Exhibit 10.3

TAX AGREEMENT

Between

NL Industries, Inc.

and

CompX International Inc.

 

 

TAX AGREEMENT (the “Agreement”) dated as of January 1, 2020 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.

 

WHEREAS, NL and CompX file consolidated returns of federal income taxes and,
subject to certain jurisdictional limitations, are subject to combined state and
local tax reporting;

 

WHEREAS, this Agreement supersedes and amends and restates the Amended and
Restated Tax Agreement dated December 1, 2012, previously entered into among NL,
Contran and CompX;

 

WHEREAS, 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 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, and with
respect to a specified group of entities, the amount of all Foreign, State and
Local Taxes, for which liability is computed on the basis of a combined, unitary
or consolidated return (whether at the initiative of the tax authority or of the
taxpayer).

 

(c)Contran Corporation: A Delaware corporation that is the common parent of a
group of corporations, which group of corporations includes the CompX Group and
NL Group, electing to file a consolidated federal income tax return.

 

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(d)Federal Taxes: All federal income taxes, together with all interest and
penalties with respect thereto.

 

(e)Foreign, State and Local Taxes: All foreign, state and local taxes, including
franchise and similar taxes, together with all interest and penalties with
respect thereto.

 

(f)NL Group: NL and each of its direct and indirect subsidiaries which would be
a member of an affiliated group, within the meaning of section 1504(a) of the
Code, and eligible to file a combined, unitary or consolidated return of which
Contran was the common parent (the “Contran Tax Group”), as such NL Group is
constituted from time to time. For purposes of this Agreement (to the extent
related to the determination of Combined Foreign, State and Local Taxes for the
NL Group), 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)CompX Group: CompX and each of its direct or indirect subsidiaries which
would be a member of an affiliated group, within the meaning of section 1504(a)
of the Code, and eligible to file a combined, unitary or consolidated return of
which CompX was the common parent, as such CompX Group is constituted from time
to time. For purposes of this Agreement (to the extent related to the
determination of Combined Foreign, State and Local Taxes for the CompX Group),
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.

 

(h)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 Contran Tax
Group during such taxable period (or during any taxable period prior thereto),
and instead filed a separate consolidated or combined return, as applicable, for
such taxable period; 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
CompX Group Tax Liability, to make elections in a reasonable manner so as to
minimize the CompX Group Tax Liability.  For purposes of this Agreement, in
determining the Combined Foreign, State and Local Taxes for the CompX Group,
such determination shall be made based on a separate Foreign, State and Local
Tax Calculation as if the CompX Group were a separate unitary filer with respect
to states and other jurisdictions in which Contran is required to file on a
unitary or combined basis.

 

(i)Foreign, State and Local Tax Calculation: For each reporting period, the Tax
Calculation will be based on the estimated taxable income of the CompX Group for
the taxable period that includes such reporting period, applied to current year
tax rates and using the CompX Group’s applicable apportionment factors and
state, local or other applicable adjustments, in each case based on the
applicable combined or unitary return

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most recently-filed as of each reporting period by the Contran Tax Group for
each applicable tax jurisdiction (as modified for extraordinary, one-time event
adjustments or tax law changes, if any, impacting the unitary calculation for
the CompX Group).

 

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 Tax Group’s consolidated returns of
Federal Taxes, returns of Combined Foreign, State and Local Taxes or the CompX
Group Tax Liability with respect thereto. 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.

 

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 Federal Taxes and Combined Foreign, State and Local Taxes 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 Tax Group, other
than the CompX Group, as such taxes are determined under this and other tax
sharing agreements.

 

4.Tax Returns. Contran 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 Contran’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 Contran’s Chief Tax Officer
(or any other officer so designated

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by Contran) with responsibility for tax matters shall, subject to the provisions
of this Agreement, be binding in any dispute between Contran, 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 Tax 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 Contran or NL.

 

5.Payment of CompX Group Tax Liability for Federal Taxes and Foreign, State and
Local Taxes. On or before each date, as determined under section 6655 of the
Code (with respect to Federal Taxes) and the applicable tax provisions with
respect to any Foreign, State and Local Taxes due pursuant to this Agreement,
for payment of an installment of estimated Federal Taxes or any Foreign, State
and Local 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 or any Foreign, State and Local
Taxes to the applicable taxing authority if it were filing a separate
consolidated, combined or unitary 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 (or the applicable due date
for the Contran foreign, state or local combined or unitary return) and (ii) the
date on which the Contran Tax Group consolidated tax return for such period is
filed with the Internal Revenue Service or the applicable tax authority, 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 Tax Group other than payment of
the CompX Group Tax Liability in accordance with the terms of this
Agreement.  Notwithstanding the foregoing, NL at its option may extend the
payment due date for any of the payments referenced above.

 

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

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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 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 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. 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.

 

7.Refunds for CompX Group Combined or Unitary Foreign, State and Local Losses
and Credits. The foregoing principles contained in Section 6 shall apply in
similar fashion to any consolidated, unitary or combined foreign, state or other
local income tax returns, containing any member of the CompX Group, which may be
filed based on the CompX Group Tax Liability for Foreign, State and Local Taxes.

 

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 Contran Tax 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.

 

9.Term; Amendments.

 

a.a.The term of this Agreement shall end on December 31, 2024 and will
automatically be renewed for successive five-year periods unless terminated by
any party by giving the other two parties written notice of termination at least
ninety (90) days prior to the expiration of the then-current term; provided,
however, that this Agreement shall automatically terminate at such time as CompX
is no longer a member of the Contran Tax Group.

 

b.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

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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. Contran 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 and Contran. Contran shall make such documents available to CompX at CompX’s
request. Contran shall not dispose of such documents without the permission of
CompX.

 

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.Amendment and Restatement. Effective as of January 1, 2020, this Agreement
supersedes and amends and restates the Amended and Restated Tax Agreement dated
as of December 1, 2012, previously entered into among NL, Contran and CompX.

 

 

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IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first above written.

 

NL INDUSTRIES, INC.

 

By:     /s/ Amy A. Samford                       

Amy A. Samford

Vice President and Chief Financial Officer

 

:

CONTRAN CORPORATION

 

By:      /s/ Gregory M. Swalwell              

Gregory M. Swalwell

Executive Vice President,

Chief Financial Officer and Chief Accounting Officer

 

 

COMPX INTERNATIONAL INC.

 

By:   /s/ Kelly D. Luttmer                        

Kelly D. Luttmer

Executive Vice President and

Chief Tax Officer