SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Valhi, Inc.
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(Name of Registrant as Specified in Its Charter)
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[LOGO GOES HERE]
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
April 23, 2004
To Our Stockholders:
You are cordially invited to attend the 2004 Annual Meeting of Stockholders
of Valhi, Inc., which will be held on Tuesday, May 25, 2004, 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 25, 2004
To the Stockholders of Valhi, Inc.:
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting of Stockholders (the
"Meeting") of Valhi, Inc., a Delaware corporation ("Valhi"), will be held on
Tuesday, May 25, 2004, at 10:00 a.m., local time, at Valhi's corporate offices
at Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas for the
following purposes:
(1) To elect seven directors to serve until the 2005 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 29, 2004
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 the place where
Valhi will hold the meeting.
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
April 23, 2004
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 2004 Annual Meeting of
Stockholders of Valhi to be held on Tuesday, May 25, 2004 and at any adjournment
or postponement thereof (the "Meeting"). The accompanying Notice of Annual
Meeting of Stockholders (the "Notice") sets forth the time, place and 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, 2003, 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 23, 2004.
Valhi's principal 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 29, 2004 (the "Record Date"). As of the Record Date, there
were 119,466,878 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 each 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, if a quorum is present,
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.
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.
The Board of Directors is making this proxy solicitation. 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 the solicitation by mail, directors, officers and regular
employees 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 $1,100. 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 that such entities hold of record.
CONTROLLED COMPANY
Valhi Group, Inc. ("VGI"), National City Lines, Inc. ("National") and
Contran Corporation ("Contran") directly held approximately 77.6%, 9.1% and
3.1%, respectively, of the outstanding shares of Valhi Common Stock as of the
Record Date. Together VGI, National and Contran directly hold approximately
89.8% of the outstanding shares of Valhi Common Stock as of the Record Date. VGI
and National are related to Contran, a diversified holding company. Harold C.
Simmons may be deemed to control VGI, National and Contran.
VGI, National and Contran each have indicated their intention to have their
shares of Valhi Common Stock represented at the Meeting and voted "FOR" the
election of each of the nominees for director of the Board of Directors. If VGI
alone attends the Meeting in person or by proxy and votes as indicated, the
Meeting will have a quorum present and the stockholders will elect all the
nominees for the Board of Directors.
Because of the Valhi Common Stock ownership of VGI, National and Contran,
Valhi is considered a controlled company under the listing standards of the New
York Stock Exchange (the "NYSE"). Pursuant to the listing standards, a
controlled company may choose not to have a majority of independent directors,
independent compensation, nominating or corporate governance committees or
charters for these committees. Valhi has chosen not to have a majority of
independent directors or an independent nominating or corporate governance
committee. The Board of Directors believes that the full Board of Directors best
represents the interests of all of Valhi's stockholders and that it is
appropriate for all matters that would be considered by a nominating or
corporate governance committee to be considered and acted upon by the full Board
of Directors. Applying the requirements of the NYSE listing standards, the Board
of Directors has determined that three of its directors are independent and have
no material relationship with Valhi. While the members of Valhi's management
development and compensation committee (the "MD&C Committee") currently satisfy
the independence requirements of the NYSE listing standards, Valhi has chosen
not to satisfy all of the NYSE listing standards for a compensation committee.
See "Meetings and Committees of the Board of Directors" for more information on
the committees of the Board of Directors. See also "Stockholder Proposals for
the 2005 Annual Meeting" for a description of Valhi's policies and procedures
for stockholder nominations of directors.
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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 2005 Annual Meeting
of Stockholders and until their successors are duly elected and qualified or
their earlier removal, resignation or death.
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, all shares represented
by 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 2005 Annual Meeting of Stockholders have
provided the following information.
Thomas E. Barry, age 61, 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 1999. Dr. Barry is also a director
of Keystone Consolidated Industries, Inc., a steel fabricated wire products,
industrial wire and carbon steel rod company that is related to Contran
("Keystone"). Additionally, he serves as a member of Valhi's audit committee and
MD&C Committee.
Norman S. Edelcup, age 68, has served as a director of Valhi or certain of
Valhi's predecessors since 1975. Since 2001, Mr. Edelcup has served as senior
vice president of Florida Savings Bancorp. Since October 2003, he has served as
mayor of Sunny Isles Beach, Florida. 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 64, 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.
Additionally, he serves as a member of Valhi's audit committee.
Glenn R. Simmons, age 76, has served as a director of Valhi or certain of
Valhi's predecessors since 1980. Mr. Simmons has been vice chairman of the board
of Valhi and Contran since prior to 1999. Mr. Simmons is a director of NL
Industries, Inc. ("NL"), and its subsidiary, Kronos Worldwide, Inc. ("Kronos
Worldwide"), which are engaged in the manufacture of titanium dioxide pigments
and related to Valhi; chairman of the board of Keystone and CompX International
Inc., a manufacturer of ergonomic computer support systems, precision ball
bearing slides and security products that is related to Valhi ("CompX"); and a
director of Titanium Metals Corporation, an integrated producer of titanium
metals products that is related to Valhi ("TIMET"). In February 2004, Keystone
filed a voluntary petition for reorganization under federal bankruptcy laws. Mr.
Simmons has been an executive officer 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 72, has served as a director of Valhi or certain of
Valhi's predecessors since 1980. Mr. Simmons has been chairman of the board of
Valhi and Contran since prior to 1999 and was chief executive officer of Valhi
from prior to 1999 to 2002. Mr. Simmons is also chairman of the board and chief
executive officer of NL and Kronos Worldwide. Mr. Simmons has been an executive
officer 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.
-3-
J. Walter Tucker, Jr., age 78, has served as a director of Valhi 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 1999.
In February 2004, Keystone filed a voluntary petition for reorganization under
federal bankruptcy laws. Mr. Tucker has been an executive officer or director of
various companies related to Valhi and Contran since 1982.
Steven L. Watson, age 53, 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, Kronos Worldwide, NL and TIMET. Mr. Watson has
served as an executive officer or director of various companies related to Valhi
and Contran since 1980. Mr. Watson serves as a member of Valhi's executive
committee.
-4-
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held three meetings and took action by written
consent in lieu of meetings on five occasions in 2003. Each director
participated in all of such meetings and of the meetings of the committees on
which they served at the time they served. It is Valhi's policy that each
director attend its annual meeting of stockholders, which is generally held
immediately before the annual meeting of the Board of Directors. All current
members of the Board of Directors attended Valhi's 2003 annual stockholders
meeting.
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'
oversight responsibilities relating to the financial accounting and
reporting processes and auditing processes of Valhi. The responsibilities
of the audit committee are more specifically set forth in the audit
committee charter attached as Appendix A to this proxy statement. Applying
the requirements of the NYSE listing standards and Securities and Exchange
Commission ("SEC") regulations, as applicable, the Board of Directors has
determined that
- each member of the audit committee is financially literate and
independent and has no material relationship with Valhi; and
- Mr. Norman S. Edelcup is the "audit committee financial expert."
No member of the audit committee serves on more than three public company
audit committees. For further information on the role of the audit
committee, see "Audit Committee Report." The current members of the audit
committee are Norman S. Edelcup (chairman), Dr. Thomas E. Barry and W.
Hayden McIlroy. The audit committee held eight meetings and took action by
written consent on one occasion in 2003.
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. The Board of Directors has determined that each member of the MD&C
Committee is independent by applying the requirements of the NYSE listing
standards. 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 and took action by written consent on one
occasion in 2003.
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 2003.
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.
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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)
------------------------------------ ------ -----------------------------------------------------
Harold C. Simmons................... 72 Chairman of the Board
Glenn R. Simmons.................... 76 Vice Chairman of the Board
Steven L. Watson.................... 53 President and Chief Executive Officer
William J. Lindquist................ 46 Senior Vice President
Bobby D. O'Brien.................... 46 Vice President, Chief Financial Officer and Treasurer
Robert D. Graham.................... 48 Vice President
J. Mark Hollingsworth............... 52 Vice President and General Counsel
Gregory M. Swalwell................. 47 Vice President and Controller
Eugene K. Anderson.................. 68 Vice President and Assistant Treasurer
A. Andrew R. Louis.................. 43 Secretary
Kelly D. Luttmer.................... 40 Tax Director
William J. Lindquist has served as senior vice president of Valhi and
Contran, and a director of Contran, since 1998. Mr. Lindquist has served as an
executive officer 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 1999. 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
2002, as vice president, general counsel and secretary of NL since July 2003 and
as vice president, general counsel and secretary of Kronos Worldwide since
August 2003. From 1997 to 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 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 and general counsel of
Valhi and Contran and general counsel of CompX since prior to 1999. 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, controller of Valhi and Contran since prior to 1999, vice president,
finance of NL since July 2003 and vice president, finance of Kronos Worldwide
since August 2003. 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 1999. 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 CompX, Valhi and Contran
since 1998. 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 CompX, Valhi and Contran
since 1998, tax director of NL since July 2003 and tax director of Kronos
Worldwide since August 2003. 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.
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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 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 of Valhi, each executive officer of Valhi named in the Summary
Compensation Table in this proxy statement (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 that VGI,
National and Contran directly hold. 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
-----------------------------------------------
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership (1) Class (1)(2)
------------------------ -------------------------------- --------------
Harold C. Simmons (3)........................................... 3,383 (4) *
Valhi Group, Inc. (3)....................................... 92,739,554 (4) 77.6%
National City Lines, Inc. (3)............................... 10,891,009 (4) 9.1%
Contran Corporation (3)..................................... 4,142,600 (4)(5) 3.5%
Other....................................................... 1,215,000 (4)(6) 1.0%
--------------
108,991,546 (4)(5)(6) 91.2%
Thomas E. Barry................................................. 9,000 (7) *
Norman S. Edelcup............................................... 34,000 (7) *
W. Hayden McIlroy............................................... 1,500 *
Glenn R. Simmons................................................ 13,247 (4)(8) *
J. Walter Tucker, Jr............................................ 251,725 (4)(7)(9) *
Steven L. Watson................................................ 117,246 (4)(7) *
William J. Lindquist............................................ 130,000 (4)(7) *
Bobby D. O'Brien................................................ 80,000 (4)(7) *
Gregory M. Swalwell............................................. 96,166 (4)(7) *
All current directors and executive officers as a group
(15 persons)................................................ 109,997,476 (4)(5)(6)(7)(8)(9) 91.5%
--------------------
* 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 119,466,878 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 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, VGI and Harold C. Simmons is
Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
75240-2697.
-7-
(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, or is
held by Mr. Simmons or persons or other entities related to Mr. Simmons. 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 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 0.9% 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. Mr.
Simmons, however, disclaims beneficial ownership of any shares of Valhi
Common Stock the Foundation holds.
The Contran Deferred Compensation Trust No. 2 (the "CDCT No. 2") directly
holds approximately 0.4% of the outstanding shares of Valhi Common Stock.
U.S. Bank National Association serves as the 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.
The Combined Master Retirement Trust (the "CMRT") directly holds
approximately 0.1% of the outstanding shares of Valhi Common Stock. Valhi
established the CMRT 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 CMRT and a
member of the trust investment committee for the CMRT. J. Walter Tucker,
Jr. is also a member of the trust investment committee for the CMRT. The
Board of Directors selects the trustee and members of the trust investment
committee for the CMRT. The Valhi executive officers are participants in
one or more of the employee benefit plans that invest through the CMRT.
Each of such persons disclaims beneficial ownership of all of the shares of
Valhi Common Stock the CMRT holds, except to the extent of his or her
individual vested beneficial interest, if any, in the assets the CMRT
holds.
-8-
The business address of NOA, Dixie Holding, the Foundation and the CMRT 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) Includes 439,400 shares of Valhi Common Stock the CDCT No. 2 directly
holds.
(6) Includes 1,100,000 and 115,000 shares of Valhi Common Stock directly held
by the Foundation and the CMRT, respectively.
(7) 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
Valhi's stock option plans 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 28, 2004
--------------------------------------------------------------------------- ----------------------------
Thomas E. Barry........................................................... 6,000
Norman S. Edelcup......................................................... 9,000
J. Walter Tucker, Jr...................................................... 9,000
Steven L. Watson.......................................................... 100,000
William J. Lindquist...................................................... 130,000
Bobby D. O'Brien.......................................................... 80,000
Gregory M. Swalwell....................................................... 95,000
All other executive officers of Valhi as a group (5 persons).............. 271,600
(8) 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.
(9) 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.
-9-
Ownership of Related Companies. Valhi directors and executive officers own
equity securities of certain Valhi related companies.
Ownership of Kronos Worldwide, NL and TIMET. The following table and
footnotes set forth the beneficial ownership, as of the Record Date, of the
shares of common stock, par value $0.125 per share, of NL ("NL Common Stock"),
the common stock, par value $0.01 per share, of Kronos Worldwide ("Kronos
Worldwide Common Stock") and the common stock, par value $0.01 per share, of
TIMET ("TIMET Common Stock") held by each director 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.
Kronos Worldwide NL TIMET
Common Stock Common Stock 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)
---------------------------- ------------------ -------- ------------------ -------- -------------------------
Harold C. Simmons.......... 3,042 (5) * 12,000 (5)(6) * -0- (5) -0-
NL Industries, Inc...... 24,702,400 (5) 50.5% n/a (5) n/a -0- (5) -0-
Valhi, Inc.............. 16,029,146 (5) 32.8% 30,135,390 (5) 62.4% 37,168 (5) 1.2%
Tremont LLC............. 5,180,738 (5) 10.6% 10,215,541 (5) 21.1% 1,261,850 (5) 39.7%
The Combined Master
Retirement Trust...... -0- (5) -0- -0- (5) -0- 266,812 (5) 8.4%
Spouse.................. 35,233 (5) * 69,475 (5) * 214,240 (5) 6.3%
Other................... -0- (5) -0- -0- (5) -0- 4,760 (5) *
---------- ---------- ---------
45,950,559 (5) 93.9% 40,432,406 (5) 83.7% 1,784,830 (5) 52.6%
Thomas E. Barry............ -0- (5) -0- -0- (5) -0- -0- (5) -0-
Norman S. Edelcup.......... -0- (5) -0- -0- (5) -0- -0- (5) -0-
W. Hayden McIlroy.......... -0- (5) -0- -0- (5) -0- -0- (5) -0-
Glenn R. Simmons........... 2,071 (5) * 12,000 (5)(6) * 1,000 (5)(6) *
J. Walter Tucker, Jr....... -0- (5) -0- -0- (5) -0- -0- (5) -0-
Steven L. Watson........... 3,549 (5) * 11,000 (5)(6) * 3,050 (5)(6) *
William J. Lindquist....... -0- (5) -0- -0- (5) -0- -0- (5) -0-
Bobby D. O'Brien........... -0- (5) -0- -0- (5) -0- -0- (5) -0-
Gregory M. Swalwell........ -0- (5) -0- -0- (5) -0- -0- (5) -0-
All current directors and
executive officers of
Valhi as a group (15
persons) ............... 45,956,432 (5) 93.9% 40,455,906 (5)(6) 83.7% 1,788,890 (5)(6) 52.6%
--------------------
* 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.
(2) The percentages are based on 48,943,049 shares of Kronos Worldwide Common
Stock outstanding as of the Record Date.
(3) The percentages are based on 48,323,984 shares of NL Common Stock
outstanding as of the Record Date.
(4) The percentages are based on 3,179,942 shares of TIMET Common Stock
outstanding as of the Record Date.
-10-
(5) NL, Valhi and Tremont LLC ("Tremont") are the direct holders of 50.5%,
32.8% and 10.6% of outstanding shares of Kronos Worldwide Common Stock.
Valhi and Tremont are the direct holders of approximately 62.4% and 21.1%,
respectively, of the outstanding NL Common Stock. Valhi is the direct
holder of 100% of the membership interests of Tremont.
Tremont, the CMRT, Harold C. Simmons' spouse and Valhi are the direct
holders of approximately 39.7%, 8.4%, 6.3% and 1.2% of the outstanding
TIMET Common Stock. The shares of TIMET Common Stock that Mr. Simmons'
spouse owns includes 214,240 shares of TIMET Common Stock that may be
acquired upon conversion of 1,600,000 6 5/8% Convertible Preferred
Securities, Beneficial Unsecured Convertible Securities of TIMET Capital
Trust 1 (the "BUCs") that she directly holds. The shares of TIMET Common
Stock that Valhi owns includes 1,968 shares of TIMET Common Stock that may
be acquired upon conversion of 14,700 BUCs that Valhi directly holds. Mr.
Simmons' spouse's and Valhi's percentage ownership of TIMET Common Stock
assumes the full conversion of only the BUCs owned by her or Valhi,
respectively.
See footnotes (2), (4), (5) and (6) to the "Ownership of Valhi" table above
for certain information concerning the CMRT, Valhi and other individuals
and entities that may be deemed to own indirectly and beneficially shares
of Kronos Worldwide, NL and TIMET Common Stock that NL, Valhi, Tremont and
the CMRT directly hold, as applicable. The directors and executive officers
of Valhi disclaim beneficial ownership of all of the shares of Kronos
Worldwide, NL and TIMET Common Stock that the CMRT, NL, Tremont or Valhi
directly hold, except to the extent of his or her individual vested
beneficial interest, if any, in the assets the CMRT holds.
A trust, of which Harold C. Simmons and his spouse are trustees and the
beneficiaries are the grandchildren of his spouse, is the direct holder of
4,760 shares of TIMET Common Stock. Mr. Simmons, as co-trustee of this
trust, has the power to vote and direct the disposition of the shares of
TIMET Common Stock the trust holds. Mr. Simmons disclaims beneficial
ownership of any shares of TIMET Common Stock that this trust holds
directly.
Harold C. Simmons disclaims beneficial ownership of any and all shares that
his spouse directly holds.
(6) The shares of NL and TIMET Common Stock shown as beneficially owned by such
person 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
and TIMET stock option plans that such person may exercise within 60 days
subsequent to the Record Date:
Shares of NL Common Stock Shares of TIMET Common Stock
Issuable Upon the Exercise Issuable Upon the Exercise of
of Stock Options Stock Options
Name of Beneficial Owner On or Before May 28, 2004 On or Before May 28, 2004
------------------------------------------ ----------------------------- ------------------------------
Glenn R. Simmons......................... 2,000 1,000
Harold C. Simmons........................ 6,000 -0-
Steven L. Watson......................... 4,000 1,500
Valhi has pledged approximately 62.0% of the outstanding shares of NL
Common Stock to secure Valhi's bank borrowings. Foreclosure by the lender on
this pledge in the event of Valhi's default on the loan, which Valhi believes is
unlikely, may at a subsequent date result in a change in control of NL.
-11-
Ownership of CompX. The following table and footnotes set forth the
beneficial ownership, as of the Record Date, of the class A common stock, par
value $0.01 per share, of CompX ("CompX Class A Common Stock") and the class B
common stock, par value $0.01 per share, of CompX ("CompX Class B Common Stock,"
and collectively with the CompX Class A Common Stock, the "CompX Common Stock")
held by each director 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.
CompX Class
A and Class
CompX Class A CompX Class B B Common
Common Stock Common Stock (1) Stock
---------------------------------- ------------------------------- Combined
Amount and Nature of Percent Amount and Nature Percent Percent of
Beneficial of Class of Beneficial of Class Class
Beneficial Owner Ownership (2) (2)(3) Ownership (2) (2)(3) (2)(3)
---------------- ----------------------- --------- -------------------- --------- ----------
Harold C. Simmons............. 82,300 (4) 1.6% -0- (4) -0- *
Valcor, Inc................ -0- (4) -0- 10,000,000 (4) 100.0% 66.1%
TIMET Finance Management
Company.................. 1,259,210 (4) 24.6% -0- (4) -0- 8.3%
Valhi, Inc................. 374,000 (4) 7.3% -0- (4) -0- 2.5%
Spouse..................... 20,000 (4) * -0- (4) -0- *
----------- -----------
1,735,510 (4) 33.9% 10,000,000 (4) 100.0% 77.6%
Thomas E. Barry............... -0- (4) -0- -0- (4) -0- -0-
Norman S. Edelcup............. 2,000 (4) * -0- (4) -0- *
W. Hayden McIlroy............. -0- (4) -0- -0- (4) -0- -0-
Glenn R. Simmons.............. 67,100 (4)(5)(6) 1.3% -0- (4) -0- *
J. Walter Tucker, Jr.......... -0- (4) -0- -0- (4) -0- -0-
Steven L. Watson.............. 17,600 (4)(5) * -0- (4) -0- *
William J. Lindquist.......... 10,000 (4)(5) * -0- (4) -0- *
Bobby D. O'Brien.............. 10,300 (4)(5) * -0- (4) -0- *
Gregory M. Swalwell........... 5,000 (4)(5) * -0- (4) -0- *
All current directors and
executive officers of Valhi
as a group (15 persons).... 1,865,710 (4)(5)(6) 35.6% 10,000,000 (4) 100.0% 77.9%
--------------------
* Less than 1%.
(1) 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. In certain instances, shares of CompX Class B Common
Stock are automatically convertible into shares of CompX Class A Common
Stock.
(2) 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.
(3) The percentages are based on 5,124,780 shares of CompX Class A Common Stock
outstanding as of the Record Date and 10,000,000 shares of CompX Class B
Common Stock outstanding as of the Record Date.
(4) Valhi is the direct holder of 100% of the outstanding common stock of
Valcor, Inc. ("Valcor"). TIMET is the direct holder of 100% of the
outstanding common stock of TIMET Finance Management Company ("TFMC").
-12-
As of the Record Date, Valhi holds, directly and indirectly through TFMC
and Valcor, approximately 76.9% of the combined voting power of the CompX
Common Stock (approximately 96.7% for the election of directors). See
footnotes (2), (4), (5) and (6) to the "Ownership of Valhi" table above for
certain information concerning TIMET, Valhi and other individuals and
entities that may be deemed to own indirectly and beneficially shares of
CompX Common Stock that Valcor, TFMC, and Valhi directly hold. Harold C.
Simmons and all other directors and executive officers of Valhi disclaim
beneficial ownership of all of the shares of CompX Common Stock that
Valcor, TFMC, and Valhi directly hold.
Harold C. Simmons disclaims beneficial ownership of any and all shares that
his spouse directly holds.
(5) The shares of CompX Class A 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 that such
person or group may exercise within 60 days subsequent to the Record Date:
Shares of CompX Class A Common
Stock Issuable Upon the
Exercise of Stock Options
Name of Beneficial Owner On or Before May 28, 2004
---------------------------------------------------------------------- -----------------------------
Glenn R. Simmons....................................................... 55,600
Steven L. Watson....................................................... 13,600
William J. Lindquist................................................... 10,000
Bobby D. O'Brien....................................................... 10,000
Gregory M. Swalwell.................................................... 5,000
All other executive officers of Valhi as a group (5 persons)........... 18,000
(6) The shares of CompX Class A Common Stock shown as beneficially owned by
Glenn R. Simmons include 500 shares his wife holds in her retirement
account, with respect to which he disclaims beneficial ownership.
-13-
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
AND OTHER INFORMATION
Compensation of Directors. Directors of Valhi who are not employees of
Valhi or its affiliates are entitled to receive compensation for their services
as directors. Current directors who received such compensation in 2003 were Dr.
Thomas E. Barry, Norman S. Edelcup, W. Hayden McIlroy and J. Walter Tucker, Jr.
(collectively, the "Nonmanagement Directors").
Prior to May 19, 2003, Nonmanagement Directors received quarterly retainers
of $3,750, plus a fee of $1,000 per day for attendance at meetings and at a
daily rate ($125 per hour) for other services rendered on behalf of the Board of
Directors or its committees. Nonmanagement Directors also received quarterly
retainers of $250 for each committee on which they served. In February 2003,
each of the Nonmanagement 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. These 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. Mr.
McIlroy was not a director of Valhi prior to May 19, 2003, and, therefore, did
not receive this compensation.
Beginning on May 19, 2003, Nonmanagement Directors received quarterly
retainers of $5,000 plus a fee of $1,000 per day for attendance at meetings and
at a daily rate ($125 per hour) for other services rendered on behalf of the
Board of Directors or its committees. Nonmanagement Directors also received
quarterly retainers of $500 for each committee on which they served. After May
19, 2003, if any Nonmanagement Director dies while serving on the Board of
Directors, his or her designated beneficiary or estate will be entitled to
receive a death benefit equal to the amount of the annual retainer then in
effect.
Throughout the year, Valhi reimbursed its Nonmanagement Directors for
reasonable expenses incurred in attending meetings and in the performance of
other services rendered on behalf of the Board of Directors or its committees.
On May 19, 2003, the MD&C Committee also changed the equity compensation
paid to the Nonmanagement Directors. The MD&C Committee terminated the annual
grant of stock options to the Nonmanagement Directors but authorized a grant of
shares of Valhi Common Stock to each Nonmanagement Director on the date of each
annual stockholders meeting as determined by the following formula based on the
closing price of a share of Valhi Common Stock on the date of grant.
Range of Closing Price Per Shares of Common
Share on the Date of Grant Stock to Be Granted
--------------------------- -------------------
Under $5.00 2,000
$5.00 to $9.99 1,500
$10.00 to $20.00 1,000
Over $20.00 500
In May 2003, the MD&C Committee authorized a grant of shares of Valhi Common
Stock only to Mr. McIlroy since his election to the Board of Directors was
subsequent to the February 2003 grants of stock and stock options to the
Nonmanagement Directors. As a result of the $9.72 per share closing price of
Valhi Common Stock on May 21, 2003, Mr. McIlroy received a grant of 1,500 shares
Valhi Common Stock.
Intercorporate Services Agreements. Contran and certain of its
subsidiaries, including Valhi, have entered into intercorporate services
agreements (collectively, the "ISAs") pursuant to which Contran, among other
things, provides the services of all 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."
-14-
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 2003, 2002 and 2001
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, 2003.
All of Valhi's executive officers were employees of Contran for 2003, 2002
and 2001. In 2003, 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. Pursuant to the ISAs, Contran 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................ 2003 $2,997,080 (3) $ -0- (3) -0- $ -0-
Chairman of the Board 2002 3,992,220 (3) -0- (3) 2,000 (4) -0-
2001 3,484,000 (3) -0- (3) 2,000 (4) -0-
Steven L. Watson................. 2003 1,364,710 (3) -0- (3) -0- 8,150 (7)
President and Chief Executive 2002 1,263,680 (3) -0- (3) 2,000 (4) 9,283 (7)
Officer 2,000 (5)
500 (6)
2001 1,040,335 (3) -0- (3) 2,000 (4) 52,481 (7)
2,000 (5)
500 (6)
William J. Lindquist............. 2003 479,000 (3) -0- (3) -0- 5,845 (7)
Senior Vice President 2002 574,000 (3) -0- (3) -0- 6,657 (7)
2001 432,000 (3) -0- (3) -0- 37,635 (7)
Bobby D. O'Brien................. 2003 638,000 (3) -0- (3) -0- 525 (7)
Vice President, Chief Financial 2002 538,000 (3) -0- (3) -0- 598 (7)
Officer and Treasurer 2001 455,000 (3) -0- (3) -0- 3,380 (7)
Gregory M. Swalwell.............. 2003 458,000 (3) -0- (3) -0- 123 (7)
Vice President and Controller 2002 412,000 (3) -0- (3) -0- 140 (7)
2001 407,000 (3) -0- (3) -0- 793 (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) No named executive officer received other annual compensation from Valhi or
its subsidiaries. Therefore, the column for other annual compensation has
been omitted.
-15-
(3) 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. The amount shown in the table as
salary for each of Messrs. Simmons and Watson also includes director fees
paid to each of them by Valhi's subsidiaries.
The components of salary shown in the table for each of the named executive
officers are as follows.
2001 2002 2003
----------------------- ---------------------- ----------------
Harold C. Simmons
Contran/Valhi ISA Fee............ $ 1,000,000 $ 1,000,000 $ 1,000,000
Contran/NL ISA Fee............... 950,000 950,000 951,000
Contran/Tremont ISA Fee.......... 980,000 980,000 -0-
Contran/CompX ISA Fee............ 500,000 1,000,000 1,000,000
NL Cash Director Fees............ 20,000 19,000 23,500
NL Director Stock................ 15,250 15,220 16,330
Tremont Cash Director Fees....... 18,750 28,000 6,250
--------------- -------------- --------------
$ 3,484,000 $ 3,992,220 $ 2,997,080
=============== ============== ==============
Steven L. Watson
Contran/Valhi ISA Fee............ $ 746,000 (a) $ 859,000 (a) $ 807,000 (a)
Contran/NL ISA Fee............... 91,000 167,000 224,000
Contran/Tremont ISA Fee.......... 24,000 83,000 163,000
Contran/CompX ISA Fee............ 61,000 42,000 65,000
NL Cash Director Fees............ 20,000 19,000 26,000
NL Director Stock................ 15,250 15,220 16,330
Tremont Cash Director Fees....... 18,750 28,750 6,250
TIMET Cash Director Fees......... 24,050 19,700 16,350
TIMET Director Stock............. 14,210 3,860 11,955
CompX Cash Director Fees......... 20,000 19,000 20,500
CompX Director Stock............. 6,075 7,150 8,325
--------------- -------------- --------------
$ 1,040,335 $ 1,263,680 $ 1,364,710
=============== ============== ==============
William J. Lindquist
Contran/Valhi ISA Fee............ $ 284,000 (a) $ 420,000 (a) $ 195,000 (a)
Contran/NL ISA Fee............... 8,000 90,000 222,000
Contran/TIMET ISA Fee............ -0- -0- 11,000
Contran/Tremont ISA Fee.......... 40,000 23,000 11,000
Contran/CompX ISA Fee............ 100,000 41,000 40,000
--------------- -------------- --------------
$ 432,000 $ 574,000 $ 479,000
=============== ============== ==============
Bobby D. O'Brien
Contran/Valhi ISA Fee............ $ 382,000 (a) $ 334,000 (a) $ 426,000 (a)
Contran/NL ISA Fee............... 44,000 167,000 165,000
Contran/Tremont ISA Fee.......... 29,000 37,000 47,000
--------------- -------------- --------------
$ 455,000 $ 538,000 $ 638,000
=============== ============== ==============
Gregory M. Swalwell
Contran/Valhi ISA Fee............ $ 201,000 (a) $ 192,000 (a) $ 201,000 (a)
Contran/NL ISA Fee............... 114,000 127,000 154,000
Contran/TIMET ISA Fee............ -0- -0- 77,000
Contran/Tremont ISA Fee.......... 69,000 70,000 -0-
Contran/CompX ISA Fee............ 23,000 23,000 26,000
--------------- -------------- --------------
$ 407,000 $ 412,000 $ 458,000
=============== ============== ==============
(a) 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.
-16-
(6) Represents shares of TIMET Common Stock underlying stock options TIMET
granted to this named executive officer.
(7) All other compensation for the last three years for each of the following
named executive officers consisted of 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 former participation in Valhi's
deferred incentive plan 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. 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.
-17-
No Grants of Stock Options or Stock Appreciation Rights. Neither Valhi nor
any of its parent or subsidiary corporations granted any stock options or stock
appreciation rights ("SARs") to the named executive officers during 2003.
Stock Option Holdings. The following table provides information concerning
the value of unexercised stock options for Valhi, NL and TIMET Common Stock and
CompX Class A Common Stock the named executive officers held as of December 31,
2003. Neither Valhi nor any of its parent or subsidiary companies has granted
any SARs nor has Kronos Worldwide granted any stock options exercisable for
Kronos Worldwide Common Stock.
DECEMBER 31, 2003 OPTION VALUES
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Name December 31, 2003 (#) at December 31, 2003 (1)
-------------------------------------------------- ----------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------ ------------- ------------- ---------------
Harold C. Simmons
NL Stock Options............................... 8,000 -0- $ 40,330 $ -0-
Steven L. Watson
Valhi Stock Options............................ 140,000 -0- 1,060,240 -0-
NL Stock Options............................... 4,000 -0- 13,030 -0-
TIMET Stock Options............................ 1,500 -0- 13,523 -0-
CompX Stock Options............................ 12,400 3,600 -0- -0-
------------ -------------- ------------ -------------
157,900 3,600 1,086,793 -0-
William J. Lindquist
Valhi Stock Options............................ 131,700 6,000 838,213 17,760
CompX Stock Options............................ 10,000 -0- -0- -0-
------------ -------------- ------------ -------------
141,700 6,000 838,213 17,760
Bobby D. O'Brien
Valhi Stock Options............................ 75,400 6,000 355,800 17,760
CompX Stock Options............................ 10,000 -0- -0- -0-
------------ -------------- ------------ -------------
85,400 6,000 355,800 17,760
Gregory M. Swalwell
Valhi Stock Options............................ 85,400 16,000 450,300 57,360
CompX Stock Options............................ 5,000 -0- -0- -0-
------------ -------------- ------------ -------------
90,400 16,000 450,300 57,360
--------------------
(1) Each aggregate value reflected in the table 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, 2003. Such closing sales prices were: $14.96
per share for Valhi Common Stock, $11.70 per share for NL Common Stock,
$52.51 per share for TIMET Common Stock and $6.40 per share for CompX Class
A Common Stock.
-18-
EQUITY COMPENSATION PLAN INFORMATION
The following table provides summary information as of December 31, 2003
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.................... 1,084,600 $9.24 4,059,500
Equity compensation plans
not approved by security
holders.................... -0- -0- -0-
Total...................... 1,084,600 $9.24 4,059,500
CODE OF BUSINESS CONDUCT AND ETHICS
Valhi has adopted a code of business conduct and ethics that applies to all
of Valhi's directors, officers and employees, including Valhi's principal
executive officer, principal financial officer, principal accounting officer and
controller. Any person may obtain a copy of the code, without charge, by sending
a written request to Valhi's corporate secretary at Valhi, Inc., Three Lincoln
Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697. Only the Board
of Directors may amend the code. Valhi does not have a website upon which to
post the code. Only Valhi's audit committee or other committee of the Board of
Directors with specific delegated authority may grant a waiver under the code.
Valhi will disclose amendments to, or waivers under, the code as required by law
and the applicable rules of the NYSE.
CORPORATE GOVERNANCE GUIDELINES
Valhi intends to adopt corporate governance guidelines that will comply
with the NYSE listing standards. Valhi does not have a website upon which to
post the guidelines or Valhi's audit committee charter. Any person may obtain a
copy of the guidelines (when adopted), without charge, by sending a written
request to Valhi's corporate secretary at Valhi, Inc., Three Lincoln Centre,
5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697.
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 NYSE and Valhi. Based solely on the review of the copies of such
forms and representations by certain reporting persons received, Valhi believes
that for 2003 its executive officers, directors and 10% stockholders complied
with all applicable filing requirements under section 16(a).
-19-
REPORT ON EXECUTIVE COMPENSATION
During 2003, Valhi's Nonmanagement Directors and the MD&C Committee
administered matters regarding the 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 the Nonmanagement
Directors abstaining, considered and approved the terms of the 2003
Contran/Valhi ISA, pursuant to which Contran provided certain services to Valhi,
including the services of Mr. Harold C. Simmons and all of Valhi's other
executive officers. The amount of the fee Valhi pays under the Contran/Valhi ISA
with respect to each of its executive officers and others who provide services
to Valhi pursuant to the Contran/Valhi ISA 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, the
Nonmanagement Directors considered the overall fee charged under the
Contran/Valhi ISA for the services provided 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 administers matters regarding the stock-based
compensation of Valhi's executive officers. With regard to stock-based
compensation (e.g. stock bonuses, stock options, restricted stock or stock
appreciation rights, among other types of stock-based compensation), Valhi's
management makes recommendations, as modified or approved by the chairman of the
board in his reasonable business judgment, to the MD&C Committee and it
determines whether to grant the recommended stock-based compensation. Consistent
with management's recommendation and the MD&C Committee's determination in 2003,
the MD&C Committee did not grant any stock-based compensation and currently does
not anticipate granting stock-based compensation to anyone other than annual
grants of stock to the Nonmanagement Directors for their services as directors.
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 general 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
Nonmanagement Director and chairman Nonmanagement Director and member
of the MD&C Committee of the MD&C Committee
W. Hayden McIlroy J. Walter Tucker, Jr.
Nonmanagement Director Nonmanagement Director
-20-
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.
Certain directors or executive officers of Contran, CompX, Keystone, Kronos
Worldwide, NL or TIMET also serve as directors or executive officers of Valhi.
Such 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 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 companies
have entered into 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 services rendered under the ISAs may include
executive, management, financial, internal audit, accounting, tax, legal,
insurance, risk management, treasury, aviation, human resources, technical,
consulting, administrative, office, occupancy and other services as required
from time to time in the ordinary course of the recipient's business. 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 in their current form has an initial
term that expires on December 31, 2004 and thereafter automatically extends on a
quarter-to-quarter basis, generally subject to the termination by either party
pursuant to a written notice delivered 30 days prior to the start of the next
quarter.
Under the Contran/Valhi ISA, Valhi paid Contran fees of approximately $4.3
million for services rendered under this ISA in 2003. Valhi anticipates paying
Contran $4.1 million for services rendered under the Contran/Valhi ISA in 2004.
Under the ISA between Contran and NL, NL paid Contran net fees of
approximately $2.0 million for services rendered in 2003, which represented
approximately $2.3 million for services Contran rendered to NL less
approximately $0.3 million 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 for their services as NL
directors. NL anticipates paying Contran approximately $3.6 million for services
rendered under the Contran/NL ISA in 2004.
-21-
Under the ISA between Contran and Tremont, Tremont paid Contran fees of
approximately $0.5 million for services rendered under this ISA in 2003. Under
the ISA between Contran and TIMET, TIMET paid Contran approximately $0.3 million
under this ISA for 2003. Under the ISA between TIMET and Tremont, Tremont paid
TIMET approximately $0.2 million under this ISA for 2003. In 2003, Tremont paid
director fees and expenses directly to Messrs. Glenn and Harold Simmons and Mr.
Watson for their services as Tremont directors and TIMET paid director fees and
expenses directly to Messrs. Glenn Simmons and Mr. Watson for their services as
TIMET directors. In 2004, Contran, Tremont and TIMET entered into a joint ISA
covering, among other things, the provision of services by Contran to TIMET and
the provision of services by TIMET to Tremont. Under this ISA, in 2004, TIMET
expects to pay Contran approximately $1.2 million, representing the net cost of
the Contran services to TIMET of $1.3 million less approximately $0.1 million
for the TIMET services to be provided to Tremont and certain occupancy and
related TIMET services to be provided to Contran, and Tremont expects to pay
Contran for the TIMET services to Tremont.
Under the ISA between Contran and CompX, CompX paid Contran fees of
approximately $2.1 million for services rendered under this ISA in 2003. In
addition, CompX paid Valhi approximately $18,000 in rent for 2003 for use of a
portion of Valhi's corporate office space as CompX's principal offices. CompX
also paid director fees and expenses directly to Messrs. Glenn Simmons and
Watson for their services as CompX directors. CompX anticipates paying Contran
approximately $2.3 million for services rendered under the Contran/CompX ISA in
2004.
Under the ISA between Contran and Waste Control Specialists LLC, an
indirect subsidiary of Valhi ("WCS"), WCS paid Contran fees of approximately
$0.7 million for such services rendered in 2003. WCS anticipates paying Contran
approximately $1.0 million for services rendered under the Contran/WCS ISA in
2004.
Under the ISA between Contran and Medite Corporation, an indirect wholly
owned subsidiary of Valhi ("Medite"), Medite paid Contran fees of approximately
$0.2 million for such services rendered in 2003. Medite anticipates paying
Contran approximately $0.2 million for services rendered under the
Contran/Medite ISA in 2004.
Effective November 6, 2003, Kronos Worldwide entered into an ISA with
Contran, which ISA was amended as of January 1, 2004. Kronos Worldwide expects
to pay Contran $4.4 million for its services under this ISA in 2004. Kronos
Worldwide also pays director fees and expenses directly to Messrs. Glenn and
Harold Simmons and Mr. Watson for their services as Kronos Worldwide directors.
Loans Between Related Parties. In 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 (4.00% at December 31, 2003), 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, 2003, the outstanding loan
balance under the revolving credit agreement was $14.0 million.
From time to time, other loans and advances are made between Valhi and
various related parties 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, the lender is generally able to earn a higher
rate of return on the loan than the lender would earn if the funds were invested
in other 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, it is generally able to pay a lower rate of
interest than it would pay if it borrowed from other parties. Interest income on
all such cash management loans to related parties was approximately $0.7 million
in 2003. Interest expense on all such cash management loans from related parties
was approximately $0.2 million in 2003.
Insurance Matters. Contran and Valhi participate in a combined risk
management program. Pursuant to the program, Contran and certain of its
subsidiaries and affiliates, including Valhi and certain of its subsidiaries and
affiliates, purchase certain of their insurance policies as a group, with the
costs of the jointly owned policies being apportioned among the participating
companies. Tall Pines Insurance Company ("Tall Pines"), Valmont and EWI RE, Inc.
("EWI") provide for or broker these insurance policies. Tall Pines and Valmont
are captive insurance companies wholly owned by Valhi, and EWI is a reinsurance
brokerage firm wholly owned by NL. A son-in-law of Harold C. Simmons serves as
EWI's chairman of the board and chief marketing officer and is compensated as an
employee of EWI. Consistent with insurance industry practices, Tall Pines,
Valmont and EWI receive commissions from insurance and reinsurance underwriters
for the policies that they provide or broker.
-22-
With respect to certain of such jointly owned insurance policies, it is
possible that unusually large losses incurred by one or more insureds during a
given policy period could leave the other participating companies without
adequate coverage under that policy for the balance of the policy period. As a
result, Contran and certain of its subsidiaries or affiliates, including Valhi
and certain of its subsidiaries or affiliates, have entered into a loss sharing
agreement under which any uninsured loss is shared by those entities who have
submitted claims under the relevant policy. Valhi believes the benefits in the
form of reduced premiums and broader coverage associated with the group coverage
for such policies justify the risks associated with the potential for any
uninsured loss.
During 2003, Contran and its related parties paid premiums of approximately
$16.7 million for policies Tall Pines or Valmont provided or EWI brokered,
including approximately $14.5 million Valhi and its subsidiaries paid. These
amounts principally included payments for reinsurance and insurance premiums
paid to unrelated third parties, but also included commissions paid to Tall
Pines, Valmont and EWI. In Valhi's opinion, the amounts that Valhi and its
subsidiaries paid for these insurance policies and the allocation among Valhi
and its affiliates of relative insurance premiums are reasonable and at least as
favorable to those they could have obtained through unrelated insurance
companies or brokers. Valhi expects that these relationships with Tall Pines,
Valmont and EWI will continue in 2004.
Federal and State Income Tax Matters. Valhi and its qualifying subsidiaries
are members of Contran's consolidated U.S. federal tax group and Valhi and its
qualifying subsidiaries are also part of consolidated tax returns filed by
Contran in certain U.S. state jurisdictions (collectively, the "Contran Tax
Group"). The policy for intercompany allocations of income taxes provides that
subsidiaries included in the Contran Tax Group compute their provision for U.S.
income taxes on a separate company basis using the tax elections made by
Contran. Generally, subsidiaries make payments to, or receive payments from,
Contran in the amount they would have paid to, or received from, the U.S.
Internal Revenue Service or applicable state taxing authorities had they not
been members of the Contran Tax Group. Refunds are limited to amounts previously
paid to Contran. In 2003, Valhi paid Contran a net $1.5 million under this
policy.
-23-
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, 1998 and
ending December 31, 2003. 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,
1998 1999 2000 2001 2002 2003
------------- ------------- ------------ ------------- ------------ ----------
Valhi, Inc................. $100 $ 94 $ 105 $ 118 $ 79 $ 145
S&P 500 Index.............. 100 121 110 97 76 97
S&P 500 Industrial
Conglomerates Index...... 100 144 145 130 77 104
-24-
AUDIT COMMITTEE REPORT
The audit committee of the Board of Directors of Valhi is comprised of
three directors and operates under a written charter adopted by the Board of
Directors. All members of the audit committee meet the independence standards
established by the Board of Directors and the NYSE and promulgated by the SEC
under the Sarbanes-Oxley Act of 2002. The Board of Directors adopted revisions
to the audit committee's charter in February 2004. The revised audit committee
charter is included as Appendix A to this proxy statement. Upon request, Valhi
will furnish a copy of the audit committee charter without charge. Such requests
should be addressed to: Corporate Secretary, Valhi, Inc., Three Lincoln Center,
5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697.
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 ("GAAP"). Valhi's independent auditor is
responsible for auditing Valhi's consolidated financial statements in accordance
with auditing standards generally accepted in the United States of America and
for expressing an opinion on the conformity of Valhi's financial statements with
GAAP. The audit committee assists the Board of Directors in fulfilling its
responsibility to oversee management's implementation of Valhi's financial
reporting process. In its oversight role, the audit committee reviewed and
discussed the audited financial statements with management and with
PricewaterhouseCoopers LLP ("PwC"), Valhi's independent auditor for 2003.
The audit committee met privately with PwC and discussed any issues deemed
significant by the independent auditor, including the required matters to be
discussed by Statement of Auditing Standards No. 61, Communication with Audit
Committee, as amended. PwC has provided to the audit committee written
disclosures and the letter required by Independence Standards Board No. 1,
Independence Discussions with Audit Committees, and the audit committee
discussed with PwC that firm's independence. The audit committee also concluded
that PwC's provision of non-audit services to Valhi and its affiliates is
compatible with PwC's independence.
Based upon the foregoing considerations, the audit committee recommended to
the Board of Directors that Valhi's audited financial statements be included in
its Annual Report on Form 10-K for 2003.
Members of the audit committee of the Board of Directors respectfully
submit the foregoing report.
Norman S. Edelcup Dr. Thomas E. Barry W. Hayden McIlroy
Chairman of Member of Member of
the Audit Committee the Audit Committee the Audit Committee
-25-
INDEPENDENT AUDITOR MATTERS
Independent Auditor. PwC served as Valhi's independent auditor for the year
ended December 31, 2003. 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 2004. Valhi
expects PwC will be considered for appointment to audit Valhi's annual
consolidated financial statements for the year ending December 31, 2004.
Representatives of PwC are not expected to attend the Meeting.
Fees Paid to PwC. The following table shows the aggregate fees PwC has
billed or is expected to bill to Valhi and its subsidiaries for services
rendered for 2002 and 2003.
Audit
Audit Related Tax All Other
Entity (1) Fees (2) Fees (3) Fees (4) Fees (5) Total
--------------------------------------- ------------- ------------- ------------- ------------- ----------
Valhi and Subsidiaries
2002 (6)........................... $ 373,800 $ 16,400 $ -0- $ -0- $ 390,200
2003............................... 295,000 20,325 -0- -0- 315,325
NL and Subsidiaries
2002............................... 83,967 34,167 -0- -0- 118,134
2003............................... 395,211 57,183 -0- -0- 452,394
Kronos Worldwide and Subsidiaries
2002............................... 1,534,425 77,134 41,826 2,206 1,655,591
2003............................... 834,399 73,773 124,873 -0- 1,033,045
CompX and Subsidiaries
2002............................... 283,058 53,839 54,632 10,680 402,209
2003............................... 321,031 12,932 37,354 25,810 397,127
TIMET and Subsidiaries (7)
2002............................... 397,000 5,000 64,500 -0- 466,500
2003............................... 552,000 24,600 44,300 -0- 620,900
Total
2002............................... 2,672,250 186,540 160,958 12,886 3,032,634
2003............................... 2,397,641 188,813 206,527 25,810 2,818,791
--------------------
(1) Fees are reported without duplication.
(2) Fees for the following services:
(a) audits of consolidated year-end financial statements for each year;
(b) reviews of the unaudited quarterly financial statements appearing in
Forms 10-Q for each of the first three quarters of each year; (c)
consents and assistance with registration statements filed with the
SEC;
(d) normally provided statutory or regulatory filings or engagements for
each year; and
(e) the estimated out-of-pocket costs PwC incurred in providing all of
such services for which PwC is reimbursed.
(3) Fees for assurance and related services reasonably related to the audit or
review of financial statements for each year. These services included
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. For 2002, the
disclosed fees include consulting and certain software and payroll
administration services. For 2003, the disclosed fees include fees for an
annual software license and maintenance and an agreed upon procedures
report for the Dutch government related to a CompX employee severance plan.
(6) Includes fees paid by Tremont.
(7) Valhi accounts for its interest in TIMET by the equity method.
-26-
Preapproval Policies and Procedures. Valhi's audit committee has adopted a
preapproval policy, a copy of which is attached as Appendix B to this proxy
statement. As of May 6, 2003, the audit committee became responsible for
preapproving every engagement of PwC to perform audit or nonaudit services on
behalf of Valhi or any of its subsidiaries other than Valhi's publicly held
subsidiaries and their respective subsidiaries. Since May 6, 2003, Valhi's audit
committee preapproved all of such services. Each of CompX, NL, Kronos Worldwide
and TIMET has their own audit committee that has adopted a preapproval policy
similar to Valhi's policy.
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 reasonable
judgment.
STOCKHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR THE 2005 ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at Valhi's annual stockholders meetings, consistent with rules adopted by
the SEC. Valhi must receive such proposals not later than December 24, 2004 to
be considered for inclusion in the proxy statement and form of proxy card
relating to the Annual Meeting of Stockholders in 2005. 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
stockholders 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.
The Board of Directors has no specific minimum qualifications for director
candidates. The Board of Directors will consider a potential director nominee's
ability to satisfy the need, if any, for any required expertise on the Board of
Directors or one of its committees. Historically, Valhi's management has
recommended director nominees to the Board of Directors. Because under the NYSE
listing standards Valhi may be deemed to be a controlled company, the Board of
Directors believes that it is appropriate that Valhi not have any additional
policies or procedures with regard to the consideration of director candidates
recommended by its stockholders.
For proposals or director nominations to be brought at the 2005 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 in most cases no
later than March 9, 2005. Proposals and nominations should be addressed to:
Corporate Secretary, Valhi, Inc., Three Lincoln Centre, 5430 LBJ Freeway, Suite
1700, Dallas, Texas 75240-2697.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Stockholders who wish to communicate with the Board of Directors may do so
through the following procedures. Stockholder communications not involving
complaints or concerns regarding accounting, internal accounting controls and
auditing matters related to Valhi ("Accounting Complaints or Concerns") may be
sent to Valhi's corporate secretary at Valhi, Inc., Three Lincoln Centre, 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697. Stockholder communications
that relate to matters that are within the scope of the responsibilities of the
Board of Directors and its committees, or summaries of such communications, will
be forwarded to the chairman of the audit committee.
Accounting Complaints or Concerns, which may be made anonymously, should be
sent to Valhi's general counsel with a copy to Valhi's chief financial officer
at the same address as the corporate secretary. Accounting Complaints or
Concerns will be forwarded to the chairman of the audit committee. Valhi will
keep Accounting Complaints or Concerns confidential and anonymous, to the extent
feasible, subject to applicable law. Information contained in an Accounting
Complaint or Concern may be summarized, abstracted and aggregated for purposes
of analysis and investigation.
-27-
2003 ANNUAL REPORT ON FORM 10-K
A copy of Valhi's Annual Report on Form 10-K for the fiscal year ended
December 31, 2003, 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 documents 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 2003 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 2003 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
April 23, 2004
-28-
Appendix A
VALHI, INC.
AUDIT COMMITTEE CHARTER
ADOPTED FEBRUARY 26, 2004
----------------
ARTICLE I.
PURPOSE
The audit committee assists the board of directors' oversight
responsibilities relating to the financial accounting and reporting processes
and auditing processes of the corporation. The audit committee shall assist in
the oversight of:
- the integrity of the corporation's financial statements;
- the corporation's compliance with legal and regulatory requirements;
- the independent auditor's qualifications and independence; and
- the performance of the corporation's internal audit function and
independent auditor.
ARTICLE II.
RELATIONSHIP WITH MANAGEMENT AND THE INDEPENDENT AUDITOR
Management is responsible for preparing the corporation's financial
statements. The corporation's independent auditor is responsible for auditing
the financial statements. The activities of the audit committee are in no way
designed to supersede or alter these traditional responsibilities. The
corporation's independent auditor and management have more time, knowledge and
detailed information about the corporation than do the audit committee members.
Accordingly, the audit committee's role does not provide any special assurances
with regard to the corporation's financial statements. Each member of the audit
committee, in the performance of such member's duties, will be entitled to rely
in good faith upon the information, opinions, reports or statements presented to
the audit committee by any of the corporation's officers or employees or by any
other person as to matters such member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the corporation.
ARTICLE III.
AUTHORITY AND RESOURCES
The audit committee shall have the authority and resources necessary or
appropriate to discharge its responsibilities. The audit committee shall be
provided with full access to all books, records, facilities and personnel of the
corporation in carrying out its duties. The audit committee shall have the sole
authority with regard to the independent auditor as set forth in Article V, and
the authority to engage independent counsel and other advisors, as it determines
is necessary to carry out its duties. The corporation shall provide appropriate
funding, as the audit committee determines is necessary or appropriate in
carrying out its duties, for the committee to engage and compensate the
independent auditor or legal counsel or other advisors to the committee, and to
pay the committee's ordinary administrative expenses.
A-1
ARTICLE IV.
COMPOSITION AND MEETINGS
The board of directors shall set the number of directors comprising the
audit committee from time to time, which number shall not be less than three.
The board of directors shall designate a chairperson of the audit committee. The
number of directors comprising the audit committee and the qualifications, which
members will all be financially literate with at least one being an audit
committee financial expert, and independence of each member of the audit
committee shall at all times satisfy all applicable requirements, regulations or
laws, including, without limitation, the rules of any exchange or national
securities association on which the corporation's securities trade. Simultaneous
service on more than three non-affiliated public company audit committees
requires a special determination by the board of directors and, if required,
disclosure in the annual proxy statement. The board of directors shall
determine, in its business judgment, whether the members of the audit committee
satisfy all such requirements, regulations or laws.
The audit committee shall meet at least quarterly and as circumstances
dictate. Regular meetings of the audit committee may be held with or without
prior notice at such time and at such place as shall from time to time be
determined by the chairperson of the audit committee, any of the corporation's
executive officers or the secretary of the corporation. Special meetings of the
audit committee may be called by or at the request of any member of the audit
committee, any of the corporation's executive officers, the secretary of the
corporation or the independent auditor, in each case on at least twenty-four
hours notice to each member.
A majority of the audit committee members shall constitute a quorum for the
transaction of the audit committee's business. The audit committee shall act
upon the vote of a majority of its members at a duly called meeting at which a
quorum is present. Any action of the audit committee may be taken by a written
instrument signed by all of the members of the audit committee. Meetings of the
audit committee may be held at such place or places as the audit committee shall
determine or as may be specified or fixed in the respective notice or waiver of
notice for a meeting. Members of the audit committee may participate in audit
committee proceedings by means of conference telephone or similar communications
equipment by means of which all persons participating in the proceedings can
hear each other, and such participation shall constitute presence in person at
such proceedings.
ARTICLE V.
RESPONSIBILITIES
To fulfill its responsibilities, the audit committee shall perform the
following activities.
Financial Disclosure
- Review and discuss the corporation's annual audited financial
statements and quarterly financial statements with management and the
independent auditor, and the corporation's related disclosure under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
- Recommend to the board of directors, if appropriate, that the audited
financial statements be included in the corporation's Annual Report on
Form 10-K to be filed with the U.S. Securities and Exchange
Commission.
- Generally discuss (i.e., a discussion of the types of information to
be disclosed and the type of presentation to be made) with management
and the independent auditor, as appropriate, earnings press releases
and financial information and earnings guidance provided to analysts
and rating agencies. The audit committee need not discuss in advance
each earnings release or each instance in which the corporation may
provide earnings guidance.
- Prepare such reports of the audit committee for the corporation's
public disclosure documents as applicable requirements, regulations or
laws may require from time to time, which includes the audit committee
report as required by the U.S. Securities and Exchange Commission to
be included in the corporation's annual proxy statement.
A-2
- Review significant accounting and reporting issues, including recent
professional and regulatory pronouncements or proposed pronouncements,
and understand their impact on the corporation's financial statements.
- Ascertain from officers signing certifications whether there existed
any significant deficiencies or any material weaknesses of internal
control and any fraud.
Independent Auditor
- Appoint, compensate, retain and oversee (including the resolution of
disagreements between management and the independent auditor regarding
financial reporting) the work of any independent auditor engaged for
the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the corporation.
- Provide that the independent auditor report directly to the audit
committee.
- Annually review the qualifications, independence and performance of
the independent auditor, including an evaluation of the lead partner.
- Receive such reports and communications from the independent auditor
and take such actions as are required by auditing standards generally
accepted in the United States of America or applicable requirements,
regulations or laws, including, to the extent so required, the
following:
* prior to the annual audit, review with management and the
independent auditor the scope and approach of the annual audit;
* review any changes in the independent auditor's scope during the
audit, and after the annual audit, review with management and the
independent auditor the independent auditor's reports on the
results of the annual audit;
* review with the independent auditor any audit problems or
difficulties and management's response;
* review with the independent auditor prior to filing the audit
report with the U.S. Securities and Exchange Commission the
matters required to be discussed by the Statement on Accounting
Standards 61, as amended, supplemented or superseded; and
* at least annually, obtain and review a report by the independent
auditor describing:
o the independent auditor's internal quality control
procedures;
o any material issues raised by the most recent internal
quality control review, or peer review, of the independent
auditor or by any inquiry or investigation by governmental
or professional authorities, within the preceding five
years, with respect to one or more independent audits
carried out by the independent auditor, and any steps taken
to deal with any such issues; and
o all relationships between the independent auditor and the
corporation in order to assess the auditor's independence,
including the written disclosures required by Independence
Standards Board Standard No. 1, Independence Discussions
with Audit Committees, as amended, supplemented or
superseded.
- Establish preapproval policies and procedures for audit and
permissible non-audit services provided by the independent auditor.
The audit committee shall be responsible for the preapproval of all of
the independent auditor's engagement fees and terms, as well as all
permissible non-audit engagements of the independent auditor, as
required by applicable requirements, regulations or laws. The audit
committee may delegate to one or more of its members who are
independent directors the authority to grant such preapprovals,
provided the decisions of any such member to whom authority is
delegated shall be presented to the full audit committee at its next
scheduled meeting.
A-3
- Set clear hiring policies for employees or former employees of the
independent auditor.
- Ensure that significant findings and recommendations made by the
independent auditor are received and discussed on a timely basis with
the audit committee and management.
Other Responsibilities
- Discuss periodically with management the corporation's policies
regarding risk assessment and risk management.
- Meet separately, periodically, with management, the internal auditors
(or other personnel responsible for the internal audit function) and
the independent auditor.
- Establish procedures for the receipt, retention and treatment of
complaints received by the corporation regarding accounting, internal
accounting controls or auditing matters, including procedures for the
confidential, anonymous submission by employees of concerns regarding
questionable accounting or auditing matters.
- Review periodically the reports and activities of the internal audit
function and the coordination of the internal audit function with the
independent auditor.
- Conduct an annual evaluation of its own performance.
- Report regularly to the board of directors on its oversight
responsibilities set forth in Article I.
- Review and reassess this charter periodically. Report to the board of
directors any suggested changes to this charter.
- Meet periodically with officers of the corporation responsible for
legal and regulatory compliance by the corporation.
ARTICLE VI.
MISCELLANEOUS
The audit committee may from time to time perform any other activities
consistent with this charter, the corporation's charter and bylaws and
applicable requirements, regulations or laws, as the audit committee or the
board of directors deems necessary or appropriate.
ADOPTED BY THE BOARD OF DIRECTORS
OF VALHI, INC. ON FEBRUARY 26, 2004
/s/ A. Andrew R. Louis
A. Andrew R. Louis, Secretary
A-4
Appendix B
VALHI, INC.
AUDIT COMMITTEE PREAPPROVAL POLICY
ADOPTED FEBRUARY 26, 2004
----------------
Section 1. -- Statement of Principles
The Audit Committee is required, subject to any de-minimus exceptions
permitted by applicable law or regulation, to preapprove the audit and non-audit
services performed by the independent auditor in order to assure that the
provision of such services do not impair the auditors' independence.
This Policy applies to services provided by the accounting firm that serves
Valhi, Inc. and its subsidiaries (the "Company") as its primary independent
auditor, and any international affiliates thereof.
Unless a type of service to be provided by the independent auditor is
subject to preapproval under Sections 3 or 4 of this Policy, it will require
specific preapproval by the Audit Committee under Section 2 of this Policy. In
addition, any proposed services subject to preapproval under Section 3 of this
Policy that exceeds the applicable preapproved fee level will also require
preapproval under either Section 2 or Section 4 of this Policy. Notwithstanding
the foregoing, the preapproval requirements under this Policy is waived with
respect to the provision of permitted non-Audit Services to the extent allowed
by applicable law or regulation.
Section 2. -- Specific Preapproval
Subject to Sections 4 and 5 of this Policy, the following describes the
Audit and Audit-related services to be provided by the independent auditor that
must have the specific preapproval of the Audit Committee before the independent
auditor can be engaged:
- Annual audits of the consolidated financial statements of the Company,
attestation services associated with the Company's system of internal
control over financial reporting and other services associated with
the Company's Annual Report on Form 10-K;
- Quarterly review procedures associated with the Company's unaudited
interim consolidated financial statements and other services
associated with the Company's Quarterly Reports on Form 10-Q;
- Services associated with registration statements filed by the Company
with the Securities and Exchange Commission ("SEC"), including
responding to SEC comment letters and providing comfort letters;
- Statutory audits or annual audits of the annual financial statements
of subsidiaries of the Company;
- Quarterly review procedures of the interim financial statements of
subsidiaries of the Company; o Services associated with potential
business acquisitions/dispositions involving the Company;
- Any other services provided to the Company not specifically described
above or in Section 3 of this Policy; and
- Any material changes in terms, conditions or fees with respect to the
foregoing resulting from changes in audit scope, Company structure or
other applicable matters.
Section 3. -- Other Categories of Preapproval
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
financial statements and that are traditionally performed by the independent
auditor. The Audit Committee believes that the provision of all of the services
described below does not impair the independence of the auditor and is
consistent with the SEC's rules on auditor independence.
B-1
Subject to Section 5 of this Policy, the following Audit, Audit-related,
Tax and All Other services to be provided by the independent auditor will have
the preapproval of the Audit Committee, subject to the limitation that the
aggregate fees for such services provided by the independent auditor in any
calendar year may not exceed the limits established by the Audit Committee. The
Audit Committee will periodically revise the list of pre-approved services and
the fee limitation based on subsequent determinations as it deems appropriate.
- Audit Services:
o Consultations with the Company's management as to the accounting or
disclosure treatment of transactions or events or the actual or
potential impact of final or proposed rules, standards or
interpretations of the SEC, the Financial Accounting Standards Board,
the Public Company Accounting Oversight Board or other applicable
domestic or international regulatory or standard-setting bodies; and
o Assistance with responding to SEC comment letters received by the
Company other than in connection with a registration statement filed
with the SEC.
- Audit-related Services:
o Consultations with the Company's management as to the accounting or
disclosure treatment of transactions or events or the actual or
potential impact of final or proposed rules, standards or
interpretations of the SEC, the Financial Accounting Standards Board,
the Public Company Accounting Oversight Board or other applicable
domestic or international regulatory or standard-setting bodies (note,
under SEC rules, some consultations may be "audit" rather than
"audit-related").
o Financial statement audits of employee benefit plans of the Company;
o Agreed-upon or expanded audit procedures related to the Company's
accounting records required to respond to or comply with financial,
accounting, legal, regulatory or contractual reporting requirements;
and
o Internal control reviews and assistance with internal control
reporting requirements of the Company (to the extent permitted by
applicable rule or regulation).
- Tax Services:
o Consultations with the Company's management as to the tax treatment of
transactions or events or the actual or potential tax impact of final
or proposed laws, rules and regulations in U.S. federal, state and
local and international jurisdictions;
o Consultations with the Company's management related to compliance with
existing or proposed tax laws, rules and regulations in U.S. federal,
state and local and international jurisdictions;
o Assistance in the preparation of and review of the Company's U.S.
federal, state and local and international income, franchise and other
tax returns;
o Assistance with tax inquiries, audits and appeals of the Company
before the U.S. Internal Revenue Service and similar state, local and
international agencies;
o Consultations with the Company's management regarding domestic and
international statutory, regulatory or administrative tax
developments;
o Transfer pricing and cost segregation studies of the Company; and o
Expatriate tax assistance and compliance for the Company and its
employees.
- Other Services:
o Assistance with corporate governance matters (including preparation of
board minutes and resolutions) and assistance with the preparation and
filing of documents (such as paperwork to register new companies or to
de-register existing companies) involving the Company with non-U.S.
governmental and regulatory agencies, provided, however, that the
non-U.S. jurisdiction in which such services are provided does not
require that the individual providing such service be licensed,
admitted or otherwise qualified to practice law.
Any services provided by the independent auditor under this Section of the
Policy shall be reported to the full Audit Committee by an officer of the
Company at the first meeting of the Audit Committee held subsequent to the
engagement of the independent auditor to provide such services. Such report
shall include detailed back-up documentation provided by the independent auditor
regarding the services provided.
B-2
Section 4. -- Delegation
Subject to Section 5 of this Policy, the Audit Committee has delegated
preapproval authority to the Audit Committee Chairman or his/her designee for
(i) any proposed services described in Section 3 of this Policy to the extent
that the aggregate fees for such services provided by the independent auditor
during the then-current calendar year has exceeded the limits established by the
Audit Committee or (ii) any other proposed services that are not described in
Section 3 of this Policy that the Audit Committee Chairman or his/her designee
determines to be appropriate or necessary. The Chairman or his/her designee
shall report any pre-approval decisions under this Section 4 of the Policy to
the full Audit Committee at the first meeting of the Audit Committee held
subsequent to such pre-approval decision. The Audit Committee does not delegate
its responsibilities to pre-approve services performed by the independent
auditor to management.
Section 5. -- Prohibited Non-Audit Services
The following is a list of non-audit services for which the independent
auditor is prohibited from providing to the Company under the terms of the SEC's
rules on auditor independence:
- Bookkeeping or other services related to the accounting records or
financial statements of the Company;
- Financial information systems design and implementation;
- Appraisal or valuation services, fairness opinions or
contribution-in-kind reports;
- Actuarial services;
- Internal audit outsourcing services;
- Management functions;
- Human resources;
- Broker, dealer, investment adviser or investment banking services;
- Legal services to the extent that the jurisdiction in which such
services are provided requires that the individual providing such
service be licensed, admitted or otherwise qualified to practice law;
and
- Expert services unrelated to the audit.
Section 6. -- Procedures
Applications to provide services that require preapproval by the Audit
Committee under Section 2 of this Policy, or that require preapproval of the
Chairman of the Audit Committee or his/her designee under Section 4 of this
Policy, must be made by an auditor in writing. Such an application, which shall
include detailed back-up documentation provided by the independent auditor
regarding the services provided, shall be submitted to the Audit Committee or
the Chairman of the Audit Committee, as applicable, for final resolution.
Section 7. -- Engagement Letters
Engagement of the independent auditor under this Policy to provide the
following services must be evidenced pursuant to a written engagement letter
with the independent auditor that must at least be signed by the Chairman of the
Audit Committee or his/her designee before the engagement can commence:
- Annual audits of the consolidated financial statements of the Company,
attestation services associated with the Company's system of internal
control over financial reporting and other services associated with
the Company's Annual Report on Form 10-K;
- Quarterly review procedures associated with the Company's unaudited
interim consolidated financial statements and other services
associated with the Company's Quarterly Reports on Form 10-Q;
- Services associated with registration statements filed by the Company
with the SEC, including responding to SEC comment letters and
providing comfort letters; and
B-3
- Any other engagement as may be determined from time-to-time by the
Audit Committee or the Chairman of the Audit Committee or his/her
designee.
Any other engagement of the independent auditor under this Policy may be
evidenced pursuant to a written engagement letter with the independent auditor,
as may be required by the Audit Committee, the Chairman of the Audit Committee
or his/her designee, the independent auditor or an officer of the Company,
before the engagement can commence. Any such engagement letter may, but is not
required to, be signed by the Chairman of the Audit Committee or his/her
designee.
B-4
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
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Proxy - Valhi, Inc.
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PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF VALHI, INC.
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MAY 25, 2004
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 2004 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 Tuesday,
May 25, 2004, 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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