COMPX INTERNATIONAL INC, 424A, 1998-02-18

COMPX INTERNATIONAL INC
424A, 1998-02-18
MISCELLANEOUS FABRICATED METAL PRODUCTS

Previous: BOLLE INC, 424B3, 1998-02-18

Next: COWEN SERIES FUNDS INC, 497, 1998-02-18

<PAGE> 1
Filing Pursuant to Rule 424(a)
Registration No. 333-42643

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED FEBRUARY 16, 1998

PROSPECTUS
4,700,000 SHARES

COMPX INTERNATIONAL INC.
CLASS A COMMON STOCK
------------------
All of the shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"), being offered hereby (the "Offering") are being
sold by CompX International Inc. ("CompX" or the "Company"). A portion of the
net proceeds to the Company from the Offering will be used to fully repay
certain bank indebtedness expected to be incurred to satisfy a $50 million note
payable to Valcor, Inc., the Company's majority stockholder prior to the
Offering. See "Use of Proceeds".

Each share of Class A Common Stock entitles its holder to one vote, and
each share of Class B Common Stock, par value $.01 per share (the "Class B
Common Stock" and together with the Class A Common Stock, the "Common Stock"),
of the Company entitles its holder to one vote on all matters except the
election of directors on which each share of Class B Common Stock is entitled to
ten votes. All the shares of Class B Common Stock are owned by Valcor, Inc.
Immediately after consummation of the Offering (assuming no exercise of the
over-allotment option granted to the Underwriters), Valcor will beneficially own
shares of Common Stock having approximately 67% of the combined voting power
(95% for election of directors) of the outstanding shares of Common Stock.

Prior to the Offering, there has not been a public market for the Class A
Common Stock of the Company. It is currently estimated that the initial public
offering price will be between $17 and $20 per share of Class A Common Stock.
See "Underwriting" for information relating to the factors considered in
determining the initial public offering price. The Class A Common Stock has been
approved for listing on the New York Stock Exchange (the "NYSE") under the
symbol "CIX", subject to official notice of issuance.

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
=======================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -----------------------------------------------------------------------------------------------------------------------
Total(3) $ $ $
=======================================================================================================================
</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses estimated at $500,000 payable by the Company.

(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 705,000 additional shares of Class A Common solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to Public, Underwriting Discounts and Commissions and Proceeds to
Company will be $ , $ and $ , respectively.
------------------

The shares of Class A Common Stock are being offered by the several
Underwriters named herein, subject to prior sale, when, as and if accepted by
them and subject to certain conditions. It is expected that certificates for the
shares of Class A Common Stock offered hereby will be available for delivery on
or about , 1998, at the office of Smith Barney Inc., 333 West 34th
Street, New York, New York 10001.
------------------

SALOMON SMITH BARNEY

NATIONSBANC MONTGOMERY SECURITIES LLC
WHEAT FIRST UNION
, 1998
<PAGE> 2

[FROSTED 7 1/2" X 9" PHOTOGRAPH OF AN OFFICE ENVIRONMENT USED
AS A BACKDROP FOR INSETS OF PHOTOGRAPHS OF THE VARIOUS COMPX
PRODUCTS USED IN THE OFFICE ENVIRONMENT.]

National Cabinet Lock(R), STOCK LOCKS(R), Waterloo Furniture Components
Limited(R), KeSet(R) and Leverlock(R) are registered trademarks of CompX
International Inc.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON STOCK,
INCLUDING OVERALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE> 3

[TWO PAGE FOLD OUT GRAPHIC ON INSIDE FRONT COVER WITH A BACKGROUND COLLAGE OF
ILLUSTRATIONS OF VARIOUS END-USER PRODUCTS AND INSET PHOTOGRAPHS OF THE COMPX
PRODUCT USED IN SUCH END-USER PRODUCTS.]
<PAGE> 4

PROSPECTUS SUMMARY

The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. As used in
this Prospectus, unless the context requires otherwise, the terms "Company" and
"CompX(TM)" refer to CompX International Inc. and its subsidiaries. Unless
otherwise indicated or the context otherwise requires, all share and per-share
data in this Prospectus and all other information relating to the Offering (i)
assume no exercise of the Underwriters' over-allotment option; (ii) give effect
to the amendment to the Company's certificate of incorporation to change the
Company's authorized capital stock to Class A Common Stock and Class B Common
Stock and preferred stock, par value $.01 per share (the "Preferred Stock"),
effected on February 4, 1998; and (iii) give effect to the reclassification of
each outstanding share of the Company's previously outstanding common stock, par
value $1 per share, into 10,000 shares of its newly created Class B Common Stock
which was also effected on February 4, 1998. The Company's operations are
comprised of a 52 or 53 week fiscal year. Each of the years ended December 31,
1993 through 1997 consisted of a 52 week year.

THE COMPANY

CompX(TM) is a leading manufacturer of ergonomic computer support systems,
precision ball bearing drawer slides and medium-security mechanical locks for
office furniture and a variety of other applications. The Company's products are
principally designed for use in medium- to high-end applications, where product
design, quality and durability are critical to the Company's customers.
CompX(TM) believes that, in the North American market, it is among the largest
producers of ergonomic computer support systems for office furniture
manufacturers, among the largest producers of precision ball bearing drawer
slides and among the largest producers of medium-security cabinet locks. In
1997, CompX(TM) generated net sales of $108.7 million, a 22% increase from 1996.
During 1997, ergonomic computer support systems, precision ball bearing drawer
slides and medium-security mechanical locks accounted for approximately 34%, 39%
and 26% of net sales, respectively.

OFFICE FURNITURE INDUSTRY DYNAMICS

Approximately 75% of the Company's products are sold to the office
furniture manufacturing industry while the remainder (principally mechanical
locks) are sold for use in other products, such as vending equipment, postal
boxes, electromechanical enclosures and other non-office furniture and
equipment. The U.S. office furniture market generated wholesale sales of
approximately $11 billion in 1997, according to estimates by the Business and
Institutional Furniture Manufacturer's Association ("BIFMA"). The dollar value
of U.S. office furniture industry shipments has increased in 23 of the past 25
years and, according to BIFMA, is currently estimated to have grown at a
compound annual rate of approximately 8.4% over the four year period ended
December 31, 1997. BIFMA currently estimates that office furniture sales over
the next two years will grow at a compound annual rate of approximately 7%. The
rate of growth in this industry ultimately will be affected by certain
macroeconomic conditions such as service industry employment levels, corporate
cash flow and non-residential construction levels. CompX(TM) management believes
that sales of its ergonomic computer support systems are experiencing
substantially higher rates of growth than the office furniture industry as a
whole.

1
<PAGE> 5

supplies for greater comfort and productivity. Businesses increasingly are
seeking changes in work processes to achieve more efficient workspace
utilization, resulting in the creation of new office furniture designs that
embrace office sharing concepts such as office "hoteling" and open office
designs. The Company's products target manufacturers of new furniture designed
to address these industry dynamics as well as customers that specialize in
retrofitting existing office furniture.

COMPETITIVE STRENGTHS

CompX(TM) believes that it is well positioned to realize continued growth
in market share in its existing markets and to build on its strengths to expand
into related product lines and markets.

Industry brand recognition and management experience. The Company's
business traces its roots to 1903 when it began manufacturing cabinet locks. The
Company is a supplier to major original equipment manufacturers ("OEMs") and
believes its brand names are well recognized in the industry. CompX(TM)
currently markets its drawer slides and ergonomic computer support systems under
the Waterloo Furniture Components Limited(R) name and markets its
medium-security locks under the National Cabinet Lock(R) name. The top seven
executive management personnel have over 100 years of combined industry
experience.

Emphasis on customer collaboration. CompX(TM) has been a leader in
collaborating with customers to develop innovative customized solutions to their
unique needs for product design, application, performance and cost. An important
ingredient to this approach is the Company's full-time engineering staff of 25
and approximately $3 million in annual expenditures for product design,
development and engineering. Management believes that the Company's
responsiveness and commitment to work with customers has been critical to its
success to date.

Efficient manufacturing base. CompX(TM) has established highly automated
manufacturing systems and uses statistical process control techniques to achieve
its demanding quality standards. The Company designs and custom modifies certain
of the high-volume equipment it uses to improve the manufacturing and assembly
of its products, and has invested substantial capital in manufacturing
automation and vertical integration. The Company believes that these initiatives
reduce the Company's costs and improve product quality, productivity and
delivery response time.

Integrated information systems. The Company regularly invests in its
information systems to reduce inventories, improve the efficiency of its
manufacturing processes and reduce customer order fulfillment times. With
recently installed systems upgrades both in Canada and the United States,
CompX(TM) has fully integrated all stages of manufacturing process information
and order fulfillment. These investments have allowed the Company to continually
reduce order fulfillment times and increase the use of just-in-time supplier
relationships.

Breadth of product line. CompX(TM) has a broad product line in its core
product areas, which allows the Company to serve an increasing proportion of its
customers' requirements. This provides several benefits to the Company,
including the simplified logistics and reduced cost of shipping higher volumes
of product to its customers, closer working relationships with its key customers
and increased cross-selling opportunities.

GROWTH STRATEGY

The Company focuses on certain niche segments of the middle to high end of
the office furniture market. To achieve its targeted growth rates, CompX(TM)
intends to pursue several growth initiatives:

Continue to create innovative products. The Company intends to continue its
focus on engineering and customer collaboration to develop and sell customized
versions of its core product line and to develop new versions of existing
product lines to meet the changing requirements of office furniture
manufacturers. The Company will attempt to increase its share of the total OEM
market for components such as electronic locking systems, a service workplace
safety-oriented "Cushion-Close(TM)" drawer slide and a locking laptop computer
drawer. CompX(TM) will also consider expanding its product line to include other
furniture components with similar attributes such as one or more of the
components used in the rapidly growing seating industry.

2
<PAGE> 6

Extend into non-furniture applications. The Company's precision ball
bearing drawer slide products increasingly are designed for and used in
applications other than traditional office furniture. For example, the Company
has designed and currently sells precision ball bearing drawer slides to
facilitate the movement of component parts in imaging machines, for professional
tool storage cabinets and other uses. CompX(TM) will continue to explore
alternative applications for its products based on core product design and
manufacturing strengths.

On February 3, 1998, the Company executed a definitive agreement concerning
the purchase of all of the outstanding stock of Fort Lock Corporation and the
net assets of Fortronics, Inc., an affiliate of Fort Lock Corporation by common
ownership (collectively the "Fort Lock Group"). The Fort Lock Group is a
vertically integrated manufacturer of highly engineered mechanical locks for a
diverse customer base of original equipment manufacturers and locksmith
distributors. See "Recent Developments."

Promote alternative distribution programs. While office furniture OEMs are
expected to remain the Company's primary customers, CompX(TM) also intends to
explore new distribution arrangements for the Company's products. The Company's
innovative STOCK LOCKS(R) distribution program, for example, offers a broad
range of products that generally ship within 48 hours of order placement to
customers that purchase the Company's locks in small quantities. Currently,
approximately 30% of the Company's lock sales are made through this program. In
1992, the Company began to implement similar alternative distribution programs
for its ergonomic computer support systems and precision ball bearing drawer
slides to allow the Company to reach an expanded range of customers of these
products on an economically attractive basis. Since their addition to the
Company's distributor product line in 1992, sales of these products to the
distributor market have increased and now represent approximately 10% of
combined ergonomic computer support systems and precision ball bearing drawer
slide net sales.

Expand into international markets. While CompX(TM) has historically focused
on marketing its products in North America, the Company has a small but growing
presence in international markets. The Company believes that there is
significant potential demand for its quality, precision products in overseas
markets, and intends to increase its international presence, particularly in
Asia and Latin America, via expanded distributor relationships and, potentially,
joint venture arrangements.

SECURITY OWNERSHIP

The Company is a majority owned subsidiary of Valcor, a wholly-owned
subsidiary of Valhi, Inc., a publicly traded company, Contran Corporation owns,
directly and through subsidiaries (Valhi Group, Inc.; National City Lines, Inc.;
NOA, Inc.; Dixie Rice Agricultural Corporation, Inc.; Dixie Holding Company and
Southwest Louisiana Land Company, Inc.), approximately 93% of the outstanding
stock of Valhi. Substantially all of Contran's outstanding voting stock is held
by trusts established for the benefit of the children and grandchildren of
Harold C. Simmons, of which Mr. Simmons is the sole trustee. Mr. Simmons, the
Chairman of the Board and Chief Executive Officer of each of the foregoing
companies, may be deemed to control each of such companies and the Company. See
"Security Ownership in the Company and its Affiliates."

3
<PAGE> 7

RECENT DEVELOPMENTS

On December 12, 1997, the Company paid a $50 million dividend to Valcor in
the form of a demand note payable (the "Valcor Note"). The Note is unsecured and
bears interest at a fixed rate of 6% per annum.

Prior to the completion of the Offering, the Company plans to enter into a
new $100 million revolving bank credit facility (the "Revolving Senior Credit
Facility"). The Revolving Senior Credit Facility is expected to be an unsecured
five-year revolving facility. Borrowings are expected to be available for the
Company's general corporate purposes, including potential acquisitions. There
can be no assurance that any such new Revolving Senior Credit Facility will be
obtained. Prior to completion of the Offering, the Company intends to utilize
borrowings under the Revolving Senior Credit Facility to fully repay the Valcor
Note. Such borrowings under the Revolving Senior Credit Facility are expected to
be repaid with a portion of the net proceeds of the Offering.

On February 3, 1998, the Company executed a definitive agreement concerning
the acquisition of the Fort Lock Group. The Fort Lock Group, a vertically
integrated manufacturer of highly engineered mechanical locks for a diverse
customer base of original equipment manufacturers and locksmith distributors, is
headquartered in River Grove, Illinois. The Fort Lock Group has over 40 years
experience supplying cam locks, switch locks and special purpose locks to a wide
variety of industries which include personal computing, automotive products,
security devices, office furniture, lockers, safes and coin operated devices.
Fortronics, Inc. designs, manufactures and distributes electronic locking
systems to customers throughout the United States. Similar to CompX(TM), the
Fort Lock Group emphasizes customized engineering capabilities that permit
collaboration with customers to develop innovative products designed to
specifically address unique end product application requirements. The Company
believes that the acquisition of the Fort Lock Group will enhance the Company's
product offerings and provide synergies through the combined technical resources
of both Companies. For its most recent fiscal year ended June 28, 1997, the Fort
Lock Group reported net sales of approximately $26.8 million and net income of
approximately $2.4 million. See historical consolidated combined financial
statements of the Fort Lock Group presented elsewhere in this Prospectus.

CompX(TM) will (i) acquire all of the outstanding stock of Fort Lock
Corporation for cash consideration of approximately $30 million, (ii) acquire
the net assets of Fortronics for $.5 million and (iii) purchase Fort Lock
Corporation's manufacturing building owned by a shareholder of Fort Lock
Corporation for $2.5 million (collectively the "Fort Lock Acquisition"). The
aggregate purchase price is subject to possible reduction pending the completion
of a post closing audit. Funding of the Fort Lock Acquisition is expected to be
provided by available cash on hand, including net proceeds of the Offering
remaining after repayment of borrowings outstanding under the Revolving Senior
Credit Facility. The Company's obligation to consummate the Fort Lock
Acquisition is subject to the expiration of the applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
confirmation of the accuracy of certain representations, warranties and
covenants of the parties, the absence of certain material adverse developments,
receipt of required consents and certain other conditions. The Fort Lock
Acquisition is currently expected to be completed during the first quarter of
1998. There can be no assurance that the Fort Lock Acquisition will be
successfully completed or that completion of the transaction can be accomplished
on the terms set forth above.

4
<PAGE> 8

THE OFFERING

Class A Common Stock
offered.................. 4,700,000 shares

Common Stock to be
outstanding after the
Offering: (a)
Class A Common Stock..... 4,881,100 shares

Class B Common Stock..... 10,000,000 shares

Total.................. 14,881,100 shares

Use of Proceeds............ A portion of the net proceeds of the Offering will
be used to repay borrowings expected to be incurred
under the Revolving Senior Credit Facility. The
remainder will be available to consummate the Fort
Lock Acquisition and for the Company's general
purposes.

Voting Rights.............. The Class A Common Stock and Class B Common Stock
vote as a single class on all matters, except as
otherwise required by law, with each share of
Common Stock entitling its holder to one vote on
all matters except the election of directors where
each share of Class B Common Stock entitles its
holder to ten votes. All of the shares of Class B
Common Stock are owned by Valcor. Immediately after
completion of the Offering, Valcor will
beneficially own shares of Common Stock having
approximately 67% of the combined voting power (95%
for director elections) of the outstanding shares
of Common Stock (approximately 64%, and 95%,
respectively, if the Underwriters' over-allotment
option is exercised in full).

Economic Interest.......... The shares of Class B Common Stock will represent
approximately 67% of the economic interest in the
Company (approximately 64% if the Underwriters'
over-allotment option is exercised in full).

NYSE Symbol................ CIX
- ---------------

(a) Includes up to 81,100 shares of Class A Common Stock to be issued to certain
executives and directors upon completion of the Offering and 100,000 shares
of Class A Common Stock awarded to Mr. Compofelice, Chairman of the Board
and Chief Executive Officer of the Company, on February 13, 1998 (the
Management Shares, as defined herein) and excludes approximately 1.3 million
additional shares reserved for issuance under the Incentive Plan (as defined
herein). See "Management -- Incentive Compensation Plan."

RISK FACTORS

See "Risk Factors" beginning on page 7 for a discussion of certain factors
that should be considered by prospective purchasers of the Class A Common Stock.

5
<PAGE> 9

SUMMARY FINANCIAL INFORMATION

The summary historical financial data as of December 31, 1993 through 1997
and for each of the years in the five-year period ended December 31, 1997 have
been derived from audited Consolidated Financial Statements of the Company. The
following summary financial and other information should be read in conjunction
with "Capitalization," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Historical
Consolidated Financial Statements and the Unaudited Pro Forma Condensed
Consolidated Financial Statements of the Company appearing elsewhere in this
Prospectus.

The Company's operations are comprised of a 52 or 53 week fiscal year. Each
of the years ended December 31, 1993 through 1997 consisted of a 52 week year.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------- PRO FORMA(b)
1993 1994 1995 1996 1997 1997
----- ----- ----- ----- ------ ------------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net sales.......................................... $64.4 $70.0 $80.2 $88.7 $108.7 $137.9

Operating income................................... 17.5 20.9 19.9 22.1 28.3 28.1

Income before income taxes......................... 17.5 20.7 19.9 22.1 27.7 27.6
Income taxes....................................... 8.0 8.8 7.8 9.1 11.0 11.5
Minority interest in losses........................ -- -- -- -- -- .1
----- ----- ----- ----- ------ ------
Net income................................ $ 9.5 $11.9 $12.1 $13.0 $ 16.7 $ 16.2
===== ===== ===== ===== ====== ======

Net income per common share........................ $ 1.09
======
OTHER DATA
Operating income margin............................ 27% 30% 25% 25% 26% 20%
Cash flows from:
Operating activities............................. $12.4 $ 9.7 $12.8 $10.4 $ 23.0
Investing activities............................. (2.6) (3.1) (7.9) (2.0) (5.5)
Financing activities............................. (4.6) (4.4) (6.3) (6.3) (5.9)
----- ----- ----- ----- ------
Total..................................... $ 5.2 $ 2.2 $(1.4) $ 2.1 $ 11.6
===== ===== ===== ===== ======

EBITDA(a).......................................... $19.2 $22.5 $22.1 $24.6 $ 31.2 $ 33.0
Depreciation and amortization...................... 1.6 1.7 2.2 2.5 2.8 4.9
Capital expenditures(c)............................ 2.7 3.4 2.0 2.3 5.5
Dividends on common shares(d)...................... 4.4 4.6 6.0 6.2 6.1
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------
ACTUAL PRO FORMA(b)
------ ------------
(IN MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA
Cash and other current assets............................... $45.4 $ 49.3
Total assets................................................ 63.8 100.1
Current liabilities......................................... 64.4 17.3
Long-term debt, including current maturities................ 50.4 .8
Stockholders' equity (deficit).............................. (1.2) 80.5
</TABLE>

- ---------------

(a) EBITDA as presented represents operating income plus depreciation and
amortization. EBITDA is presented because the Company believes it is a
widely accepted financial indicator of a company's ability to incur and
service debt, although the Company's calculation of EBITDA may differ from
and therefore not be comparable to other companies' presentation of EBITDA.
However, EBITDA should not be considered by an investor as an alternative to
(i) operating income or net income as an indicator of a company's operating
performance or (ii) cash flows from operating activities as a measure of a
company's liquidity. Trends in EBITDA are generally consistent with trends
in the Company's operating income. Pro forma EBITDA and depreciation and
amortization for 1997 is presented to assist investors in an analysis of the
Fort Lock Acquisition.

(b) Gives pro forma effect to (i) the Fort Lock Acquisition, (ii) repayment of
the Valcor Note utilizing borrowings under the Revolving Senior Credit
Facility, (iii) issuance of the Management Shares and (iv) the Offering and
the application of the net proceeds therefrom. See "Pro Forma Condensed
Consolidated Financial Statements."

(c) Assuming the Fort Lock Acquisition occurred January 1, 1997, capital
expenditures on a pro forma basis are $6.8 million in 1997.

(d) The Company does not intend initially to declare and pay regular quarterly
cash dividends following completion of the Offering. See "Dividend Policy."
In addition, the Company's ability to pay future dividends is expected to be
restricted by certain covenants contained in the Revolving Senior Credit
Facility.

6
<PAGE> 10

RISK FACTORS

Before making an investment decision, prospective purchasers of the Class A
Common Stock offered hereby should consider carefully the following information,
together with the other information set forth in this Prospectus.

Highly Competitive Industry. Each of the markets served by the Company is
highly competitive, with a number of competitors offering similar products. The
Company focuses its efforts on the middle- and high-end segment of the market,
where product design, quality and durability are the primary competitive
factors. Certain competitors have innovative proprietary products with strong
acceptance in the marketplace. Future development of product designs that
compete with the Company's proprietary products could give them a competitive
advantage over the Company. The Company also faces significant price competition
from its competitors and may encounter competition from new market entrants. In
addition, certain of the Company's customers have significantly greater
resources than the Company and there can be no assurance that these customers
will not explore vertical integration opportunities to manufacture components
that are currently purchased from the Company. There can be no assurance that
the Company will be able to compete successfully in its markets in the future.
See "Business -- Competition."

Risk of Customer Consolidation. The office furniture industry is very
competitive and this environment has recently led to certain consolidation
opportunities. Any such consolidation could result in the combination of one of
the Company's customers with a customer of a competitor of the Company. Such a
consolidation could result in changes in product purchasing or sourcing
decisions or price erosion due to purchasing economies of scale and could result
in the loss of all or a portion of current sales volumes to a customer, which
could have a material adverse effect on the Company's financial condition and
results of operations. There can be no assurance in such circumstances that any
such lost sales that might occur as a result of industry consolidation could be
replaced with sales to new customers.

Economic Factors Affecting the Company's Business. The future growth, if
any, of the office furniture industry will be affected by a variety of
macroeconomic factors, such as service industry employment levels, corporate
cash flows and non-residential commercial construction, as well as industry
factors such as corporate reengineering and restructuring, technology demands,
ergonomic, health and safety concerns and corporate relocations. There can be no
assurance that current or future economic or industry trends will not materially
adversely affect the business of the Company. See "Business -- Industry
Overview."

Risks Associated with Achieving and Managing Growth. Historically the
Company's ability to provide value-added custom engineered products that address
requirements of technology and space utilization has been a key element of the
Company's success. The introduction of new products by the Company requires the
coordination of the design, manufacturing and marketing of such products with
office furniture OEMs. The ability to implement such coordination may be
affected by factors beyond the Company's control. While the Company will
continue to emphasize the introduction of innovative new products that target
customer-specific opportunities, there can be no assurance that any new products
introduced by the Company will achieve the same degree of success as that
achieved by the Company's existing products.

Introduction of new products typically requires the Company to increase
production volume on a timely basis while maintaining product quality.
Manufacturers often encounter difficulties in increasing production volumes,
including delays, quality control problems and shortages of qualified personnel.
As it attempts to introduce new products in the future, there can be no
assurance that the Company will be able to increase production volume without
encountering these or other problems, which might, individually or in the
aggregate, have a material adverse effect on the Company's financial condition
or results of operations.

The Company also intends to pursue a growth strategy through acquisitions
and internal development. The Company's ability to successfully grow through
acquisitions will depend on many factors, including, among others, the Company's
ability to identify suitable growth opportunities and to successfully integrate
acquired businesses. There can be no assurance that the Company will anticipate
all of the changing demands that expanding operations will impose on its
management and management information systems. Any failure

7
<PAGE> 11

by the Company to adapt its systems and procedures to those changing demands
could have a material adverse effect on the Company's results of operations and
financial condition.

Reliance on Key Personnel. The Company believes that the breadth of
industry experience of key management individuals is integral to the Company's
success in understanding and serving its customers' needs. The top seven
executive management personnel have over 100 years of combined industry
experience. The loss of one or more of these key personnel could, among other
things, have an adverse effect upon the ability of the Company to develop and
market new products and to maintain customer relationships.

Reliance on Patents and Other Intellectual Property. The Company owns a
number of United States and foreign patents, trademarks and service marks in
order to protect certain of its innovations and designs. In addition, the
Company is a licensee of certain technology and possesses certain unpatented
proprietary know-how and manufacturing techniques that are important to
maintaining consistent quality. There can be no assurance that any patents,
trademarks or service marks issued or licensed to the Company will not be
challenged, invalidated, canceled, narrowed or circumvented, or that the rights
granted thereunder will provide significant proprietary protection or
competitive advantages to the Company.

The Company continually focuses its efforts on product innovation and
design improvements that enhance existing products and stimulate development of
new products. The Company's approach to custom engineered solutions may subject
the Company to claims of patent infringement by competitors. There can be no
assurance that any future successful assertion of patent infringement claims
will not result in material legal, royalty or other costs to the Company.

Risk of Environmental Liabilities. The operations of the Company are
subject to extensive and changing federal, state, local and foreign
environmental laws and regulations, including those relating to the use,
storage, handling, generation, transportation, treatment, emission, discharge,
disposal and remediation of, and exposure to, hazardous and non-hazardous
substances, materials and wastes. The nature of the Company's operations exposes
the Company to the risk of liabilities, claims and pollution control
requirements for a wide variety of environmental matters, including on-site and
off-site releases and emissions of hazardous substances, materials and wastes.
There can be no assurance that environmental matters will not have a material
adverse effect on the Company's business, results of operations or financial
condition. See "Business -- Environmental Matters."

Exchange Rate Fluctuation. The Company has significant operations in
Canada. During 1997, about three-fourths of the Company's total net sales were
generated by its Canadian operations, of which about 60% are denominated in U.S.
dollars with the remainder denominated in various foreign currencies,
principally the Canadian dollar. Substantially all of the operating expenses
related to the Company's Canadian operations are incurred in Canadian dollars.
As a result, fluctuations in the value of the U.S. dollar relative to the
Canadian dollar can impact the Company's reported operating results. There can
be no assurance that any future exchange rate fluctuations would not materially
adversely impact the Company's future operating results.

Fluctuations in Quarterly Operating Results. The Company's quarterly
operating results may fluctuate due to factors such as the timing of new product
announcements and introductions by the Company, its major customers or its
competitors, delays in new product introductions by the Company, market
acceptance of new or enhanced versions of the Company's products, changes in the
product or customer mix of sales, changes in the level of operating expenses,
competitive pricing pressures, the gain or loss of significant customers,
increased research and development and sales and marketing expenses associated
with new product introductions, and general economic conditions. All the above
factors are difficult for the Company to forecast, and these or other factors
can materially adversely affect the Company's business, financial condition and
results of operations for one quarter or a series of quarters.

Control by Principal Stockholder; Anti-takeover Effects. The holders of
Common Stock are entitled to one vote per share on all matters except the
election of directors, on which the holders of Class B Common Stock are entitled
to ten votes per share. Holders of Class A Common Stock are generally entitled
to vote with holders of the Class B Common Stock as one class on all matters as
to which the stockholders of the Company are entitled to vote. Immediately after
consummation of the Offering, Valcor, an indirect subsidiary of

8
<PAGE> 12

Contran, will own all the outstanding 10,000,000 shares of Class B Common Stock,
which will represent approximately 67% of the combined voting power (95% for the
election of directors) of the outstanding shares of Common Stock (approximately
64% and 95%, respectively, if the over-allotment option is exercised in full).
Transfer of the shares of Class B Common Stock owned by any member of the
Contran Corporation Control Group (as hereafter defined), except for transfers
between members of the Contran Corporation Control Group or transfers made in
connection with a Tax-Free Spin-Off (as hereinafter defined) will result in the
automatic conversion of such shares of Class B Common Stock into shares of Class
A Common Stock. See "Description of Capital Stock -- Common Stock."

All of Valcor's common stock is owned by Valhi. Approximately 93% of
Valhi's common stock is beneficially owned, directly or indirectly, by Contran.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of Mr. Harold Simmons' children and grandchildren.
As sole trustee of these trusts, Mr. Harold Simmons has the power to vote and
direct the disposition of the shares of Contran stock held by the trusts even
though Mr. Harold Simmons disclaims beneficial ownership thereof. As trustee,
Mr. Harold Simmons has the power to elect the majority of the directors of
Contran and effectively control the Board of Directors of the Company and all
stockholders' decisions of the Company, and in general, determine (without the
consent of the Company's other stockholders) the outcome of any corporate
transaction or other matter submitted to the stockholders for approval,
including mergers, consolidations and the sale of all or substantially all of
the Company's assets. In addition, Mr. Harold Simmons has the power to prevent
or cause a change in control of the Company. See "Description of Capital Stock,"
"Security Ownership in the Company and its Affiliates," and "Certain
Relationships and Related Transactions."

In addition, the Company's Certificate of Incorporation currently
authorizes the issuance of 1,000 shares of Preferred Stock. The Board of
Directors has the power to issue any or all of these additional shares without
stockholder approval, and such shares can be issued with such rights,
preferences and limitations as may be determined by the Board. The rights of the
holders of Class A Common Stock will be subject to, and may be adversely
affected by, the rights of any holders of Preferred Stock that may be issued in
the future. The Company presently has no commitments or contracts to issue any
shares of Preferred Stock. Authorized and unissued Preferred Stock could delay,
discourage, hinder or preclude an unsolicited acquisition of the Company, could
make it less likely that stockholders receive a premium for their shares as a
result of any such attempt and could adversely affect the market price of and
the voting and other rights of the holders of outstanding shares of Common
Stock.

Absence of Dividends. The Company does not anticipate paying any cash
dividends on the Class A or Class B Common Stock in the foreseeable future. See
"Dividend Policy."

Restrictions Imposed by Terms of the Company's Indebtedness. It is
anticipated that the terms of the Revolving Senior Credit Facility will impose
operating and financial restrictions on the Company. As a result, the ability of
the Company to respond to changing business and economic conditions and to
secure additional financing, if needed, may be significantly restricted, and the
Company may be prevented from engaging in transactions that might further its
growth strategy or otherwise be considered beneficial to the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

Effect of No Prior Public Trading Market. Prior to the Offering, there has
been no public trading market for the Class A Common Stock. The public offering
price for the Class A Common Stock will be determined by negotiations between
the Company and the Underwriters based upon several factors and will not
necessarily bear any relationship to the Company's assets, book value, results
of operations or net worth or any other generally accepted criteria of value,
and should not be considered as indicative of the actual value of the Company.
Therefore, the market price of the Class A Common Stock may fall below the
public offering price of the Class A Common Stock at any time following the
Offering. See "Underwriting."

Although the Company's Class A Common Stock has been approved for listing
on the NYSE, subject to official notice of issuance, there can be no assurance
that such application will be granted or that an active trading market will
develop. To the extent an active trading market does develop, factors such as
quarterly variations in the Company's financial results, public announcements by
the Company or others, general
9
<PAGE> 13

market conditions or certain regulatory pronouncements may cause the market
price of the Class A Common Stock to fluctuate substantially.

Effect of Sales of Substantial Amounts of Common Stock. Immediately after
consummation of the Offerings, Valcor will beneficially own all the outstanding
10,000,000 shares of Class B Common Stock, which will represent approximately
67% of the combined voting power (95% for election of directors) of the
outstanding shares of Common Stock (approximately 64% and 95%, respectively, if
the Underwriters' over-allotment option is exercised in full). Subject to
applicable law and the terms of the Class B Common Stock, Valcor could sell all
or some of the shares of Class B Common Stock owned by it from time to time for
any reason. The Company cannot predict the effect, if any, that future sales of
outstanding Common Stock or the availability of Common Stock for sale will have
on the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock in the public market following the Offering,
or the perception that such sales could occur, could adversely affect prevailing
market prices of the Class A Common Stock.

Each of the Company, Valcor, and executive officers and directors thereof
has agreed that, for a period of 180 days following the date of this Prospectus,
it will not issue or sell any shares of Class A Common Stock or securities
convertible into or exercisable for such stock, held by it now or in the future
without the prior written consent of the Underwriters. See "Shares Eligible for
Future Sale" and "Security Ownership in the Company and its Affiliates."

Forward-looking Statements. This Prospectus includes forward-looking
statements (as such term is defined in the Private Securities Litigation Reform
Act of 1995 (the "Reform Act")). The "safe-harbor" protections of the Reform Act
are not available to initial public offerings, including this Offering. These
forward looking statements include, but are not limited to, statements
regarding, among other items, (i) the Company's anticipated growth strategies,
(ii) the Company's intention to introduce new products, (iii) anticipated trends
in the Company's businesses, including trends in the market for office furniture
and corporate concerns for worker health and safety, (iv) future expenditures
for capital projects and (v) the Company's ability to continue to control costs
and maintain quality. These forward-looking statements are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. Actual results could differ
materially from these forward-looking statements as a result of many factors,
including, but not limited to, the factors described in "Prospectus Summary,"
"Risk Factors" and "Business" including, among other things, (i) changes in the
competitive marketplace, including the introduction of new products or pricing
changes by the Company's competitors, and (ii) changes in market trends for
office furniture, including changes in service industry employment. Other
factors that materially affect actual results include, among others, the
following: general economic and business conditions; industry capacity; changes
in customer preferences; demographic changes; competition; changes in methods of
marketing and in technology; changes in political, social and economic
conditions; regulatory factors and various other factors beyond the Company's
control. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus will
in fact transpire.

Potential Acquisition. On February 3, 1998, the Company executed a
definitive agreement concerning the Fort Lock Acquisition. See "Recent
Developments".

The consummation of the acquisition is subject to the expiration of the
applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended, confirmation of the accuracy of certain
representations, warranties and covenants of the parties, the absence of certain
material adverse developments, receipt of required consents and certain other
conditions. While the Company believes that it will complete the Fort Lock
Acquisition during the first quarter of 1998, there can be no assurance that the
Fort Lock Acquisition will be successfully completed during the first quarter of
1998, if at all, or that completion of the transaction can be accomplished on
terms that are commercially advantageous or that the operations of the Fort Lock
Group can be successfully integrated into the Company's current businesses.

10
<PAGE> 14

Dilution Incurred by Investors. The per share price to the public of the
Class A Common Stock is substantially higher than the net tangible book value
per share of the Common Stock at December 31, 1997. Accordingly, at such date,
investors purchasing the Class A Common Stock offered hereby would have incurred
immediate, substantial dilution in the amount of $13.09 per share, assuming a
public offering price of $18.50 per share and after giving pro forma effect to
issuance of the Management Shares. Giving additional pro forma effect to the
Fort Lock Acquisition results in additional dilution to investors purchasing the
Class A Common Stock offered hereby of $1.47 per share.

11
<PAGE> 15

USE OF PROCEEDS

The net proceeds to the Company from the Offering (based on an assumed
offering price of $18.50 per share) will be approximately $80.4 million. The
Company will utilize the net proceeds of the Offering to repay indebtedness and
to complete the Fort Lock Acquisition. Approximately $50 million of the net
proceeds will be used to fully repay borrowings outstanding under the Revolving
Senior Credit Facility, which prior to completion of the Offering will be
utilized to satisfy the Valcor Note. In December 1997, the Valcor Note was paid
as a dividend to Valcor, the Company's sole stockholder at that time. The Valcor
Note is an unsecured $50 million demand note that bears interest at a fixed rate
of 6% per annum. The Revolving Senior Credit Facility is expected to be an
unsecured five-year revolving facility and is expected to bear interest at LIBOR
plus 30 to 102.5 basis points, depending upon certain financial covenant ratios.
Prior to completion of the Offering, the Company intends to utilize borrowings
under the Revolving Senior Credit Facility to fully repay the Valcor Note.

The remaining net proceeds of the Offering, together with cash on hand and
any borrowing availability under the Revolving Senior Credit Facility, will be
available to consummate the Fort Lock Acquisition and for the Company's general
corporate purposes. See "Recent Developments". There can be no assurance the
Fort Lock Acquisition will be consummated. See "Risk Factors -- Potential
Acquisition."

NationsBank, N.A., an affiliate of NationsBanc Montgomery Securities LLC,
and First Union National Bank, an affiliate of Wheat First Securities, Inc., are
expected to receive repayment of amounts outstanding under the Revolving Senior
Credit Facility from the net proceeds of the Offering that are, in the
aggregate, more than 10% of the net proceeds of the Offering. See
"Underwriting."

DIVIDEND POLICY

As a subsidiary of Valcor, the Company has historically been managed with a
focus on generating cash flow to pay dividends to Valcor. After the Offering,
the Company intends to seek to maximize stockholder value through growth. As a
result, following the Offering, the Company does not intend initially to declare
and pay regular quarterly cash dividends but intends, instead, to utilize
available cash to fund additional acquisition and expansion opportunities.
Determinations to pay cash dividends in the future will be made at the
discretion of the Board of Directors, and any payment of dividends in the future
will depend upon the Company's results of operations, earnings, capital
requirements and contractual restrictions and upon other factors deemed relevant
by the Company's Board of Directors. The Company's ability to pay future
dividends is expected to be restricted by certain covenants contained in the
Revolving Senior Credit Facility. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Description of Capital Stock"
and the Historical Consolidated Financial Statements included in this
Prospectus.

The Company paid dividends to Valcor aggregating $4.4 million in 1993, $4.6
million in 1994, $6.0 million in 1995, $6.2 million in 1996 and $6.1 million in
1997. In 1998 prior to completion of the Offering, the Company expects to pay
approximately $1.5 million of dividends to Valcor. In addition, on December 12,
1997, the Company paid a $50 million dividend to Valcor in the form of the
Valcor Note. The Company intends to use borrowings under the Revolving Senior
Credit Facility to repay the Valcor Note. A portion of the proceeds of the
Offering will be used to repay outstanding borrowings under the Revolving Senior
Credit Facility. See "Use of Proceeds."

12
<PAGE> 16

CAPITALIZATION

The following table sets forth as of December 31, 1997 (i) the historical
consolidated capitalization of the Company and (ii) as adjusted to reflect (w)
repayment of the Valcor Note from borrowings under the Revolving Senior Credit
Facility, (x) issuance of the Management Shares, (y) the Offering with assumed
net proceeds to the Company of $80.4 million (assuming an initial offering price
of $18.50 per share) and the application of such net proceeds and (z) the Fort
Lock Acquisition. See "Use of Proceeds" and "Pro Forma Condensed Consolidated
Financial Statements."

<TABLE>
<CAPTION>
AS
ACTUAL ADJUSTED
------ --------
($ IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Long-term debt:
Revolving Senior Credit Facility(a)....................... $ -- $ --
Demand note payable to Valcor............................. 50.0 --
Other..................................................... .4 .8
----- -----
Total long-term debt, including current
maturities....................................... 50.4 .8
Less current maturities................................... 50.1 .2
----- -----
Total long-term debt.............................. .3 .6
----- -----
Stockholders' equity (deficit):
Preferred stock, $.01 par value; 1,000 shares authorized,
none issued............................................ -- --
Class A Common Stock, $.01 par value; 20,000,000 shares
authorized; 4,881,100 shares issued and
outstanding(b)......................................... -- .1
Class B Common Stock, $.01 par value; 10,000,000 shares
authorized, issued and outstanding..................... .1 .1
Additional paid in capital................................ 4.4 88.0
Retained earnings (deficit)............................... (4.6) (6.6)
Currency translation adjustment........................... (1.1) (1.1)
----- -----
Total stockholders' equity (deficit).............. (1.2) 80.5
----- -----
Total capitalization.............................. $ (.9) $81.1
===== =====
</TABLE>

- ---------------

(a) Prior to the Offering, the Company expects to enter into a new $100 million
Revolving Senior Credit Facility. See "Recent Developments." As adjusted,
the Company would have $100 million of borrowing availability under this
facility.

(b) Excludes approximately 1.3 million shares reserved for issuance under the
Incentive Plan (as defined herein) and includes shares of Class A Common
Stock subject to stock options which may be granted to the Company's
management concurrent with the Offering at the initial public offering price
of the Class A Common Stock. See "Management -- Incentive Compensation
Plan."

13
<PAGE> 17

DILUTION

Dilution is the amount by which the initial public offering price per share
paid by the purchasers of shares of Class A Common Stock in the Offering exceeds
the net tangible book value per share of Common Stock after the Offering. The
net tangible book value per share of Common Stock is determined by subtracting
the book value of total liabilities and intangible assets (consisting of
deferred costs) of the Company from the total book value of the total assets of
the Company and dividing the difference by the number of shares of Common Stock
outstanding on the date as of which such book value is determined.

The adjusted net tangible book value of the Company at December 31, 1997
was a deficit of approximately $1.2 million, or $(.12) per share of Common
Stock. After giving effect to (y) the sale of shares of Class A Common Stock by
the Company in the Offering at an assumed offering price of $18.50 per share and
the application of the estimated net proceeds therefrom and (z) issuance of the
Management Shares, the net tangible book value of the Company as of December 31,
1997 would have been $80.4 million, or $5.41 per share. This represents an
immediate increase in net adjusted tangible book value of $5.53 per share to the
holder of Class B Common Stock and an immediate dilution in net tangible book
value of $13.09 per share to purchasers of Class A Common Stock in the Offering,
as illustrated in the following table:

<TABLE>
<S> <C> <C>
Assumed public offering price per share............................ $18.50
Adjusted net tangible book value per share at December 31,
1997...................................................... $(.12)
Increase per share attributable to new investors............ 5.53
-----
Pro forma net tangible book value per share........................ 5.41
------
Net tangible book value dilution per share to new investors........ $13.09
======
</TABLE>

If the over-allotment option is exercised in full, the pro forma net
tangible book value per share of Class A Common Stock after giving effect to the
transaction described above would be $5.94 per share, the increase in the net
tangible book value per share would be $6.06 and the dilution to persons who
purchase shares of Class A Common Stock in the Offering would be $12.56 per
share (at an assumed offering price of $18.50 per share).

In addition, after giving pro forma effect to the Fort Lock Acquisition,
the net tangible book value per share of Class A common stock, the increase in
the net tangible book value per share as a result of this Offering to holders of
Class B Common Stock and the dilution per share to purchasers of Class A Common
Stock in the Offering would be $3.94, $4.06 and $14.56, respectively ($4.54,
$4.66 and $13.96, respectively, if the over-allotment option is exercised in
full).

14
<PAGE> 18

COMPX INTERNATIONAL INC.

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The accompanying unaudited pro forma condensed consolidated financial
statements set forth the Company's pro forma condensed consolidated balance
sheet as of December 31, 1997, and the pro forma condensed consolidated
statement of income for the year ended December 31, 1997. These pro forma
financial statements are presented to illustrate the effect of certain
adjustments to the Company's Historical Consolidated Financial Statements
included in this Prospectus and reflect (i) repayment of a $50 million demand
note payable to Valcor utilizing borrowings under the Revolving Senior Credit
Facility, (ii) the Offering and repayment of the Revolving Senior Credit
Facility (iii) issuance of the Management Shares and (iv) the Fort Lock
Acquisition, as if such transactions had occurred on December 31, 1997 for
purposes of the unaudited pro forma condensed consolidated balance sheet and on
January 1, 1997 for purposes of the unaudited pro forma condensed consolidated
income statements. The Fort Lock Acquisition will be accounted for by the
purchase method of accounting and consolidated in the Company's historical
financial statements effective the date of consummation.

The accompanying unaudited pro forma condensed consolidated financial
statements should be read in conjunction with the Company's and the Fort Lock
Group's historical consolidated financial statements and notes thereto included
elsewhere in the Prospectus. The pro forma condensed consolidated financial
statements are presented for information purposes only and do not purport to be
indicative of actual results had the transactions reflected therein occurred at
the dates indicated, nor do they purport to represent results of future
operations of the Company.

15
<PAGE> 19

COMPX INTERNATIONAL INC.

PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
(IN MILLIONS)

ASSETS

<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
-------------------------------------------
SENIOR CREDIT
FACILITY,
HISTORICAL STOCK OFFERING AND FORT LOCK
----------------- MANAGEMENT SHARES ACQUISITION
FORT LOCK -------------------- --------------------
COMPX GROUP NOTE 1 ADJUSTMENTS NOTE 1 ADJUSTMENTS PRO FORMA
----- --------- ------ ----------- ------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents..... $19.2 $ .1 (a) $ 30.4 (d) $(30.7)
(e) (2.5) $ 16.5
Accounts receivable........... 14.6 2.3 -- -- 16.9
Inventories................... 11.1 4.0 -- -- 15.1
Deferred income taxes......... .4 .2 -- -- .6
Other current assets.......... .1 .1 -- -- .2
----- ----- ------ ------ ------
Total current
assets.............. 45.4 6.7 30.4 (33.2) 49.3
Goodwill........................ -- -- -- (f) 21.8 21.8
Other assets.................... .2 .2 -- -- .4
Property and equipment, net..... 18.2 5.4 -- (e) 2.5
(f) 2.5 28.6
----- ----- ------ ------ ------
$63.8 $12.3 $ 30.4 $ (6.4) $100.1
===== ===== ====== ====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Demand note payable to
Valcor..................... $50.0 $ -- (b) $(50.0) $ -- $ --
Notes payable and current
maturities of long-term
debt....................... .1 1.5 -- (f) (1.4) .2
Accounts payable and accrued
liabilities................ 11.7 4.1 (c) (1.3) -- 14.5
Income taxes.................. 2.6 -- -- -- 2.6
----- ----- ------ ------ ------
64.4 5.6 (51.3) (1.4) 17.3
----- ----- ------ ------ ------
Noncurrent liabilities:
Long-term debt................ .3 1.4 (b) 50.0
(a) (50.0) (f) (1.1) .6
Deferred income taxes......... .1 .2 (f) 1.0 1.3
Other......................... .2 -- -- -- .2
----- ----- ------ ------ ------
.6 1.6 -- (.1) 2.1
----- ----- ------ ------ ------
Minority interest............... -- .2 -- -- .2
----- ----- ------ ------ ------
Stockholders' equity
(deficit)..................... (1.2) 4.9 (a) 80.4
(c) 1.3 (f) (4.9) 80.5
----- ----- ------ ------ ------
$63.8 $12.3 $ 30.4 $ (6.4) $100.1
===== ===== ====== ====== ======
</TABLE>

16
<PAGE> 20

COMPX INTERNATIONAL INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)

NOTE 1 -- PRO FORMA ADJUSTMENTS:

Pro forma adjustments described below reflect (i) repayment of a $50
million demand note payable to Valcor utilizing borrowings under the Revolving
Senior Credit Facility, (ii) the Offering and repayment of the Revolving Senior
Credit Facility, (iii) issuance of the Management Shares and (iv) the Fort Lock
Acquisition, as if such transactions had occurred on December 31, 1997. These
transactions are more fully described elsewhere in this Prospectus.

Senior Credit Facility and Stock Offering:

<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
(a) Proceeds of the Offering:
Issuance of 4,700,000 Class A Common Stock at an
assumed Offering price of $18.50 per share............ $ 87.0
Less underwriting discount............................. (6.1)
Less estimated expenses of the Offering................ (.5)
------
80.4
Repayment of borrowings under the Revolving Senior
Credit Facility....................................... (50.0)
------
Net cash.......................................... $ 30.4
======
</TABLE>

(b) Repayment of the demand note payable to Valcor from borrowings pursuant to
the Revolving Senior Credit Facility.

Issuance of the Management Shares:

(c) Issuance of 181,100 shares of Class A Common Stock to certain officers of
the Company at an aggregate value of $3.4 million (based on assumed Offering
price of $18.50 per share), less a $1.3 million current tax benefit at an
effective federal and state tax rate of 39%.

The Fort Lock Acquisition:

(d) The Company (i) acquires 100% of the outstanding stock of Fort Lock
Corporation for $30 million cash and acquires the net assets of Fortronics,
Inc., an affiliate of Fort Lock Corporation by common ownership, for $.5
million cash (collectively the "Fort Lock Group") and (ii) incurs $200,000
in acquisition related costs.

(e) The Company purchases Fort Lock Corporation's manufacturing building owned
by a shareholder of Fort Lock Corporation for $2.5 million cash. The
acquisition of the Fort Lock Group and the purchase of such building is
referred to as the "Fort Lock Acquisition".

17
<PAGE> 21
COMPX INTERNATIONAL INC.

NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET -- (CONTINUED)

(f) Allocate Fort Lock Group purchase price as follows.

<TABLE>
<CAPTION>
AMOUNT
-------------
(IN MILLIONS)
<S> <C>
Purchase price to be allocated:
Cash paid to acquire the Fort Lock Group............. $30.5
Transaction costs.................................... .2
-----
30.7
Historical Fort Lock Group common equity............... 4.9
-----
$25.8
=====
Purchase price allocation:
Adjust the carrying value of the acquired property,
plant and equipment to estimated fair value......... $ 2.5
Deferred income tax consequences of the above
adjustment, at effective federal and state tax rate
of 39%.............................................. (1.0)
Elimination of indebtedness not assumed.............. 2.5
Goodwill............................................. 21.8
-----
$25.8
=====
</TABLE>

Approximately $2.5 million of the Fort Lock Group bank indebtedness and the
Fort Lock Group loans from its shareholders will be repaid by the sellers
out of the purchase price and will not become obligations of CompX(TM).

18
<PAGE> 22

COMPX INTERNATIONAL INC.

UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
HISTORICAL
--------------- PRO FORMA
FORT ADJUSTMENTS
LOCK ---------------- PRO FORMA
COMPX GROUP NOTE 1 AMOUNT CONSOLIDATED
------ ----- ------ ------ ------------
<S> <C> <C> <C> <C> <C>
Total revenues............................... $109.5 $29.2 $ -- $138.7
------ ----- ----- ------
Costs and expenses:
Cost of goods sold......................... 70.6 20.0 (a) .3 90.9
Selling, general and administrative........ 11.0 4.6 (b) 1.1
(g) 3.4 20.1
Interest................................... .2 .3 (c) (.2)
(e) (.2) .1
------ ----- ----- ------
81.8 24.9 4.4 111.1
------ ----- ----- ------
Income before income taxes......... 27.7 4.3 (4.4) 27.6

Provision for income taxes................... 11.0 1.7 (d) --
(f) .1
(h) (1.3) 11.5
Minority interest in net loss................ -- .1 -- .1
------ ----- ----- ------
Net income................................... $ 16.7 $ 2.7 $(3.2) $ 16.2
====== ===== ===== ======
Basic and diluted net income per common
share...................................... $ 1.09
======
Weighted average common shares outstanding... 14.9
======

Other data:
Operating income........................... $ 28.3 $ 28.1
EBITDA..................................... 31.2 33.0
</TABLE>

19
<PAGE> 23

COMPX INTERNATIONAL INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1997

NOTE 1 -- BASIS OF PRESENTATION:

The Unaudited Pro Forma Condensed Consolidated Statement of Income for the
year ended December 31, 1997 has been prepared to reflect (i) repayment of a $50
million demand note payable to Valcor utilizing borrowings under the Revolving
Senior Credit Facility, (ii) the Offering and repayment of the Revolving Senior
Credit Facility, (iii) issuance of the Management Shares and (iv) the Fort Lock
Acquisition, as if such transactions had occurred on January 1, 1997. These
transactions are more fully described elsewhere in this Prospectus.

Amounts reflected for the year-ended December 31, 1997 for the Fort Lock
Group are derived from the amounts reflected in the fiscal year end audited
financial statements of the Fort Lock Group for the fiscal year ended June 28,
1997 and the unaudited financial statements for the 26 week periods ended
December 1996 and 1997 presented elsewhere in this Prospectus.

Adjustments relating to the Fort Lock Acquisition:

(a) Increase in depreciation expense resulting from amortization of purchase
accounting basis differences over average remaining life of 10 years.

(b) Amortization of goodwill related to the acquisition of the Fort Lock Group
by the straight-line method over 20 years.

(d) Income tax expense of pro forma adjustment (a) and (c), at assumed federal
and state tax rate of 39%.

Adjustments relating to repayment of the $50 million note payable to Valcor:

(e) Eliminate interest expense associated with the Valcor Note.

(f) Income tax expense of pro forma adjustment (e) at assumed federal and state
tax rate of 39%.

Adjustments relating to the issuance of the Management Shares:

(g) Issuance of 181,100 shares of Class A Common Stock to certain officers and
directors of the Company at an aggregate value of $3.4 million.

(h) Income tax benefit of pro forma adjustment (g) at assumed federal and state
tax rate of 39%.

The historical statement of income for the Fort Lock Group includes rental
expense pursuant to a lease of the manufacturing building currently owned by a
shareholder of Fort Lock Corporation. No pro forma adjustment is required to
reflect the Company's purchase of such building as depreciation expense with
respect to the building would approximate the historical lease expense. No pro
forma adjustment is required to reflect interest expense under the Revolving
Senior Credit Facility because borrowings under such facility will be repaid
using a portion of the net proceeds from the Offering.

The shares used in the calculation of pro forma basic and diluted earnings
per share assumes an Offering price to the public of $18.50 per share and is
based upon (i) 10,000,000 shares of the Company's Class B Common Stock
outstanding, (ii) 4,700,000 shares of Class A Common Stock to be issued in the
Offering, the net proceeds of which, along with available cash on hand, are
sufficient to fund repayment of the Revolving

20
<PAGE> 24
COMPX INTERNATIONAL INC.

NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED STATEMENT OF INCOME -- (CONTINUED)

Senior Credit Facility and to consummate the Fort Lock Group Acquisition, and
(iii) issuance of 181,100 shares of Class A Common Stock to certain officers and
directors of the Company.

NOTE 2 -- OTHER DATA:

EBITDA as presented represents operating income plus depreciation and
amortization. EBITDA is presented because the Company believes it is a widely
accepted financial indicator of a company's ability to incur and service debt,
although the Company's calculation of EBITDA may differ from and therefore not
be comparable to other companies' presentation of EBITDA. EBITDA should not be
considered by an investor as an alternative to (i) operating income or net
income as an indicator of a company's operating performance or (ii) cash flows
from operating activities as a measure of a company's liquidity. Trends in
EBITDA are generally consistent with trends in the Company's operating income.
Pro forma EBITDA and depreciation and amortization for 1997 are presented to
assist investors in an analysis of the Fort Lock Acquisition.

21
<PAGE> 25

SELECTED FINANCIAL DATA

The historical selected financial data as of December 31, 1993 through
1997, and for each of the years in the five-year period ended December 31, 1997,
have been derived from audited Consolidated Financial Statements of the Company.
The following selected financial and other data should be read in conjunction
with "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Historical Consolidated Financial
Statements of the Company included in this Prospectus.

The Company's operations are comprised of a 52 or 53 week fiscal year. Each
of the years ended December 31, 1993 through 1997 consisted of a 52 week year.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------- PRO FORMA
1993 1994 1995 1996 1997 1997(B)
----- ----- ----- ----- ------ ---------
($ IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA

Net sales..................................... $64.4 $70.0 $80.2 $88.7 $108.7 $137.9

Operating income.............................. 17.5 20.9 19.9 22.1 28.3 28.1

Income before income taxes.................... 17.5 20.7 19.9 22.1 27.7 27.6
Income taxes.................................. 8.0 8.8 7.8 9.1 11.0 11.5
Minority interest in losses................... -- -- -- -- -- .1
----- ----- ----- ----- ------ ------
Net income.......................... $ 9.5 $11.9 $12.1 $13.0 $ 16.7 $ 16.2
===== ===== ===== ===== ====== ======

Net income per common share................... $ 1.09
======
OTHER DATA
Operating income margin....................... 27% 30% 25% 25% 26% 20%
Cash flows from:
Operating activities........................ $12.4 $ 9.7 $12.8 $10.4 $ 23.0
Investing activities........................ (2.6) (3.1) (7.9) (2.0) (5.5)
Financing activities........................ (4.6) (4.4) (6.3) (6.3) (5.9)
----- ----- ----- ----- ------
Total............................... $ 5.2 $ 2.2 $(1.4) $ 2.1 $ 11.6
===== ===== ===== ===== ======
EBITDA (a).................................... $19.2 $22.5 $22.1 $24.6 $ 31.2 $ 33.0
Depreciation and amortization................. 1.6 1.7 2.2 2.5 2.8 4.9
Capital expenditures (c)...................... 2.7 3.4 2.0 2.3 5.5
Dividends on Common Stock (d)................. 4.4 4.6 6.0 6.2 6.1
BALANCE SHEET DATA (AT PERIOD END)
Cash and other current assets................. $20.6 $25.9 $27.7 $32.2 $ 45.4 $ 49.3
Total assets.................................. 31.3 37.8 44.4 48.5 63.8 100.1
Current liabilities........................... 9.5 8.9 9.6 8.1 64.4 17.3
Long-term debt, including current
maturities.................................. .2 .1 .1 .2 50.4 .8
Stockholders' equity (deficit)................ 19.4 26.2 32.6 39.2 (1.2) 80.5
</TABLE>

- ---------------

(a) EBITDA as presented represents operating income plus depreciation and
amortization. EBITDA is presented because the Company believes it is a
widely accepted financial indicator of a company's ability to incur and
service debt, although the Company's calculation of EBITDA may differ
from and therefore not be comparable to other companies' presentation of
EBITDA. EBITDA should not be considered by an investor as an alternative
to (i) operating income or net income as an indicator of a company's
operating performance or (ii) cash flows from operating activities as a
measure of a company's liquidity. Trends in EBITDA are generally
consistent with trends in the Company's operating income. Pro forma
EBITDA and depreciation and amortization for 1997 are presented to assist
investors in an analysis of the Fort Lock Acquisition.

(b) Gives pro forma effect to (i) the Fort Lock Acquisition, (ii) repayment
of the Valcor Note utilizing borrowings under the Revolving Senior Credit
Facility, (iii) issuance of the Management Shares and (iv) the Offering
and the application of the net proceeds therefrom. See "Pro Forma
Condensed Consolidated Financial Statements."

(c) Assuming the Fort Lock Acquisition occurred January 1, 1997, capital
expenditures on a pro forma basis are $6.8 million in 1997.

(d) The Company does not intend initially to declare and pay regular
quarterly cash dividends following completion of the Offering. See
"Dividend Policy". In addition, the Company's ability to pay future
dividends is expected to be restricted by certain covenants contained in
the Revolving Senior Credit Facility.

22
<PAGE> 26

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
the Historical Consolidated Financial Statements of the Company and the notes
thereto appearing elsewhere in this Prospectus. Certain statements in the
following discussion are forward-looking statements or discussion of trends
which by their nature involve substantial risks and uncertainties that could
significantly affect expected results. Actual future results and trends may
differ materially from those described below depending on a variety of factors,
including those detailed under the caption "Risk Factors" and elsewhere in this
Prospectus.

OVERVIEW

The Company sells ergonomic computer support systems and precision ball
bearing drawer slides which are manufactured in two facilities located in
Kitchener, Ontario and medium-security mechanical locks which are manufactured
in a facility in Mauldin, South Carolina. The Company is a majority owned
subsidiary of Valcor, a wholly-owned subsidiary of Valhi. In 1993, Valhi formed
National Cabinet Lock, Inc. and contributed the assets of its Cabinet Lock
Division and the stock of Waterloo Furniture Components Limited. In 1996,
National Cabinet Lock, Inc. changed its name to CompX International Inc.

Approximately 75% of the Company's products are sold to the office
furniture manufacturing industry while the remainder (principally mechanical
locks) are sold for use in other products, such as vending equipment, postal
boxes, electromechanical enclosures and other furniture and equipment. According
to BIFMA, the dollar value of U.S. office furniture industry shipments has grown
in 23 of the past 25 years and is currently estimated to have grown at a
compound annual rate of approximately 8.4% over the four year period ended
December 31, 1997. Over the same period the Company's total net sales increased
at a compound annual rate of approximately 14%, and net sales in 1997 were 22%
higher compared to 1996. Management believes that the market for the Company's
ergonomic computer support systems is experiencing substantially higher rates of
growth than the office furniture industry as a whole. In 1997, ergonomic
computer support systems represented 34% of total net sales compared to 26% in
1994.

The Company does not expect net sales from its existing medium-security
cabinet lock business to achieve growth rates comparable to its ergonomic
computer support systems and precision ball bearing drawer slides. The Company
intends to pursue potential acquisition opportunities to provide future growth
in its medium-security cabinet lock business. On February 3, 1998, the Company
executed a definitive agreement concerning the Fort Lock Acquisition. See
"Recent Developments."

The Company's products are sold primarily to OEMs in the United States and
Canada. The ten largest customers accounted for approximately one-third of sales
during each of the past three years with at least five of such customers in each
year located in the United States.

In August 1995, the Company acquired the assets of a Canadian competitor.
The acquired operations contributed approximately $3 million in sales in 1995,
$6 million in 1996 and $6 million in 1997. Through the elimination of
unprofitable product lines and the integration of manufacturing operations, the
operating contribution from these operations improved from a slight loss in 1995
to operating margins in 1997 consistent with the Company's existing ergonomic
computer support systems and precision ball bearing drawer slide products,
contributing to the majority of the improvement in operating margins 1997
compared to 1996.

A portion of the Company's sales are made pursuant to a government
contract. In the first quarter of 1995, the Company completed shipments of
medium-security locks pursuant to a 1992 government contract. This contract was
not renewed until the end of 1996 due to excess supply and contributed to a $.9
million decline in sales of medium-security cabinet locks in 1996 compared to
1995. The Company signed a new $650,000 contract for medium-security locks with
the same government agency in December 1996, under which all shipments were made
in 1997.

The Company's profitability depends on its ability to utilize its
production capacity effectively, which is affected by, among other things, the
demand for its products, and its ability to control its manufacturing costs,
primarily comprised of raw materials such as zinc, copper, coiled steel and
plastic resins and of labor costs. Raw material costs represent approximately
45% of the Company's total cost of sales. Beginning in

23
<PAGE> 27

August 1997, steel prices have increased approximately 4% per pound, resulting
in an overall increase in raw material cost of approximately 2% in 1997 compared
to 1996. The Company occasionally enters into raw material arrangements to
mitigate the short-term impact of future increases in raw material costs. While
these arrangements do not commit the Company to a minimum volume of purchases,
they generally provide for stated unit prices based upon achievement of
specified volume purchase levels. This allows the Company to stabilize raw
material purchase prices provided the specified minimum monthly purchase
quantities are met. The Company currently anticipates entering into such
arrangements for zinc, coiled steel and plastic resins for 1998 and does not
anticipate significant changes in the cost of these materials from their current
levels. Materials purchased on the spot market are sometimes subject to
unanticipated and sudden price increases. Due to the competitive nature of the
markets served by the Company's products, it is often difficult to recover such
increases in raw material costs through increased product selling prices and
consequently overall operating margins can be affected by such raw material cost
pressures.

Labor costs represent approximately 14% of the Company's total cost of
sales. The Company's U.S. employees are not represented by bargaining units and
wage increases historically have been in line with overall inflation indices.
Approximately two-thirds of the Company's Canadian employees are covered by a
three year collective bargaining agreement that expires in January 2000 and
provides for annual wage increases of 2-3%. Wage increases for these employees
historically have been in line with overall inflation indices.

Selling, general and administrative costs have been consistent as a
percentage of net sales and consist primarily of salaries, commissions and
advertising directly related to product sales.

The Company obtains certain management, financial and administrative
services on a fee basis from Valhi pursuant to an Intercorporate Services
Agreement. The Company believes such arrangements have been cost beneficial
compared to the cost of dedicated staff or consulting arrangements to otherwise
provide such services. Fees pursuant to these agreements were $284,000 in 1995,
$300,000 in 1996, and $260,000 in 1997. The Company intends to continue to
receive similar services from Valhi on a fee basis following the Offering.

Certain employees of the Company have been granted options to purchase
Valhi common stock under the terms of Valhi's stock option plans. The Company
pays Valhi the aggregate difference between the option price and the market
value of Valhi's common stock on the exercise date of such options. For
financial reporting purposes, the Company accounts for the related expense
(credit) of $(12,000) in 1995, $9,000 in 1996 and $472,000 for 1997 in a manner
similar to accounting for stock appreciation rights. To the extent employees of
the Company continue to have options outstanding to purchase Valhi shares,
future changes in the market price of Valhi shares will result in additional
expense or credits to the Company's operating results. At December 31, 1997,
employees of the Company held options to purchase 204,000 Valhi shares at prices
ranging from $4.76 to $14.66 per share (185,000 shares at prices lower than the
December 31, 1997 quoted market price of $9.44 per share).

Upon completion of the Offering, five of the Company's officers and
directors will be awarded up to 81,100 shares of Class A Common Stock under the
Incentive Plan (as defined herein) for their services in connection with the
Offering, with an option to receive one-half of the value of such shares in cash
to satisfy individual income taxes related thereto. The number of such Class A
shares to be awarded is based upon the Price to Public. In addition, on February
13, 1998, the Company awarded Mr. Compofelice, its Chairman of the Board and
Chief Executive Officer, an additional 100,000 shares of Class A Common Stock.
The Company will value all of such Class A shares awarded at the Price to
Public, and the aggregate value of the Class A shares awarded will be
approximately $3.4 million. The Company will recognize a charge, at the time of
the completion of the Offering, equal to the aggregate value of the Class A
shares awarded and cash payments made.

About three-fourths of the Company's net sales are generated by its
Canadian operations. About 60% of these Canadian-produced sales are denominated
in U.S. dollars while substantially all of the related costs are incurred in
Canadian dollars. Consequently, relative changes in the U.S. dollar/Canadian
dollar exchange rate affect operating results. Since U.S. dollar/Canadian dollar
exchange rates have not fluctuated significantly since 1993, the impact on
operating income of fluctuations in the value of the U.S. dollar relative to the
Canadian dollar since 1993 has not been material.

24
<PAGE> 28

The Company is included in the consolidated U.S. federal income tax return
of Contran, and a tax sharing agreement provides for allocation of tax
liabilities and benefits to the Company, in general, as though it filed a
separate U.S. federal income tax return. The principal reasons for the
difference between the U.S. federal statutory income tax rate and the Company's
effective income tax rates are explained in Note 8 to the Company's Historical
Consolidated Financial Statements included in this Prospectus. Upon completion
of the Offering, the Company will no longer be included in the consolidated U.S.
federal income tax return of Contran.

RESULTS OF OPERATIONS

The table set forth below summarizes the Company's operating expenses as a
percentage of net sales:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100% 100% 100%
Cost of sales............................................... 65 65 65
--- --- ---
Gross profit................................................ 35 35 35
Selling, general and administrative......................... 10 10 9
--- --- ---
Operating income............................................ 25 25 26
=== === ===
</TABLE>

Year ended December 31, 1997 compared to year ended December 31, 1996

Net Sales. Net sales increased $20.0 million, or 22%, to $108.7 million for
the year ended December 31, 1997 from $88.7 million for the year ended December
31, 1996. The increase was primarily due to increased volume in ergonomic
computer support systems, precision ball bearing drawer slides and
medium-security cabinet locks. Combined net sales from the Company's ergonomic
computer support systems and precision ball bearing drawer slide products
increased $15.8 million, or 25%, based on higher unit volumes and relatively
stable prices. Medium-security cabinet lock sales increased $3.6 million, or 15%
based primarily on higher unit volumes and to a lesser degree on certain price
increases instituted at the beginning of 1997.

Operating income. Operating income increased $6.2 million, or 28%, to $28.3
million for the year ended December 31, 1997 from $22.1 million for the year
ended December 31, 1996, due primarily to increases in sales volumes. Operating
income margin improvement in 1997 was primarily influenced by the elimination of
certain unprofitable or low-margin product lines acquired in 1995 and increased
sales of higher margin ergonomic computer support systems and precision ball
bearing drawer slides. These improvements were partially offset by higher raw
material prices, primarily steel. Beginning in August 1997 steel prices have
increased approximately 4% per pound, resulting in an overall increase in raw
material cost of approximately 2% in 1997 compared to 1996.

On February 3, 1998, the Company signed a definitive agreement concerning
the Fort Lock Acquisition. On a pro forma basis, assuming the Fort Lock
Acquisition had occurred on January 1, 1997, the Company's net sales in 1997
would have been $137.9 million and operating income in 1997 would have been
$30.0 million. See "Recent Developments" and Pro Forma Condensed Consolidated
Financial Statements presented elsewhere in this Prospectus.

Year ended December 31, 1996 compared to year ended December 31, 1995

Net sales. Net sales increased $8.5 million, or 11%, to $88.7 million for
the year ended December 31, 1996 from $80.2 million for the year ended December
31, 1995. The increase was primarily due to increased volumes in ergonomic
computer support systems and precision ball bearing drawer slides. Combined net
sales from the Company's ergonomic computer support systems and precision ball
bearing drawer slide products increased $8.8 million, or 16%, based on higher
unit volumes and relatively stable prices. Medium-security cabinet lock sales
decreased $.9 million, or 4%, as an increase in sales of the Company's
proprietary KeSet(R) locks was more than offset by lower sales volumes from the
government contract that was completed in early 1995.
25
<PAGE> 29

Operating income. Operating income increased $2.2 million, or 11%, to $22.1
million for the year ended December 31, 1996 from $19.9 million for the year
ended December 31, 1995, due primarily to increases in sales volumes in
ergonomic computer support systems and precision ball bearing drawer slides.
Operating income margins for the Company's cabinet lock sales improved slightly
in 1996 primarily due to cost savings and efficiencies from the consolidation of
certain Canadian lock operations acquired in 1992. The improvement in operating
income margins for cabinet locks was offset by slight declines in operating
income margins of ergonomic computer support systems and precision ball bearing
drawer slides due in part to the adverse effect of certain unprofitable or
low-margin product lines acquired in August 1995.

Year 2000 Issue

As a result of certain computer programs being written using two digits
rather than four to define the applicable year, certain computer programs that
have date sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000 (the "Year 2000 Issue"). This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in normal business activities.

The Company's recently installed information systems upgrades for both its
U.S. and Canadian facilities contained, among many other features, software
compatibility with the Year 2000 Issue. The Company does not currently
anticipate spending significant additional funds to address software
compatibility with the Year 2000 Issue with respect to its own internal systems.

The Company intends to initiate formal communications with its significant
suppliers and large customers to determine the extent to which the Company may
be vulnerable to those third parties' failure to eliminate their own Year 2000
Issue. There can be no assurance that the systems of other companies on which
the Company's systems rely will be timely converted, or that a failure to
convert by another company, or a conversion that is incompatible with the
Company's systems, would not have a material adverse effect on the Company.
Because the Company has not completed the evaluation of its Year 2000 Issue with
respect to such third parties, it is not able to quantify the costs that the
Company may incur with respect to the Year 2000 Issue of such third parties.

Impact of accounting standards not yet adopted

See Note 2 to the Company's Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Consolidated cash flows

Operating activities. Trends in cash flows from operating activities,
excluding changes in assets and liabilities, for 1995, 1996 and 1997, are
generally similar to the trends in the Company's earnings. Cash flow provided by
operating activities totaled $12.8 million, $10.5 million and $23.0 million for
the years ended December 31, 1995, 1996 and 1997, respectively, compared to net
income of $12.1 million, $13.0 million, and $16.7 million, respectively.
Depreciation and amortization increased in 1996 in part due to higher
depreciation associated with the August 1995 business acquisition discussed
above and increased in 1997 due to higher levels of capital expenditures
discussed below.

Changes in assets and liabilities result primarily from the timing of
production, sales and purchases. Such changes in assets and liabilities
generally tend to even out over time and result in trends in cash flows from
operating activities generally reflecting earnings trends.

Investing activities. Net cash used by investing activities totaled $8.0
million, $2.0 million and $5.5 million for the years ended December 31, 1995,
1996 and 1997, respectively. Capital expenditures in the past three years
emphasized manufacturing equipment which utilizes new technologies and increases
automation of the manufacturing process to provide for increased productivity
and efficiency. The increase in capital expenditures in 1997 relates primarily
to the additions of a third plating line and office building additions at the

26
<PAGE> 30

Company's Kitchener facility. Net cash used by investing activities in 1995
includes $6.0 million related to the business acquisition discussed above.

Capital expenditures for 1998 are estimated at approximately $7 million,
(approximately $9 million assuming the Fort Lock Acquisition is completed) the
majority of which relate to projects that emphasize improved production
efficiency and increase production capacity. Firm purchase commitments for
capital projects not commenced at December 31, 1997 were not material.

Financing activities. Net cash used by financing activities totaled $6.3
million, $6.3 million and $5.9 million for the years ended December 31, 1995,
1996 and 1997, respectively. The Company paid dividends to its parent company
aggregating $6.0 million in 1995, $6.2 million in 1996 and $6.1 million in 1997.

Other

At December 31, 1997, approximately 70% of the Company's consolidated cash
and equivalents were invested in A1 or P1-grade commercial paper issued by
various third parties having a maturity of three months or less.

On December 12, 1997, the Company paid a $50 million dividend to Valcor in
the form of the Valcor Note. The Valcor Note is unsecured and bears interest at
a fixed rate of 6%.

The Company plans to enter into a new $100 million Revolving Senior Credit
Facility and use the proceeds to repay the Valcor Note. The Revolving Senior
Credit Facility is expected to be an unsecured five-year revolving facility.
Borrowings are expected to be available for the Company's general corporate
purposes, including potential acquisitions. The Revolving Senior Credit Facility
is expected to contain provisions which, among other things, would require the
maintenance of minimum levels of net worth, require the maintenance of certain
financial ratios, limit dividends and additional indebtedness and contain other
provisions and restrictive covenants customary in lending transactions of this
type. Prior to the Offering, the Company expects to repay the Valcor Note with
borrowings under the Revolving Senior Credit Facility.

The net proceeds to the Company from the Offering (based on an assumed
offering price of $18.50 per share) will be approximately $80.4 million. Such
net proceeds will be available to repay borrowings under the Revolving Senior
Credit Facility and to fund the Fort Lock Acquisition.

On February 3, 1998, the Company executed a definitive agreement concerning
the Fort Lock Acquisition. See "Recent Developments". CompX(TM) will (i) acquire
all of the outstanding stock of Fort Lock Corporation for cash consideration of
approximately $30 million, (ii) acquire the net assets of Fortronics, Inc., for
$.5 million and (iii) purchase Fort Lock Corporation's manufacturing building
owned by a shareholder of Fort Lock Corporation for $2.5 million (collectively
the "Fort Lock Acquisition"). The aggregate purchase price is subject to
possible reduction pending completion of a post closing audit. Funding of the
Fort Lock Acquisition is expected to be provided by available cash on hand,
including net proceeds of the Offering remaining after repayment of borrowings
outstanding under the Revolving Senior Credit Facility. Although the Company's
obligations to conclude the purchase are not conditioned upon the completion of
the Offering or any other financing, the Company intends to use a portion of the
proceeds of the Offering to fund the acquisition. The consummation of the
purchase is subject to the expiration of the applicable waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
confirmation of the accuracy of certain representations, warranties and
covenants of the parties, the absence of certain material adverse developments,
receipt of required consents and certain other conditions. There can be no
assurance that the Fort Lock Acquisition will be successfully completed or that
completion of the transaction can be accomplished on the terms set forth above.

Management believes that the net proceeds to the Company from the Offering,
after repayment of borrowings under the Revolving Senior Credit Facility,
together with cash generated from operations and borrowing availability under
the Revolving Senior Credit Facility, will be sufficient to meet the Company's
liquidity needs for working capital, capital expenditures and debt service. See
also "Dividend Policy."

27
<PAGE> 31

BUSINESS

GENERAL

CompX(TM) is a leading manufacturer of ergonomic computer support systems,
precision ball bearing drawer slides and medium-security mechanical locks for
office furniture and a variety of other applications. The Company's products are
principally designed for use in medium- to high-end applications, where product
design, quality and durability are critical to the Company's customers.
CompX(TM) believes that, in the North American market, it is among the largest
producers of ergonomic computer support systems for office furniture
manufacturers, among the largest producers of precision ball bearing drawer
slides and among the largest producers of medium-security cabinet locks. In
1997, CompX(TM) generated net sales of $108.7 million, a 22% increase from the
corresponding prior-year period. In 1997, ergonomic computer support systems,
precision ball bearing drawer slides and medium-security mechanical locks
accounted for approximately 34%, 39% and 26% of net sales, respectively.

OFFICE FURNITURE INDUSTRY DYNAMICS

Approximately 75% of the Company's products are sold to the office
furniture manufacturing industry while the remainder (principally mechanical
locks) are sold for use in other products, such as vending equipment, postal
boxes, electromechanical enclosures and other non-office furniture and
equipment. The U.S. office furniture market generated wholesale sales of
approximately $10.0 billion in 1996, according to estimates by the BIFMA. The
dollar value of U.S. office furniture industry shipments has increased in 23 of
the past 25 years and, according to BIFMA, is estimated to have grown at a
compound annual rate of approximately 8.4% over the four year period ended
December 31, 1997. BIFMA currently estimates that office furniture sales over
the next two years will grow at a compound annual rate of approximately 7%. The
rate of growth in this industry ultimately will be affected by certain
macroeconomic conditions such as service industry employment levels, corporate
cash flow and non-residential construction levels. CompX(TM) management believes
that the sales of its ergonomic computer support systems are experiencing
substantially higher rates of growth than the office furniture industry as a
whole.

The Company believes that fundamental shifts in technology, health
considerations and work processes in the office workplace provide new growth
opportunities in the office furniture industry. Increased use of technology has
caused businesses to redesign their workspaces with greater emphasis on the
space efficient integration of computers and other office technologies into the
office workplace as well as the protection of computing equipment from damage
and theft. Additionally, increased regulatory sensitivity to ergonomic concerns
and heightened focus on the risks of repetitive stress injury have also
influenced redesign of the office workplace. In 1996, California became the
first state to adopt legislation relating to ergonomics in the workplace. Such
legislation should have a direct effect on the demand for ergonomically designed
office furniture products, which allow workers to adjust and re-arrange the
orientation of office equipment and supplies for greater comfort and
productivity. Businesses increasingly are seeking changes in work processes to
achieve more efficient workspace utilization, resulting in the creation of new
office furniture designs that embrace office sharing concepts such as office
"hoteling" and open office designs. The Company's products target manufacturers
of new furniture designed to address these industry dynamics as well as
customers that specialize in retrofitting existing office furniture.

The Company manufactures locks for a wide variety of enclosures, excluding
vehicles and homes. In addition to locks used by furniture manufacturers, the
Company's locks are used for postal boxes, vending equipment and parking meters.
These products are sold to markets which include institutional cabinets for
school and laboratory construction, household furniture and appliances,
industrial tool boxes, vending equipment, electromechanical imaging equipment,
locking electrical enclosures, banking equipment and mail boxes. The Company
also distributes approximately 30% of its lock sales through its innovative
STOCK LOCKS(R) programs which distribute locks to locksmith and small
manufacturer markets.

28
<PAGE> 32

COMPETITIVE STRENGTHS

CompX(TM) believes that it is well positioned to realize continued growth
in market share in its existing markets and to build on its strengths to expand
into related product lines and markets.

Industry brand recognition and management experience. The Company's
business traces its roots to 1903 when it began manufacturing cabinet locks. The
Company is a supplier to major OEMs and believes its brand names are well
recognized in the industry. CompX(TM) currently markets its drawer slides and
ergonomic computer support systems under the Waterloo Furniture Components
Limited(R) name and markets its medium-security locks under the National Cabinet
Lock(R) name. The top seven executive management personnel have over 100 years
of combined industry experience.

Emphasis on customer collaboration. CompX(TM) has been a leader in
collaborating with customers to develop innovative customized solutions to their
unique needs for product design, application, performance and cost. An important
ingredient to this approach is the Company's full-time engineering staff of 25
individuals and approximately $3 million in annual expenditures for product
design, development and engineering. Management believes that the Company's
responsiveness and commitment to work with customers has been critical to its
success to date.

GROWTH STRATEGY

The Company focuses on certain niche segments of the middle to high end of
the office furniture market. To achieve its targeted growth rates, CompX(TM)
intends to pursue several growth initiatives:

29
<PAGE> 33

Continue to make strategic acquisitions. In addition to internal growth,
the Company intends to grow through selective acquisitions. The markets in which
the Company competes have a large number of relatively small regional
manufacturers and consequently offer potential consolidation opportunities. The
Company seeks acquisitions that complement its existing products,
manufacturing/design skills or customer base. The Company historically has been
able to benefit from acquisitions through economies of scale in purchasing,
manufacturing, marketing and distribution and through the application of the
Company's manufacturing and management skills. On February 3, 1998, the Company
executed a definitive agreement concerning the purchase of the Fort Lock Group.
The Fort Lock Group is a vertically integrated manufacturer of highly engineered
mechanical locks for a diverse customer base of original equipment manufacturers
and locksmith distributors. See "Recent Developments".

Expand into international markets. While CompX(TM) has historically focused
on marketing its products in North America, the Company has a small but growing
presence in international markets. The Company believes that there is
significant demand for its quality, precision products in overseas markets, and
intends to increase its international presence, particularly in Asia and Latin
America, via expanded distributor relationships and, potentially, joint venture
arrangements.

The Company was incorporated in Delaware in 1993. Its principal corporate
offices are located at 200 Old Mill Road, Mauldin, South Carolina 29662 and its
telephone number is (864) 297-6655.

PRODUCTS

CompX(TM) manufactures and sells components in three major product lines:
ergonomic computer support systems, precision ball bearing drawer slides and
medium-security cabinet locks. The Company's ergonomic computer support systems
and precision ball bearing drawer slides are sold under the Waterloo Furniture
Components Limited(R) name and the Company's medium-security cabinet locks are
sold under the National Cabinet Lock(R) name. The Company believes that its
brand names are well recognized in the industry.

Ergonomic computer support systems. CompX(TM) is a leading manufacturer and
innovator in ergonomic computer support systems for office furniture. Unlike
products targeting the residential market, which is more price sensitive with
less emphasis on quality, the CompX(TM) line consists of more highly engineered
products designed to provide ergonomic benefits for business and sophisticated
retail users.

The Company's ergonomic computer support systems include adjustable
computer keyboard support arms. These devices are designed to attach to office
desks in workplace environments where there exists a need to permit computer
users to adjust their computer keyboard to various heights and positions to
alleviate possible strains and stress which may result from repetitive
activities, such as typing. These products also maximize usable workspace and
permit the storage of the keyboard underneath the desk. CompX(TM) introduced its
first ergonomic keyboard arm in 1983 and the Leverlock(R) adjustment mechanism
in 1989, which is designed to make the adjustment of the keyboard arm easier for
all (including impaired) users.

Adjustable computer table mechanisms address the need for flexibility and
adjustability in work surfaces. The Company's adjustable table mechanisms
provide adjustable workspace heights that permit users to stand or sit and that
can be easily adjusted for different user needs.

30
<PAGE> 34

The prevalence of computers in the workplace has also created a need for
safe and convenient storage solutions for the central processor unit ("CPU")
case. In 1997, the Company introduced a CPU storage device that can be mounted
under a work surface or on the side of desk panels to store the CPU case off the
floor to minimize the adverse effects of dust and moisture or damage from
accidental impact. The unit operates on a slide mechanism that also pivots to
provide ease of access to peripheral connections while allowing convenient,
unobtrusive storage.

CompX(TM) also offers a number of complementary accessories to its main
products. These include ergonomic wrist rest aids, mouse pad supports and
computer monitor support arms, such as the Monitor Master for the adjustment of
heavy monitors to reduce eye strain.

Precision ball bearing drawer slides. CompX(TM) manufactures a complete
line of precision ball bearing drawer slides for use in moving containers and
drawers both in office furniture as well as other applications. Precision ball
bearing drawer slides are manufactured to stringent industry standards and are
designed in conjunction with office furniture OEMs to meet the needs of end
users with respect to weight support capabilities and ease of movement.

In addition to its basic product line, an increasing proportion of the
Company's sales is based on patented innovations. In 1994, CompX(TM) introduced
the Butterfly(TM) Take Apart System, which is designed to easily disengage
drawers from filing cabinets. The following year, the Company began selling its
Integrated Slide Lock ("ISL(TM)"), with which a file cabinet manufacturer can
reduce the possibility of multiple drawers being opened by the user at the same
time, significantly reducing the risk of injury from a falling cabinet. The
Company's patented concept affords the cabinet OEMs cost savings advantages in
production, since the ISL(TM) is designed as an integral part of the drawer
slide, compared to custom fabricated add-on solutions previously utilized by
most manufacturers.

In recent years, applications other than office furniture have represented
a rapidly growing source of demand for the Company's precision ball bearing
drawer slides. Recently, new opportunities in heavy-duty applications such as
tool storage cabinets and electromechanical applications have created new market
opportunities. As a result of the design efforts focused on these markets,
CompX(TM) created the Ball Lock(TM) to prevent heavily filled drawers, such as
auto mechanic tool boxes, from opening while cabinets are moved during routine
use in the field. The Company's products are used extensively in professional
toolboxes and, increasingly, in electromechanical imaging equipment to
facilitate the movement of machine components in the document reproduction
process.

Cabinet locks. The Company believes that it is among the largest North
American manufacturers of medium-security cabinet locks. The Company
manufactures lock mechanisms that generally fall into three categories: disc
tumbler locks, pin tumbler locks and KeSet(R) high security locks. Completion of
the Fort Lock Acquisition will expand the Company's offering of lock-mechanisms
to include tubular locks and locks for motorcycles.

Disc tumbler locks, also called wafer tumbler or plate tumbler, derive
their keying from a series of flat tumblers with a hole in the middle through
which the key passes to open the lock. This type of lock is normally limited to
two levels of keying, a passkey and one master key. A disc tumbler lock is the
least secure of the medium-security cabinet locks manufactured by the Company
and also represents the lowest cost to produce, resulting in lower selling
prices to customers.

Pin tumbler locks are keyed with a series of small pins manufactured on
automatic screw machines. A stack of four or five pins is required for each cut
in a key. Due to the increased number of parts, this type of lock is more costly
to manufacture than disc tumbler locks, but is also more secure and offers
increased variety in keying with more than one level of master keying.

The Company's patented high security KeSet(R) security system, introduced
in 1980, is another version of a pin tumbler lock. However, parts are
manufactured with hardened steel components to prevent forced entry. A
significant feature of the product line is the ability to change the keying on a
single lock 64 times without removing the lock from its enclosure. This product
is used primarily to protect money in applications such as soft drink vending
machines, gaming machines and parking meters.
31
<PAGE> 35

The Company's industrial sales are primarily to manufacturers of cabinet
enclosures, from office furniture to electrical circuit panels to vending
machines. CompX(TM), like most cabinet lock companies, has a standardized
product line suitable for many customers. However, a substantial portion of the
Company's volume involves specialized adaptations to individual manufacturer's
enclosure specifications.

Each of the industries served with cabinet locks has a distribution segment
for replacement needs or for supply to small shops whose volume is not
substantial enough to buy direct from a lock manufacturer. CompX(TM) has met
this need in part with its industry-unique STOCK LOCKS(R) inventory program.
Partially as a result of this program, the Company believes it holds the largest
cabinet lock market share in both locksmith and hardware component distribution.

The Company's STOCK LOCKS(R) distribution program represents 30% of its
cabinet lock sales. This program is comprised of over 900 stock keeping units
(also referred to as SKUs) of standardized locking products. This program plans,
manufactures and packages locks to inventory with a variety of keying and
finishes for shipment to customers generally within 48 hours of receipt of the
customer order.

Sales under this program are made both to a North American distribution
network as well as to large OEMs when special needs require either smaller
quantities or non-special products other than their normal volume requirements.
The distribution network supplies the Company's products both to after-market
replacement markets and to smaller cabinet shop manufacturers who do not
purchase direct from the Company due to their smaller size.

The established distributor network for STOCK LOCKS(R) has been used to
develop a standardized product line in other segments of the Company's products.
Currently both ergonomic computer support systems and, to a limited extent,
precision ball bearing drawer slides, are enjoying growing marketing success
through these and new ergonomic distribution channels.

PRODUCT DESIGN AND DEVELOPMENT

CompX(TM) believes its ability to provide customized engineering to respond
to specific customer application requirements provides it a competitive
advantage, especially in middle- to high-end applications. A dedicated and
knowledgeable engineering and marketing staff continually collaborates with the
Company's customers to identify and solve production and marketing issues. The
Company's commitment to precision design and engineering to specific customer
tolerances is a key element to its ability to serve effectively the niche
markets for its products. CompX(TM) has 25 full time engineers on staff and
expends approximately $3 million annually for product engineering, design and
development to enhance and expand product capabilities.

Customer product development needs and changing market characteristics are
the key drivers influencing the Company's product development efforts. Once a
customer has identified a concept, development engineers design solutions to
address the application requirements. Normally, several generations are
evaluated on the Company's CAD system. During this process, CompX(TM) engineers
regularly communicate with the targeted customer to ensure that the design meets
the customer's specific needs. If the product is being developed as a general
line product, the basic design work is accomplished through consultation between
the Company's engineering, marketing and manufacturing departments as well as
from market intelligence derived from target customers.

In order to ensure that the product design is workable, a prototype sample
is produced for use during an initial market evaluation of the product's
functionality. The Company's engineers may make modifications of the initial
design at this stage to ensure proper aesthetics or functional capabilities.
Once the component design is finalized, the Company's engineers design tools to
manufacture the components. Depending on the type of tools, production time can
be as little as a few weeks to as much as six months.

As one of the initial developers of ergonomic computer support systems in
the mid 1980s, CompX(TM) has on numerous occasions introduced new and unique
products which have led the industry. Examples include the initial introduction
of the Model 4100 keyboard arm in 1983, the Leverlock(R), which simplifies the
adjustment of the keyboard arm, the Monitor Master, which facilitates the
adjustment of heavy monitors so as
32
<PAGE> 36

to reduce eye strain, and various types of accessories such as mouse trays and
pads of a unique and proprietary nature. In 1997, the Company introduced a CPU
storage device that can be mounted off the floor either under a work surface or
on the side of desk panels to minimize dust contamination or damage from
accidental impact. The Company is currently working on several new generations
of ergonomic products such as a new version of easily adjustable keyboard arms,
including aesthetic improvements. In response to the increased use of laptop
computers, a new product is in the design process to address ease of use and
security for these computers.

During the 1990's, CompX(TM) emerged as one of the more innovative
companies in the design and manufacture of precision ball bearing drawer slides.
The Company has designed and currently sells precision ball bearing drawer
slides to facilitate the movement of component parts in imaging machines, for
professional tool storage cabinets and other uses. Examples of other innovative
products include the patented ISL(TM) and the patented Ball Lock(TM).
Development continues on a new "Cushion Close(TM)" drawer slide to aid in the
safe operation of overhead storage bin doors, and introduction of this new
product is expected in mid-1998.

In 1980, the Company introduced the patented KeSet(R) Security System which
has since gained acceptance as a cost effective product in the vending industry
where protection of money collection is paramount. While many of the product
development efforts in the cabinet lock industry are adaptations of existing
products in the pin tumbler or disc tumbler product line, products introduced in
the past few years include the pin tumbler "Advantage Plus(TM) System" allowing
easy removal of the cylinder for re-keying in the field without removing the
lock from the original installation. A new patented Snap-in locking system for
institutional furniture allows either pin tumbler or disc tumbler keying to be
determined after installation, which reduces customer inventories and allows
improved delivery speed of their products. In late 1997, the Company commenced
customer field testing of an electronic locking system and the product is
experiencing good operating results in its original test site.

SALES, MARKETING AND DISTRIBUTION

CompX(TM) sells components to OEMs and to distributors through a
specialized sales force. The majority of the Company's sales is to OEMs, while
the balance represents standardized products sold through distribution channels.

Sales to large OEM customers are made through the efforts of factory-based
sales and marketing professionals and engineers working in concert with salaried
field salespeople and independent manufacturer's representatives. Manufacturers'
representatives are selected based on special skills in certain markets or with
current or potential customers. Cabinet locks are sold by a separate network of
Company-employed salespeople and manufacturers' representatives as well as
factory-based national account managers.

A significant portion of the Company's cabinet lock sales and a growing
portion of ergonomic computer support systems and precision ball bearing drawer
slides sales are made through hardware component distributors. The Company also
has a significant market share of cabinet lock sales to the locksmith
distribution channel. CompX(TM) supports its distributor sales with a line of
standardized products used by the largest segments of the marketplace. These
products are packaged and merchandised for easy availability and handling by
distributors and the end user. Based on the Company's successful STOCK LOCKS(R)
inventory program, similar programs have been implemented for distributor sales
of ergonomic computer support systems and to some extent precision ball bearing
drawer slides. Since their addition to the Company's distributor product line in
1992, sales of these products to the distributor market have grown to represent
approximately 10% of combined ergonomic computer support systems and precision
ball bearing drawer slide net sales.

To afford a competitive advantage to the Company as well as to customers,
ergonomic computer support system and precision ball bearing drawer slides are
delivered primarily by means of a Company-owned tractor/trailer fleet. This
satellite-monitored fleet improves the timely and economic delivery of products
to customers. Another important economic advantage to the Company's customers of
an in-house trucking fleet is that it allows the shipment of many products in
returnable metal baskets (in lieu of corrugated paper cartons), which avoids
both the environmental and economic burden of disposal.
33
<PAGE> 37

The Company does not believe it is dependent upon one or a few customers,
the loss of which would have a material adverse effect on its component products
operations. The ten largest customers accounted for about one-third of component
products sales in each of the past three years, with the largest customer less
than 10% in each year. In 1996, five of the ten largest customers were located
in the United States with four located in Canada. Of such customers, all were
primarily purchasers of slides and ergonomic computer support system components.

ACQUISITION STRATEGY

In addition to pursuing internal growth opportunities, the Company intends
to grow through acquisitions. The markets in which the Company competes have a
large number of relatively small regional manufacturers and consequently offer
potential consolidation opportunities. The Company seeks acquisitions that
complement its existing product lines, provide access to new market segments or
expand the offering of proprietary products. The Company believes that it has
been able to achieve synergies from acquisitions through economies of scale in
purchasing, manufacturing, marketing and distribution and through the
application of the Company's manufacturing and management skills.

Since 1990, the Company has utilized cash flow from operations to complete
two acquisitions. In 1992 the Company acquired in a bankruptcy liquidation the
assets of a Canadian manufacturer of precision ball bearing drawer slides and
cabinet locks for $2 million. At the time of acquisition the operations had
sales of approximately $3.2 million and operated at break-even operating profit.
In 1995 the Company acquired the assets of another Canadian manufacturer of
precision ball bearing drawer slides and ergonomic products for $6 million. At
the time of acquisition the operations had sales of approximately $5.6 million
and operated at a slight operating loss. As a result of integrating these
operations into the Company's operations and eliminating unprofitable product
lines, these operations currently contribute approximately $8 million in net
sales and $2 million in operating income annually.

MANUFACTURING AND OPERATIONS

CompX(TM) operates three manufacturing facilities which it owns and leases
one facility as a distribution center. The following table sets forth the
location, size and general product types produced for each of these facilities.

<TABLE>
<CAPTION>
FACILITY NAME LOCATION SIZE PRODUCTS PRODUCED
------------- -------- ---- -----------------
(SQUARE FEET)
<S> <C> <C> <C>
Manitou.......................... Kitchener, Ontario 208,200 Ergonomic products, slides
Trillium......................... Kitchener, Ontario 116,000 Ergonomic products, slides
Mauldin.......................... Mauldin, SC 159,200 Locks
Distribution Center.............. Chino, CA 6,000 Product Distribution
</TABLE>

The Manitou and Mauldin facilities are ISO-9001 registered. ISO-9001
registration of the Trillium facility is anticipated in 1998. The Company
believes that all its facilities are well maintained and satisfactory for their
intended purposes.

The Company's facilities currently operate approximately two shifts per
day, five to six days per week.

CompX(TM) has focused on its operating cost structure and timely capital
investment in equipment and processes. This investment has allowed the Company
to reduce lead times to its customers and to implement "just-in-time" production
methods to improve inventory turns. For example, the Company has reduced the

34
<PAGE> 38

lead time for STOCK LOCKS(R) shipments from two weeks to 48 hours through
investments that focus on enhancing automation and managed information systems.
With the recently installed information systems upgrades, CompX(TM) has fully
integrated all stages of manufacturing process information.

Continued investment in automation should allow the Company to remain price
competitive in the marketplace and should also ensure consistent quality of the
products being produced. As speed of delivery continues to gain importance with
all OEM customers, automation provides production speed and the flexibility to
quickly react to sudden changes in customer demand.

RAW MATERIALS

Coiled steel is the major raw material used in the manufacture of precision
ball bearing drawer slides and ergonomic computer support systems. Plastic
resins for injection molded plastics are also an integral material for ergonomic
computer support systems. Purchased components, including zinc castings, are the
principal raw materials used in the manufacture of medium-security cabinet
locks. These raw materials are purchased from several suppliers and readily
available from numerous sources.

The Company occasionally enters into raw material arrangements to mitigate
the short-term impact of future increases in raw material costs. While these
arrangements do not commit the Company to a minimum volume of purchases, they
generally provide for stated unit prices based upon achievement of specified
volume purchase levels. This allows the Company to stabilize raw material
purchase prices provided the specified minimum monthly purchase quantities are
met. The Company currently anticipates entering into such arrangements for zinc,
coiled steel and plastic resins for 1998 and does not anticipate significant
changes in cost of these materials from their current levels. Materials
purchased on the spot market are sometimes subject to unanticipated and sudden
price increases. Due to the competitive nature of the markets served by the
Company's products, it is often difficult to recover such increases in raw
material costs through increased product selling prices and consequently overall
operating margins can be affected by such raw material cost pressures.

COMPETITION

The office furniture market is highly competitive. Suppliers to office
furniture OEMs compete on the basis of (i) product design, including ergonomic
and aesthetic factors, (ii) product quality and durability, (iii) price
(primarily in the middle and budget segments), (iv) on-time delivery and (v)
service and technical support. The Company focuses its efforts on the middle-
and high-end segments of the market, where product design, quality and
durability are placed at a premium.

The cabinet lock market is also highly competitive. This market is highly
fragmented with a number of small- to medium-sized manufacturers that supply the
market. Cabinet lock manufacturers compete on the basis of (i) product design,
(ii) custom engineering capability, (iii) price and (iv) order fulfillment lead
times.

The Company believes it derives a significant competitive advantage as a
result of its focus on (i) a collaborative approach to product design and
engineering, (ii) increased manufacturing and assembly automation and (iii)
implementation of distribution programs that reduce order fulfillment times.

The Company competes in its ergonomic computer support systems with a small
number of manufacturers that compete primarily on the basis of product quality
and features. The Company competes in the precision ball bearing drawer slide
market with one large manufacturer and a number of smaller manufacturers that
compete primarily on the basis of product quality and price. The Company's
medium-security cabinet locks compete with a variety of relatively small
competitors, which makes significant price increases difficult.

Certain of the Company's competitors may have greater financial, marketing,
manufacturing and technical resources than those of the Company. Although the
Company believes that it has been able to compete successfully in its markets to
date, there can be no assurance that it will be able to continue to do so in the
future. See "Risk Factors -- Highly Competitive Industry."

35
<PAGE> 39

PATENTS AND TRADEMARKS

CompX(TM) holds a number of patents relating to its component products
operations, none of which by itself is considered significant, and owns a number
of trademarks, including National Cabinet Lock(R), STOCK LOCKS(R) and Waterloo
Furniture Components Limited(R), which the Company believes are well recognized
in the component products industry.

ENVIRONMENTAL MATTERS

The Company's operations are subject to federal, state, local and foreign
laws and regulations relating to the use, storage, handling, generation,
transportation, treatment, emission, discharge, disposal and remediation of, and
exposure to, hazardous and non-hazardous substances, materials and wastes
("Environmental Laws"). The Company's operations also are subject to federal,
state, local and foreign laws and regulations relating to worker health and
safety. The Company believes that it is in substantial compliance with all such
laws and regulations. The costs of maintaining compliance with such laws and
regulations has not significantly impacted the Company to date, and the Company
has no significant planned costs or expenses relating to such matters. There can
be no assurance, however, that compliance with future Environmental Laws or with
future laws and regulations governing worker health and safety will not require
the Company to incur significant additional expenditures, or that such
additional costs would not have a material adverse effect on the Company's
business, results of operations, or financial condition.

EMPLOYEES

As of December 31, 1997, the Company employed approximately 950 employees,
including 270 in the United States and 680 in Canada. Approximately 80% of the
Company's employees in Canada are represented by the United Steel Workers of
America labor union. The Company's collective bargaining agreement with such
union expires in January 2000. The Company believes that its labor relations are
satisfactory.

LEGAL PROCEEDINGS

The Company is involved, from time to time, in various environmental,
contractual, product liability and other claims and disputes incidental to its
business. Currently no environmental or other material litigation is pending or,
to the knowledge of the Company, threatened. The Company currently believes that
the disposition of all claims and disputes, individually or in the aggregate,
should not have a material adverse effect on the Company's consolidated
financial condition, results of operations or liquidity.

36
<PAGE> 40

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND KEY PERSONNEL

Set forth below is certain information (ages as of February 1, 1998)
relating to the current directors, executive officers and key personnel of the
Company.

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Joseph S. Compofelice...... 48 Chief Executive Officer and Chairman of the Board
David A. Bowers............ 60 President and Director
Glenn R. Simmons........... 70 Director
Robert W. Singer........... 61 Director
Edward J. Hardin........... 55 Director
Paul M. Bass, Jr........... 62 Director
Ronald J. Simmons.......... 59 Vice President; President, Waterloo Furniture Components
Limited
Neil M. Poag............... 57 Vice President -- Finance, Waterloo Furniture Components
Limited
Robert J. Ward............. 45 Vice President -- Manufacturing, Waterloo Furniture
Components Limited
David A. Carter............ 43 Vice President -- Sales & Marketing, Waterloo Furniture
Components Limited
Scott C. James............. 32 Vice President -- Sales & Marketing, National Cabinet Lock
Emory E. Hodges............ 35 Vice President -- Operations, National Cabinet Lock
J. Mark Hollingsworth...... 46 General Counsel
Bobby D. O'Brien........... 40 Vice President and Treasurer
William J. Lindquist....... 40 Vice President and Tax Director
Steven L. Watson........... 47 Vice President and Secretary
</TABLE>

JOSEPH S. COMPOFELICE has served as Chief Executive Officer and Chairman of
the Board since February 13, 1998 and prior to that as Executive Vice President
and director of the Company since December 1997. Mr. Compofelice has also served
as Executive Vice President of Valhi since 1994, a director of NL Industries,
Inc. ("NL"), Valhi's majority-owned titanium dioxide pigments subsidiary since
1995 and, except for a period during 1996, a director of Titanium Metals
Corporation ("TIMET"), Tremont Corporation's 30% owned principal operating
affiliate, since 1994. Tremont, a less than majority-owned affiliate of Contran,
is a holding company engaged in the titanium metals and chemicals industries.
Until February 1998 Mr. Compofelice had also served as Vice President and Chief
Financial Officer of NL and Tremont since 1994, and since 1996 as Vice President
and Chief Financial Officer of TIMET. From prior to 1993 to 1994, Mr.
Compofelice was the Vice President and Chief Financial Officer of Baroid
Corporation, a company engaged in the petroleum services industry that Dresser
Industries, Inc. acquired in 1994. Mr. Compofelice has served as an executive
officer or director of various companies related to Valhi and Contran since
1988.

DAVID A. BOWERS has served as President and a director of the Company since
the Company's formation in 1993 and as Chief Executive Officer until
February 1998. Mr. Bowers has been employed by the Company and its predecessors
since 1960 in various sales, marketing and executive positions, having been
named President of the Company's cabinet lock and related segments in 1979. Mr.
Bowers is a trustee and Chairman of the Board of Monmouth College, Monmouth,
Illinois.

GLENN R. SIMMONS has served as Chairman of the Board since the Company's
formation in 1993 until February 1998 and as director since February 1998. Mr.
Simmons is also a member of the Company's Management Development and
Compensation Committee. Mr. Simmons 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, a diversified holding company, since prior to 1993.
Mr. Simmons' positions also include: director of NL; Vice Chairman of the Board
and a director of Valcor; Chairman of the Board and a director of Contran's
less-than-majority-owned affiliate, Keystone Consolidated Industries, Inc.
("Keystone"), a steel fabricated wire products, industrial wire and carbon steel
rod company; and a director of Tremont. Mr. Simmons has

37
<PAGE> 41

been an executive officer or director of various companies related to Contran
since 1969. Mr. Simmons is the brother of Harold C. Simmons.

ROBERT W. SINGER has served as a director of the Company since the
Company's formation in 1993. Mr. Singer has served as Vice President of Valhi
and Contran since prior to 1993. Mr. Singer has also served as President and
Chief Operating Officer of Keystone since prior to 1993 to February 1997 and as
Chief Executive Officer of Keystone since February 1997. Mr. Singer has served
as an executive officer or director of various companies related to Valhi and
Contran since 1982.

EDWARD J. HARDIN has served as a director of the Company since December
1997 and is chairman of the Company's Audit Committee and a member of the
Company's Management Development and Compensation Committee. Mr. Hardin has been
a partner of the law firm of Rogers & Hardin LLP since its formation in 1976.
Mr. Hardin is a director of Westrup, Inc. (seed processing machinery) and also
serves as Chairman of the Board of the Harvard Center for the Study of World
Religions.

PAUL M. BASS, JR. has been a director of the Company since December 1997
and is a member of the Audit Committee and chairman of the Company's Management
Development and Compensation Committee. Mr. Bass also serves as a director of
Keystone. Mr. Bass's principal occupation for the past five years has been to
serve as Vice Chairman of First Southwest Company, a privately owned investment
banking firm. Mr. Bass is also Chairman of Richman Gordman Half Price Stores,
Inc., Chairman of MorAmerica Private Equities Company, a director and chairman
of the Audit Committee of California Federal Bank, a director and member of the
executive committee of Source Services, Inc. and a director of Jayhawk
Acceptance Corp. Mr. Bass is currently serving as a member of the executive
committee of Zale Lipshy University Hospital and as Chairman of the Board of
Trustees of Southwestern Medical Foundation.

RONALD J. SIMMONS has served as a Vice President of the Company since
December 1997 and has also served as President of the Company's wholly owned
subsidiary, Waterloo Furniture Components Limited, since prior to 1993. Before
joining the Company, he held senior positions with Canadian General Electric,
The Molsons Companies, and Emco, Limited, a division of Masco Limited. Mr.
Simmons also serves on the boards of Schneider Corporation, a Canadian food
processor, and ACS Limited, a manufacturer of components for OEM and aftermarket
off road vehicles.

NEIL M. POAG has served as Vice President -- Finance of Waterloo since
1995. Mr. Poag has also served as Vice President -- Controller of Waterloo
Furniture Components Limited from 1985 to 1995 and as Controller of Waterloo
Furniture Components Limited from 1980 to 1985.

ROBERT J. WARD has served as Vice President -- Manufacturing of Waterloo
Furniture Components Limited since 1996. Mr. Ward has also served as Manager,
Engineering of Waterloo Furniture Components Limited from 1989 to 1996. From the
time he joined Waterloo Furniture Components Limited in 1986 as the Plant
Engineer to 1989, Mr. Ward has served in various other managerial positions with
Waterloo Furniture Components Limited.

DAVID A. CARTER has served as Vice President -- Sales & Marketing of
Waterloo Furniture Components Limited since 1995. From 1991 to 1995 Mr. Carter
served as Director of Marketing for Waterloo Furniture Components Limited.
Immediately prior to Mr. Carter's joining the Company, he was the Vice President
of Marketing for Delta Faucet (Canada) Limited and prior to that he was the
Director of Marketing for Emco Limited, a Canadian division of Masco Limited.

SCOTT C. JAMES has served as Vice President -- Sales & Marketing, National
Cabinet Lock division, of the Company since 1994. Mr. James has also served as
National Accounts Manager of the National Cabinet Lock division from the time he
joined the Company in 1992 to 1994. Prior to joining the Company, Mr. James was
a Branch Sales Manager of Global Life and Accident Insurance Company.

EMORY E. HODGES has served as Vice President -- Operations, National
Cabinet Lock division, of the Company since he joined the Company in 1994. Mr.
Hodges joined Michelin Americas Research and Development Corporation in 1984 and
was an Engineering Supervisor from 1989 to the time he joined the Company in
1994.

38
<PAGE> 42

J. MARK HOLLINGSWORTH has served as General Counsel of the Company since
June 1996 and Senior or Legal Counsel to the Company since its formation. Mr.
Hollingsworth has also served as General Counsel of Valhi and Contran since
1996. From prior to 1993 to 1996, Mr. Hollingsworth served as Senior or Legal
Counsel for Valhi and Contran. Mr. Hollingsworth has served as legal counsel of
various companies related to Valhi and Contran since 1983.

BOBBY D. O'BRIEN has served as Vice President and Treasurer of the Company
since June 1997. Mr. O'Brien has also served as Vice President of Valhi and
Contran since October 1996 and Treasurer of Valhi since May 1997 and Contran
since June 1997. Since 1993, Mr. O'Brien has served as Treasurer, Vice
President -- Finance or Vice President of Medite Corporation, a wholly owned
subsidiary of Valcor that operated Valhi's former buildings products business.
From 1988 to 1994, Mr. O'Brien served as Assistant Controller of Valhi and
Contran. Mr. O'Brien has served in financial and accounting positions with
various companies related to Valhi and Contran since 1988.

WILLIAM J. LINDQUIST has served as Vice President and Tax Director of the
Company since 1994. Mr. Lindquist has also served as Vice President and Tax
Director of Valhi and Contran since prior to 1993. Mr. Lindquist has served as
an executive officer or director of various companies related to Valhi and
Contran since 1980.

STEVEN L. WATSON has served as Vice President and Secretary of the Company
since its formation. Mr. Watson has also served as Vice President and Secretary
of Valhi and Contran since prior to 1993. Mr. Watson has served as an executive
officer or director of various companies related to Valhi and Contran since
1980.

Each of the above-named directors of CompX(TM) serves until the next annual
meeting of the stockholders of the Company or until their respective earlier
removal or resignation. Each of the above-named officers of CompX(TM) serves at
the pleasure of the Board of Directors.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established an audit committee (the "Audit
Committee") and a Management Development and Compensation Committee (the "MD&C
Committee"). The Company does not have a nominating committee.

The Audit Committee is comprised of Mr. Bass and Mr. Hardin, who serves as
chairman. The principal responsibilities of the Audit Committee are to review
the selection of the Company's independent auditors and to make its
recommendation with respect to such selection to the Board of Directors; to
review with the independent auditors the scope and results of the annual
auditing engagement, the procedures for internal auditing, the system of
internal accounting controls and internal audit results; and to direct and
supervise special audit inquiries. The Audit Committee will convene when deemed
appropriate or necessary by its members.

The MD&C Committee is comprised of Mr. Hardin, Mr. Bass, who serves as
chairman, and Mr. Glenn R. Simmons. The principal responsibilities of the MD&C
Committee are to review and approve certain matters involving executive
compensation, including making recommendations to the Board of Directors
regarding compensation matters involving the Chief Executive Officer; to review
and approve grants of stock options and other awards under the Incentive Plan;
and to review and administer such other compensation matters as the Board of
Directors may direct from time to time. The MD&C Committee will convene when
deemed appropriate or necessary by its members.

COMPENSATION OF DIRECTORS

Directors of the Company who are not employees of the Company will receive
an annual retainer of $12,000, payable in quarterly installments, plus a fee of
$750 per day for attendance at meetings and at a daily rate for other services
rendered on behalf of the Board of Directors or committees thereof. In addition,
directors who are members of the Audit Committee or the MD&C Committee will
receive an annual retainer of $1,000, paid quarterly in installments, for each
committee on which they serve. Directors are reimbursed for
39
<PAGE> 43

reasonable expenses incurred in attending meetings and in the performance of
other services rendered on behalf of the Board of Directors or its committees.
Directors are also eligible for awards under the Incentive Plan.

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION OF EXECUTIVE OFFICERS

Summary Compensation Table. The Summary Compensation Table below provides
certain summary information concerning annual and long-term compensation paid or
accrued by the Company to or on behalf of the Company's then Chief Executive
Officer and the four other most highly compensated individuals in 1997 for
services rendered to the Company (the "named executive officers").

SUMMARY COMPENSATION TABLE(A)

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(b)
--------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
David A. Bowers................................ 1997 $147,000 $125,000 $20,500
President and Chief Executive Officer
Ronald J. Simmons.............................. 1997 117,753 86,667 4,638
Vice President; President -- Waterloo
Furniture Components Limited
Emory E. Hodges................................ 1997 80,028 27,113 13,667
Vice President -- Operations -- National
Cabinet Lock
Scott C. James................................. 1997 83,200 36,508 16,164
Vice President -- Sales and
Marketing -- National Cabinet Lock
Neil M. Poag................................... 1997 65,428 37,752 3,611
Vice President -- Finance -- Waterloo
Furniture Components Limited
</TABLE>

- ---------------

(a) Columns required by the rules and regulations of the Securities and Exchange
Commission (the "Commission") that contain no entries have been omitted.

(b) These amounts represent contributions the Company made to certain of the
Company's defined contribution plans.

The Company, Valhi, Contran and certain related corporations have entered
into certain intercorporate services agreements between each other
(collectively, the "ISAs"). Pursuant to each ISA, the parties to the ISA agreed
to render certain services to the other in exchange for agreed upon fees and
reimbursements of costs, including executive officer services rendered to one
party by employees of the other. The fees paid pursuant to the ISAs are
generally based upon the estimated percentage of time individual employees,
including executive officers, devote to certain matters on behalf of the
recipient of the services. See also "Certain Relationships and Related
Transactions."

Messrs. Glenn Simmons, Singer, Hollingsworth, O'Brien, Lindquist and Watson
render and Mr. Compofelice has rendered services to the Company under the ISAs
and receive and has received, respectively, their compensation from affiliated
companies that employ them. No employer of an executive officer of the Company
who rendered services in 1997 to the Company under the ISAs received fees in
excess of $100,000 from the Company attributable to such officer's services.

It has been Valhi's policy to award certain key employees of the Company
shares of restricted Valhi common stock or grant options to purchase Valhi
common stock under the terms of Valhi's stock option plans. After the Offering,
Valhi does not intend to continue this policy.

40
<PAGE> 44

The following table provides information with respect to the named
executive officers concerning the exercise of Valhi options during 1997 and the
value of unexercised options to acquire Valhi common stock held as of December
31, 1997. No Valhi stock was awarded nor were options to purchase Valhi stock
granted to the named executive officers during 1997.

AGGREGATED OPTION EXERCISES IN 1997 AND DECEMBER 31, 1997 OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXPIRED IN-THE-MONEY
ACQUIRED OPTIONS AT OPTIONS/SARS AT
ON DECEMBER 31, 1997 (#) DECEMBER 31, 1997(a)(b)
EXERCISE VALUE --------------------------- ---------------------------
NAME (#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Bowers........... 38,000 $113,550 43,000 29,000 $102,048 $66,578
Ronald J. Simmons......... -- -- 20,000 10,000 51,383 20,715
Emory E. Hodges........... -- -- 4,000 6,000 5,750 8,625
Scott C. James............ 7,000 17,748 -- 8,000 -- 14,670
Neil M. Poag.............. -- -- 5,000 5,000 13,998 10,358
</TABLE>

- ---------------

(a) The aggregate amount represents the difference between the exercise price of
the individual stock options and Valhi's $9.4375 per share closing price as
of December 31, 1997 as reported on the NYSE composite tape.

(b) Pursuant to an agreement between the Company and Valhi, Valhi receives the
full market value on the date of exercise of any Valhi common stock issued
to such person pursuant to the exercise of stock options granted to such
person. The employee pays Valhi the exercise price and the Company pays
Valhi the difference between the market value and the exercise price.

On February 13, 1998 Mr. Compofelice was appointed by the Company's Board
of Directors as Chairman of the Board and Chief Executive Officer. In connection
with such appointments and on such date, Mr. Compofelice was awarded 100,000
shares of Class A Common Stock under the Incentive Plan. Mr. Compofelice also
will be granted, upon consummation of the Offering, a non-qualified stock option
under the Incentive Plan to purchase 100,000 shares of Class A Common Stock at
an exercise price equal to the price to the public of the Class A Common Stock
in the Offering. Mr. Compofelice's annual compensation will consist of a base
salary of $500,000 and an annual bonus, based upon achievement of certain
board-approved objectives, ranging from 50 percent to 150 percent of Mr.
Compofelice's base salary.

In connection with the above appointments, the Company's Board of Directors
approved the form of an executive severance agreement (the "Severance
Agreement") with Mr. Compofelice that provides that Mr. Compofelice's employment
with the Company may be terminated at any time by action of the Company's Board
of Directors. The Severance Agreement also provides that the following payments
shall be made to Mr. Compofelice in the event Mr. Compofelice's employment with
the Company is terminated by the Company without cause (as defined in the
Severance Agreement) or Mr. Compofelice terminates his employment with the
Company for good reason (as defined in the Severance Agreement): (i) the greater
of two times the aggregate of Mr. Compofelice's annual base salary plus target
bonus (which shall not be less than the amount of his annual salary) or two
times Mr. Compofelice's annual base salary plus actual bonus for the two years
prior to termination; (ii) accrued salary and bonus through the date of
termination; (iii) an amount in cash or the Company's Class A Common Stock equal
to the fair market value of outstanding Company stock options granted to Mr.
Compofelice in excess of the exercise price and unvested Company restricted
stock awarded to Mr. Compofelice; (iv) an amount equal to unvested Company
contributions together with an amount equal to the Company's matching
contributions to Mr. Compofelice's account under the Company's Savings Plan (as
defined) for a period of two years; (v) an amount equal to the vested and
unvested portions of Mr. Compofelice's account under the Supplemental Retirement
Plans (as defined), if any; and (vi) certain other benefits. The Severance
Agreement is automatically extended for a one-year term commencing each January
1, unless the Company and Mr. Compofelice agree otherwise in writing.

INCENTIVE COMPENSATION PLAN

Prior to completion of the Offering, the Company intends to adopt the
CompX(TM) International Inc. 1997 Incentive Compensation Plan (the "Incentive
Plan"). The purpose of the Incentive Plan is to advance the

41
<PAGE> 45

interests of the Company and its stockholders by providing incentives to certain
eligible persons who contribute significantly to the strategic and long-term
performance objectives and growth of the Company. The Incentive Plan provides
for awards or grants of stock options, stock appreciation rights, performance
grants and other awards deemed by the MD&C Committee to be consistent with the
purposes of the Plan (collectively, "Awards") Under the Incentive Plan, key
individuals employed by, or performing services for, the Company are eligible to
receive Awards. A person who is eligible to receive an Award may be a
nonemployee director or some other person who is not employed by the Company.
The MD&C Committee is the initial committee to administer the Incentive Plan.
The MD&C Committee determines the eligible persons to whom it grants Awards and
the type, size and terms of such Awards. The Company has reserved for issuance a
maximum of 1,500,000 shares of Class A Common Stock for Awards under the
Incentive Plan, subject to certain adjustments. A stock option awarded under the
Incentive Plan may be an incentive stock option or non-qualified stock option
and the term of such stock option cannot exceed ten years. Awards may be granted
in conjunction with other Awards.

Upon completion of the Offering, five of the Company's officers and
directors will be awarded 81,100 shares of Class A Common Stock under the
Incentive Plan for their services in connection with the Offering, with an
option to receive one-half of the value of such shares in cash to satisfy
individual income taxes related thereto. The number of such Class A shares to be
awarded is based upon the public offering price to the public. In addition, on
February 13, 1998, the Company awarded Mr. Compofelice, Chairman of the Board
and Chief Executive Officer, 100,000 shares of Class A Common Stock. The Company
will value all such Class A shares awarded (the "Management Shares") at the
public offering price, and the aggregate value of such Class A shares will be
approximately $3.4 million. The Company will recognize a charge, at the time of
the completion of the public offering, equal to the aggregate value of the Class
A shares awarded and cash payments made.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1997, the Board of Directors did not have a compensation committee
and David A. Bowers, Glenn R. Simmons and Robert W. Singer comprised the entire
Board of Directors of the Company when the Board of Directors deliberated on
executive officer compensation. Messrs. Glenn Simmons, Bowers and Singer were
the Company's Chairman of the Board, President and Chief Executive Officer and
Vice President, respectively. During 1997, Mr. Glenn Simmons and Mr. Singer also
served as executive officers of Valhi, Keystone and Contran and Mr. Glenn
Simmons served as a director of Valhi, Keystone and Contran.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Relationships with Related Parties. As set forth under the caption
"Security Ownership in the Company and its Affiliates," Mr. Harold C. Simmons,
through Valcor, Valhi and Contran, may be deemed to control the Company. Mr.
Glenn R. Simmons, director of the Company, is the brother of Mr. Harold C.
Simmons. Mr. Glenn R. Simmons and Mr. Singer are also directors of the Company's
parent company, Valcor, and of certain affiliates of the Company and Valcor. See
"Management -- Directors, Executive Officers and Key Personnel." Corporations
that may be deemed to be controlled by or affiliated with Mr. Harold C. Simmons,
including the Company, sometimes engage in (a) intercorporate transactions such
as guarantees, management and expense sharing arrangements, shared fee
arrangements, 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 which resulted in the acquisition by one related
party of a publicly-held minority equity interest in another related party. The
Company continuously considers, reviews and evaluates, and understands that
Contran and related entities consider, review and evaluate, such transactions.
Depending upon the business, tax and other objectives then relevant, it is
possible that the Company might be a party to one or more such transactions in
the future.

42
<PAGE> 46

Although no specific procedures are in place that govern the treatment of
transactions among the Company and Contran, Valhi or other affiliated companies,
the Board of Directors of each of such publicly held companies includes one or
more members who are not officers or directors of any entity that may be deemed
to be related to the Company. Additionally, under applicable 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 and
officers owe fiduciary duties of good faith and fair dealing to all stockholders
of the companies for which they serve.

The Company understands that Valhi and related entities may consider
acquiring or disposing of shares of Class A 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 the Class A Common Stock in the market, an assessment of the
business of and prospects for the Company, financial and stock market conditions
and other factors. The Company does not presently intend, and understands that
Valhi does not presently intend, to engage in any transaction or series of
transactions that would result in the Class A Common Stock becoming eligible for
termination of registration under the Securities Exchange Act of 1934, as
amended, or ceasing to be traded on a national securities exchange.

It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties. In the Company's opinion,
the terms all of such transactions to which the Company has been a party in the
past are not materially different from those that would have been entered into
with unrelated parties.

Loans and Advances. From time to time the Company makes advances to and
borrows from Valcor, Valhi and other related parties pursuant to term and demand
loans. Such loans and advances are made principally for cash management
purposes. During 1994, the net borrowings of the Company from Valcor were
$250,000, which was repaid in 1995. During 1996 and 1997, the Company neither
borrowed money from nor loaned money to any related party, except with respect
to the Valcor Note. Interest expense with respect to the Valcor Note was
$164,000 in 1997. See "Recent Developments."

Contractual Arrangements. The ISA between the Company and Valhi (the "Valhi
ISA") provides that Valhi will render or provide certain management, financial,
and administrative services to the Company on a fee basis. Such fees are based
upon estimates of time devoted to the affairs of the Company by individual Valhi
employees and the salaries of such persons. The Company paid fees to Valhi for
services rendered under the Valhi ISA of $284,000, $300,000 and $260,000 in
1995, 1996 and 1997, respectively. The Valhi ISA is an annual agreement and may
be extended on a quarter-to-quarter basis, subject to termination by advance
notice by either party and amendment by mutual agreement. Net charges from
related parties for services provided in the ordinary course of business,
principally "pass-through" insurance charges for insuring and other risks,
aggregated $152,000 in 1995, $149,000 in 1996, and $208,000 in 1997. These fees
and charges are principally pass-through in nature and, in the Company's
opinion, are reasonable and not materially different from those that would have
been incurred with unrelated parties.

Certain employees of the Company have been awarded shares of restricted
Valhi common stock or granted options to purchase Valhi common stock under the
terms of Valhi's stock option plans. The Company will reimburse Valhi for the
cost of shares of restricted Valhi common stock awarded to employees of the
Company as of the time the restrictions on such shares lapse, based on the
market value of Valhi common stock on such date. With respect to options to
acquire Valhi common stock granted to employees of the Company, the Company will
reimburse Valhi for the difference between the option exercise price and the
market price of Valhi common stock at the time of exercise. As of December 31,
1997, employees of the Company held options to acquire 204,000 shares of Valhi
common stock at exercise prices ranging from $4.76 per share to $14.66 per
share. All shares of restricted stock previously granted had vested at December
31, 1996. The Company has recorded an expense (credit) of ($6,000) in 1995,
$12,000 in 1996 and $472,000 in 1997 in connection with the grant of Valhi
restricted stock and stock options. To the extent employees of the Company
continue to have options outstanding to purchase Valhi common stock, future
changes in the market price of Valhi common stock will result in additional
expense or credits to the Company's operating results.

43
<PAGE> 47

The Company, Valcor and Valhi are members of Contran's consolidated United
States federal income tax group (the "Contran Tax Group"). The policy for
intercompany allocation of federal income taxes provides that subsidiaries
included in the Contran Tax Group provide for federal income taxes on a separate
company basis. Subsidiaries of Valcor make payments to, or receive payments
from, Valcor in the amount they would have paid to or received from the Internal
Revenue Service had they not been members of the Contran Tax Group. The separate
company provisions and payments are computed using the tax elections made by
Contran. The Company and Valcor have entered into a tax sharing agreement (the
"Tax Sharing Agreement") that provides for the allocation of tax liabilities and
tax payments as described above. For all periods presented, the Company is a
member of the Contran Tax Group. The Company is jointly and severally liable for
the federal income tax of Contran and the other companies included in the
Contran Tax Group for all periods in which the Company is included in the
Contran Tax Group. Valcor and Valhi have agreed, however, to indemnify the
Company for any liability for income taxes of the Contran Tax Group in excess of
the Company's tax liability computed in accordance with the Tax Sharing
Agreement. Upon consummation of the Offering, the Company will become a separate
United States taxpayer and will no longer be a member of the Contran Tax Group.

Certain Litigation. In November 1991, a purported derivative complaint was
filed in the Court of Chancery of the State of Delaware, New Castle County (Alan
Russell Kahn v. Tremont Corporation, et al., No. 12339) in connection with
Tremont's agreement to purchase 7.8 million NL common shares from Valhi. In
addition to Tremont and Valhi, the complaint names as defendants the members of
Tremont's board of directors at the time, which included Mr. Glenn R. Simmons.
The complaint alleges, among other things, that Tremont's purchase of the NL
shares constitutes a waste of Tremont's assets and that Tremont's board of
directors breached its fiduciary duty to Tremont's public stockholders and
seeks, among other things, to rescind Tremont's consummation of the purchase of
the NL shares and award damages to Tremont for injuries allegedly suffered as a
result of the defendants' wrongful conduct. In March 1996, the trial court ruled
in favor of the defendants, and concluded that Tremont's purchase did not
constitute an overreaching of Tremont by its controlling stockholder (Valhi),
that Tremont's purchase price for the NL shares was fair and that in all other
respects the transaction was fair to Tremont. In June 1996, the plaintiffs filed
an appeal with the Delaware Supreme Court. A hearing before a three-judge panel
of the Delaware Supreme Court was held in December 1996, and an en banc hearing
before the full Supreme Court was held in February 1997. In June 1997, the
Delaware Supreme Court en banc reversed the trial court ruling and remanded the
matter to the lower court for further proceedings. The Supreme Court held, in
part, that the trial court had erred in placing the burden of proof on the
plaintiffs and remanded the matter so that the trial court could determine
whether the defendants had demonstrated the entire fairness of the transaction.
In October 1997, oral arguments upon remand were heard and since then the judge
has requested additional testimony. On February 4, 1998 Valhi reached an
agreement in principal to settle this matter. Under the memorandum of
understanding for the settlement, Valhi will transfer to Tremont 1.2 million NL
shares held by Valhi, subject to adjustment based on the sales price of NL
shares at the time of closing, up to a maximum of 1.4 million shares and a
minimum of 1 million shares. The settlement is subject to approval by the court
and, if approved, is expected to close during the third quarter of 1998.

In September 1996, a complaint was filed in the Superior Court of New
Jersey, Bergen County, Chancery Division (Frank D. Seinfeld v. Harold C.
Simmons, et al., No. C-336-96) against Valhi, NL and certain current and former
members of NL's board of directors including Mr. Glenn R. Simmons. The
complaint, a derivative action on behalf of NL, alleges, among other things,
that NL's August 1991 "Dutch auction" tender offer was an unfair and wasteful
expenditure of NL's funds. The complaint seeks, among other things, to rescind
NL's purchase of approximately 10.9 million shares of NL's common stock from
Valhi pursuant to the Dutch auction, and the plaintiff has stated that the
damages sought are $149 million. Valhi and the other defendants have answered
the complaint and have denied all allegations of wrongdoing. On February 4, 1998
Valhi reached an agreement in principal to settle this matter. Under the
memorandum of understanding for the settlement, Valhi will transfer to NL
750,000 NL shares held by Valhi, subject to adjustment based on the sales price
of NL shares at the time of closing, up to a maximum of 825,000 shares and a
minimum of 675,000 shares. The settlement is subject to approval by the court
and, if approved, is expected to close during the third quarter of 1998.
44
<PAGE> 48

The Company is not a party to any of the litigation matters described
above.

SECURITY OWNERSHIP IN THE COMPANY AND ITS AFFILIATES

Prior to the Offering, 100,000 shares of the Company's Class A Common Stock
were outstanding and held by Mr. Compofelice, the Company's Chairman of the
Board and Chief Executive Officer and all of the shares of the Company's Class B
Common Stock were held by Valcor, a wholly-owned subsidiary of Valhi.

As set forth below, Contran holds, directly or through subsidiaries,
approximately 93% of the outstanding Valhi common stock. Harold C. Simmons,
Chairman of the Board, President and Chief Executive Officer of Valcor, Valhi
and Contran, may be deemed to control each of such companies.

Immediately after completion of the Offering, the only shares of Class A
Common Stock that will be outstanding are those shares that will be issued in
the Offering (including any shares issued if the Underwriters' over-allotment
option is exercised), 100,000 shares currently held by Mr. Compofelice, the
Chairman of the Board and Chief Executive Officer of the Company, and
approximately 81,100 Management Shares. After completion of the Offering, all of
the Company's shares of Class B Common Stock will continue to be held by Valcor.
Such shares of Class B Common Stock will represent approximately 67% of the
combined voting power (95% for election of directors) of all shares of the
Company's Common Stock outstanding (64% and 95%, respectively, if the
Underwriters' over-allotment option is exercised in full).

The following table sets forth as of February 2, 1998, the beneficial
ownership, as defined by the regulations of the Commission, of Valhi common
stock by (i) each person or group of persons known to the Company to
beneficially own more than 5% of the outstanding shares of Valhi common stock,
(ii) each director of the Company, (iii) each named executive officer of the
Company, and (iv) all executive officers and directors of the Company as a
group. Except as set forth below, no securities of the Company's parent
companies or subsidiary companies are beneficially owned by any director or
named executive officer of the Company. All information is taken from or based
upon ownership filings made by such persons with the Commission or upon
information provided by such persons to the Company.

<TABLE>
<CAPTION>
VALHI COMMON STOCK
---------------------------------------
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP(a) CLASS(b)
------------------------ ---------------------- ----------
<S> <C> <C>
Contran Corporation and subsidiaries:
Contran Corporation(c)................................... 8,884,458(d)(e) 7.7%
National City Lines, Inc.(c)............................. 11,491,009(d) 10.0%
Valhi Group, Inc.(c)..................................... 85,644,496(d) 74.7%
Paul M. Bass, Jr........................................... 7,000 *
David A. Bowers............................................ 64,000(f) *
Joseph S. Compofelice...................................... 40,000(f)(g) *
Edward J. Hardin........................................... -- *
Glenn R. Simmons........................................... 425,533(f)(h) *
Robert W. Singer........................................... 34,015(i) *
Ronald J. Simmons.......................................... 22,000(f) *
Emory E. Hodges............................................ 4,000(f) *
Scott C. James............................................. 1,000(f) *
Neil M. Poag............................................... 16,500(f) *
All directors and executive officers as a group (16
persons)................................................. 1,183,396(f) 1.0%
</TABLE>

- ---------------

* Less than 1%.

(a) All beneficial ownership is sole and direct unless otherwise noted.

(b) The above table is based on 114,643,514 shares of Valhi common stock
outstanding as of February 2, 1998. For purposes of calculating the
outstanding shares of Valhi common stock as of February 2, 1998, 1,186,200
shares of Valhi common stock held by NL, a majority owned subsidiary of
Valhi, and 1,000,000

45
<PAGE> 49

shares of Valhi common stock held by Valmont Insurance Company, a wholly
owned subsidiary of Valhi, are excluded from the amount of Valhi common
stock outstanding. Pursuant to Delaware corporate law, Valhi treats these
excluded shares as treasury stock for voting purposes.

(c) The business address of Valhi Group, Inc. ("VGI"), National City Lines, Inc.
("National") and Contran is Three Lincoln Centre, 5430 LBJ Freeway, Suite
1700, Dallas, Texas 75240-2697.

(d) 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. Together, National, NOA and Dixie
Holding may be deemed to control VGI. Contran and NOA are the direct holders
of approximately 85.7% and 14.3%, respectively, of the outstanding common
stock of National and together may be deemed to control 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 and together may be deemed to control NOA. Dixie Rice
Agricultural Corporation, Inc. ("Dixie Rice") is the direct holder of 100%
of the outstanding common stock of Dixie Holding and may be deemed to
control Dixie Holding. Contran is the direct holder of approximately 88.7%
and 54.3% of the outstanding common stock of Southwest and Dixie Rice,
respectively, and may be deemed to control Southwest and Dixie Rice.

Mr. Harold C. Simmons is Chairman of the Board, President and Chief
Executive Officer of Valhi, VGI, National, NOA, Dixie Holding and Contran.
Mr. Simmons is also Chairman of the Board and Chief Executive Officer of
Dixie Rice and Southwest.

Substantially all of Contran's outstanding voting stock is held by two
trusts, the Harold C. Simmons Family Trust No. 1 dated January 1, 1964 and
the Harold C. Simmons Family Trust No. 2 dated January 1, 1964 (together,
the "Trusts"), established for the benefit of Mr. Simmons' children and
grandchildren, of which Mr. Simmons is the sole trustee. As sole trustee of
each of the Trusts, Mr. Simmons has the power to vote and direct the
disposition of the shares of Contran stock held by each of the Trusts. Mr.
Simmons, however, disclaims beneficial ownership of any shares of Contran
stock.

The Combined Master Retirement Trust (the "CMRT") directly holds
approximately 0.1% of the outstanding shares of Valhi common stock. The
CMRT is a trust formed by the Company to permit the collective investment
by trusts that maintain the assets of certain employee benefit plans
adopted by the Company and related companies. Mr. Simmons is the sole
trustee of the CMRT and the sole member of the trust investment committee
for the CMRT. Mr. Simmons is a participant in one or more of the employee
benefit plans that invest through the CMRT. Mr. Simmons, however, disclaims
beneficial ownership of any shares held by the CMRT, except to the extent
of his vested beneficial interest therein.

Mr. Simmons' spouse directly owns 77,000 shares of Valhi common stock, with
respect to all of which Mr. Simmons disclaims beneficial ownership. Mr.
Simmons also directly owns 3,383 shares of Valhi common stock.

By virtue of the holding of the offices, the stock ownership and his
service as trustee, all as described above, (a) Mr. Harold C. Simmons may
be deemed to control such entities and (b) Mr. Simmons and certain of such
entities may be deemed to possess indirect beneficial ownership of shares
directly held by certain of such other entities. However, Mr. Simmons
disclaims such beneficial ownership of the shares beneficially owned,
directly or indirectly, by any of such entities.

The Company understands that NL and Valmont Insurance Company ("Valmont")
directly hold 1,186,200 shares and 1,000,000 shares of Valhi common stock,
respectively. Valhi is the direct holder of approximately 58.3% of the
outstanding common stock of NL. Valhi is also the direct holder of 100% of
the outstanding common stock of Valmont. The Company further understands
that, pursuant to Delaware law, Valhi treats the shares of Valhi common
stock that Valmont and NL hold directly as treasury stock for voting
purposes. For the purposes of this prospectus, the shares of Valhi common
stock that Valmont and NL hold directly are not deemed outstanding.

Although the Company is not a party to the action, the Company was aware
that a lawsuit captioned In re: The Harold C. Simmons Family Trust No. 1
(No. 96-306-P) was pending in the Probate Court of

46
<PAGE> 50

Dallas County, Texas. Pleadings filed in the action contained allegations
by two of Mr. Harold C. Simmons' four daughters who are among the
beneficiaries of the Trusts that Mr. Simmons had breached his fiduciary
duties as trustee of the Trusts. The breaches of fiduciary duty claimed
included, among others, allegedly unfair self dealing, allegedly improper
charitable contributions and alleged violations of the federal election
laws. Pleadings by Mr. Simmons in the action assert that all actions taken
by him as trustee were specifically permitted by the terms of the Trusts
and greatly benefited the Trusts and the beneficiaries. The relief sought
by the plaintiffs included the removal of Mr. Simmons as trustee of the
Trusts. Mr. Simmons' other two daughters filed pleadings in the action
opposing the relief sought by the plaintiffs. The first trial of this
matter ended in a mistrial. On February 10, 1998 the court approved a
settlement agreement executed by the parties to this matter whereby Mr.
Harold C. Simmons shall remain trustee of the Trusts and all claims of the
plaintiffs were settled in exchange for certain consideration paid by the
Trusts. Closing of the settlement occurred on February 11, 1998.

(e) The shares of Valhi common stock shown as owned by Contran include 189,400
shares (0.2% of the outstanding Valhi common stock) directly held by the
Contran Deferred Compensation Trust No. 2 (the "CDCT No. 2"). Boston Safe
Deposit and Trust Company serves as trustee of the CDCT No. 2 (the
"Trustee"). 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 (i)
retains the power to vote the shares held by the CDCT No. 2, (ii) retains
dispositive power over such shares and (iii) may be deemed the indirect
beneficial owner of such shares. Mr. Harold C. Simmons disclaims beneficial
ownership of any shares of Valhi common stock directly held by the CDCT No.
2, except to the extent of his interests as a beneficiary of the CDCT No. 2.

(f) The shares of Valhi common stock shown as beneficially owned by Glenn R.
Simmons, David A Bowers, Joseph S. Compofelice, Ronald J. Simmons, Emory E.
Hodges, Scott C. James, Neil M. Poag and all executive officers and
directors as a group include 380,000, 52,000, 30,000, 22,000, 4,000, 1,000,
6,000 and 1,043,000 shares, respectively, that such person or group has the
right to acquire upon the exercise within 60 days subsequent to February 2,
1998 of stock options granted pursuant to the Valhi, Inc. 1987 Stock
Option -- Stock Appreciation Rights Plan, as amended.

(g) The shares of Valhi common stock shown as beneficially owned by Joseph S.
Compofelice include 10,000 shares held by Mr. Compofelice and his wife as
joint tenants.

(h) The shares of Valhi common stock shown as beneficially owned by Glenn R.
Simmons include 3,000 shares held by Mr. Simmons' wife, 800 shares held in a
retirement account for Mr. Simmons' wife, with respect to all of which Mr.
Simmons disclaims beneficial ownership.

(i) The shares of Valhi common stock shown as beneficially owned by Robert W.
Singer include 10,000 shares held in a retirement account for his benefit
and 5,000 shares held in the individual retirement account of Mr. Singer's
wife with respect to all of which Mr. Singer disclaims beneficial ownership.

CERTAIN INDEBTEDNESS

Prior to the completion of the Offering, the Company plans to enter into
the Revolving Senior Credit Facility. The Revolving Senior Credit Facility is
expected to be an unsecured five-year revolving facility. Borrowings are
expected to be available for the Company's general corporate purposes, including
potential acquisitions. There can be no assurance that any such new Revolving
Senior Credit Facility will be obtained. The following summary of the material
provisions of the Revolving Senior Credit Facility is based upon a preliminary
term sheet and drafts of the proposed credit agreement. Because the terms,
conditions and covenants of the Revolving Senior Credit Facility are subject to
the negotiation, execution and delivery of the definitive loan documents,
certain of the actual terms, conditions and covenants thereof may differ from
those described below.

47
<PAGE> 51

The Revolving Senior Credit Facility will mature in 2003. Borrowings of up
to $100 million will be available under the Revolving Senior Credit Facility
subject to limitation with respect to compliance with certain coverage ratios
and covenants as discussed below. The Revolving Senior Credit Facility will have
no required principal amortization payments prior to maturity absent any uncured
event of default, Asset Disposition (as defined) or incurrence of Indebtedness
(as defined). Amounts drawn under the Revolving Senior Credit Facility will bear
interest, at the Company's option, at either (i) a base rate equal to the higher
of (x) the agent bank's prime rate and (y) the Federal funds rate plus one-half
of one percent ( 1/2%) or (ii) the Eurodollar Rate plus an Applicable Margin (as
defined). The Applicable Margin will be a rate between .30% and 1.025% that will
fluctuate based on the Company's Ratio of Consolidated Debt (as defined) to
Consolidated EBITDA (as defined) for the most recent prior four quarter period.

The Revolving Senior Credit Facility will contain certain covenants and
restrictions customary in lending transactions of this type. These covenants
will include requirements that the Company maintain specified levels of
Consolidated Net Worth (as defined), generally limit the payment of dividends to
50% of Consolidated Net Income of the Company (as defined), and require the
Company to maintain a ratio of Consolidated Debt (as defined) to Consolidated
EBITDA (as defined) for the most recently completed four quarters not to exceed
3.00 to 1.0 and maintain a ratio of Consolidated EBITDA (as defined) for the
most recently completed four quarters to Consolidated Interest Expense (as
defined) of not less than 4.25 to 1.0.

DESCRIPTION OF CAPITAL STOCK

GENERAL

The following discussion of the capital stock of the Company assumes that
the Restated Certificate of Incorporation of the Company, which will become
effective before the Offering commences, is in effect.

The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $.01 per share, of which 20,000,000 shares have been
designated as Class A Common Stock and 10,000,000 shares have been designated as
Class B Common Stock, and 1,000 shares of preferred stock, par value $.01 per
share (the "Preferred Stock"). Effective upon completion of the Offering,
4,881,100 shares of Class A Common Stock will be issued and outstanding
(5,586,100 if the Underwriters' over-allotment option is exercised in full),
including 181,100 Management Shares, 10,000,000 shares of Class B Common Stock
will be issued and outstanding, and no shares of Preferred Stock will be issued
and outstanding. In addition, approximately 1.3 million shares of Class A Common
Stock will be reserved for issuance pursuant to the Incentive Plan and
10,000,000 shares of Class A Common Stock will be reserved for issuance upon
conversion of the Class B Common Stock. The following summary does not purport
to be complete and is subject to the detailed provisions of, and qualified in
its entirety by reference to, the Company's Restated Certificate of
Incorporation and Bylaws, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part, and to the applicable
provisions of the Delaware General Corporation Law of the State of Delaware
("DGCL").

COMMON STOCK

The shares of Class A Common Stock and Class B Common Stock are identical
in all respects, except for voting rights with respect to the election of
directors and certain conversion rights and transfer restrictions in respect of
the shares of the Class B Common Stock. The number of authorized shares of any
class or classes of capital stock of the Company may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the voting power of the Common Stock of the
Company entitled to vote generally in the election of directors irrespective of
the provisions of Section 242(b)(2) of the DGCL or any corresponding provisions
hereinafter enacted.

Voting Rights. The holders of Class A Common Stock are entitled to one vote
per share. Holders of Class B Common Stock are entitled to one vote per share in
all matters except the election of directors where such holders are entitled to
ten votes per share. Holders of all classes of Common Stock entitled to vote
will vote together as a single class on all matters presented to the
stockholders for their vote or approval except as
48
<PAGE> 52

otherwise required by applicable law. Immediately after the Offering, the shares
of Class B Common Stock will represent approximately 67% of the combined voting
power (95% for election of directors) of all classes of voting stock of the
Company (approximately 64% and 95%, respectively, if the Underwriters'
over-allotment option is exercised in full).

The Common Stock does not have cumulative voting rights, which means that
holders of the shares of Common Stock with a majority of the votes to be cast
for the election of directors can elect all directors then being elected. Since
the purchasers of the shares of Class A Common Stock offered hereby will acquire
shares entitling them to less than a majority of such votes, such stockholders
will be unable to elect a director without the affirmative vote of Valcor.

Dividends. Each share of Class A Common Stock and Class B Common Stock has
an equal and ratable right to receive dividends to be paid from the Company's
assets legally available therefor when, as and if declared by the Board of
Directors. Delaware law generally requires that dividends be paid only out of
the Company's surplus or current net profits in accordance with the DGCL. The
Company may not make any dividend or distribution to any holder of any class of
Common Stock unless simultaneously with such dividend or distribution the
Company makes the same dividend or distribution with respect to each outstanding
share of Common Stock regardless of class. Whenever a dividend or distribution,
including distributions pursuant to stock splits or divisions of the Common
Stock, is payable in shares of Common Stock, the number of shares of Common
Stock payable per share of Common Stock shall be equal in number.

The Company does not anticipate paying cash dividends in the foreseeable
future. See "Dividend Policy."

Conversion and Transfer. Class A Common Stock has no conversion rights.
Prior to a "Tax-Free Spin-Off" (as defined below), shares of Class B Common
Stock may be freely transferred (i) between members of the Contran Corporation
Control Group (as defined below) or (ii) outside the Contran Corporation Control
Group (as defined below) in a transaction that is not a "Tax-Free Spin-Off" (as
defined below). However, shares of Class B Common Stock transferred to a person
who is not a member of the Contran Corporation Control Group (as defined below)
in a transaction that is not a "Tax-Free Spin-Off" (as defined below) shall
automatically convert into shares of Class A Common Stock as of the date of such
transfer. Transfers of Class B Common Stock between members of the Contran
Corporation Control Group (as defined below) shall have no effect other than to
change the beneficial ownership of such Class B Common Stock. For purposes
hereof, a member of the Contran Corporation Control Group shall be Contran
Corporation, a Delaware corporation, and any entity included in the affiliated
group as defined in sec.1504 of the Internal Revenue Code of 1986, as amended
from time to time (the "Code"), of which Contran Corporation or its successor is
the common parent. For purposes hereof, "Tax-Free Spin-Off" shall mean any
transfer effected in connection with a distribution of Class B Common Stock as a
spin-off, split-up or split-off to stockholders of a member of the Contran
Corporation Control Group intended to be on a tax-free basis under sec.368 of
the Code.

Following a Tax-Free Spin-Off, shares of Class B Common Stock shall be
transferred as Class B Common Stock, subject to applicable laws; provided,
however, that shares of Class B Common Stock shall automatically convert into
shares of Class A Common Stock on the fifth anniversary of the Tax-Free Spin-
Off, unless prior to such Tax-Free Spin-Off, the distributing member of the
Contran Corporation Control Group, or its successor, as the case may be,
delivers to the Company an opinion of counsel reasonably satisfactory to the
Company to the effect that such conversion could adversely affect the ability of
the distributing member, or its successor, as the case may be, to obtain a
favorable ruling from the Internal Revenue Service that the transfer would be a
Tax-Free Spin-Off. If such an opinion is received, approval of such conversion
shall be submitted to a vote of the holders of the Common Stock as soon as
practicable after the fifth anniversary of the Tax-Free Spin-Off, unless the
distributing member or its successor, as the case may be, delivers to the
Company an opinion of counsel reasonably satisfactory to the Company prior to
such anniversary that such vote could adversely affect the status of the
Tax-Free Spin-Off, including the ability to obtain a favorable ruling from the
Internal Revenue Service; if such opinion is so delivered, such vote shall not
be held. Approval of such conversion will require the affirmative vote of the
holders of a majority of the shares of both Class A Common Stock and Class B
Common Stock present and voting, voting together as a single

49
<PAGE> 53

class, with each share entitled to one vote for such purpose. No assurance can
be given that any such conversion would be consummated.

Prior to a Tax-Free Spin-Off, all shares of Class B Common Stock shall
automatically convert into shares of Class A Common Stock if the aggregate
number of outstanding shares of Class B Common Stock becomes less than 50% of
the aggregate number of outstanding shares of Common Stock.

Reclassification and Merger. In the event of a reclassification or other
similar transaction as a result of which the shares of Class A Common Stock are
converted into another security, then a holder of Class B Common Stock will be
entitled to receive upon conversion the amount of such other security that the
holder would have received if the conversion occurred immediately prior to the
record date of such reclassification or other similar transaction. No
adjustments in respect of dividends will be made upon the conversion of any
share of Class B Common Stock except if a share is converted subsequent to the
record date for the payment of a dividend or other distribution on shares of
Class B Common Stock but prior to such payment, then the registered holder of
such share at the close of business on such record date will be entitled to
receive the dividend or other distribution payable on such date regardless of
the conversion thereof or the Company's default in payment of the dividend due
on such date.

In the event the Company enters into any consolidation, merger, combination
or other transaction in which shares of Common Stock are exchanged for or
changed into other stock or securities, cash or any other property, then, and in
such event, the shares of each class of Common Stock will be exchanged for or
changed into either (l) the same amount of stock, securities, cash or any other
property, as the case may be, into which or for which each share of any other
class of Common Stock is exchanged for or changed into, provided such shares so
exchanged for or changed into may differ to the extent and only to the extent
that the Class A Common Stock and the Class B Common Stock differ as provided in
the Company's Restated Certificate of Incorporation or (2) if holders of each
class of Common Stock are to receive different distributions of stock,
securities, cash or any other property, an amount of stock, securities, cash or
property per share having a value, as determined by an independent investment
banking firm of national reputation selected by the Board of Directors, equal to
the value per share into which or for which each share of any other class of
Common Stock is exchanged or changed.

Liquidation. In the event of the dissolution, liquidation or winding up of
the Company, the holders of Class A Common Stock and Class B Common Stock are
entitled to share equally and ratably in the assets available for distribution
after payments are made to the Company's creditors and to the holders of any
Preferred Stock of the Company that may be outstanding at the time.

Other. The holders of shares of Common Stock have no preemptive,
subscription or redemption rights and are not liable for further call or
assessment. All of the outstanding shares of Common Stock are, and the shares of
Class A Common Stock offered hereby will be, fully paid and nonassessable.

Prior to the date of this Prospectus, there has been no established public
trading market for the Common Stock. The Class A Common Stock has been approved
for listing on the NYSE under the symbol "CIX," subject to official notice of
issuance.

PREFERRED STOCK

The Board of Directors of the Company is authorized, without further
stockholder action, to divide any or all shares of authorized Preferred Stock
into series and to fix and determine the designations, preferences and relative
participating, optional or other special rights, and qualifications, limitations
or restrictions thereon, of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion or
exchange privileges. As of the date of this Prospectus, no shares of Preferred
Stock have been issued and the Board of Directors of the Company had not
authorized any series of Preferred Stock and there are no plans, agreements or
understandings for the issuance of any shares of Preferred Stock.

50
<PAGE> 54

DELAWARE GENERAL CORPORATION LAW

Section 203 of the DGCL provides, in general, that a stockholder acquiring
more than 15% of the outstanding voting stock of a corporation subject to the
statute (an "Interested Stockholder") but less than 85% of such stock may not
engage in certain Business Combinations (as defined in Section 203) with the
corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or the
transaction in which the stockholder became an Interested Stockholder or (ii)
the Business Combination is approved by the corporation's board of directors and
authorized by a vote of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder. The provisions of Section
203 ("Section 203") of the DGCL do not apply to the Company. Such provisions, if
they were to apply to the Company, would restrict the Company's ability to enter
into business combinations with certain stockholders of the Company and would
render an unsolicited takeover attempt of the Company more difficult.

Any action required to be taken at any annual or special meeting of the
Company's stockholders may be taken without a meeting, without prior notice and
without a vote, upon the written consent of the minimum number of stockholders
necessary to authorize such action.

LIMITATIONS ON DIRECTORS' LIABILITY

The Company's Restated Certificate of Incorporation provides that no
director of the Company shall be personally liable to the Company or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) in respect of certain unlawful dividend payments or stock purchases
or redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. The effect of these provisions is to eliminate the
rights of the Company and its stockholders (through stockholders, derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of fiduciary duty as a director (including breaches resulting from
grossly negligent behavior), except in the situations described above. These
provisions do not limit the liability of directors under federal securities laws
and do not affect the availability of equitable remedies such as an injunction
or rescission based upon a director's breach of his duty of care.

TRANSFER AGENT AND REGISTRAR

Harris Trust and Savings Bank will act as the transfer agent and registrar
for the Common Stock.

51
<PAGE> 55

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this Offering, the Company will have outstanding
4,881,100 shares of Class A Common Stock (5,586,100 shares if the Underwriters'
over-allotment option is exercised in full) without taking into account any
options which may be granted, and 181,100 Management Shares granted to officers
and directors of the Company. All of the shares of Class A Common Stock sold
hereby will be freely tradable without restriction or further registration under
the Securities Act of 1933 (the "Securities Act") by persons other than
"affiliates" of the Company (defined in Rule 144 under the Securities Act as a
person who directly or indirectly through the use of one or more intermediaries
controls, is controlled by, or is under common control with, the Company). The
10,000,000 shares of Class B Common Stock held by Valcor will be deemed
restricted securities within the meaning of Rule 144. Shares of Class A Common
Stock acquired or to be acquired by officers and employees of the Company
pursuant to the exercise of options or restricted stock grants will be, upon the
filing of a Registration Statement on Form S-8 registering such shares, freely
tradable without restriction or further registration under the Securities Act by
persons other than "affiliates." Sales of restricted securities and shares of
Class A Common Stock held by "affiliates" are subject to certain volume, timing
and manner of sale restrictions pursuant to Rule 144. Any sales of substantial
amounts of these shares in the public market might adversely affect prevailing
market prices for the shares of Class A Common Stock.

In general, under Rule 144, a person (or persons whose shares are
aggregated) who has beneficially owned shares for at least one year, including
"affiliates" of the Company, would be entitled to sell within any three-month
period that number of shares that does not exceed the greater of (i) 1% of the
number of shares of Class A Common Stock then outstanding or (ii) the average
weekly trading volume of the Class A Common Stock during the four calendar weeks
preceding such sale. Sales pursuant to Rule 144 are subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. A person (or persons whose shares are aggregated)
who is not deemed to have been an affiliate of the Company at any time during
the 90 days preceding a sale, and who has beneficially owned the shares proposed
to be sold for at least two years, would be entitled to sell such shares under
Rule 144(k) without regard to many of the requirements described above. The
Company is unable to estimate the number of restricted shares or shares held by
affiliates that will be sold under Rule 144 since this will depend in part on
the market price for the Class A Common Stock, the personal circumstances of the
holders of the shares and other factors.

The Company and Valcor, and each of their respective officers and directors
have agreed that, for a period of 180 days from the date of this Prospectus,
they will not, without the prior written consent of Smith Barney Inc., offer,
sell, contract to sell, or otherwise dispose of, any shares of Common Stock of
the Company or any securities convertible into, or exercisable or exchangeable
for, Common Stock of the Company. Thereafter, Valcor will be able to sell any
shares of Common Stock it owns in reliance upon Rule 144, subject to the resale,
volume and other limitations described above. Under certain circumstances shares
of Class B Common Stock may be automatically converted into shares of Class A
Common Stock. It is possible that Valcor or another member of the Contran
Corporation Control Group may cause the Company to register any such converted
shares of Class A Common Stock that may be owned by Valcor or another member of
the Contran Corporation Control Group to permit a further distribution of such
shares of Class A Common Stock by Valcor.

Prior to the Offering, there has been no public market for the Class A
Common Stock. Trading of the Class A Common Stock is expected to commence
following the completion of the Offering. There can be no assurance that an
active trading market will develop or continue after the completion of the
Offering or that the market price of the Class A Common Stock will not decline
below the initial public offering price. No prediction can be made as to the
effect, if any, that future sales of shares of Class A Common Stock, or the
availability of shares for future sale, will have on the market price prevailing
from time to time. Sales of substantial amounts of Class A Common Stock in the
public market, or the perception that such sales could occur, could adversely
affect the prevailing market price of the Class A Common Stock or the ability of
the Company to raise capital through a public offering of its equity securities.

52
<PAGE> 56

CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS

A general discussion of certain United States federal income and estate tax
consequences of the ownership and disposition of Common Stock applicable to
Non-U.S. Holders (as defined) of Common Stock is set forth below. In general, a
"Non U.S. Holder" is a person other than: (i) a citizen or resident (as defined
for United States federal income or estate tax purposes, as the case may be) of
the United States; (ii) a corporation organized in or under the laws of the
United States or a political subdivision thereof; or (iii) an estate or trust
the income of which is subject to United States federal income taxation
regardless of its source. The discussion is based on current law and is provided
for general information only. The discussion does not address aspects of United
States federal taxation other than income and estates taxation and does not
address all aspects of federal income and estate taxation. The discussion does
not consider any specific facts or circumstances that may apply to a particular
Non-U.S. Holder and does not address all aspects of United States federal income
tax law that may be relevant to Non-U.S. Holders that may be subject to special
treatment under such law (for example, insurance companies, tax-exempt
organizations, financial institutions or broker-dealers). ACCORDINGLY,
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE
UNITED STATES FEDERAL, STATE, LOCAL AND NON-U.S. CURRENT AND POSSIBLE FUTURE
INCOME AND OTHER TAX CONSEQUENCES OF HOLDING AND DISPOSING OF CLASS A COMMON
STOCK.

DIVIDENDS

In general, the gross amount of dividends paid to a Non-U.S. Holder will be
subject to United States withholding tax at a 30% rate (or any lower rate
prescribed by an applicable tax treaty) unless the dividends are (i) effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States and a Form 4224 is filed with the withholding agent or (ii) if a
tax treaty applies, are attributable to a United States permanent establishment
of the Non-U.S. Holder. If either exception applies, the dividend will be taxed
at ordinary U.S. federal income tax rates. A Non-U.S. Holder may be required to
satisfy certain certification requirements in order to claim the benefit of an
applicable treaty rate or otherwise claim a reduction of, or exemption from, the
withholding obligation pursuant to the above described rules. In the case of a
Non-U.S. Holder that is a corporation, effectively connected income may also be
subject to the branch profits tax (which is generally imposed on a foreign
corporation at a rate of 30% of the deemed repatriation from the United States
of "effectively connected earnings and profits") except to the extent that an
applicable tax treaty provides otherwise.

The Company may pay dividends to Common Stock holders in the form of
additional Common Stock. In general, dividends of common stock paid pro rata to
holders of common stock are not taxable distributions. Holders who receive such
stock dividends must allocate the basis of the stock with respect to which the
distribution is made between such stock and the newly distributed stock in
proportion to the fair market values of each on the distribution date. In
certain circumstances stock dividends could be taxable distributions. However,
the Company does not currently expect to pay any stock dividends that would be
deemed taxable distributions.

SALE OF COMMON STOCK

Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the disposition of his Common Stock unless:
(i) the Company has been, is, or becomes a "U.S. real property holding
corporation" for federal income tax purposes and certain other requirements are
met; (ii) the gain is effectively connected with a trade or business carried on
by the Non-U.S. Holder within the United States; or (iii) the Common Stock is
disposed of by an individual Non-U.S. Holder, who holds the Common Stock as a
capital asset and is present in the United States for 183 days or more in the
taxable year of the disposition, and the gains are considered derived from
sources within the United States. The Company believes that it has not been, is
not currently and, based upon its current business plans, is not likely to
become a U.S. real property holding corporation. A Non-U.S. Holder also may be
subject to tax pursuant to the provisions of United States tax law applicable to
certain United States expatriates. Non-U.S. Holders should

53
<PAGE> 57

consult applicable treaties, which may exempt from United States taxation gains
realized upon the disposition of Common Stock in certain cases.

ESTATE TAX

Common Stock owned or treated as owned by an individual Non-U.S. Holder at
the time of death will be includible in the individual's gross estate for United
States federal estate tax purposes, unless an applicable treaty provides
otherwise, and may be subject to United States federal estate tax.

BACKUP WITHHOLDING AND INFORMATION REPORTING REQUIREMENTS

On October 14, 1997, the IRS issued final regulations relating to
withholding, information reporting and backup withholding that unify current
certification procedures and forms and clarify reliance standards (the "Final
Regulations"). The Final Regulations generally will be effective with respect to
payments made after December 31, 1998.

Except as provided below, this section describes rules applicable to
payments made on or before December 31, 1998. Backup withholding (which
generally is a withholding tax imposed at the rate of 31% on certain payments to
persons that fail to furnish the information required under the United States
information reporting and backup withholding rules) generally will not apply to
(i) dividends paid to Non-U.S. Holders that are subject to the 30% withholding
discussed above (or that are not so subject because a tax treaty applies that
reduces or eliminates such 30% withholding) or (ii) dividends paid on the Common
Stock to a Non-U.S. Holder at an address outside the United States. The Company
will be required to report annually to the IRS and to each Non-U.S. Holder the
amount of dividends paid to, and the tax withheld with respect to, such holder,
regardless of whether any tax was actually withheld. This information may also
be made available to the tax authorities in the Non-U.S. Holder's country of
residence.

In the case of a Non-U.S. Holder that sells Common Stock to or through a
United States office of a broker, the broker must backup withhold at a rate of
31% and report the sale to the IRS, unless the holder certifies its Non-U.S.
status under penalties of perjury or otherwise establishes an exemption. In the
case of a Non-U.S. Holder that sells Common Stock to or through the foreign
office of a United States broker, or a foreign broker with certain types of
relationships to the United States, the broker must report the sale to the IRS
(but not backup withhold) unless the broker has documentary evidence in its
files that the seller is a Non-U.S. Holder or certain other conditions are met,
or the holder otherwise establishes an exemption. A Non-U.S. Holder will
generally not be subject to information reporting or backup withholding if such
Non-U.S. Holder sells the Common Stock to or through a foreign office of a
Non-United States broker.

Any amount withheld under the backup withholding rules from a payment to a
holder is allowable as a credit against the holder's U.S. federal income tax,
which may entitle the holder to a refund, provided that the holder furnishes the
required information to the IRS. In addition, certain penalties may be imposed
by the IRS on a holder who is required to supply information but does not do so
in the proper manner.

The Final Regulations eliminate the general current law presumption that
dividends paid to an address in a foreign country are paid to a resident of that
country. In addition, the Final Regulations impose certain certification and
documentation requirements on Non-U.S. Holders claiming the benefit of a reduced
withholding rate with respect to dividends under a tax treaty.

Prospective purchasers of the Class A Common Stock are urged to consult
their own tax advisors as to the effect, if any, of the Final Regulations on
their purchase, ownership and disposition of the Class A Common Stock.

54
<PAGE> 58

UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company has agreed to sell to such Underwriter, the
number of shares of Class A Common Stock set forth opposite the name of such
Underwriter.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Smith Barney Inc. ..........................................
NationsBanc Montgomery Securities LLC.......................
Wheat First Securities, Inc. ...............................
---------
Total............................................. 4,700,000
---------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Class A Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., NationsBanc Montgomery
Securities LLC and Wheat First Union, a division of Wheat First Securities,
Inc., are acting as the Representatives, propose to offer part of the shares
directly to the public at the public offering price set forth on the cover page
of this Prospectus and part of the shares to certain dealers at a price which
represents a concession not in excess of $0. per share under the public
offering price. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $0. per share to certain other dealers. After the
initial offering of the shares to the public, the public offering price and such
concessions may be changed by the Representatives. The Representatives of the
Underwriters have advised the Company that the Underwriters do not intend to
confirm any shares to any accounts over which they exercise discretionary
authority.

The Company has granted to the Underwriters an option, exercisable for
thirty days from the date of this Prospectus, to purchase up to 705,000
additional shares of Class A Common Stock at the price to public set forth on
the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the Offering of the shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.

At the request of the Company, the Underwriters have reserved up to 100,000
shares of Class A Common Stock for sale at the public offering price to
directors, officers and employees of the Company. The number of shares of Class
A Common Stock available for sale to the general public will be reduced to the
extent such persons purchase the reserved shares. Any reserved shares not so
purchased will be offered by the Underwriters on the same basis as all other
shares offered hereby.

In connection with this Offering and in compliance with applicable law, the
Underwriters may overallot (i.e., sell more Class A Common Stock) than the total
amount shown on the list of Underwriters and participations which appears above)
and may effect transactions which stabilize, maintain or otherwise affect the
market price of the Class A Common Stock at levels above those which might
otherwise prevail in the open market. Such transactions may include placing bids
for the Class A Common Stock or effecting purchases of the Class A Common Stock
for the purpose of pegging, fixing or maintaining the price of the Class A
Common Stock or for the purpose of reducing a syndicate short position created
in connection with

55
<PAGE> 59

the Offering. A syndicate short position may be covered by exercise of the
option described above in lieu of or in addition to open market purchases. In
addition, the contractual arrangements among the Underwriters include a
provision whereby if the Representatives purchase Class A Common Stock in the
open market for the account of the underwriting syndicate and the securities
purchased can be traced to a particular Underwriter or member of the selling
group, the underwriting syndicate may require the Underwriter or selling group
member in question to purchase the Common Stock in question at the cost price to
the syndicate or may recover from (or decline to pay to) the Underwriter or
selling group member in question the selling concession applicable to the
securities in question. The Underwriters are not required to engage in any of
these activities and any such activities, if commenced, may be discontinued at
any time.

Prior to this Offering, there has not been any public market for the Class
A Common Stock of the Company. Consequently, the initial public offering price
for the Shares of Class A Common Stock included in this Offering has been
determined by negotiations between the Company and the Representatives. Among
the factors considered in determining such price were the history of and
prospects for the Company's business and the industry in which it competes, an
assessment of the Company's management and the present state of the Company's
development, the past and present revenues and earnings, the current state of
the economy in the United States and the current level of economic activity in
the industry in which the Company competes and in related or comparable
industries, and currently prevailing conditions in the securities markets,
including current market valuations of publicly traded companies which are
comparable to the Company.

Under Rule 2710(c)(8) of the Conduct Rules of the National Association of
Securities Dealers, Inc. (the "NASD"), if more than 10% of the net proceeds of a
public offering of equity securities are to be paid to members of the NASD that
are participating in the offering, or affiliated or associated persons, the
price of the equity securities distributed to the public must be no higher than
that recommended by a "qualified independent underwriter," as defined in Rule
2720 of the Conduct Rules of the NASD. Because NationsBank, N.A., an affiliate
of NationsBanc Montgomery Securities LLC, and First Union National Bank, an
affiliate of Wheat First Securities, Inc., are expected to be lenders under the
Revolving Senior Credit Facility and are expected to receive repayment of
amounts outstanding under the Revolving Senior Credit Facility from the net
proceeds of the Offering that are, in the aggregate, more than 10% of the net
proceeds of the Offering, Smith Barney Inc., another Underwriter of the Offering
(the "Independent Underwriter"), will act as a qualified independent underwriter
in connection with the Offering. The Independent Underwriter, in its role as
qualified independent underwriter, has performed due diligence investigations
and reviewed and participated in the preparation of this Prospectus and the
Registration Statement of which this Prospectus forms a part. The Independent
Underwriter will not receive any additional fees for serving as a qualified
independent underwriter in connection with the Offering. The price of the shares
of Class A Common Stock sold to the public will be no higher than that
recommended by the Independent Underwriter.

The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.

56
<PAGE> 60

LEGAL MATTERS

Certain legal matters with respect to the shares offered hereby will be
passed upon for the Company by Rogers & Hardin LLP, Atlanta, Georgia, of which
Mr. Hardin, a director of the Company, is a partner. The Underwriters have been
represented by Cravath, Swaine & Moore, New York, New York.

EXPERTS

The consolidated balance sheets as of December 31, 1996 and 1997, and the
related consolidated statements of income, cash flows and stockholder's equity
for each of the three years in the period ended December 31, 1997 included in
this Prospectus and elsewhere in the Registration Statement, have been included
herein in reliance upon the report of Coopers & Lybrand L.L.P., independent
accountants, given on the authority of that firm as experts in accounting and
auditing.

The consolidated combined balance sheet of the Fort Lock Group as of June
29, 1996 and June 28, 1997, and the related consolidated combined statements of
income, cash flows and stockholders' equity for the fiscal years ended June 24,
1995, June 29, 1996 and June 28, 1997, included in the Prospectus, have been
included herein in reliance upon the report of Altschuler, Melvoin and Glasser
LLP, independent accountants, given on the authority of that firm as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a registration statement on Form
S-1 under the Securities Act (together with all amendments and exhibits thereto,
the "Registration Statement"), with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement and the exhibits filed as part thereof. For further information with
respect to the Company and the shares of Class A Common Stock offered hereby,
reference is made to the Registration Statement and to the exhibits filed as a
part thereof. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete
and are qualified in their entirety by reference to each such contract,
agreement or other document which is filed as an exhibit to the Registration
Statement. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, or at the Regional
offices of the Commission at Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661, and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material may be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a
worldwide web site that contains reports, proxy statements and other information
regarding registrants, including the Company, that file electronically with the
Commission, at http://www.sec.gov.

57
<PAGE> 61

INDEX TO HISTORICAL FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF COMPX
INTERNATIONAL INC.:
Report of Independent Accountants......................... FA-1
Consolidated Balance Sheets -- December 31, 1996 and
1997................................................... FA-2
Consolidated Statements of Income -- Years ended December
31, 1995, 1996 and 1997................................ FA-3
Consolidated Statements of Cash Flows -- Years ended
December 31, 1995, 1996 and 1997....................... FA-4
Consolidated Statements of Stockholder's Equity -- Years
ended December 31, 1995, 1996 and 1997................. FA-5
Notes to Consolidated Financial Statements................ FA-6
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF THE FORT
LOCK GROUP:
Independent Auditors' Report.............................. FB-1
Consolidated Combined Balance Sheets -- June 29, 1996 and
June 28, 1997; December 27, 1997 (unaudited)........... FB-2
Consolidated Combined Statements of Income -- Fiscal years
ended June 24, 1995, June 29, 1996 and June 28, 1997;
26 weeks ended December 28, 1996 and December 27, 1997
(unaudited)............................................ FB-3
Consolidated Combined Statements of Changes in
Stockholders' Equity -- Fiscal years ended June 24,
1995, June 29, 1996 and June 28, 1997; 26 weeks ended
December 27, 1997 (unaudited).......................... FB-4
Consolidated Combined Statement of Cash Flows -- Fiscal
years ended June 24, 1995, June 29, 1996 and June 28,
1997; 26 weeks ended December 28, 1996 and December 27,
1997 (unaudited)....................................... FB-5
Notes to the Consolidated Combined Financial Statements... FB-6
</TABLE>

F-1
<PAGE> 62

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholder and Board of Directors of CompX International Inc.:

We have audited the accompanying consolidated balance sheets of CompX
International Inc. as of December 31, 1996 and 1997, and the related
consolidated statements of income, cash flows and stockholder's equity (deficit)
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CompX International Inc. as of December 31, 1996 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles.

COOPERS & LYBRAND L.L.P.

Dallas, Texas
January 23, 1998, except
for Note 12 as to which
the date is February 13, 1998

FA-1
<PAGE> 63

COMPX INTERNATIONAL INC.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 8,550 $19,187
Accounts receivable, less allowance for doubtful accounts
of $167 and $311....................................... 11,658 14,573
Receivable from affiliates................................ 384 --
Inventories............................................... 10,879 11,073
Prepaid expenses.......................................... 394 161
Deferred income taxes..................................... 343 438
------- -------
Total current assets.............................. 32,208 45,432
------- -------
Other assets:
Deferred income taxes..................................... -- 133
Other..................................................... 83 66
------- -------
83 199
------- -------
Property and equipment:
Land...................................................... 394 383
Buildings................................................. 8,364 8,194
Equipment................................................. 20,668 24,343
Construction in progress.................................. 88 707
------- -------
29,514 33,627
Less accumulated depreciation............................. 13,355 15,464
------- -------
Net property and equipment........................ 16,159 18,163
------- -------
$48,450 $63,794
======= =======

LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Demand note payable to Valcor............................. $ -- $50,000
Current maturities of long-term debt...................... 88 113
Accounts payable and accrued liabilities.................. 6,896 11,427
Other payable to affiliates............................... 5 331
Income taxes.............................................. 1,066 2,559
------- -------
Total current liabilities......................... 8,055 64,430
------- -------
Noncurrent liabilities:
Long-term debt............................................ 74 262
Deferred income taxes..................................... 1,068 115
Other..................................................... 11 150
------- -------
Total noncurrent liabilities...................... 1,153 527
------- -------
Stockholder's equity (deficit):
Preferred stock, $.01 par value; 1,000 shares authorized,
none issued............................................ -- --
Class A common stock, $.01 par value; 20,000,000 shares
authorized,
none issued............................................ -- --
Class B common stock, $.01 par value; 10,000,000 shares
authorized, issued and outstanding..................... 100 100
Additional paid-in capital................................ 4,412 4,412
Retained earnings (deficit)............................... 34,852 (4,596)
Currency translation adjustment........................... (122) (1,079)
------- -------
Total stockholder's equity (deficit).............. 39,242 (1,163)
------- -------
$48,450 $63,794
======= =======
Commitments and contingencies (Note 10)
</TABLE>

See accompanying notes to consolidated financial statements.

FA-2
<PAGE> 64

COMPX INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Revenues:
Net sales................................................. $80,238 $88,744 $108,652
Other income.............................................. 499 759 872
------- ------- --------
80,737 89,503 109,524
------- ------- --------
Costs and expenses:
Cost of sales............................................. 52,400 58,295 70,638
Selling, general and administrative....................... 8,465 9,106 11,018
Interest.................................................. 13 18 199
------- ------- --------
60,878 67,419 81,855
------- ------- --------
Income before income taxes........................ 19,859 22,084 27,669
Provision for income taxes.................................. 7,758 9,055 11,019
------- ------- --------
Net income........................................ $12,101 $13,029 $ 16,650
======= ======= ========
Unaudited pro forma per share data:
Net income................................................ $ 16,650
Pro forma adjustment -- reduction in net income for
employee stock grants.................................. (2,044)
--------
Pro forma net income...................................... $ 14,606
========
Basic and diluted pro forma net income per common share... $ 1.11
========
Common shares outstanding................................. 13,105
========
</TABLE>

See accompanying notes to consolidated financial statements.
FA-3
<PAGE> 65

COMPX INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $12,101 $13,029 $16,650
Depreciation and amortization............................. 2,193 2,483 2,811
Deferred income taxes..................................... (475) (625) (651)
Other, net................................................ 109 206 338
Change in assets and liabilities:
Accounts receivable.................................... (1,608) (1,093) (3,117)
Inventories............................................ (162) (1,662) (194)
Accounts payable and accrued liabilities............... 807 (1,277) 4,531
Accounts with affiliates............................... (292) (59) 710
Income taxes........................................... 111 (221) 1,502
Other, net............................................. 65 (306) 372
------- ------- -------
Net cash provided by operating activities......... 12,849 10,475 22,952
------- ------- -------
Cash flows from investing activities:
Capital expenditures...................................... (2,013) (2,287) (5,536)
Purchase of business unit................................. (5,982) -- --
Other, net................................................ 25 263 15
------- ------- -------
Net cash used by investing activities............. (7,970) (2,024) (5,521)
------- ------- -------
Cash flows from financing activities:
Long-term debt:
Additions.............................................. -- -- 369
Principal payments..................................... (42) (74) (156)
Repayment of loans from affiliates........................ (250) -- --
Dividends................................................. (6,000) (6,247) (6,098)
------- ------- -------
Net cash used by financing activities............. (6,292) (6,321) (5,885)
------- ------- -------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities.......... (1,413) 2,130 11,546
Currency translation................................... 373 (128) (909)
Balance at beginning of year.............................. 7,588 6,548 8,550
------- ------- -------
Balance at end of year.................................... $ 6,548 $ 8,550 $19,187
======= ======= =======
Supplemental disclosures:
Cash paid for:
Interest............................................... $ 13 $ 18 $ 35
Income taxes........................................... 8,407 9,974 9,617
Dividend in the form of a demand note payable............. $ -- $ -- $50,000
</TABLE>

See accompanying notes to consolidated financial statements.
FA-4
<PAGE> 66

COMPX INTERNATIONAL INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)

<TABLE>
<CAPTION>
TOTAL
CLASS B ADDITIONAL RETAINED CURRENCY STOCKHOLDER'S
COMMON PAID-IN EARNINGS TRANSLATION EQUITY
STOCK CAPITAL (DEFICIT) ADJUSTMENT (DEFICIT)
------- ---------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994............. $100 $4,412 $ 21,969 $ (294) $ 26,187
Net income............................. -- -- 12,101 -- 12,101
Cash dividends......................... -- -- (6,000) -- (6,000)
Adjustments, net....................... -- -- -- 324 324
---- ------ -------- ------- --------
Balance at December 31, 1995............. 100 4,412 28,070 30 32,612
Net income............................. -- -- 13,029 -- 13,029
Cash dividends......................... -- -- (6,247) -- (6,247)
Adjustments, net....................... -- -- -- (152) (152)
---- ------ -------- ------- --------
Balance at December 31, 1996............. 100 4,412 34,852 (122) 39,242
Net income............................. -- -- 16,650 -- 16,650
Dividends:
Cash................................ -- -- (6,098) -- (6,098)
Noncash............................. -- -- (50,000) -- (50,000)
Adjustments, net....................... -- -- -- (957) (957)
---- ------ -------- ------- --------
Balance at December 31, 1997............. $100 $4,412 $ (4,596) $(1,079) $ (1,163)
==== ====== ======== ======= ========
</TABLE>

See accompanying notes to consolidated financial statements.
FA-5
<PAGE> 67

COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION:

CompX International Inc. is a majority owned subsidiary of Valcor, Inc.,
which is a wholly-owned subsidiary of Valhi, Inc. (NYSE: VHI). The Company is a
North American manufacturer of component products (principally ergonomic
computer support systems, precision ball bearing drawer slides and cabinet
locks) for furniture and other markets.

Contran Corporation holds, directly or through subsidiaries, approximately
93% of Valhi's outstanding common stock. Substantially all of Contran's
outstanding voting stock is held by trusts established for the benefit of the
children and grandchildren of Harold C. Simmons, of which Mr. Simmons is sole
trustee. Mr. Simmons, the Chairman of the Board of each of Contran, Valhi and
Valcor, may be deemed to control each of such companies and the Company.

NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation. The accompanying consolidated financial
statements include the accounts of CompX International Inc. and its wholly-owned
Canadian subsidiary, Waterloo Furniture Components Limited (collectively the
"Company"). All material intercompany accounts and balances have been
eliminated.

Fiscal year. The Company's operations are comprised of a 52 or 53-week
fiscal year. The years ended December 31, 1995, 1996 and 1997 each consisted of
52 weeks.

Management estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amount of revenues and expenses
during the reporting period. Ultimate actual results may, in some instances,
differ from previously estimated amounts.

Foreign currency transactions. Assets and liabilities of the Company's
Canadian subsidiary are translated at year-end rates of exchange and revenues
and expenses are translated at average exchange rates prevailing during the
year. Resulting translation adjustments, net of related deferred income tax
effects, are accumulated in the currency translation adjustment component of
stockholder's equity. Foreign currency transaction gains and losses are
recognized in income currently. The net foreign currency transaction gain,
included in other income, was $23,000 in 1995, $136,000 in 1996 and $303,000 in
1997.

Cash and cash equivalents. Cash equivalents consist principally of bank
time deposits and government and commercial notes with original maturities of
three months or less.

Net sales. Sales are recorded when products are shipped.

Inventories and cost of sales. Inventories are stated at the lower of cost
or market. Inventories are based on average cost or the first-in, first-out
method.

Property, equipment and depreciation. Property and equipment, including
purchased computer software for internal use, are stated at cost. Maintenance,
repairs and minor renewals are expensed; major improvements are capitalized.
Depreciation is computed primarily on the straight-line method over the
estimated useful lives of 15 to 40 years for buildings and three to 10 years for
machinery and equipment.

Income taxes. CompX International, Valcor and Valhi are members of
Contran's consolidated United States federal income tax group (the "Contran Tax
Group"). The policy for intercompany allocation of federal income taxes provides
that subsidiaries included in the Contran Tax Group compute the provision for
federal income taxes on a separate company basis. Subsidiaries of Valcor make
payments to, or receive payments from, Valcor in the amount they would have paid
to or received from the Internal Revenue Service

FA-6
<PAGE> 68
COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

had they not been members of the Contran Tax Group. The separate company
provisions and payments are computed using the tax elections made by Contran.

Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities, including the
Company's investment in the Canadian subsidiary which is not a member of the
Contran Tax Group.

New accounting principles not yet adopted. The Company will adopt Statement
of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income, in the first quarter of 1998. Upon adoption of SFAS No. 130, the Company
will present a new Statement of Comprehensive Income which will report all
changes in the Company's stockholder's equity other than transactions with its
stockholders. Comprehensive income pursuant to SFAS No. 130 would include the
Company's consolidated net income, as reported in the Consolidated Statement of
Income, plus the net change in the foreign currency translation component of
stockholder's equity.

The Company will adopt SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, no later than the fourth quarter of 1998.
SFAS No. 131 will supersede the business segment disclosure requirements
currently in effect under SFAS No. 14. SFAS No. 131, among other things,
establishes standards regarding the information a company is required to
disclose about its operating segments. SFAS No. 131 also provides guidance
regarding what constitutes a reportable operating segment. The Company expects
to have one operating segment pursuant to SFAS No. 131, the same one segment
currently in effect under SFAS No. 14. Accordingly, segment disclosures pursuant
to SFAS No. 131 are not expected to be materially different from the current
disclosures pursuant to SFAS No. 14.

Other. Advertising costs, expensed as incurred, were $432,000 in 1995,
$410,000 in 1996 and $555,000 in 1997. Research and development costs, expensed
as incurred, were $391,000 in 1995, $460,000 in 1996 and $468,000 in 1997.
Accounting and funding policies for retirement plans are described in Note 7.

FA-7
<PAGE> 69
COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3 -- GEOGRAPHIC SEGMENTS:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales:
Point of origin:
Canada........................................... $58,123 $65,758 $ 80,632
United States.................................... 22,115 22,986 28,020
------- ------- --------
$80,238 $88,744 $108,652
======= ======= ========
Point of destination:
United States.................................... $55,442 $58,155 $ 70,354
Canada........................................... 22,788 27,763 33,974
Other............................................ 2,008 2,826 4,324
------- ------- --------
$80,238 $88,744 $108,652
======= ======= ========
Operating income:
Canada.............................................. $13,425 $16,417 $ 20,533
United States....................................... 6,441 5,697 7,807
------- ------- --------
19,866 22,114 28,340
General corporate income (expense), net............... 6 (12) (472)
Interest expense...................................... (13) (18) (199)
------- ------- --------
Income before income taxes.......................... $19,859 $22,084 $ 27,699
======= ======= ========
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Identifiable assets:
Canada.................................................... $31,425 $35,061
United States............................................. 17,025 28,733
------- -------
$48,450 $63,794
======= =======
</TABLE>

Capital expenditures exclude amounts attributable to business units
acquired in business combinations accounted for by the purchase method. In 1995,
the Company's Canadian subsidiary purchased certain assets of a competitor for
approximately $6 million cash.

At December 31, 1997, the net assets of the Company's Canadian subsidiary
included in consolidated net assets approximated $24.3 million.

NOTE 4 -- INVENTORIES:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................................... $ 2,556 $ 2,057
Work in process............................................. 4,974 5,193
Finished products........................................... 3,300 3,775
Supplies.................................................... 49 48
------- -------
$10,879 $11,073
======= =======
</TABLE>

FA-8
<PAGE> 70
COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- ACCOUNTS PAYABLE AND ACCRUED LIABILITIES:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ -------
(IN THOUSANDS)
<S> <C> <C>
Accounts payable............................................ $3,112 $ 5,497
Accrued liabilities:
Employee benefits......................................... 2,265 3,490
Insurance................................................. 152 633
Royalties................................................. 476 447
Other..................................................... 891 1,360
------ -------
$6,896 $11,427
====== =======
</TABLE>

NOTE 6 -- INDEBTEDNESS:

At December 31, 1997 other long-term debt consists of capital lease
obligations due through 2001. See Note 9 for a discussion of the Company's
demand note payable to Valcor.

NOTE 7 -- EMPLOYEE BENEFIT PLANS:

Substantially all employees are eligible to participate in
Company-sponsored contributory savings plans with partial matching Company
contributions. In addition, substantially all U.S. employees participate in a
Company-sponsored noncontributory defined contribution plan with Company
contributions based on a profit sharing formula. Company contributions to these
plans aggregated $838,000 in 1995, $842,000 in 1996 and $1,051,000 in 1997.

FA-9
<PAGE> 71
COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8 -- INCOME TAXES:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Components of pre-tax income:
Canada............................................. $13,425 $16,417 $20,533
United States...................................... 6,434 5,667 7,136
------- ------- -------
$19,859 $22,084 $27,669
======= ======= =======
Expected tax expense, at the U.S. federal statutory
income tax rate of 35%............................. $ 6,951 $ 7,729 $ 9,684
Non-U.S. tax rates................................... 882 128 550
Incremental U.S. tax on earnings of Canadian
subsidiary......................................... 750 1,050 631
Rate change adjustment of deferred taxes resulting
from U.S./Canadian tax treaty...................... (978) -- --
State income taxes and other, net.................... 153 148 154
------- ------- -------
$ 7,758 $ 9,055 $11,019
======= ======= =======
Provision for income taxes:
Currently payable:
U.S. federal.................................... $ 2,065 $ 1,676 $ 2,491
U.S. state...................................... 255 260 256
Canadian........................................ 5,913 7,744 8,923
------- ------- -------
8,233 9,680 11,670
------- ------- -------
Deferred taxes:
U.S............................................. (561) (872) (85)
Canadian........................................ 86 247 (566)
------- ------- -------
(475) (625) (651)
------- ------- -------
$ 7,758 $ 9,055 $11,019
======= ======= =======
</TABLE>

FA-10
<PAGE> 72
COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of net deferred tax assets (liabilities) are summarized
below. Deferred income taxes charged (credited) to the foreign currency
translation component of stockholder's equity were not material in any of the
past three years.

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -----
(IN THOUSANDS)
<S> <C> <C>
Tax effect of temporary differences relating to:
Inventories............................................... $ 172 $ 198
Property and equipment.................................... (1,236) (717)
Accrued liabilities and other deductible differences...... 233 447
Investment in Canadian subsidiary not a member of the
consolidated tax group................................. 106 627
Other taxable differences................................. -- (99)
------- -----
$ (725) $ 456
======= =====
Current deferred tax assets................................. $ 343 $ 438
Noncurrent deferred tax assets.............................. -- 133
Noncurrent deferred tax liabilities......................... (1,068) (115)
------- -----
$ (725) $ 456
======= =====
</TABLE>

NOTE 9 -- RELATED PARTY TRANSACTIONS:

The Company may be deemed to be controlled by Harold C. Simmons. See Note
1. Corporations 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, 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 which resulted in the acquisition by one related party of a
publicly-held minority equity interest in another related party. The Company
continuously considers, reviews and evaluates, and understands that Contran and
related entities consider, review and evaluate, such transactions. Depending
upon the business, tax and other objectives then relevant, it is possible that
the Company might be a party to one or more such transactions in the future.

It is the policy of the Company to engage in transactions with related
parties on terms, in the opinion of the Company, no less favorable to the
Company than could be obtained from unrelated parties.

Receivables from and payable to affiliates are summarized below.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
---- -------
(IN THOUSANDS)
<S> <C> <C>
Receivable from affiliates -- income taxes.................. $384 $ --
==== =======
Payable to affiliates:
Demand note payable to Valcor............................. $ -- $50,000
Income taxes and other.................................... 5 331
---- -------
$ 5 $50,331
==== =======
</TABLE>

FA-11
<PAGE> 73
COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On December 12, 1997, the Company paid a $50 million dividend to Valcor in
the form of a $50 million demand note payable (the "Valcor Note"). The Valcor
Note is unsecured and bears interest at a fixed rate of 6%. Interest expense
related to the Valcor Note was $164,000 in 1997. See Note 12.

Under the terms of Intercorporate Service Agreements with Valhi, Valhi
performs certain management, financial and administrative services for the
Company on a fee basis. Such fees are based upon estimates of time devoted to
the affairs of the Company by individual Valhi employees and the salaries of
such persons. Fees pursuant to these agreements were $284,000 in 1995, $300,000
in 1996 and $260,000 in 1997. Net charges from related parties for services
provided in the ordinary course of business, principally charges for insuring
property and other risks, aggregated $152,000 in 1995, $149,000 in 1996 and
$208,000 in 1997. These fees and charges are principally pass-through in nature
and, in the Company's opinion, are reasonable and not materially different from
those that would have been incurred on a stand-alone basis.

Certain employees of the Company have been awarded shares of restricted
Valhi common stock and/or granted options to purchase Valhi common stock under
the terms of Valhi's stock option plans. Upon exercise of the options, the
Company will pay Valhi the aggregate difference between the option price and the
market value of Valhi's common stock on the exercise date of such options. For
financial reporting purposes, the Company accounts for the related expense
(credit) of $(12,000) in 1995, $9,000 in 1996 and $472,000 in 1997 in a manner
similar to accounting for stock appreciation rights. At December 31, 1997,
employees of the Company held options to purchase 204,000 Valhi shares at prices
ranging from $4.76 to $14.66 per share (185,000 shares at prices lower than the
December 31, 1997 quoted market price of $9.44 per share).

Restricted stock is forfeitable unless certain periods of employment are
completed. The Company will pay Valhi the market value of the restricted shares
on the dates the restrictions expire, and accrue the related expense over the
restriction period. Expense related to restricted stock was $6,000 in 1995 and
$3,000 in 1996. All outstanding restricted stock vested in 1996.

NOTE 10 -- COMMITMENTS AND CONTINGENCIES:

Legal proceedings. The Company is involved in various routine legal
proceedings incidental to its normal business activities. The Company believes
none of such proceedings is material in relation to the Company's financial
position, results of operations or liquidity.

Income taxes. The Company is undergoing examinations of certain of its
income tax returns, and tax authorities have or may propose tax deficiencies.
The Company believes that it has adequately provided accruals for additional
income taxes and related interest expense which may ultimately result from such
examinations and believes that the ultimate disposition of all such examinations
should not have a material adverse effect on its consolidated financial
position, results of operations or liquidity.

The Company and Valcor have entered into a tax sharing agreement (the "Tax
Sharing Agreement") which provides for the allocation of tax liabilities and tax
payments as described in Note 2. The Company is jointly and severally liable for
the federal income tax of Contran and the other companies included in the
Contran Tax Group for all periods in which the Company is included in Contran
Tax Group. Valcor and Valhi has agreed, however, to indemnify the Company for
any liability for income taxes of the Contran Tax Group in excess of the
Company's tax liability computed in accordance with the Tax Sharing Agreement.

Concentration of credit risk. The Company's products are sold primarily to
original equipment manufacturers in the U.S. and Canada. The ten largest
customers accounted for approximately one-third of sales during each of the past
three years with at least five of such customers in each year located in the
United States.

FA-12
<PAGE> 74
COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1997, approximately 70% of the Company's cash and cash
equivalents was invested in A1 or P1-grade commercial paper issued by various
third parties having a maturity of three months or less (1996 -- approximately
75% was on deposit with a single Canadian bank).

Other. Royalty expense was $622,000 in 1995, $601,000 in 1996, and $849,000
in 1997. Royalties relate principally to certain Canadian-produced products sold
in the United States and are based upon volume.

Rent expense, principally for equipment, was $295,000 in 1995, $387,000 in
1996 and $425,000 in 1997. At December 31, 1997, future minimum rentals under
noncancellable operating leases are approximately $260,000 in 1998, $190,000 in
1999, $145,000 in 2000, $85,000 in 2001 and $15,000 in 2002.

NOTE 11 -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):

<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31
-------- ------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1995:
Net sales....................................... $20.1 $19.2 $19.4 $21.5
Operating income................................ 5.5 5.1 4.5 4.8
Net income...................................... 3.2 3.0 2.7 3.2
1996:
Net sales....................................... $21.2 $21.7 $21.8 $24.1
Operating income................................ 4.4 5.0 5.4 7.3
Net income...................................... 2.6 2.9 3.2 4.3
1997:
Net sales....................................... $25.8 $27.4 $27.0 $28.4
Operating income................................ 6.3 6.9 6.9 8.2
Net income...................................... 3.7 4.2 4.1 4.7
</TABLE>

NOTE 12 -- SUBSEQUENT EVENTS:

New credit facility. Prior to completion of a public offering of shares of
the Company's Class A common stock discussed below, the Company plans to enter
into a new $100 million revolving senior credit facility (the "Revolving Senior
Credit Facility"). The Revolving Senior Credit Facility is expected to be an
unsecured five-year revolving facility. Borrowings are expected to be available
for the Company's general corporate purposes, including potential acquisitions.
Prior to completion of the offering, the Company intends to utilize borrowings
under the Revolving Senior Credit Facility to fully repay the Valcor Note.

Recapitalization. On February 4, 1998, the Company amended and restated
its certificate of incorporation. The authorized capital stock of the Company
now consists of shares of Class A Common Stock (20,000,000 shares authorized)
and Class B Common Stock (10,000,000 shares authorized), each par value $.01 per
share, and 1,000 shares of preferred stock, par value $.01 per share. Upon the
effectiveness of the amendment and restatement of the certificate of
incorporation, the 1,000 shares of the Company's common stock, $1 par value,
previously outstanding and all held by Valcor, were reclassified into 10,000,000
shares of the Company's Class B Common Stock. The accompanying consolidated
financial statements have been retroactively restated to reflect this
recapitalization.

The shares of Class A Common Stock and Class B Common Stock are identical
in all respects, except for certain voting rights and certain conversion rights
in respect of the shares of the Class B Common Stock. Holders of Class A Common
Stock are entitled to one vote per share. Holders of Class B Common Stock are
entitled to one vote per share in all matters except for election of directors
where such holders are entitled to ten votes per share. Holders of all classes
of common stock entitled to vote will vote together as a single class on all
matters presented to the stockholders for their vote or approval, except as
otherwise required by

FA-13
<PAGE> 75
COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

applicable law. Each share of Class A Common Stock and Class B Common Stock have
an equal and ratable right to receive dividends to be paid from the Company's
assets when, as and if declared by the Board of Directors. In the event of the
dissolution, liquidation or winding up of the Company, the holders of Class A
Common Stock and Class B Common Stock will be entitled to share equally and
ratably in the assets available for distribution after payments are made to the
Company's creditors and to the holders of any preferred stock of the Company
that may be outstanding at the time. Shares of the Class A Common Stock will
have no conversion rights. Under certain conditions, shares of Class B Common
Stock will convert, on a share-for-share basis, into shares of Class A Common
Stock.

Public offering. The Company has filed a preliminary registration
statement with the Securities and Exchange Commission for an initial public
offering of shares of the Company's Class A Common Stock. A majority of the net
proceeds to the Company from the offering is expected to be used to repay
borrowings under the Revolving Senior Credit Facility discussed above and to
consummate the potential acquisition discussed below. There can be no assurance
that any such public offering will be completed.

Incentive compensation plan. The Company's board of directors has
authorized, subject to successful completion of the public offering described
above, the adoption of the CompX International Inc. 1997 Incentive Compensation
Plan (the "Incentive Plan"). The Incentive Plan will provide for the award or
grant of stock options, stock appreciation rights, performance grants and other
awards to employees and other individuals providing services to the Company. Up
to 1.5 million shares of Class A Common Stock may be issued pursuant to the
Incentive Plan. Stock options will be granted at prices not less than the market
price of the Company's stock on the date of grant, and will generally vest over
five years and expire ten years from the date of grant. In addition to the
100,000 shares of Class A Common Stock described below which were awarded on
February 13, 1998, the Company expects to make an initial grant of stock options
pursuant to the Incentive Plan upon completion of the public offering at an
exercise price equal to the public offering price, although the number of
options to be granted has not yet been determined. Other than the Management
Shares described below, the Company currently has no plans to grant any stock
awards under the Incentive Plan, although it may do so in the future.

The Company will account for stock-based employee compensation in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, and its various interpretations. Under APBO No. 25, no
compensation cost is generally recognized for fixed stock options in which the
exercise price is not less than the market price on the date of grant.

Stock award grants. The Company's board of directors has authorized,
subject to successful completion of the public offering described above, the
grant of shares of Class A Common Stock and cash payments to certain officers
and directors (the "Management Shares") for their services in connection with
the public offering. A certain number of Class A shares to be awarded will be
based upon the public offering price to the public. In addition, the Company on
February 13, 1998 awarded 100,000 shares of Class A Common Stock to the
Company's Chairman of the Board and Chief Executive Officer. The Company will
value all such Class A shares awarded at the public offering price, and the
aggregate value of the Class A shares awarded will be approximately $3.4
million. The employees will have the option of receiving cash in lieu of a
portion of their Class A shares. The Company will recognize a charge, at the
time of the completion of the public offering, equal to the aggregate value of
the Class A shares awarded and cash payments made.

Potential acquisition. On February 3, 1998, the Company signed a
definitive agreement concerning the purchase of a lock competitor for
approximately $33 million cash. The transaction is subject to regulatory
approval and negotiation and execution of a definitive agreement and is expected
to be completed in the first quarter of 1998. There can be no assurance that the
acquisition will be completed.

Unaudited pro forma net income and net income per common share. The
unaudited pro forma net income in 1997 reflects the net-of-tax adjustment for
the award of the Management Shares described above.

FA-14
<PAGE> 76
COMPX INTERNATIONAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The unaudited pro forma data assumes an initial public offering price to the
public of $18.50 per Class A share. Pro forma common shares outstanding used in
the calculation of pro forma earnings per share include (i) the 10,000,000
shares of Class B Common Stock outstanding after the recapitalization discussed
above, (ii) 181,100 shares of Class A Common Stock to be awarded to officers and
directors of the Company and (iii) 2,924,000 shares of Class A Common Stock to
be issued in the public offering, the net proceeds of which will be used to
repay borrowings under the Revolving Senior Credit Facility incurred to repay
the Valcor Note.

FA-15
<PAGE> 77

INDEPENDENT AUDITORS' REPORT

To the Boards of Directors
Fort Lock Corporation and Fortronics, Inc.

We have audited the accompanying consolidated combined balance sheets of
Fort Lock Group as of June 29, 1996 and June 28, 1997, and the related
consolidated combined statements of income, changes in stockholders' equity and
cash flows for the fiscal years ended June 24, 1995, June 29, 1996 and June 28,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated combined financial position of Fort
Lock Group as of June 29, 1996 and June 28, 1997 and the results of its
operations and its cash flows for the fiscal years ended June 24, 1995, June 29,
1996 and June 28, 1997, in conformity with generally accepted accounting
principles.

ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois
September 26, 1997

FB-1
<PAGE> 78

FORT LOCK GROUP

CONSOLIDATED COMBINED BALANCE SHEETS

ASSETS
(Substantially all pledged -- Note 7)

<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................... $ 31,641 $ 18,289 $ 129,240
Accounts receivable, trade (net of allowance for
doubtful accounts of $117,800, $105,121 and
$111,121 respectively).......................... 1,954,029 2,621,570 2,288,726
Inventories (Notes 1 and 4)........................ 2,336,692 3,079,128 4,012,076
Deferred income taxes (Note 8)..................... -- 183,000 183,000
Income taxes refundable............................ -- -- 150,453
Other current assets............................... 347,798 132,522 40,154
---------- ----------- -----------
4,670,160 6,034,509 6,803,649
---------- ----------- -----------
Property and equipment (at cost, net of accumulated
depreciation -- Notes 1 and 5)..................... 3,259,059 4,552,887 5,356,443
---------- ----------- -----------
Other assets......................................... 169,612 211,827 163,434
---------- ----------- -----------
$8,098,831 $10,799,223 $12,323,526
========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Checks issued in excess of funds on deposit........ $ 311,707 $ 495,281 $ 879,045
Notes payable to bank (Note 6)..................... 1,605,000 10,000 1,025,000
Accounts payable................................... 1,724,300 2,371,635 2,285,656
Current portion of long-term debt (Note 7)......... 309,195 439,816 479,410
Current portion of amounts due to related parties
(Notes 3 and 7)................................. 70,497 116,388 60,000
Income taxes payable............................... 43,162 651,944 --
Accrued expenses (Note 9).......................... 587,953 839,348 878,003
---------- ----------- -----------
4,651,814 4,924,412 5,607,114
---------- ----------- -----------
Long-term liabilities:
Long-term debt..................................... 1,186,592 1,280,540 1,096,315
Due to related parties (Notes 3 and 7)............. 350,421 290,421 260,421
Deferred income taxes (Note 8)..................... -- 267,000 292,246
---------- ----------- -----------
1,537,013 1,837,961 1,648,982
---------- ----------- -----------
Minority interest in subsidiary (Note 1)............. 339,942 123,100 196,922
---------- ----------- -----------
Stockholders' equity:
Common stock of Fort Lock Corporation, $100 par
value; 100 shares authorized, issued and
outstanding..................................... 10,000 10,000 10,000
Common stock of Fortronics, Inc., no par value;
100,000 shares authorized; 1,000 shares issued
and outstanding................................. 1,000 1,000 1,000
Retained earnings.................................. 1,580,130 3,959,301 4,981,422
Foreign currency translation adjustment............ (21,068) (56,551) (121,914)
---------- ----------- -----------
1,570,062 3,913,750 4,870,508
---------- ----------- -----------
$8,098,831 $10,799,223 $12,323,526
========== =========== ===========
Commitments and contingencies (Note 10).
</TABLE>

The accompanying notes are an integral part of these statements.

FB-2
<PAGE> 79

FORT LOCK GROUP

CONSOLIDATED COMBINED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FISCAL YEARS ENDED 26 WEEKS ENDED
----------------------------------------- ----------------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 28, DECEMBER 27,
1995 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales (Note 1)...... $16,288,314 $19,977,460 $26,755,378 $12,559,719 $15,037,338
Cost of goods sold (Note
1).................... 12,332,537 15,097,200 18,835,353 9,656,711 10,890,043
----------- ----------- ----------- ----------- -----------
Gross profit............ 3,955,777 4,880,260 7,920,025 2,903,008 4,147,295
----------- ----------- ----------- ----------- -----------
Operating expenses:
Engineering........... 847,422 1,040,429 971,489 519,537 569,183
Selling............... 1,328,388 1,564,568 1,551,471 758,180 702,216
General and
administrative..... 1,240,161 1,589,290 1,770,134 865,173 1,179,369
----------- ----------- ----------- ----------- -----------
3,415,971 4,194,287 4,293,094 2,142,890 2,450,768
----------- ----------- ----------- ----------- -----------
Income from
operations............ 539,806 685,973 3,626,931 760,118 1,696,527
----------- ----------- ----------- ----------- -----------
Other (income) expense:
Interest expense...... 257,185 279,649 306,263 140,541 113,041
Other (net)........... (20,922) (17,525) (11) (24,652) 14,984
----------- ----------- ----------- ----------- -----------
236,263 262,124 306,252 115,889 128,025
----------- ----------- ----------- ----------- -----------
Income before income
taxes and minority
interest.............. 303,543 423,849 3,320,679 644,229 1,568,502
Income tax provision
(Note 6).............. 76,000 154,000 1,132,000 144,338 642,849
----------- ----------- ----------- ----------- -----------
227,543 269,849 2,188,679 499,891 925,653
Minority interest in net
loss of subsidiary.... -- 79,302 190,492 226,640 96,468
----------- ----------- ----------- ----------- -----------
Net income.............. $ 227,543 $ 349,151 $ 2,379,171 $ 726,531 $ 1,022,121
=========== =========== =========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.
FB-3
<PAGE> 80

FORT LOCK GROUP

CONSOLIDATED COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FISCAL YEARS ENDED JUNE 24, 1995, JUNE 29, 1996, JUNE 28, 1997
AND
26 WEEKS ENDED DECEMBER 27, 1997 (UNAUDITED)

<TABLE>
<CAPTION>
FOREIGN
FORT LOCK FORTRONICS, CURRENCY TOTAL
CORPORATION INC. TRANSLATION RETAINED STOCKHOLDERS'
COMMON STOCK COMMON STOCK ADJUSTMENT EARNINGS EQUITY
------------ ------------ ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance, June 26, 1994.......... $10,000 $1,000 $ -- $1,003,436 $1,014,436
Net income...................... -- -- -- 227,543 227,543
------- ------ --------- ---------- ----------
Balance, June 25, 1995.......... 10,000 1,000 -- 1,230,979 1,241,979
Foreign currency translation
adjustment.................... -- -- (21,068) -- (21,068)
Net income...................... -- -- -- 349,151 349,151
------- ------ --------- ---------- ----------
Balance, June 29, 1996.......... 10,000 1,000 (21,068) 1,580,130 1,570,062
Foreign currency translation
adjustment.................... -- -- (35,483) -- (35,483)
Net income...................... -- -- -- 2,379,171 2,379,171
------- ------ --------- ---------- ----------
Balance June 28, 1997........... 10,000 1,000 (56,551) 3,959,301 3,913,750
Unaudited:
Foreign currency translation
adjustment................. -- -- (65,363) -- (65,363)
Net income.................... -- -- -- 1,022,121 1,022,121
------- ------ --------- ---------- ----------
Balance, December 27, 1997...... $10,000 $1,000 $(121,914) $4,981,422 $4,870,508
======= ====== ========= ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.
FB-4
<PAGE> 81

FORT LOCK GROUP

CONSOLIDATED COMBINED STATEMENT OF CASH FLOWS

<TABLE>
<CAPTION>
FISCAL YEARS ENDED 26 WEEKS ENDED
------------------------------------- ---------------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 28, DECEMBER 27,
1995 1996 1997 1996 1997
--------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income................................ $ 227,543 $ 349,151 $ 2,379,171 $ 726,531 $ 1,022,121
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.......... 395,923 426,960 602,739 212,133 307,494
Minority interest in net loss of
subsidiary........................... -- (79,302) (190,492) (26,073) (96,468)
Other, net............................. -- 206,656 22,166 (30,151) (40,137)
(Increase) decrease in assets:
Accounts receivable, net............. (289,679) (367,769) (667,541) (232,662) 332,844
Inventories.......................... 292,033 (131,446) (742,436) (63,811) (932,948)
Income taxes refundable.............. (9,636) 15,136 -- -- (150,453)
Other assets......................... (5,898) (466,162) 173,061 127,984 140,761
Increase (decrease) in liabilities:
Checks issued in excess of funds on
deposit........................... 7,840 53,655 183,574 (132,540) 383,764
Accounts payable..................... 599,669 (1,633) 647,336 1,123,552 (85,979)
Accrued expenses..................... 24,885 91,787 251,395 264,853 38,655
Income taxes payable................. (76,377) 43,162 608,782 (30,662) (651,924)
--------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities............................. 1,166,303 140,195 3,267,755 1,939,154 267,730
--------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment....... (724,601) (1,788,394) (1,896,567) (712,646) (1,111,050)
Proceeds from sale of equipment........... -- 10,000 -- -- --
Proceeds from sale of shares in
subsidiary............................. -- 30,061 -- -- --
Cash contributed by minority
shareholder............................ 205,800 201,820 -- -- 170,290
--------- ----------- ----------- ----------- -----------
Net cash used in investing activities..... (518,801) (1,546,513) (1,896,567) (712,646) (940,760)
--------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Net borrowings (repayments) from notes
payable to bank........................ (389,859) 123,333 (1,595,000) (876,000) 1,015,000
Repayments of shareholder and
related-party loans.................... (31,073) (63,395) (70,497) (77,215) (30,000)
Proceeds from long-term debt.............. 424,184 1,678,881 1,454,171 -- --
Repayment of long-term debt............... (122,937) (829,177) (1,173,214) (176,060) (201,019)
--------- ----------- ----------- ----------- -----------
Net cash provided by (used in) financing
activities............................. (119,685) 909,642 (1,384,540) (1,129,275) 783,981
--------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash............. 527,817 (496,676) (13,352) 97,233 110,951
Cash, beginning of period................... 500 528,317 31,641 528,317 18,289
--------- ----------- ----------- ----------- -----------
Cash, end of period......................... $ 528,317 $ 31,641 $ 18,289 $ 625,550 $ 129,240
========= =========== =========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest............................. $ 261,702 $ 279,165 $ 206,373 $ 127,876 $ 24,426
Income taxes......................... 160,013 90,000 355,000 55,000 130,000
Noncash investing and financing
activities:
Acquisition of assets under notes
payable and capital leases........ 17,126 56,175 139,064 -- --
</TABLE>

The accompanying notes are an integral part of these statements.
FB-5
<PAGE> 82

FORT LOCK GROUP

NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation and combination -- The consolidated combined
financial statements include the consolidated financial statements of Fort Lock
Corporation and its subsidiaries and Fortronics, Inc. (collectively the
"Group"). The subsidiaries of Fort Lock Corporation (the "Corporation") include
the following: Fort Lock International, Ltd. (a Domestic International Sales
Corporation ("DISC")), Fort Lock (U.K.) Limited and Fort Securite S.A.
(57%-owned). The DISC has been inactive since January 1, 1985. All significant
intercompany accounts and transactions have been eliminated in consolidation and
combination. The 43% ownership of Fort Securite S.A. not owned by the
Corporation has been removed from income and equity and reflected as minority
interest.

Fortronics, Inc. is related to Fort Lock Corporation by means of common
ownership. The sole shareholder of Fortronics, Inc. contemplates transferring a
majority interest in Fortronics, Inc. to the Corporation in fiscal 1998.

Unaudited interim information -- Information included in the consolidated
combined financial statements for the interim periods ended in December 28, 1996
and December 27, 1997 is unaudited. In the opinion of management, all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the information for the interim periods have been made. The
results of operations for the interim periods are not necessarily indicative of
the operating results for a full year or of future operations.

Fiscal year -- The Group's operations are comprised of a 52 or 53 week
year. The fiscal years ended in 1995, 1996 and 1997 each consisted of 52 weeks,
and the interim periods ending in December 1996 and December 1997 each consisted
of 26-week periods.

Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from the
estimates.

Inventories -- Inventories are valued at the lower of cost, as determined
under the first-in, first-out (FIFO) method, or market.

Net sales -- Sales are recorded when products are shipped.

Depreciation and amortization -- Provisions for depreciation and
amortization of property and equipment are computed under the straight-line
method for financial reporting purposes and under accelerated methods as
permitted under the Internal Revenue Code for tax reporting purposes. All such
assets are depreciated over periods within reasonable ranges of economic life.

Capital leases -- Leases required to be capitalized under criteria of
Financial Accounting Standards Board Statement No. 13 are recorded at the
present value of future rental payments (Note 7). Amortization of capital leases
is computed under the straight-line method over the terms of the related leases
for financial reporting purposes and under accelerated methods for tax reporting
purposes.

Income taxes -- See Note 8 for discussion of income taxes.

Research and development costs -- Research and development costs are
charged to operations as incurred. Such costs approximated $959,000 in fiscal
1995, $883,000 in fiscal 1996 and $839,000 in fiscal 1997, and were $437,000 and
$423,000 in the 1996 and 1997 interim periods, respectively.

Advertising costs -- Advertising costs are charged to operations as
incurred. Such costs approximated $146,000 in fiscal 1995, $239,000 in fiscal
1996 and $159,000 in fiscal 1997, and were $92,000 and $100,000 in the 1996 and
1997 interim periods, respectively.

FB-6
<PAGE> 83
FORT LOCK GROUP

NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Major customers -- Sales to one major customer amounted to approximately
23% of the Group's consolidated combined net sales for fiscal 1997. Sales to two
major customers amounted to 24% of the Group's consolidated combined sales in
fiscal 1996. Sales to two major customers amounted to approximately 18% of the
Group's consolidated net sales for fiscal 1995. No other single supplier
accounted for more than 10% of consolidated combined purchases in any period
presented.

Major supplier -- Purchases from one major supplier amounted to
approximately 12% of fiscal 1997 consolidated combined purchases. Purchases from
two major suppliers amounted to approximately 26% of fiscal 1996 consolidated
combined purchases. Purchases from one major supplier amounted to approximately
18% of fiscal 1995 consolidated combined purchases. No other single supplier
accounted for more than 10% of consolidated combined purchases in any period
presented.

Foreign currency translation -- The financial statements of Fort Lock
(U.K.) Limited and Fort Securite S.A. have been translated in accordance with
the requirements of Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation". Currency transaction gains and losses are recognized in
income currently and for all periods presented were not material.

NOTE 2 -- NATURE OF ACTIVITIES

The Group operates in one business segment -- the design, manufacture and
distribution of a wide variety of locks. The Corporation is engaged in the
manufacture and distribution of cam, switch and special purpose locks to
customers located throughout the United States. Operations are conducted from a
manufacturing facility (leased from a related party -- Note 3) in River Grove,
Illinois. Fort Lock (U.K.) Limited distributes locks in the United Kingdom. Fort
Securite S.A. is a French company which was formed to manufacture, market and
sell locks in the European market. Operations commenced March 1996 and are
conducted from a manufacturing facility in France. Fortronics, Inc. is engaged
in the design, manufacture and distribution of electronic locking systems to
customers located throughout the United States.

Geographic segment data is presented below:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED 26 WEEKS ENDED
--------------------------------------- ---------------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 28, DECEMBER 27,
1995 1996 1997 1996 1997
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales:
Point of origin:
United States............ $16,151,869 $19,558,999 $25,454,688 $12,132,994 $14,161,934
France................... -- 248,923 1,147,489 332,683 839,335
United Kingdom........... 577,430 1,594,488 1,021,913 512,821 203,998
Eliminations............. (440,985) (1,424,950) (868,712) (418,779) (167,929)
----------- ----------- ----------- ----------- -----------
$16,288,314 $19,977,460 $26,755,378 $12,559,719 $15,037,338
=========== =========== =========== =========== ===========
Point of destination:
United States............ $14,879,780 $17,128,481 $23,868,850 $11,353,806 $13,685,960
Europe................... 1,408,534 2,848,979 2,886,528 1,205,913 1,351,378
----------- ----------- ----------- ----------- -----------
$16,288,314 $19,977,460 $26,755,378 $12,559,719 $15,037,338
=========== =========== =========== =========== ===========
Operating profit:
United States............ $ 480,681 $ 740,561 $ 4,019,130 $ 972,042 $ 1,866,238
France................... -- (67,401) (401,261) (251,727) (155,405)
United Kingdom........... 59,125 12,813 9,062 39,803 (14,306)
----------- ----------- ----------- ----------- -----------
$ 539,806 $ 685,973 $ 3,626,931 $ 760,118 $ 1,696,527
=========== =========== =========== =========== ===========
</TABLE>

FB-7
<PAGE> 84
FORT LOCK GROUP

NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Identifiable assets:
United States........................................ $6,553,471 $ 8,972,178 $10,319,411
France............................................... 1,487,656 1,881,704 2,068,425
United Kingdom....................................... 245,575 234,376 159,635
Eliminations......................................... (187,871) (289,035) (223,945)
---------- ----------- -----------
$8,098,831 $10,799,223 $12,323,526
========== =========== ===========
</TABLE>

NOTE 3 -- RELATED-PARTY TRANSACTIONS

The Corporation has entered into various loan agreements (Note 7) with
shareholders and certain members of their families. The interest expense on
these loans amounted to $52,000 in fiscal 1995, $49,000 in fiscal 1996 and
$48,000 in fiscal 1997, and was $24,000 and $21,000 in the 1996 and 1997 interim
periods, respectively.

The Corporation leases its manufacturing facilities (Note 10) from its
president, who is also a shareholder. Rent expense was $163,000 in each of
fiscal 1995 and 1996 and $168,820 in fiscal 1997, and was $84,000 and $94,000 in
the 1996 and 1997 interim periods, respectively.

The Corporation sold inventory to a former shareholder in the total amount
of approximately $50,000 during each of the past three fiscal years.

In fiscal 1995, lease payments of $11,378 were made to the Corporation's
president for a production machine.

NOTE 4 -- INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials, purchased parts and
subassemblies.................................. $1,773,418 $2,294,404 $3,127,977
Work in process.................................. 355,881 550,004 552,025
Finished goods................................... 207,393 234,720 332,074
---------- ---------- ----------
$2,336,692 $3,079,128 $4,012,076
========== ========== ==========
</TABLE>

FB-8
<PAGE> 85
FORT LOCK GROUP

NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5 -- PROPERTY AND EQUIPMENT

Property and equipment stated at acquisition cost, consisted of the
following:

<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Operating assets:
Machinery and equipment........................ $3,629,040 $4,078,375 $3,278,918
Tools and dies................................. 1,340,745 2,099,974 1,042,611
Office furniture and equipment................. 266,268 280,367 135,526
Leasehold improvements......................... 874,223 1,117,132 942,699
Transportation equipment....................... 271,670 223,989 151,229
Data processing equipment...................... 529,266 538,556 287,776
Capital lease equipment........................ 204,204 326,268 326,268
---------- ---------- ----------
7,115,416 8,664,661 6,165,027
Less accumulated depreciation and amortization
(including capital lease amortization of
$144,722, $172,992 and $92,947,
respectively)............................... 3,856,357 4,416,766 2,173,981
---------- ---------- ----------
3,259,059 4,247,895 3,991,046
Construction in progress......................... -- 304,992 1,365,397
---------- ---------- ----------
$3,259,059 $4,552,887 $5,356,443
========== ========== ==========
</TABLE>

Depreciation and amortization expense amounted to $395,923 in fiscal 1995,
$426,960 in fiscal 1996 and $602,739 in fiscal 1997, and $212,133 and $307,494
in the 1996 and 1997 interim periods, respectively.

NOTE 6 -- NOTES PAYABLE

Note payable to bank of $1,605,000 at June 29, 1996, $10,000 at June 28,
1997 and $1,025,000 at December 27, 1997 were owing to Harris Trust and Savings
Bank ("Harris") under revolving note agreements.

On October 11, 1995, the Corporation executed a Secured Credit Agreement
with Harris, which provides for a revolving line of credit. The revolving line
of credit commitment is secured by the Corporation's accounts receivable,
inventory and equipment.

Also on October 11, 1995, the Corporation executed a Term Credit Agreement
with Harris which provided for two term loans, the proceeds from which were used
to repay indebtedness to another bank. On December 31, 1996, the two term notes
were replaced with a single term note and additional borrowings totaling
$150,000 were made under the replacement term note. The term loan is secured by
the Corporation's accounts receivable, inventory and equipment and requires
monthly principal payments of $19,000 plus interest with final payment due
December 31, 2001.

FB-9
<PAGE> 86
FORT LOCK GROUP

NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The significant provisions of the Harris agreements are summarized below:

<TABLE>
<S> <C>
Maximum Borrowings:
Revolving line of credit.................................. $2,500,000
Term loan (original amount)............................... $ 996,000
Interest Rate:
Revolving line of credit.................................. Prime rate
Term loan................................................. Prime rate
Borrowing Base:
Eligible accounts receivable.............................. 85%
Eligible inventories:
Percent................................................ 50%
Maximum amount (limited to 50% of outstanding
borrowings)........................................... $ 900,000
Personal guarantees of certain shareholders................. $ 600,000
</TABLE>

The Harris agreement contains various financial, administrative and other
covenants customary in lending transactions of this type, including provisions
which limit additional indebtedness and require the maintenance of certain
financial ratios. At June 28, 1997 the Corporation was in violation of certain
covenants concerning limitations on the amount of capital expenditures and
limitations on additional permitted liens, indebtedness and advances to
subsidiaries and affiliates. The Company received waivers of these past
violations and subsequently amended the agreement to increase the amount of
permitted capital expenditures.

FB-10
<PAGE> 87
FORT LOCK GROUP

NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7 -- LONG-TERM DEBT

Long-term debt consisted of the following:

<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
---------- ---------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Financial and Credit Institutions:
Term loan under agreement dated December 31, 1996, payable
to Harris (due December 31, 2001 -- See Note 6)......... $ -- $ 901,000 $ 787,000
Term loans payable to Harris (repaid in full during fiscal
1997 -- See Note 6)..................................... 912,000 -- --
Equipment notes payable (secured by certain automotive
equipment; payable in monthly installments totaling
$2,893)................................................. 79,612 42,106 24,824
Capitalized lease obligation, in the original amount of
$39,076 payable to Hewlett-Packard (secured by certain
computer equipment and software; payable in monthly
installments of $889; final payment due June 2000)...... 33,143 26,391 22,673
Capitalized lease obligation in the original amount of
$83,510 payable to Leasetec Corporation (secured by
certain computer software; payable in monthly
installments of $3,857; final payment due January
1999)................................................... -- 67,465 47,193
Capitalized lease obligation in the original amount of
$38,554 payable to Ameritech (secured by certain
telephone equipment; payable in monthly installments of
$1,220, final payment due
November 1999).......................................... -- 31,769 25,708
Note payable under agreement dated March 29, 1996, payable
to SOFIREM (unsecured, payable in annual installments of
$13,624 for years 1999 and 2004 ($27,248 for interim
years), plus interest at 7% per annum, due June 30,
2004)................................................... 77,680 68,120 65,960
Note payable under agreement dated February 21, 1997
payable to SOFIREM (unsecured payable in quarterly
installments of $6,812 plus interest of 6% per annum,
due December 30, 2003).................................. -- 136,240 122,612
Note payable under agreement dated February 22, 1996,
payable to two French banks (maximum borrowings of
$510,900, secured by certain equipment, payable in
monthly installments of $3,983 inclusive of interest and
quarterly installments and quarterly installments of
$15,327 plus interest, interest at 6.25% per annum, due
December 10, 2001)...................................... 393,352 447,265 423,367
---------- ---------- ----------
1,495,787 1,720,356 1,519,337
Shareholders and other related parties:
Other subordinate long-term notes due to shareholders and
related parties (unsecured; due on demand or absent
demand, payable under various installment terms and
rates of interest -- see below and Note 3).............. 420,918 406,809 376,809
---------- ---------- ----------
1,916,705 2,127,165 1,896,146
Less current portion...................................... 379,692 556,204 539,410
---------- ---------- ----------
$1,537,013 $1,570,961 $1,356,736
========== ========== ==========
</TABLE>

One shareholder has indicated that he will not demand payment of his
subordinated notes ($350,421 at June 29, 1996, $290,421 at June 28, 1997 and
$260,421 at December 27, 1997) within the next twelve months of each respective
balance sheet date. Accordingly, this liability is reflected as long-term in the
accompanying balance sheet.

FB-11
<PAGE> 88
FORT LOCK GROUP

NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

Maturities of long-term debt as of June 28, 1997 are as follows:

<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
----------- ----------
<S> <C>
1998........................................... $ 556,204
1999........................................... 707,573
2000........................................... 392,544
2001........................................... 363,937
2002........................................... 66,037
Thereafter..................................... 40,870
----------
$2,127,165
==========
</TABLE>

NOTE 8 -- INCOME TAXES

In fiscal 1995, the difference between the effective income tax rate
reflected in the financial statements and the statutory federal income tax rate
of 34% is primarily due to alternative minimum taxes, utilization of credit
carryforwards and change in the valuation allowance. In fiscal 1996 and 1997 and
the 1996 and 1997 interim periods, the effective tax rate approximates the
statutory tax rate.

The provisions for income taxes relates principally to the Group's U.S.
operations and is as follows:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED 26 WEEKS ENDED
-------------------------------- ---------------------------
JUNE 24, JUNE 29, JUNE 28, DECEMBER 28, DECEMBER 27,
1995 1996 1997 1996 1997
-------- -------- ---------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Currently payable.................. $100,000 $ 98,000 $1,048,000 $ 102,338 $617,603
Deferred........................... (58,000) 110,000 778,000 389,000 25,246
Utilization of general business and
alternative minimum tax credit
carry forwards................... -- -- (360,000) (180,000) --
Change in valuation allowance...... 34,000 (54,000) (334,000) (167,000) --
-------- -------- ---------- --------- --------
Provision for income taxes......... $ 76,000 $154,000 $1,132,000 $ 144,338 $642,849
======== ======== ========== ========= ========
</TABLE>

Deferred income taxes are provided for temporary differences, which are
differences between the tax basis of an asset or liability and the amounts
reported in the financial statements that will result in taxable or deductible
amounts in future years when the reported amount of the asset or liability is
recovered or settled. Gross deferred tax liabilities consist primarily of
accelerated depreciation methods utilized for tax reporting purposes. Gross
deferred assets consist of uniform capitalization rules with respect to
additional inventory costs, allowance for doubtful accounts, inventory valuation
allowances, vacation pay, and in fiscal 1996, general business and alternative
minimum tax credit carryforwards.

The Group's deferred tax liabilities are as follows:

<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Gross deferred tax assets........................ $543,000 $183,000 $ 183,000
Gross deferred tax liabilities................... 209,000 267,000 292,246
-------- -------- ---------
Net deferred tax asset (liability)............... 334,000 (84,000) (109,246)
Less valuation allowance......................... 334,000 -- --
-------- -------- ---------
Net deferred tax liability....................... $ -- $(84,000) $(109,246)
======== ======== =========
</TABLE>

FB-12
<PAGE> 89
FORT LOCK GROUP

NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

The valuation allowance at June 29, 1996 of $334,000 relates to certain
deferred tax assets for which realization requires substantial taxable income in
future years. At June 28, 1997, the Corporation has utilized all of its general
business and alternative minimum tax credit carryforwards.

NOTE 9 -- ACCRUED EXPENSES

Accrued expenses consisted of the following:

<TABLE>
<CAPTION>
JUNE 29, JUNE 28, DECEMBER 27,
1996 1997 1997
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued wages and vacation pay................... $338,996 $351,944 $314,877
Taxes, other than income......................... 35,341 48,429 98,624
Rent and real estate taxes....................... 89,444 93,400 90,702
Employee benefit plans (including amounts due to
a foreign government).......................... 77,860 217,047 205,882
Other............................................ 46,312 128,528 167,918
-------- -------- --------
$587,953 $839,348 $878,003
======== ======== ========
</TABLE>

NOTE 10 -- COMMITMENTS AND CONTINGENCIES

The Corporation leases from a related party (Note 3) its premises in River
Grove, Illinois under an operating lease (expiring on December 31, 2001), which
provides for a minimum annual rental of $168,820 plus payment of applicable real
estate taxes, utilities, insurance and maintenance.

In addition, the Group has entered into various leases for machinery and
equipment, some of which have been capitalized for financial reporting purposes.
Future minimum lease payments to be made under the capitalized and operating
leases as of June 28, 1997 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR LEASES LEASE
----------- -------- ----------
<S> <C> <C>
1998...................................................... $ 71,585 $ 286,284
1999...................................................... 52,303 279,324
2000...................................................... 16,731 269,580
2001...................................................... -- 269,580
2002...................................................... -- 236,552
Thereafter................................................ -- 466,957
-------- ----------
Total minimum lease payments.............................. 140,619 $1,808,277
==========
Less amount representing imputed interest................. 14,994
--------
Present value of net minimum lease payments............... $125,625
========
</TABLE>

Rent expense charged to operations amounted to $163,200 in fiscal 1995,
$187,000 in fiscal 1996 and $280,815 in fiscal 1997, and $86,000 and $96,000 in
the 1996 and 1997 interim periods, respectively.

The Corporation and its president/shareholder have entered into a stock
repurchase agreement which (i) requires the president/shareholder to give the
Corporation a right of first refusal on his Corporation shares, prior to their
transfer or sale, (ii) if the Corporation does not exercise such right, then the
other shareholders have a secondary right to purchase such shares, prior to such
transfer or sale, and (iii) if the president/shareholder should die, or if his
employment is terminated, the Corporation is required to purchase his shares at
their book value, as defined in the agreement.

FB-13
<PAGE> 90
FORT LOCK GROUP

NOTES TO THE CONSOLIDATED COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- EMPLOYEE BENEFIT PLAN

The Corporation maintains the 401(k) Plan of the Fort Lock Corporation,
under the provisions of Section 401(k) of the Internal Revenue Code. The plan
provides for elective contributions by eligible participants plus matching
contributions from the Corporation at a rate of $0.25 for each $1.00 contributed
by the employee, to the extent of the first 5% of compensation.
Employer-matching contributions to the plan amounted to $25,263 in fiscal 1995,
$35,448 in fiscal 1996 and $39,410 in fiscal 1997, and $18,482 and $22,833 in
the 1996 and 1997 interim periods, respectively.

FB-14
<PAGE> 91

[INSIDE BACK COVER CONTAINS TWO 4"X7" PHOTOGRAPHS: ONE PHOTOGRAPH OF THE
WATERLOO FURNITURE COMPONENTS LIMITED PLANT IN KITCHNER, ONTARIO AND ONE
PHOTOGRAPH OF THE NATIONAL CABINET LOCK PLANT IN MAULDIN, SOUTH CAROLINA.]
<PAGE> 92

================================================================================

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE TO WHICH IT RELATES
OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THOSE TO WHICH IT
RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO MAKE SUCH OFFER
IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 7
Use of Proceeds....................... 12
Dividend Policy....................... 12
Capitalization........................ 13
Dilution.............................. 14
Unaudited Pro Forma Condensed
Consolidated Financial Statements... 15
Selected Financial Data............... 22
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 23
Business.............................. 28
Management............................ 37
Certain Relationships and Related
Transactions........................ 42
Security Ownership in the Company and
its Affiliates...................... 45
Certain Indebtedness.................. 47
Description of Capital Stock.......... 48
Shares Eligible for Future Sale....... 52
Certain United States Tax Consequences
to Non-United States Holders........ 53
Underwriting.......................... 55
Legal Matters......................... 57
Experts............................... 57
Additional Information................ 57
Index to Historical Financial
Statements.......................... F-1
</TABLE>

Until , 1998 (25 days after the commencement of the offering),
all dealers effecting transactions in the Class A Common Stock, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.

================================================================================

4,700,000 SHARES

COMPX INTERNATIONAL INC.

CLASS A COMMON STOCK

COMPX LOGO
------------
PROSPECTUS

, 1998
------------

SALOMON SMITH BARNEY

NATIONSBANC MONTGOMERY
SECURITIES LLC

WHEAT FIRST UNION

================================================================================