SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by Registrant: [ X ]
Filed by a Party other than the Registrant: [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
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[ ] Definitive Additional Materials by Rule 14a-6(e)(2))
[ ] Soliciting Materials Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
Valhi, Inc.
- ------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required.
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pursuant to Exchange Act Rule 0-11 (Set forth amount on which the
filing fee is calculated and state how it was determined):
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
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number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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4) Date Filed:
[LOGO GOES HERE]
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
March 31, 1997
To Our Stockholders:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders
of Valhi, Inc., which will be held on Thursday, May 8, 1997, at 10:00 a.m.,
local time, at Valhi's corporate offices at Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas. The matters to be acted upon at the meeting
are described in the attached Notice of Annual Meeting of Stockholders and Proxy
Statement.
Whether or not you plan to attend the meeting, please complete, date, sign
and return the enclosed proxy card or voting instruction form in the
accompanying envelope as promptly as possible to ensure that your shares are
represented and voted in accordance with your wishes. Your vote, whether given
by proxy or in person at the meeting, will be held in confidence by the
inspector of election as provided in Valhi's bylaws.
Sincerely,
Harold C. Simmons
Chairman of the Board, President and Chief
Executive Officer
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 8, 1997
To the Stockholders of Valhi, Inc.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders (the
"Meeting") of Valhi, Inc., a Delaware corporation (the "Company"), will be held
on Thursday, May 8, 1997, at 10:00 a.m., local time, at the corporate offices of
the Company at Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
for the following purposes:
(1) To elect five directors to serve until the 1998 Annual Meeting of
Stockholders and until their successors are duly elected and qualified
or their earlier removal, resignation or death;
(2) To consider and vote on a proposal to amend and restate the Valhi,
Inc. 1987 Stock Option - Stock Appreciation Rights Plan;
(3) To consider and vote on a proposal to adopt the Valhi, Inc. 1997 Long-
Term Incentive Plan; and
(4) To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
The board of directors of the Company set the close of business on March
19, 1997 as the record date (the "Record Date") for the Meeting. Only holders
of the Company's common stock, $0.01 par value per share, at the close of
business on the Record Date are entitled to notice of, and to vote at, the
Meeting. The Company's stock transfer books will not be closed following the
Record Date. A complete list of stockholders entitled to vote at the Meeting
will be available for examination during normal business hours by any
stockholder of the Company, for purposes related to the Meeting, for a period of
ten days prior to the Meeting at the Company's corporate offices located at the
address set forth above.
You are cordially invited to attend the Meeting. Whether or not you plan
to attend the Meeting in person, please complete, date and sign the accompanying
proxy card or voting instruction form and return it promptly in the enclosed
envelope to ensure that your shares are represented and voted in accordance with
your wishes. You may revoke your proxy by following the procedures set forth in
the accompanying Proxy Statement. If you choose, you may still vote in person at
the Meeting even though you previously submitted your proxy.
In accordance with the Company's bylaws, your vote, whether given by proxy
or in person at the Meeting, will be held in confidence by the inspector of
election for the Meeting.
By Order of the Board of Directors,
Steven L. Watson, Secretary
Dallas, Texas
March 31, 1997
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
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PROXY STATEMENT
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GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card or voting instruction
form are being furnished in connection with the solicitation of proxies by and
on behalf of the board of directors (the "Board of Directors") of Valhi, Inc., a
Delaware corporation ("Valhi" or the "Company"), for use at the 1997 Annual
Meeting of Stockholders of the Company to be held on Thursday, May 8, 1997 and
at any adjournment or postponement thereof (the "Meeting"). The Meeting will be
held at the time and place and for the purposes set forth in the accompanying
Notice of Annual Meeting of Stockholders (the "Notice"). The Notice, this Proxy
Statement, the accompanying proxy card or voting instruction form and Valhi's
Annual Report to Stockholders, which includes Valhi's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996 (the "Annual Report"), are first
being mailed to the holders of Valhi's common stock, $0.01 par value per share
("Valhi Common Stock"), on or about April 7, 1997. Valhi's executive offices
are located at Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
75240-2697.
QUORUM, VOTING RIGHTS AND PROXY SOLICITATION
The record date set by the Board of Directors for the determination of
stockholders entitled to notice of and to vote at the Meeting was the close of
business on March 19, 1997 (the "Record Date"). As of the Record Date, there
were 114,381,414 shares of Valhi Common Stock issued and outstanding. Each
share of Valhi Common Stock will entitle the holder thereof to one vote on all
matters to be acted on at the Meeting. The presence, in person or by proxy, of
the holders of a majority of the shares of Valhi Common Stock entitled to vote
at the Meeting is necessary to constitute a quorum for the conduct of business
at the Meeting. Shares of Valhi Common Stock that are voted to abstain from any
business coming before the Meeting and broker/nominee non-votes will be counted
as being in attendance at the Meeting for purposes of determining whether a
quorum is present.
A plurality of the affirmative votes of the outstanding shares of Valhi
Common Stock represented and entitled to be voted at the Meeting is necessary to
elect a director of the Company. The accompanying proxy card or voting
instruction form provides space for a stockholder to withhold authority to vote
for any or all of the nominees of the Board of Directors. Neither shares as to
which authority to vote on the election of directors has been withheld nor
broker/nominee non-votes will be counted as affirmative votes to elect director
nominees to the Board of Directors.
The affirmative vote of a majority of the outstanding shares represented
and entitled to be voted at the Meeting is required to approve the amendment and
restatement (the "Amendment and Restatement") of the Valhi, Inc. 1987 Stock
Option - Stock Appreciation Rights Plan (the "1987 Plan"), and the adoption (the
"Adoption") of the Valhi, Inc. 1997 Long-Term Incentive Plan (the "1997 Plan").
Broker/nominee non-votes will not be counted as represented and entitled to vote
with regard to approval of the Amendment and Restatement or the Adoption and,
therefore, will have no effect on their approval. Abstentions will be counted
and will have the same effect as a vote against the Amendment and Restatement or
the Adoption.
Unless otherwise specified, the agents designated in the proxy will vote
the shares represented by a proxy at the Meeting "FOR" the election of the
nominees of the Board of Directors, "FOR" the Amendment and Restatement, "FOR"
the Adoption and in the discretion of the agents on any other matter that may
properly come before the Meeting.
Contran Corporation ("Contran") and certain related entities held
approximately 92% of the outstanding shares of Valhi Common Stock as of the
Record Date and have indicated their intention to have such shares represented
at the Meeting and to vote such shares "FOR" the election of each of the
nominees for director of the Board of Directors, the Amendment and Restatement
and the Adoption. If such shares are represented and voted as indicated at the
Meeting, a quorum will be present, all the nominees for director of the Board of
Directors will be elected as directors of the Company and the Amendment and
Restatement and the Adoption will be approved.
Society National Bank ("Society"), the transfer agent and registrar for
Valhi Common Stock as of the Record Date, has been appointed by the Board of
Directors to ascertain the number of shares represented, receive proxies and
ballots, tabulate the vote and serve as inspector of election at the Meeting.
All proxies, ballots and voting instructions delivered to Society that identify
the vote of a particular stockholder shall be kept confidential by Society in
accordance with the terms of the Company's bylaws. Each holder of record of
Valhi Common Stock giving the proxy enclosed with this Proxy Statement may
revoke it at any time prior to the voting of such stock at the Meeting by
(i) delivering to Society a written revocation of the proxy, (ii) delivering to
Society a duly executed proxy bearing a later date or (iii) by voting in person
at the Meeting. Attendance by a stockholder at the Meeting will not in itself
constitute the revocation of such stockholder's proxy.
This proxy solicitation is being made by and on behalf of the Board of
Directors. The Company will pay all expenses related to the solicitation,
including charges for preparing, printing, assembling and distributing all
materials delivered to stockholders. In addition to solicitation by mail,
directors, officers and regular employees of the Company may solicit proxies by
telephone or in person for which such persons will receive no additional
compensation. Upon request, the Company will reimburse banking institutions,
brokerage firms, custodians, trustees, nominees and fiduciaries for their
reasonable out-of-pocket expenses incurred in distributing proxy materials and
voting instructions to the beneficial owners of Valhi Common Stock held of
record by such entities.
ELECTION OF DIRECTORS
(Proposal 1)
The bylaws of the Company provide that the Board of Directors shall consist
of not less than five and not more than nine persons, as determined from time to
time by the Board of Directors in its discretion. The number of directors is
currently set at five. The directors elected at the Meeting will hold office
until the 1998 Annual Meeting of Stockholders and until their successors are
duly elected and qualified or their earlier removal, resignation or death.
All of the nominees are currently directors of the Company whose terms will
expire at the Meeting. All of the nominees have agreed to serve if elected. If
any nominee is not available for election at the Meeting, a proxy will be voted
"FOR" an alternate nominee to be selected by the Board of Directors, unless the
stockholder executing such proxy withholds authority to vote for such nominee.
The Board of Directors believes that all of its present nominees will be
available for election at the Meeting and will serve if elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE NOMINEES
FOR DIRECTOR SET FORTH BELOW.
Nominees for Director. The following information has been provided by the
respective nominees for election as directors of the Company for terms expiring
at the 1998 Annual Meeting of Stockholders.
Norman S. Edelcup, age 61, has served as a director of Valhi and/or certain
of Valhi's predecessors since 1975. Mr. Edelcup has served as chairman of the
board of Item Processing of America, Inc., a processing service bureau, since
prior to 1992. Mr. Edelcup also serves as a director of Artistic Greetings,
Inc., a mail-order stationery products company, and as a trustee for the Baron
Asset Fund, a mutual fund. Additionally, he serves as chairman of the Company's
audit committee and management development and compensation committee (the "MD&C
Committee").
Kenneth R. Ferris, age 48, has served as a director of Valhi since 1995 and
served as a director of certain wholly owned subsidiaries of Valhi from 1986 to
1995. Dr. Ferris has been a Distinguished Professor at the American Graduate
School of International Management since prior to 1992. Dr. Ferris has also
conducted a private business consulting practice since prior to 1992.
Glenn R. Simmons, age 69, has served as a director of Valhi and/or certain
of Valhi's predecessors since 1980. Mr. Glenn Simmons has been vice chairman of
the board of Valhi and Contran, a diversified holding company, since prior to
1992. Mr. Glenn Simmons is a director of Valhi's majority owned subsidiary, NL
Industries, Inc. ("NL"), a titanium dioxide pigments and specialty chemicals
company; vice chairman of the board and a director of Valhi's wholly owned
subsidiary, Valcor, Inc. ("Valcor"), a company engaged in the component products
and fast food industries; 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 Contran's less than majority owned affiliate,
Tremont Corporation ("Tremont"), a holding company engaged in the titanium
metals and chemicals industries. Mr. Glenn Simmons has been an executive
officer and/or director of various companies related to Valhi and Contran since
1969. Mr. Glenn Simmons serves as a member of the Company's executive committee
and is a brother of Harold C. Simmons.
Harold C. Simmons, age 65, has served as a director of Valhi and/or certain
of Valhi's predecessors since 1980. Mr. Harold Simmons has been chairman of the
board and chief executive officer of Valhi and Contran since prior to 1992 and
has been president of Valhi and Contran since 1994. Mr. Harold Simmons is
chairman of the board and a director of NL; a director of Tremont; and chairman
of the board, president, chief executive officer and a director of Valcor. Mr.
Harold Simmons has been an executive officer and/or director of various
companies related to Valhi and Contran since 1961. Mr. Harold Simmons serves as
chairman of the Company's executive committee and is a brother of Glenn R.
Simmons.
J. Walter Tucker, Jr., age 71, has served as a director of Valhi and/or
certain of Valhi's predecessors since 1982. Mr. Tucker has been the president,
treasurer and a director of Tucker & Branham, Inc., a mortgage banking,
insurance and real estate company, and vice chairman of the board and a director
of Keystone since prior to 1992. Mr. Tucker is a director of Columbian Mutual
Life Insurance Company and SunTrust Banks, Inc. Mr. Tucker has been an
executive officer and/or director of various companies related to Valhi and
Contran since 1981.
For information concerning legal proceedings to which certain director
nominees are parties and other matters, see "Certain Litigation and Other
Matters" and "Certain Relationships and Transactions."
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings and took action by written
consent in lieu of meetings on six occasions in 1996. Each of the directors
participated in all of such meetings and all of the meetings of the committees
on which they served.
The Board of Directors has established and delegated authority to the
following standing committees.
Audit Committee. 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 current members of the Audit Committee
are Norman S. Edelcup (chairman) and Dr. Kenneth R. Ferris. The Audit Committee
held two meetings and took no action by written consent in 1996.
Management Development and Compensation Committee. 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 1987 Plan and, if approved by the stockholders, the 1997 Plan; and to review
and administer such other compensation matters as the Board of Directors may
direct from time to time. The current members of the MD&C Committee are Norman
S. Edelcup (chairman), Dr. Kenneth R. Ferris and J. Walter Tucker, Jr. The MD&C
Committee held one meeting and took action by written consent in lieu of
meetings on one occasion in 1996.
Executive Committee. The principal responsibilities of the executive
committee are to take such actions as are required to manage the Company, within
the powers provided by Delaware statutes and except as otherwise limited by the
Board of Directors. The current members of the executive committee are Harold
C. Simmons (chairman) and Glenn R. Simmons. The executive committee did not
hold any meetings and did not take any action by written consent in 1996.
The Board of Directors does not have a nominating committee or any
committee performing a similar function. All matters that would be considered
by such a committee are acted upon by the full Board of Directors. The Board of
Directors will consider recommendations by stockholders of the Company with
respect to the election of directors if such recommendations are submitted in
writing to the secretary of the Company and received not later than December 31
of the year prior to the next annual meeting of stockholders. Such
recommendations should be accompanied by a full statement of qualifications and
confirmation of the nominee's willingness to serve.
Members of the standing committees will be elected at the annual meeting of
the Board of Directors immediately following the Meeting. The Board of
Directors has previously established, and from time to time may establish, other
committees to assist it in the discharge of its responsibilities.
EXECUTIVE OFFICERS
Set forth below is certain information relating to the current executive
officers of Valhi. Each executive officer serves at the pleasure of the Board
of Directors. Biographical information with respect to Harold C. Simmons and
Glenn R. Simmons is set forth under "Election of Directors-Nominees for
Director."
Name Age Position(s)
- ------------------------- --- -------------------------------------
Harold C. Simmons........ 65 Chairman of the Board, President and
Chief Executive Officer
Glenn R. Simmons......... 69 Vice Chairman of the Board
Eugene K. Anderson....... 61 Vice President and Assistant
Treasurer
Joseph S. Compofelice.... 47 Executive Vice President
J. Mark Hollingsworth.... 45 General Counsel
William J. Lindquist..... 39 Vice President and Tax Director
Bobby D. O'Brien......... 39 Vice President and Treasurer
Robert W. Singer......... 60 Vice President
Gregory M. Swalwell...... 40 Controller
Steven L. Watson......... 46 Vice President and Secretary
Eugene K. Anderson has served as vice president and assistant treasurer of
Valhi since 1994. Mr. Anderson has served as vice president of Contran since
prior to 1992 and as assistant treasurer of Contran since 1994. Mr. Anderson
has served as an executive officer of various companies related to Valhi and
Contran since 1980.
Joseph S. Compofelice has served as executive vice president of Valhi since
1994. Mr. Compofelice has also been the vice president and chief financial
officer of NL and Tremont since 1994, a director of NL since 1995, and since
1994 vice president and chief financial officer of Titanium Metals Corporation
("TIMET"), Tremont's 30% owned principal operating subsidiary, and, except for a
period during 1996, a director of TIMET. From prior to 1992 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
1986.
J. Mark Hollingsworth has served as general counsel of Valhi and Contran
since 1996. From prior to 1992 to 1996, Mr. Hollingsworth served as senior
counsel for Valhi and Contran. Mr. Hollingsworth has served as legal counsel of
various companies related to Valhi and Contran since 1983.
William J. Lindquist has served as vice president and tax director of Valhi
and Contran since prior to 1992. Mr. Lindquist has served as an executive
officer or director of various companies related to Valhi and Contran since
1980.
Bobby D. O'Brien has served as vice president of Valhi and Contran since
October 1996 and treasurer of Valhi and Contran since January 1997. Since 1993
and 1994, Mr. O'Brien has served as treasurer and vice president-finance,
respectively, of Medite Corporation, a wholly owned subsidiary of Valcor that
operated Valhi's former buildings products business ("Medite"). From 1992 to
1994, Mr. O'Brien also 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.
Robert W. Singer has served as vice president of Valhi and Contran since
prior to 1992. Mr. Singer has also served as president and chief operating
officer of Keystone from prior to 1992 to February 1997 and as chief executive
officer of Keystone since February 1997. Mr. Singer has served as an executive
officer and/or director of various companies related to Valhi and Contran since
1982.
Gregory M. Swalwell has served as controller of Valhi and Contran since
1996. From prior to 1992 to 1996, Mr. Swalwell served as assistant controller
of Valhi and Contran. Mr. Swalwell has served in accounting positions with
various companies related to Valhi and Contran since 1988.
Steven L. Watson has served as vice president and secretary of Valhi and
Contran since prior to 1992. Mr. Watson has served as an executive officer
and/or director of various companies related to Valhi and Contran since 1980.
SECURITY OWNERSHIP
Ownership of Valhi and Its Parents. The following table and footnotes set
forth as of the Record Date the beneficial ownership, as defined by regulations
of the Securities and Exchange Commission (the "Commission"), of Valhi Common
Stock held by (i) each person or group of persons known to Valhi to own
beneficially more than 5% of the outstanding shares of Valhi Common Stock, (ii)
each director of Valhi, (iii) each executive officer of Valhi named in the
Summary Compensation Table below (a "named executive officer") and (iv) all
directors and executive officers of Valhi as a group. See footnote (4) below
for information concerning individuals and entities that may be deemed to own
indirectly and beneficially those shares of Valhi Common Stock directly held by
Contran, National City Lines, Inc. ("National") and Valhi Group, Inc. ("VGI").
Except for directors' qualifying shares and as set forth below, no securities of
Valhi's parent companies are beneficially owned by any director or executive
officer of Valhi. All information is taken from or based upon ownership filings
made by such persons with the Commission or upon information provided by such
persons.
Valhi Common Stock
--------------------------------------
Percent of
Amount and Nature of Class
Name of Beneficial Owner Beneficial Ownership (1) (1)(2)
- ------------------------ --------------------------- ----------
Contran Corporation and subsidiaries:
Contran Corporation (3) ............ 7,821,158 (4)(5) 6.8%
National City Lines, Inc. (3) ...... 11,491,009 (4) 10.0%
Valhi Group, Inc. (3) .............. 85,644,496 (4) 74.9%
Norman S. Edelcup..................... 20,000 (6) *
Kenneth R. Ferris..................... 15,500 (7) *
Glenn R. Simmons...................... 693,683 (4)(8) *
Harold C. Simmons..................... 730,383 (4)(9) *
J. Walter Tucker, Jr.................. 236,750 (10) *
Joseph S. Compofelice................. 30,000 (11) *
William J. Lindquist.................. 159,713 (4)(12) *
Bobby D. O'Brien...................... 40,000 (4)(13) *
Steven L. Watson...................... 244,635 (4)(14) *
All directors and executive officers
as a group (13 persons) ............ 2,406,891 (4)(5)(6) 2.1%
(7)(8)(9)
(10)(11)
(12)(13)
(14)(15)
- ----------
* Less than 1%.
(1) Except as otherwise noted, the listed individuals and group have sole
investment power and sole voting power as to all shares of Valhi Common
Stock set forth opposite their names. The number of shares and percentage
of ownership of Valhi Common Stock for each person or group assumes that
shares of Valhi Common Stock issuable upon the exercise of stock options to
such person or group (exclusive of others) within sixty days subsequent to
the Record Date are outstanding.
(2) The above table is based on 114,381,414 shares of Valhi Common Stock
outstanding as of the Record Date. For purposes of calculating the
outstanding shares of Valhi Common Stock as of the Record Date, 1,186,200
shares of Valhi Common Stock held by NL and 1,000,000 shares of Valhi
Common Stock held by Valmont Insurance Company ("Valmont"), 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.
(3) The business address of Contran, National and VGI is Three Lincoln Centre,
5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697.
(4) National, NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie Holding") are
the holders of approximately 73.3%, 11.4% and 15.3%, respectively, of the
outstanding common stock of VGI. Contran and NOA are the holders of
approximately 85.7% and 14.3%, respectively, of the outstanding common
stock of National. Contran and Southwest Louisiana Land Company, Inc.
("Southwest") are the holders of approximately 49.9% and 50.1%,
respectively, of the outstanding common stock of NOA. Dixie Rice
Agricultural Corporation, Inc. ("Dixie Rice") is the holder of 100% of the
outstanding common stock of Dixie Holding. Contran is the holder of
approximately 88.7% and 54.3% of the outstanding common stock of Southwest
and Dixie Rice, respectively. Substantially all of Contran's outstanding
voting stock is held by trusts established for the benefit of Harold C.
Simmons' children and grandchildren (the "Trusts"), of which Mr. Harold
Simmons is the sole trustee. As sole trustee of the Trusts, Mr. Harold
Simmons has the power to vote and direct the disposition of the shares of
Contran stock held by the Trusts. Mr. Harold Simmons, however, disclaims
beneficial ownership of such Contran shares.
The Combined Master Retirement Trust (the "Master Trust") holds
approximately 0.1% of the outstanding shares of Valhi Common Stock. The
Master Trust was formed to permit the collective investment by trusts that
maintain the assets of certain employee benefit plans adopted by Valhi and
related companies. Harold C. Simmons is the sole trustee of the Master
Trust and the sole member of the trust investment committee for the Master
Trust. The trustee and members of the trust investment committee for the
Master Trust are selected by the Board of Directors. Harold C. Simmons,
Glenn R. Simmons, William J. Lindquist, Bobby D. O'Brien and Steven L.
Watson are participants in one or more of the employee benefit plans that
invest through the Master Trust. Each of such persons disclaims beneficial
ownership of the shares of Valhi Common Stock held by the Master Trust,
except to the extent of his individual vested beneficial interest in the
assets held by the Master Trust.
Harold C. Simmons is the chairman of the board, president and chief
executive officer of VGI, National, NOA, Dixie Holding and Contran. Mr.
Harold Simmons is also the chairman of the board and chief executive
officer of Dixie Rice and Southwest. By virtue of the holding of the
offices, the stock ownership and his service as trustee, all as described
above, Mr. Harold Simmons may be deemed to control certain of such
entities, and Mr. Harold Simmons and certain of such entities may be deemed
to possess indirect beneficial ownership of certain shares of Valhi Common
Stock directly held by certain of such other entities. Mr. Harold Simmons,
however, disclaims beneficial ownership of the shares of Valhi Common Stock
beneficially owned, directly or indirectly, by any of such entities and NL
and Valmont.
(5) The shares of Valhi Common Stock shown as owned by Contran include 0.2% of
the outstanding Valhi Common Stock directly held by the Contran Deferred
Compensation Trust No. 2 (the "CDCT No. 2"). NationsBank of Texas, N.A.
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) shares dispositive power over
such shares with the Trustee and (iii) may be deemed the indirect
beneficial owner of such shares.
(6) The shares of Valhi Common Stock shown as beneficially owned by Mr. Edelcup
include 6,000 shares that he has the right to acquire upon the exercise
within 60 days subsequent to the Record Date of stock options granted
pursuant to the Company's 1990 Non-Employee Director Stock Option Plan (the
"Director Plan").
(7) The shares of Valhi Common Stock shown as beneficially owned by Dr. Kenneth
R. Ferris comprise 15,500 shares held in his retirement account.
(8) The shares of Valhi Common Stock shown as beneficially owned by Glenn R.
Simmons include 640,000 shares that Mr. Glenn Simmons has the right to
acquire upon the exercise within 60 days subsequent to the Record Date of
stock options granted pursuant to the 1987 Plan. Also included in the
amount shown as beneficially owned by Mr. Glenn Simmons are 4,383 shares
held in his individual retirement account. In addition, included in the
amount shown as beneficially owned by Mr. Glenn Simmons are 3,000 shares
held by Mr. Glenn Simmons' wife, 800 shares held in a retirement account
for Mr. Glenn Simmons' wife and 1,000 shares held by Mr. Glenn Simmons'
wife in trust for the benefit of their daughter, with respect to all of
which Mr. Glenn Simmons disclaims beneficial ownership.
(9) The shares of Valhi Common Stock shown as beneficially owned by Harold C.
Simmons include 650,000 shares that Mr. Harold Simmons has the right to
acquire upon the exercise within 60 days subsequent to the Record Date of
stock options granted pursuant to the 1987 Plan. In addition, included in
the amount shown as beneficially owned by Mr. Harold Simmons are 77,000
shares held by Mr. Harold Simmons' wife, with respect to which Mr. Harold
Simmons disclaims beneficial ownership.
(10) The shares of Valhi Common Stock shown as beneficially owned by J. Walter
Tucker, Jr. include 6,000 shares that Mr. Tucker has the right to acquire
upon the exercise within 60 days subsequent to the Record Date of stock
options granted pursuant to the Director Plan. In addition, included in
the amount shown as beneficially owned by Mr. Tucker are 217,250 shares
held by Mr. Tucker's wife, with respect to which Mr. Tucker disclaims
beneficial ownership.
(11) The shares of Valhi Common Stock shown as beneficially owned by Joseph S.
Compofelice include 20,000 shares that Mr. Compofelice has the right to
acquire upon the exercise within 60 days subsequent to the Record Date of
stock options granted pursuant to the 1987 Plan. In addition, included in
the amount shown as beneficially owned by Mr. Compofelice are 10,000 shares
held by Mr. Compofelice and his wife as joint tenants.
(12) The shares of Valhi Common Stock shown as beneficially owned by William J.
Lindquist include 157,000 shares that Mr. Lindquist has the right to
acquire upon the exercise within 60 days subsequent to the Record Date of
stock options granted pursuant to the 1987 Plan. In addition, included in
the amount shown as beneficially owned by Mr. Lindquist are 2,713 shares
held in his individual retirement account.
(13) The shares of Valhi Common Stock shown as beneficially owned by Bobby D.
O'Brien comprise 40,000 shares that Mr. O'Brien has the right to acquire
upon the exercise within 60 days subsequent to the Record Date of stock
options granted pursuant to the 1987 Plan.
(14) The shares of Valhi Common Stock shown as beneficially owned by Steven L.
Watson include 226,000 shares that Mr. Watson has the right to acquire upon
the exercise within 60 days subsequent to the Record Date of stock options
granted pursuant to the 1987 Plan. In addition, included in the amount
shown as beneficially owned by Mr. Watson are 3,035 shares held in his
individual retirement account.
(15) In addition to the foregoing, the shares of Valhi Common Stock shown as
beneficially owned by the directors and executive officers of Valhi as a
group include 179,600 shares that the remaining executive officers of Valhi
have the right to acquire upon the exercise within 60 days subsequent to
the Record Date of stock options granted pursuant to the 1987 Plan, 11,127
shares held by such officers in their individual retirement accounts and
10,000 shares held by such officers in other retirement accounts.
Additionally, included in the shares of Valhi Common Stock beneficially
owned by such remaining executive officers are 5,000 shares held in the
individual retirement accounts of such officers' spouses with respect to
which such officers disclaim beneficial ownership.
Ownership of Subsidiary. The following table and footnotes set forth the
beneficial ownership, as of the Record Date, of the common stock, $0.125 par
value per share, of NL ("NL Common Stock") held by (i) each director of Valhi,
(ii) each named executive officer and (iii) all directors and executive officers
of Valhi as a group. Except as set forth below, no securities of Valhi's
subsidiaries are beneficially owned by any director or executive officer of
Valhi. All information has been taken from or based upon ownership filings made
by such persons with the Commission or upon information provided by such
persons.
NL Common Stock
------------------------------
Amount and Nature of Percent
Beneficial of Class
Name of Beneficial Owner Ownership (1) (1)(2)
- ------------------------ --------------------- --------
Norman S. Edelcup.......................... -0- -0-
Kenneth R. Ferris.......................... 2,200(3) *
Glenn R. Simmons........................... 6,800(4)(5) *
Harold C. Simmons.......................... 69,475(5)(6) *
J. Walter Tucker, Jr....................... -0- -0-
Joseph S. Compofelice...................... 123,240(7) *
William J. Lindquist....................... -0- -0-
Bobby D. O'Brien........................... -0- -0-
Steven L. Watson........................... 7,000 *
All directors and executive officers of
Valhi as a group (13 persons) ........... 230,215(3)(4) *
(5)(6)
(7)(8)
- ----------
* Less than 1%.
(1) Except as otherwise noted, the listed individuals and group have sole
investment power and sole voting power as to all shares of NL Common Stock
set forth opposite their names. The number of shares and percentage of
ownership of NL Common Stock for each person or group assumes that shares
of NL Common Stock issuable upon the exercise of stock options to such
person or group (exclusive of others) within sixty days subsequent to the
Record Date are outstanding.
(2) The above table is based on 51,144,014 shares of NL Common Stock
outstanding as of the Record Date.
(3) The shares of NL Common Stock shown as beneficially owned by Kenneth R.
Ferris comprise 2,200 shares held by Dr. Ferris in his individual
retirement account.
(4) The shares of NL Common Stock shown as beneficially owned by Glenn R.
Simmons comprise 6,800 shares held in his retirement account.
(5) Valhi and Tremont directly and beneficially own 55.6% (28,416,910 shares)
and 17.7% (9,064,780 shares) of the outstanding NL Common Stock,
respectively. VGI, National, Contran, NL, Valmont and the Master Trust are
the holders of approximately 35.2%, 4.7%, 3.2%, 0.5%, 0.4% and less than
0.1%, respectively, of the outstanding common stock of Tremont. Contran's
ownership percentage of Tremont common stock includes 2.1% of the
outstanding Tremont common stock directly held by the CDCT No. 2. See
footnote (5) to the "Ownership of Valhi and Its Parents" table above for a
description of the CDCT No. 2. See also footnotes (2), (4) and (5) to the
same table for information concerning individuals and entities that may be
deemed to own indirectly and beneficially shares of NL Common Stock held by
Valhi and Tremont. Harold C. Simmons and all other directors and executive
officers of Valhi disclaim beneficial ownership of all of the shares of NL
Common Stock owned by any of these entities.
(6) The shares of NL Common Stock shown as beneficially owned by Harold C.
Simmons consists of 69,475 shares held by Mr. Harold Simmons' wife, with
respect to which Mr. Harold Simmons disclaims beneficial ownership.
(7) The shares of NL Common Stock shown as beneficially owned by Joseph S.
Compofelice include 87,000 shares that Mr. Compofelice has the right to
acquire upon the exercise within 60 days subsequent to the Record Date of
stock options granted pursuant to the 1989 Long Term Performance Incentive
Plan of NL Industries, Inc. and 5,240 shares credited to Mr. Compofelice's
account under the NL Industries, Inc. Retirement Savings Plan (the "NL
Savings Plan"). In addition, included in the amount shown as beneficially
owned by Mr. Compofelice are 1,000 shares held in his individual retirement
account and 30,000 shares held by Mr. Compofelice and his wife as joint
tenants.
(8) In addition to the foregoing, the shares of NL Common Stock shown as
beneficially owned by the directors and executive officers of Valhi as a
group include 5,000 shares held by the remaining executive officers in
their individual retirement accounts. Additionally, included in the shares
of NL Common Stock beneficially owned by such remaining executive officers
are 16,000 shares held by a profit sharing trust unaffiliated with Valhi or
NL of which one of such officers is a trustee.
The Company understands that Contran and related entities may consider
acquiring or disposing of shares of Valhi Common Stock through open-market or
privately negotiated transactions, depending upon future developments,
including, but not limited to, the availability and alternative uses of funds,
the performance of Valhi Common Stock in the market, an assessment of the
business of and prospects for the Company, financial and stock market conditions
and other factors deemed relevant by such entities. The Company may similarly
consider acquisitions of shares of Valhi Common Stock and acquisitions or
dispositions of securities issued by related entities. Neither Contran nor the
Company presently intends to engage in any transaction or series of transactions
that would result in the Valhi Common Stock becoming eligible for termination of
registration under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or ceasing to be traded on a national securities exchange.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
AND OTHER INFORMATION
Compensation of Directors. During 1996, directors of Valhi who were not
also employees of the Company or an affiliate of the Company received an annual
retainer of $10,000 paid in quarterly installments, plus a fee of $1,000 per day
for attendance at meetings and as a daily rate for other services rendered on
behalf of the Board of Directors and/or committees thereof. In addition,
directors who were members of the Audit Committee or MD&C Committee received an
annual retainer of $4,000, paid in quarterly installments, for each committee on
which they served. Directors were also reimbursed for reasonable expenses
incurred in attending meetings and in the performance of other services rendered
on behalf of the Board of Directors and/or its committees. Directors who
received fees during 1996 were Norman S. Edelcup, Dr. Kenneth R. Ferris and J.
Walter Tucker, Jr. (together, the "Non-Employee Directors").
Valhi and Contran are parties to an intercorporate services agreement (the
"Contran/Valhi ISA") pursuant to which Contran provided certain services to
Valhi during 1996, including services rendered to Valhi by Glenn R. Simmons and
Harold C. Simmons, each of whom is a director of Valhi. NL and Contran are
parties to an intercorporate services agreement (the "Contran/NL ISA") pursuant
to which Contran provided certain services rendered by Harold C. Simmons to NL
during 1996. See "Certain Relationships and Transactions" below.
Summary of Cash and Certain Other Compensation of Executive Officers. The
Summary Compensation Table set forth below provides information concerning
annual and long-term compensation paid or accrued by Valhi and its subsidiaries
to or on behalf of Valhi's chief executive officer and each of the four other
most highly compensated individuals during 1996 who were executive officers of
Valhi at December 31, 1996, for services rendered to Valhi and its subsidiaries
during 1994, 1995 and 1996. During such periods, Contran paid Harold C.
Simmons' compensation and NL and Tremont paid Joseph S. Compofelice's
compensation. Valhi and Medite paid Mr. O'Brien's compensation during 1996.
Valhi also paid the remainder of the named executive officers their compensation
during such periods. In December 1994, the Board of Directors declared a
special dividend distribution of its interest in Tremont (the "Tremont
Dividend"), after which Tremont ceased being a subsidiary of Valhi.
Accordingly, after the Tremont Dividend, Valhi ceased to report any compensation
paid by Tremont or Valhi for services rendered to Tremont. Valhi, Contran, NL,
Tremont 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 Transactions." The information provided with respect
to Joseph S. Compofelice is based in part on information set forth in the NL
Proxy Statement for NL's Annual Meeting of Shareholders to be held on May 7,
1997 (the "NL Proxy Statement"). See Appendix A for certain of such information
provided in the NL Proxy Statement.
SUMMARY COMPENSATION TABLE
Annual Compensation (2)
-----------------------
Name and
Principal Position Year Salary (3) Bonus (3)
------------------------------ ------- ----------------------------------
Harold C. Simmons............... 1996 $1,368,000 (4) $
Chairman of the Board, President 1995 1,368,000 (4) -0-
and Chief Executive Officer 1994 1,425,015 (4) -0-
-0-
Joseph S. Compofelice (5)....... 1996 212,000 (6) -0- (6)
Executive Vice President 1995 212,000 (6) 277,500 (6)
1994 246,482 (6) 250,300 (6)
William J. Lindquist............ 1996 129,561 (11) 232,317 (11)
Vice President and Tax Director 1995 102,260 (11) 47,934 (11)
1994 114,997 (11) 123,211 (11)
Bobby D. O'Brien (14)........... 1996 106,023 (15) 134,260 (15)
Vice President and Treasurer
Steven L. Watson................ 1996 190,512 (16) 472,418 (16)
Vice President and Secretary 1995 124,268 (16) 53,258 (16)
1994 133,810 (16) 133,809 (16)
Long Term
Compensation (1)
----------------------
Awards
----------------------
Shares
Name and Underlying All Other
Principal Position Year Options (#) Compensation
- --------------------------------------- ----------------------------------
Harold C. Simmons................ 1996 -0- $ -0-
Chairman of the Board, President 1995 -0- -0-
and Chief Executive Officer 1994 -0- -0-
Joseph S. Compofelice (5)........ 1996 24,000 (7) 32,762 (8)
Executive Vice President 1995 30,000 (7) 39,042 (8)
1994 50,000 (9) 11,543 (8)
125,000 (7)
25,000 (10)
William J. Lindquist............. 1996 50,000 7,394 (12)
Vice President and Tax Director 1995 -0- 7,020 (12)
1994 30,000 (13) 21,000 (12)
Bobby D. O'Brien (14)............ 1996 -0- 7,397 (12)
Vice President and Treasurer
Steven L. Watson................. 1996 50,000 7,394 (12)
Vice President and Secretary 1995 -0- 7,020 (12)
1994 40,000 (13) 21,000 (12)
- ----------
(1) No shares of restricted stock were granted to the named executive officers
nor payouts made to the named executive officers pursuant to long-term
incentive plans during the last three years. Therefore, the columns for
such compensation have been omitted.
(2) Other annual compensation for each of the named executive officers included
perquisites, which perquisites were less than the level required for
reporting. Therefore, the column for other annual compensation has been
omitted.
(3) The amounts shown in the table as compensation for Mr. Harold Simmons
represent the portion of the fees paid to Contran pursuant to the ISAs with
respect to services Mr. Harold Simmons rendered to Valhi and its
subsidiaries, plus the amount of director fees paid to Mr. Harold Simmons
by NL and, prior to 1995, by Tremont. See also footnote (4) below.
NL and Tremont and/or TIMET have paid Mr. Compofelice's compensation while
he has been an executive officer of the Company. After the Tremont
Dividend, Valhi ceased to report any compensation paid by Tremont to Mr.
Compofelice other than the amount Valhi credits to Contran (which Contran
in turn credits Tremont) for Mr. Compofelice's services provided to Valhi
pursuant to the Contran/Valhi ISA. The amounts shown as compensation in the
table for Mr. Compofelice for 1995 and 1996 represent the full amount paid
by NL for services Mr. Compofelice rendered during such year plus the
portion of the fees paid by Valhi to Contran pursuant to the Contran/Valhi
ISA with respect to services Mr. Compofelice rendered to Valhi in such
year. The amounts shown as compensation in the table for Mr. Compofelice
for 1994 represent the full amount paid by NL and Tremont and/or TIMET for
services Mr. Compofelice rendered during 1994. See also footnote (8)
below.
The amounts shown in the table as compensation for Messrs. Lindquist,
O'Brien and Watson represent the full amount paid by Valhi for services
such individuals rendered to Valhi during each respective period, less the
portion of such compensation that is attributable to the services such
executive officers rendered to Contran and certain entities related to
Contran, for which Contran credited Valhi pursuant to the Contran/Valhi
ISA. The net salary and bonus amounts shown for each such individual for
each such period reflect the reduction for the amount credited to Valhi by
Contran, which has been allocated proportionately between each individual's
base salary and bonus. See also footnotes (11), (15) and (16) below.
(4) As described in footnote (3), the aggregate amount of compensation shown in
the table for Mr. Harold Simmons consists of (i) fees paid by Valhi
pursuant to the ISAs with respect to services Mr. Harold Simmons rendered
to Valhi in the amount of $950,000, $950,000 and $946,515 for 1996, 1995
and 1994, respectively; (ii) fees paid by NL to Valhi pursuant to the ISAs
with respect to certain services Mr. Harold Simmons rendered to NL in the
amount of $400,000, $400,000 and $380,000 for 1996, 1995 and 1994,
respectively, and director fees paid by NL to Mr. Harold Simmons in the
amount of $18,000 for each of 1996, 1995 and 1994, respectively; and (iii)
fees paid by Tremont pursuant to the ISAs with respect to services by Mr.
Harold Simmons rendered to Tremont in the amount of $64,000 for 1994 and
director fees paid by Tremont to Mr. Harold Simmons in the amount of
$17,250 for 1994.
(5) Mr. Compofelice commenced serving as an executive officer of Valhi in July
1994.
(6) As described in footnote (3), Mr. Compofelice's Valhi compensation consists
of (i) for 1996, a base salary paid by NL of $185,000, plus an addition to
Mr. Compofelice's 1996 base salary of $27,000 representing the amount that
Valhi credited Contran (which Contran in turn credited Tremont) pursuant to
the Contran/Valhi ISA for services Mr. Compofelice provided Valhi in 1996,
(ii) for 1995, a base salary and bonus paid by NL of $185,000 and $277,500,
respectively, plus an addition to Mr. Compofelice's 1995 base salary of
$27,000 representing the amount that Valhi credited Contran (which Contran
in turn credited Tremont) pursuant to the Contran/Valhi ISA for services
Mr. Compofelice provided Valhi in 1995 and (iii) for 1994, a base salary
and bonus paid by NL of $166,856 and $250,300, respectively, plus a base
salary paid by Tremont of $79,626. All bonuses paid by NL were paid
pursuant to NL's Variable Compensation Plan, formerly known as NL's Share
in Performance Incentive Plan (the "NL Variable Compensation Plan"). See
"Appendix A-NL Compensation Committees' Report on Executive Compensation"
for a discussion of the NL Variable Compensation Plan.
(7) Represents shares of NL Common Stock underlying stock options granted by NL
to Mr. Compofelice.
(8) All other compensation for 1996, 1995 and 1994 for Mr. Compofelice consists
of (i) contributions by NL of $0, $9,000 and $9,000, respectively, to Mr.
Compofelice's account under the NL Savings Plan and (ii) term life
insurance premiums of $1,512, $1,512 and $950, respectively, paid by NL
for the benefit of Mr. Compofelice. All other compensation for Mr.
Compofelice also includes an accrual of $31,250 and $28,530 in 1996 and
1995, respectively, by NL in an unfunded account for the benefit of Mr.
Compofelice under the Supplemental Executive Retirement Plan for Executives
and Officers of NL and a retirement contribution made in 1994 by TIMET of
$1,593 to Mr. Compofelice's account under the TIMET Thrift/Retirement Plan.
(9) Represents shares of Valhi Common Stock underlying a stock option granted
by Valhi to Mr. Compofelice.
(10) Represents shares of Tremont common stock underlying stock options granted
by Tremont to Mr. Compofelice.
(11) As described in footnote (3), Mr. Lindquist's Valhi compensation excludes
the amount Contran credited to Valhi for his services pursuant to the
Contran/Valhi ISA, which amounts were $105,403, $84,806 and $51,792 for
1996, 1995 and 1994, respectively.
(12) All other compensation for the last three years (or such shorter period if
the named executive officer was not an executive officer at any time during
any of such years) for each of the following named executive officers
consisted of contributions to the Company's employee stock ownership plan
(the "ESOP") and either the Company's matching contributions pursuant to
the Company's deferred incentive plan (a "DIP") or Medite's matching
contributions pursuant to the Medite's deferred incentive plan, as follows:
Named Executive ESOP DIP
Officer Year Contribution (a) Contribution (b) Total
- --------------------- --------------------- ---------------- ---------
William J. Lindquist..1996 $ -0- $ 7,394 $ 7,394
1995 -0- 7,020 7,020
1994 3,000 18,000(c) 21,000 (c)
Bobby D. O'Brien......1996 -0- 7,397 7,397
Steven L. Watson......1996 -0- 7,394 7,394
1995 -0- 7,020 7,020
1994 3,000 18,000(c) 21,000 (c)
--------------
(a) The Company terminated the ESOP as of March 31, 1995.
(b) Mr. Lindquist's and Mr. Watson's DIP contributions represent the
Company's matching contributions pursuant to the Company's DIP. Mr.
O'Brien's DIP contributions represent Medite's matching contributions
pursuant to Medite's DIP.
(c) Pursuant to certain limitations imposed by the Internal Revenue Code
of 1986, as amended (the "Code"), the Company's DIP distributed in
March 1995 to this executive officer $4,560 of such officer's $18,000
1994 DIP contribution from Valhi.
(13) On March 30, 1993 stock options were granted to Mr. Lindquist and Mr.
Watson that were exercisable for 30,000 shares and 40,000 shares of Valhi
Common Stock, respectively. On March 10, 1994, stock options were granted
to the same executive officers that were exercisable for the same number of
respective shares. All of such options were originally granted with
escalating exercise prices based on the yield for five-year U.S. Treasury
Notes on the date of grant, less the amount of cash dividends paid per
share. Such options were considered variable-priced options under
generally accepted accounting principles, which would have required the
Company to expense annually the excess of the market value of the
underlying shares over the adjusted exercise price of the stock options.
On October 26, 1994, a grant of fixed-priced stock options was approved by
the MD&C Committee in exchange for all of the variable-priced options
previously granted, which eliminated any future annual expenses related
thereto. The exercise prices for the fixed-priced stock options were set
at prices equal to the exercise prices that would have existed at the
vesting dates of each portion of the original variable-priced stock
options, based upon original escalation rates of such stock options and the
cash dividend rate at the time of the exchange. The stock options reported
for these named executive officers in 1994 reflects only the shares subject
to the variable-priced stock options granted on March 10, 1994 and excludes
the fixed priced stock options granted on October 26, 1994 in exchange for
the variable-priced stock options granted on March 30, 1993 and March 10,
1994.
(14) Mr. O'Brien commenced serving as an executive officer of Valhi in October
1996.
(15) Mr. O'Brien's Valhi compensation includes the salary and bonus amount
Medite paid Mr. O'Brien in 1996 of $91,513 and $134,260, respectively.
(16) As described in footnote (3), Mr. Watson's Valhi compensation excludes the
amount Contran credited to Valhi for his services pursuant to the
Contran/Valhi ISA, which amounts were $38,705, $72,474 and $42,381 for
1996, 1995 and 1994, respectively.
Grants of Stock Options and Stock Appreciation Rights. The following table
provides information, with respect to the named executive officers, concerning
the grant of stock options under the 1987 Plan during 1996. No stock
appreciation rights ("SARs") were granted under the 1987 Plan in 1996.
OPTION GRANTS IN 1996
Individual Grants
--------------------------------------------------
Number of Percent of Exercise
Shares of Total Options or
Underlying Granted to Base
Options Employees Price Expiration
Name Granted (#) in 1996 Per Share Date
- ----------------------------------------- ------------- --------- -----------
Harold C. Simmons.......... -0- 0.00% n/a n/a
Joseph S. Compofelice (2).. -0- 0.00% n/a n/a
William J. Lindquist....... 50,000 16.95% $6.38(3) 05/10/06
Bobby D. O'Brien........... -0- 0.00% n/a n/a
Steven L. Watson........... 50,000 16.95% 6.38(3) 05/10/06
All stockholders' gain (5). n/a n/a n/a n/a
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
for Option Term (1)
--------------------------------------
Name 5% 10%
- --------------------------- ------------------- ------------------
Harold C. Simmons......... n/a n/a
Joseph S. Compofelice (2). n/a n/a
William J. Lindquist...... $ 200,500 (4) $ 508,500 (4)
Bobby D. O'Brien.......... n/a n/a
Steven L. Watson.......... 200,500 (4) 508,500 (4)
All stockholders' gain (5) 813 MM 1,618 MM
- ----------
(1) Pursuant to the rules of the Commission, the amounts under these columns
reflect calculations at assumed 5% and 10% appreciation rates and,
therefore, are not intended to forecast future appreciation, if any, of
Valhi Common Stock. The potential realizable value to the optionees was
computed as the difference between the appreciated value at the expiration
dates of the stock options of the Valhi Common Stock into which such stock
options are exercisable and the aggregate exercise price of such stock
options on such respective dates based on the exercise prices of such stock
options.
The amount of gain to the optionees is dependent on the amount of increase
in the price of Valhi Common Stock, which would benefit all stockholders
proportionately. These potentially realizable values are based solely on
arbitrarily assumed rates of appreciation required by applicable Commission
regulations. Actual gains, if any, on stock option exercises are dependent
on the future performance of Valhi Common Stock, overall market conditions
and the timing of the exercise thereof by each respective optionee. There
can be no assurance that the amounts reflected in the table will be
achieved.
(2) See also Appendix A for stock options NL granted Mr. Compofelice in 1996,
which stock options are exercisable for NL Common Stock.
(3) This stock option becomes exercisable at a rate of 20% on each of the first
five anniversary dates of the date of grant. The exercise price for this
stock option can be paid in already owned shares of Valhi Common Stock,
provided such tendered shares were held by the optionee for six months.
(4) The appreciated value per share on May 10, 2006 based on the $6.38 per
share market value of a share of Valhi Common Stock on May 10, 1996 would
be $10.39 and $16.55 at the hypothetical 5% and 10% rates, respectively.
(5) The $812,730,000 and $1,618,495,000 amounts shown represent the cumulative
increase in value stockholders would receive on all outstanding shares of
Valhi Common Stock over a ten-year period at the hypothetical 5% and 10%
appreciation rates, respectively, based on the $6.38 per share market value
of the 116,276,814 shares of Valhi Common Stock outstanding on May 10,
1996 (which outstanding amount includes shares held by NL and Valmont) and
the reinvestment of cash dividends paid at a rate equal to Valhi's cash
dividend policy on May 10, 1996 of $0.05 per share per calendar quarter.
Stock Option Exercises and Holdings. The following table provides
information, with respect to the named executive officers, concerning the value
of unexercised stock options held as of December 31, 1996. In 1996, no named
executive officer exercised any stock options. No SARs have been granted under
the 1987 Plan.
DECEMBER 31, 1996 OPTION VALUES
Number of Shares Underlying
Unexercised Options at
December 31, 1996 (#)
------------------------------
Name Exercisable Unexercisable
- ---------------------------- -------------- --------------
Harold C. Simmons (1)........... 650,000 -0-
Joseph S. Compofelice........... 20,000 30,000
William J. Lindquist............ 135,000 80,000
Bobby D. O'Brien................ 35,000 12,000
Steven L. Watson................ 200,000 90,000
Value of Unexercised
In-the-Money Options
Name at December 31, 1996 (2)
- -------------------------------- ------------------------------
Exercisable Unexercisable
-------------- --------------
Harold C. Simmons (1)........... $ 242,250 $ -0-
Joseph S. Compofelice........... -0- -0-
William J. Lindquist............ 102,295 11,820
Bobby D. O'Brien................ 22,490 5,420
Steven L. Watson................ 163,310 15,760
- ----------
(1) Pursuant to an agreement between Contran and Valhi, Contran will pay Valhi
an amount equal to the 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.
(2) The aggregate amount represents the difference between the exercise price
of the individual stock options and the $6.375 per share market value of
Valhi Common Stock on December 31, 1996, calculated as the last reported
sales price per share as reported on the New York Stock Exchange Composite
Tape on such date.
Pension Plan. The Company's Pension Plan (the "Pension Plan") is a plan
qualified under the Code that provides for a defined benefit upon retirement to
eligible and participating employees of Valhi and certain related companies.
Under the terms of the Pension Plan, the defined benefit for a participant is
formulated on the basis of a 100% joint survivorship annuity between such
participant and such participant's eligible spouse determined by the amount of
such participant's earnings for each year and the number of years of service
credited to such participant. The compensation eligible to be utilized for
purposes of the Pension Plan formula includes the annual salary and cash bonus
amounts paid directly by Valhi, including the amount thereof credited by Contran
to Valhi pursuant to the Contran/Valhi ISA. See "Compensation of Directors and
Executive Officers and Other Information-Summary of Cash and Certain Other
Compensation of Executive Officers."
The following table lists annual benefits under the Pension Plan for the
average annual earnings and years of credited service shown for a participant
retiring at the normal retirement age of 65. There is no provision under the
Pension Plan providing for benefit reductions for Social Security payments
received by a participant after retirement. Annual compensation for benefit
determination purposes under the Pension Plan for 1996 does not take into
account a participant's annual earnings in excess of $150,000. As a result, the
compensation eligible to be utilized for purposes of the Pension Plan formula
only includes $150,000 of the salary and bonus of the named executive officers
as disclosed in the "Summary Compensation Table." A participant does not
accrue additional benefits under the Pension Plan after thirty years of credited
service.
Years of Credited Service
-----------------------------------------------
Average Annual
Earnings 5 10 20 30
- ------------------ -------- --------- --------- ---------
$ 80,000 ...... $ 5,276 $ 10,552 $ 21,103 $ 32,655
100,000 ...... 7,026 14,052 28,103 42,155
120,000 ...... 8,776 17,552 35,103 52,655
140,000 ...... 10,526 21,052 42,103 63,155
150,000 ...... 11,401 22,802 45,603 68,405
As of December 31, 1996, William J. Lindquist, Bobby D. O'Brien and Steven
L. Watson were credited with 16 years, 7 years and 16 years, respectively, of
benefit service to Valhi under the Pension Plan. Harold C. Simmons and Joseph
S. Compofelice are not employees of Valhi and, therefore, do not participate in
the Pension Plan. Other than as described in the Summary Compensation Table
above and its related footnotes, none of the executive officers or directors of
Valhi participate in any supplementary nonqualified plans that pay benefits in
excess of the above limits.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires Valhi's executive officers,
directors and persons who own more than 10% of a registered class of Valhi's
equity securities to file reports of ownership with the Commission, the New York
Stock Exchange, Inc. (the "Exchange") and Valhi. Based solely on the review of
the copies of such forms and written representations by certain reporting
persons received, Valhi believes that for 1996, its executive officers,
directors and 10% stockholders complied with all applicable filing requirements
under Section 16(a) except that Mr. Robert W. Singer, vice president of the
Company, filed one report late and amended, after the date for timely filing,
another report that initially had failed to report a sale.
Compensation Committee Interlocks and Insider Participation
During 1996, Harold C. Simmons (Valhi's chief executive officer) and the
MD&C Committee deliberated on Valhi executive officer compensation. The MD&C
committee is currently comprised of Norman S. Edelcup (chairman), Dr. Kenneth R.
Ferris and J. Walter Tucker, Jr., all non-employee directors of Valhi. Of those
persons who deliberated on Valhi executive officer compensation at any time in
1996, only Mr. Harold Simmons was an executive officer of Valhi or any of its
subsidiaries.
Mr. Harold Simmons deliberated also on the compensation of the executive
officers of certain entities that may be deemed to be controlled by or
affiliated with him. Other than Mr. Harold Simmons, no Valhi executive officer
deliberated on the compensation of executive officers of another entity (as a
member of the other entity's compensation committee, board of directors or
otherwise), one of whose executive officers deliberated on the compensation of
Valhi's executive officers (as member of the MD&C Committee, the Board of
Directors or otherwise).
Relationships with Related Parties. As set forth under the caption
"Security Ownership," Harold C. Simmons, through Contran, may be deemed to
control the Company. The Company and other entities that may be deemed to be
controlled by or affiliated with Mr. Harold 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 that 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 transactions of the type described above. Depending upon the business,
tax and other objectives then relevant, it is possible that the Company might be
a party to one or more of such transactions in the future. In connection with
these activities the Company may consider issuing additional equity securities
or incurring additional indebtedness. The Company's acquisition activities have
in the past and may in the future include participation in the acquisition or
restructuring activities conducted by other companies that may be deemed to be
controlled by Mr. Harold Simmons. 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.
Each of the executive officers of Valhi is also currently serving as an
executive officer of certain other companies related to Valhi and it is expected
that each will continue to do so in 1997. Such management interrelationships
and intercorporate relationships may lead to possible conflicts of interest.
These possible conflicts may arise from the duties of loyalty owed by persons
acting as corporate fiduciaries to two or more companies under circumstances in
which such companies may have adverse interests.
No specific procedures are in place that govern the treatment of
transactions among the Company and its related entities, although such entities
may implement specific procedures as appropriate for particular transactions. In
addition, under applicable principles of law, in the absence of stockholder
ratification or approval by directors who may be deemed disinterested,
transactions involving contracts among companies under common control must be
fair to all companies involved. Furthermore, directors and officers owe
fiduciary duties of good faith and fair dealing to all stockholders of the
companies for which they serve.
REPORT ON EXECUTIVE COMPENSATION
During 1996, the Company's chief executive officer (the "CEO"), the Non-
Employee Directors and the MD&C Committee administered matters regarding
compensation of the Company's executive officers. This report is submitted by
such individuals in their respective capacities, as set forth below. Joseph S.
Compofelice's compensation from NL was determined in accordance with the
procedures described in Appendix A.
The Board of Directors, with directors other than Non-Employee Directors
abstaining, considered and approved the terms of the Contran/Valhi ISA, pursuant
to which the services of Harold C. Simmons, the Company's chairman of the board,
president and CEO, and Glenn R. Simmons, the Company's vice chairman of the
board, were provided. The CEO, considering recommendations of management,
determined the cash compensation paid to the Company's employees, including the
Company's other executive officers, and made recommendations to the MD&C
Committee with respect to matters related to grants of stock options. The MD&C
Committee, which is comprised solely of the Non-Employee Directors, reviewed and
approved actions related to grants of stock options to the Company's executive
officers and other employees pursuant to the 1987 Plan.
It is the Company's policy that employee compensation, including
compensation to executive officers, be at a level that allows the Company to
attract, retain, motivate and reward individuals who have the requisite training
and experience to manage the Company and its businesses. It is also the
Company's policy that a significant portion of any incentive compensation paid
be related to the performance of the Company's equity securities and have a
commonality of interest with the stockholders of the Company, which objectives
are generally met through the periodic grant of stock options, since the value
of such options depends entirely on the appreciation of the stock into which the
options are exercisable. Therefore, unless the price of the Company's equity
securities increases over the term of the stock options, such portion of an
employee's aggregate compensation will have no value.
The CEO either does not participate in the Company's compensation and
employee benefit plans or the cost of such participation is reimbursed to the
Company by Contran. The amount of the fee paid by the Company under the
Contran/Valhi ISA with respect to the CEO represents, in the view of the Board
of Directors, the reasonable equivalent of "compensation" for the services the
CEO provided to the Company taking into account the CEO's unique experience and
knowledge. In making such determination, the Board of Directors also considered
the significant role the CEO has in establishing the Company's policies and
directing strategic transactions involving the Company and its subsidiaries.
Additionally, the Board of Directors took into account the Company's historical
financial performance. No specific formulas, guidelines or comparable positions
were considered in determining the amount of such fee, nor was there any
specific relationship between the Company's current or future performance and
the level of such fee.
The compensation of the Company's executive officers, other than the CEO,
consists primarily of base salary and incentive compensation. Incentive
compensation consists primarily of discretionary bonuses and grants of stock
options. The CEO may be deemed to control approximately 92% of the outstanding
Valhi Common Stock and as such is considered an effective stockholder advocate
in matters concerning executive compensation, other than his own.
Base salaries for all salaried employees, including executive officers of
the Company, have been established on a position-by-position basis. Annual
internal reviews of salary levels are conducted by the Company's management in
an attempt to rank base salary and job value to each position. The ranges of
salaries for comparable positions considered by management were based upon
management's general business knowledge and no specific survey, study or other
analytical process was utilized to determine such ranges. Additionally, no
specific companies' or groups of companies' compensation was compared with that
of the Company, nor was an attempt made to identify or otherwise quantify the
compensation paid by the companies that served as a basis for such individuals'
general business knowledge. Base salary levels are generally not increased
except in instances of (i) promotions, (ii) increases in responsibility or (iii)
unwarranted discrepancies between job value and the corresponding base salary.
The Company considers across-the-board base salary increases from time to time
when competitive factors so warrant. All of management's recommendations with
respect to base salaries for executive officers of the Company are submitted to
the CEO for modification and/or approval in his best business judgment. Prior
year-to-year fluctuations in the portion of base salaries applicable to the
Company with respect to its executive officers were partly a result of changes
in the amount of time estimated to be spent by each such officer on behalf of
Contran and the Company and the resulting changes in allocations under the
Contran/Valhi ISA.
A significant portion of an executive officer's total compensation has
historically been in the form of incentive compensation that is "at risk." The
Company's practice has been to provide for greater percentages of such "at risk"
compensation at higher levels of responsibility. The size of each executive
officer's discretionary bonus and grant of stock options is based upon the
recommendation of management as modified and/or approved by the CEO in his best
business judgment. Annual performance reviews are an important factor in
determining management's recommendation, which is primarily based on each
executive's individual performance and to a lesser extent on the Company's
overall performance. Individual performance is typically measured by the
ability an executive demonstrates in performing, in a timely and cost efficient
manner, the functions of his position, including routine corporate activities
and the development and implementation of strategic transactions and policies.
Additionally, an executive's sustained performance, experience and potential for
growth are assessed. No specific financial or budget tests were applied in the
measurement of individual performance. The Company's overall performance is
typically measured by the Company's historical financial results and the level
of success with respect to the development and implementation of strategic
transactions. No specific overall performance measures were utilized and there
is no specific relationship between overall performance measures and an
executive's incentive compensation. Additionally, there was no specific
weighing of the factors considered in the determination of incentive
compensation paid to executive officers.
In granting stock options to the Company's executive officers and other
employees in 1996, the MD&C Committee considered the policies and factors set
forth in this report, the level of cash compensation paid to each individual,
the recommendation of the CEO and the number of stock options previously granted
to each individual. In 1996, the MD&C Committee did not grant any stock options
to the CEO.
Section 162(m) of the Code generally disallows a tax deduction to public
companies for compensation over $1 million paid to the company's chief executive
officer and four other most highly compensated executive officers. It is the
Company's policy to structure the performance-based portion of the compensation
of its executive officers in a manner that enhances the Company's ability to
deduct fully such compensation.
The foregoing report is submitted by the following individuals in the
capacities indicated:
Norman S. Edelcup Dr. Kenneth R. Ferris
Non-Employee Director and Non-Employee Director and
member of the MD&C Committee member of the MD&C Committee
J. Walter Tucker, Jr. Harold C. Simmons
Non-Employee Director and Chief Executive Officer
member of the MD&C Committee
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly change in the
cumulative total stockholder return on Valhi Common Stock against the cumulative
total return of the S&P 500 Stock Index and the S&P Manufacturing (Diversified)
Index for the period of five fiscal years commencing December 31, 1991 and
ending December 31, 1996. The graph shows the value at December 31 of each year
assuming an original investment of $100 and reinvestment of dividends to
stockholders. The February 3, 1995 dividend of 0.03049 of a share of Tremont
common stock for each share of Valhi Common Stock was treated as if such Tremont
shares were sold on the distribution date with the proceeds reinvested in Valhi
Common Stock on such date.
For years prior to 1996, the Company has compared the cumulative
stockholder return on Valhi Common Stock against the S&P Conglomerate Index.
This index, however, has been discontinued and the companies included in the
discontinued index are a part of the S&P Manufacturing (Diversified) Index.
[PERFORMANCE GRAPH GOES HERE]
1991 1992 1993 1994 1995 1996
------ ------ ------ ------- ------ -------
Valhi, Inc... $100 $ 92 $ 93 $ 144 $ 127 $ 131
S&P 500...... 100 108 118 120 165 203
S&P
Manufacturing
(Diversified) 100 108 132 136 192 264
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Relationships with Related Parties
The Company and other entities that may be deemed to be controlled by or
affiliated with Harold C. Simmons sometimes engage in certain transactions that
have involved both related and unrelated parties. Each of the executive
officers of Valhi is also currently serving as an executive officer of certain
other companies related to Valhi and it is expected that each will continue to
do so in 1997. See "Compensation of Directors and Executive Officers and Other
Information-Compensation Committee Interlocks and Insider Participation-
Relationships with Related Parties," for a further discussion on these
transactions, management interrelationships and intercorporate relationships.
Contractual Arrangements
Intercorporate Services Agreements. The Contran/Valhi ISA provides that
Contran will render or provide for certain management, administrative and
aircraft maintenance services to the Company and that the Company will render
certain management and administrative services to Contran. The Company paid
Contran net fees of $100,000 for services rendered under the Contran/Valhi ISA
in 1996, which represented $1,478,000 for services Contran rendered to the
Company less $1,378,000 for services the Company rendered to Contran. In
addition, Contran and the Company credited to the other the out-of-pocket costs
incurred in rendering such services. The Contran/NL ISA provides that Contran
will make available the services of Harold C. Simmons to NL. NL paid Contran
fees of $400,000 for such services rendered in 1996. Each of the ISAs provide
for their extension on a quarter-to-quarter basis, subject to termination upon
thirty days advance notice by either party, and their amendment by mutual
agreement.
Subsidiary Relationships. NL is a party to certain additional agreements
with related entities as set forth in Appendix A to this Proxy Statement.
CERTAIN LITIGATION AND OTHER MATTERS
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 purchase
of 7.8 million shares of NL Common Stock from Valhi (the "NL Stock Purchase").
In addition to Valhi, the complaint named as defendants Tremont and the members
of Tremont's board of directors, including Harold C. Simmons and Glenn R.
Simmons. The complaint alleged, among other things, that the NL Stock Purchase
constituted a waste of Tremont's assets and that Tremont's board of directors
had breached its fiduciary duties to Tremont's public stockholders. A trial on
this matter was held in June 1995 and in March 1996 the court issued its opinion
ruling in favor of the defendants and concluded that the NL Stock Purchase did
not constitute an overreaching by Valhi, that Tremont's purchase price in the NL
Stock Purchase was fair and that in all other respects the NL Stock Purchase 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 Supreme Court was
held in December 1996, and an en banc hearing before the full Supreme Court was
held in February 1997. Valhi believes, and understands that Tremont and the
other defendants believe, that the action is without merit.
In September 1996, a complaint was filed in the Superior Court of New York,
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. 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 Common Stock from Valhi pursuant to the dutch auction, and the
plaintiff has stated that damages sought are $149 million. Valhi and the other
defendants have answered the complaint and have denied all allegations of
wrongdoing. Valhi believes, and understands each of the other defendants
believe, the complaint is without merit and that each intends to defend the
action vigorously. Trial is scheduled to begin in November 1997.
AMENDMENT AND RESTATEMENT OF THE
VALHI, INC. 1987 STOCK OPTION - STOCK APPRECIATION RIGHTS PLAN
(Proposal 2)
The Board of Directors seeks the approval by the Company's stockholders of
the 1987 Plan, amended and restated as of February 13, 1997 (the "Amended and
Restated 1987 Plan"). The Board of Directors adopted the Amended and Restated
1987 Plan on February 13, 1997 subject to stockholder approval. The text of the
Amended and Restated 1987 Plan is attached as Appendix B. The description of
the Amended and Restated 1987 Plan in this proxy statement is qualified in its
entirety by reference to the complete text of the Amended and Restated 1987 Plan
in Appendix B.
Background
The Board of Directors approved the original 1987 Plan in 1987. The
Company's stockholders approved the original 1987 Plan in 1988. The Board of
Directors and the Company's stockholders approved certain amendments and
restatements of the 1987 Plan in 1991, 1992 and 1994. The Board of Directors
subsequently amended and restated the 1987 Plan without stockholder approval in
November 1994.
Amendments
The material amendments to the 1987 Plan that the Board of Directors
approved in February 1997 subject to stockholder approval (the "1987 Plan
Amendments"):
(1) allow for grants of stock options and stock appreciation rights
and awards of restricted stock to nonemployees who provide
services to the Company or its parent or subsidiary corporations
(collectively with Valhi, the "Valhi Group");
(2) increase the maximum number of shares of Valhi Common Stock
issuable pursuant to grants or awards to a particular individual
in any single fiscal year under the 1987 Plan from 500,000 to
1,000,000 shares;
(3) reduce the minimum number of members of the MD&C Committee to
two;
(4) redefine certain other requirements of the members of the MD&C
Committee so that such requirements conform to the current
desirable provisions of Section 16 of the Exchange Act and
Section 162(m) of the Code; and
(5) allow for the transfers of nonqualified stock options, stock
appreciation rights and restricted stock granted under the 1987
Plan when such transfers are approved by the MD&C Committee.
The Board of Directors approved the 1987 Plan Amendments so that stock options
outstanding under the 1987 Plan would be governed in a substantially similar
manner as stock options granted under the 1997 Plan. The MD&C Committee does
not intend to grant any new stock options, stock appreciation rights or
restricted stock under the 1987 Plan.
Description of the Amended and Restated 1987 Plan
General
Purpose. The purpose of the Amended and Restated 1987 Plan is to advance
the interests of the Valhi Group by strengthening the Valhi Group's ability to
attract and retain individuals of training, experience and ability in the employ
of, or providing services to, the Valhi Group and to furnish additional
incentive to such key individuals to promote the Valhi Group's financial
success.
Types of 1987 Awards. The Amended and Restated 1987 Plan provides for
awards or grants of stock options, SARs and restricted stock (collectively,
"1987 Awards").
Eligible Persons. Key individuals employed by, or performing services for,
the Valhi Group are eligible to receive 1987 Awards. A person who is eligible
to receive a 1987 Award may be a nonemployee director or some other person who
is not employed by the Valhi Group.
Administration. The MD&C Committee, consisting of two or more individuals,
administers the Amended and Restated 1987 Plan. The Amended and Restated 1987
Plan requires that the membership of the MD&C Committee or any successor
committee consist of "nonemployee directors" as defined in Rule 16b-3
promulgated by the Commission under the Exchange Act and "outside directors" as
defined under regulations promulgated by the Department of Treasury under
Section 162(m) of the Code. Members of the MD&C Committee must also meet any
applicable requirements of the Exchange. Eligible persons entitled to receive
1987 Awards include members of the MD&C Committee.
The MD&C Committee determines the "key individuals" to whom it grants 1987
Awards and the type, size and terms of such 1987 Awards. The MD&C Committee may
also amend the terms of any 1987 Award in any manner the MD&C Committee could
have determined at the grant of the original 1987 Award. In addition, the MD&C
Committee can construe and interpret the Amended and Restated 1987 Plan and any
1987 Award and to make all other determinations deemed necessary or advisable
for the administration of the Amended and Restated 1987 Plan.
Number of Shares Subject to the Amended and Restated 1987 Plan. The
Amended and Restated 1987 Plan reserves a maximum of 9,000,000 shares of Valhi
Common Stock for 1987 Awards, subject to certain adjustments. As of March 31,
1997, 5,188,600 shares of Valhi Common Stock were subject to outstanding 1987
Awards and 2,388,400 shares remained available for future 1987 Awards. Valhi
Common Stock issued under the Amended and Restated 1987 Plan may be either newly
issued shares, treasury shares, reacquired shares or any combination of the
three. If any shares of Valhi Common Stock issued as restricted stock under the
1987 Plan are reacquired by the Company pursuant to such rights, or if any 1987
Award is canceled, terminates or expires unexercised, the Valhi Common Stock
that would otherwise have been issuable pursuant to such 1987 Award will be
available for issuance under new 1987 Awards.
Annual Limit on 1987 Awards to an Individual. The underlying shares of
Valhi Common Stock issuable in any single fiscal year under 1987 Awards to an
individual shall not exceed one million shares.
Limitations on Transfers of 1987 Awards. Generally, a 1987 Award is
nontransferable except by approval of the MD&C Committee or by will or the laws
of descent and distribution. Incentive stock options, however, are transferable
only by will or the laws of descent and distribution.
Description of 1987 Awards under the Amended and Restated 1987 Plan
Stock Options. A 1987 Award of a stock option (a "1987 Stock Option") is
the right to purchase a specified number of shares of Valhi Common Stock at a
specified exercise price, both of which the MD&C Committee determines. The MD&C
Committee also determines when and how a 1987 Stock Option becomes exercisable.
The term of a 1987 Stock Option, however, cannot exceed ten years. A 1987
Stock Option may be either a nonqualified or an incentive stock option
The MD&C Committee may grant nonqualified 1987 Stock Options to any
eligible person under the 1987 Plan. The exercise price for nonqualified 1987
Stock Options may be equal to or greater than 85% of the fair market value of
the underlying shares of Valhi Common Stock on the date of grant.
The MD&C Committee may only grant incentive 1987 Stock Options to employees
of the Valhi Group. The exercise price of an incentive 1987 Stock Option may
not be less than the fair market value of the underlying shares of Valhi Common
Stock on the date of grant. The maximum aggregate fair market value of Valhi
Common Stock (determined as of the respective dates of grant) with respect to
which an incentive 1987 Stock Option is first exercisable by any one employee of
the Valhi Group in any calendar year cannot exceed $100,000. If the MD&C
Committee grants an incentive 1987 Stock Option to a person who owns more than
10% of the voting power of all classes of the stock of any of the Valhi Group (a
"Ten Percent Employee"), the option cannot have an exercise price lower than
110% of fair market value on the date of the grant or a term longer than five
years.
Payment of the exercise price of a 1987 Stock Option must be made in full
at the time of exercise in cash or check, by tendering shares of Valhi Common
Stock or in any combination of the three. For purposes of making such payment
in shares of Valhi Common Stock, such shares are valued at their fair market
value on the day of exercise and shall have been held by the option holder for a
period of at least six months.
1987 Stock Options granted under the 1987 Plan may be granted in
conjunction with SARs.
Stock Appreciation Rights. 1987 Plan SARs are rights to receive (without
payment to the Company) cash, Valhi Common Stock or any combination of the two
equal to the value of a related 1987 Stock Option. The MD&C Committee may grant
a SAR concurrently with its related 1987 Stock Option or at any time the related
1987 Stock Option is exercisable. A SAR is exercisable only to the extent that
the related 1987 Stock Option is exercisable and then only during such period or
periods as the MD&C Committee determines. Generally, a 1987 Plan SAR is not
exercisable within six months of its date of grant. In addition, a 1987 Plan
SAR is exercisable only when the fair market value of a share of Valhi Common
Stock exceeds the exercise price per share of its related 1987 Stock Option.
Upon the exercise of a 1987 Plan SAR, the holder receives, at the election
of the MD&C Committee, cash or shares of Valhi Common Stock or any combination
of the two equal in value to the excess of the fair market value of the shares
of Valhi Common Stock subject to such exercise over the exercise price for such
shares under the related 1987 Stock Option. Upon exercise of a SAR, the holder
must surrender the SAR and the related 1987 Stock Option, both of which
terminate with respect to the number of shares exercised.
Restricted Stock. A 1987 Award of restricted stock is an award of a number
of shares of Valhi Common Stock that are subject to certain restrictions (e.g.,
such stock shall be issued but not delivered to the recipient and, generally,
shall be forfeited if the recipient's employment or performance of services for
the Valhi Group terminates). Such restrictions exist for a certain restricted
period and in accordance with such terms as the MD&C Committee specifies. Prior
to the expiration of the restricted period and the satisfaction of any
applicable terms, a recipient who has received a 1987 Award of restricted stock
has the rights of ownership of the shares of Valhi Common Stock subject to such
award, including the right to vote and to receive dividends. Unless the MD&C
Committee provides otherwise, a 1987 Award of restricted stock expires five
years from its date of grant. Upon the expiration of a restricted period, the
recipient's payment of applicable taxes (if required by the MD&C Committee) and
written notice from the recipient, the Company shall issue a stock certificate
to the recipient representing the shares of Valhi Common Stock formerly subject
to the expired restricted period.
Additional Information
Adjustments in Shares of Valhi Common Stock. The MD&C Committee may make
such equitable adjustments to outstanding 1987 Awards and the number of shares
of Valhi Common Stock or other securities or property available under the
Amended and Restated 1987 Plan as the MD&C Committee deems appropriate to
preserve the value of an affected 1987 Award or the intended operation of the
Amended and Restated 1987 Plan. The types of events that could cause such
equitable adjustments include, without limitation, stock dividends, stock splits
or other changes in the capitalization of the Company, mergers or
reorganizations of the Company into or with any other corporation, spin-offs or
recapitalizations through dividends or distributions or any other transactions
with similar effects or changes in applicable laws or circumstances that would
be dilutive to 1987 Awards.
Rights to Continue as Employee or Service Provider. Neither the Amended
and Restated 1987 Plan nor any 1987 Award confers on any individual any right to
continue in the employ of, or provide services to, the Valhi Group.
Effectiveness of Rights under Awards and as Stockholders. The granting of
a 1987 Award occurs only when a written agreement evidencing the 1987 Award is
duly executed and delivered by the Company and the recipient. In addition, a
recipient of a 1987 Award has no rights as a stockholder with respect to the
shares of Valhi Common Stock issuable pursuant to the 1987 Award until the date
of issuance of the stock certificate for such shares.
Amendment. The Board of Directors and the stockholders of the Company may
amend or modify the Amended and Restated 1987 Plan at any time. The Board of
Directors alone may amend or modify the Amended and Restated 1987 Plan if
stockholder approval is not required by the Amended and Restated 1987 Plan. The
Amended and Restated 1987 Plan requires stockholder approval of amendments of
modifications to the Amended and Restated 1987 Plan only if required under
Section 422 of the Code (relating to provisions affecting incentive stock
options), any securities exchange on which shares of Valhi Common Stock are then
listed or as directed by the Board of Directors.
Termination. The Amended and Restated 1987 Plan terminates on the earlier
of May 28, 1997 or such time as the Board of Directors adopts a new plan in
replacement of the Amended and Restated 1987 Plan. The Board of Directors has
determined that the approval of the 1997 Plan shall constitute a replacement
plan of the 1987 Plan effective immediately prior to the time that the
stockholders adopt the 1997 Plan. Consequently, if the stockholders approve the
1997 Plan at the Meeting, the 1987 Plan terminates on the date of the Meeting.
If the stockholders do not adopt the 1997 Plan, the 1987 Plan terminates on May
28, 1997. The termination of the Amended and Restated 1987 Plan, however, does
not adversely affect any outstanding 1987 Award at the time of the termination.
If the stockholders approve the Amended and Restated 1987 Plan, outstanding
1987 Awards at the time of the termination of the Amended and Restated 1987 Plan
shall be subject to the new provisions of the Amended and Restated 1987 Plan.
If the Amended and Restated 1987 Plan is not approved by the stockholders, the
outstanding 1987 Awards at the time of the termination of the 1987 Plan shall be
subject to the terms of the 1987 Plan prior to February 13, 1997.
Registration of Valhi Common Stock under 1987 Plan. The Company has
already registered the issuance of the shares of Valhi Common Stock under the
1987 Plan with the Commission.
Federal Income Tax Consequences
The following is a summary of the principal current federal income tax
consequences of transactions under the Amended and Restated 1987 Plan. It does
not describe all federal tax consequences under the Amended and Restated 1987
Plan, nor does it describe state, local or foreign tax consequences.
Incentive Stock Options. No taxable income is realized by the recipient
upon the grant or exercise of an incentive stock option. However, the exercise
of an incentive stock option may result in alternative minimum tax liability for
the recipient. If no disposition of shares issued to a recipient pursuant to
the exercise of an incentive stock option is made by the recipient within two
years from the date of grant or within one year after the transfer of such
shares to the recipient, then upon sale of such shares, any amount realized in
excess of the exercise price will be taxed to the recipient as a long-term
capital gain and any loss sustained will be a long-term capital loss, and no
deduction will be allowed to the Company for federal income tax purposes.
If the shares of Valhi Common Stock acquired upon the exercise of an
incentive stock option are disposed of prior to the expiration of the two-year
and one-year holding periods described above, generally the recipient will
realize ordinary income in the year of disposition in an amount equal to the
excess (if any) of the fair market value of the shares at exercise (or, if less,
the amount realized on an arms'-length sale of such shares) over the exercise
price, and the Company will be entitled to deduct such amount. Any further gain
realized will be taxed as short-term or long-term capital gain and will not
result in any deduction by the Company. Special rules may apply where all or a
portion of the exercise price of the incentive stock option is paid by tendering
shares of Valhi Common Stock.
If an incentive stock option is exercised at a time when it no longer
qualifies for the tax treatment described above, the option is treated as a
nonqualified stock option. Generally, an incentive stock option will not be
eligible for the tax treatment described above if it is exercised more than
three months following termination of employment (one year following termination
of employment by reason of permanent and total disability), except in certain
cases where the incentive stock option is exercised after the death of a
recipient.
Nonqualified Stock Options. With respect to nonqualified stock options
granted under the Amended and Restated 1987 Plan, no income is realized by the
recipient at the time the option is granted. Generally, at exercise, ordinary
income is realized by the recipient in an amount equal to the difference between
the exercise price and the fair market value of the shares on the date of
exercise, and the Company receives a tax deduction for the same amount, and at
disposition, appreciation or depreciation after the date of exercise is treated
as either short-term or long-term capital gain or loss, depending on how long
the shares have been held.
SARs. The grant of a SAR does not result in income for the grantee or in a
deduction for the Company. Upon the exercise of a SAR, the grantee generally
recognizes ordinary income and the Company is entitled to a deduction equal to
the positive difference between the fair market values of the shares subject to
the SAR on the date of grant and the date of exercise.
Restricted Stock. A recipient of restricted stock generally will be
subject to tax at ordinary income rates on the fair market value of the stock at
the time the stock is either transferable or is no longer subject to forfeiture,
less any amount paid for such stock. The Company is entitled to a corresponding
tax deduction for the amount of ordinary income recognized by the recipient.
However, a recipient who so elects under Section 83(b) of the Code within 30
days of the date of issuance of the restricted stock will realize ordinary
income on the date of issuance equal to the fair market value of the shares of
restricted stock at that time (measured as if the shares were unrestricted and
could be sold immediately), less any amount paid for such stock. If the shares
subject to such election are forfeited, the recipient will not be entitled to
any deduction, refund or loss for tax purposes with respect to the ordinary
income previously recognized. Upon the sale of the shares after the forfeiture
period has expired, the appreciation or depreciation since the shares became
transferable or free from risk of forfeiture (or, if a Section 83(b) election
was made, since the shares were issued, taking into account the ordinary income
previously recognized) will be treated as long-term or short-term capital gain
or loss. The holding period to determine whether the recipient has long-term or
short-term capital gain or loss begins when the restriction period expires (or
upon the earlier issuance of the shares, if the recipient elected immediate
recognition of income under Section 83(b)).
Plan Benefits
The 1987 Plan Amendments have not resulted in any changes in the number of
1987 Awards granted to date. The Board of Directors approved the 1987 Plan
Amendments so that stock options outstanding under the 1987 Plan would be
governed in a substantially similar manner as stock options granted under the
1997 Plan. The MD&C Committee does not intend to grant any new 1987 Awards
under the 1987 Plan.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDED AND
RESTATED 1987 PLAN.
ADOPTION OF THE
VALHI, INC. 1997 LONG-TERM INCENTIVE PLAN
(Proposal 3)
The Board of Directors seeks the approval by the Company's stockholders of
the 1997 Plan. The Board of Directors adopted the 1997 Plan on February 13,
1997 but made the adoption effective immediately prior to and subject to
stockholder approval of the 1997 Plan. The text of the 1997 Plan is attached as
Appendix C. The description of the 1997 Plan in this proxy statement is
qualified in its entirety by reference to the complete text of the 1997 Plan in
Appendix C.
Description of the 1997 Plan
General
Purpose. The purpose of the 1997 Plan is to advance the interests of Valhi
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 Valhi Group.
Types of 1997 Awards. The 1997 Plan provides for awards or grants of stock
options, SARs, restricted stock, performance grants and other awards deemed by
the MD&C Committee to be consistent with the purposes of the 1997 Plan
(collectively, "1997 Awards").
Eligible Persons. Key individuals employed by, or performing services for,
the Valhi Group are eligible to receive 1997 Awards. A person who is eligible
to receive a 1997 Award may be a nonemployee director or some other person who
is not employed by the Valhi Group.
Administration. Generally, a committee of the Board of Directors
consisting of two or more individuals administers the 1997 Plan (the "1997
Committee"). The 1997 Plan provides that the MD&C Committee is the initial
committee to administer the Plan. In certain other instances, the Board of
Directors or other persons may administer the 1997 Plan. The 1997 Plan requires
that the membership of the 1997 Committee consist of "nonemployee directors" as
defined in Rule 16b-3 promulgated by the Commission under the Exchange Act and
"outside directors" as defined under regulations promulgated by the Department
of Treasury under Section 162(m) of the Code. Members of the 1997 Committee
must also meet any applicable requirements of the Exchange. Eligible persons
entitled to receive 1997 Awards include members of the 1997 Committee.
The 1997 Committee determines the eligible persons to whom it grants 1997
Awards and the type, size and terms of such 1997 Awards. The 1997 Committee may
also amend the terms of any 1997 Award in any manner the 1997 Committee could
have determined at the grant of the original 1997 Award. In addition, the 1997
Committee can construe and interpret the 1997 Plan and any 1997 Award and to
make all other determinations deemed necessary or advisable for the
administration of the 1997 Plan.
Number of Shares Subject to the 1997 Plan. The 1997 Plan reserves a
maximum of 5,000,000 shares of Valhi Common Stock for 1997 Awards, subject to
certain adjustments. Valhi Common Stock issued under the 1997 Plan may be
either newly issued shares, treasury shares, reacquired shares or any
combination of the three. If any shares of Valhi Common Stock issued as
restricted stock under the 1997 Plan are reacquired by the Company pursuant to
such rights, or if any 1997 Award is canceled, terminates or expires
unexercised, the Valhi Common Stock that would otherwise have been issuable
pursuant to such 1997 Award will be available for issuance under new 1997
Awards.
Annual Limit on 1997 Awards to an Individual. The underlying shares of
Valhi Common Stock issuable in any single fiscal year under 1997 Awards to an
individual shall not exceed one million shares.
Limitations on Transfers of 1997 Awards. Generally, a 1997 Award is
nontransferable except by approval of the 1997 Committee or by will or the laws
of descent and distribution. Incentive stock options, however, are transferable
only by will or the laws of descent and distribution.
Description of 1997 Awards under the 1997 Plan
Stock Options. A 1997 Award of a stock option (a "1997 Stock Option") is
the right to purchase a specified number of shares of Valhi Common Stock at a
specified exercise price, both of which the 1997 Committee determines. The 1997
Committee can choose whether on not the grant of a 1997 Option requires the
recipient to pay a purchase price at the time of grant. The 1997 Committee also
determines when and how a 1997 Stock Option becomes exercisable. The term of a
1997 Stock Option, however, cannot exceed ten years. A 1997 Stock Option may be
either a nonqualified or an incentive stock option
The 1997 Committee may grant nonqualified 1997 Stock Options to any
eligible person under the 1997 Plan. The exercise price for nonqualified 1997
Stock Options may be at any price the 1997 Committee determines.
The 1997 Committee may only grant incentive 1997 Stock Options to employees
of the Valhi Group. The exercise price of an incentive 1997 Stock Option may
not be less than the fair market value of the underlying shares of Valhi Common
Stock on the date of grant. The maximum aggregate fair market value of Valhi
Common Stock (determined as of the respective dates of grant) with respect to
which incentive stock option are first exercisable by any one employee of the
Valhi Group in any calendar year cannot exceed $100,000. If the 1997 Committee
grants an incentive 1997 Stock Option to a Ten Percent Employee, the option
cannot have an exercise price lower than 110% of fair market value on the date
of the grant or a term longer than five years. In addition, the recipient of an
incentive 1997 Stock Option cannot exercise the option beyond the time the Code
allows for the favorable tax treatment of incentive stock options.
Payment of the exercise price of a 1997 Stock Option must be made in such
form as the 1997 Committee determines in its discretion. If the Committee
allows payment to be made with shares of Valhi Common Stock, such shares are
valued at their fair market value on the day of exercise and shall have been
held by the option holder for a period of at least six months.
The 1997 Committee may grant 1997 Stock Options in conjunction with any
other Award, except that incentive 1997 Stock Options cannot have an Associated
Award that is a nonqualified 1997 Stock Option. When the 1997 Committee awards
a 1997 Stock Option in conjunction with an associated Award, the number of Valhi
Common Shares subject to the 1997 Stock Option may be reduced on an appropriate
basis to the extent that the associated Award is exercised, paid to or otherwise
received by the recipient, as determined by the Committee.
Stock Appreciation Rights. 1997 Plan SARs are rights to receive (without
payment to the Company) cash, Valhi Common Stock, other property or any
combination of the three based on the increase in the value of the Valhi Common
Stock specified in the SAR. A 1997 Plan SAR that is related to another Award is
exercisable only to the extent that the other Award is exercisable and then only
during such period or periods as the 1997 Committee determines. In addition, a
1997 Plan SAR that is associated with a 1997 Stock Option is exercisable only
when the fair market value of a share of Valhi Common Stock exceeds the exercise
price per share of the associated 1997 Stock Option. If a 1997 Plan SAR's
Associated Award is an incentive 1997 Stock Option, the exercise of the 1997
Plan SAR is limited to those instances where its exercise would not disqualify
the associated stock option's status as an incentive stock option under the
Code. When the 1997 Committee awards a 1997 Plan SAR in conjunction with an
associated Award, the number of Valhi Common Shares subject to the 1997 Plan SAR
may be reduced on an appropriate basis to the extent that the associated Award
is exercised, paid to or otherwise received by the recipient, as determined by
the Committee.
Upon the exercise of a 1997 Plan SAR, the holder receives, at the election
of the 1997 Committee, cash, shares of Valhi Common Stock, other consideration
or any combination of the three equal in value (or in the discretion of the 1997
Committee, less than) to the excess of the fair market value of the shares of
Valhi Common Stock subject to such exercise over the exercise price for such
shares as specified in the SAR.
Restricted Stock. A 1997 Award of restricted stock is an award of a number
of shares of Valhi Common Stock that are subject to certain restrictions (e.g.,
such stock shall be issued but not delivered to the recipient and, generally,
shall be forfeited if the recipient's employment or performance of services for
the Valhi Group terminates). Such restrictions exist for a certain restricted
period and in accordance with such terms as the 1997 Committee specifies. Prior
to the expiration of the restricted period and the satisfaction of any
applicable terms, a recipient who has received a 1997 Award of restricted stock
has the rights of ownership of the shares of Valhi Common Stock subject to such
award, including the right to vote and to receive dividends.
Performance Grants. At the time a 1997 Award of a performance grant is
made, the 1997 Committee establishes performance objectives during a specified
award period. The final value, if any, of a performance grant is determined by
the degree to which the performance objectives have been achieved during the
award period, subject to adjustments that the 1997 Committee may approve based
on relevant factors. Performance objectives may be based on the performance of
the recipient, the Valhi Group, one or more of its subsidiaries or one or more
of their divisions or units, or any combination of thereof, as the 1997
Committee determines. The 1997 Committee may, in its discretion, make
adjustments in the computation of any performance measure. The maximum value of
a 1997 Award of a performance grant as established by the 1997 Committee may be
a fixed amount, an amount that varies from time to time based on the value of
the Valhi Common Stock, or an amount that is determinable from other criteria
the 1997 Committee specifies. Performance grants may have different classes or
series, having different names, terms and conditions.
The 1997 Committee may grants Awards of performance grants in conjunction
with other Awards. If awarded in conjunction with an associated Award, the
number of performance grants may be reduced on an appropriate basis to the
extent that the associated Award is exercised by, paid to, or otherwise received
by, the recipient, as determined by the 1997 Committee.
The 1997 Committee will generally determine the value of a 1997 Award of a
performance grant as promptly as practicable after the end of the award period
or upon the earlier termination of the recipient's employment or performance of
services. The 1997 Committee may, however, determine the value of the
performance grant and pay it out at any time during the award period. If the
performance grant does not have an associated Award, the holder of the
performance grant will be paid the final value. If the performance grant has
value and has an associated Award, however, the 1997 Committee will determine
whether to cancel the performance grant and permit the recipient to retain the
associated Award, to cancel the associated Award and pay out the value of the
performance grant or to pay out the value of only a portion of the performance
grant and to cancel the associated Award as to an appropriate portion thereof.
Payment. Payment of a 1997 Award such as a performance grant may be made
in cash, shares of Valhi Common Stock or other consideration (for example, other
Valhi Group securities or property) or a combination of the three, and in
accordance with terms the 1997 Committee sets. The 1997 Committee may also
permit any payments under a 1997 Award be deferred until a later date upon such
terms as the 1997 Committee provides.
Additional Information
Adjustments in Shares of Valhi Common Stock. Under the 1997 Plan, if any
change in the outstanding shares of Valhi Common Stock occurs by reason of an
extraordinary or unusual event (e.g. stock split, stock dividend,
recapitalization or merger), the 1997 Committee may direct appropriate changes
in the terms of any 1997 Award or the number of shares of Valhi Common Stock
available for 1997 Awards. Such changes may include the number or kind of
securities that may be subject to, the exercise price under, or any measure of
performance or the number or value of any Award.
Amendments to Awards. The 1997 Committee may amend or modify any
outstanding 1997 Award in any manner (including, but not limited to,
acceleration of the date of exercise of or payments under any 1997 Award) if the
1997 Committee could grant such amended or modified Award under the terms of the
1997 Plan at the time of such amendment or modification. Only in certain
circumstances, however, may the 1997 Committee amend or modify an outstanding
1997 Award in a material manner that adversely affects the holder of the
affected 1997 Award without the holder's written consent
Substitution of Awards. The 1997 Committee may permit holders of 1997
Awards to surrender outstanding 1997 Awards in order to exercise or realize the
rights under other 1997 Awards. In addition, the 1997 Committee may allow or
require holders of 1997 Awards to exchange such outstanding 1997 Awards for the
grant of new 1997 Awards.
Significant Corporate Events. In the event of the proposed dissolution or
liquidation of Valhi, all outstanding 1997 Awards terminate immediately prior to
the consummation of such proposed action, unless otherwise provided by the 1997
Committee. In the event of a proposed sale of all or substantially all of the
assets of Valhi or the merger of Valhi with or into another corporation, all
restrictions on any outstanding 1997 Awards lapse and recipients of 1997 Awards
become entitled to the full benefit of their 1997 Awards immediately prior to
the closing date of such sale or merger, unless otherwise provided by the 1997
Committee.
Rights to Continue as Employee or Service Provider. Neither the 1997 Plan
nor any 1997 Award confers on any individual any right to continue in the employ
of, or provide services to, the Valhi Group.
Effectiveness of Rights as Stockholders. A recipient of a 1997 Award has
no rights as a stockholder with respect to the shares of Valhi Common Stock
issuable pursuant to the 1997 Award until the date of issuance of the stock
certificate for such shares.
Financing. If the 1997 Committee deems it advisable, the Valhi Group may
assist recipients of 1997 Awards with financing from the Valhi Group or a third
party so as to permit the payment of taxes with respect to a 1997 Award or to
enable the recipient to acquire, exercise or realize the rights of a 1997 Award.
Such assistance may take any form as the 1997 Committee considers appropriate.
Deferrals. The 1997 Committee may grant a 1997 Award in conjunction with
the deferral of a recipient's compensation. The 1997 Committee may provide that
any such deferred compensation be forfeited to the Company under certain
circumstances, subject to an increase or decrease in value based upon specified
performance measures or credited with income equivalents until the date or dates
of payment of the 1997 Award.
Alternative Payments for Tax Withholding. The 1997 Committee may permit a
recipient of a 1997 Award to elect to pay taxes required to be withheld with
respect to a 1997 Award in any appropriate manner (including, without
limitation, by the surrender to the Company of shares of Valhi Common Stock
owned by such person or that would otherwise be distributed, or have been
distributed, as the case may be, pursuant to such 1997 Award).
Termination. The 1997 Plan terminates on the earlier of the tenth
anniversary of the date the 1997 Plan is approved by the Company's stockholders
or such time as the Board of Directors adopts a resolution terminating the 1997
Plan. The Board of Directors may extended the 1997 Plan for up to an additional
five years for the grant of 1997 Awards other than incentive 1997 Stock Options.
Amendments to the 1997 Plan. The Board of Directors may amend the 1997
Plan at any time. Except in certain circumstances, no amendment shall adversely
affect in a material manner any right of any recipient of a 1997 Award without
such recipient's written consent.
Registration of Valhi Common Stock under 1997 Plan. The Company intends to
register the issuance of the shares of Valhi Common Stock under the 1997 Plan
with the Commission.
Federal Income Tax Consequences
The following is a summary of the principal current federal income tax
consequences of transactions under the 1997 Plan. It does not describe all
federal tax consequences under the 1997 Plan, nor does it describe state, local
or foreign tax consequences.
Incentive Stock Options. The tax treatment of incentive stock options is
described in "Amendment and Restatement of the Valhi, Inc. 1987 Stock Option -
Stock Appreciation Rights Plan (Proposal 2) - Federal Income Tax Consequences -
Incentive Stock Options."
Nonqualified Stock Options. The tax treatment of nonqualified stock
options is described in "Amendment and Restatement of the Valhi, Inc. 1987 Stock
Option - Stock Appreciation Rights Plan (Proposal 2) - Federal Income Tax
Consequences - Nonqualified Stock Options."
SARs. The tax treatment of SARs is described in "Amendment and Restatement
of the Valhi, Inc. 1987 Stock Option - Stock Appreciation Rights Plan (Proposal
2) - Federal Income Tax Consequences - SARs."
Restricted Stock. The tax treatment of restricted stock is described in
"Amendment and Restatement of the Valhi, Inc. 1987 Stock Option - Stock
Appreciation Rights Plan (Proposal 2) - Federal Income Tax Consequences -
Restricted Stock."
Performance Awards. The recipient of a performance award will generally be
subject to tax at ordinary income rates on any cash received and the fair market
value of any Valhi Common Stock issued under the award, and the Company will
generally be entitled to a deduction equal to the amount of ordinary income
realized by the recipient. Any cash received under a performance award will be
included in income at the time of receipt. The fair market value of any Valhi
Common Stock received will also generally be included in income (and a
corresponding deduction will generally be available to the Company) at the time
of receipt. The capital gain or loss holding period for any Valhi Common Stock
distributed under a performance award will begin when the recipient recognizes
ordinary income with respect to that distribution.
Plan Benefits
Since the 1997 Committee grants 1997 Awards in its discretion, the benefits
that recipients of 1997 Awards shall receive from the 1997 Plan are presently
indeterminable.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ADOPTION OF THE 1997 PLAN.
OTHER MATTERS
The Board of Directors knows of no other business that will be presented
for consideration at the Meeting. If any other matters properly come before the
Meeting, the persons designated as agents in the enclosed proxy card will vote
on such matters in accordance with their best judgment.
INDEPENDENT PUBLIC ACCOUNTANTS
The firm of Coopers & Lybrand, L.L.P. served as the Company's primary
independent public accountants for the year ended December 31, 1996 and is
expected to be considered for appointment as such for the year ended December
31, 1997. Representatives of Coopers & Lybrand, L.L.P. will have an opportunity
to make a statement at the Meeting if they desire to do so, and will be
available to respond to appropriate questions.
STOCKHOLDER PROPOSALS FOR 1998 MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at the Company's annual stockholder meetings, consistent with rules
adopted by the Commission. Such proposals must be received by the Company not
later than December 8, 1997 to be considered for inclusion in the proxy
statement and form of proxy relating to the 1998 Annual Meeting of Stockholders.
Any such proposals should be addressed to: Corporate Secretary, Valhi, Inc.,
Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697.
1996 ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as filed with the Commission, is included as part of
the Annual Report mailed to the Company's stockholders with this Proxy
Statement. Copies of such Annual Report may be obtained without charge by
writing: Corporate Secretary, Valhi, Inc., Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240-2697.
APPENDICES
Annexed to this Proxy Statement are the following:
(1) in Appendix A, a description of additional matters related
to the 1996 compensation NL paid to Joseph S. Compofelice, an
executive officer of Valhi, and information with respect to certain
related party transactions involving NL;
(2) in Appendix B, the Amended and Restated 1987 Plan; and
(3) in Appendix C, the 1997 Plan.
VALHI, INC.
Dallas, Texas
March 31, 1997
APPENDIX A
Compensation Paid by NL Industries, Inc.
to Joseph S. Compofelice and Related Issues
The information provided in this Appendix A is based on information
provided in the NL Proxy Statement.
Grants of NL Stock Options and Stock Appreciation Rights. The following
table provides information with respect to Mr. Compofelice concerning the grant
of stock options exercisable for NL Common Stock under the 1989 Long Term
Performance Incentive Plan of NL Industries, Inc. (the "NL Incentive Plan")
during 1996. No stock appreciation rights were granted under the NL Incentive
Plan in 1996.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
--------------------------------------------------
Percent of
Number of Total
Shares of NL Options
Common Stock Granted to
Underlying NL Exercise or
Options Employees Base Price Expiration
Name Granted (#) in 1996 Per Share Date
- ----------------------- ------------ ----------- ----------- --------------
Joseph S. Compofelice... 8,000(2) 11.04% $14.25(3) 2/14/06
8,000(2) 15.75
8,000(2) 17.25
Potential Realizable Value at
Assumed Annual Rates of
Stock Price Appreciation
of NL Common Stock
for Option Term (1)
--------------------------------------------------
Name 5% 10%
- ----------------------- ----------------------- -------------------------
Joseph S. Compofelice $71,693 $181,686
59,693 169,686
47,693 157,686
- ----------
(1) Pursuant to the rules of the Commission, the amounts under these columns
reflect calculations at assumed 5% and 10% appreciation rates and,
therefore, are not intended to forecast future appreciation, if any, of NL
Common Stock. The potential realizable value to Mr. Compofelice was
computed as the difference between the appreciated value at the end of the
ten-year term of the stock option of the NL Common Stock into which such
stock option is exercisable and the aggregate exercise price of such stock
option on such date. The appreciated value per share at the end of the
ten-year term would be $23.21 and $36.96 at the assumed 5% and 10% rates,
respectively.
The amount of gain to Mr. Compofelice is dependent on the amount of
increase in the price of NL Common Stock, which would benefit all NL
shareholders proportionately. These potentially realizable values are
based solely on arbitrarily assumed rates of appreciation required by
applicable Commission regulations. Actual gains, if any, on stock option
exercises are dependent on the future performance of NL Common Stock,
overall market conditions and the timing of the exercise thereof by Mr.
Compofelice. There can be no assurance that the amounts reflected in the
table will be achieved.
(2) This stock option is exercisable for shares of NL Common Stock. This stock
option was granted as of February 14, 1996 under the NL Incentive Plan.
This stock option vests over five years from the date of grant at a rate of
40% on the second anniversary of the date of grant and 20% on each of the
next three succeeding anniversary dates. The options expire on the tenth
anniversary of the date of grant.
(3) This exercise price of $14.25 is equal to the mean of the high and the low
sales prices on the date of grant of NL Common Stock as reported by the New
York Stock Exchange Composite Tape; exercise prices of $15.75 and $17.25
are equal to the foregoing mean price on the date of grant plus $1.50 and
$3.00, respectively.
NL Stock Option Exercises and NL Holdings. The following table provides
information with respect to Joseph S. Compofelice concerning the value of
unexercised NL stock options held by him as of December 31, 1996. Mr.
Compofelice did not exercise any NL stock options in 1996. In addition, no
stock appreciation rights have been granted under the NL Incentive Plan.
DECEMBER 31, 1996 OPTION VALUES
Number of Shares Underlying
Unexercised Options at
Name December 31, 1996 (#)
- -------------------------------- ------------------------------
Exercisable Unexercisable
-------------- --------------
Joseph S. Compofelice........... 50,000 129,000
Value of Unexercised
In-the-Money Options
Name at December 31, 1996 (1)
- -------------------------------- ------------------------------
Exercisable Unexercisable
-------------- --------------
Joseph S. Compofelice........... $106,250 $159,375
- ----------
(1) The aggregate amount represents the difference between the exercise price
of Mr. Compofelice's stock options and the $10.875 per share market value
of NL Common Stock on December 31, 1996, calculated as the last reported
sales price per share as reported on the New York Stock Exchange Composite
Tape on such date.
NL Pension Plan. The Retirement Plan of NL Industries, Inc. for its U.S.
employees (the "NL Pension Plan") provides lifetime retirement benefits to
eligible employees. In February 1996, NL approved the suspension of all future
accruals under the salary component of the NL Pension Plan effective as of March
31, 1996 (the "Suspension Date"). Salaried employees who were at least 21 years
of age became eligible to participate in the NL Pension Plan if they completed
at least five months of service (as defined in the NL Pension Plan) in a
specified twelve-month period prior to the Suspension Date. Annually, prior to
the Suspension Date, NL's Board of Directors established, in its discretion, the
amount of an employee's annual pension benefit for the year based primarily on
the employee's total eligible earnings for that year and NL's financial
performance in relationship to its annual operating plan for the previous year.
To the extent that the minimum, target, or maximum level of operating income
performance were achieved, the employee earned an annual benefit equal to 1%, 2%
or 3%, respectively, of such employee's total base salary and bonus up to the
limits set forth in the Code. See "-NL Compensation Committees' Report on
Executive Compensation-Variable Compensation Plan." Such pension benefits are
payable upon retirement and attainment of ages specified in the NL Pension Plan.
The NL Pension Plan covers Mr. Compofelice. No amounts were paid or
distributed to Mr. Compofelice in 1996. The estimated accrued annual benefits
payable upon retirement at normal retirement age for Mr. Compofelice is $9,293.
NL Employment Agreement with Mr. Compofelice. In connection with Mr.
Compofelice's employment with NL in February 1994, NL's Management Development
and Compensation Committee approved the terms of an executive severance
agreement with Mr. Compofelice that have since been incorporated into an
executive severance agreement that provides that Mr. Compofelice's employment
with NL may be terminated at any time by action of NL's board of directors. The
executive severance agreement also provides that the following payments shall be
made to Mr. Compofelice in the event Mr. Compofelice's employment with NL is
terminated by NL without cause (as defined in the agreement) or Mr. Compofelice
terminates his employment with NL for good reason (as defined in the agreement):
(i) the greater of two times Mr. Compofelice's annual base salary plus target
bonus (which shall not be less than the amount of his annual salary) or Mr.
Compofelice's actual salary and bonus for the two years prior to termination;
(ii) accrued salary and bonus through the date of termination; (iii) an amount
in cash or NL Common Stock equal to the fair market value of outstanding NL
stock options granted to Mr. Compofelice in excess of the exercise price and
unvested NL restricted stock awarded to Mr. Compofelice; (iv) an amount equal to
unvested NL contributions together with an amount equal to NL's matching
contributions to Mr. Compofelice's account under the NL Savings Plan for a
period of two years; (v) an amount equal to the vested and unvested portions of
Mr. Compofelice's account under the Supplemental Executive Retirement Plan for
Executives and Officers of NL Industries, Inc.; and (vi) certain other benefits.
This agreement is automatically extended for a one-year term commencing each
January 1, unless NL and Mr. Compofelice agree otherwise in writing.
Certain NL Relationships and Transactions
Intercorporate Services Agreements. NL and Valhi are parties to an
intercorporate services agreement (the "Valhi/NL ISA") whereby Valhi renders
certain management, financial and administrative services to NL and NL makes the
services of Joseph S. Compofelice and NL's internal audit personnel available to
Valhi. In addition in 1996, NL provided to Valhi certain insurance and risk
management services. Mr. Compofelice serves as an executive officer of Valhi.
NL expects to receive total net fees of approximately $30,000 from Valhi for
services provided during 1996 after receiving credit for the amount owed by
Valhi to NL for the portion of Mr. Compofelice's salary earned in 1995 and 1996
for services attributable to Valhi and for certain internal audit services
provided to Valhi in 1995. Valhi expects to pay a higher net amount for NL's
services in 1997. The Valhi/NL ISA is subject to termination or renewal by
mutual agreement and may be terminated by either party pursuant to a written
notice delivered 30 days prior to a quarter-end.
NL and Tremont are parties to an intercorporate services agreement (the
"NL/Tremont ISA") whereby the NL makes available to Tremont and TIMET certain
services with respect to Tremont's and TIMET's insurance, risk management, real
property, internal audit and executive secretarial needs. Tremont paid fees of
approximately $161,000 to NL for services pursuant to the NL/Tremont ISA during
1996. In addition in 1996, NL provided to Tremont and TIMET certain tax
services totaling approximately $100,000 for which NL expects to be reimbursed
in 1997. The NL/Tremont ISA is subject to termination or renewal by mutual
agreement for succeeding one-year terms commencing January 1, 1996 and may be
terminated at anytime by either party pursuant to 90 day prior written notice to
the other party. NL expects to receive approximately $100,000 for services to
be provided to Tremont in 1997. NL also expects to enter into a separate
intercorporate services agreement with TIMET in 1997, and to receive
approximately $350,000 for services to be provided to TIMET in 1997.
Tremont Registration Rights Agreement. In connection with the December
1991 purchase by Tremont of 7.8 million shares of NL Common Stock from Valhi, NL
entered into a Registration Rights Agreement pursuant to which Tremont received
certain registration rights with respect to the purchased shares. Unless all
registration rights are exercised earlier, such agreement expires in December
2001.
Valhi Stock Options. Certain employees of the NL hold options to purchase
Valhi Common Stock under the terms of the 1987 Plan. At December 31, 1996,
three of NL's executive officers (including Mr. Compofelice) and one other
employee held options to purchase, in the aggregate, 415,000 shares of Valhi
Common Stock at exercise prices ranging from $4.76 to $14.66 per share. With
respect to all such employees except Mr. Compofelice, NL has agreed to pay Valhi
the aggregate difference between the option price and the market value per share
of Valhi Common Stock on the exercise date if such options are exercised.
Insurance Sharing Agreement. An indirect insurance subsidiary of Tremont
has assumed the obligations of the issuer of certain reinsurance contracts that
relate to primary insurance policies issued by a third-party insurance company
in favor of Tremont and NL. NL and the Tremont insurance subsidiary are parties
to an insurance sharing agreement with respect to such reinsurance contracts
(the "Insurance Sharing Agreement"). Under the terms of the Insurance Sharing
Agreement, NL will reimburse the Tremont insurance subsidiary with respect to
certain loss payments and reserves established by such Tremont subsidiary that
(a) arise out of claims against NL and its subsidiaries (the "NL Liabilities")
and (b) are subject to payment by such Tremont subsidiary under its reinsurance
contracts with the third-party insurance company. Also pursuant to the
Insurance Sharing Agreement, the Tremont insurance subsidiary is to credit NL
with respect to certain underwriting profits or recoveries that such Tremont
subsidiary receives from independent reinsurers that relate to the NL
Liabilities. As of December 31, 1996, NL had current accounts payable to such
Tremont subsidiary of approximately $3.6 million with respect to such agreement.
Other Certain NL Relationships and Transactions. For a discussion of
certain other NL relationships and transactions, see "Certain Relationships and
Transactions" in the Proxy Statement.
NL Compensation Committees' Report on Executive Compensation
The following report is the same as the one that appears in the NL Proxy
Statement. Accordingly, capitalized terms that appear in the following report
have the same meanings given to such terms as in the NL Proxy Statement. Cross
references appearing in the following report refer to sections of the NL Proxy
Statement. A copy of the NL Proxy Statement can be obtained without charge by
writing: Investor Relations Department, NL Industries, Inc., 16825 Northchase
Drive, Suite 1200, Houston, Texas 77060.
The Company's Management Development and Compensation Committee (the "MDC
Committee") consists of, and the Stock-Based Compensation Committee ("SBC
Committee" and collectively with the MDC Committee, the "Committees") during its
existence consisted of, individuals who are neither officers nor employees of
the Company or its subsidiaries and who are not eligible to participate in any
of the employee benefit plans administered by such committees.
The MDC Committee reviews and recommends executive officer compensation
policies and practices. The MDC Committee was responsible for reviewing and
approving all compensation actions during 1996, excluding stock-based
compensation, involving the Company's executive officers. However, any action
in connection with the Chief Executive Officer's (the "CEO") base salary is
reviewed and approved by the Board after recommendation by the MDC Committee.
In February 1996, the Board established the SBC Committee for the purpose of
reviewing and approving all actions involving the grant of stock options, stock
appreciation rights, and restricted stock awards under the Incentive Plan. The
SBC Committee was responsible for reviewing and approving all stock-based
compensation actions during 1996. See "Meetings and Committees."
The Company's compensation system with respect to its executive officers,
including the CEO, consists of three primary components: base salary, annual
variable compensation pursuant to the Variable Compensation Plan, and the grant
of stock options, restricted stock and/or stock appreciation rights pursuant to
the Incentive Plan. Through the use of the foregoing, the Committees seek to
achieve a balanced compensation package that will attract and retain high
quality key executives, appropriately reflect each such executive officer's
individual performance, contributions, and general market value, and provide
further incentives to such officers to maximize annual operating performance and
long-term shareholder value.
Base Salaries
The MDC Committee reviews any recommendations of the CEO regarding changes
in base salaries for executive officers. Such recommendations are made after
the CEO's consultation with the Chairman of the Board. Reviews regarding
changes in the base salaries of executive officers occur no more frequently than
annually. When recommendations regarding changes in base salary levels are made
by the CEO, the MDC Committee may take such actions, including any
modifications, as it deems appropriate. The CEO's recommendations and the MDC
Committee's actions in 1996 were based primarily on a subjective evaluation of
past and potential future individual performance and contributions and
alternative opportunities that might be available to the executives in question.
The Committee also had available to it compensation data from companies
employing executives in positions similar to those whose salaries were being
reviewed as well as market conditions for executives in general with similar
skills, background and performance levels, both inside and outside of the
chemicals industry (such companies may include companies contained in the peer
group index plotted on the Performance Graph following this report), and other
companies with similar financial and business characteristics as the Company, or
where the executive in question has similar responsibilities. In 1996, the MDC
Committee approved a base annual salary increase for Ms. Alderton from $150,000
to $170,000 (on an annualized basis), for Mr. Garten from $225,000 to $250,000,
and for Mr. Newkirk from $150,000 to $170,000 based on the considerations
described in this paragraph. No action was taken with respect to the base
salaries of any of the other executive officers of the Company, including the
CEO.
Variable Compensation Plan
Awards under the Variable Compensation Plan constitute a significant
portion of an executive's potential annual cash compensation (between 0% and
150% of base salary for the CEO and the executive officers). Awards are based
primarily on the applicable business segment achieving annual predetermined
operating income goals and secondarily, with respect to certain of the executive
officers, on individual performance. The Company's management makes
recommendations to the Board regarding the operating income plan for the year
after reviewing market conditions and the Company's operations, competitive
position, marketing opportunities, and strategies for maximizing financial
performance. The Board approves this recommendation with any modifications it
deems appropriate. Based on the business plan for the year, the MDC Committee
sets the Company's and its business segments' operating income goals at three
levels which are designed to help focus the Company's executives on achieving
superior annual operating results in light of existing conditions: a threshold
level, which is the minimum operating income level for any award to be made
under the Variable Compensation Plan (the "Minimum Level"), a target level (the
"Target Level"), and a maximum level (the "Maximum Level"). The Variable
Compensation Plan, in combination with base salary, is designed to result in
executive officers and other eligible participants receiving annual cash
compensation below competitive compensation levels if the Minimum Level is not
achieved.
Pursuant to the Variable Compensation Plan, if operating income is below
the Minimum Level, no variable compensation is paid. If the Minimum Level is
met, executive officers are eligible to receive variable compensation payments
that in 1996 ranged between 14% and 60% of base salary, depending on the
executive. If the Target Level is reached, the range of variable compensation
payments is higher, and in 1996 ranged between 22% and 100% of base salary,
depending on the executive. If the Maximum Level is reached or exceeded,
executives are eligible to receive the highest variable compensation payments,
and in 1996 the range of payments for which executive were eligible was between
35% and 150% of base salary, depending on the executive. In view of the
achievement of operating income during 1995 above the Maximum Level, in 1996 the
MDC Committee approved Maximum Level payments under the Variable Compensation
Plan to the executive officers, including the CEO. Such awards to the CEO and
the four other highest paid executive officers under the Variable Compensation
Plan are reported in the bonus column in the Summary Compensation Table set
forth above.
Apart from the Variable Compensation Plan, the MDC Committee may award
other bonuses as the MDC Committee deems appropriate from time to time under its
general authority or under a separate discretionary plan. In addition, target
levels for operating income performance were utilized by the MDC Committee and
the Board, as applicable, for determining the contributions by the Company to
the accounts of eligible participants, including the CEO and the executive
officers, under the Savings Plan, the Pension Plan, and the SERP. See "Pension
Plan" above.
Stock-Based Compensation
The Incentive Plan further supports the goal of maximizing long-term
shareholder value by providing for stock-based compensation, the value of which
is directly related to increases in shareholder value. Stock option grants, in
particular, are considered a significant element of the Company's total
compensation package for the CEO and the other executive officers of the
Company. The Committees believe that compensation linked to stock price
performance helps focus the executives' attention on management of the Company
from the shareholders' perspective.
Option grants are intended to provide incentives to increase shareholder
value in the future and to reward past performance by the executive. In 1996,
the SBC Committee reviewed recommendations by the CEO regarding option grants to
executive officers other than the CEO. Options were granted to executive
officers, including the CEO, in the SBC Committee's discretion based on a
subjective evaluation regarding each executive's performance and
responsibilities. In 1996, the SBC Committee included in its determination
regarding the number of options to be granted to each executive officer,
including the CEO, the amount and terms of options already held by such
officers. Grants made in 1996 are reported in the Option Grants in Last Fiscal
Year Table set forth above.
To help assure a focus on long-term creation of shareholder value, the SBC
Committee granted ten year options, which vest 40%, 60%, 80% and 100% on the
second, third, fourth and fifth anniversary dates of the date of grant,
respectively. In 1996 the SBC Committee granted options in three exercise price
tranches. One-third of such options granted in 1996 are exercisable at the fair
market value of the Common Stock on the date of grant. The remaining two-thirds
of the options are exercisable at levels that are above the market price on the
date of grant. See the Summary Compensation Table above. Although permitted
under the Incentive Plan, the SBC Committee in 1996 did not make or recommend
any grants of restricted stock, stock appreciation rights or other equity-based
awards.
To encourage growth in shareholder value, the MDC Committee believes that
executives who are in a position to make a substantial contribution to the long-
term success of the Company should have a significant stake in its ongoing
success. In 1993, the MDC Committee established the following voluntary goals
for minimum Common Stock ownership for executive officers to encourage
executives to build their Common Stock ownership. Executives are encouraged to
achieve these ownership goals over the next two years. The table also shows the
year-end market value of the actual share ownership (excluding unexercised
options) as a multiple of 1996 base salary.
Year-End Market Value
of Share Ownership as
a Multiple of Base
Salary
----------------------
Actual Goal
------- ------
President and Chief Executive Officer..... 2.2X 4X
Executive Vice President.................. 1.4X 3X
Vice Presidents: Chief Financial Officer 2.1X 3X
Controller...................... 2.9X 2X
General Counsel................. 1.9X 2X
Treasurer....................... 2.5X 2X
Tax Code Limitation on Executive Compensation Deductions
In 1993, Congress amended the Internal Revenue Code to impose a $1 million
deduction limit on compensation paid to the CEO and the four other most highly
compensated executive officers of public companies, subject to certain
transition rules and exceptions for compensation received pursuant to non-
discretionary performance-based plans approved by such company's shareholders.
In 1996, the Board and the Company's shareholders approved amendments to the
Company's Variable Compensation Plan and Incentive Plan which permit
compensation paid or awards or grants made to executives pursuant to such plans
to continue to qualify for deductibility by the Company.
The foregoing report on executive compensation has been furnished by the
Company's MDC Committee and SBC Committee of the Board of Directors.
Mr. Kenneth R. Peak (Chairman)
General Thomas P. Stafford (1)
Admiral Elmo R. Zumwalt, Jr.
(1) Member of the SBC Committee only.
APPENDIX B
VALHI, INC.
1987 STOCK OPTION-STOCK APPRECIATION RIGHTS PLAN
AMENDED AND RESTATED AS OF FEBRUARY 13, 1997
SECTION 1 Title and Purpose. The plan described herein, as amended and
restated, shall be known as the "Valhi, Inc. 1987 Stock Option-Stock
Appreciation Rights Plan" (the "Plan"). The purpose of the Plan is to advance
the interests of Valhi, Inc. ("Valhi") and any parent or subsidiary corporation
of Valhi (together with Valhi referred to collectively as the "Company") by
strengthening the Company's ability to attract and retain individuals of
training, experience and ability in the employ of, or providing services to, the
Company and to furnish additional incentive to such key individuals to promote
the Company's financial success. The Plan will be effected through the granting
of stock options and/or stock appreciation rights as herein provided, which
stock options, it is intended, may constitute "incentive stock options" ("ISOs")
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, (the "Code") or stock options which do not constitute ISOs or as other
options ("non-qualified stock options" or "NSOs") (ISOs and NSOs being
collectively referred to as "Stock Options"), as specified by the Committee (as
defined in Section 4 below). Stock Options granted under the Plan may be
accompanied by stock appreciation rights ("Stock Rights") as hereinafter set
forth. The Plan may also be effected through the awarding of restricted stock
("Restricted Stock Awards" or "Restricted Stock") to key individuals. As used
herein "subsidiary corporation" and "parent corporation" shall have the same
meaning as such terms are defined in Code Section 424.
SECTION 2 Shares of Stock Subject to the Plan. Stock which may be issued
pursuant to Stock Options, Stock Rights and/or Restricted Stock Awards, granted
from time to time under the Plan, shall not exceed in the aggregate 9,000,000
shares of Valhi common stock, $0.01 par value (the "Common Stock") (subject to
adjustment as provided in Section 16). The underlying shares issuable pursuant
to grants in any single fiscal year, of Stock Options, Stock Rights and/or
Restricted Stock Awards to a particular individual shall not exceed 1,000,000
shares of Common Stock. It is contemplated that the shares to be issued under
the Plan will be approved for listing by each securities exchange on which
shares of Common Stock are then listed.
In the event that any outstanding Stock Option granted under the Plan for
any reason expires or is terminated without having been exercised in full or
surrendered in full in connection with the exercise of Stock Rights, or any
shares awarded as Restricted Stock are forfeited, the shares of Common Stock
allocable to the unexercised portion of such Stock Option or Stock Right or
forfeited portion of such Restricted Stock Award shall (unless the Plan shall
have been terminated) become available for subsequent grants of Stock Options,
Stock Rights and/or Restricted Stock Awards under the Plan.
SECTION 3 Eligibility. Stock Options, Stock Rights and/or Restricted
Stock Awards may be granted to key individuals employed by, or performing
services for, the Company (including directors of the Company who are not
employees of the Company) by the Committee (as defined in Section 4 below). In
determining the key individuals to whom Stock Options, Stock Rights and/or
Restricted Stock Awards will be granted and the number of shares to be covered
by each, the Committee shall take into account the duties of the respective
individuals, their present and potential contributions to the success of the
Company, the anticipated number of years of effective service remaining, and
such other factors as they shall deem relevant in connection with accomplishing
the purposes of the Plan. ISOs may be granted only to employees of the Company.
An employee owning stock possessing more than 10 percent of the total combined
voting power or value of all classes of stock of Valhi or any parent or
subsidiary corporation ("Ten Percent Stockholder") is not eligible to receive an
ISO unless the option price is at least 110 percent of the fair market value of
the Common Stock at the time the ISO is granted and the ISO option by its terms
is not exercisable more than 5 years from the date it is granted. Restricted
Stock Awards and Common Stock which a grantee may purchase under outstanding
Stock Options shall be treated as stock owned by such grantee for purposes of
this calculation.
SECTION 4 Administration of the Plan. The Plan shall be administered by
the Management Development and Compensation Committee (the "Committee")
consisting of two or more individuals appointed by the board of directors of
Valhi (the "Board of Directors"). The membership of the Committee or any
successor committee (i) shall consist of "nonemployee directors" as defined in
Rule 16b-3 promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, or any successor rule (the "Rule"), and meet
any other applicable requirements so as to comply at all times with the
applicable requirements of the Rule, (ii) shall consist of "outside directors"
(as defined in Regulation Section 1.162-27(e)(3)(i) or any successor regulation
promulgated by the Department of Treasury under the Code) and meet any other
applicable requirements so as to comply at all times with the applicable
requirements of Section 162(m) of the Code or any successor section, and (iii)
shall meet any applicable requirements of any stock exchange or other market
quotation system on which shares of Common Stock are listed. One of the members
of the Committee shall be designated as its chairman and the Committee shall
hold its meetings at such times and places as it shall deem advisable. A
majority of the members of the Committee shall constitute a quorum. All action
of the Committee shall be taken by a majority of its members. Any action may be
taken by a written instrument signed by a majority of the members of the
Committee and any action so taken shall be fully effective as if it had been
taken by a vote of a majority of the members of the Committee at a meeting duly
called and held. The Committee may appoint a secretary, keep minutes of its
meetings, and shall make such rules and regulations for the conduct of its
business as it shall deem advisable.
SECTION 5 Powers of the Committee. The Committee shall have full power
and authority to determine the "key individuals" of the Company to whom Stock
Options, Stock Rights and/or Restricted Stock Awards shall be granted, the
number of shares to be covered, the term period of each, the time or times at
which Stock Options, Stock Rights or Restricted Stock Awards shall be granted,
provided, with respect to ISOs, the term and the time are permitted by Section
422 of the Code, and to prescribe, amend, and rescind rules and regulations
relating to the Plan. Except as otherwise expressly provided in the Plan, the
Committee shall also have the power to determine, at the time of the grant of
each Stock Option, Stock Right or Restricted Stock Award or subsequently if
permitted by the Plan, all terms and conditions governing the rights and
obligations of the key employee with respect to such Stock Option, Stock Right
or Restricted Stock Award, including but not limited to: (a) the exercise price
or the method by which the exercise price shall be determined for the Stock
Option or Stock Right; (b) the length of the period during which the Stock
Option or Stock Right may be exercised and any limitations on the number of
shares purchasable with the Stock Option at any given time during such period;
(c) the time at which the Stock Option or Stock Right may be exercised; (d) any
conditions precedent to be satisfied before the Stock Option or Stock Right may
be exercised; (e) the date on which the restriction period of any Restricted
Stock shall lapse; and (f) any restrictions on resale of any Restricted Stock,
any shares purchased upon exercise of a Stock Option or any shares received upon
exercise of a Stock Right. The Committee shall also have full and final
authority: (i) to prescribe the form of each agreement evidencing Stock Options
and Stock Rights (the "Stock Option-Stock Appreciation Rights Agreement") and
Restricted Stock Awards (the "Restricted Stock Agreement"), which agreements
need not be identical for each grantee but shall be consistent with the Plan;
(ii) to adopt, amend and rescind such rules and regulations as may be advisable
in the opinion of the Committee to administer the Plan; (iii) to amend the terms
of any Stock Option or Stock Right in any manner the Committee could have
determined at the time the Stock Option or Stock Right was granted, including
the acceleration of the time at which the Stock Option or Stock Right may be
vested or exercised, and to remove any or all of the restrictions on any
Restricted Stock; (iv) to correct any defect or supply any omission or reconcile
any inconsistency in the Plan, including any correction or amendment which in
the judgment of the Committee is necessary to ensure compliance with the
requirements of the Rule; and (v) to construe and interpret the Plan and any
Stock Option - Stock Appreciation Rights Agreements and Restricted Stock
Agreements thereunder and any rules and regulations relating thereto, and to
make all other determinations deemed necessary or advisable for the
administration of the Plan. The Committee shall not possess any authority, the
possession or exercise of which would cause an ISO granted hereunder to be
disqualified as such under the Code.
SECTION 6 Liability of the Committee. In addition to such other rights of
indemnification as they may have as directors of Valhi or as members of the
Committee or otherwise, members of the Committee shall be indemnified by Valhi
as and to the fullest extent permitted by law, including without limitation,
indemnification against the reasonable expenses, including attorneys' fees,
actually and necessarily incurred in connection with the defense of any action,
suit or proceeding, or in connection with any appeal therein, to which they or
any of them may be a party by reason of any action taken or failure to act under
or in connection with the Plan, or any Stock Options, Stock Rights or Restricted
Stock Awards granted hereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent legal
counsel selected by Valhi), or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such Committee member
is liable for gross negligence, bad faith or misconduct in his duties.
SECTION 7 Price of Stock Options. The purchase price of the shares of
Common Stock which shall be covered by each NSO shall be established by the
Committee at the time of granting the NSO, but at no time shall such a grant be
less than 85% of the fair market value of the Common Stock as defined in this
Section 7 at the time of such grant. The purchase price of the shares of Common
Stock which shall be covered by each ISO shall be no less than the fair market
value of the Common Stock at the time of granting the ISO. In the event that
any ISO is granted to a Ten Percent Stockholder, the price at which shares of
Common Stock shall be purchasable under such ISO shall not be less than 110
percent of the fair market value of such shares at the time of the grant. If
the primary market for the Common Stock is a national securities exchange, the
NASDAQ National Market System, or other market quotation system in which last
sale transactions are reported on a contemporaneous basis, such fair market
value shall be deemed to be the last reported sale price of the Common Stock on
such exchange or in such quotation system on the day as of which the option
shall be granted, or, if there shall not have been a sale on such exchange or
reported through such system on such trading day, the closing or last bid
quotation therefor on such exchange or quotation system on such trading day. If
the primary market for the Common Stock is not such an exchange or quotation
market in which transactions are contemporaneously reported, such fair market
value shall be deemed to be the closing or last bid quotation in the
over-the-counter market on such trading day as reported by the National
Association of Securities Dealers through NASDAQ, its automated system for
reporting quotations, or its successor or such other generally accepted source
of publicly reported bid quotations as the Company may reasonably designate on
the day as of which the option shall be granted. In all other cases, such fair
market value shall be determined in good faith by the Committee as of the day
the option is granted. If the price so determined shall include a fraction of a
cent, it shall be rounded up to the next full cent.
SECTION 8 Medium and Time of Payment Upon Exercise of Stock Options. The
purchase price payable upon the exercise of a Stock Option shall be payable at
the time of such exercise and may be paid in cash, by check, with shares of
Common Stock, or in any combination thereof. For purposes of making such
payment in shares of Common Stock, such shares shall be valued at their fair
market value as provided in Section 7 on the day of exercise of the Stock Option
and shall have been held by the grantee for a period of at least six (6) months.
SECTION 9 Limitation on Grant of ISOs. The aggregate fair market value
(determined as of the time the ISO is granted) of the shares with respect to
which ISOs are exercisable for the first time by a grantee during any calendar
year (under all such plans of the Company) shall not exceed $100,000.
SECTION 10 Maximum Term of Stock Option or Stock Right. The period
during which each Stock Option or Stock Right granted hereunder may be exercised
will be determined by the Committee in each case; provided, however, that no
Stock Option or Stock Right shall by its terms be exercisable after the
expiration of 10 years from the date such Stock Option or Stock Right is
granted. In the event that any ISO is granted to a Ten Percent Stockholder the
maximum expiration period described above shall be reduced to 5 years from the
date the ISO is granted.
SECTION 11 Limitations on Right to Exercise. The exercisability of Stock
Options or Stock Rights granted under the Plan shall be subject to such
restrictions as the Committee may impose, which restrictions may differ with
respect to each grantee and which may be included in a Stock Option - Stock
Appreciation Rights Agreement or which the Committee may otherwise inform the
grantee. Absence or leave approved by the Company, to the extent permitted by
the applicable provisions of the Code, shall not be considered an interruption
of employment for any purpose under the Plan. The exercise of any Stock Option
or Stock Right granted under the Plan will be contingent upon the advice of
counsel to the Company that such shares have been duly registered or are exempt
from registration under the applicable securities laws, and upon receipt by the
Committee of cash, check, Common Stock or combination thereof in payment of the
full purchase price of such shares. Except upon the issuance of shares of
Common Stock upon the exercise of a Stock Option or Stock Right, the holder of a
Stock Option or Stock Right shall not have any of the rights of a stockholder
with respect to the shares covered by the Stock Option or Stock Right.
SECTION 12 Award of Stock Rights.
(a) Stock Rights may be granted to such key individuals holding Stock
Options granted under the Plan as the Committee may select and upon such
terms and conditions as the Committee may prescribe. Each Stock Right
shall relate to a specific Stock Option granted and may be granted
concurrently with the Stock Option to which it relates or at any time prior
to the exercise, expiration or termination of such Stock Option (except as
otherwise provided in Section 19 hereof). A Stock Right shall entitle the
grantee, subject to the provisions of the Plan and the related Stock
Option-Stock Appreciation Rights Agreement, to receive from the Company an
amount equal to the excess of the fair market value, on the exercise date,
of the number of shares of Common Stock for which the Stock Right is
exercised over the purchase price for such shares of Common Stock under the
related Stock Option. For this purpose, such fair market value shall be
determined as provided in Section 7 on the close of business on the day of
exercise.
(b) A Stock Right shall be exercisable on such dates or during such
periods as may be determined by the Committee from time to time, except
that in no event shall such right be exercisable when the related Stock
Option is not eligible to be exercised or when the fair market value per
share of the Common Stock on the exercise date does not exceed the exercise
price per share of the related Stock Option.
(c) A Stock Right may be exercised only upon surrender of the related
Stock Option by the grantee which shall be terminated to the extent of the
number of shares for which the Stock Right is exercised. Shares covered by
such a terminated Stock Option or portion thereof granted under the Plan
shall not be available for further grants under the Plan.
(d) The amount payable by the Company upon exercise of a Stock Right
may be paid in cash, in shares of Common Stock (valued at their fair market
value on the exercise date determined as provided in Section 7) or in any
combination thereof as the Committee shall determine from time to time. No
fractional shares shall be issued and the grantee shall receive cash in
lieu thereof.
(e) The Committee may impose any other conditions upon the exercise
of a Stock Right, which conditions may include a condition that the Stock
Right may be exercised only in accordance with rules and regulations
adopted by the Committee from time to time. Such rules and regulations may
govern the right to exercise Stock Rights granted prior to the adoption or
amendment of such rules and regulations as well as Stock Rights granted
thereafter.
(f) The Committee may at any time amend, terminate or suspend any
Stock Right theretofore granted under the Plan, provided that the terms of
any Stock Right after any amendment shall conform to the provisions of the
Plan. A Stock Right shall terminate upon the termination or expiration of
the related Stock Option.
(g) Notwithstanding the provisions of this Section 12, a Stock Right
may not be exercised until the expiration of six (6) months from the date
of grant of such Stock Right unless, prior to the expiration of such six
(6) month period, the holder of such Stock Right ceases to be an employee
of the Company by reason of such holder's retirement, death or disability.
(h) The Company intends that this Section 12 shall comply with the
requirements of the Rule during the term of the Plan. Should any provision
of this Section 12 not be necessary to comply with the requirements of the
Rule or should any additional provisions be necessary for this Section 12
to comply with the requirements of the Rule, the Board of Directors may
amend the Plan to add or to modify the provisions of the Plan accordingly.
SECTION 13 Award of Restricted Stock.
(a) The Committee shall have the authority (i) to grant Restricted
Stock Awards, (ii) to issue or transfer Restricted Stock and (iii) to
establish terms, conditions and restrictions in connection with the
issuance or transfer of Restricted Stock.
(b) The grantee of a Restricted Stock Award shall execute and deliver
to the Committee a Restricted Stock Agreement satisfactory to the Committee
with respect to the Restricted Stock covered by such agreement as well as
any other documents that the Committee may require in connection with the
Restricted Stock Award. The Committee shall then cause stock certificates
registered in the name of the grantee to be issued and deposited, together
with the related Restricted Stock Agreement, with an escrow agent to be
designated by the Committee, which may be the Company.
(c) Restricted Stock Awards shall be subject to such restrictions as
the Committee may impose, which may differ with respect to each grantee and
which restrictions may be included in a Restricted Stock Agreement or which
the Committee may otherwise inform the grantee.
(d) The restriction period of Restricted Stock shall commence on the
date of grant and, unless otherwise established by the Committee in the
Restricted Stock Agreement setting forth the terms of the Restricted Stock
Award, shall expire five years from the date of grant.
(e) Subject to Section 21 and any requirement imposed by the
Committee in a Restricted Stock Agreement, or otherwise, at the expiration
of a restriction period and at the written request of a grantee, a stock
certificate evidencing the Restricted Stock with respect to which a
restriction period has expired (to the nearest full share) shall be
delivered without charge to the grantee, or his personal representative,
free of all restrictions under the Plan.
SECTION 14 Limitations on Transfer. Except as may be approved by the
Committee, no Stock Option, Stock Right or Restricted Stock Award granted under
the Plan shall be transferable otherwise than by will or the laws of descent and
distribution, and no Stock Option or Stock Right granted under the Plan may be
exercised by any person other than the person to whom the Stock Option or Stock
Right shall initially have been granted during the lifetime of such original
grantee (other than the person's guardian or legal representative). If the
original grantee has not transferred his Stock Option, Stock Right or Restricted
Stock Award granted under the Plan in a transfer approved by the Committee and
after the death of such original grantee, the "holder" of such Stock Option,
Stock Right or Restricted Stock Award granted under the Plan shall be deemed to
be the person to whom the original grantee's rights shall pass under the
original grantee's will or under the laws of descent and distribution. In no
event, however, shall an ISO be transferable other than by will or the laws of
descent and distribution and during the lifetime of a grantee of an ISO, such
ISO shall be exercisable only by such grantee.
SECTION 15 No Right to Employment Conferred. Nothing in the Plan or in
any Stock Option-Stock Appreciation Rights Agreement or Restricted Stock
Agreement shall confer upon any individual any right to continue in the employ
of, or provide services to, the Company or interfere in any way with the right
of the Company to terminate such individual's employment or services at any
time.
SECTION 16 Adjustments.
(a) In the event the outstanding shares of Common Stock, as
constituted from time to time, shall be changed as a result of a stock
dividend or stock split or other change in the capitalization of the
Company or a combination, merger, or reorganization of the Company into or
with any other corporation, or any other transaction with similar effects,
there then shall be substituted for each share of Common Stock theretofore
subject, or which may become subject, to issuance or transfer under the
Plan, the number and kind of shares of Common Stock or other securities or
other property as are equitably determined by the Committee. In the event
of an equity restructuring transaction such as a spin-off or
recapitalization through an extraordinary, special and nonrecurring
dividend, or other distribution (including any distribution of shares of
stock of any subsidiary or other property to holders of shares of Common
Stock) or transactions with similar effects, the Committee shall make such
adjustments to the number of shares issuable pursuant to, and/or exercise
price per share of, any Stock Option or Stock Right theretofore granted and
whether or not then exercisable as are equitably determined by the
Committee. Notwithstanding any other provision contained herein, the
Committee shall make such other equitable adjustments to any outstanding
Stock Options, Stock Rights and/or Restricted Stock Awards granted pursuant
to the Plan as the Committee determines appropriate. Each adjustment made
pursuant to this Section 16 shall be made with a view toward preserving the
value the affected Stock Option, Stock Right or Restricted Stock Award had
prior to the event or transaction giving cause to such adjustment.
(b) In the event of any change in applicable laws or any change in
circumstances which results in or would result in any dilution of the
rights granted under the Plan, or which otherwise warrants equitable
adjustment because it interferes with the intended operation of the Plan,
then, if the Committee shall, in its sole discretion, determine that such
change equitably requires an adjustment in the number or kind of shares of
stock or other securities or other property theretofore subject, or which
may become subject, to issuance or transfer under the Plan or in the terms
and conditions of any outstanding Stock Option, Stock Right or Restricted
Stock Award, such adjustment shall be made in accordance with such
determination. Any adjustment of an ISO under this paragraph shall be made
only to the extent it does not constitute a "modification" within the
meaning of Section 424(h)(3) of the Code. The Committee shall give notice
to each grantee of any adjustment made under the Plan and, upon such
notice, such adjustment shall be effective and binding for all purposes of
the Plan.
SECTION 17 Stockholder Approval. The Plan is expressly made subject to
the approval by the holders of a majority of the issued and outstanding shares
of Valhi entitled to vote at a meeting of stockholders of Valhi (the
"Stockholders") duly called in accordance with applicable law. If the Plan is
not so approved within one year after its adoption by the Board of Directors,
the Plan shall not come into effect, and any Stock Option, Stock Right or
Restricted Stock Award granted pursuant hereto shall terminate and end. No
option or right granted hereunder shall be exercisable nor restricted stock vest
unless and until such Stockholder approval is obtained and unless and until such
further Stockholder approval required pursuant to Section 19 is obtained.
SECTION 18 Time of Granting Stock Options, Stock Rights or Restricted
Stock Awards. Neither anything contained in the Plan nor in any resolutions
adopted or to be adopted by the Board of Directors or the Stockholders nor any
action taken by the Committee shall constitute the granting of any Stock Option,
Stock Right or Restricted Stock Award. The granting of a Stock Option, Stock
Right or Restricted Stock Award shall take place only when a written Stock
Option-Stock Appreciation Rights Agreement or Restricted Stock Agreement shall
have been duly executed and delivered by the Company and the grantee.
SECTION 19 Termination and Amendment of the Plan. The Plan shall
terminate on the earlier of (i) ten years from the date the Plan is adopted by
the Board of Directors or by the Stockholders, whichever is earlier, or (ii)
such time as a new stock option-stock appreciation rights and restricted stock
plan is adopted by the Board of Directors in replacement of the Plan. No Stock
Option, Stock Right or Restricted Stock Award shall be granted under the Plan
after its termination date, but the termination of the Plan shall not adversely
affect any Stock Option, Stock Right or Restricted Stock Award theretofore
granted under the Plan. Subject to the foregoing, the Plan may at any time or
from time to time be terminated, modified or amended by (1) the Board of
Directors and (2), if and to the extent that Stockholder approval is required
under Section 422 of the Code or by any securities exchange on which the shares
of Common Stock are then listed, or if directed by the Board of Directors, by
the Stockholders.
SECTION 20 Plan Provisions Control Terms of Agreement. The terms of the
Plan shall govern all Stock Options, Stock Rights or Restricted Stock Awards
granted under the Plan and in no event shall the Committee have the power to
grant any Stock Option, Stock Right or Restricted Stock Award under the Plan
which is contrary to any of the provisions of the Plan.
SECTION 21 Agreement by Grantee Regarding Withholding Taxes. If the
Committee shall so require, as a condition of exercise of each Stock Option or
Stock Right and vesting of each Restricted Stock Award, each grantee shall agree
that:
(a) no later than the date of exercise of any Stock Option or Stock
Right granted hereunder, the grantee will pay to the Company or make
arrangements satisfactory to the Committee regarding payment of any
Federal, state or local taxes of any kind required by law to be withheld
upon the exercise of such Stock Option or Stock Right;
(b) no later than the date of expiration of a restrictive period of
any Restricted Stock Award granted hereunder, the grantee will pay to the
Company or make arrangements satisfactory to the Committee regarding
payment of any Federal, state or local taxes of any kind required by law to
be withheld upon the vesting of such Restricted Stock; and
(c) the Company shall, to the extent permitted or required by law,
have the right to deduct from any payment of any kind otherwise due to the
grantee, Federal, state or local taxes of any kind required by law to be
withheld upon the exercise of such Stock Option or Stock Right or vesting
of such Restricted Stock.
SECTION 22 Effective Date of Plan. The Plan is effective as of May 28,
1987. The Plan, as amended and restated, as of December 4, 1990, shall be
effective as of December 4, 1990; the Plan, as amended and restated as of
January 28, 1991, shall be effective as of January 28, 1991; the Plan, as
amended and restated as of February 18, 1992, shall be effective as of February
18, 1992; the Plan, as amended and restated as of March 10, 1994, shall be
effective as of March 10, 1994; the Plan, as amended and restated as of November
10, 1994, shall be effective as of November 10, 1994; and the Plan, as amended
and restated as of February 13, 1997, shall be effective as of February 13,
1997.
W I T N E S S E T H:
Pursuant to the authority granted to the undersigned by the Board of
Directors of Valhi, Inc., the amended and restated Valhi, Inc. 1987 Stock Option
- - Stock Appreciation Rights Plan attached hereto be, and it hereby is, adopted
effective as of February 13, 1997.
Dated as of this 13th day of February, 1997.
Valhi, Inc.
By: /s/ Harold C. Simmons
----------------------------
Harold C. Simmons, Chairman of the Board,
President and Chief Executive Officer
Attest:
/s/ Steven L. Watson
- ---------------------------
Steven L. Watson, Secretary
APPENDIX C
VALHI, INC.
1997 Long-Term Incentive Plan
Section 1. Purpose. The purpose of this Plan is to advance the interests
of Valhi 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.
Section 2. Definitions. The following terms shall have the meaning
indicated:
(a) "Actual Value" has the meaning set forth in Section 9.
(b) "Associated Award" shall mean an Award granted concurrently or
subsequently in conjunction with another Award.
(c) "Award" shall mean an award of rights to an Eligible Person under
this Plan.
(d) "Award Period" has the meaning set forth in subsection 9(b).
(e) "Beneficiary" has the meaning set forth in Section 16.
(f) "Board" shall mean the board of directors of Valhi.
(g) "Code" shall mean the Internal Revenue Code of 1986, as it now
exists or may be amended from time to time, and the rules and regulations
promulgated thereunder, as they may exist or may be amended from time to
time.
(h) "Committee" shall mean a committee of the Board, if any,
designated by the Board to administer this Plan that is comprised of not
fewer than two directors and shall initially mean the Management,
Development & Compensation Committee of the Board. The membership of the
Committee or any successor committee (i) shall consist of "nonemployee
directors" (as defined in Rule 16b-3) and meet any other applicable
requirements so as to comply at all times with the applicable requirements
of Rule 16b-3, (ii) shall consist of "outside directors" (as defined in
Treasury Regulation Section1.162-27(e)(3)(i) or any successor regulation)
and meet any other applicable requirements so as to comply at all times
with the applicable requirements of Section 162(m) and (iii) shall meet any
applicable requirements of any stock exchange or other market quotation
system on which Common Shares are listed. References to the Committee
hereunder shall include the Board or the Designated Administrator where
appropriate.
(i) "Company" shall mean Valhi and any parent or subsidiary of Valhi.
(j) "Common Shares" shall mean shares of common stock, par value
$0.01 per share, of Valhi and stock of any other class into which such
shares may thereafter be changed.
(k) "Designated Administrator" has the meaning set forth in Section
3.
(l) "Effective Date" shall mean the date the Board adopts this Plan
(which adoption date may be a date subsequent to the date of the actual
action taken by the Board if the Board action sets forth such subsequent
adoption date).
(m) "Eligible Person(s)" shall mean those persons who are key
employees of the Company or other key individuals who perform services for
the Company, including, without limitation, directors who are not employees
of the Company.
(n) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
it now exists or may be amended from time to time, and the rules
promulgated thereunder, as they may exist or may be amended from time to
time.
(o) "Fair Market Value" shall mean such value rounded up to the
nearest cent as determined by the Committee in accordance with applicable
law.
(p) "Incentive Stock Option" shall mean a Stock Option that is an
incentive stock option as defined in Section 422 of the Code. Incentive
Stock Options are subject, in part, to the terms, conditions and
restrictions described in Section 6.
(q) "Maximum Value" has the meaning set forth in subsection 9(a).
(r) "Nonqualified Stock Option" shall mean a Stock Option that is not
an incentive stock option as defined in Section 422 of the Code.
Nonqualified Stock Options are subject, in part, to the terms, conditions
and restrictions described in Section 6.
(s) "Other Valhi Securities" shall mean Valhi securities (which may
include, but need not be limited to, unbundled stock units or components
thereof, debentures, preferred stock, warrants, securities convertible into
Common Shares or other property) other than Common Shares.
(t) "Participant" shall mean an Eligible Person to whom an Award has
been granted under this Plan.
(u) "Performance Grant" shall mean an Award subject, in part, to the
terms, conditions and restrictions described in Section 9, pursuant to
which the recipient may become entitled to receive cash, Common Shares,
Other Valhi Securities or property, or other forms of payment, or any
combination thereof, as determined by the Committee.
(v) "Plan" shall mean this Valhi, Inc. 1997 Long-Term Incentive Plan.
(w) "Purchased Option" shall mean a Stock Option that is sold to an
Eligible Person at a price determined by the Committee. Purchase Options
are subject, in part, to the terms, conditions and restrictions described
in Section 6.
(x) "Restricted Period" has the meaning set forth in subsection 8(b).
(y) "Restricted Stock" shall mean an Award of Common Shares that are
issued subject, in part, to the terms, conditions and restrictions
described in Section 8.
(z) "Rule 16b-3" shall mean Rule 16b-3 promulgated by the Securities
and Exchange Commission under the Exchange Act and any successor rule.
(aa) "Section 162(m)" shall mean Section162(m) of the Code, any rules
or regulations promulgated thereunder, as they may exist or may be amended
from time to time, or any successor to such section.
(bb) "Stock Appreciation Right" shall mean an Award of a right to
receive (without payment to Valhi) cash, Common Shares, Other Valhi
Securities or property, or other forms of payment, or any combination
thereof, as determined by the Committee, based on the increase in the value
of the number of Common Shares specified in the Stock Appreciation Right.
Stock Appreciation Rights are subject, in part, to the terms, conditions
and restrictions described in Section 7.
(cc) "Stock Option" shall mean an Award of a right to purchase Common
Shares. The term Stock Option shall include Nonqualified Stock Options,
Incentive Stock Options and Purchased Options.
(dd) "Ten Percent Employee" shall mean an employee of the Company who
owns stock representing more than ten percent of the voting power of all
classes of stock of Valhi or any parent or subsidiary of Valhi.
(ee) "Treasury Regulation" shall mean a final, proposed or temporary
regulation of the Department of Treasury under the Code and any successor
regulation.
(ff) "Valhi" shall mean Valhi, Inc., a Delaware corporation.
Section 3. Administration. Unless the Board shall designate itself or a
Designated Administrator to administer this Plan, this Plan shall be
administered by the Committee. If at any time Rule 16b-3 so permits without
adversely affecting the ability of Awards to executive officers of Valhi to
comply with the conditions for Rule 16b-3 or Section 162(m), the Committee may
delegate the administration of this Plan and any of its power and authority in
whole or in part, on such terms and conditions, and to such person or persons as
it may determine in its discretion (a "Designated Administrator").
The Committee has all the powers vested in it by the terms of this Plan,
such powers to include exclusive authority to select the Eligible Persons to be
granted Awards under this Plan, to determine the type, size and terms of the
Award to be made to each Eligible Person selected, to modify the terms of any
Award that has been granted, to determine the time when Awards will be granted,
to establish performance objectives, to make any adjustments necessary or
desirable as a result of the granting of Awards to Eligible Persons located
outside the United States and to prescribe the form of the agreements embodying
Awards made under this Plan. The Committee is authorized to interpret this Plan
and the Awards granted under this Plan, to establish, amend and rescind any
rules and regulations relating to this Plan, and to make any other
determinations that it deems necessary or desirable for the administration of
this Plan. The Committee may correct any defect or supply any omission or
reconcile any inconsistency in this Plan or in any Award in the manner and to
the extent the Committee deems necessary or desirable to carry it into effect.
Any decision of the Committee in the interpretation and administration of this
Plan, as described herein, shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned. The Committee
may act only by a majority of its members in office, except that the members
thereof may authorize any one or more of their members or any officer of the
Company to execute and deliver documents or to take any other ministerial action
on behalf of the Committee with respect to Awards made or to be made to
Participants.
No member of the Committee and no officer of the Company shall be liable
for anything done or omitted to be done by him, by any other member of the
Committee or by any officer of the Company in connection with the performance of
duties under this Plan, except for his own willful misconduct or as expressly
provided by statute. In addition to all other rights of indemnification and
reimbursement to which a member of the Committee and an officer of the Company
may be entitled, the Company shall indemnify and hold harmless each such member
or officer who was or is a party or is threatened to be made a party to any
threatened, pending or completed proceeding or suit in connection with the
performance of duties under this Plan against expenses (including reasonable
attorneys' fees), judgments, fines, liabilities, losses and amounts paid in
settlement actually and reasonably incurred by him in connection with such
proceeding or suit, except for his own willful misconduct or as expressly
provided otherwise by statute. Expenses (including reasonable attorneys' fees)
incurred by a such a member or officer in defending any such proceeding or suit
shall be paid by the Company in advance of the final disposition of such
proceeding or suit upon receipt of a written affirmation by such member or
officer of his good faith belief that he has met the standard of conduct
necessary for indemnification and a written undertaking by or on behalf of such
member or officer to repay such amount if it shall ultimately be determined that
he is not entitled to be indemnified by the Company as authorized in this
Section.
Section 4. Participation. Consistent with the purposes of this Plan, the
Committee shall have exclusive power to select the Eligible Persons who may
participate in this Plan and be granted Awards under this Plan. Eligible Persons
may be selected individually or by groups or categories, as determined by the
Committee in its discretion.
Section 5. Awards under this Plan.
(a) Types of Awards. Awards under this Plan may include, but need
not be limited to, one or more of the following types, either alone or in
any combination thereof: (i) Stock Options, (ii) Stock Appreciation
Rights, (iii) Restricted Stock, (iv) Performance Grants and (v) any other
type of Award deemed by the Committee in its discretion to be consistent
with the purposes of this Plan (including, but not limited to, Awards of or
options or similar rights granted with respect to unbundled stock units or
components thereof, and Awards to be made to Participants who are foreign
nationals or are employed or performing services outside the United
States).
(b) Maximum Number of Shares that May be Issued. There may be issued
under this Plan (as Restricted Stock, in payment of Performance Grants,
pursuant to the exercise of Stock Options or Stock Appreciation Rights or
in payment of or pursuant to the exercise of such other Awards as the
Committee, in its discretion, may determine) an aggregate of not more than
5,000,000 Common Shares, subject to adjustment as provided in Section 15.
No Eligible Person may receive Awards under this Plan for more than
1,000,000 Common Shares in any one fiscal year of Valhi, subject to
adjustment as provided in Section 15. Common Shares issued pursuant to
this Plan may be either authorized but unissued shares, treasury shares,
reacquired shares or any combination thereof. If any Common Shares issued
as Restricted Stock or otherwise subject to repurchase or forfeiture rights
are reacquired by the Company pursuant to such rights or, if any Award is
canceled, terminates or expires unexercised, any Common Shares that would
otherwise have been issuable pursuant thereto will be available for
issuance under new Awards.
(c) Rights with Respect to Common Shares and Other Securities.
Except as provided in subsection 8(c) with respect to Awards of Restricted
Stock and unless otherwise determined by the Committee in its discretion, a
Participant to whom an Award is made (and any person succeeding to such a
Participant's rights pursuant to this Plan) shall have no rights as a
stockholder with respect to any Common Shares or as a holder with respect
to other securities, if any, issuable pursuant to any such Award until the
date of the issuance of a stock certificate to him for such Common Shares
or other instrument of ownership, if any. Except as provided in Section 15,
no adjustment shall be made for dividends, distributions or other rights
(whether ordinary or extraordinary, and whether in cash, securities, other
property or other forms of consideration, or any combination thereof) for
which the record date is prior to the date such stock certificate or other
instrument of ownership, if any, is issued. In all events, a Participant
with whom an Award agreement is made to issue Common Shares in the future,
shall have no rights as a stockholder with respect to Common Shares related
to such agreement until issuance to him of a stock certificate representing
such shares.
Section 6. Stock Options. The Committee may sell Purchased Options or
grant other Stock Options either alone, or in conjunction with Associated
Awards, either at the time of grant or by amendment thereafter; provided that an
Incentive Stock Option may be granted only to Eligible Persons who are employees
of the Company and have an Associated Award only to the extent that such
Associated Award does not disqualify the Incentive Stock Option's status as such
under the Code. Each Stock Option granted or sold under this Plan shall be
evidenced by an agreement in such form as the Committee shall prescribe from
time to time in accordance with this Plan and shall comply with the applicable
terms and conditions of this Section and this Plan, and with such other terms
and conditions, including, but not limited to, restrictions upon the Stock
Option or the Common Shares issuable upon exercise thereof, as the Committee, in
its discretion, shall establish.
(a) The exercise price of a Stock Option may be less than, equal to,
or greater than, the Fair Market Value of the Common Shares subject to such
Stock Option at the time the Stock Option is granted, as determined by the
Committee; provided, however, that in the case of an Incentive Stock Option
granted to an employee of the Company, the exercise price shall not be less
than the Fair Market Value of the Common Shares subject to such Stock
Option at the time the Stock Option is granted, or if granted to a Ten
Percent Employee, such exercise price shall not be less than 110% of such
Fair Market Value at the time the Stock Option is granted. In no event,
however, will the exercise price per share of a Stock Option be less than
the par value per share of a Common Share.
(b) The Committee shall determine the number of Common Shares to be
subject to each Stock Option. In the case of a Stock Option awarded in
conjunction with an Associated Award, the number of Common Shares subject
to an outstanding Stock Option may be reduced on an appropriate basis to
the extent that the Associated Award has been exercised, paid to or
otherwise received by the Participant, as determined by the Committee.
(c) Any Stock Option may be exercised during its term only at such
time or times and in such installments as the Committee may establish.
(d) A Stock Option shall not be exercisable:
(i) in the case of any Incentive Stock Option granted to a Ten
Percent Employee, after the expiration of five years from the date it
is granted, and, in the case of any other Stock Option, after the
expiration of ten years from the date it is granted; and
(ii) unless payment in full is made for the shares being acquired
thereunder at the time of exercise as provided in subsection 6(i).
(e) The Committee shall determine in its discretion and specify in
each agreement embodying a Stock Option the effect, if any, the termination
of the Participant's employment with or performance of services for the
Company shall have on the exercisability of the Stock Option; provided,
however, that an Incentive Stock Option shall not be exercisable at a time
that is beyond the time an Incentive Stock Option may be exercised in order
to qualify as such under the Code.
(f) In the case of an Incentive Stock Option, the amount of the
aggregate Fair Market Value of Common Shares (determined at the time of
grant of the Stock Option) with respect to which incentive stock options
are exercisable for the first time by an employee of the Company during any
calendar year (under all such plans of his employer corporation and its
parent and subsidiary corporations) shall not exceed $100,000.
(g) It is the intent of Valhi that Nonqualified Stock Options granted
under this Plan not be classified as Incentive Stock Options, that the
Incentive Stock Options granted under this Plan be consistent with and
contain or be deemed to contain all provisions required under Section 422
and the other appropriate provisions of the Code and any implementing
regulations (and any successor provisions thereof), and that any
ambiguities in construction shall be interpreted in order to effectuate
such intent.
(h) A Purchased Option may contain such additional terms not
inconsistent with this Plan, including but not limited to the circumstances
under which the purchase price of such Purchased Option may be returned to
the holder of the Purchased Option, as the Committee may determine in its
sole discretion.
(i) For purposes of payments made to exercise Stock Options, such
payment shall be made in such form (including, but not limited to, cash,
Common Shares, the surrender of another outstanding Award under this Plan
or any combination thereof) as the Committee may determine in its
discretion; provided, however, that for purposes of making such payment in
Common Shares, such shares shall be valued at their Fair Market Value on
the day of exercise and shall have been held by the Participant for a
period of at least six (6) months.
Section 7. Stock Appreciation Rights. The Committee may grant Stock
Appreciation Rights either alone, or in conjunction with Associated Awards,
either at the time of grant or by amendment thereafter. Each Award of
Stock Appreciation Rights granted under this Plan shall be evidenced by an
agreement in such form as the Committee shall prescribe from time to time
in accordance with this Plan and shall comply with the applicable terms and
conditions of this Section and this Plan, and with such other terms and
conditions, including, but not limited to, restrictions upon the Award of
Stock Appreciation Rights or the Common Shares issuable upon exercise
thereof, as the Committee, in its discretion, shall establish.
(a) The Committee shall determine the number of Common Shares to be
subject to each Award of Stock Appreciation Rights. In the case of an
Award of Stock Appreciation Rights awarded in conjunction with an
Associated Award, the number of Common Shares subject to an outstanding
Award of Stock Appreciation Rights may be reduced on an appropriate basis
to the extent that the Associated Award has been exercised, paid to or
otherwise received by the Participant, as determined by the Committee.
(b) The Award of Stock Appreciation Rights shall not be exercisable:
(i) unless the Associated Award, if any, is at the time
exercisable;
(ii) if the Associated Award is a Stock Option and the Fair
Market Value per share of the Common Shares on the exercise date does
not exceed the exercise price per share of such Stock Option; or
(iii) if the Associated Award is an Incentive Stock Option
and the exercise of the Award of Stock Appreciation Rights would
disqualify the Incentive Stock Option as such under the Code.
(c) The Committee shall determine in its discretion and specify in
each agreement embodying an Award of Stock Appreciation Rights the effect,
if any, the termination of the Participant's employment with or performance
of services for the Company shall have on the exercisability of the Award
of Stock Appreciation Rights.
(d) An Award of Stock Appreciation Rights shall entitle the holder to
exercise such Award or to surrender unexercised an Associated Award (or any
portion of such Associated Award) to Valhi and to receive from Valhi in
exchange thereof, without payment to Valhi, that number of Common Shares
having an aggregate value equal to (or, in the discretion of the Committee,
less than) the excess of the Fair Market Value of one share, at the time of
such exercise, over the exercise price, times the number of shares subject
to the Award or the Associated Award, or portion thereof, that is so
exercised or surrendered, as the case may be. The Committee shall be
entitled in its discretion to elect to settle the obligation arising out of
the exercise of a Stock Appreciation Right by the payment of cash or Other
Valhi Securities or property, or other forms of payment or any combination
thereof, as determined by the Committee, equal to the aggregate value of
the Common Shares it would otherwise be obligated to deliver. Any such
election by the Committee shall be made as soon as practicable after the
receipt by the Committee of written notice of the exercise of the Stock
Appreciation Right.
(e) A Stock Appreciation Right may provide that it shall be deemed to
have been exercised at the close of business on the business day preceding
the expiration date of the Stock Appreciation Right or of the related Stock
Option (or other Award), or such other date as specified by the Committee,
if at such time such Stock Appreciation Right has a positive value. Such
deemed exercise shall be settled or paid in the same manner as a regular
exercise thereof as provided in subsection 7(d) hereof.
Section 8. Restricted Stock. The Committee may grant Awards of Restricted
Stock either alone, or in conjunction with Associated Awards, either at the time
of grant or by amendment thereafter. Each Award of Restricted Stock under this
Plan shall be evidenced by an agreement in such form as the Committee shall
prescribe from time to time in accordance with this Plan and shall comply with
the applicable terms and conditions of this Section and this Plan, and with such
other terms and conditions as the Committee, in its discretion, shall establish.
(a) The Committee shall determine the number of Common Shares to be
issued to a Participant pursuant to the Award of Restricted Stock, and the
extent, if any, to which they shall be issued in exchange for cash, other
consideration, or both.
(b) Until the expiration of such period as the Committee shall
determine from the date on which the Award is granted and subject to such
other terms and conditions as the Committee in its discretion shall
establish (the "Restricted Period"), a Participant to whom an Award of
Restricted Stock is made shall be issued, but shall not be entitled to the
delivery of, a stock certificate representing the Common Shares subject to
such Award.
(c) Unless otherwise determined by the Committee in its discretion, a
Participant to whom an Award of Restricted Stock has been made (and any
person succeeding to such a participant's rights pursuant to this Plan)
shall have, after issuance of a certificate for the number of Common Shares
awarded and prior to the expiration of the Restricted Period, ownership of
such Common Shares, including the right to vote such Common Shares and to
receive dividends or other distributions made or paid with respect to such
Common Shares (provided that such Common Shares, and any new, additional or
different shares, or Other Valhi Securities or property, or other forms of
consideration that the Participant may be entitled to receive with respect
to such Common Shares as a result of a stock split, stock dividend or any
other change in the corporation or capital structure of Valhi, shall be
subject to the restrictions hereinafter described as determined by the
Committee in its discretion), subject, however, to the options,
restrictions and limitations imposed thereon pursuant to this Plan.
(d) The Committee shall determine in its discretion and specify in
each agreement embodying an Award of Restricted Stock the effect, if any,
the termination of the Participant's employment with or performance of
services for the Company during the Restricted Period shall have on such
Award of Restricted Stock.
Section 9. Performance Grants. The Committee may grant Awards of
Performance Grants either alone, or in conjunction with Associated Awards,
either at the time of grant or by amendment thereafter. The Award of a
Performance Grant to a Participant will entitle him to receive a specified
amount determined by the Committee (the "Actual Value"), if the terms and
conditions specified in this Plan and in the Award are satisfied. Each Award of
a Performance Grant shall be subject to the applicable terms and conditions of
this Section and this Plan, and to such other terms and conditions, including
but not limited to, restrictions upon any cash, Common Shares, Other Valhi
Securities or property, or other forms of payment, or any combination thereof,
issued with respect to the Performance Grant, as the Committee, in its
discretion, shall establish, and shall be embodied in an agreement in such form
and substance as is determined by the Committee.
(a) The Committee shall determine the value or range of values of a
Performance Grant to be awarded to each Participant selected for an Award
and whether or not such a Performance Grant is granted in conjunction with
an Associated Award. As determined by the Committee, the maximum value of
each Performance Grant (the "Maximum Value") shall be: (i) an amount fixed
by the Committee at the time the Award is made or amended thereafter,
(ii) an amount that varies from time to time based in whole or in part on
the then current value of the Common Shares, Other Valhi Securities or
property, or other securities or property, or any combination thereof or
(iii) an amount that is determinable from criteria specified by the
Committee. Performance Grants may be issued in different classes or series
having different names, terms and conditions. In the case of a Performance
Grant awarded in conjunction with an Associated Award, the Performance
Grant may be reduced on an appropriate basis to the extent that the
Associated Award has been exercised, paid to or otherwise received by the
Participant, as determined by the Committee.
(b) The award period ("Award Period") related to any Performance
Grant shall be a period determined by the Committee. At the time each
Award is made, the Committee shall establish performance objectives to be
attained within the Award Period as the means of determining the Actual
Value of such a Performance Grant. The performance objectives shall be
based on such measure or measures of performance, which may include, but
need not be limited to, the performance of the Participant, the Company or
one or more of its divisions or units, or any combination of the foregoing,
as the Committee shall determine, and may be applied on an absolute basis
or be relative to industry or other indices or any combination thereof.
The Actual Value of a Performance Grant shall be equal to its Maximum Value
only if the performance objectives are attained in full, but the Committee
shall specify the manner in which the Actual Value of Performance Grants
shall be determined if the performance objectives are met in part. Such
performance measures, the Actual Value or the Maximum Value, or any
combination thereof, may be adjusted in any manner by the Committee in its
discretion at any time and from time to time during or as soon as
practicable after the Award Period, if it determines that such performance
measures, the Actual Value or the Maximum Value, or any combination
thereof, are not appropriate under the circumstances.
(c) The Committee shall determine in its discretion and specify in
each agreement embodying a Performance Grant the effect, if any, the
termination of the Participant's employment with or performance of services
for the Company during the Award Period shall have on such Performance
Grant.
(d) The Committee shall determine whether the conditions of a
Performance Grant have been met and, if so, shall ascertain the Actual
Value of the Performance Grant. If the Performance Grant has no Actual
Value, the Award and such Performance Grant shall be deemed to have been
canceled and the Associated Award, if any, may be canceled or permitted to
continue in effect in accordance with its terms. If the Performance Grant
has any Actual Value and:
(i) was not awarded in conjunction with an Associated Award, the
Committee shall cause an amount equal to the Actual Value of the
Performance Grant earned by the Participant to be paid to him or his
permitted assignee or Beneficiary; or
(ii) was awarded in conjunction with an Associated Award, the
Committee shall determine, in accordance with criteria specified by
the Committee (A) to cancel the Performance Grant, in which event no
amount with respect thereto shall be paid to the Participant or his
permitted assignee or Beneficiary, and the Associated Award may be
permitted to continue in effect in accordance with its terms, (B) to
pay the Actual Value of the Performance Grant to the Participant or
his permitted assignee or Beneficiary as provided below, in which
event the Associated Award may be canceled or (C) to pay to the
Participant or his Beneficiary, the Actual Value of only a portion of
the Performance Grants, in which event all or a portion of the
Associated Award may be permitted to continue in effect in accordance
with its terms or be canceled, as determined by the Committee.
Such determination by the Committee shall be made as promptly as
practicable following the end of the Award Period or upon the earlier
termination of employment or performance of services, or at such other time
or times as the Committee shall determine, and shall be made pursuant to
criteria specified by the Committee.
(e) Payment of any amount with respect to the Performance Grants that
the Committee determines to pay as provided above shall be made by Valhi as
promptly as practicable after the end of the Award Period or at such other
time or times as the Committee shall determine, and may be made in cash,
Common Shares, Other Valhi Securities or property, or other forms of
payment, or any combination thereof or in such other manner, as determined
by the Committee in its discretion. Notwithstanding anything in this
Section to the contrary, the Committee may, in its discretion, determine
and pay out the Actual Value of the Performance Grants at any time during
the Award Period.
Section 10. Deferral of Compensation. The Committee shall determine
whether or not an Award shall be made in conjunction with the deferral of the
Participant's salary, bonus or other compensation, or any combination thereof,
and whether or not such deferred amounts may be:
(a) forfeited to the Company or to other Participants or any
combination thereof, under certain circumstances (which may include, but
need not be limited to, certain types of termination of employment or
performance of services for the Company);
(b) subject to increase or decrease in value based upon the
attainment of or failure to attain, respectively, certain performance
measures; and/or
(c) credited with income equivalents (which may include, but need not
be limited to, interest, dividends or other rates of return) until the date
or dates of payment of the Award, if any.
Section 11. Deferred Payment of Awards. The Committee may specify that
the payment of all or any portion of cash, Common Shares, Other Valhi Securities
or property, or any other form of payment, or any combination thereof, under an
Award shall be deferred until a later date. Deferrals shall be for such periods
or until the occurrence of such events, and upon such terms, as the Committee
shall determine in its discretion. Deferred payments of Awards may be made by
undertaking to make payment in the future based upon the performance of certain
investment equivalents (which may include, but need not be limited to,
government securities, Common Shares, other securities, property or
consideration, or any combination thereof), together with such additional
amounts of income equivalents (which may be compounded and may include, but need
not be limited to, interest, dividends or other rates of return or any
combination thereof) as may accrue thereon until the date or dates of payment,
such investment equivalents and such additional amounts of income equivalents to
be determined by the Committee in its discretion.
Section 12. Transferability of Awards. Except as may be approved by the
Committee, a Participant's rights and interest under this Plan or any Award may
not be assigned or transferred, hypothecated or encumbered in whole or in part
either directly or by operation of law or otherwise (except in the event of a
Participant's death), including, but not by way of limitation, execution, levy,
garnishment, attachment, pledge, bankruptcy or in any other manner; provided,
however, that any Incentive Stock Option granted pursuant to this Plan shall not
be transferable other than by will or the laws of descent and distribution and
shall be exercisable during the Participant's lifetime only by him.
Section 13. Amendment or Substitution of Awards under this Plan. The
terms of any outstanding Award under this Plan may be amended or modified from
time to time by the Committee in its discretion in any manner that it deems
appropriate (including, but not limited to, acceleration of the date of exercise
of any Award and/or payments thereunder) if the Committee could grant such
amended or modified Award under the terms of this Plan at the time of such
amendment or modification; provided that no such amendment or modification shall
adversely affect in a material manner any right of a Participant under the Award
without his written consent, unless the Committee determines in its discretion
that there have occurred or are about to occur significant changes in the
Participant's position, duties or responsibilities, or significant changes in
economic, legislative, regulatory, tax, accounting or cost/benefit conditions
that are determined by the Committee in its discretion to have or to be expected
to have a substantial effect on the performance of the Company, or any
affiliate, division or department thereof, on this Plan or on any Award under
this Plan. The Committee may, in its discretion, permit holders of Awards under
this Plan to surrender outstanding Awards in order to exercise or realize the
rights under other Awards, or in exchange for the grant of new Awards, or
require holders of Awards to surrender outstanding Awards as a condition
precedent to the grant of new Awards under this Plan.
Section 14. Termination of a Participant. For all purposes under this
Plan, the Committee shall determine whether a Participant has terminated
employment with, or the performance of services for, the Company; provided,
however, an absence or leave approved by the Company, to the extent permitted by
applicable provisions of the Code, shall not be considered an interruption of
employment or performance of services for any purpose under this Plan.
Section 15. Dilution and Other Adjustments. In the event of any change in
the outstanding Common Shares by reason of any stock split, dividend, split-up,
split-off, spin-off, recapitalization, merger, consolidation, rights offering,
reorganization, combination or exchange of shares, a sale by Valhi of all or
substantially all of its assets, any distribution to stockholders other than a
normal cash dividend, or other extraordinary or unusual event, if the Committee
shall determine, in its discretion, that such change equitably requires an
adjustment in the terms of any Award or the number of Common Shares available
for Awards, such adjustment may be made by the Committee and shall be final,
conclusive and binding for all purposes of this Plan. Each adjustment made
pursuant to this Section shall be made with a view toward preserving the value
of the affected Award had prior to the event or transaction giving cause to such
adjustment.
In the event of the proposed dissolution or liquidation of Valhi, all
outstanding Awards shall terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Committee. In the event of a
proposed sale of all or substantially all of the assets of Valhi or the merger
of Valhi with or into another corporation, all restrictions on any outstanding
Awards shall lapse and Participants shall be entitled to the full benefit of all
such Awards immediately prior to the closing date of such sale or merger, unless
otherwise provided by the Committee.
Section 16. Designation of Beneficiary by Participant. A Participant may
name a beneficiary to receive any payment to which he may be entitled with
respect to any Award under this Plan in the event of his death, on a written
form to be provided by and filed with the Committee, and in a manner determined
by the Committee in its discretion (a "Beneficiary"). The Committee reserves
the right to review and approve Beneficiary designations. A Participant may
change his Beneficiary from time to time in the same manner, unless such
Participant has made an irrevocable designation. Any designation of a
Beneficiary under this Plan (to the extent it is valid and enforceable under
applicable law) shall be controlling over any other disposition, testamentary or
otherwise, as determined by the Committee in its discretion. If no designated
Beneficiary survives the Participant and is living on the date on which any
amount becomes payable to such a Participant's Beneficiary, such payment will be
made to the legal representatives of the Participant's estate, and the term
"Beneficiary" as used in this Plan shall be deemed to include such person or
persons. If there are any questions as to the legal right of any Beneficiary to
receive a distribution under this Plan, the Committee in its discretion may
determine that the amount in question be paid to the legal representatives of
the estate of the Participant, in which event the Company, the Board, the
Committee, the Designated Administrator (if any), and the members thereof, will
have no further liability to anyone with respect to such amount.
Section 17. Financial Assistance. If the Committee determines that such
action is advisable, the Company may assist any Participant in obtaining
financing from the Company (or under any program of the Company approved
pursuant to applicable law), or from a bank or other third party, on such terms
as are determined by the Committee, and in such amount as is required to
accomplish the purposes of this Plan, including, but not limited to, to permit
the exercise of an Award, the participation therein, and/or the payment of any
taxes with respect thereto. Such assistance may take any form that the
Committee deems appropriate, including, but not limited to, a direct loan from
the Company, a guarantee of the obligation by the Company or the maintenance by
the Company of deposits with such bank or third party.
Section 18. Miscellaneous Provisions.
(a) Any proceeds from Awards shall constitute general funds of Valhi.
(b) No fractional shares may be delivered under an Award, but in lieu
thereof a cash or other adjustment shall be made as determined by the
Committee in its discretion.
(c) No Eligible Person or other person shall have any claim or right
to be granted an Award under this Plan. Determinations made by the
Committee under this Plan need not be uniform and may be made selectively
among Eligible Persons under this Plan, whether or not such Eligible
Persons are similarly situated. Neither this Plan nor any action taken
hereunder shall be construed as giving any Eligible Person any right to
continue to be employed by or perform services for the Company, and the
right to terminate the employment of or performance of services by Eligible
Persons at any time and for any reason is specifically reserved.
(d) No Participant or other person shall have any right with respect
to this Plan, the Common Shares reserved for issuance under this Plan or in
any Award, contingent or otherwise, until written evidence of the Award
shall have been delivered to the recipient and all the terms, conditions
and provisions of this Plan and the Award applicable to such recipient (and
each person claiming under or through him) have been met.
(e) No Common Shares, Other Valhi Securities or property, other
securities or property or other forms of payment shall be issued hereunder
with respect to any Award unless counsel for Valhi shall be satisfied that
such issuance will be in compliance with applicable law and any applicable
rules of any stock exchange or other market quotation system on which
Common Shares are listed.
(f) It is the intent of Valhi that this Plan comply in all respects
with Rule 16b-3 and Section 162(m) with respect to Awards granted to
executive officers of Valhi, that any ambiguities or inconsistencies in
construction of this Plan be interpreted to give effect to such intention
and that if any provision of this Plan is found not to be in compliance
with Rule 16b-3 or Section 162(m), such provision shall be deemed null and
void with respect to Awards granted to executive officers of Valhi to the
extent required to permit such Awards to comply with Rule 16b-3 and Section
162(m). It is also the intent of Valhi that this Plan comply in all
respects with the provisions of the Code providing favorable treatment to
Incentive Stock Options, that any ambiguities or inconsistencies in
construction of this Plan be interpreted to give effect to such intention
and that if any provision of this Plan is found not to be in compliance
with the Incentive Stock Option provisions of the Code, such provision
shall be deemed null and void with respect to Incentive Stock Options
granted to employees of the Company to the extent required to permit such
Incentive Stock Options to receive favorable treatment under the Code.
(g) The Company shall have the right to deduct from any payment made
under this Plan any federal, state, local or foreign income or other taxes
required by law to be withheld with respect to such payment. It shall be a
condition to the obligation of Valhi to issue Common Shares, Other Valhi
Securities or property, other securities or property, or other forms of
payment, or any combination thereof, upon exercise, settlement or payment
of any Award under this Plan, that the Participant (or any Beneficiary or
person entitled to act) pay to Valhi, upon its demand, such amount as may
be required by the Company for the purpose of satisfying any liability to
withhold federal, state, local or foreign income or other taxes. If the
amount requested is not paid, Valhi may refuse to issue Common Shares,
Other Valhi Securities or property, other securities or property, or other
forms of payment, or any combination thereof. Notwithstanding anything in
this Plan to the contrary, the Committee may, in its discretion, permit an
Eligible Person (or any Beneficiary or person entitled to act) to elect to
pay a portion or all of the amount requested by the Company for such taxes
with respect to such Award, at such time and in such manner as the
Committee shall deem to be appropriate (including, but not limited to, by
authorizing Valhi to withhold, or agreeing to surrender to Valhi on or
about the date such tax liability is determinable, Common Shares, Other
Valhi Securities or property, other securities or property, or other forms
of payment, or any combination thereof, owned by such person or a portion
of such forms of payment that would otherwise be distributed, or have been
distributed, as the case may be, pursuant to such Award to such person,
having a Fair Market Value equal to the amount of such taxes).
(h) The expenses of this Plan shall be borne by the Company;
provided, however, the Company may recover from a Participant or his
Beneficiary, heirs or assigns any and all damages, fees, expenses and costs
incurred by the Company arising out of any actions taken by a Participant
in breach of this Plan or any agreement evidencing such Participant's
Award.
(i) This Plan shall be unfunded. The Company shall not be required
to establish any special or separate fund or to make any other segregation
of assets to assure the payment of any Award under this Plan, and rights to
the payment of Awards shall be no greater than the rights of the Company's
general creditors.
(j) By accepting any Award or other benefit under this Plan, each
Participant and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and ratification of,
and consent to, any action taken under this Plan by the Company, the Board,
the Committee or the Designated Administrator (if applicable).
(k) The appropriate officers of the Company shall cause to be filed
any reports, returns or other information regarding Awards hereunder of any
Common Shares issued pursuant hereto as may be required by applicable law
and any applicable rules of any stock exchange or other market quotation
system on which Common Shares are listed.
(l) The validity, construction, interpretation, administration and
effect of this Plan, and of its rules and regulations, and rights relating
to this Plan and to Awards granted under this Plan, shall be governed by
the substantive laws, but not the choice of law rules, of the State of
Delaware.
(m) Records of the Company shall be conclusive for all purposes under
this Plan or any Award, unless determined by the Committee to be incorrect.
(n) If any provision of this Plan or any Award is held to be illegal
or invalid for any reason, the illegality or invalidity shall not affect
the remaining provisions of this Plan or any Award, but such provision
shall be fully severable, and this Plan or Award, as applicable, shall be
construed and enforced as if the illegal or invalid provision had never
been included in this Plan or Award, as applicable.
(o) The terms of this Plan shall govern all Awards under this Plan
and in no event shall the Committee have the power to grant any Award under
this Plan that is contrary to any of the provisions of this Plan.
(p) For purposes of interpretation of this Plan, the masculine
pronoun includes the feminine and the singular includes the plural wherever
appropriate.
Section 19. Plan Amendment or Suspension. This Plan may be amended or
suspended in whole or in part at any time from time to time by the Board. No
amendment of this Plan shall adversely affect in a material manner any right of
any Participant with respect to any Award previously granted without such
Participant's written consent, except as permitted under Section 13.
Section 20. Plan Termination. This Plan shall terminate upon the earlier
of the following dates or events to occur:
(a) upon the adoption of a resolution of the Board terminating this
Plan; or
(b) the tenth anniversary of the Effective Date; provided, however,
that the Board may, prior to such date, extend the term of this Plan for an
additional period of up to five years for the grant of Awards other than
Incentive Stock Options. No termination of this Plan shall materially
alter or impair any of the rights or obligations of any person, without his
consent, under any Award previously granted under this Plan, except that
subsequent to termination of this Plan, the Committee may make amendments
or modifications permitted under Section 13.
Section 21. Effective Date. This Plan shall be effective, and Awards may
be granted under this Plan, on or after the Effective Date; provided, however,
if this Plan is not approved by at least a majority of the votes cast by the
stockholders of Valhi at a meeting of stockholders at which a quorum is present
within one year after the Effective Date then, in such event, this Plan and all
Awards granted pursuant to this Plan shall be null and void.
ADOPTED BY THE BOARD: May , 1997 (by action of the Board on February
-- 13, 1997)
APPROVED BY THE STOCKHOLDERS: May , 1997
--
EFFECTIVE DATE: May , 1997
--
EXECUTED to evidence this Valhi, Inc. 1997 Long-Term Incentive Plan adopted
by the Board on May , 1997 (by action of the Board on February 13, 1997) and
--
the stockholders of Valhi on May , 1997.
--
Valhi, Inc.
By:
----------------------------
Steven L. Watson, Secretary
VALHI, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
PROXY
VALHI, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF VALHI, INC. FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 8, 1997
The undersigned hereby appoints Harold C. Simmons, Glenn R. Simmons and Steven
L. Watson, and each of them, proxy and attorney-in-fact for the undersigned,
with full power of substitution, to vote on behalf of the undersigned at the
1997 Annual Meeting of Stockholders (the "Meeting") of Valhi, Inc., a Delaware
corporation ("Valhi"), to be held at the offices of Valhi at Three Lincoln
Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas on Thursday, May 8, 1997, at
10:00 a.m. (local time), and at any adjournment or postponement of said Meeting,
all of the shares of common stock, par value $0.01 per share, of Valhi standing
in the name of the undersigned or that the undersigned may be entitled to vote
on the following proposals, in the manner directed on the reverse side:
1. Election of Five Directors
Nominees: Norman S. Edelcup, Kenneth R. Ferris, Glenn R. Simmons, Harold C.
Simmons and J. Walter Tucker, Jr.
2. Amendment and Restatement of the Valhi, Inc. 1987 Stock Option-Stock
Appreciation Rights Plan
3. Adoption to the Valhi, Inc. 1997 Long-Term Incentive Plan
THIS PROXY MAY BE REVOKED AS SET FORTH IN THE VALHI PROXY STATEMENT THAT
ACCOMPANIED THIS PROXY.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED ON THE
REVERSE SIDE. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED "FOR" ALL
NOMINEES FOR ELECTION AS DIRECTORS NAMED IN PROPOSAL 1, "FOR" PROPOSALS 2 AND 3
AND IN THE DISCRETION OF THE PROXIES AS TO ALL OTHER MATTERS THAT MAY PROPERLY
COME BEFORE THE MEETING AND ANY ADJOURNMENT OR POSTPONEMENT THEREOF.
PLEASE SIGN, DATE AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
SEE REVERSE SIDE.
[X] Please mark your votes as in this example.
1. Election of Five Directors (see reverse)
[ ] FOR all nominees (except as marked below)
[ ] WITHHOLD authority to vote for all nominees
(To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
------------------------------------------------------------
2. Amendment and Restatement of the Valhi, Inc. 1987 Stock Option-Stock
Appreciation Rights Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Adoption of the Valhi, Inc. 1997 Long-Term Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting and any adjournment or
postponement thereof.
[ ] Address Change
(Instruction: Make necessary corrections to the mailing label.)
SIGNATURE(S) DATE
----------------------------- -------------
SIGNATURE(S) DATE
----------------------------- -------------
NOTE: Please sign exactly as name that appears hereon. Joint owners
should each sign. When signing other than in an individual capacity,
please fully describe such capacity.
The undersigned hereby revokes all proxies heretofore given to vote at said
Meeting and any adjournment or postponement thereof.
