporation having its principal executive
offices at Three Lincoln Centre, 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240 and CompX International Inc.
("CompX"), a Delaware corporation having its principal executive offices at
Three Lincoln Centre, 5430 LBJ Freeway,
Suite 1700, Dallas, Texas 75240.
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 ot
