SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Section 240.14a-12
Valhi, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[LOGO GOES HERE]
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
March 31, 2003
To Our Stockholders:
You are cordially invited to attend the 2003 Annual Meeting of
Stockholders of Valhi, Inc., which will be held on Wednesday, May 21, 2003, at
10:00 a.m., local time, at Valhi's corporate offices at Three Lincoln Centre,
5430 LBJ Freeway, Suite 1700, Dallas, Texas. The matters to be acted upon at the
meeting are described in the attached Notice of Annual Meeting of Stockholders
and Proxy Statement.
Whether or not you plan to attend the meeting, please complete, date, sign
and return the enclosed proxy card or voting instruction form in the
accompanying envelope as promptly as possible to ensure that your shares are
represented and voted in accordance with your wishes. Your vote, whether given
by proxy or in person at the meeting, will be held in confidence by the
inspector of election as provided in Valhi's bylaws.
Sincerely,
/s/ Harold C. Simmons
Harold C. Simmons
Chairman of the Board
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 21, 2003
To the Stockholders of Valhi, Inc.:
NOTICE IS HEREBY GIVEN that the 2003 Annual Meeting of Stockholders (the
"Meeting") of Valhi, Inc., a Delaware corporation ("Valhi"), will be held on
Wednesday, May 21, 2003, at 10:00 a.m., local time, at the corporate offices of
Valhi at Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas for
the following purposes:
(1) To elect seven directors to serve until the 2004 Annual Meeting of
Stockholders and until their successors are duly elected and
qualified or their earlier removal, resignation or death; and
(2) To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
The board of directors of Valhi set the close of business on March 24,
2003 as the record date (the "Record Date") for the Meeting. Only holders of
Valhi's common stock, par value $0.01 per share, at the close of business on the
Record Date are entitled to notice of, and to vote at, the Meeting. Valhi's
stock transfer books will not be closed following the Record Date. A complete
list of stockholders entitled to vote at the Meeting will be available for
examination during normal business hours by any stockholder of Valhi, for
purposes related to the Meeting, for a period of ten days prior to the Meeting
at Valhi's corporate offices located at the address set forth above.
You are cordially invited to attend the Meeting. Whether or not you plan
to attend the Meeting in person, please complete, date and sign the accompanying
proxy card or voting instruction form and return it promptly in the enclosed
envelope to ensure that your shares are represented and voted in accordance with
your wishes. You may revoke your proxy by following the procedures set forth in
the accompanying proxy statement. If you choose, you may still vote in person at
the Meeting even though you previously submitted your proxy.
In accordance with Valhi's bylaws, your vote, whether given by proxy or in
person at the Meeting, will be held in confidence by the inspector of election
for the Meeting.
By Order of the Board of Directors,
/s/ A. Andrew R. Louis
A. Andrew R. Louis, Secretary
Dallas, Texas
March 31, 2003
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
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PROXY STATEMENT
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GENERAL INFORMATION
This proxy statement and the accompanying proxy card or voting instruction
form are being furnished in connection with the solicitation of proxies by and
on behalf of the board of directors (the "Board of Directors") of Valhi, Inc., a
Delaware corporation ("Valhi"), for use at the 2003 Annual Meeting of
Stockholders of Valhi to be held on Wednesday, May 21, 2003 and at any
adjournment or postponement thereof (the "Meeting"). The accompanying Notice of
Annual Meeting of Stockholders (the "Notice") sets forth the time and place and
the purposes of the Meeting. The Notice, this proxy statement, the accompanying
proxy card or voting instruction form and Valhi's Annual Report to Stockholders,
which includes Valhi's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, are first being mailed to the holders of Valhi's common
stock, par value $0.01 per share ("Valhi Common Stock"), on or about April 9,
2003. Valhi's executive offices are located at Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240-2697.
QUORUM, VOTING RIGHTS AND PROXY SOLICITATION
The record date set by the Board of Directors for the determination of
stockholders entitled to notice of and to vote at the Meeting was the close of
business on March 24, 2003 (the "Record Date"). As of the Record Date, there
were 119,440,078 shares of Valhi Common Stock issued and outstanding. Each share
of Valhi Common Stock entitles its holder to one vote on all matters to be acted
on at the Meeting. The presence, in person or by proxy, of the holders of a
majority of the shares of Valhi Common Stock entitled to vote at the Meeting is
necessary to constitute a quorum for the conduct of business at the Meeting.
Shares of Valhi Common Stock that are voted to abstain from any business coming
before the Meeting and broker/nominee non-votes will be counted as being in
attendance at the Meeting for purposes of determining whether a quorum is
present.
If a quorum is present, a plurality of the affirmative votes of the
outstanding shares of Valhi Common Stock represented and entitled to be voted at
the Meeting is necessary to elect a director of Valhi. The accompanying proxy
card or voting instruction form provides space for a stockholder to withhold
authority to vote for any of the nominees of the Board of Directors. Neither
shares as to which the authority to vote on the election of directors has been
withheld nor broker/nominee non-votes will be counted as affirmative votes to
elect director nominees to the Board of Directors. However, since director
nominees need only receive the vote of a plurality of the shares represented and
entitled to vote at the Meeting, a vote withheld from a particular nominee will
not affect the election of such nominee.
Except as applicable laws may otherwise provide, the approval of any other
matter that may properly come before the Meeting will require the affirmative
vote of a majority of the shares represented and entitled to vote at the
Meeting. Shares of Valhi Common Stock that are voted to abstain from any other
business coming before the Meeting and broker/nominee non-votes will not be
counted as votes for or against any such other matter.
Unless otherwise specified, the agents designated in the proxy card or
voting instruction form will vote the shares represented by a proxy at the
Meeting "FOR" the election of the nominees for director and, to the extent
allowed by the federal securities laws, in the discretion of the agents on any
other matter that may properly come before the Meeting.
Contran Corporation, a diversified holding company ("Contran"), and
certain related persons and entities held approximately 91% of the outstanding
shares of Valhi Common Stock as of the Record Date and have indicated their
intention to have such shares represented at the Meeting and voted "FOR" the
election of each of the nominees for director of the Board of Directors. If such
shares are represented and voted as indicated at the Meeting, a quorum will be
present and all the nominees for director will be elected as directors of Valhi.
Computershare Investor Services, L.L.C. or its successor
("Computershare"), the transfer agent and registrar for Valhi Common Stock as of
the Record Date, has been appointed by the Board of Directors to ascertain the
number of shares represented, receive proxies and ballots, tabulate the vote and
serve as inspector of election at the Meeting. All proxies, ballots and voting
instructions delivered to Computershare that identify the vote of a particular
stockholder shall be kept confidential by Computershare in accordance with the
terms of Valhi's bylaws. Each holder of record of Valhi Common Stock giving the
proxy enclosed with this proxy statement may revoke it at any time prior to the
voting of such stock at the Meeting by delivering to Computershare a written
revocation of the proxy, delivering to Computershare a duly executed proxy
bearing a later date or by voting in person at the Meeting. Attendance by a
stockholder at the Meeting will not in itself constitute the revocation of such
stockholder's proxy.
This proxy solicitation is being made by and on behalf of the Board of
Directors. Valhi will pay all expenses related to the solicitation, including
charges for preparing, printing, assembling and distributing all materials
delivered to stockholders. In addition to solicitation by mail, directors and
officers of Valhi may solicit proxies by telephone or in person for which such
persons will receive no additional compensation. Valhi has retained Georgeson
Shareholder Communications, Inc. to aid in the distribution of this proxy
statement and related materials at a cost Valhi estimates at $15,000. Upon
request, Valhi will reimburse banking institutions, brokerage firms, custodians,
trustees, nominees and fiduciaries for their reasonable out-of-pocket expenses
incurred in distributing proxy materials and voting instructions to the
beneficial owners of Valhi Common Stock held of record by such entities.
ELECTION OF DIRECTORS
The bylaws of Valhi provide that the Board of Directors shall consist of
one or more members as determined by the Board of Directors or the stockholders.
The Board of Directors has currently set the number of directors at seven. The
directors elected at the Meeting will hold office until the 2004 Annual Meeting
of Stockholders and until their successors are duly elected and qualified or
their earlier removal, resignation or death.
Mr. Edward J. Hardin is not standing for re-election at the Annual Meeting
as a director. Except for W. Hayden McIlroy, all of the nominees are currently
directors of Valhi whose terms will expire at the Meeting. All of the nominees
have agreed to serve if elected. If any nominee is not available for election at
the Meeting, a proxy will be voted "FOR" an alternate nominee to be selected by
the Board of Directors, unless the stockholder executing such proxy withholds
authority to vote for such nominee. The Board of Directors believes that all of
its present nominees will be available for election at the Meeting and will
serve if elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
FOLLOWING NOMINEES FOR DIRECTOR.
Nominees for Director. The respective nominees for election as
directors of Valhi for terms expiring at the 2004 Annual Meeting of Stockholders
have provided the following information.
Thomas E. Barry, age 59, has served as a director of Valhi since 2000. Dr.
Barry is vice president for executive affairs at Southern Methodist University
and has been a professor of marketing in the Edwin L. Cox School of Business at
Southern Methodist University since prior to 1998. Dr. Barry is also a director
of Keystone Consolidated Industries, Inc., a steel fabricated wire products,
industrial wire and carbon steel rod company affiliated with Contran
("Keystone"). Additionally, he serves as a member of Valhi's audit committee and
management development and compensation committee (the "MD&C Committee").
Norman S. Edelcup, age 67, has served as a director of Valhi and/or
certain of Valhi's predecessors since 1975. Since 2001, Mr. Edelcup has served
as senior vice president of Florida Savings Bancorp. He also serves as a trustee
for the Baron Funds, a mutual fund group. Mr. Edelcup served as senior vice
president of Item Processing of America, Inc., a processing service bureau
("IPA"), from 1999 to 2000 and as chairman of the board of IPA from prior to
1999. Additionally, he serves as chairman of Valhi's audit committee and MD&C
Committee.
W. Hayden McIlroy, age 63, is a private investor, primarily in real
estate. From 1975 to 1986, Mr. McIlroy was the owner and chief executive officer
of McIlroy Bank and Trust in Fayetteville, Arkansas. He also founded other
businesses, primarily in the food and agricultural industry. Mr. McIlroy
currently serves as a director of Med Images, Inc., a medical information
company, and Cadco Systems, Inc., a manufacturer of emergency alert systems.
Glenn R. Simmons, age 75, has served as a director of Valhi and/or certain
of Valhi's predecessors since 1980. Mr. Simmons has been vice chairman of the
board of Valhi and Contran since prior to 1998. Mr. Simmons is a director of
Valhi's majority owned subsidiary, NL Industries, Inc. ("NL"), a titanium
dioxide pigments company; chairman of the board of Keystone and CompX
International Inc., a majority owned indirect subsidiary of Valhi that
manufactures ergonomic computer support systems, precision ball bearing slides
and security products ("CompX"); and a director of Titanium Metals Corporation
("TIMET"), a company engaged in the titanium metals industry that is affiliated
with Valhi. Mr. Simmons has been an executive officer and/or director of various
companies related to Valhi and Contran since 1969. Mr. Simmons serves as a
member of Valhi's executive committee and is a brother of Harold C. Simmons.
Harold C. Simmons, age 71, has served as a director of Valhi and/or
certain of Valhi's predecessors since 1980. Mr. Simmons has been chairman of the
board of Valhi and Contran since prior to 1998 and was chief executive officer
of Valhi from prior to 1998 to 2002 and president of Valhi and Contran from
prior to 1998. Mr. Simmons is chairman of the board of NL. Mr. Simmons has been
an executive officer and/or director of various companies related to Valhi and
Contran since 1961. Mr. Simmons serves as chairman of Valhi's executive
committee and is a brother of Glenn R. Simmons.
J. Walter Tucker, Jr., age 77, has served as a director of Valhi and/or
certain of Valhi's predecessors since 1982. Mr. Tucker has been the president,
treasurer and a director of Tucker & Branham, Inc., a mortgage banking,
insurance and real estate company, and vice chairman of the board of Keystone
since prior to 1998. Mr. Tucker has been an executive officer and/or director of
various companies related to Valhi and Contran since 1982.
Steven L. Watson, age 52, has served as a director of Valhi since 1998.
Mr. Watson has been president of Valhi and Contran, and a director of Contran,
since 1998 and chief executive officer of Valhi since 2002. Mr. Watson is also a
director of CompX, Keystone, NL and TIMET. Prior to 1998, Mr. Watson served as
vice president and secretary of Valhi and Contran. Mr. Watson has served as an
executive officer and/or director of various companies related to Valhi and
Contran since 1980. Mr. Watson serves as a member of Valhi's executive
committee.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four meetings and took action by written
consent in lieu of meetings on two occasions in 2002. Each of the directors
participated in all of such meetings and of the meetings of the committees on
which they served at the time they served.
The Board of Directors has established and delegated authority to the
following three standing committees.
Audit Committee. The audit committee assists the Board of Directors
in fulfilling its oversight responsibilities relating to the financial
accounting and reporting practices of Valhi. The audit committee's primary
responsibilities are to serve as an independent and objective party to
review Valhi's auditing, accounting and financial reporting processes. For
further information on the role of the audit committee, see "Independent
Auditor Matters--Audit Committee Report." The current members of the audit
committee are Norman S. Edelcup (chairman), Edward J. Hardin and Dr.
Thomas E. Barry. The audit committee held four meetings and took action by
written consent on one occasion in 2002.
Management Development and Compensation Committee. The principal
responsibilities of the MD&C Committee are to review, approve and
administer grants of stock options and other awards under the Valhi, Inc.
1997 Long-Term Incentive Plan (the "1997 Plan"), to review and administer
the Valhi, Inc. 1987 Stock Option--Stock Appreciation Rights Plan, as
amended (the "1987 Plan"), and to review and administer such other
compensation matters as the Board of Directors may direct from time to
time. For further information on the role of the MD&C Committee, see
"Report on Executive Compensation." The current members of the MD&C
Committee are Norman S. Edelcup (chairman) and Dr. Thomas E. Barry. The
MD&C Committee held one meeting in 2002.
Executive Committee. The principal responsibilities of the executive
committee are to take such actions as are required to manage Valhi, within
the limits provided by Delaware statutes and the Board of Directors. The
current members of the executive committee are Harold C. Simmons
(chairman), Glenn R. Simmons and Steven L. Watson. The executive committee
did not hold any meetings in 2002.
The Board of Directors does not have a nominating committee or any
committee performing a similar function. All matters that would be considered by
such a committee are acted upon by the full Board of Directors. See "Stockholder
Proposals for the 2004 Annual Meeting" for a description of the procedures for
stockholder nominations of directors.
The Board of Directors is expected to elect the members of the standing
committees at the Board of Directors annual meeting immediately following the
Meeting. The Board of Directors has previously established, and from time to
time may establish, other committees to assist it in the discharge of its
responsibilities.
EXECUTIVE OFFICERS
Set forth below is certain information relating to the current executive
officers of Valhi. Each executive officer serves at the pleasure of the Board of
Directors. Biographical information with respect to Harold C. Simmons, Glenn R.
Simmons and Steven L. Watson is set forth under "Election of Directors--Nominees
for Director."
Name Age Position(s)
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Harold C. Simmons................... 71 Chairman of the Board
Glenn R. Simmons.................... 75 Vice Chairman of the Board
Steven L. Watson.................... 52 President and Chief Executive Officer
William J. Lindquist................ 45 Senior Vice President
Bobby D. O'Brien.................... 45 Vice President, Chief Financial Officer and Treasurer
Robert D. Graham.................... 47 Vice President
J. Mark Hollingsworth............... 51 Vice President and General Counsel
Gregory M. Swalwell................. 46 Vice President and Controller
Eugene K. Anderson.................. 67 Vice President and Assistant Treasurer
A. Andrew R. Louis.................. 42 Secretary
Kelly D. Luttmer.................... 39 Tax Director
William J. Lindquist has served as senior vice president of Valhi and
Contran, and a director of Contran, since 1998. Prior to 1998, Mr. Lindquist
served as vice president and tax director of Valhi and Contran. Mr. Lindquist
has served as an executive officer and/or director of various companies related
to Valhi and Contran since 1980.
Bobby D. O'Brien has served as chief financial officer of Valhi since 2002
and vice president and treasurer of Valhi and Contran since prior to 1998. Mr.
O'Brien has served in financial and accounting positions with various companies
related to Valhi and Contran since 1988.
Robert D. Graham has served as vice president of Valhi and Contran since
October 2002. From January 1997 to October 2002, Mr. Graham served as an
executive officer, and most recently as executive vice president and general
counsel, of Software Spectrum, Inc. ("SSI"). SSI is a global
business-to-business software services provider that is a wholly owned
subsidiary of Level 3 Communications, Inc. From 1991 to June 2002, SSI was a
publicly held corporation. From 1985 to 1997, Mr. Graham was a partner in the
law firm of Locke Purnell Rain Harrell (A Professional Corporation), a
predecessor to Locke Liddell and Sapp LLP.
J. Mark Hollingsworth has served as vice president of Valhi and Contran
since 1998 and as general counsel of Valhi and Contran since prior to 1998. Mr.
Hollingsworth has served as legal counsel of various companies related to Valhi
and Contran since 1983.
Gregory M. Swalwell has served as vice president of Valhi and Contran
since 1998 and controller of Valhi and Contran since prior to 1998. Mr. Swalwell
has served in accounting positions with various companies related to Valhi and
Contran since 1988.
Eugene K. Anderson has served as vice president and assistant treasurer of
Valhi and Contran since prior to 1998. Mr. Anderson has served as an executive
officer of various companies related to Valhi and Contran since 1980.
A. Andrew R. Louis has served as secretary of Valhi and Contran since
1998. Prior to 1998, Mr. Louis served as corporate counsel of Valhi and Contran.
Mr. Louis has served as legal counsel of various companies related to Valhi and
Contran since 1995.
Kelly D. Luttmer has served as tax director of Valhi and Contran since
1998. Prior to 1998, Ms. Luttmer served as assistant tax manager of Valhi and
Contran. Ms. Luttmer has served in tax accounting positions with various
companies related to Valhi and Contran since 1989.
SECURITY OWNERSHIP
Ownership of Valhi. The following table and footnotes set forth as of the
Record Date the beneficial ownership, as defined by regulations of the
Securities and Exchange Commission (the "SEC"), of Valhi Common Stock held by
each person or group of persons known to Valhi to own beneficially more than 5%
of the outstanding shares of Valhi Common Stock, each director and director
nominee of Valhi, each executive officer of Valhi named in the Summary
Compensation Table below (a "named executive officer") and all current directors
and executive officers of Valhi as a group. See footnote (4) below for
information concerning individuals and entities that may be deemed to own
indirectly and beneficially those shares of Valhi Common Stock directly held by
Contran, National City Lines, Inc. ("National") and Valhi Group, Inc. ("VGI").
All information is taken from or based upon ownership filings made by such
persons with the SEC or upon information provided by such persons.
Valhi Common Stock
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Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership (1) Class (1)(2)
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Contran Corporation and subsidiaries:
Contran Corporation (3)......................................... 3,843,200 (4)(5) 3.2%
National City Lines, Inc. (3)................................... 10,891,009 (4) 9.1%
Valhi Group, Inc. (3)........................................... 92,739,554 (4) 77.6%
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107,473,763 (4)(5) 90.0%
Thomas E. Barry..................................................... 7,000 (6) *
Norman S. Edelcup................................................... 32,000 (6) *
Edward J. Hardin.................................................... 10,000 (6) *
W. Hayden McIlroy................................................... -0- -0-
Glenn R. Simmons.................................................... 161,247 (4)(6)(7) *
Harold C. Simmons................................................... 3,383 (4)(5) *
J. Walter Tucker, Jr................................................ 249,725 (4)(6)(8) *
Steven L. Watson.................................................... 180,546 (4)(6) *
William J. Lindquist................................................ 131,700 (4)(6) *
Bobby D. O'Brien.................................................... 75,400 (4)(6) *
Gregory M. Swalwell................................................. 86,566 (4)(6) *
All current directors and executive officers as a group
(15 persons).................................................. 1,176,013 (4)(5)(6)(7)(8) 1.0%
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* Less than 1%.
(1) Except as otherwise noted, the listed individuals and group have sole
investment power and sole voting power as to all shares of Valhi Common
Stock set forth opposite their names. The number of shares and percentage
of ownership of Valhi Common Stock for each person or group assumes the
exercise by such person or group (exclusive of the exercise by others) of
stock options that such person or group may exercise within 60 days
subsequent to the Record Date.
(2) The percentages are based on 119,440,078 shares of Valhi Common Stock
outstanding as of the Record Date. Valmont Insurance Company ("Valmont"),
NL and a subsidiary of NL directly own 1,000,000, 3,522,967 and 1,186,200
shares of Valhi common stock, respectively. Valhi is the direct holder of
100% of the outstanding common stock of Valmont. NL is a majority owned
subsidiary of Valhi. Pursuant to Delaware corporate law, Valhi treats
these shares as treasury stock for voting purposes. For the purposes of
the percentage calculations in this table and footnotes such shares are
not deemed outstanding.
(3) The business address of Contran, National and VGI is Three Lincoln Centre,
5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697.
(4) National, NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie Holding")
are the direct holders of approximately 73.3%, 11.4% and 15.3%,
respectively, of the outstanding common stock of VGI. Contran and NOA are
the direct holders of approximately 85.7% and 14.3%, respectively, of the
outstanding common stock of National. Contran and Southwest Louisiana Land
Company, Inc. ("Southwest") are the direct holders of approximately 49.9%
and 50.1%, respectively, of the outstanding common stock of NOA. Dixie
Rice Agricultural Corporation, Inc. ("Dixie Rice") is the direct holder of
100% of the outstanding common stock of Dixie Holding. Contran is the
holder of 100% of the outstanding common stock of Dixie Rice and
approximately 88.9% of the outstanding common stock of Southwest.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of
Harold C. Simmons (the "Trusts"), of which Mr. Simmons is the sole
trustee. As sole trustee of the Trusts, Mr. Simmons has the power to vote
and direct the disposition of the shares of Contran stock held by the
Trusts. Mr. Simmons, however, disclaims beneficial ownership of any
Contran shares that the Trusts hold.
Harold C. Simmons is the chairman of the board of VGI, National, NOA,
Dixie Holding, Dixie Rice, Southwest and Contran. By virtue of the holding
of the offices, the stock ownership and his services as trustee, all as
described above, Mr. Simmons may be deemed to control such entities, and
Mr. Simmons and certain of such entities may be deemed to possess indirect
beneficial ownership of the shares of Valhi Common Stock directly held by
certain of such other entities. Mr. Simmons, however, disclaims beneficial
ownership of the shares of Valhi Common Stock beneficially owned, directly
or indirectly, by any of such entities, NL and its subsidiaries or
Valmont.
Glenn R. Simmons, Steven L. Watson and William J. Lindquist are directors
of Contran and all of Valhi's executive officers are executive officers of
Contran. Each of such persons disclaims beneficial ownership of the shares
of Valhi Common Stock that Contran directly or indirectly beneficially
holds.
The Harold Simmons Foundation, Inc. (the "Foundation") directly holds
approximately 1.3% of the outstanding shares of Valhi Common Stock. The
Foundation is a tax-exempt foundation organized for charitable purposes.
Harold C. Simmons is the chairman of the board of the Foundation and may
be deemed to control the Foundation. Mr. Simmons, however, disclaims
beneficial ownership of any shares of Valhi Common Stock the Foundation
holds.
The Combined Master Retirement Trust (the "Master Trust") directly holds
approximately 0.1% of the outstanding shares of Valhi Common Stock. Valhi
established the Master Trust to permit the collective investment by master
trusts that maintain assets of certain employee benefit plans Valhi and
related companies adopt. Harold C. Simmons is the sole trustee of the
Master Trust and a member of the trust investment committee for the Master
Trust. J. Walter Tucker, Jr. is also a member of the trust investment
committee for the Master Trust. The Board of Directors selects the trustee
and members of the trust investment committee for the Master Trust. Harold
C. Simmons, Glenn R. Simmons, Steven L. Watson, William J. Lindquist,
Bobby D. O'Brien, Gregory M. Swalwell and the other Valhi executive
officers are participants in one or more of the employee benefit plans
that invest through the Master Trust. Each of such persons disclaims
beneficial ownership of the shares of Valhi Common Stock the Master Trust
holds, except to the extent of his or her individual vested beneficial
interest, if any, in the assets the Master Trust holds.
The business address of NOA, Dixie Holding, the Foundation and the Master
Trust is Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
75240-2697. The business address of Dixie Rice is 600 Pasquiere Street,
Gueydan, Louisiana 70542. The business address of Southwest is 402 Canal
Street, Houma, Louisiana 70360.
(5) The shares of Valhi Common Stock shown as owned by Contran include
approximately 0.4% of the outstanding Valhi Common Stock that is directly
held by the Contran Deferred Compensation Trust No. 2 (the "CDCT No. 2").
U.S. Bank National Association serves as trustee of the CDCT No. 2.
Contran established the CDCT No. 2 as an irrevocable "rabbi trust" to
assist Contran in meeting certain deferred compensation obligations that
it owes to Harold C. Simmons. If the CDCT No. 2 assets are insufficient to
satisfy such obligations, Contran must satisfy the balance of such
obligations. Pursuant to the terms of the CDCT No. 2, Contran retains the
power to vote the shares held by the CDCT No. 2, retains dispositive power
over such shares and may be deemed the indirect beneficial owner of such
shares. Mr. Simmons, however, disclaims such beneficial ownership of the
shares beneficially owned, directly or indirectly, by the CDCT No. 2,
except to the extent of his interest as a beneficiary of the CDCT No. 2.
(6) The shares of Valhi Common Stock shown as beneficially owned by such
person or group include the following number of shares such person or
group has the right to acquire upon the exercise of stock options granted
pursuant to the 1987 Plan or 1997 Plan that such person or group may
exercise within 60 days subsequent to the Record Date:
Shares of Valhi Common Stock
Issuable Upon the Exercise
of Stock Options
Name of Beneficial Owner On or Before May 23, 2003
--------------------------------------------------------------------------- ----------------------------
Thomas E. Barry........................................................... 4,000
Norman S. Edelcup......................................................... 7,000
Edward J. Hardin.......................................................... 6,000
Glenn R. Simmons.......................................................... 148,000
J. Walter Tucker, Jr...................................................... 7,000
Steven L. Watson.......................................................... 163,300
William J. Lindquist...................................................... 131,700
Bobby D. O'Brien.......................................................... 75,400
Gregory M. Swalwell....................................................... 85,400
All other executive officers of Valhi as a group (5 persons).............. 237,000
(7) The shares of Valhi Common Stock shown as beneficially owned by Glenn R.
Simmons include 800 shares his wife holds in her retirement account, with
respect to which he disclaims beneficial ownership.
(8) The shares of Valhi Common Stock shown as beneficially owned by J. Walter
Tucker, Jr. include 200,000 shares his wife holds, with respect to which
he disclaims beneficial ownership, and 19,035 shares held by a corporation
of which he is the sole stockholder.
Valhi understands that Contran and related entities may consider acquiring
or disposing of shares of Valhi Common Stock through open-market or privately
negotiated transactions, depending upon future developments, including, but not
limited to, the availability and alternative uses of funds, the performance of
Valhi Common Stock in the market, an assessment of the business of and prospects
for Valhi, financial and stock market conditions and other factors deemed
relevant by such entities. Valhi may similarly consider acquisitions of shares
of Valhi Common Stock and acquisitions or dispositions of securities issued by
related entities.
Ownership of NL, CompX and TIMET. The following table and footnotes set
forth the beneficial ownership, as of the Record Date, of the common stock, par
value $0.125 per share, of NL ("NL Common Stock"), the class A common stock, par
value $0.01 per share, of CompX ("CompX Class A Common Stock") and the common
stock, par value $0.01 per share, of TIMET ("TIMET Common Stock") held by each
director, director nominee and named executive officer of Valhi and all current
directors and executive officers of Valhi as a group. All information is taken
from or based upon ownership filings made by such persons with the SEC or upon
information provided by such persons.
NL Common Stock CompX Class A Common Stock TIMET Common Stock
--------------------------- ---------------------------- ---------------------------
Amount and Percent Amount and Percent Amount and Percent
Nature of of Nature of of Nature of of
Beneficial Class Beneficial Class Beneficial Class
Name of Beneficial Owner Ownership (1) (1)(2) Ownership (1) (1)(3) Ownership (1) (1)(4)
-------------------------- ------------------ -------- ------------------ -------- ------------------ -------
Thomas E. Barry........... -0- (5) -0- -0- (6) -0- -0- (7) -0-
Norman S. Edelcup......... -0- (5) -0- 2,000 (6) * -0- (7) -0-
Edward J. Hardin.......... -0- (5) -0- 10,500 (6)(8) * -0- (7) -0-
W. Hayden McIlroy......... -0- (5) -0- -0- (6) -0- -0- (7) -0-
Glenn R. Simmons.......... 11,000 (5)(8) * 63,000 (6)(8) 1.2% 1,800 (7)(8) *
Harold C. Simmons......... 82,475 (5)(8)(9) * 20,000 (6)(9) * 135,460 (7)(9) 4.1%
J. Walter Tucker, Jr...... -0- (5) -0- -0- (6) -0- -0- (7) -0-
Steven L. Watson.......... 10,000 (5)(8) * 14,900 (6)(8) * 2,550 (7)(8) *
William J. Lindquist...... -0- (5) -0- 10,000 (6)(8) * -0- (7) -0-
Bobby D. O'Brien.......... -0- (5) -0- 10,300 (6)(8) * -0- (7) -0-
Gregory M. Swalwell....... -0- (5) -0- 5,000 (6)(8) * -0- (7) -0-
All current directors and
executive officers of
Valhi as a group (15 103,975 (5)(8)(9) * 153,700 (6)(8)(9) 3.0% 139,820 (7)(8)(9) 4.2%
persons) ..............
--------------------
* Less than 1%.
(1) Except as otherwise noted, the listed individuals and group have sole
investment power and sole voting power as to all shares set forth opposite
their names. The number of shares and percentage of ownership for each
person or group assumes the exercise by such person or group (exclusive of
the exercise by others) of stock options that such person or group may
exercise within 60 days subsequent to the Record Date. TIMET Common Stock
share amounts have been restated to reflect a 1-for-10 reverse stock split
of the TIMET Common Stock effective February 14, 2003 (the "TIMET Reverse
Stock Split").
(2) The percentages are based on 47,693,884 shares of NL Common Stock
outstanding as of the Record Date.
(3) The percentages are based on 5,115,780 shares of CompX Class A Common
Stock outstanding as of the Record Date.
(4) The percentages are based on 3,180,182 shares of TIMET Common Stock
outstanding as of the Record Date.
(5) Valhi and Tremont LLC, the successor to Tremont Corporation (collectively,
"Tremont"), are the direct holders of approximately 63.2% and 21.4%,
respectively, of the outstanding NL Common Stock. Valhi is the direct
holder of 100% of the membership interests of Tremont. See footnotes (2),
(4) and (5) to the "Ownership of Valhi" table above for certain
information concerning Valhi and the individuals and entities that may be
deemed to own indirectly and beneficially shares of NL Common Stock that
Valhi or Tremont directly hold. Harold C. Simmons and all other directors,
director nominees and executive officers of Valhi disclaim beneficial
ownership of all of the shares of NL Common Stock that Valhi or Tremont
directly hold.
(6) Valcor, Inc., a wholly owned subsidiary of Valhi ("Valcor"), directly owns
100% of the CompX class B common stock, par value $0.01 per share ("CompX
Class B Common Stock" and together with the CompX Class A Common Stock,
the "CompX Common Stock"). Each share of CompX Class B Common Stock
entitles the holder to one vote on all matters except the election of
directors, on which each share is entitled to ten votes. Valhi holds
approximately 7.3% of the outstanding CompX Class A Common Stock. As a
result, Valhi holds, directly and indirectly through Valcor, approximately
68.6% of the combined voting power of the CompX Common Stock
(approximately 95.5% for the election of directors). In certain instances,
shares of CompX Class B Common Stock are automatically convertible into
shares of CompX Class A Common Stock. See footnotes (2), (4) and (5) to
the "Ownership of Valhi" table above for certain information concerning
individuals and entities that may be deemed to own indirectly and
beneficially shares of CompX Common Stock that Valcor or Valhi hold
directly. Harold C. Simmons and all other directors, director nominees and
executive officers of Valhi disclaim beneficial ownership of all of the
shares of CompX Common Stock that Valhi or Valcor directly hold.
(7) Tremont, the Master Trust, Contran and Valhi directly hold approximately
39.7%, 9.0%, 2.9% and 0.1%, respectively, of the outstanding TIMET Common
Stock. Contran does not hold any TIMET Common Stock directly but holds
700,000 6 5/8% Convertible Preferred Securities, Beneficial Unsecured
Convertible Securities of TIMET Capital Trust 1 (the "BUCs"), which are
convertible into 93,730 shares of TIMET Common Stock. The percentage
ownership of TIMET Common Stock attributable to Contran assumes the full
conversion of only the BUCs that Contran directly holds. See footnotes
(2), (4) and (5) to the "Ownership of Valhi" table above for certain
information concerning individuals and entities that may be deemed to own
indirectly and beneficially shares of TIMET Common Stock that Tremont, the
Master Trust, Contran or Valhi hold directly or indirectly. Harold C.
Simmons and all other directors, director nominees and executive officers
of Valhi disclaim beneficial ownership of all of the shares of TIMET
Common Stock that Tremont, the Master Trust, Contran or Valhi directly or
indirectly hold.
(8) The shares of NL Common Stock, CompX Class A Common Stock and TIMET Common
Stock shown as beneficially owned by such person or group include the
following number of shares such person or group has the right to acquire
upon the exercise of stock options granted pursuant to NL, CompX or TIMET
stock option plans that such person or group may exercise within 60 days
subsequent to the Record Date:
Shares of CompX Class A
Shares of NL Common Stock Issuable Shares of TIMET Common
Common Stock Issuable Upon the Exercise of Stock Issuable Upon the
Upon the Exercise of Stock Options On or Exercise of Stock
Stock Options On or Before Before Options On or Before
Name of Beneficial Owner May 23, 2003 May 23, 2003 May 23, 2003
---------------------------- ------------------------ --------------------- -----------------------
Edward J. Hardin.............. -0- 5,000 -0-
Glenn R. Simmons.............. 8,000 54,000 1,000
Harold C. Simmons............. 8,000 -0- -0-
Steven L. Watson.............. 4,000 12,400 1,500
William J. Lindquist.......... -0- 10,000 -0-
Bobby D. O'Brien.............. -0- 10,000 -0-
Gregory M. Swalwell........... -0- 5,000 -0-
All other executive
officers of Valhi as a
group (5 persons)........ -0- 18,000 -0-
(9) The shares of NL Common Stock and CompX Class A Common Stock shown as
beneficially owned by Harold C. Simmons include 69,475 and 20,000 shares,
respectively, directly held by his wife. The shares of TIMET Common Stock
shown as beneficially owned by Harold C. Simmons include 1,560 shares the
Annette Simmons Grandchildren's Trust directly holds, for which Mr.
Simmons and his wife are co-trustees and the beneficiaries of which are
his wife's grandchildren (the "AS Grandchildren's Trust"). Mr. Simmons
shares the power to vote and direct the disposition of the shares of TIMET
Common Stock the AS Grandchildren's Trust directly holds. The shares of
TIMET Common Stock shown as beneficially owned by Harold C. Simmons also
include 133,900 shares of TIMET Common Stock issuable to his wife upon
conversion of 1,000,000 BUCs that she directly owns. The percentage
ownership of TIMET Common Stock attributable to Mr. Simmons assumes the
full conversion of only the BUCs that his wife directly holds. Mr. Simmons
disclaims beneficial ownership of any and all of such shares that his wife
or the AS Grandchildren's Trust directly holds.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
AND OTHER INFORMATION
Compensation of Directors. During 2002, Dr. Thomas E. Barry, Norman S.
Edelcup, Edward J. Hardin and J. Walter Tucker, Jr., directors of Valhi who were
not also employees of Valhi or an affiliate of Valhi (collectively, the
"Nonemployee Directors"), received an annual retainer of $16,000 paid in
quarterly installments, plus a fee of $1,000 per day for attendance at board
meetings and at a daily rate for other services rendered on behalf of the Board
of Directors and/or the standing committees thereof. Nonemployee Directors who
were members of the audit committee or MD&C Committee also received an annual
retainer of $1,000, paid in quarterly installments, for each of these committees
on which they served. Nonemployee Directors are also reimbursed for reasonable
expenses incurred in attending meetings and in the performance of other services
rendered on behalf of the Board of Directors and/or its committees.
In February 2002, each of the Nonemployee Directors also received under
the 1997 Plan 1,000 shares of Valhi Common Stock and stock options exercisable
for 2,000 shares of Valhi Common Stock. The annually granted stock options have
an exercise price equal to the closing sales price of Valhi Common Stock on the
date of grant, have a term of 10 years and fully vest on the first anniversary
of the date of grant. Valhi grants the annual Nonemployee Director stock and
stock options on the third business day after Valhi issues a press release
reporting its full-year earnings for the prior year.
Contran and certain of its subsidiaries, including Valhi, have entered
into certain intercorporate services agreements (collectively, the "ISAs")
pursuant to which Contran, among other things, provides the services of all or
certain of the named executive officers, to certain of Contran's subsidiaries,
including Valhi and its subsidiaries. For a discussion of these ISAs, see
"Certain Relationships and Transactions."
Summary of Cash and Certain Other Compensation of Executive Officers. The
Summary Compensation Table set forth below provides information concerning
annual and long-term compensation paid or accrued by Valhi and its subsidiaries
for services rendered to Valhi and its subsidiaries during 2002, 2001 and 2000
by Valhi's chief executive officer and each of the four other most highly
compensated individuals (based on ISA charges to Valhi and its subsidiaries) who
were executive officers of Valhi at December 31, 2002.
Harold C. Simmons was an employee of Contran for all of 2002, 2001 and
2000. For all of 2002 and 2001, Steven L. Watson, William J. Lindquist, Bobby D.
O'Brien and Gregory M. Swalwell were employees of Contran. For the second half
of 2000, Messrs. Watson, Lindquist and O'Brien were employees of Contran. For
the first half of 2000, Messrs. Watson, Lindquist and O'Brien were employees of
Valhi. For all of 2000, Mr. Swalwell was an employee of Valhi. In 2002 and 2001,
pursuant to the ISAs, Contran, among other things, provided to Valhi and certain
of Valhi's subsidiaries the services of all of the named executive officers. In
2000, pursuant to the ISAs, either Contran or Valhi provided the other the
services of the named executive officers depending on who employed the executive
officer at the time the services were rendered. Pursuant to the ISAs, the
employer of an executive officer charged the other party to the ISA a fee for
such officer's services rendered under the ISA. For a discussion of these ISAs,
see "Certain Relationships and Transactions."
SUMMARY COMPENSATION TABLE
Long Term
Compensation (1)
---------------
Awards
---------------
Annual Compensation (2) Shares
Name and ------------------------------- Underlying All Other
Principal Position Year Salary Bonus Options (#) Compensation
-------------------------------- ---- --------------- ------------- --------------- ---------------
Harold C. Simmons................ 2002 $3,992,220 (3) $ -0- (3) 2,000 (4) $ -0-
Chairman of the Board 2001 3,484,000 (3) -0- (3) 2,000 (4) -0-
2000 2,992,469 (3) -0- (3) 2,000 (4) -0-
Steven L. Watson................. 2002 1,263,680 (3) -0- (3) 2,000 (4) 9,283 (7)
President and Chief Executive 2,000 (5)
Officer 500 (6)
2001 1,040,335 (3) -0- (3) 2,000 (4) 52,481 (7)
2,000 (5)
500 (6)
2000 862,663 (3) -0- (3) 2,000 (5) 85,337 (7)
500 (6)
William J. Lindquist............. 2002 574,000 (3) -0- (3) -0- 6,657 (7)
Senior Vice President 2001 432,000 (3) -0- (3) -0- 37,635 (7)
2000 374,000 (3) -0- (3) -0- 62,906 (7)
Bobby D. O'Brien................. 2002 538,000 (3) -0- (3) -0- 598 (7)
Vice President and Treasurer 2001 455,000 (3) -0- (3) -0- 3,380 (7)
2000 373,000 (3) -0- (3) -0- 12,363 (7)
Gregory M. Swalwell.............. 2002 412,000 (3) -0- (3) -0- 140 (7)
Vice President and Controller 2001 407,000 (3) -0- (3) -0- 793 (7)
2000 129,575 (3) 126,758 (3) 25,000 (8) 11,336 (7)
--------------------
(1) No shares of restricted stock were granted to the named executive officers
nor payouts made to the named executive officers pursuant to long-term
incentive plans during the last three years. Therefore, the columns for
such compensation have been omitted.
(2) Other annual compensation for each of the named executive officers
included perquisites, which perquisites were less than the level required
for reporting pursuant to SEC rules. Therefore, the column for other
annual compensation has been omitted.
(3) For 2002 and 2001, the amounts shown in the table as salary for each of
the named executive officers represent the portion of the fees Valhi and
its subsidiaries paid to Contran pursuant to the ISAs with respect to
services such officer rendered to Valhi and its subsidiaries. For 2002 and
2001, the amounts shown in the table as salary for Messrs. Simmons and
Watson also includes director fees paid to each of them by Valhi's
subsidiaries.
For 2000, the amount shown in the table as salary for Mr. Simmons
represents the portion of the fees Valhi and its subsidiaries paid to
Contran pursuant to the ISAs with respect to services he rendered to Valhi
and its subsidiaries, plus director fees paid to him by Valhi's
subsidiaries.
For 2000, the amounts shown in the table as salary for Messrs. Watson,
Lindquist and O'Brien represent the full amount paid by Valhi and its
subsidiaries for services such individuals rendered to Valhi during the
first half of 2000, less the portion of such compensation that is
attributable to the services such executive officers rendered to Contran
and certain entities related to Contran, for which Contran credited Valhi
pursuant to the ISA between Contran and Valhi (the "Contran/Valhi ISA"),
plus the portion of such compensation that is attributable to the services
such executive officers rendered to Valhi and its subsidiaries during the
second half of 2000, for which Contran charged Valhi and its subsidiaries
pursuant to the ISAs. For 2000, the amount shown in the table as salary
for Mr. Watson also includes director fees paid to him by Valhi's
subsidiaries.
For 2000 the amounts shown in the table as compensation for Mr. Swalwell
represent the full amount paid by Valhi and its subsidiaries for services
he rendered to Valhi and its subsidiaries during 2000, less the portion of
such compensation that is attributable to the services he rendered to
Contran and certain entities related to Contran, for which Contran
credited Valhi pursuant to the Contran/Valhi ISA. The net salary and bonus
amounts shown for him for 2000 reflect the reduction for the amount
credited to Valhi by Contran for him, which has been allocated
proportionately between his base salary and bonus.
The components of salary and bonus shown in the table for each of the
named executive officers are as follows.
2000 2001 2002
-------------------- ------------------- --------------
Harold C. Simmons
Contran/Valhi ISA Fee............ $ 1,000,000 $ 1,000,000 $ 1,000,000
Contran/NL ISA Fee............... 950,000 950,000 950,000
Contran/Tremont ISA Fee.......... 980,000 980,000 980,000
Contran/CompX ISA Fee............ -0- 500,000 1,000,000
NL Cash Directors Fees........... 20,000 20,000 19,000
NL Director Stock................ 22,719 15,250 15,220
Tremont Cash Directors Fees...... 19,750 18,750 28,000
-------------- ------------- -------------
$ 2,992,469 $ 3,484,000 $ 3,992,220
============== ============= =============
Steven L. Watson
Valhi Salary..................... $ 200,000 $ -0- $ -0-
Valhi Bonus...................... -0- -0- -0-
Net Contran/Valhi ISA Fee........ 573,000 746,000 (a) 859,000 (a)
Contran/NL ISA Fee............... -0- 91,000 167,000
Contran/Tremont ISA Fee.......... -0- 24,000 83,000
Contran/CompX ISA Fee............ -0- 61,000 42,000
NL Cash Directors Fees........... 9,500 20,000 19,000
NL Director Stock................ 22,719 15,250 15,220
Tremont Cash Directors Fees...... 4,500 18,750 28,750
TIMET Cash Directors Fees........ 19,350 24,050 19,700
TIMET Director Stock............. 1,969 14,210 3,860
CompX Cash Directors Fees........ 22,000 20,000 19,000
CompX Director Stock............. 9,625 6,075 7,150
-------------- ------------- -------------
$ 862,663 $ 1,040,335 $ 1,263,680
============== ============= =============
William J. Lindquist
Valhi Salary..................... $ 150,000 $ -0- $ -0-
Valhi Bonus...................... -0- -0- -0-
Net Contran/Valhi ISA Fee........ 224,000 284,000 (a) 420,000 (a)
Contran/NL ISA Fee............... -0- 8,000 90,000
Contran/Tremont ISA Fee.......... -0- 40,000 23,000
Contran/CompX ISA Fee............ -0- 100,000 41,000
--------------- -------------- -------------
$ 374,000 $ 432,000 $ 574,000
============== ============= =============
Bobby D. O'Brien
Valhi Salary..................... $ 125,000 $ -0- $ -0-
Valhi Bonus...................... -0- -0- -0-
Net Contran/Valhi ISA Fee........ 248,000 382,000 (a) 334,000 (a)
Contran/NL ISA Fee............... -0- 44,000 167,000
Contran/Tremont ISA Fee.......... -0- 29,000 37,000
Contran/CompX ISA Fee............ -0- -0- -0-
--------------- -------------- -------------
$ 373,000 $ 455,000 $ 538,000
============== ============= =============
Gregory M. Swalwell
Valhi Salary..................... $ 153,333 $ -0- $ -0-
Valhi Bonus...................... 150,000 -0- -0-
Net Contran/Valhi ISA Fee........ (47,000) 201,000 (a) 192,000 (a)
Contran/NL ISA Fee............... -0- 114,000 127,000
Contran/Tremont ISA Fee.......... -0- 69,000 70,000
Contran/CompX ISA Fee............ -0- 23,000 23,000
--------------- -------------- -------------
$ 256,333 $ 407,000 $ 412,000
============== ============= =============
(a) For 2001 and 2002, includes amounts Contran charged pursuant to ISAs
to Medite Corporation, an indirect wholly owned subsidiary of Valhi,
and Waste Control Specialists LLC, an indirect subsidiary of Valhi.
(4) Represents shares of NL Common Stock underlying stock options NL granted
to this named executive officer.
(5) Represents shares of CompX Class A Common Stock underlying stock options
CompX granted to this named executive officer.
(6) Represents shares of TIMET Common Stock underlying stock options TIMET
granted to this named executive officer. TIMET Common Stock share amounts
have been restated to reflect the TIMET Reverse Stock Split.
(7) All other compensation for the last three years for each of the following
named executive officers consisted of matching contributions pursuant to
Valhi's deferred incentive plan (the "DIP"); and interest accruals on the
executive officer's unfunded deferred compensation reserve accounts
attributable to certain limits under the Internal Revenue Code of 1986, as
amended (the "Code"), with respect to such officer's participation in the
DIP and Valhi's former defined benefit pension plan, which accounts are
payable upon the named executed officer's retirement from, or the
termination of his employment with, Valhi (or its affiliates) or upon his
death to his beneficiaries; as follows:
Unfunded Reserve
Account Interest
Employer's Accruals Above
DIP 120% of the
Named Executive Officer Year Contributions AFR Rate (a) Total
---------------------------------------- ------- ---------------- ------------------ -----------
Steven L. Watson........................ 2002 $ -0- (b) $ 9,283 $ 9,283
2001 -0- (b) 52,481 52,481
2000 10,200 75,137 85,337
William J. Lindquist.................... 2002 -0- (b) 6,657 6,657
2001 -0- (b) 37,635 37,635
2000 9,024 53,882 62,906
Bobby D. O'Brien........................ 2002 -0- (b) 598 598
2001 -0- (b) 3,380 3,380
2000 7,524 4,839 12,363
Gregory M. Swalwell..................... 2002 -0- (b) 140 140
2001 -0- (b) 793 793
2000 10,200 1,136 11,336
(a) The agreements for these unfunded reserve accounts provide that the
balance of such accounts accrue credits in lieu of interest
compounded quarterly. Pursuant to SEC rules, the amounts shown
represent the portion of the credit accruals to the unfunded reserve
accounts that exceeds 120% of the applicable federal long-term rate
as prescribed by the Code (the "AFR Rate"). The AFR Rate used for
such computations was the 120% AFR Rate for quarterly compounding in
effect for the month of the respective quarter that the credit
accrual was added to the account.
(b) Since all of Valhi's employees became employees of Contran effective
January 1, 2001, Valhi did not make any contributions to the DIP in
2001 or 2002.
(8) Represents shares of Valhi Common Stock underlying stock options Valhi
granted to this named executive officer.
Grants of Stock Options. The following table provides information, with
respect to the named executive officers, concerning the grant of stock options
during 2002 under the 1997 Plan and the stock option plans of NL, TIMET and
CompX. Neither Valhi nor any of its parent or subsidiary corporations has
granted any stock appreciation rights ("SARs"). In addition, neither Valhi nor
any of its parent or subsidiary corporations granted any stock options to
Messrs. Lindquist, O'Brien or Swalwell in 2002.
OPTION GRANTS IN 2002
Individual Grants
---------------------------------------------------------- Potential Realizable Value at
Number of Percent of Assumed Annual Rates of
Shares of Total Options Stock Price Appreciation
Underlying Granted to Exercise or for Option Term (1)
Options Employees Base Price Expiration --------------------------------
Name Granted (#) In 2002 (2) Per Share Date 5% 10%
----------------------- --------------- -------------- -------------- ------------ --------------- --------------
Harold C. Simmons
NL Stock Options..... 2,000 (3) 16.67% $13.81 (3) 02/01/07 $ 7,640 (4) $ 16,860 (4)
Steven L. Watson
NL Stock Options..... 2,000 (3) 16.67% 13.81 (3) 02/01/07 7,640 (4) 16,860 (4)
TIMET Stock Options.. 500 (5) 16.67% 38.60 (5) 05/07/12 12,140 (4) 30,760 (4)
CompX Stock Options.. 2,000 (6) 8.00% 14.30 (6) 05/14/12 17,980 (4) 45,580 (4)
--------------------
(1) Pursuant to SEC rules, the amounts under these columns reflect
calculations at assumed 5% and 10% annual appreciation rates and,
therefore, are not intended to forecast future appreciation, if any, of
the respective underlying common stocks. The potential realizable value to
the optionees was computed as the difference between the appreciated
value, at the expiration dates of the stock options, of the applicable
underlying common stock obtainable upon exercise of such stock options and
the aggregate exercise price of such stock options.
The amount of gain to the optionees depends on the amount of increase in
the price of the applicable underlying common stock, which would benefit
all the respective stockholders proportionately. These potentially
realizable values are based solely on arbitrarily assumed rates of
appreciation required by applicable SEC rules. Actual gains, if any, on
stock option exercises depend on the future performance of the applicable
common stock, overall market conditions and the timing of the exercise
thereof by each respective optionee. There can be no assurance that the
amounts reflected in the table will be achieved.
(2) With respect to NL, TIMET and CompX stock options, the percent of total
options granted to employees is based on the number of shares underlying
stock options the respective issuer granted to its employees and directors
in 2002 as shown in the following table. In 2002, NL and TIMET did not
grant any stock options to employees and only granted stock options to its
directors. The TIMET share amount is restated to reflect the TIMET Reverse
Stock Split.
Shares of the Issuer's Common
Stock Underlying Stock Options
Issuer Granted in 2002 by the Issuer
--------------------------------------------------------------------- --------------------------------
NL................................................................... 12,000
TIMET................................................................ 3,000
CompX................................................................ 25,000
(3) This stock option represents stock options NL annually grants to its
nonemployee directors. This stock option is exercisable for shares of NL
Common Stock and becomes exercisable in full on the first anniversary of
its date of grant. The exercise price for this stock option can be paid in
already owned shares of NL Common Stock, provided the optionee held such
tendered shares for at least six months.
(4) The appreciated value per share on the respective stock option's
expiration date, based on the exercise price as the fair market value per
share of the underlying common stock, would be as follows:
Fair Market Term of 5% Assumed 10% Assumed
Value on Option in Annual Rate of Annual Rate of
Issuer Date of Grant Years Appreciation Appreciation
---------------------------------- ---------------- ----------- ----------------- ---------------
NL................................ $13.81 5 $17.63 $ 22.24
TIMET............................. 38.60 10 62.88 100.12
CompX............................. 14.30 10 23.29 37.09
(5) This stock option represents stock options TIMET annually grants to its
nonemployee directors. This stock option is exercisable in full for shares
of TIMET Common Stock and becomes exercisable on the first anniversary of
its date of grant. All TIMET Common Stock share amounts and exercise
prices for TIMET Common Stock have been restated to reflect the TIMET
Reverse Stock Split.
(6) This stock option represents stock options CompX annually grants to its
nonemployee directors. This stock option is exercisable for shares of
CompX Class A Common Stock and becomes exercisable at a rate of 20% on
each of the first five anniversary dates of the date of grant. The
exercise price for this stock option can be paid in already owned shares
of CompX Class A Common Stock, provided the optionee held such tendered
shares for at least six months.
Stock Option Exercises and Holdings. The following table provides
information with respect to each of the named executive officers concerning the
aggregate amount the named executive officer realized in 2002 upon the exercise
of stock options for Valhi, NL and TIMET Common Stock and CompX Class A Common
Stock and the value of unexercised stock options for Valhi, NL and TIMET Common
Stock and CompX Class A Common Stock such officer held as of December 31, 2002.
Neither Valhi, NL, TIMET nor CompX have granted any SARs.
AGGREGATE STOCK OPTION EXERCISES IN 2002 AND
DECEMBER 31, 2002 OPTION VALUES
Number of Shares
Shares Underlying Value of Unexercised
Acquired Unexercised Options at In-the-Money Options
on December 31, 2002 (#) at December 31, 2002 (1)
Exercise Value ---------------------------- -----------------------------
Name (#) Realized Exercisable Unexercisable Exercisable Unexercisable
--------------------------- ---------- ----------- ------------ -------------- ------------ --------------
Harold C. Simmons
Valhi Stock Options.... -0- $ -0- -0- -0- $ -0- $ -0-
NL Stock Options....... -0- -0- 8,000 2,000 14,000 6,380
---------- --------- ------------ -------------- ------------ --------------
-0- -0- 8,000 2,000 14,000 6,380
Steven L. Watson
Valhi Stock Options.... 16,700 166,135 (2) 153,300 10,000 252,161 -0-
NL Stock Options....... -0- -0- 2,000 2,000 -0- 6,380
TIMET Stock Options.... -0- -0- 1,000 500 -0- -0-
CompX Stock Options.... -0- -0- 9,200 6,800 -0- -0-
---------- --------- ------------ -------------- ------------ --------------
16,700 166,135 (2) 165,500 19,300 252,161 6,380
William J. Lindquist
Valhi Stock Options.... 52,300 509,762 (2) 115,700 22,000 109,891 -0-
CompX Stock Options.... -0- -0- 8,000 2,000 -0- -0-
---------- --------- ------------ -------------- ------------ --------------
52,300 509,762 (2) 123,700 24,000 109,891 -0-
Bobby D. O'Brien
Valhi Stock Options.... 23,600 230,006 (2) 59,400 22,000 2,436 -0-
CompX Stock Options.... -0- -0- 8,000 2,000 -0- -0-
---------- --------- ------------ -------------- ------------ --------------
23,600 230,006 (2) 67,400 24,000 2,436 -0-
Gregory M. Swalwell
Valhi Stock Options.... 23,600 230,026 (2) 69,400 32,000 40,836 -0-
CompX Stock Options.... -0- -0- 4,000 1,000 -0- -0-
---------- --------- ------------ -------------- ------------ --------------
23,600 230,026 (2) 73,400 33,000 40,836 -0-
--------------------
(1) The aggregate amount is based on the difference between the exercise price
of the individual stock options and the closing sales price of such
underlying common stock as reported on the New York Stock Exchange on
December 31, 2002. Such closing sales prices were: $8.30 per share for
Valhi Common Stock, $17.00 per share for NL Common Stock, $19.10 per share
for TIMET Common Stock and $8.37 per share for CompX Class A Common Stock.
All TIMET Common Stock prices and share amounts and exercise prices for
TIMET Common Stock were adjusted to reflect the TIMET Reverse Stock Split.
(2) The amount realized is based on the difference between the same-day sales
price per share of the underlying Valhi Common Stock issued upon exercise
and the exercise price per share.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides summary information as of December 31, 2002
with respect to Valhi's equity compensation plans under which Valhi's equity
securities may be issued to employees or nonemployees (such as directors,
consultants, advisers, vendors, customers, suppliers and lenders) in exchange
for consideration in the form of goods or services. The 1997 Plan and the 1987
Plan, both of which have been approved by Valhi's stockholders, are the only
such equity compensation plans.
Column (A) Column (B) Column (C)
--------------------------- -------------------------- ---------------------------
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to be Weighted-Average Exercise Equity Compensation Plans
Issued Upon Exercise of Price of Outstanding (Excluding Securities
Outstanding Options, Options, Reflected in
Plan Category Warrants and Rights Warrants and Rights Column (A))
--------------------------- --------------------------- --------------------------- ---------------------------
Equity compensation plans
approved by security
holders.................... 1,180,900 $9.03 4,065,000
Equity compensation plans
not approved by security
holders.................... -0- -0- -0-
Total...................... 1,180,900 $9.03 4,065,000
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Valhi's executive officers, directors and persons who own more than 10% of a
registered class of Valhi's equity securities to file reports of ownership with
the SEC, the New York Stock Exchange, Inc. and Valhi. Based solely on the review
of the copies of such forms and written representations by certain reporting
persons received, Valhi believes that for 2002 its executive officers, directors
and 10% stockholders complied with all applicable filing requirements under
section 16(a).
REPORT ON EXECUTIVE COMPENSATION
During 2002, the Nonemployee Directors and the MD&C Committee administered
matters regarding compensation of Valhi's executive officers. Such individuals
in their respective capacities submit this report, as set forth below.
The Board of Directors, with directors other than Nonemployee Directors
abstaining, considered and approved the terms of the Contran/Valhi ISA, pursuant
to which Contran provided to Valhi the services of all of Valhi's executive
officers. Valhi has no employees and contracts with Contran under the
Contran/Valhi ISA for the services of Contran's employees. The amount of the fee
Valhi pays under the Contran/Valhi ISA with respect to each of its executive
officers and others who provides services to Valhi while employed by Contran
represents, in the view of the Board of Directors, the reasonable equivalent of
"compensation" for such services.
In considering the fee Valhi pays under the Contran/Valhi ISA with respect
to Valhi's executive officers, including the chief executive officer, the
Nonemployee Directors considered the overall fee charged under the Contran/Valhi
ISA for the services such officers provide Valhi. No specific formulas,
guidelines or comparable positions were considered in determining the amount of
such fee, nor was there any specific relationship between Valhi's current or
future performance and the level of such fee.
The MD&C Committee, which is comprised solely of Nonemployee Directors,
reviews and approves actions related to grants of stock options or other equity
compensation to Valhi's executive officers pursuant to the 1997 Plan. The size
of each executive officer's grant of stock options is based upon the
recommendation of management as modified and/or approved by the chairman of the
board in his best business judgment. In 2002, Valhi's management did not
recommend that the Committee grant stock options or any other equity
compensation. Accordingly, for 2002, the MD&C Committee did not grant any stock
options or other equity compensation. Pursuant to a continuing authorization of
the MD&C Committee from prior years, Nonemployee Directors received 2002 annual
grants of stock options and shares of Valhi Common Stock.
Section 162(m) of the Code generally disallows a tax deduction to public
companies for compensation over $1.0 million paid to the company's chief
executive officer and four other most highly compensated executive officers. It
is Valhi's policy to structure the performance-based portion of the compensation
of its executive officers in a manner that enhances Valhi's ability to deduct
fully such compensation.
The following individuals in the capacities indicated submit the
foregoing report:
Norman S. Edelcup Dr. Thomas E. Barry
Nonemployee Director and chairman of Nonemployee Director and member
the MD&C Committee of the MD&C Committee
Edward J. Hardin J. Walter Tucker, Jr.
Nonemployee Director Nonemployee Director
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Relationships with Related Parties. As set forth under "Security
Ownership," Harold C. Simmons, through Contran, may be deemed to control Valhi.
Valhi and other entities that may be deemed to be controlled by or affiliated
with Mr. Simmons sometimes engage in (a) intercorporate transactions such as
guarantees, management and expense sharing arrangements, shared fee
arrangements, tax sharing agreements, joint ventures, partnerships, loans,
options, advances of funds on open account and sales, leases and exchanges of
assets, including securities issued by both related and unrelated parties and
(b) common investment and acquisition strategies, business combinations,
reorganizations, recapitalizations, securities repurchases and purchases and
sales (and other acquisitions and dispositions) of subsidiaries, divisions or
other business units, which transactions have involved both related and
unrelated parties and have included transactions that resulted in the
acquisition by one related party of an equity interest in another related party.
Valhi continuously considers, reviews and evaluates and understands that Contran
and related entities consider, review and evaluate transactions of the type
described above. Depending upon the business, tax and other objectives then
relevant, it is possible that Valhi might be a party to one or more of such
transactions in the future. In connection with these activities Valhi may
consider issuing additional equity securities or incurring additional
indebtedness. Valhi's acquisition activities have in the past and may in the
future include participation in the acquisition or restructuring activities
conducted by other companies that may be deemed to be controlled by Mr. Simmons.
It is the policy of Valhi to engage in transactions with related parties on
terms, in the opinion of Valhi, no less favorable to Valhi than could be
obtained from unrelated parties.
Each of the Valhi executive officers also currently serves as an executive
officer of certain other companies related to Valhi and it is expected that each
will continue to do so in 2003. Such management interrelationships and
intercorporate relationships may lead to possible conflicts of interest. These
possible conflicts may arise from the duties of loyalty owed by persons acting
as corporate fiduciaries to two or more companies under circumstances in which
such companies may have adverse interests. No specific procedures are in place
that govern the treatment of transactions among Valhi and its related entities,
although such entities may implement specific procedures as appropriate for
particular transactions. In addition, under applicable principles of law, in the
absence of stockholder ratification or approval by directors who may be deemed
disinterested, transactions involving contracts among companies under common
control must be fair to all companies involved. Furthermore, directors of
companies owe fiduciary duties of good faith and fair dealing to all
stockholders of the companies for which they serve.
Intercorporate Services Agreements. Valhi and certain related corporations
have entered into certain ISAs. The parties to each ISA, in exchange for agreed
upon fees and reimbursements of costs, agree to render certain services to the
other, which services may include executive officer services rendered to one
party by employees of the other. The fees paid pursuant to the ISAs are
generally based upon the estimated percentage of time individual employees,
including executive officers, devote to certain matters on behalf of the
recipient of the services and the employer's cost in providing such services.
Each of the ISAs automatically extends on a quarter-to-quarter basis, subject to
termination by either party pursuant to written notice delivered 30 days prior
to a quarter-end, and may be amended by mutual agreement.
Under the Contran/Valhi ISA, Contran renders certain management,
financial, legal, tax, administrative and aircraft maintenance services to
Valhi, including the services of all of Valhi's executive officers. Valhi paid
Contran fees of $4,179,000 for services rendered under this ISA in 2002.
The ISA between Contran and Tremont provides that Contran will make
available certain management, financial, legal, tax and administrative services
to Tremont, including the services of certain of Valhi's executive officers.
Tremont paid Contran fees of $1,448,000 for such services rendered in 2002.
Tremont also paid directors fees and expenses directly to Messrs. Glenn and
Harold Simmons and Mr. Watson.
The ISA between Contran and NL provides that Contran will make available
certain management, financial, legal, tax and administrative services to NL,
including the services of certain of Valhi's executive officers, and NL provides
certain administrative support services to Contran. NL paid Contran net fees of
$1,503,000 for services rendered under this ISA in 2002, which represented
$1,800,000 for services Contran rendered to NL less $297,000 for certain
administrative support services NL rendered to Contran. NL also paid directors
fees and expenses directly to Messrs. Glenn and Harold Simmons and Mr. Watson.
The ISA between Contran and CompX provides that Contran will make
available certain management, financial, legal, tax and administrative services
to CompX, including the services of certain of Valhi's executive officers. CompX
paid Contran fees of $1,658,000 for such services rendered in 2002. In addition,
CompX paid Valhi approximately $86,000 in rent for 2002 for use of a portion of
Valhi's corporate office space as CompX's principal offices. CompX also paid
directors fees and expenses directly to Messrs. Glenn Simmons and Watson.
The ISA between Contran and Waste Control Specialists LLC, an indirect
subsidiary of Valhi ("WCS"), provides that Contran will make available certain
management, financial, legal, tax and administrative services to WCS, including
the services of certain of Valhi's executive officers. WCS paid Contran fees of
$571,000 for such services rendered in 2002.
The ISA between Contran and Medite Corporation, an indirect wholly owned
subsidiary of Valhi ("Medite"), provides that Contran will make available
certain management, financial, legal, tax and administrative services to Medite,
including the services of certain of Valhi's executive officers. Medite paid
Contran fees of $227,000 for such services rendered in 2002.
Family Trust Loan Agreement. In May 2001, a wholly owned subsidiary of NL
Environmental Management Services, Inc. ("EMS"), a majority-owned subsidiary of
NL, loaned $20 million to one of the Trusts, the Harold C. Simmons Family Trust
No. 2 ("Family Trust No. 2"), under a $25 million revolving credit agreement.
Special independent committees of NL's and EMS' boards of directors approved the
loan. The loan bears interest at the prime rate (4.25% at December 31, 2002), is
due on demand with sixty days notice and is collateralized by 13,749 shares, or
approximately 35%, of Contran's outstanding Class A voting common stock and
5,000 shares, or 100%, of Contran's Series E Cumulative preferred stock, both of
which are owned by the Family Trust No. 2. The value of this collateral is
dependent in part on the value of Valhi as Contran's interest in Valhi is one of
Contran's more substantial assets. At December 31, 2002, the outstanding loan
balance under the revolving credit agreement was $18 million.
Sale of EWI. EWI RE, Inc. ("EWI Inc.") provides for or brokers certain
insurance policies for Contran and its related companies, including Valhi and
its subsidiaries. At January 1, 2002, one of the daughters of Harold C. Simmons
and a wholly owned subsidiary of Contran owned, directly or indirectly, 57.8%
and 42.2%, respectively, of the outstanding common stock of EWI Inc. and of the
membership interests of EWI Inc.'s management company, EWI RE, Ltd.
(collectively with EWI Inc., "EWI"). In January 2002, NL purchased EWI for an
aggregate cash purchase price of approximately $9.0 million. The purchase was
approved by a special committee of NL's board of directors consisting of two of
its independent directors, and the purchase price was negotiated by the special
committee based upon its consideration of relevant factors, including but not
limited to, due diligence performed by independent consultants and an appraisal
of EWI conducted by an independent third party selected by the special
committee.
Insurance Matters. Contran and certain of its related companies, including
Valhi and certain of its subsidiaries, participate in a combined risk management
program. Pursuant to the program, the costs of jointly owned policies are
apportioned among the insured participants. EWI Inc. and two captive insurance
subsidiaries of Valhi provide for or broker these jointly owned insurance
policies. Consistent with insurance industry practices, the captive insurance
subsidiaries and EWI Inc. receive commissions from insurance and reinsurance
underwriters for the policies that they provide or broker. During 2002, Contran
and Keystone paid approximately $153,000 and $2.2 million, respectively, for
policies provided or brokered by the captive insurance subsidiaries and EWI Inc.
These amounts principally included payments for reinsurance and insurance
premiums paid to unrelated third parties, but also included commissions paid to
the captive insurance subsidiaries and EWI Inc. Valhi expects that these
relationships with Contran and related companies and the captive insurance
subsidiaries and EWI Inc. will continue in 2003.
Through December 31, 2000, a son-in-law of Harold C. Simmons managed the
operations of EWI. Subsequent to December 31, 2000, pursuant to an amended
agreement that may be terminated upon 90 days written notice by either party,
this son-in-law provides advisory services to EWI as requested by EWI, for which
the son-in-law is paid $11,875 per month and receives certain benefits under
EWI's benefit plans. Since March 2003, such son-in-law also serves as EWI Inc.'s
chairman of the board.
Law Firm Relationship. In 2002, Contran and its related companies paid
Rogers & Hardin, LLP, a law firm of which Valhi's director Edward J. Hardin is a
partner, approximately $275,000 in fees for services Rogers & Hardin LLP
rendered to such entities. The aggregate amount paid includes approximately
$1,400 in fees CompX paid Rogers & Hardin, LLP for services rendered to CompX.
The CompX payment is the only amount Valhi or its subsidiaries paid Rogers &
Hardin in 2002. Valhi presently expects, and understands that Contran and its
other related companies presently expect, to continue their relationship with
Rogers & Hardin LLP in 2003.
Intercompany Loans. From time to time, loans and advances are made between
Valhi and various related parties, including Contran, pursuant to term and
demand notes. These loans and advances are entered into principally for cash
management purposes. When Valhi loans funds to related parties, Valhi is
generally able to earn a higher rate of return on the loan than Valhi would earn
if the funds were invested in other similar instruments. While certain of such
loans may be of a lesser credit quality than cash equivalent instruments
otherwise available to Valhi, Valhi believes that it has evaluated the credit
risks involved, and that those risks are reasonable and reflected in the terms
of the applicable loans. When Valhi borrows from related parties, Valhi is
generally able to pay a lower rate of interest than Valhi would pay if it
borrowed from unrelated parties. During 2002, Valhi borrowed varying amounts
from Contran pursuant to the terms of a demand note. Such unsecured borrowings
bore interest at a rate of prime less 0.5%. Valhi's total interest expense for
such borrowings in 2002 was approximately $922,000.
Research and Development Partnership. COAM Company is a partnership that
has sponsored research agreements with The University of Texas Southwestern
Medical Center at Dallas ("UT Southwestern") to develop and commercially market
a safe and effective treatment for arthritis (the "Arthritis Research
Agreement") and to develop and commercially market patents and technology
resulting from a cancer research program (the "Cancer Research Agreement").
COAM's partners are Contran, Valhi and National. Harold C. Simmons is the
manager of COAM. The Arthritis Research Agreement, as amended, provides for
payments by COAM to UT Southwestern of up to $1.2 million over the next two
years and the Cancer Research Agreement, as amended, provides for payments by
COAM to UT Southwestern of up to $9.3 million over the next eight years. Funding
requirements pursuant to the Arthritis and Cancer Research Agreements are
without recourse to the COAM partners and the partnership agreement provides
that no partner shall be required to make capital contributions. Valhi made no
capital contributions to COAM in 2002.
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly change in the
cumulative total stockholder return on Valhi Common Stock against the cumulative
total return of the S&P 500 Stock Index and the S&P 500 Industrial Conglomerates
Index for the period of five fiscal years commencing December 31, 1997 and
ending December 31, 2002. In prior years, Valhi has compared the cumulative
stockholder return on Valhi Common Stock against the S&P Manufacturing
(Diversified) Index. This index, however, has been discontinued and certain of
the companies included in the discontinued index are a part of the S&P 500
Industrial Conglomerates Index. The graph shows the value at December 31 of each
year assuming an original investment of $100 and the reinvestment of dividends
to stockholders.
Comparison of Cumulative Return Among Valhi, Inc. Common Stock, the S&P 500
Index and the S&P 500 Industrial Conglomerates Index
[PERFORMANCE GRAPH GOES HERE]
December 31,
---------------------------------------------------------------------------------
1997 1998 1999 2000 2001 2002
------------- ------------- ------------ ------------- ------------ --------
Valhi, Inc................. $100 $ 123 $ 115 $ 129 $ 145 $ 97
S&P 500 Index.............. 100 129 156 141 125 97
S&P 500 Industrial
Conglomerates Index...... 100 137 198 199 179 106
INDEPENDENT AUDITOR MATTERS
Independent Auditors. The firm of PricewaterhouseCoopers LLP ("PwC")
served as Valhi's independent auditors for the year ended December 31, 2002.
Valhi's audit committee has appointed PwC to review Valhi's quarterly unaudited
consolidated financial statements to be included in its Quarterly Reports on
Form 10-Q for the first three quarters of 2003. Valhi expects PwC will be
considered for appointment to audit Valhi's annual consolidated financial
statements for the year ending December 31, 2003. Representatives of PwC are not
expected to attend the Meeting.
Audit Committee Report. The audit committee of the Board of Directors is
composed of three directors, all of whom are independent within the meaning of
New York Stock Exchange current listing standards. The audit committee operates
under a written charter the Board of Directors adopted, a copy of which was
attached as Exhibit A to Valhi's proxy statement for its 2001 annual meeting of
stockholders. Valhi's management is responsible for preparing Valhi's
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America. Valhi's independent auditors
are responsible for auditing Valhi's consolidated financial statements in
accordance with auditing standards generally accepted in the United States of
America. The audit committee serves as an independent and objective party to
review Valhi's auditing, accounting and financial reporting processes.
The audit committee has reviewed and discussed Valhi's audited
consolidated financial statements for the year ended December 31, 2002 with
Valhi's management and independent auditors. The audit committee discussed with
the independent auditors the matters required by Statement on Auditing Standards
("SAS") No. 61 (Communication with Audit Committees) and SAS No. 90 (Audit
Committee Communications), received written disclosures from the independent
auditors required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and discussed with the independent auditors
their independence. The audit committee also considered whether the independent
auditors' provision of non-audit services to Valhi and its subsidiaries is
compatible with such auditors' independence. Additionally, the audit committee
discussed with Valhi's management and the independent auditors such other
matters as the committee deemed appropriate. Based on the audit committee's
review of Valhi's audited consolidated financial statements and the audit
committee's discussions with Valhi's management and independent auditors, the
audit committee recommended to the Board of Directors that Valhi's audited
consolidated financial statements for the year ended December 31, 2002 be
included in Valhi's Annual Report on Form 10-K for the year ended December 31,
2002, which has been filed with the SEC.
Norman S. Edelcup Dr. Thomas E. Barry Edward J. Hardin
Chairman of the Audit Committee Member of the Audit Committee Member of the Audit Committee
Fees Paid to PwC. The SEC recently adopted new disclosure rules applicable
to the independent auditor fee information effective May 6, 2003 pursuant to the
Sarbanes-Oxley Act of 2002. Valhi has decided to provide disclosure in
accordance with certain of these rules in advance of the effective date. The
following table shows the aggregate fees PwC has billed or is expected to bill
to Valhi and its subsidiaries for services rendered for 2001 and 2002.
Audit
Audit Related Tax All Other
Entity (1) Fees (2) Fees (3) Fees (4) Fees (5) Total
--------------------------------------- ------------- ------------- ------------- ------------- ----------
Valhi and Subsidiaries
2001............................... $ 187,100 $ 14,300 $ -0- $ -0- $ 201,400
2002............................... 281,100 16,400 -0- -0- 297,500
NL and Subsidiaries
2001............................... 511,081 24,512 52,938 26,082 614,613
2002............................... 1,616,245 111,301 41,826 4,353 1,773,725
CompX and Subsidiaries
2001............................... 216,443 87,377 21,591 -0- 325,411
2002............................... 273,086 53,192 54,632 10,680 391,590
Tremont and Subsidiaries
2001............................... 60,200 -0- -0- -0- 60,200
2002............................... 92,700 -0- -0- -0- 92,700
TIMET and Subsidiaries (6)
2001............................... 502,500 21,000 66,750 25,000 615,250
2002............................... 397,000 5,000 64,500 -0- 466,500
Total
2001............................... 1,477,324 147,189 141,279 51,082 1,816,874
2002............................... 2,660,131 185,893 160,958 15,033 3,022,015
--------------------
(1) Fees are reported without duplication.
(2) Fees for the following services:
(a) audits of consolidated year-end financials statements for each year;
(b) reviews of the unaudited quarterly financial statements for each of
the first three quarters of each year;
(c) normally provided statutory or regulatory filings or engagements for
each year;
(d) consents and assistance with the filing of registrations statements
with the SEC; and
(e) the estimated out-of-pocket costs PwC incurred in providing all of
such services for which PwC is reimbursed.
For 2002, a subsidiary of NL filed a registration statement and Valhi and
Tremont Corporation, a predecessor of Tremont LLC, jointly filed a
registration statement/proxy statement with the SEC.
(3) Fees for assurance and related services reasonably related to the audit or
review of financial statements for each year. These services include
employee benefit plan audits, accounting consultations and attest services
concerning financial accounting and reporting standards and advice
concerning internal controls.
(4) Fees for tax compliance, tax advice and tax planning services.
(5) Fees for all services not described in the other categories. No fees were
paid to PwC for financial information systems design or implementation of
such systems. The disclosed fees include payroll administration services,
consulting services and software services.
(6) Valhi accounts for its interest in TIMET by the equity method.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented
for consideration at the Meeting. If any other matters properly come before the
Meeting, the persons designated as agents in the enclosed proxy card or voting
instruction form will vote on such matters in accordance with their best
judgment.
STOCKHOLDER PROPOSALS FOR THE 2004 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at Valhi's annual stockholder meetings, consistent with rules adopted by
the SEC. Valhi must receive such proposals not later than December 10, 2003 to
be considered for inclusion in the proxy statement and form of proxy card
relating to the Annual Meeting of Stockholders in 2004. Valhi's bylaws require
that the proposal must set forth a brief description of the proposal, the name
and address of the proposing stockholder as they appear on Valhi's books, the
number of shares of Valhi Common Stock the stockholder holds and any material
interest the stockholder has in the proposal.
The Board of Directors will consider the director nominee recommendations
of Valhi stockholders. Valhi's bylaws require that a nomination set forth the
name and address of the nominating stockholder, a representation that the
stockholder will be a stockholder of record entitled to vote at the annual
stockholder meeting and intends to appear in person or by proxy at the meeting
to nominate the nominee, a description of all arrangements or understandings
between the stockholder and the nominee (or other persons pursuant to which the
nomination is to be made), such other information regarding the nominee as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the SEC and the consent of the nominee to serve as a Valhi director if
elected.
For proposals or director nominations to be brought at the 2004 Annual
Meeting of Stockholders but not included in the proxy statement for such
meeting, Valhi's bylaws require that the proposal or nomination must be
delivered or mailed to the principal executive offices of Valhi no later than
forty-five days prior to the earlier of the date (as if in the current year) on
which notice of the date of the last annual meeting was mailed or public
disclosure of the date of the meeting was made. Proposals and nominations should
be addressed to: Corporate Secretary, Valhi, Inc., Three Lincoln Centre, 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697.
2002 ANNUAL REPORT ON FORM 10-K
A copy of Valhi's Annual Report on Form 10-K for the fiscal year ended
December 31, 2002, as filed with the SEC, is included as part of the annual
report mailed to Valhi's stockholders with this proxy statement.
ADDITIONAL COPIES
Pursuant to an SEC rule concerning the delivery of annual reports and
proxy statements, a single set of these reports may be sent to any household at
which two or more stockholders reside if they appear to be members of the same
family. Each stockholder continues to receive a separate proxy card. This
procedure, referred to as householding, reduces the volume of duplicate
information stockholders receive and reduces mailing and printing expenses. A
number of brokerage firms have instituted householding. Certain beneficial
stockholders who share a single address may have received a notice that only one
annual report and proxy statement would be sent to that address unless a
stockholder at that address gave contrary instructions. If, at any time, a
stockholder who holds shares through a broker no longer wishes to participate in
householding and would prefer to receive a separate proxy statement and related
materials, or if such stockholder currently receives multiple copies of the
proxy statement and related materials at his or her address and would like to
request householding of Valhi communications, the stockholder should notify his
or her broker. Additionally, Valhi will promptly deliver a separate copy of
Valhi's 2002 annual report or this proxy statement to any stockholder at a
shared address to which a single copy of such documents was delivered, upon the
written or oral request of the stockholder.
To obtain copies of Valhi's 2002 annual report or this proxy statement
without charge, please mail your request to A. Andrew R. Louis, Corporate
Secretary, at Valhi, Inc., Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700,
Dallas, Texas 75240-2697, or call him at 972.233.1700.
VALHI, INC.
Dallas, Texas
March 31, 2003
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
------------------------------------------------------------------------------
Proxy - Valhi, Inc.
------------------------------------------------------------------------------
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF VALHI, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 21, 2003
The undersigned hereby appoints Robert D. Graham, J. Mark Hollingsworth and A.
Andrew R. Louis, and each of them, proxy and attorney-in-fact for the
undersigned, with full power of substitution, to vote on behalf of the
undersigned at the 2003 Annual Meeting of Stockholders (the "Meeting") of Valhi,
Inc., a Delaware corporation ("Valhi"), to be held at Valhi's corporate offices
at Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas on
Wednesday, May 21, 2003, at 10:00 a.m. (local time), and at any adjournment or
postponement of the Meeting, all of the shares of common stock, par value $0.01
per share, of Valhi standing in the name of the undersigned or that the
undersigned may be entitled to vote on the proposals set forth, and in the
manner directed, on this proxy card.
THIS PROXY MAY BE REVOKED AS SET FORTH IN THE VALHI PROXY
STATEMENT THAT ACCOMPANIED THIS PROXY CARD.
The proxies, if this card is properly executed, will vote in the manner directed
on this card. If no direction is made, the proxies will vote "FOR" all nominees
named on the reverse side of this card for election as directors and, to the
extent allowed by the federal securities laws, in the discretion of the proxies
as to all other matters that may properly come before the Meeting and any
adjournment or postponement thereof.
PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
SEE REVERSE SIDE.
Valhi, Inc.
[Name]
[Address]
[ ] Mark this box with an X if you have made changes to your name or address
details above.
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Annual Meeting Proxy Card
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A. Election of Directors
1. The board of directors recommends a vote FOR the listed nominees.
For Withhold
01-Thomas E. Barry [ ] [ ]
02-Norman S. Edelcup [ ] [ ]
03-W. Hayden McIlroy [ ] [ ]
04-Glenn R. Simmons [ ] [ ]
05-Harold C. Simmons [ ] [ ]
06-J. Walter Tucker, Jr. [ ] [ ]
07-Steven L. Watson [ ] [ ]
B. Other Matters
The board of directors recommends a vote FOR the following proposal.
2. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting and any adjournment or
postponement thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
C. Authorized Signatures - Sign Here - This section must be completed for
your instructions to be executed.
NOTE: Please sign exactly as the name that appears on this card. Joint owners
should each sign. When signing other than in an individual capacity,
please fully describe such capacity. Each signatory hereby revokes all
proxies heretofore given to vote at said Meeting and any adjournment or
postponement thereof.
Signature 1 - Signature 2 - Date (mm/dd/yyyy)
Please keep signature Please keep signature
within box within box
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