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<SEC-DOCUMENT>0000059255-02-000021.txt : 20021118
<SEC-HEADER>0000059255-02-000021.hdr.sgml : 20021118
<ACCEPTANCE-DATETIME>20021114174708
ACCESSION NUMBER:		0000059255-02-000021
CONFORMED SUBMISSION TYPE:	10-Q
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20020930
FILED AS OF DATE:		20021114

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			VALHI INC /DE/
		CENTRAL INDEX KEY:			0000059255
		STANDARD INDUSTRIAL CLASSIFICATION:	SUGAR & CONFECTIONERY PRODUCTS [2060]
		IRS NUMBER:				870110150
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-Q
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-05467
		FILM NUMBER:		02826701

	BUSINESS ADDRESS:	
		STREET 1:		5430 LBJ FRWY
		STREET 2:		STE 1700
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75240
		BUSINESS PHONE:		9722331700

	MAIL ADDRESS:	
		STREET 1:		THREE LINCOLN CENTER
		STREET 2:		5430 LBJ FREEWAY SUITE 1700
		CITY:			DALLAS
		STATE:			TX
		ZIP:			75240

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	LIBERTY LOAN CORP
		DATE OF NAME CHANGE:	19800414

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	LLC CORP
		DATE OF NAME CHANGE:	19870329
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>vq0902.txt
<TEXT>
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

                  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934





For the quarter ended   September 30, 2002      Commission file number 1-5467




                                  VALHI, INC.
            (Exact name of Registrant as specified in its charter)




           Delaware                                             87-0110150
(State or other jurisdiction of                               (IRS Employer
 incorporation or organization)                            Identification No.)


            5430 LBJ Freeway, Suite 1700, Dallas, Texas  75240-2697
            (Address of principal executive offices)     (Zip Code)



Registrant's telephone number, including area code:             (972) 233-1700




Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days.



                                                  Yes  X      No



Number of shares of common stock outstanding on October 31, 2002: 115,118,917

<PAGE>

                          VALHI, INC. AND SUBSIDIARIES

                                      INDEX




                                                                        Page
                                                                       number

Part I.          FINANCIAL INFORMATION

  Item 1.        Financial Statements.

                 Consolidated Balance Sheets -
                  December 31, 2001 and September 30, 2002               3

                 Consolidated Statements of Operations -
                  Three months and nine months ended
                  September 30, 2001 and 2002                            5

                 Consolidated Statements of Comprehensive Income -
                  Nine months ended September 30, 2001 and 2002          6

                 Consolidated Statements of Cash Flows -
                  Nine months ended September 30, 2001 and 2002          7

                 Consolidated Statement of Stockholders' Equity -
                  Nine months ended September 30, 2002                   9

                 Notes to Consolidated Financial Statements             10

  Item 2.        Management's Discussion and Analysis of Financial
                  Condition and Results of Operations.                  23

  Item 4.        Controls and Procedures                                46

Part II.         OTHER INFORMATION

  Item 1.        Legal Proceedings.                                     48

  Item 6.        Exhibits and Reports on Form 8-K.                      49

<PAGE>

                          VALHI, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                                 (In thousands)

<TABLE>
<CAPTION>
              ASSETS                                 December 31,     September 30,
                                                         2001              2002

Current assets:
<S>                                                   <C>             <C>
  Cash and cash equivalents ....................      $  154,413      $  189,690
  Restricted cash equivalents ..................          63,257          52,832
  Marketable securities ........................          18,465          17,795
  Accounts and other receivables ...............         162,310         193,057
  Refundable income taxes ......................           3,564           2,404
  Receivable from affiliates ...................             844           7,760
  Inventories ..................................         262,733         202,596
  Prepaid expenses .............................          11,252          19,232
  Deferred income taxes ........................          12,999          14,039
                                                      ----------      ----------
      Total current assets .....................         689,837         699,405
                                                      ----------      ----------
Other assets:
  Marketable securities ........................         186,549         177,562
  Investment in affiliates .....................         211,115         172,060
  Receivable from affiliate ....................          20,000          20,000
  Loans and other receivables ..................         105,940         109,927
  Mining properties ............................          12,410          13,562
  Prepaid pension costs ........................          18,411          21,991
  Unrecognized net pension obligations .........           5,901           5,901
  Goodwill .....................................         349,058         359,961
  Other intangible assets ......................           2,440           4,653
  Deferred income taxes ........................           3,818           5,237
  Other ........................................          30,109          35,048
                                                       ---------      ----------
      Total other assets .......................         945,751         925,902
                                                       ---------      ----------
Property and equipment:
  Land .........................................          28,721          30,206
  Buildings ....................................         163,995         174,081
  Equipment ....................................         569,001         634,810
  Construction in progress .....................           9,992          15,655
                                                         771,709         854,752
  Less accumulated depreciation ................         253,450         313,079
                                                      ----------      ----------
      Net property and equipment ...............         518,259         541,673
                                                      ----------      ----------
                                                      $2,153,847      $2,166,980
                                                      ==========      ==========
</TABLE>


                          VALHI, INC. AND SUBSIDIARIES

                     CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                 (In thousands)


<TABLE>
<CAPTION>
   LIABILITIES AND STOCKHOLDERS' EQUITY             December 31,     September 30,
                                                       2001              2002

Current liabilities:
<S>                                                <C>              <C>
  Notes payable ..............................     $    46,201      $      --
  Current maturities of long-term debt .......          64,972           35,541
  Accounts payable ...........................         114,474           73,271
  Accrued liabilities ........................         166,488          166,823
  Payable to affiliates ......................          38,148           32,034
  Income taxes ...............................           9,578            9,789
  Deferred income taxes ......................           1,821            2,223
                                                   -----------       -----------
      Total current liabilities ..............         441,682          319,681
                                                   -----------       -----------
Noncurrent liabilities:
  Long-term debt .............................         497,215          621,361
  Accrued OPEB costs .........................          50,146           46,996
  Accrued pension costs ......................          33,823           32,321
  Accrued environmental costs ................          54,392           53,453
  Deferred income taxes ......................         268,468          280,729
  Other ......................................          32,642           31,002
                                                   -----------       -----------
      Total noncurrent liabilities ...........         936,686        1,065,862
                                                   -----------       -----------
Minority interest ............................         153,151          148,586
                                                   -----------       -----------
Stockholders' equity:
  Common stock ...............................           1,258            1,262
  Additional paid-in capital .................          44,982           47,657
  Retained earnings ..........................         656,408          631,063
  Accumulated other comprehensive income:
    Marketable securities ....................          86,654           86,469
    Currency translation .....................         (79,404)         (43,817)
    Pension liabilities ......................         (11,921)         (14,134)
  Treasury stock .............................         (75,649)         (75,649)
                                                   -----------      ------------
      Total stockholders' equity .............         622,328          632,851
                                                   -----------      ------------
                                                   $ 2,153,847      $ 2,166,980
                                                   ===========      ============
</TABLE>



Commitments and contingencies (Note 1)

                          VALHI, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                      (In thousands, except per share data)



<TABLE>
<CAPTION>
                                             Three months ended     Nine months ended
                                                September 30,          September 30,
                                             2001         2002        2001        2002

Revenues and other income:
<S>                                       <C>          <C>          <C>        <C>
  Net sales ...........................   $ 262,488    $ 284,110    $827,593   $ 816,908
  Other, net ..........................      16,011       12,340     123,742      44,073
                                          ---------    ---------    --------   ---------
                                            278,499      296,450     951,335     860,981
                                          ---------    ---------    --------   ---------
Costs and expenses:
  Cost of sales .......................     193,252      224,151     595,953     648,197
  Selling, general and administrative .      46,236       50,485     144,186     141,200
  Interest ............................      14,910       15,033      47,686      45,396
                                          ---------    ---------    --------   ---------

                                            254,398      289,669     787,825     834,793
                                          ---------    ---------    --------   ---------

                                             24,101        6,781     163,510      26,188
Equity in earnings of:
  Titanium Metals Corporation ("TIMET")       3,170      (17,153)     16,172     (31,710)
  Other ...............................         (76)         (14)        446         298
                                          ---------    ---------    --------   ---------

    Income (loss) before income taxes .      27,195      (10,386)    180,128      (5,224)

Provision for income taxes (benefit) ..      11,246       (2,101)     66,921      (1,707)

Minority interest in after-tax
 earnings (losses) ....................       5,639       (1,172)     23,668         935
                                          ---------    ---------    --------   ---------

    Net income (loss) .................   $  10,310    $  (7,113)   $ 89,539   $  (4,452)
                                          =========    =========    ========   =========
Earnings per share:
  Basic ...............................   $     .09    $    (.06)   $    .78   $    (.04)
                                          =========    =========    ========   =========

  Diluted .............................   $     .09    $    (.06)   $    .77   $    (.04)
                                          =========    =========    ========   =========


Cash dividends per share ..............   $     .06    $     .06    $    .18   $     .18
                                          =========    =========    ========   =========

Shares used in the calculation of per
 share amounts:
  Basic earnings per common share .....     115,201      115,583     115,177     115,361
  Dilutive impact of outstanding
   stock options ......................         934         --           903        --
                                            -------      -------     -------     -------

  Diluted earnings per share ..........     116,135      115,583     116,080     115,361
                                            =======      =======     =======     =======
</TABLE>



                          VALHI, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Nine months ended September 30, 2001 and 2002

                                 (In thousands)



<TABLE>
<CAPTION>
                                                            2001          2002

<S>                                                       <C>          <C>
Net income (loss) ....................................    $ 89,539     $ (4,452)
                                                          --------     ---------

Other comprehensive income (loss), net of tax:
  Marketable securities adjustment:
    Unrealized gains (losses) arising during
     the period ......................................      (8,028)        (185)
    Less reclassification for gains included in
     net income ......................................     (33,887)        --
                                                          --------     ---------

                                                           (41,915)        (185)

  Currency translation adjustment ....................      (7,617)      35,587

  Pension liabilities adjustment .....................        (332)      (2,213)
                                                          --------     ---------

    Total other comprehensive income (loss), net .....     (49,864)      33,189
                                                          --------     ---------

      Comprehensive income ...........................    $ 39,675     $ 28,737
                                                          ========     ========
</TABLE>


                          VALHI, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Nine months ended September 30, 2001 and 2002

                                 (In thousands)

<TABLE>
<CAPTION>
                                                                 2001         2002

Cash flows from operating activities:
<S>                                                           <C>          <C>
  Net income (loss) .......................................   $  89,539    $ (4,452)
  Depreciation, depletion and amortization ................      56,054      46,075
  Legal settlement gains, net .............................     (10,307)       --
  Insurance gain ..........................................      (4,551)       --
  Securities transaction gains, net .......................     (51,874)     (1,915)
  Proceeds from disposal of marketable securities (trading)        --         8,659
  Noncash interest expense ................................       4,893       3,057
  Deferred income taxes ...................................      16,257         463
  Minority interest .......................................      23,668         935
  Other, net ..............................................      (1,380)     (9,549)
  Equity in:
    TIMET .................................................     (16,172)     31,710
    Other .................................................        (446)       (298)
  Distributions from:
    Manufacturing joint venture ...........................       5,513       6,350
    Other .................................................       1,300         361
                                                               --------    --------
                                                                112,494      81,396


  Change in assets and liabilities:
    Accounts and other receivables ........................     (10,181)    (24,414)
    Inventories ...........................................      15,985      73,039
    Accounts payable and accrued liabilities ..............      (8,970)    (44,490)
    Accounts with affiliates ..............................      11,012      (9,056)
    Income taxes ..........................................      12,241       1,227
    Other, net ............................................     (13,768)     (6,389)
                                                               --------    --------

        Net cash provided by operating activities .........     118,813      71,313
                                                               --------    --------

Cash flows from investing activities:
  Capital expenditures ....................................     (45,248)    (28,384)
  Purchases of:
    Business unit .........................................        --        (9,149)
    NL common stock .......................................      (9,853)    (10,559)
    CompX common stock ....................................      (2,650)       --
    Tremont common stock ..................................        (198)       --
  Proceeds from disposal of marketable securities
   (available-for-sale) ...................................      16,802        --
  Loans to affiliate ......................................     (20,000)       --
  Property damaged by fire:
    Insurance proceeds ....................................      10,500        --
    Other, net ............................................      (2,100)       --
  Change in restricted cash equivalents, net ..............         838       3,045
  Other, net ..............................................        (239)      2,472
                                                               --------    --------

        Net cash used by investing activities .............     (52,148)    (42,575)
                                                               --------    --------
</TABLE>

                          VALHI, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Nine months ended September 30, 2001 and 2002

                                 (In thousands)

<TABLE>
<CAPTION>
                                                            2001         2002

Cash flows from financing activities:
  Indebtedness:
<S>                                                      <C>          <C>
    Borrowings .......................................   $  46,356    $ 331,800
    Principal payments ...............................    (101,671)    (291,254)
    Deferred financing costs paid ....................        --        (10,590)
  Loans from affiliate:
    Loans ............................................      76,666       10,914
    Repayments .......................................     (73,731)     (12,825)
  Valhi dividends paid ...............................     (20,863)     (20,893)
  Distributions to minority interest .................      (7,950)      (7,275)
  Other, net .........................................       1,217        3,154
                                                          --------     --------

      Net cash provided (used) by financing
       activities ....................................     (79,976)       3,031
                                                          --------     --------

Cash and cash equivalents - net change from:
  Operating, investing and financing activities ......     (13,311)      31,769
  Currency translation ...............................         232        3,312
  Business unit acquired .............................        --            196
Cash and equivalents at beginning of period ..........     135,017      154,413
                                                          --------     --------

Cash and equivalents at end of period ................   $ 121,938    $ 189,690
                                                         =========    =========


Supplemental disclosures:
  Cash paid for:
    Interest, net of amounts capitalized .............   $  36,770    $  40,754
    Income taxes, net ................................      26,880       10,156

  Business unit acquired - net assets consolidated:
    Cash and cash equivalents ........................   $    --      $     196
    Restricted cash ..................................        --          2,685
    Goodwill and other intangible assets .............        --          9,007
    Other noncash assets .............................        --          1,259
    Liabilities ......................................        --         (3,998)
                                                          --------     --------

    Cash paid ........................................   $    --      $   9,149
                                                         =========    =========
</TABLE>


                          VALHI, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                      Nine months ended September 30, 2002

                                 (In thousands)


<TABLE>
<CAPTION>
                                        Additional                 Accumulated other comprehensive income         Total
                                Common   paid-in   Retained    Marketable   Currency      Pension   Treasury   stockholders'
                                 stock   capital   earnings    securities  translation  liabilities   stock       equity

<S>                             <C>      <C>       <C>          <C>         <C>         <C>         <C>         <C>
Balance at December 31, 2001    $1,258   $44,982   $ 656,408    $ 86,654    $(79,404)   $(11,921)   $(75,649)   $ 622,328

Net loss ....................     --        --        (4,452)       --          --          --          --         (4,452)

Dividends ...................     --        --       (20,893)       --          --          --          --        (20,893)

Other comprehensive income
 (loss), net ................     --        --          --          (185)     35,587      (2,213)       --         33,189

Other, net ..................        4     2,675        --          --          --          --          --          2,679
                                ------   -------   ---------    --------    --------    --------    --------    ---------
Balance at September 30, 2002   $1,262   $47,657   $ 631,063    $ 86,469    $(43,817)   $(14,134)   $(75,649)   $ 632,851
                                ======   =======   =========    ========    ========    ========    ========
</TABLE>


                          VALHI, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -       Basis of presentation:

     The   consolidated   balance   sheet  of  Valhi,   Inc.  and   Subsidiaries
(collectively,  the  "Company") at December 31, 2001 has been condensed from the
Company's  audited   consolidated   financial   statements  at  that  date.  The
consolidated   balance  sheet  at  September  30,  2002,  and  the  consolidated
statements of operations,  comprehensive  income,  stockholders' equity and cash
flows for the interim  periods  ended  September  30,  2001 and 2002,  have been
prepared by the Company, without audit, in accordance with accounting principles
generally  accepted in the United States of America ("GAAP").  In the opinion of
management,  all adjustments,  consisting only of normal recurring  adjustments,
necessary to present  fairly the  consolidated  financial  position,  results of
operations and cash flows have been made.

     The  results of  operations  for the interim  periods  are not  necessarily
indicative  of the  operating  results for a full year or of future  operations.
Certain  information  normally  included  in  financial  statements  prepared in
accordance   with  GAAP  has  been  condensed  or  omitted.   The   accompanying
consolidated  financial  statements  should  be read  in  conjunction  with  the
Company's  Annual Report on Form 10-K for the year ended  December 31, 2001 (the
"2001 Annual Report").

     Commitments and contingencies are discussed in "Management's Discussion and
Analysis of Financial  Condition and Results of Operations," "Legal Proceedings"
and the 2001 Annual Report.

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

     The Company adopted Statement of Financial  Accounting  Standards  ("SFAS")
No. 142, Goodwill and Other Intangible Assets, and SFAS No. 144,  Accounting for
the Impairment or Disposal of Long-Lived Assets,  effective January 1, 2002, and
adopted SFAS No. 145,  Rescission of FASB Statements No. 4, 44 and 64, Amendment
of FASB Statement No. 13, and Technical  Corrections,  effective  April 1, 2002.
See Note 14.


Note 2 -       Business segment information:

                                                        % owned by Valhi at
  Business segment                Entity                 September 30, 2002

  Chemicals             NL Industries, Inc.                      62%
  Component products    CompX International Inc.                 69%
  Waste management      Waste Control Specialists                90%
  Titanium metals       Tremont Group, Inc.                      80%

     Tremont Group is a holding  company  which owns 80% of Tremont  Corporation
("Tremont")  at  September  30,  2002.  NL owns the other 20% of Tremont  Group.
Tremont is also a holding  company and owns an  additional  21% of NL and 39% of
Titanium Metals Corporation at September 30, 2002.

<TABLE>
<CAPTION>
                                          Three months ended    Nine months ended
                                            September 30,        September 30,
                                            2001      2002      2001      2002
                                                        (In millions)

Net sales:
<S>                                        <C>       <C>       <C>       <C>
  Chemicals ............................   $207.0    $234.0    $653.2    $663.3
  Component products ...................     51.5      48.8     164.4     148.4
  Waste management .....................      4.0       1.3      10.0       5.2
                                           ------    ------    ------    ------
    Total net sales ....................   $262.5    $284.1    $827.6    $816.9
                                           ======    ======    ======    ======
Operating income:
  Chemicals ............................   $ 29.9    $ 26.5    $114.1    $ 67.5
  Component products ...................      4.7       1.3      17.0       5.6
  Waste management .....................     (3.1)     (2.5)    (10.7)     (6.6)
                                           ------    ------    ------    ------

    Total operating income .............     31.5      25.3     120.4      66.5

General corporate items:
  Legal settlements gains, net .........     --        --        30.7       2.4
  Securities transaction
   gains, net ..........................      1.1      --        51.9       1.9
  Interest and dividend income .........      9.3       9.0      29.0      25.9
  Foreign currency transaction gain
                                             --        --        --         6.3
  Gain on disposal of fixed assets
                                             --        --        --         1.6
  Insurance gain .......................      3.8      --         4.5      --
  Expenses, net ........................     (6.7)    (12.5)    (25.3)    (33.0)
Interest expense .......................    (14.9)    (15.0)    (47.7)    (45.4)
                                           ------    ------    ------    ------
                                             24.1       6.8     163.5      26.2
Equity in:
  TIMET ................................      3.2     (17.2)     16.2     (31.7)
  Other ................................      (.1)     --          .4        .3
                                           ------    ------    ------    ------

    Income (loss) before
     income taxes ......................   $ 27.2    $(10.4)   $180.1    $ (5.2)
                                           ======    ======    ======    ======
</TABLE>


     During the first nine  months of 2002,  NL  purchased  shares of its common
stock in market  transactions  for an  aggregate  of $10.6  million,  increasing
Valhi's  ownership  of NL to 62%.  As  previously  reported  in the 2001  Annual
Report,  in  January  2002  NL  purchased  the  insurance  brokerage  operations
conducted by EWI Re, Inc. and EWI Re, Ltd. for an aggregate  cash purchase price
of $9 million. The pro forma impact assuming the acquisition of EWI had occurred
as of January 1, 2001 is not material.

     In July 2002,  Valhi  proposed a merger of Valhi and  Tremont  pursuant  to
which  stockholders  of Tremont  (including  NL, to the extent of NL's ownership
interest in the Tremont shares held by Tremont Group),  other than Valhi,  would
receive shares of Valhi common stock for each Tremont share held. Tremont formed
a special committee of its board of directors consisting of members unrelated to
Valhi  to  review  the  proposal.  The  special  committee  retained  their  own
independent  financial and legal  advisors.  After  performing due diligence and
evaluating  the merits of Valhi's  proposal,  the  special  committee  and their
advisors  negotiated  the  financial  and  other  terms of a  definitive  merger
agreement with Valhi. In November 2002,  Tremont,  based upon the recommendation
of their special  committee,  and Valhi reached an agreement on the terms of the
definitive  merger  agreement  in  which,   among  other  things,   the  Tremont
stockholders  referred to above would  receive 3.4 shares of Valhi  common stock
for each  share  of  Tremont  common  stock  held in a  tax-free  exchange.  The
transaction  has been  approved  by the  board of  directors  of both  Valhi and
Tremont.  The financial advisors to the special committee have issued an opinion
to the  special  committee  stating  that the  exchange  ratio  is fair,  from a
financial  point of view,  to  Tremont  stockholders  other  than  Valhi and its
affiliates.  The transaction is subject to customary closing conditions and will
require  approval by a majority of the  outstanding  shares of Tremont.  Tremont
Group has  indicated  that it intends to vote its shares in favor of the merger.
Valhi will file a  registration  statement  with the SEC in connection  with the
transaction. The date of the Tremont stockholders meeting will be established as
soon as practical following completion of the filing with the SEC.

     NL (NYSE: NL), CompX (NYSE: CIX), Tremont (NYSE: TRE) and TIMET (NYSE: TIE)
each file periodic reports  pursuant to the Securities  Exchange Act of 1934, as
amended.

Note 3 -       Marketable securities:

<TABLE>
<CAPTION>
                                                         December 31,  September 30,
                                                             2001          2002
                                                              (In thousands)

Current assets:
  Halliburton Company common stock
<S>                                                        <C>          <C>
   (available-for-sale) ..............................     $  8,138     $  8,020
  Halliburton Company common stock (trading) .........        6,744         --
  Restricted debt securities (available-for-sale) ....        3,583        9,775
                                                           --------     --------
                                                           $ 18,465     $ 17,795
                                                           ========     ========
Noncurrent assets (available-for-sale):
  The Amalgamated Sugar Company LLC ..................     $170,000     $170,000
  Restricted debt securities .........................       16,121        7,204
  Other common stocks ................................          428          358
                                                           --------     --------

                                                           $186,549     $177,562
                                                           ========     ========
</TABLE>

     At  September  30,  2002,  Valhi  held  approximately   621,000  shares  of
Halliburton  common stock  (aggregate  cost of $5 million)  with a quoted market
price of $12.91 per share, or an aggregate  market value of $8 million.  Valhi's
LYONs debt  obligations are  exchangeable at any time, at the option of the LYON
holder,  for such shares of Halliburton  common stock, and the carrying value of
such  Halliburton  shares is  limited  to the  accreted  LYONs  obligations.  At
September 30, 2002, such  Halliburton  shares are held in escrow for the benefit
of the holders of the LYONs.  Valhi receives the regular  quarterly  dividend on
all of the Halliburton shares held,  including shares held in escrow. In October
2002,  following the  redemption of  substantially  all of the remaining  LYONs,
substantially  all of such Halliburton  shares were released to the Company from
escrow  and were sold in market  transactions  for  aggregate  proceeds  of $9.5
million.  During the first nine months of 2002,  the Company sold an  additional
515,000   Halliburton   shares  classified  as  trading   securities  in  market
transactions for aggregate proceeds of $8.7 million. See Notes 9 and 12.

     See the 2001 Annual Report for a discussion of the Company's  investment in
The  Amalgamated  Sugar Company LLC. The aggregate cost of the debt  securities,
restricted  pursuant to the terms of one of NL's  environmental  special purpose
trusts  discussed  in the 2001 Annual  Report,  approximates  their net carrying
value  at  September  30,  2002.   The  aggregate   cost  of  other   noncurrent
available-for-sale securities is nominal at September 30, 2002.

Note 4 -       Inventories:

<TABLE>
<CAPTION>
                                                      December 31,     September 30,
                                                         2001              2002
                                                              (In thousands)

Raw materials:
<S>                                                    <C>              <C>
  Chemicals ..................................         $ 79,162         $ 33,835
  Component products .........................            9,677            7,206
                                                       --------         --------
                                                         88,839           41,041
                                                       --------         --------
In process products:
  Chemicals ..................................            9,675           11,304
  Component products .........................           12,619           14,242
                                                       --------         --------
                                                         22,294           25,546
                                                       --------         --------
Finished products:
  Chemicals ..................................          117,976           97,563
  Component products .........................            8,494           11,892
                                                       --------         --------
                                                        126,470          109,455
                                                       --------         --------

Supplies (primarily chemicals) ...............           25,130           26,554
                                                       --------         --------

                                                       $262,733         $202,596
                                                       ========         ========
</TABLE>

Note 5 -       Accrued liabilities:

<TABLE>
<CAPTION>
                                                     December 31,     September 30,
                                                        2001              2002
                                                            (In thousands)

Current:
<S>                                                    <C>              <C>
  Employee benefits ..........................         $ 39,974         $ 41,841
  Environmental costs ........................           64,165           56,066
  Interest ...................................            5,162            6,720
  Deferred income ............................            9,479            9,792
  Other ......................................           47,708           52,404
                                                       --------         --------

                                                       $166,488         $166,823
                                                       ========         ========

Noncurrent:
  Insurance claims and expenses ..............         $ 19,182         $ 18,263
  Employee benefits ..........................            8,616            8,899
  Deferred income ............................            1,333            1,885
  Other ......................................            3,511            1,955
                                                       --------         --------

                                                       $ 32,642         $ 31,002
                                                       ========         ========
</TABLE>


Note 6 - Accounts and other receivables:

<TABLE>
<CAPTION>
                                                    December 31,     September 30,
                                                       2001              2002
                                                             (In thousands)

<S>                                                  <C>              <C>
Accounts receivable ..........................       $ 166,126        $ 197,095
Notes receivable .............................           2,484            2,438
Accrued interest .............................              26              106
Allowance for doubtful accounts ..............          (6,326)          (6,582)
                                                     ---------        ---------
                                                     $ 162,310        $ 193,057
                                                     =========        =========
</TABLE>

Note 7 - Other assets:

<TABLE>
<CAPTION>
                                                       December 31,    September 30,
                                                          2001             2002
                                                              (In thousands)

Investment in affiliates:
<S>                                                     <C>             <C>
  TiO2 manufacturing joint venture .............        $138,428        $132,078
  TIMET ........................................          60,272          27,630
  Other ........................................          12,415          12,352
                                                        --------        --------
                                                        $211,115        $172,060
                                                        ========        ========
Loans and other receivables:
  Snake River Sugar Company:
    Principal ..................................        $ 80,000        $ 80,000
    Interest ...................................          22,718          26,612
  Other ........................................           5,706           5,753
                                                        --------        --------
                                                         108,424         112,365

  Less current portion .........................           2,484           2,438
                                                        --------        --------

  Noncurrent portion ...........................        $105,940        $109,927
                                                        ========        ========

Other noncurrent assets:
  Deferred financing costs .....................        $  1,120        $ 10,268
  Restricted cash equivalents ..................           4,713           5,014
  Waste disposal operating permits .............           2,527           1,947
  Refundable insurance deposits ................           1,609           1,864
  Other ........................................          20,140          15,955
                                                        --------        --------

                                                        $ 30,109        $ 35,048
                                                        ========        ========
</TABLE>

     The  Company's  equity  in losses  of TIMET in the  third  quarter  of 2002
includes  a $15.7  million  impairment  provision  for an other  than  temporary
decline in the value of Tremont's investment in TIMET. In determining the amount
of the impairment charge, Tremont considered,  among other things, recent ranges
of TIMET's NYSE market price and current  estimates of TIMET's future  operating
losses that would further reduce  Tremont's  carrying value of its investment in
TIMET as it records additional equity in losses of TIMET. At September 30, 2002,
Tremont  held 12.3 million  shares of TIMET  common  stock with a quoted  market
price of $1.66 per share, or an aggregate of $20 million. At September 30, 2002,
TIMET reported total assets of $582.4 million and stockholders' equity of $205.6
million.  TIMET's total assets at September 30, 2002 include  current  assets of
$278.8  million,  property and equipment of $258.6 million and other  intangible
assets of $8.4 million.  TIMET's total liabilities at September 30, 2002 include
current liabilities of $111.3 million,  long-term debt of $10.5 million, accrued
OPEB and pension costs of $35.9 million and convertible  preferred securities of
$201.2 million.  During the first nine months of 2002,  TIMET reported net sales
of  $281.5  million,  an  operating  loss of  $16.1  million  and a loss  before
cumulative effect of change in accounting principle of $57.6 million (first nine
months of 2001 - net sales of $370.5 million,  operating income of $56.8 million
and net income of $30.3 million).

Note 8 - Goodwill and other intangible assets:

        Goodwill.

<TABLE>
<CAPTION>
                                                           Operating segment
                                                              Component
                                                 Chemicals     products     Total
                                                            (In millions)

<S>                                                <C>         <C>        <C>
Balance at December 31, 2001 ................      $307.2      $ 41.9     $349.1

Goodwill acquired during the period .........         9.9        --          9.9
Changes in foreign exchange rates ...........        --           1.0        1.0
                                                   ------      ------     ------
Balance at September 30, 2002 ...............      $317.1      $ 42.9     $360.0
                                                   ======      ======     ======
</TABLE>

     Upon adoption of SFAS No. 142 effective  January 1, 2002 (see Note 14), the
goodwill  related  to  the  chemicals  operating  segment  was  assigned  to the
reporting  unit (as that term is defined in SFAS No.  142)  consisting  of NL in
total, and the goodwill related to the component  products operating segment was
assigned to two reporting units within that operating segment, one consisting of
CompX's  security  products  operations  and the  other  consisting  of  CompX's
ergonomic and slide products operations.

        Other intangible assets.

<TABLE>
<CAPTION>
                                                           December 31, September 30,
                                                              2001         2002
                                                                 (In millions)

Patents:
<S>                                                           <C>           <C>
  Cost .............................................          $3.4          $3.5
  Less accumulated amortization ....................           1.0           1.2
                                                              ----          ----
    Net ............................................           2.4           2.3
                                                              ----          ----
Customer list:
  Cost .............................................           --            2.6
  Less accumulated amortization ....................           --             .3
                                                              ----          ----

    Net ............................................           --            2.3
                                                              ----          ----

                                                              $2.4          $4.6
                                                              ====          ====
</TABLE>

     The patent  intangible asset relates to the estimated fair value of certain
patents acquired in connection with the acquisition of certain business units by
CompX, and the customer list intangible asset relates to NL's acquisition of EWI
discussed in Note 2. The patent  intangible  asset was, and will  continue to be
after  adoption  of SFAS No. 142  effective  January 1, 2002,  amortized  by the
straight-line  method  over the lives of the patents  (approximately  10.5 years
remaining at September 30, 2002),  with no assumed  residual value at the end of
the life of the patents. The customer list intangible asset will be amortized by
the straight-line  method over the estimated  seven-year life of such intangible
asset (approximately 6.3 years remaining at September 30, 2002), with no assumed
residual  value at the end of the  life of the  intangible  asset.  Amortization
expense of  intangible  assets was  approximately  $180,000  and $460,000 in the
first nine months of 2001 and 2002,  respectively,  and amortization  expense of
intangible  assets is expected to be approximately  $620,000 in each of calendar
2002 through 2006.

Note 9 - Notes payable and long-term debt:

<TABLE>
<CAPTION>
                                                         December 31,  September 30,
                                                            2001          2002
                                                              (In thousands)

Notes payable -
<S>                                                       <C>           <C>
  Kronos - non-U.S. bank credit agreements .........      $ 46,201      $   --
                                                          ========      ========

Long-term debt:
  Valhi:
    Snake River Sugar Company ......................      $250,000      $250,000
    LYONs ..........................................        25,472        27,256
    Bank credit facility ...........................        35,000        35,000
    Other ..........................................         2,880         2,880
                                                          --------      --------

                                                           313,352       315,136
                                                          --------      --------

  Subsidiaries:
    NL Senior Secured Notes ........................       194,000          --
    Kronos International:
      Senior Secured Notes .........................          --         278,673
      Bank credit facility .........................          --          26,993
    CompX bank credit facility .....................        49,000        31,000
    Valcor Senior Notes ............................         2,431         2,431
    Other ..........................................         3,404         2,669
                                                          --------      --------

                                                           248,835       341,766
                                                          --------      --------

                                                           562,187       656,902

  Less current maturities ..........................        64,972        35,541
                                                          --------      --------

                                                          $497,215      $621,361
                                                          ========      ========
</TABLE>

     In June  2002,  Kronos  International  ("KII"),  which  conducts  NL's TiO2
operations  in Europe,  issued euro 285 million  principal  amount ($280 million
when issued) of its 8.875% Senior Secured Notes due 2009. The KII Senior Secured
Notes are  collateralized by a pledge of the stock or other ownership  interests
of KII's  first-tier  operating  subsidiaries.  The KII Senior Secured Notes are
issued  pursuant  to an  indenture  which  contains  a number of  covenants  and
restrictions  which,  among other  things,  restricts the ability of KII and its
subsidiaries to incur debt,  incur liens,  pay dividends or merge or consolidate
with, or sell or transfer all or  substantially  all of their assets to, another
entity.  The KII Senior  Secured Notes are  redeemable,  at KII's option,  on or
after  December  30, 2005 at  redemption  prices  ranging  from  104.437% of the
principal amount,  declining to 100% on or after December 30, 2008. In addition,
on or before June 30, 2005, KII may redeem up to 35% of its Senior Secured Notes
with the net proceeds of a qualified  public equity  offering at 108.875% of the
principal  amount.  In the event of a change of control of KII, as defined,  KII
would be required to make an offer to purchase its Senior  Secured Notes at 101%
of the principal amount. KII would also be required to make an offer to purchase
a specified  portion of its Senior  Secured  Notes at par value in the event KII
generates a certain  amount of net proceeds from the sale of assets  outside the
ordinary  course of business,  and such net proceeds are not otherwise  used for
specified purposes within a specified time period.

     Also in June 2002,  KII's operating  subsidiaries  in Germany,  Belgium and
Norway  entered  into a new  three-year  euro 80 million  revolving  bank credit
facility.  Borrowings  under  this  facility  were  used in part  to  repay  and
terminate Kronos' short-term non-U.S. bank credit agreements.  Borrowings may be
demoninated in euros, Norwegian kroner or U.S. dollars, and bear interest at the
applicable  interbank market rate plus 1.75%. The facility also provides for the
issuance  of  letters of credit up to euro 5  million.  The new KII bank  credit
agreement is  collateralized  by the accounts  receivable and inventories of the
borrowers,  plus a  limited  pledge of all of the  other  assets of the  Belgian
borrower.  The  new KII  bank  credit  agreement  contains  certain  restrictive
covenants which,  among other things,  restricts the ability of the borrowers to
incur debt, incur liens, pay dividends or merge or consolidate  with, or sell or
transfer all or substantially all of their assets to, another entity.

     In March 2002,  NL redeemed $25 million  principal  amount of the NL Senior
Secured Notes at par value, using available cash on hand. In addition, NL used a
portion of the net proceeds from the issuance of the KII Senior Secured Notes to
redeem in full the  remaining  $169  million  principal  amount of the NL Senior
Secured Notes.  In accordance  with the terms of the indenture  governing the NL
Senior  Secured Notes,  on June 28, 2002, NL irrevocably  placed on deposit with
the NL Senior Secured Note trustee funds in an amount  sufficient to pay in full
the  redemption  price plus all accrued and unpaid  interest due on the July 28,
2002  redemption  date.  Immediately  thereafter,   NL  was  released  from  its
obligations  under  such  indenture,   the  indenture  was  discharged  and  all
collateral  was  released  to NL.  Because NL had been  released  as the primary
obligor  under the  indenture as of June 30, 2002,  the NL Senior  Secured Notes
were  eliminated  from the  balance  sheet as of that date  along with the funds
placed on deposit  with the trustee to effect the July 28, 2002  redemption.  NL
recognized  a loss on the  early  extinguishment  of debt  of  approximately  $2
million in the second quarter of 2002,  consisting  primarily of the interest on
the NL Senior  Secured  Notes for the period from July 1 to July 28, 2002.  Such
loss is recognized as a component of interest expense.

     In September  2002,  certain of NL's U.S.  subsidiaries  entered into a new
three-year $50 million  revolving  credit facility (nil outstanding at September
30, 2002)  collateralized  by the accounts  receivable,  inventories and certain
fixed assets of the borrowers. Borrowings under this facility are limited to the
lesser of $45 million or a  formula-determined  amount  based upon the  accounts
receivable and inventories of the borrowers.  Borrowings bear interest at either
the prime rate or rates based upon the eurodollar  rate.  The facility  contains
certain restrictive covenants which, among other things, restricts the abilities
of  the  borrowers  to  incur  debt,  incur  liens,  pay  dividends  in  certain
circumstances, sell assets or enter into mergers.

     In October 2002,  holders  representing  substantially all of the Company's
LYONs  exercised  their right to require the Company to redeem their LYONs for a
cash redemption  price of $27.3 million.  Funds to pay the redemption price were
provided by borrowings under Valhi's bank credit agreement, the maturity date of
which was extended to October 31, 2003 in November 2002.  Accordingly,  both the
LYONs and Valhi's  revolving  bank credit  facility are classified as noncurrent
debt at September  30,  2002.  Also in November  2002,  the size of Valhi's bank
credit facility was reduced from $72.5 million to $70 million. In November 2002,
the  Company  called the  remaining  normal  amount of LYONs for  redemption  in
December 2002.

Note 10 - Accounts with affiliates:

<TABLE>
<CAPTION>
                                                        December 31,   September 30,
                                                            2001           2002
                                                              (In thousands)

Current receivables from affiliates:
<S>                                                        <C>           <C>
  Income taxes receivable from Contran .............       $  --         $ 7,185
  TIMET ............................................           677            43
  Other ............................................           167           532
                                                           -------       -------
                                                           $   844       $ 7,760
                                                           =======       =======
Noncurrent receivable from affiliate -
 loan to Contran family trust ......................       $20,000       $20,000
                                                           =======       =======

Payables to affiliates:
  Valhi demand loan from Contran ...................       $24,574       $22,663
  Income taxes payable to Contran ..................         6,410          --
  Louisiana Pigment Company ........................         6,362         8,377
  Contran - trade items ............................           501           932
  TIMET ............................................           286          --
  Other, net .......................................            15            62
                                                           -------       -------

                                                           $38,148       $32,034
                                                           =======       =======
</TABLE>

Note 11 - Provision for income taxes (benefit):

<TABLE>
<CAPTION>
                                                                Nine months ended
                                                                  September 30,
                                                                2001         2002
                                                                  (In millions)

<S>                                                            <C>         <C>
Expected tax expense (benefit) ..........................      $63.0       $(1.8)
Incremental U.S. tax and rate differences on
 equity in earnings of non-tax group companies ..........        2.7         (.2)
Non-U.S. tax rates ......................................       (4.8)       (1.3)
Change in NL's and Tremont's deferred income tax
 valuation allowance, net ...............................       (2.1)         .9
No tax benefit for goodwill amortization ................        4.4        --
U.S. state income taxes, net ............................        2.7          .3
Other, net ..............................................        1.0          .4
                                                               -----       -----
                                                               $66.9       $(1.7)
                                                               =====       =====
Comprehensive provision for income taxes
 (benefit) allocated to:
  Net income (loss) .....................................      $66.9       $(1.7)
  Other comprehensive income:
    Marketable securities ...............................      (22.5)        (.2)
    Currency translation ................................       (1.3)        2.7
    Pension liabilities .................................        (.3)       (1.5)
                                                               -----       -----

                                                               $42.8       $ (.7)
                                                               =====       =====
</TABLE>

Note 12 -      Other income:

<TABLE>
<CAPTION>
                                                              Nine months ended
                                                                September 30,
                                                           2001            2002
                                                               (In thousands)

Securities earnings:
<S>                                                      <C>             <C>
  Dividends and interest ........................        $ 29,045        $25,866
  Securities transaction gains, net .............          51,874          1,915
                                                         --------        -------
                                                           80,919         27,781

Legal settlement gains, net .....................          30,723          2,360
Noncompete agreement income .....................           3,000          3,000
Currency transactions, net ......................             543          4,583
Pension settlement gain .........................            --              677
Insurance gain ..................................           4,551           --
Other, net ......................................           4,006          5,672
                                                         --------        -------

                                                         $123,742        $44,073
                                                         ========        =======
</TABLE>

     The securities transaction gains in 2002 are discussed in Note 3. The legal
settlement  gains in 2002 relates to NL's  settlement  with  certain  additional
former insurance carriers from whom NL had been seeking  reimbursement for legal
defense  expenditures and indemnity coverage claims. The pension settlement gain
relates  to a  defined  benefit  plan  previously  sponsored  by  CompX  in  the
Netherlands.  The net currency  transaction  gain in 2002  includes $6.3 million
related to the extinguishment of certain intercompany indebtedness of NL.


Note 13 - Minority interest:

<TABLE>
<CAPTION>
                                                    December 31,        September 30,
                                                        2001               2002
                                                            (In thousands)

Minority interest in net assets:
<S>                                                  <C>                <C>
NL Industries ............................           $ 68,566           $ 67,946
Tremont Corporation ......................             32,610             27,384
CompX International ......................             44,767             44,944
Subsidiaries of NL .......................              7,208              8,312
                                                     --------           --------
                                                     $153,151           $148,586
                                                     ========           ========
</TABLE>

<TABLE>
<CAPTION>
                                                           Nine months ended
                                                            September 30,
                                                        2001              2002
                                                            (In thousands)

Minority interest in net earnings (losses):
<S>                                                   <C>               <C>
NL Industries .............................           $15,562           $ 5,074
Tremont Corporation .......................             4,500            (5,975)
CompX International .......................             2,653               752
Subsidiaries of NL ........................               953             1,084
                                                      -------           -------
                                                      $23,668           $   935
                                                      =======           =======
</TABLE>

     As  previously  reported,  all  of  Waste  Control  Specialists  aggregate,
inception-to-date net losses have accrued to the Company for financial reporting
purposes,  and all of Waste Control  Specialists future net income or net losses
will also accrue to the Company until Waste Control Specialists reports positive
equity  attributable to its other owner.  Accordingly,  no minority  interest in
Waste Control  Specialists'  net assets or net earnings  (losses) is reported at
September 30, 2002.

Note 14 - Accounting principles newly adopted in 2002:

     Goodwill.  The Company adopted SFAS No. 142,  Goodwill and Other Intangible
Assets,  effective  January 1, 2002.  Under SFAS No.  142,  goodwill,  including
goodwill arising from the difference between the cost of an investment accounted
for by the equity method and the amount of the  underlying  equity in net assets
of  such  equity  method  investee  ("equity  method  goodwill"),  is no  longer
amortized on a periodic basis.  Goodwill (other than equity method  goodwill) is
subject to an impairment  test to be performed at least on an annual basis,  and
impairment  reviews  may  result  in  future  periodic  write-downs  charged  to
earnings. Equity method goodwill is not tested for impairment in accordance with
SFAS No. 142;  rather,  the overall carrying amount of an equity method investee
will continue to be reviewed for  impairment in accordance  with existing  GAAP.
There  is  currently  no  equity  method  goodwill  associated  with  any of the
Company's equity method investees.  Under the transition  provisions of SFAS No.
142,  all  goodwill  existing  as of June 30,  2001  ceased  to be  periodically
amortized as of January 1, 2002, and all goodwill arising in a purchase business
combination (including step acquisitions) completed on or after July 1, 2001 was
not periodically amortized from the date of such combination.

     As  discussed  in Note 8, the Company has  assigned  its  goodwill to three
reporting units (as that term is defined in SFAS No. 142). Goodwill attributable
to the chemicals operating segment was assigned to the reporting unit consisting
of NL in  total.  Goodwill  attributable  to the  component  products  operating
segment was assigned to two reporting units within that operating  segment,  one
consisting of CompX's security  products  operations and the other consisting of
CompX's ergonomic  products and slide products  operations.  Under SFAS No. 142,
such goodwill  will be deemed to not be impaired if the estimated  fair value of
the applicable  reporting unit exceeds the respective net carrying value of such
reporting  unit,  including  the  allocated  goodwill.  If the fair value of the
reporting  unit is less than carrying  value,  then a goodwill  impairment  loss
would be recognized  equal to the excess,  if any, of the net carrying  value of
the  reporting  unit  goodwill  over its  implied  fair  value  (up to a maximum
impairment equal to the carrying value of the goodwill).  The implied fair value
of  reporting  unit  goodwill  would be the  amount  equal to the  excess of the
estimated  fair  value of the  reporting  unit  over the  amount  that  would be
allocated  to the  tangible  and  intangible  net assets of the  reporting  unit
(including  unrecognized  intangible  assets) as if such reporting unit had been
acquired in a purchase  business  combination  accounted for in accordance  with
GAAP as of the date of the impairment testing.

     In  determining  the  estimated  fair value of the NL reporting  unit,  the
Company will consider  quoted market prices for NL common stock, as adjusted for
an  appropriate  control  premium.  The Company will also use other  appropriate
valuation techniques,  such as discounted cash flows, to estimate the fair value
of the two CompX reporting units.

     The  Company  completed  its  initial,   transitional  goodwill  impairment
analysis under SFAS No. 142 as of January 1, 2002,  and no goodwill  impairments
were deemed to exist as of such date. In  accordance  with the  requirements  of
SFAS No. 142, the Company will review the goodwill of its three  reporting units
for impairment during the third quarter of each year starting in 2002.  Goodwill
will also be reviewed for impairment at other times during each year when events
or changes in  circumstances  indicate that an impairment  might be present.  No
goodwill  impairments  were  deemed  to  exist  as a  result  of  the  Company's
impairment review completed during the third quarter of 2002.

     As shown in the following table, the Company would have reported net income
of $101.3  million,  or $.87 per diluted share, in the first nine months of 2001
($14.2 million,  or $.12 per diluted share, in the third quarter of 2001) if the
goodwill amortization included in the Company's reported net income had not been
recognized.

<TABLE>
<CAPTION>
                                           Three months ended   Nine months ended
                                              September 30,        September 30,
                                              2001      2002     2001       2002
                                           (In millions, except per share amounts)

<S>                                         <C>       <C>      <C>        <C>
Net income (loss) as reported ...........   $  10.3   $  (7.1) $  89.5    $  (4.4)
Adjustments:
  Goodwill amortization .................       4.2      --       12.7       --
  Incremental income taxes ..............      --        --        (.1)      --
  Minority interest in goodwill
   amortization .........................       (.3)     --        (.8)      --
                                            -------   -------  -------    -------
    Adjusted net income (loss) ..........   $  14.2   $  (7.1) $ 101.3    $  (4.4)
                                            =======   =======  =======    =======
Diluted net income (loss) per share
 as reported ............................   $   .09   $  (.06) $   .77    $  (.04)
Adjustments:
  Goodwill amortization .................       .04      --        .11       --
  Incremental income taxes ..............      --        --       --         --
  Minority interest in goodwill
   amortization .........................      (.01)     --       (.01)      --
                                            -------   -------  -------    -------

    Adjusted diluted net income
     (loss) per share ...................   $   .12   $  (.06) $   .87    $  (.04)
                                            =======   =======  =======    =======
</TABLE>


     Impairment  of  long-lived  assets.  The  Company  adopted  SFAS  No.  144,
Accounting  for the  Impairment  or Disposal  of  Long-Lived  Assets,  effective
January 1, 2002.  SFAS No. 144 retains the  fundamental  provisions  of existing
GAAP with  respect  to the  recognition  and  measurement  of  long-lived  asset
impairment  contained  in  SFAS  No.  121,  Accounting  for  the  Impairment  of
Long-Lived  Assets and for Lived-Lived  Assets to be Disposed Of. However,  SFAS
No. 144 provides new guidance intended to address certain  implementation issues
associated  with SFAS No.  121,  including  expanded  guidance  with  respect to
appropriate  cash  flows  to be used to  determine  whether  recognition  of any
long-lived  asset  impairment  is  required,  and if required how to measure the
amount of the  impairment.  SFAS No.  144 also  requires  that net  assets to be
disposed of by sale are to be  reported  at the lower of carrying  value or fair
value less cost to sell, and expands the reporting of discontinued operations to
include any  component of an entity with  operations  and cash flows that can be
clearly distinguished from the rest of the entity.  Adoption of SFAS No. 144 did
not have a significant effect on the Company.

     Debt  extinguishment  gains and losses.  The Company  adopted  SFAS No. 145
effective April 1, 2002. SFAS No. 145, among other things,  eliminated the prior
requirement that all gains and losses from the early extinguishment of debt were
to be classified as an extraordinary  item. Upon adoption of SFAS No. 145, gains
and  losses  from the  early  extinguishment  of debt are now  classified  as an
extraordinary  item  only if they meet the  "unusual  and  infrequent"  criteria
contained in Accounting  Principles  Board Opinion ("APBO") No. 30. In addition,
upon   adoption  of  SFAS  No.  145,   all  gains  and  losses  from  the  early
extinguishment  of debt that had previously been classified as an  extraordinary
item are to be  reassessed  to determine if they would have met the "unusual and
infrequent"  criteria  of APBO No. 30; any such gain or loss that would not have
met the APBO No. 30 criteria is  retroactively  reclassified  and  reported as a
component of income before  extraordinary  item.  The Company has concluded that
all of its previously-recognized  gains and losses from the early extinguishment
of debt that  occurred  on or after  January 1, 1998 would not have met the APBO
No. 30 criteria for  classification  as an  extraordinary  item, and accordingly
such previously-reported  gains and losses from the early extinguishment of debt
have been  retroactively  reclassified  and are now  reported as a component  of
income before extraordinary item.

Note 15 - Accounting principles not yet adopted:

     The  Company  will  adopt SFAS No.  143,  Accounting  for Asset  Retirement
Obligations,  no later than January 1, 2003.  Under SFAS No. 143, the fair value
of a liability  for an asset  retirement  obligation  covered under the scope of
SFAS No.  143  would be  recognized  in the  period in which  the  liability  is
incurred,  with an  offsetting  increase in the  carrying  amount of the related
long-lived  asset.  Over time,  the  liability  would be accreted to its present
value, and the capitalized cost would be depreciated over the useful life of the
related asset.  Upon settlement of the liability,  an entity would either settle
the obligation for its recorded amount or incur a gain or loss upon  settlement.
The Company is still  studying this  standard to determine,  among other things,
whether it has any asset  retirement  obligations  which are  covered  under the
scope of SFAS No. 143, and the effect,  if any, on the Company of adopting  SFAS
No. 143 has not yet been determined.

     The Company will adopt SFAS No. 146,  Accounting for Costs  Associated with
Exit or Disposal Activities,  no later than January 1, 2003 for exit or disposal
activities initiated on or after the date of adoption. Under SFAS No. 146, costs
associated with exit  activities,  as defined,  that are covered by the scope of
SFAS No. 146 will be recognized and measured initially at fair value,  generally
in the period in which the liability is incurred.  Costs covered by the scope of
SFAS No. 146  include  termination  benefits  provided  to  employees,  costs to
consolidate  facilities or relocate employees,  and costs to terminate contracts
(other than a capital lease).  Under existing GAAP, a liability for such an exit
cost is recognized at the date an exit plan is adopted,  which may or may not be
the date at which the liability has been incurred.

- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- -------------------------------------------------------------------------------

RESULTS OF OPERATIONS:

General

     The Company reported a net loss of $7.1 million, or $.06 per diluted share,
in the third  quarter of 2002 compared to net income of $10.3  million,  or $.09
per diluted  share,  in the third quarter of 2001.  Excluding the effects of the
items discussed below, the Company would have reported net income of $900,000 in
the third  quarter of 2002  compared to net income of $11.8 million in the third
quarter of 2001. For the first nine months of 2002,  the Company  reported a net
loss of $4.4 million, or $.04 per diluted share, compared to net income of $89.5
million, or $.77 per diluted share, in the first nine months of 2001.  Excluding
the effects of the items  discussed  below,  the Company would have reported net
income of $1.9  million in the first nine months of 2002  compared to net income
of $39.5 million in the first nine months of 2001.

     The  Company's  equity  in losses  of TIMET in the  third  quarter  of 2002
includes a $15.7  million  impairment  provision ($8 million net of income taxes
and minority  interest) related to Tremont's  impairment  provision for an other
than temporary  decline in the value of its  investment in TIMET.  The Company's
equity in losses of TIMET in the first nine  months of 2002  includes  losses in
the first  quarter  of $10.6  million  ($5.4  million  net of  income  taxes and
minority  interest),  related to the Company's  pro-rata  share of TIMET's $27.5
million  impairment  charge  for an other  than  temporary  decline  in value of
certain preferred  securities held by TIMET. Legal settlement gains in the first
nine  months of 2002 of $2.4  million  ($1.2  million,  net of income  taxes and
minority interest, respectively) related to prior-quarter legal settlements with
certain of NL's former insurance carriers, and securities  transactions gains in
the first nine months of 2002 of $1.9 million ($1.2 million net of income taxes)
related to the first quarter  disposal of certain shares of Halliburton  Company
common stock held by the Company.  Currency  transaction gains in the first nine
months of 2002 included a gain that occurred  during the second  quarter of 2002
of $6.3 million ($4.7 million net of income taxes and minority interest) related
to the extinguishment of certain intercompany indebtedness of NL. Net securities
transaction  gains in the third  quarter  and first nine  months of 2001 of $1.1
million  and  $51.9   million,   respectively   ($700,000  and  $33.9   million,
respectively,  net of income taxes and minority interest) related principally to
the disposal of  additional  Halliburton  shares.  Insurance  gains in the third
quarter  and  first  nine  months  of 2001 of $3.8  million  and  $4.5  million,
respectively ($1.8 million and $2.0 million,  respectively,  net of income taxes
and minority interest) related to insurance  recoveries received by NL resulting
from the March  2001 fire at one of NL's  facilities,  as  insurance  recoveries
exceeded  the  carrying  value of the  property  destroyed  and  clean-up  costs
incurred.  The Company's equity in earnings of TIMET in the first nine months of
2001 included  earnings in the second quarter of $15.7 million ($7.5 million net
of income taxes and minority  interest)  related to TIMET's  previously-reported
settlement with Boeing.  The Company's  results in the first nine months of 2001
included  the   previously-reported   first  quarter  legal   settlement   gains
aggregating  $30.7  million  ($18.4  million  net of income  taxes and  minority
interest).

     As discussed in Note 14 to the Consolidated Financial Statements, beginning
in 2002 the Company no longer  recognizes  periodic  amortization of goodwill in
its  results  of  operations.  The  Company  would have  reported  net income of
approximately  $14.2  million  in the third  quarter  of 2001 and  approximately
$101.3 million in the first nine months of 2001, or about $3.9 million and $11.8
million  higher,  respectively,  if the  goodwill  amortization  included in the
Company's  reported net income had not been  recognized.  Of such $11.8  million
difference  in the first nine months of 2001,  approximately  $10.8  million and
$1.9 million relates to  amortization of goodwill  attributable to the Company's
chemicals and component products operating segments, respectively, approximately
$100,000 relates to incremental income taxes and approximately  $800,000 relates
to minority  interest  associated with the goodwill  amortization  recognized by
certain of the Company's less-than-wholly-owned subsidiaries.

     Total  operating  income in the third quarter and first nine months of 2002
was  lower as  compared  to the  same  periods  in 2001  due to lower  chemicals
earnings at NL and lower component products earnings at CompX, offset in part by
lower waste management operating losses at Waste Control Specialists.

     As  provided  by the  safe  harbor  provisions  of the  Private  Securities
Litigation  Reform Act of 1995, the Company cautions that the statements in this
Quarterly  Report on Form 10-Q relating to matters that are not historical facts
are  forward-looking   statements  that  represent   management's   beliefs  and
assumptions based on currently available information. Forward-looking statements
can be  identified  by the use of words such as  "believes,"  "intends,"  "may,"
"should," "could," "anticipates,"  "expected" or comparable  terminology,  or by
discussions  of  strategies  or trends.  Although the Company  believes that the
expectations  reflected in such  forward-looking  statements are reasonable,  it
cannot give any  assurances  that these  expectations  will prove to be correct.
Such statements by their nature involve substantial risks and uncertainties that
could  significantly  impact expected  results,  and actual future results could
differ materially from those described in such forward-looking statements. While
it is not possible to identify all factors,  the Company  continues to face many
risks and  uncertainties.  Among the  factors  that could  cause  actual  future
results to differ materially are the risks and  uncertainties  discussed in this
Quarterly  Report and those  described from time to time in the Company's  other
filings with the Securities and Exchange Commission  including,  but not limited
to,  future  supply  and demand for the  Company's  products,  the extent of the
dependence of certain of the  Company's  businesses  on certain  market  sectors
(such as the  dependence of TIMET's  titanium  metals  business on the aerospace
industry),  the cyclicality of certain of the Company's businesses (such as NL's
TiO2 operations and TIMET's titanium metals  operations),  the impact of certain
long-term  contracts on certain of the Company's  businesses (such as the impact
of TIMET's long-term contracts with certain of its customers and such customers'
performance  thereunder  and the  impact of  TIMET's  long-term  contracts  with
certain of its vendors on its  ability to reduce or  increase  supply or achieve
lower  costs),  customer  inventory  levels  (such as the  extent to which  NL's
customers  may,  from time to time,  accelerate  purchases of TiO2 in advance of
anticipated price increases or defer purchases of TiO2 in advance of anticipated
price  decreases,  or the  relationship  between  inventory  levels  of  TIMET's
customers and such customer's  current inventory  requirements and the impact of
such  relationship on their  purchases from TIMET),  changes in raw material and
other  operating  costs  (such  as  energy  costs),  the  possibility  of  labor
disruptions,  general global economic and political  conditions (such as changes
in the level of gross domestic  product in various  regions of the world and the
impact of such changes on demand for,  among other  things,  TiO2),  competitive
products and substitute products, customer and competitor strategies, the impact
of pricing and  production  decisions,  competitive  technology  positions,  the
introduction of trade barriers, fluctuations in currency exchange rates (such as
changes in the exchange  rate  between the U.S.  dollar and each of the euro and
the Canadian dollar),  operating interruptions  (including,  but not limited to,
labor disputes, leaks, fires, explosions,  unscheduled or unplanned downtime and
transportation  interruptions),  recoveries from insurance claims and the timing
thereof,  potential  difficulties  in integrating  completed  acquisitions,  the
ability of the Company to renew or refinance  credit  facilities,  uncertainties
associated with new product  development (such as TIMET's ability to develop new
end-uses  for its  titanium  products),  environmental  matters  (such  as those
requiring  emission and discharge  standards  for existing and new  facilities),
government laws and  regulations and possible  changes therein (such as a change
in Texas state law which would allow the applicable regulatory agency to issue a
permit for the disposal of low-level radioactive wastes to a private entity such
as Waste Control Specialists,  or changes in government  regulations which might
impose various  obligations on present and former  manufacturers of lead pigment
and lead-based  paint,  including NL, with respect to asserted  health  concerns
associated  with the use of such products),  the ultimate  resolution of pending
litigation  (such as NL's lead pigment  litigation  and  litigation  surrounding
environmental  matters of NL, Tremont and TIMET) and possible future litigation.
Should one or more of these risks  materialize  (or the  consequences  of such a
development  worsen),  or should the  underlying  assumptions  prove  incorrect,
actual results could differ  materially from those  forecasted or expected.  The
Company   disclaims  any  intention  or  obligation  to  update  or  revise  any
forward-looking statement whether as a result of changes in information,  future
events or otherwise.

Chemicals

     Selling  prices for titanium  dioxide  pigments  ("TiO2"),  NL's  principal
product,  were generally  decreasing during all of 2001 and the first quarter of
2002,  were  generally flat during the second quarter of 2002 and were generally
increasing  during the third quarter of 2002. NL's TiO2 operations are conducted
through its wholly-owned subsidiary Kronos, Inc.

<TABLE>
<CAPTION>
                                         Three months ended                     Nine months ended
                                           September 30,             %            September 30,            %
                                        2001            2002       Change        2001         2002       Change
                                                    (In millions, except percentages)

<S>                                     <C>            <C>            <C>      <C>            <C>            <C>
Net sales                               $207.0         $234.0        +13%      $653.2         $663.3        +2%
Operating income                          29.9           26.5        -11%       114.1           67.5       -41%
</TABLE>


     Chemicals  operating  income  declined in the third  quarter and first nine
months of 2002  compared  to the same  periods  of 2001 due  primarily  to lower
average selling prices for titanium dioxide pigments ("TiO2"), offset in part by
higher TiO2 sales and production  volumes.  Excluding the effect of fluctuations
in the value of the U.S. dollar relative to other currencies,  NL's average TiO2
selling prices in the third quarter of 2002 were 7% lower than the third quarter
of 2001,  and were 12% lower in the first nine  months of 2002  compared  to the
same period in 2001.  While NL's average TiO2 selling  prices had generally been
declining during all of 2001 and the first quarter of 2002, and were flat during
the second  quarter of 2002,  average TiO2 selling prices  increased  during the
third quarter of the year. NL's average TiO2 selling prices in the third quarter
of 2002  were 3%  higher  compared  to the  second  quarter  of the  year,  with
increases in all major markets.

     NL's TiO2 sales  volumes in the third  quarter of 2002 were 14% higher than
the third quarter of 2001,  with higher  volumes in European and North  American
markets  and lower  volumes in export  markets.  NL's TiO2 sales  volumes in the
first nine  months of 2002 were 13% higher  than the first nine  months of 2001.
NL's TiO2  production  volumes in the third  quarter of 2002 were 7% higher than
the third quarter of 2001, with operating rates near full capacity in 2002. NL's
TiO2 production volumes in the first nine months of 2002 were 6% higher compared
to the same  period in 2001.  The  increases  in NL's TiO2 sales and  production
volumes in 2002 were due in part to the effect of the  previously-reported  fire
at NL's Leverkusen,  Germany TiO2 facility in March 2001, as well as in part due
to  customer   restocking   their  inventory   levels  in  2002  in  advance  of
previously-announced  TiO2 price increases.  As previously reported,  NL settled
its insurance  claim related to the Leverkusen fire during the fourth quarter of
2001. NL recognized $19.3 million of business  interruption  insurance  proceeds
during the fourth  quarter of 2001, of which $16.6 million was  attributable  to
recovery  of  unallocated  period  costs and lost  margin  related to the first,
second and third quarters of 2001.

     The damages to property and the business  interruption losses caused by the
previously-reported   Leverkusen  fire  were  covered  by  insurance.  Chemicals
operating  income in the third  quarter and first nine months of 2001 include $3
million  and  $8  million,  respectively,  of  business  interruption  insurance
proceeds as partial payments for losses caused by the fire.

     In January  2002,  NL announced  price  increases  in all major  markets of
approximately  5% to 8% above existing  December 2001 prices, a portion of which
NL realized in the second and third  quarters of 2002. In May 2002, NL announced
a second round of price  increases in all major markets of  approximately  7% to
11% above  June 2002  prices.  Assuming  demand for TiO2  remains at  reasonable
levels, NL expects to achieve further price improvement in the fourth quarter of
this year, but the extent to which NL can realize any price increases during the
remainder of 2002 will depend on economic and  competitive  conditions.  Because
TiO2 prices were generally declining during all of 2001 and the first quarter of
2002,  NL  believes  that  its  average  TiO2  selling  prices  in 2002  will be
significantly below its average 2001 prices, even if price increases continue to
be realized.  NL expects its TiO2 sales and production volumes in 2002 should be
higher  as  compared  to  2001,  in  part  due to the  effects  in  2001  of the
previously-reported  fire at its Leverkusen,  Germany  facility.  NL expects its
sales volumes in 2002 will exceed its production  volumes.  While NL expects its
TiO2 sales volumes in the fourth  quarter of 2002 will be seasonally  lower than
the third  quarter of this  year,  NL  expects  its sales  volumes in the fourth
quarter  of 2002 will  exceed its sales  volumes in the fourth  quarter of 2001.
Overall,  NL expects  its TiO2  operating  income in 2002 will be  significantly
lower than 2001,  primarily  due to lower  average  TiO2  selling  prices.  NL's
expectations  as to the future  prospects of NL and the TiO2  industry are based
upon a number of factors  beyond NL's  control,  including  worldwide  growth of
gross  domestic   product,   competition  in  the  marketplace,   unexpected  or
earlier-than-expected  capacity additions and technological  advances. If actual
developments differ from NL's expectations,  NL's results of operations could be
unfavorably affected.

     NL has substantial  operations and assets located outside the United States
(principally Germany,  Belgium, Norway and Canada). A significant amount of NL's
sales generated from its non-U.S. operations are denominated in currencies other
than the U.S. dollar,  primarily the euro,  other major European  currencies and
the Canadian  dollar.  In addition,  a portion of NL's sales  generated from its
non-U.S.  operations are denominated in the U.S. dollar.  Certain raw materials,
primarily  titanium-containing  feedstocks, are purchased in U.S. dollars, while
labor and other production costs are denominated  primarily in local currencies.
Consequently,  the  translated  U.S.  dollar  value of NL's  foreign  sales  and
operating results are subject to currency  exchange rate fluctuations  which may
favorably or adversely impact reported earnings and may affect the comparability
of period-to-period  operating results.  Including the effect of fluctuations in
the value of the U.S.  dollar  relative to other  currencies,  NL's average TiO2
selling prices (in billing currencies) in the third quarter of 2002 decreased 2%
compared to the third  quarter of 2001,  and decreased 11% during the first nine
months of 2002.  Overall,  fluctuations in the value of the U.S. dollar relative
to other  currencies,  primarily  the euro,  increased  TiO2  sales in the third
quarter  and first nine  months of 2002 by  approximately  $14  million  and $10
million,  respectively, as compared to the same periods in 2001. Fluctuations in
the value of the U.S. dollar  relative to other  currencies  similarly  impacted
NL's foreign currency-denominated  operating expenses. NL's operating costs that
are not denominated in the U.S. dollar, when translated into U.S. dollars,  were
higher  during  2002 as compared  to 2001.  Overall,  the net impact of currency
exchange rate  fluctuations  increased TiO2 operating  income by $2.2 million in
the third quarter of 2002  compared to the third  quarter of 2001,  and slightly
decreased operating income in the first nine months of 2002 compared to the same
period in 2001.

     Chemicals   operating   income,  as  presented  above,  is  stated  net  of
amortization of Valhi's purchase accounting adjustments made in conjunction with
its  acquisitions of its interest in NL. Such  adjustments  result in additional
depreciation,  depletion and  amortization  expense  beyond  amounts  separately
reported by NL. Such additional  non-cash expenses reduced  chemicals  operating
income,  as reported by Valhi, by approximately  $19.2 million in the first nine
months of 2001 and  approximately  $9.0 million in the first nine months of 2002
as compared to amounts separately  reported by NL. The decline from 2001 to 2002
in  such  additional   non-cash   expenses  relates   primarily  to  ceasing  to
periodically amortize goodwill beginning in 2002 (the 2001 amount included $10.8
million  related  to  goodwill  amortization).  See Note 14 to the  Consolidated
Financial Statements.

Component Products

<TABLE>
<CAPTION>
                                         Three months ended                     Nine months ended
                                           September 30,             %            September 30,            %
                                        2001            2002       Change        2001         2002       Change
                                                    (In millions, except percentages)

<S>                                     <C>            <C>             <C>     <C>            <C>           <C>
Net sales                               $51.5          $48.8          -5%      $164.4         $148.4       -10%
Operating income                          4.7            1.3         -71%        17.0            5.6       -67%
</TABLE>


     Component  products  sales  and  operating  income  decreased  in the third
quarter and first nine months of 2002  compared to the same  periods in 2001 due
to  continued  weak demand for  CompX's  component  products  sold to the office
furniture  market  resulting from the continued weak economic  conditions in the
manufacturing  sectors in North America and Europe. Sales of slide and ergonomic
products  decreased  6% and 18%,  respectively,  in the  third  quarter  of 2002
compared to the third  quarter of 2001,  with  year-to-date  declines of 13% and
19%,  respectively.  While sales of security products  increased 2% in the third
quarter  of 2002  compared  to the same  period  in  2001,  in part due to price
increases  implemented in July 2002, sales of security  products were down 2% in
the first nine months of 2002  compared to the same period in 2001 due primarily
to lower volumes.  Operating  income  comparisons  were  negatively  impacted by
increases in certain raw material costs, primarily steel, as well as the adverse
impact of reduced  selling  prices  primarily  with  respect  to slide  products
resulting  from  competitive   pressures.   Operating  income  comparisons  were
favorably impacted by ceasing to periodically amortize goodwill,  which amounted
to  approximately  $600,000 and $1.9 million in the third quarter and first nine
months of 2001,  respectively  (none in 2002),  as well as the impact of certain
cost reductions that were implemented. See Note 14 to the Consolidated Financial
Statements.

     CompX has  substantial  operations  and assets  located  outside the United
States (principally in Canada, the Netherlands and Taiwan). A portion of CompX's
sales generated from its non-U.S. operations are denominated in currencies other
than the U.S.  dollar,  principally  the Canadian  dollar,  the euro and the New
Taiwan  dollar.  In  addition,  a portion of CompX's  sales  generated  from its
non-U.S.  operations (principally in Canada) are denominated in the U.S. dollar.
Most  raw  materials,  labor  and  other  production  costs  for  such  non-U.S.
operations are  denominated  primarily in local  currencies.  Consequently,  the
translated U.S. dollar value of CompX's foreign sales and operating  results are
subject  to  currency  exchange  rate   fluctuations   which  may  favorably  or
unfavorably   impact  reported   earnings  and  may  affect   comparability   of
period-to-period operating results. Excluding the effect of currency,  component
products sales decreased 6% in the third quarter of 2002 as compared to the same
period in 2001,  and operating  income  decreased  72%.  Excluding the effect of
currency, component products sales decreased 9% in the first nine months of 2002
as compared to the same period in 2001, and operating income decreased 62%.

     CompX currently expects to record a pre-tax charge in the fourth quarter of
2002 of between  $1.7  million and $2.2  million,  the majority of which will be
non-cash  in  nature,  related  to the  retooling  of  one if its  manufacturing
facilities.  The cost  savings  resulting  from  this  retooling  are  currently
expected  to begin to be  reflected  in CompX's  operating  results in the first
quarter of 2003. CompX is also finalizing a plan to consolidate its two Canadian
facilities into one facility.  A final decision on implementing this activity is
expected prior to the end of 2002, and if implemented such  consolidation  would
be expected to be  substantially  completed  by the end of the first  quarter of
2003. CompX is also reviewing other facility rationalizations.  These activities
could result in charges for asset impairment and other related costs in addition
to the charge referred to above.

     CompX  currently  expects that soft market  conditions will continue in the
office furniture market,  the primary end-use market for CompX's products.  As a
result,  sales  volumes are expected to remain at depressed  levels for at least
the remainder of the first half of 2003, and competitive  pricing  pressures are
also expected to continue. In addition,  the worldwide steel price increase that
followed the steel tariff  imposed this year by the United States  government is
expected to continue to negatively impact component  products margins on CompX's
slide and ergonomic products, where steel is the primary raw material. CompX has
initiated price increases on certain products and will continue to focus on cost
improvement  initiatives  in order to minimize  the impact of lower sales to the
office furniture industry and to develop value-added  customer  relationships to
improve its operating results.


Waste Management

<TABLE>
<CAPTION>
                                                  Three months ended                   Nine months ended
                                                     September 30,                       September 30,
                                                 2001             2002                2001           2002
                                                                       (In millions)

<S>                                             <C>             <C>                <C>               <C>
Net sales                                       $  4.0          $  1.3             $ 10.0            $ 5.2
Operating loss                                    (3.1)           (2.5)             (10.7)            (6.6)
</TABLE>

     Waste Control  Specialists'  sales decreased in the third quarter and first
nine months of 2002  compared to the same  periods in 2001 due  primarily to the
effect of weak  demand for its waste  management  services.  Waste  management's
operating  losses  declined  during 2002 as the effect of certain cost  controls
implemented in 2002 more than offset the effects of the decline in sales.

     Waste  Control  Specialists  currently has permits which allow it to treat,
store and dispose of a broad range of hazardous and toxic  wastes,  and to treat
and store a broad range of low-level  and mixed  radioactive  wastes.  The waste
management  industry  currently is experiencing a relative decline in the number
of environmental remediation projects generating wastes. In addition, efforts on
the part of generators to reduce the volume of waste and/or manage wastes onsite
at  their  facilities  also  has  resulted  in weak  demand  for  Waste  Control
Specialists waste management services.  These factors have led to reduced demand
and increased downward price pressure for waste management services. While Waste
Control  Specialists'  believes its broad range of permits for the treatment and
storage of  low-level  and mixed  radioactive  waste  streams  provides  certain
competitive  advantages,  a key element of Waste Control Specialists'  long-term
strategy to provide  "one-stop  shopping"  for  hazardous,  low-level  and mixed
radioactive wastes includes obtaining additional  regulatory  authorizations for
the disposal of a broad range of low-level and mixed radioactive wastes.

     Waste Control  Specialists is continuing its attempts to increase its sales
volumes from waste  streams  that conform to permits it currently  has in place.
Waste Control  Specialists is also continuing to identify certain waste streams,
and attempt to obtain modifications to its current permits, that would allow for
treatment,  storage and disposal of additional  types of wastes.  The ability of
Waste  Control  Specialists  to achieve  increased  sales volumes of these waste
streams,  together with improved  operating  efficiencies  through  further cost
reductions and increased  capacity  utilization,  are important factors in Waste
Control  Specialists'  ability to  achieve  improved  cash  flows.  The  Company
currently  believes Waste Control  Specialists  can become a viable,  profitable
operation.  However,  there can be no assurance that Waste Control  Specialists'
efforts  will prove  successful  in improving  its cash flows.  Valhi has in the
past, and may in the future,  consider  strategic  alternatives  with respect to
Waste Control  Specialists.  Depending on the form of the  transaction  that any
such  strategic  alternative  might  take,  there can be no  assurance  that the
Company would not report a loss with respect to such a transaction.

TIMET

     Tremont accounts for its interest in TIMET by the equity method.  Tremont's
equity in earnings  (losses)  of TIMET  differs  from the amounts  that would be
expected   by   applying    Tremont's    ownership    percentage    to   TIMET's
separately-reported  earnings  because of the effect of amortization of purchase
accounting   adjustments   made  by  Tremont  in   conjunction   with  Tremont's
acquisitions of its interests in TIMET.  Amortization of such basis  differences
generally  increases  earnings  (or  reduces  losses)  attributable  to TIMET as
reported by Tremont.

<TABLE>
<CAPTION>
                                           Three months ended  Nine months ended
                                             September 30,       September 30,
                                             2001       2002    2001      2002
                                                        (In millions)

TIMET historical:
<S>                                         <C>       <C>      <C>       <C>
  Net sales .............................   $126.4    $ 82.8   $370.5    $281.5
                                            ======    ======   ======    ======
  Operating income (loss):
    Boeing settlement, net ..............   $ --      $ --     $ 62.7    $ --
    Fixed asset impairment ..............     --        --      (10.8)     --
    Tungsten accrual ....................     --        --       (3.8)     --
    Boeing take-or-pay income ...........     --        10.5     --        12.7
    Other, net ..........................      9.9     (14.8)     8.7     (28.8)
                                             -----     -----    -----    ------
                                               9.9      (4.3)    56.8     (16.1)
  Impairment of convertible
   preferred securities .................     --        --       --       (27.5)
  Other general corporate, net ..........      1.3       (.9)     5.3      (1.7)
  Interest expense ......................      (.7)      (.9)    (3.3)     (2.4)
                                             -----     -----    -----    ------
                                              10.5      (6.1)    58.8     (47.7)

  Income tax benefit (expense) ..........     (3.7)       .5    (20.7)      1.3
  Minority interest .....................     (2.5)     (3.5)    (7.8)    (11.2)
                                             -----     -----    -----    ------

    Income (loss) before cumulative
     effect of change in accounting
     principle ..........................   $  4.3    $ (9.1)  $ 30.3    $(57.6)
                                            ======    ======   ======    ======

Equity in earnings (losses)
 of TIMET ...............................   $  3.2    $(17.2)  $ 16.2    $(31.7)
                                            ======    ======   ======    ======
</TABLE>


     Tremont  periodically  evaluates  the net carrying  value of its  long-term
assets,  including its  investment in TIMET,  to determine if there has been any
decline in value below its amortized cost basis that is other than temporary and
would,  therefore,  require  a  write-down  which  would be  accounted  for as a
realized loss. At September 30, 2002,  after  considering what it believes to be
all relevant factors,  including,  among other things, TIMET's recent NYSE stock
prices,  and TIMET's  operating  results,  financial  position,  estimated asset
values and prospects,  Tremont recorded a $15.7 million impairment provision for
an other  than  temporary  decline  in value of its  investment  in TIMET.  Such
impairment  provision is reported as part of the  Company's  equity in losses of
TIMET in the third quarter of 2002. After that writedown, at September 30, 2002,
Tremont's  net  carrying  value of its  investment  in TIMET was $2.25 per share
compared to a NYSE market price at that date of $1.66 per share.  In determining
the amount of the impairment  charge,  Tremont  considered,  among other things,
recent  ranges of TIMET's  NYSE market  price and current  estimates  of TIMET's
future operating  losses that would further reduce  Tremont's  carrying value of
its  investment  in TIMET as it  records  additional  equity in losses of TIMET.
Tremont will  continue to monitor and evaluate  the value of its  investment  in
TIMET.  In the event  Tremont  determines  any  further  decline in value of its
investment  in TIMET below its net carrying  value has  occurred  which is other
than temporary, Tremont would report an additional write-down at that time.

     Excluding the effect of TIMET's  previously-reported  legal settlement with
Boeing, its impairment charge related to certain equipment, its accruals for the
tungsten matter discussed below and the effect of the Boeing take-or-pay income,
TIMET reported lower sales and worse operating  results in the third quarter and
first nine months of 2002 compared to the same periods in 2001. During the third
quarter of 2002,  TIMET's mill and melted  products sales volumes  decreased 33%
and 54%,  respectively,  compared to the same  period in 2001.  During the first
nine months of 2002,  TIMET's mill products sales volumes decreased 26% compared
to the same period in 2001, and its sales volumes of melted  products  decreased
45%.  Excluding  the  effect of  fluctuations  in the  value of the U.S.  dollar
relative to other  currencies,  TIMET's average selling prices for mill products
in the third  quarter  of 2002 were 1% lower  compared  to the third  quarter of
2001, while selling prices for its melted products decreased 5%. TIMET's average
selling prices for mill products in the first nine months of 2002 were 4% higher
compared  to the same  period  in 2001,  while  selling  prices  for its  melted
products  increased 2%.  TIMET's  operating  income  comparisons  were favorably
impacted by TIMET ceasing to periodically  amortize  goodwill  recognized on its
separate-company  books,  which amounted to approximately  $1.1 million and $3.5
million  in the third  quarter  and first  nine  months of 2001  (none in 2002).
TIMET's  results in 2002 were  negatively  impacted  by an  increase  in TIMET's
provision for excess  inventories and severance costs related to TIMET's program
to reduce its global employment  levels.  TIMET's  operating income  comparisons
were also  negatively  impacted in 2002 by lower  operating  rates in 2002, with
estimated capacity utilization declining from 85% to 45% in the third quarter of
2002  compared to the third  quarter of 2001  (year-to-date  decline from 75% to
55%).

     Under TIMET's  previously-reported amended long-term agreement with Boeing,
Boeing has  advanced  TIMET $28.5  million  for 2002,  and Boeing is required to
advance  TIMET $28.5 million  annually from 2003 through 2007.  The agreement is
structured as a take-or-pay  agreement  such that Boeing,  beginning in calendar
year  2002,  will  forfeit  a  proportionate  part of the $28.5  million  annual
advance,  or  effectively  $3.80 per  pound,  in the event  that its  orders for
delivery for such calendar year are less than 7.5 million pounds. TIMET can only
be required,  however,  to deliver up to 3 million pounds per quarter.  Based on
TIMET's actual  deliveries to Boeing of approximately  1.2 million pounds during
the first  nine  months  of 2002  (including  300,000  pounds  during  the third
quarter) and TIMET's  contractual  maximum  obligation  of  delivering 3 million
pounds during the remainder of 2002,  TIMET  recognized  income of $10.5 million
and  $12.7  million  in the  third  quarter  and  first  nine  months  of  2002,
respectively,  related to the take-or-pay  provisions for the 3.3 million pounds
of material  that TIMET is no longer  obligated  to provide to Boeing  under the
agreement.  TIMET currently expects to recognize about $10 million of additional
income during the fourth quarter of 2002 related to the  take-or-pay  provisions
of the contract.  These earnings related to the take-or-pay  provisions  distort
TIMET's  operating  income  percentages  as  there  is no  corresponding  amount
reported in TIMET's sales.

     TIMET's  results  in the first  nine  months of 2002 also  includes a $27.5
million  first  quarter  provision  for an other than  temporary  impairment  of
TIMET's  investment in the  convertible  preferred  securities of Special Metals
Corporation ("SMC"). In addition,  TIMET's effective income tax rate in the 2002
periods varies from the 35% U.S. federal statutory income tax rate because TIMET
has concluded it is not currently appropriate to recognize an income tax benefit
related  to  its  U.S.  losses  under  the  "more-likely-than-not"   recognition
criteria.

     As  previously  reported,  in March 2001,  TIMET was notified by one of its
customers that a product  manufactured  from standard grade titanium produced by
TIMET  contained  what has been  confirmed  to be a  tungsten  inclusion.  TIMET
accrued $3.3 million during 2001, and an additional  $200,000  during the second
quarter of 2002, for its best estimate of the most likely amount of loss it will
incur with respect to this matter.  However,  it does not  represent the maximum
possible  loss,  which TIMET is not presently  able to estimate,  and the amount
accrued may be periodically revised in the future as more facts become known. As
of September 30, 2002,  TIMET has received claims  aggregating  approximately $5
million,  and TIMET had settled  claims  totaling  $500,000.  Pending claims are
being investigated and negotiated,  and TIMET believes certain of the claims are
without merit and can be settled for less than the amount of the claim. There is
no assurance that all potential  claims have yet been submitted to TIMET.  TIMET
has filed suit seeking full recovery from its silicon supplier for any liability
TIMET  might  incur,  although  no  assurances  can be  given  that  TIMET  will
ultimately be able to recover all or any portion of such amounts.  TIMET has not
recorded any recoveries related to this matter as of September 30, 2002.

     The economic  slowdown  that began in 2001 in the economies of the U.S. and
other  regions of the world  combined with the events of September 11, 2001 have
resulted  in  the  major  commercial  airframe  and  jet  engine   manufacturers
substantially reducing their forecast of engine and aircraft deliveries over the
next few years and their production levels in 2002. TIMET expects that aggregate
industry mill product  shipments will decrease in 2002 by  approximately  18% to
about 45,000  metric tons and that demand for mill  products for the  commercial
aerospace  sector  could  decline  by up to  40%  in  2002,  primarily  due to a
combination  of  reduced   aircraft   production   rates  and  excess  inventory
accumulated throughout the aerospace supply chain. Excess inventory accumulation
typically  leads to order  demand for  titanium  products  falling  below actual
consumption.  Based on The  Airline  Monitor's  July 2002  forecast  and TIMET's
projected changes in supply chain inventory levels, TIMET anticipates a cyclical
trough in titanium  demand may occur in 2003 with a gradual  recovery  beginning
thereafter.  Adverse world events,  including terrorist activities and conflicts
in the Middle East or elsewhere,  could have a significant adverse impact on the
financial  health of  commercial  airlines and  economic  growth in the U.S. and
other  regions of the world.  Any such  events,  which are not  contemplated  in
TIMET's outlook,  could prolong and exacerbate the current commercial  aerospace
slowdown.

     Although the current business  environment makes it particularly  difficult
to predict TIMET's future financial performance, TIMET expects its sales revenue
for the fourth  quarter of 2002 to range  between $75  million and $85  million.
Mill  product  sales  volumes are  expected  to be about 2,200  metric tons with
melted product  shipments of about 700 metric tons.  Interest  expense should be
about $1  million  while  minority  interest  on TIMET's  Convertible  Preferred
Securities should approximate $3.3 million. With these estimates,  TIMET expects
an operating  loss in the fourth quarter of 2002 before special items of between
$5 million and $10 million,  and a net loss before  special items of between $10
million and $15 million.

     TIMET  expects  its sales for all of 2002 will range  from $360  million to
$370 million,  reflecting  the combined  effects of decreases in sales  volumes,
softening of market selling prices and changes in customer and product mix. Mill
product sales volumes are expected to decline approximately 25% relative to 2001
to about 9,000 metric tons,  and melted  product  sales  volumes are expected to
decline by 40% to about 2,600 metric tons. The sales volumes  decline in 2002 is
principally driven by an anticipated  reduction in TIMET's commercial  aerospace
sales  volumes of about 40%  compared  to 2001,  partly  offset by sales  volume
growth to other  markets.  TIMET  expects its  selling  prices on new orders for
titanium  products  will  continue to soften  throughout  the remainder of 2002.
Overall,  TIMET  currently  expects to report an operating  loss before  special
items for all of 2002 of between $25 million and $30 million in 2002,  and a net
loss before special items of between $45 million and $50 million.

     As a  consequence  of  uncertainties  surrounding  both  the  titanium  and
commercial aerospace industries and broader economic conditions,  TIMET believes
assessments of the recoverability of its long-lived assets, that may also result
in special  charges for asset  impairments,  could occur in the balance of 2002.
Such potential future charges, if any, could be material to TIMET.

     TIMET's outlook for 2003 is for a continuing difficult business environment
reflecting the severe downturn in the commercial aerospace industry and sluggish
economy.  The  commercial  aerospace  sector is the major  source of demand  for
TIMET's products.  Although  workforce  reduction actions undertaken by TIMET in
2002 are  expected  to result in annual  savings of between  $12 million and $15
million,  TIMET's early  expectations  are that its sales and financial  results
during  2003  may be  similar  to  2002.  However,  TIMET  is  conscious  of the
meaningful  risks  posed  by the  continuing  war on  terrorism,  and  potential
conflicts in the Middle East, Iraq and elsewhere.  These and other adverse world
events could prolong and  exacerbate  the downturn in the  commercial  aerospace
industry and have broader economic consequences.

     In  addition to its  agreement  with  Boeing,  TIMET has  long-term  supply
agreements  with certain other major  aerospace  customers,  including,  but not
limited to,  Rolls-Royce plc, United  Technologies  Corporation (Pratt & Whitney
and related companies) and Wyman-Gordon  Company (a unit of Precision  Castparts
Corporation).  These agreements  initially became effective in 1998 and 1999 and
expire in 2007  through  2008,  subject to certain  conditions.  The  agreements
generally  provide  for (i) minimum  market  shares of the  customers'  titanium
requirements   or  firm   annual   volume   commitments   and   (ii)   fixed  or
formula-determined  prices  generally  for at least the first  five years of the
contract term.  Generally,  the agreements  require  TIMET's service and product
performance to meet specified criteria, and also contain a number of other terms
and conditions  customary in  transactions  of these types. In certain events of
nonperformance by TIMET, the agreements may be terminated  early.  Additionally,
under a group of related agreements (which group represents approximately 15% of
TIMET's 2001 sales  revenue),  which currently have fixed prices that convert to
formula-derived  prices in 2004,  the customer may terminate the agreement as of
the end of 2003 if the effect of the initiation of formula-derived pricing would
cause  such  customer  "material  harm."  If any of such  agreements  were to be
terminated  by the customer on this basis,  it is possible  that some portion of
the business  represented  by that agreement  would continue on a  non-agreement
basis.  However,  the  termination  of one or  more of  such  agreements  by the
customer in such circumstances  could result in a material and adverse effect on
TIMET's business,  results of operations,  consolidated  financial  condition or
liquidity.

     In September 2002, TIMET entered into a long-term agreement, effective from
January 1, 2002 through  December 31, 2007, for the purchase of titanium sponge.
This agreement  replaced and superceded a previous  agreement entered into in by
TIMET in 1997. The new agreement  requires annual minimum  purchases by TIMET of
approximately $10 million.

General corporate and other items

     General corporate interest and dividend income.  General corporate interest
and dividend income decreased in the third quarter and first nine months of 2002
compared to the same  periods in 2001 due to a lower  average  level of invested
funds and  lower  average  yields.  Aggregate  general  corporate  interest  and
dividend  income is  currently  expected  to  continue  to be lower  during  the
remainder of 2002  compared to the same period in 2001 due  primarily to a lower
amount of funds available for investment and lower average interest rates.

     Legal settlement gains. The legal settlement gains in the first nine months
of 2002 relate to NL's settlements with certain former insurance  carriers.  See
Note 12 to the Consolidated Financial Statements. These settlements,  similar to
certain  previously-reported  NL legal  settlements  recognized  during 2000 and
2001,  resolved court proceedings in which NL had sought  reimbursement from the
carriers  for legal  defense  costs and  indemnity  coverage  for certain of its
environmental remediation expenditures. No further material settlements relating
to  litigation  concerning  environmental  remediation  insurance  coverages are
expected.

     Securities  transactions.  Securities  transactions gains in the first nine
months  of 2002  relate to the  first  quarter  disposal  of  certain  shares of
Halliburton  Company  common stock held by the Company that were  classified  as
trading securities. See Notes 3 and 12 to the Consolidated Financial Statements.
The remaining  Halliburton shares held by the Company at September 30, 2002 were
held in escrow  for the  benefit  of the  holders  of the  Company's  LYONs debt
obligation, which are exchangeable at any time, at the option of the holder, for
such  Halliburton   shares.  In  October  2002,   following  the  redemption  of
substantially all of the remaining LYONs,  substantially all of such Halliburton
shares  were  released  to the  Company  from  escrow  and were  sold in  market
transactions aggregate proceeds of $9.5 million. The Company expects to report a
securities  transaction  gain in the  fourth  quarter  of  2002 of $4.5  million
related to the sale of these Halliburton shares.

     Other general  corporate  income items.  The $6.3 million foreign  currency
transaction gain in the second quarter of 2002 relates to the  extinguishment of
certain  intercompany  indebtedness  of NL. The gain on disposal of fixed assets
relates to the sale of certain real estate held by Tremont.

     General corporate  expenses.  Net general  corporate  expenses in the third
quarter and first nine months of 2002 were higher than the same periods in 2001,
as higher  environmental  and legal expenses of NL were only partially offset by
the effect of lower  compensation-related  expenses of Tremont. NL's $20 million
of proceeds from the disposal of its specialty  chemicals  business unit related
to its agreement not to compete in the  rheological  products  business is being
recognized as a component of general corporate income (expense) ratably over the
five-year  non-compete  period  ending in the first  quarter of 2003 ($3 million
recognized  in the  first  nine  months  of 2001 and  2002).  See Note 12 to the
Consolidated  Financial  Statements.  Net  general  corporate  expenses  in  the
remainder  of 2002 are  currently  expected to  continue  to be somewhat  higher
compared to the same periods in 2001.

     Interest  expense.  Interest  expense  in the  first  nine  months  of 2002
includes  $2.0  million  related  to  the  second  quarter  loss  on  the  early
extinguishment  of NL's Senior  Secured  Notes.  See Note 9 to the  Consolidated
Financial Statements. Interest expense declined in the first nine months of 2002
compared to the same periods in 2001 due  primarily to lower  average  levels of
outstanding  indebtedness as well as lower average U.S. variable interest rates.
Assuming interest rates do not increase significantly from year-end 2001 levels,
interest  expense in the remainder of 2002 is currently  expected to continue to
be somewhat lower compared to the same periods in 2001 due to lower  anticipated
interest rates on variable-rate borrowings in the U.S. and a lower average level
of outstanding debt.

     Provision  for income  taxes.  The  principal  reasons  for the  difference
between the Company's  effective income tax rates and the U.S. federal statutory
income  tax  rates  are  explained  in  Note  11 to the  Consolidated  Financial
Statements.  Income tax rates vary by jurisdiction  (country and/or state),  and
relative  changes in the  geographic mix of the Company's  pre-tax  earnings can
result in  fluctuations  in the  effective  income tax rate.  In  addition,  the
absolute level of pre-tax earnings can impact the Company's effective income tax
rate due to income items  included in pre-tax  earnings which are not subject to
tax or expense items for which there is no tax benefit.

     During the first nine months of 2002,  NL reduced its  deferred  income tax
asset valuation  allowance by approximately $2.7 million,  primarily as a result
of  utilization  of certain  income tax attributes for which the benefit had not
previously been recognized. In this regard, no income tax was recognized on NL's
$6.3 million general corporate  foreign currency  transaction gain, as NL offset
such income tax by utilizing certain income tax attributes, the benefit of which
had not  previously  been  recognized.  During  the first  nine  months of 2002,
Tremont  increased  its deferred  income tax asset  valuation  allowance (at the
Valhi  consolidated  level)  by a net $3.6  million  primarily  because  Tremont
concluded    certain    tax    attributes    do   not    currently    meet   the
"more-likely-than-not" recognition criteria.

     As discussed in Note 14 to the Consolidated Financial Statements, effective
January 1, 2002,  the  Company no longer  recognizes  periodic  amortization  of
goodwill.  Under GAAP,  generally there is no income tax benefit  recognized for
financial reporting purposes attributable to goodwill amortization. Accordingly,
ceasing  to  periodically  amortize  goodwill  beginning  in 2002  impacted  the
Company's overall effective income tax rate in 2002 as compared to 2001.

     At September 30, 2002, NL had the equivalent of approximately  $371 million
of income tax loss carryforwards in Germany with no expiration date. However, NL
has provided a deferred tax valuation  allowance  against  substantially  all of
these income tax loss  carryforwards  because NL currently  believes they do not
meet  the  "more-likely-than-not"   recognition  criteria.  The  German  federal
government has proposed certain changes to its income tax law, including certain
changes  that  would  impose  limitations  on  utilization  of  income  tax loss
carryforwards, that as proposed would become effective January 1, 2003. Since NL
has  provided  a  deferred   income  tax  asset  valuation   allowance   against
substantially all of these German tax loss carryforwards, any limitation on NL's
ability to utilize such  carryforwards  resulting from enactment of any of these
proposals  would not have a  material  impact on NL's net  deferred  income  tax
liability.  However,  if enacted,  the  proposed  changes  could have a material
impact  on  NL's   ability  to  fully   utilize  its  German   income  tax  loss
carryforwards,  which would significantly affect the Company's future income tax
expense and future German income tax payments.  NL does not currently expect any
enactment of these proposals would occur prior to January 1, 2003.

     Minority interest.  See Note 13 to the Consolidated  Financial  Statements.
Minority   interest   in  NL's   subsidiaries   relates   principally   to  NL's
majority-owned  environmental management subsidiary, NL Environmental Management
Services,  Inc.  ("EMS").  EMS was  established  in  1998,  at  which  time  EMS
contractually assumed certain of NL's environmental  liabilities.  EMS' earnings
are based, in part, upon its ability to favorably  resolve these  liabilities on
an aggregate  basis. The shareholders of EMS, other than NL, actively manage the
environmental  liabilities  and  share in 39% of EMS'  cumulative  earnings.  NL
continues to consolidate EMS and provides accruals for the reasonably  estimable
costs for the settlement of EMS' environmental liabilities, as discussed below.

     As previously  reported,  Waste Control Specialists was formed by Valhi and
another entity in 1995. Waste Control Specialists assumed certain liabilities of
the other owner and such  liabilities  exceeded the carrying value of the assets
contributed  by the other  owner.  Since its  inception in 1995,  Waste  Control
Specialists  has  reported  aggregate  net  losses.  Consequently,  all of Waste
Control Specialists aggregate,  inception-to-date net losses have accrued to the
Company for financial reporting  purposes,  and all of Waste Control Specialists
future net income or net losses  will also  accrue to the  Company  until  Waste
Control  Specialists  reports  positive equity  attributable to the other owner.
Accordingly,  no minority  interest in Waste Control  Specialists' net assets or
net earnings (losses) is reported during the first nine months of 2001 and 2002.

     In July 2002,  Valhi  proposed a merger of Valhi and  Tremont  pursuant  to
which  stockholders  of Tremont  (including  NL, to the extent of NL's ownership
interest in the Tremont shares held by Tremont Group),  other than Valhi,  would
receive  shares of Valhi common stock for each Tremont share held. See Note 2 to
the Consolidated Financial Statements. Tremont formed a special committee of its
board of  directors  consisting  of  directors  unrelated to Valhi to review the
proposal.  The special  committee  retained their own independent  financial and
legal  advisors.  After  performing  due diligence and  evaluating the merits of
Valhi's  proposal,  the special  committee  and their  advisors  negotiated  the
financial  and other terms of a  definitive  merger  agreement  with  Valhi.  In
November  2002,  Tremont,   based  upon  the  recommendation  of  their  special
committee,  and Valhi reached an agreement on the terms of the definitive merger
agreement in which,  among other things,  the Tremont  stockholders  referred to
above would  receive 3.4 shares of Valhi  common stock for each share of Tremont
common stock held in a tax-free  exchange.  The transaction has been approved by
the board of directors of both Valhi and Tremont.  The financial advisors to the
special  committee have issued an opinion to the special  committee stating that
the  exchange  ratio is  fair,  from a  financial  point  of  view,  to  Tremont
stockholders other than Valhi and its affiliates.  The transaction is subject to
customary  closing  conditions  and will  require  approval by a majority of the
outstanding  shares of Tremont.  Tremont Group has indicated  that it intends to
vote its shares in favor of the merger. Valhi will file a registration statement
with  the SEC in  connection  with  the  transaction.  The  date of the  Tremont
stockholders  meeting  will  be  established  as  soon  as  practical  following
completion of the filing with the SEC. Once the merger is completed, the Company
will no longer report minority  interest in Tremont's net assets or net earnings
(losses).

     Accounting  principles  not yet  adopted.  See Note 15 to the  Consolidated
Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES:

Consolidated cash flows

     Operating activities. Trends in cash flows from operating annual activities
(excluding the impact of significant asset  dispositions and relative changes in
assets  and  liabilities)  are  generally  similar  to trends  in the  Company's
earnings.  Changes in assets and liabilities generally result from the timing of
production, sales, purchases and income tax payments.

     Certain items included in the determination of net income are non-cash, and
therefore  such items have no impact on cash  flows from  operating  activities.
Non-cash items included in the determination of net income include depreciation,
depletion and amortization expense,  non-cash interest expense, asset impairment
charges  and  unrealized  securities  transactions  gains and  losses.  Non-cash
interest   expense  relates   principally  to  Valhi  and  NL  and  consists  of
amortization of original issue discount on certain indebtedness and amortization
of deferred  financing  costs.  In addition,  substantially  all of the proceeds
resulting from NL's legal  settlements in 2001 are shown as restricted cash, and
therefore  such   settlements  had  no  impact  on  cash  flows  from  operating
activities.

     Certain other items included in the determination of net income may have an
impact on cash flows from operating activities,  but the impact of such items on
cash  flows from  operating  activities  will  differ  from their  impact on net
income. For example, equity in earnings of affiliates will generally differ from
the amount of distributions received from such affiliates,  and equity in losses
of affiliates does not necessarily  result in a current cash outlay paid to such
affiliates.  The amount of periodic  defined  benefit  pension  plan expense and
periodic  OPEB  expense  depends  upon a number of  factors,  including  certain
actuarial assumptions,  and changes in such actuarial assumptions will result in
a change in the  reported  expense.  In  addition,  the amount of such  periodic
expense  generally  differs from the  outflows of cash  required to be currently
paid for such benefits.

     Certain  other items  included in the  determination  of net income have no
impact on cash flows from  operating  activities,  but such items do impact cash
flows  from  investing  activities  (although  their  impact on such cash  flows
differs from their impact on net income). For example, realized gains and losses
from the disposal of  available-for-sale  marketable  securities  and long-lived
assets are included in the  determination  of net income,  although the proceeds
from  any  such  disposal  are  shown  as  part  of cash  flows  from  investing
activities.

     Investing  and  financing  activities.  Approximately  64% of the Company's
consolidated capital expenditures in the first nine months of 2002 relate to NL,
35%  relate  to CompX and  substantially  all of the  remainder  relate to Waste
Control  Specialists.  Approximately  $2.6 million of NL's capital  expenditures
relates  to  the  ongoing  reconstruction  of  NL's  Leverkusen,   Germany  TiO2
production  facility  that was  damaged by fire  during  2001.  NL expects  such
reconstruction  will be  completed  by the end of 2002.  During  the first  nine
months  of 2002,  NL  purchased  $10.6  million  of its  common  stock in market
transactions,  and NL purchased the EWI insurance  brokerage services operations
for $9 million. See Note 2 to the Consolidated Financial Statements.

     During the first nine months of 2002,  (i) Valhi  repaid a net $1.9 million
of its short-term demand loans from Contran, (ii) CompX repaid a net $18 million
of its  revolving  bank  credit  facility,  (iii) NL repaid all of its  existing
short-term  notes payable  denominated in euros and Nowegian kroner ($53 million
when repaid) using primarily  proceeds from borrowings ($39 million) under KII's
new revolving  bank credit  facility,  (iv) NL redeemed  $194 million  principal
amount of its Senior  Secured Notes,  primarily  using the proceeds from the new
euro 285 million ($280  million when issued)  borrowing of KII and (v) NL repaid
an aggregate of euro 13 million  ($12 million when repaid) of  borrowings  under
KII's revolving bank credit facility.  See Note 9 to the Consolidated  Financial
Statements.

     At September  30, 2002,  unused  credit  available  under  existing  credit
facilities  approximated  $195.4  million,  which was  comprised  of $69 million
available to CompX under its revolving credit facility, $90 million available to
NL (primarily  under KII's new revolving  credit  facility and a new $50 million
facility  collateralized  by  certain  of NL's U.S.  assets)  and $36.4  million
available  to  Valhi  under  its  revolving  bank  credit  facility.  Provisions
contained  in certain of the  Company's  credit  agreements  could result in the
acceleration  of the applicable  indebtedness  prior to its stated  maturity for
reasons  other than  payment  defaults or defaults  from  failing to comply with
typical financial  covenants.  For example,  certain credit agreements allow the
lender to accelerate the maturity of the  indebtedness  upon a change of control
(as  defined)  of the  borrower.  The terms of  Valhi's  revolving  bank  credit
facility could require Valhi to either reduce  outstanding  borrowings or pledge
additional  collateral  in the  event  the fair  value of the  existing  pledged
collateral falls below specified levels. In addition,  certain credit agreements
could  result  in  the  acceleration  of all or a  portion  of the  indebtedness
following a sale of assets outside the ordinary  course of business.  Other than
operating  leases,  neither Valhi nor any of its  subsidiaries or affiliates are
parties to any off-balance sheet financing arrangements.

Chemicals - NL Industries

     At September 30, 2002, NL had cash,  cash  equivalents  and marketable debt
and other  securities  of $243  million,  including  restricted  balances of $72
million,  and NL had $90 million  available  for  borrowing  under its  existing
credit facilities.

     NL's board of directors has authorized NL to purchase up to an aggregate of
6.0 million  shares of its common  stock in open market or  privately-negotiated
transactions  over an unspecified  period of time,  including 1.5 million shares
authorized  by NL's board in October  2002.  Through  September 30, 2002, NL had
purchased  4  million  of its  shares  pursuant  to such  authorizations  for an
aggregate of $64.2 million,  including  approximately  719,000 shares  purchased
during the first nine months of 2002 for an aggregate of $10.6 million.

     In  addition  to its  regular  quarterly  dividend  of $.20 per  share,  in
November 2002, NL's board of directors declared an additional  dividend of $2.50
per share,  payable in December 2002. Based on the approximately 47.7 million NL
shares  outstanding  as of  November  12,  2002,  NL's  special  dividend  would
aggregate approximately $119 million,  including $75.3 million that will be paid
to Valhi and $25.5 million that will be paid to Tremont.

     In March 2002,  NL  redeemed  $25  million  principal  amount of its Senior
Secured Notes, and in June 2002 NL redeemed the remaining $169 million principal
amount of such Senior Secured Notes.  See Note 9 to the  Consolidated  Financial
Statements.

     Certain of NL's U.S.  and non-U.S.  tax returns are being  examined and tax
authorities have or may propose tax deficiencies,  including  non-income related
items and  interest.  NL's and EMS' 1998 U.S.  federal  income tax  returns  are
currently  being  examined  by the  U.S.  tax  authorities,  and NL and EMS have
granted extensions of the statute of limitations for assessments until September
30, 2003.  Based on the course of the  examination to date, NL anticipates  that
the U.S.  tax  authorities  may propose a  substantial  tax  deficiency.  NL has
received preliminary tax assessments for the years 1991 to 1997 from the Belgian
tax authorities  proposing tax  deficiencies,  including  related  interest,  of
approximately  euro 10.4 million ($10 million at  September  30,  2002).  NL has
filed  protests  to the  assessments  for  the  years  1991  to  1997.  NL is in
discussions  with the Belgian tax  authorities  and believes  that a significant
portion of the  assessments  are without  merit.  No assurance can be given that
these  tax  matters  will be  resolved  in NL's  favor  in view of the  inherent
uncertainties  involved in court and tax  proceedings.  NL believes  that it has
provided  adequate  accruals for additional  taxes and related  interest expense
which may  ultimately  result from all such  examinations  and believes that the
ultimate  disposition of such  examinations  should not have a material  adverse
effect  on  its  consolidated  financial  position,  results  of  operations  or
liquidity.

     NL has been named as a defendant, potentially responsible party ("PRP"), or
both, in a number of legal proceedings  associated with  environmental  matters,
including waste disposal  sites,  mining  locations and facilities  currently or
previously owned, operated or used by NL, certain of which are on the U.S. EPA's
Superfund National Priorities List or similar state lists. On a quarterly basis,
NL evaluates  the  potential  range of its  liability at sites where it has been
named as a PRP or  defendant,  including  sites for which EMS has  contractually
assumed NL's  obligation.  NL believes it has provided  adequate  accruals ($100
million at September 30, 2002) for reasonably  estimable  costs of such matters,
but NL's ultimate  liability  may be affected by a number of factors,  including
changes in  remedial  alternatives  and costs and the  allocation  of such costs
among PRPs. It is not possible to estimate the range of costs for certain sites.
The  upper  end of the range of  reasonably  possible  costs to NL for sites for
which it is possible to  estimate  costs is  approximately  $140  million.  NL's
estimates of such  liabilities  have not been  discounted to present value,  and
other than certain  previously-reported  settlements  with respect to certain of
NL's former insurance carriers,  NL has not recognized any insurance recoveries.
No assurance can be given that actual costs will not exceed  accrued  amounts or
the upper end of the range for sites for which  estimates have been made, and no
assurance  can be given that costs will not be incurred with respect to sites as
to which no estimate  presently  can be made. NL is also a defendant in a number
of legal  proceedings  seeking  damages for personal  injury and property damage
allegedly  arising  from  the  sale  of lead  pigments  and  lead-based  paints,
including  cases in which  plaintiffs  purport  to  represent  a class and cases
brought on behalf of government entities. NL has not accrued any amounts for the
pending lead pigment and lead-based paint litigation. There is no assurance that
NL will not incur future liability in respect of this pending litigation in view
of the inherent  uncertainties involved in court and jury rulings in pending and
possible  future cases.  However,  based on, among other things,  the results of
such  litigation  to  date,  NL  believes  that the  pending  lead  pigment  and
lead-based paint litigation is without merit. Liability that may result, if any,
cannot   reasonably  be  estimated.   In  addition,   various   legislation  and
administrative  regulations  have,  from time to time,  been enacted or proposed
that seek to impose various  obligations on present and former  manufacturers of
lead  pigment and  lead-based  paint with  respect to asserted  health  concerns
associated  with  the use of  such  products  and to  effectively  overturn  the
precedent  set by court  decisions in which NL and other  pigment  manufacturers
have been successful.  Examples of such proposed legislation include bills which
would permit civil  liability for damages on the basis of market  share,  rather
than  requiring  plaintiffs  to prove that the  defendant's  product  caused the
alleged  damage,  and bills  which  would  revive  actions  currently  barred by
statutes of limitations. NL currently believes the disposition of all claims and
disputes,  individually or in the aggregate,  should not have a material adverse
effect  on  its  consolidated  financial  position,  results  of  operations  or
liquidity. There can be no assurance that additional matters of these types will
not arise in the future.

     NL periodically evaluates its liquidity  requirements,  alternative uses of
capital,  capital  needs and  availability  of resources in view of, among other
things,  its debt service and capital  expenditure  requirements  and  estimated
future operating cash flows. As a result of this process, NL has in the past and
may  in  the  future  seek  to  reduce,  refinance,  repurchase  or  restructure
indebtedness,  raise additional capital,  repurchase shares of its common stock,
modify its dividend policy,  restructure ownership interests,  sell interests in
subsidiaries or other assets, or take a combination of such steps or other steps
to manage its  liquidity  and  capital  resources.  In the normal  course of its
business,  NL may review opportunities for the acquisition,  divestiture,  joint
venture  or other  business  combinations  in the  chemicals  industry  or other
industries,  as well as the  acquisition  of interests in, and loans to, related
entities.  In the  event of any such  transaction,  NL may  consider  using  its
available cash,  issuing its equity  securities or refinancing or increasing its
indebtedness to the extent  permitted by the agreements  governing NL's existing
debt.

Component products - CompX International

     CompX expects to replace its existing  revolving bank credit facility prior
to its expiration in February 2003 with a new credit facility. CompX anticipates
voluntarily  reducing the new facility  from $100 million to $50 million in line
with CompX's current credit needs. A $50 million facility is currently  expected
to be adequate to meet CompX's liquidity and working capital requirements. CompX
expects the new facility will be secured and bear interest at a higher rate than
its existing facility,  which in part reflects current market conditions.  There
can be no  assurance  that  CompX  will  be  able to  successfully  negotiate  a
replacement  credit  facility,  or that the  terms of any  replacement  facility
obtained will be on the terms as described above.

     Certain  of  CompX's  sales  generated  by  its  Canadian   operations  are
denominated in U. S. dollars.  To manage a portion of the foreign  exchange rate
risk associated with such  receivables or similar  exchange rate risk associated
with future sales,  CompX  periodically  enters into short-term forward currency
exchange  contracts.  At each balance sheet date, any such outstanding  currency
forward  contracts  are  marked-to-market   with  any  resulting  gain  or  loss
recognized in income currently. These contracts are not accounted for as hedging
instruments  under GAAP. At September 30, 2002, CompX held contracts to exchange
$9 million for an equivalent  amount of Canadian  dollars at an average exchange
rate of Cdn. $1.57 per U.S. dollar.  Such contracts mature through January 2003.
The actual  exchange rate at September 30, 2002 was Cdn. $1.58 per U.S.  dollar,
and the estimated fair value of such contracts was not material.

     CompX periodically evaluates its liquidity  requirements,  alternative uses
of  capital,  capital  needs and  available  resources  in view of,  among other
things, its capital  expenditure  requirements in light of its capital resources
and estimated  future  operating cash flows. As a result of this process,  CompX
has in the  past  and  may in the  future  seek  to  raise  additional  capital,
refinance or restructure indebtedness,  issue additional securities,  modify its
dividend policy,  repurchase shares of its common stock or take a combination of
such steps or other steps to manage its liquidity and capital resources.  In the
normal  course of business,  CompX may review  opportunities  for  acquisitions,
divestitures,  joint  ventures or other business  combinations  in the component
products  industry.  In the event of any such  transaction,  CompX may  consider
using available cash,  issuing  additional  equity  securities or increasing the
indebtedness of CompX or its subsidiaries.

Waste management - Waste Control Specialists

     At September 30, 2002, Waste Control Specialists' indebtedness, as amended,
consists  principally  of (i) a $4.6 million term loan due in November  2004 and
(ii) $16.7 million of other  borrowings  under a $17.5 million  revolving credit
facility  that, as amended,  also matures in 2004. All of such  indebtedness  is
owed to a wholly-owned  subsidiary of Valhi, and is therefore  eliminated in the
Company's  consolidated  financial  statements.  Waste Control  Specialists  may
borrow  additional  amounts during the remainder of 2002 under its $17.5 million
revolving credit facility.


TIMET

     At September 30, 2002,  TIMET had net debt of  approximately  $14.1 million
($18.7 million of debt and $4.6 million of cash and equivalents).

     As  previously-reported,  in March 2002 SMC and its U.S. subsidiaries filed
voluntary  petitions for reorganization  under Chapter 11 of the U.S. Bankruptcy
Code.  As a  result,  TIMET,  with  the  assistance  of  an  external  valuation
specialist, undertook a further assessment of its investment in SMC and recorded
an additional $27.5 million  impairment  charge to general  corporate expense in
the first quarter of 2002 for an other than temporary  decline in the fair value
of its investment in SMC,  reducing TIMET's carrying amount of its investment in
SMC to zero.

     TIMET is involved in various environmental,  contractual, product liability
and other claims,  disputes and litigation  incidental to its business including
those discussed above.  While TIMET's  management,  including  internal counsel,
currently  believes that the outcome of these matters,  individually  and in the
aggregate,  will  not  have a  material  adverse  effect  on  TIMET's  financial
position, liquidity or overall trends in results of operations, all such matters
are subject to inherent  uncertainties.  Were an unfavorable outcome to occur in
any given period, it is possible that it could have a material adverse impact on
TIMET's results of operations or cash flows in a particular period.

     At September  30, 2002,  TIMET had accrued an aggregate of $3.7 million for
environmental matters,  including the previously-reported matter relating to the
site at its Nevada facility.  TIMET records liabilities related to environmental
remediation  obligations  when estimated  future  expenditures  are probable and
reasonably estimable.  Such accruals are adjusted as further information becomes
available  or  circumstances  change.  Estimated  future  expenditures  are  not
discounted to their present  value.  It is not possible to estimate the range of
costs  for  certain  sites.  The  imposition  of  more  stringent  standards  or
requirements  under  environmental  laws or  regulations,  the results of future
testing and  analysis  undertaken  by TIMET at its  operating  facilities,  or a
determination that TIMET is potentially responsible for the release of hazardous
substances  at other sites,  could result in  expenditures  in excess of amounts
currently  estimated to be required for such matters.  No assurance can be given
that  actual  costs  will not exceed  accrued  amounts or that costs will not be
incurred  with  respect to sites as to which no problem  is  currently  known or
where no estimate can presently be made. Further, there can be no assurance that
additional environmental matters will not arise in the future.

     At  September  30,  2002,  TIMET had accrued an  aggregate  of $600,000 for
expected costs related to various legal proceedings.  TIMET records  liabilities
related to legal  proceedings when estimated losses,  including  estimated legal
fees,  are  probable and  reasonably  estimable.  Such  accruals are adjusted as
further information becomes available or circumstances change.  Estimated future
costs are not discounted to their present value.  It is not possible to estimate
the range of costs for certain  matters.  No assurance  can be given that actual
costs will not exceed  accrued  amounts or that costs will not be incurred  with
respect  to  matters  as to  which no  problem  is  currently  known or where no
estimate  can  presently  be  made.  Further,  there  can be no  assurance  that
additional legal proceedings will not arise in the future.

     TIMET is the primary  obligor on two worker  compensation  bonds  issued on
behalf  of a  former  subsidiary  of  TIMET.  Each of the  bonds  has a  maximum
obligation  of $1.5 million.  The bonds were provided as part of the  conditions
imposed  upon  the  former  subsidiary  in  order  to  self-insure  its  workers
compensation obligations.  In July 2001, the former subsidiary filed for Chapter
11  bankruptcy  protection.  During the third  quarter of 2002,  TIMET  received
notices that the issuers of the bonds have been required to make payments on one
of the  bonds  in  respect  to  certain  of  these  claims  and  have  requested
reimbursement  from TIMET for claims  paid  through  September  17,  2002 in the
amount of approximately $.3 million, which TIMET has accrued as of September 30,
2002. In addition,  TIMET may be liable for up to an additional  $1.2 million on
this bond if further  claims on this bond are filed.  Based  upon  current  loss
projections,  TIMET  anticipates  payouts of at least an additional  $.6 million
under the bond and has accrued such amount at September  30, 2002.  At this time
the insurance  company has not paid any claims under the other bond, and no such
payments are currently  anticipated.  Accordingly,  no accrual has been recorded
for potential  claims that could be filed under the other bond. TIMET may revise
its estimated liability under these bonds in the future.

     In October  2002,  TIMET amended its existing  U.S.  asset-based  revolving
credit  agreement  extending the maturity date to February 2006. Under the terms
of the  amendment,  borrowings  are  limited to the  lesser of $90  million or a
formula-determined  borrowing  base derived  from the value of TIMET's  accounts
receivable,  inventory and equipment.  This facility requires TIMET's U.S. daily
cash  receipts to be used to reduce  outstanding  borrowings,  which may then be
reborrowed, subject to the terms of the agreement. Borrowings are collateralized
by substantially all of TIMET's U.S. assets. The credit agreement  prohibits the
payment of  dividends  on TIMET's  convertible  preferred  securities  if excess
availability,   as  defined,  is  less  than  $25  million,   limits  additional
indebtedness,  prohibits  the payment of  dividends  on TIMET's  common stock if
excess  availability is less than $40 million,  requires compliance with certain
financial   covenants  and  contains  other   covenants   customary  in  lending
transactions of this type.  Excess  availability is defined as unused  borrowing
availability less certain contractual  commitments such as letters of credit. As
of  the  October  2002  amendment  date,   unused  borrowing   availability  was
approximately $69 million.

     TIMET's U.S.  credit  agreement  allows the lender to modify the  borrowing
base  formulas  at its  discretion,  subject to certain  conditions.  During the
second quarter of 2002,  TIMET's lender elected to exercise such  discretion and
modified  TIMET's  borrowing base formulas,  which reduced the amount that TIMET
could borrow against its inventory and equipment by approximately $7 million. In
the event the lender  exercises such discretion in the future,  such event could
have a material adverse impact on TIMET's liquidity.

     TIMET's United Kingdom subsidiary also has a credit agreement that provides
for  borrowings  limited  to the  lesser  of  pound  sterling  30  million  or a
formula-determined borrowing base derived from the value of accounts receivable,
inventory and equipment.  As of September 30, 2002, the  outstanding  balance of
this facility was approximately $1.3 million with unused borrowing  availability
was approximately $37 million.

     TIMET also has  overdraft  and other  credit  facilities  at certain of its
other European  subsidiaries.  These facilities accrue interest at various rates
and are payable on demand.  Unused  borrowing  availability  as of September 30,
2002 under these facilities was approximately $13 million.

     In  September  2002,  Moody's  Investor  Service  downgraded  its rating on
TIMET's convertible  preferred securities to Caa2 from B3, and Standard & Poor's
Ratings Services lowered its rating on such securities to CCC- from CCC. S&P has
further  indicated that it will lower its credit rating on such  securities to D
after the dividend payment due on December 1, 2002 is actually deferred. TIMET's
ability to obtain  additional  capital in the  future,  or its ability to obtain
capital on terms TIMET deemed appropriate, could be negatively affected by these
downgrades.

     In  October  2002,  TIMET  exercised  its  right to defer  future  dividend
payments  on its  convertible  preferred  securities  for a  period  of up to 20
consecutive  quarters.  Dividends  will  continue  to accrue and  interest  will
continue to accrue at the coupon  rate on the  principal  and unpaid  dividends.
This  deferral is  effective  for TIMET's  December 1, 2002  scheduled  dividend
payment.  TIMET may consider  resuming  payment of dividends on the  convertible
preferred  securities  once the  outlook  for TIMET's  results  from  operations
improves  substantially`.  Since  TIMET  exercised  its right to defer  dividend
payments, it is unable to, among other things, pay dividends on or reacquire its
capital stock during the deferral period.

     In  November  2002,  TIMET  announced  that  its  board  of  directors  had
unanimously  approved a reverse split of TIMET's common stock at a ratio ranging
from  one-for-eight  up to and  including  one-for-ten.  The reverse stock split
proposal will be submitted to TIMET's  stockholders  for approval at an upcoming
special meeting called for that purpose.  TIMET will announce the date, time and
place of its special meeting once it has been determined.  Assuming  stockholder
approval,  the TIMET board of directors will  determine the  applicable  reverse
split ratio and implement the reverse stock split at that ratio, but will retain
the discretion not to proceed with this  transaction if it determines that it is
not in the best interest of TIMET or its  stockholders.  Implementing such TIMET
reverse stock split would have no financial statement impact to the Company, and
Tremont's  ownership  interest  in TIMET  would  not  change  as a result of the
reverse  stock split.  TIMET also  announced  that its board of  directors  also
approved a reduction  in the number of shares of TIMET  common  stock that it is
authorized to issue from 100 million to 10 million. Such reduction, also subject
to TIMET stockholder approval, would become effective upon implementation of the
reverse split.

     TIMET periodically evaluates its liquidity requirements,  capital needs and
availability of resources in view of, among other things,  its alternative  uses
of capital, its debt service requirements,  the cost of debt and equity capital,
and estimated  future  operating cash flows. As a result of this process,  TIMET
has in the past and may in the future seek to raise additional  capital,  modify
its common and preferred dividend  policies,  restructure  ownership  interests,
incur,  refinance  or  restructure  indebtedness,  repurchase  shares of capital
stock,  sell  assets,  or take a  combination  of such  steps or other  steps to
increase or manage its liquidity and capital resources.  In the normal course of
business, TIMET investigates,  evaluates,  discusses and engages in acquisition,
joint  venture,   strategic   relationship   and  other   business   combination
opportunities  in the titanium,  specialty  metal and other  industries.  In the
event of any  future  acquisition  or joint  venture  opportunities,  TIMET  may
consider using then-available liquidity,  issuing equity securities or incurring
additional indebtedness.

Tremont Corporation

     Tremont is primarily a holding company which, at September 30, 2002,  owned
approximately  39% of TIMET and 21% of NL. At  September  30,  2002,  the market
value of the 12.3 million shares of TIMET and the 10.2 million shares of NL held
by Tremont was approximately $20 million and $148 million, respectively.

     As  previously  reported,  in July 2000  Tremont  entered  into a voluntary
settlement  agreement with the Arkansas Department of Environmental  Quality and
certain other PRPs  pursuant to which Tremont and the other PRPs will  undertake
certain  investigatory  and interim remedial  activities at a former mining site
located in Hot Springs County, Arkansas.  Tremont currently believes that it has
accrued adequate amounts ($4.0 million at September 30, 2002) to cover its share
of  probable  and  reasonably  estimable  environmental  obligations  for  these
activities.   No  reasonable  estimate  can  currently  be  made  of  any  final
remediation measures which might be imposed.

     Tremont has  received a demand from  Halliburton  to assume the defense of,
and  indemnify  Halliburton  with  respect  to, the alleged  liability  of Atlas
Bradford  Corporation  as one of several PRPs in  connection  with a Texas State
Superfund Site known as the Force Road Oil and Vacuum Truck Company Site located
in Arcola,  Texas.  Atlas Bradford  allegedly disposed of wastes from its Bryan,
Texas  petroleum  services  operations at the Force Road Site. As part of a 1990
restructuring resulting in the separation of Tremont from Baroid Corporation,  a
wholly-owned  subsidiary  of  Tremont  received  title  to the  Bryan  property.
Halliburton  is the  successor  to Baroid.  Tremont  has  declined to assume the
defense of the Force Road Site matter and has rejected  Halliburton's  indemnity
claim with respect  thereto.  Tremont  believes  that any liability in the Force
Road Site matter represents an obligation  retained by Baroid in connection with
its historical petroleum services business.  A subsidiary of Halliburton,  along
with 15 other  respondents,  executed  an Agreed  Administrative  Order with the
Texas Natural Resource  Conservation  Commission dated August 29, 2002, pursuant
to which the Respondents  agreed to perform a site investigation and feasibility
study of the site.  Tremont has not been  provided any  information  or basis to
believe that it might have any liability  for the Force Road Site,  but has been
informed that present cost  estimates for the site  investigation  are currently
expected to be less than $1 million. Tremont intends to vigorously defend itself
against  any and all  allegations  of such  liability  in this  matter.  Tremont
presently believes,  based upon the relatively small volume of material disposed
of at the site from the Bryan, Texas operations,  that, any associated liability
would not be  material.  Tremont  sold the  Bryan  property  in 1994.  Tremont's
Chairman and Chief Executive  Officer is also a member of the board of directors
of  Halliburton  and  intends to recuse  himself  from any  involvement  in this
matter. NL is one of the named respondents at the site, as well.

     Tremont   records   liabilities   related  to   environmental   remediation
obligations  when  estimated  future  expenditures  are probable and  reasonably
estimable.  Such accruals are adjusted as further  information becomes available
or circumstances  change.  Estimated  future  expenditures are not discounted to
their  present  value.  It is not  possible to  estimate  the range of costs for
certain sites, including the Hot Springs County,  Arkansas site discussed above.
The imposition of more stringent  standards or requirements under  environmental
laws or  regulations,  the results of future testing and analysis  undertaken by
Tremont at its  non-operating  facilities,  or a  determination  that Tremont is
potentially  responsible for the release of hazardous substances at other sites,
could  result in  expenditures  in excess of amounts  currently  estimated to be
required for such matters.  No assurance can be given that actual costs will not
exceed accrued  amounts or that costs will not be incurred with respect to sites
as to which no problem is currently  known or where no estimate can presently be
made. Further,  there can be no assurance that additional  environmental matters
will not arise in the future.  Environmental  exposures  are difficult to assess
and  estimate  for numerous  reasons  including  the  complexity  and  differing
interpretations  of  governmental  regulations;  the number of PRPs and the PRPs
ability  or  willingness  to fund  such  allocation  of costs,  their  financial
capabilities,  the allocation of costs among PRPs; the  multiplicity of possible
solutions;  and the years of  investigatory,  remedial and  monitoring  activity
required.  It is  possible  that  future  developments  could  adversely  affect
Tremont's  business,  results of operations,  financial  condition or liquidity.
There can be no assurances that some, or all, of these risks would not result in
liabilities that would be material to Tremont's business, results of operations,
financial position or liquidity.

     In February 2001,  Tremont entered into a $13.4 million reducing  revolving
credit  facility  with  EMS,  NL's   majority-owned   environmental   management
subsidiary.  Such  intercompany  loan  between  EMS and Tremont  ($11.9  million
outstanding at September 30, 2002),  collateralized by 10.2 million shares of NL
common stock owned by Tremont, is eliminated in Valhi's  consolidated  financial
statements.  In October 2002,  Tremont entered into a new $15 million  revolving
credit  facility with NL, also  collateralized  by the shares of NL common stock
owned by Tremont,  which  replaced  its loan from EMS. The new  facility,  which
matures in  December  2004,  will also be  eliminated  in  Valhi's  consolidated
financial statements.

     Tremont expects to receive approximately $25.5 million from NL's additional
dividend in the fourth quarter of 2002, as discussed  above.  Tremont expects to
use approximately $12 million of such dividend to repay the outstanding  balance
of its revolving loan from NL, which revolving  credit facility  Tremont expects
to maintain.  The  remainder of such  dividend  will be available  for Tremont's
general corporate purposes.

     In April 2002,  Tremont reached an agreement with the U.S. Internal Revenue
Service  ("IRS")  pursuant to which the IRS's  previously-reported  $8.3 million
assessment related to Tremont's 1998 federal income tax return was settled.  The
settlement  resulted in no additional cash income tax payment by Tremont but did
result in a  reduction  of the  amount of  Tremont's  U.S.  net  operating  loss
carryforwards  that arose in  periods  prior to the time when  Tremont  became a
member of the same U.S. federal income tax group of which Valhi is a member.

     Tremont periodically  evaluates its liquidity  requirements,  capital needs
and  availability  of resources in view of, among other things,  its alternative
uses of  capital,  its debt  service  requirements,  the cost of debt and equity
capital and estimated  future operating cash flows. As a result of this process,
Tremont  has in the past and may in the  future  seek to obtain  financing  from
related parties or third parties, raise additional capital,  modify its dividend
policy,  restructure ownership interests of subsidiaries and affiliates,  incur,
refinance or  restructure  indebtedness,  purchase  shares of its common  stock,
consider  the  sale  of  interests  in  subsidiaries,   affiliates,   marketable
securities or other assets,  or take a combination  of such steps or other steps
to increase or manage liquidity and capital  resources.  In the normal course of
business, Tremont may investigate,  evaluate, discuss and engage in acquisition,
joint venture and other business combination opportunities.  In the event of any
future  acquisition or joint venture  opportunities,  Tremont may consider using
then-available cash, issuing equity securities or incurring indebtedness.

General corporate - Valhi

     Valhi's  operations are conducted  primarily  through its subsidiaries (NL,
CompX, Tremont and Waste Control  Specialists).  Accordingly,  Valhi's long-term
ability to meet its parent company level  corporate  obligations is dependent in
large  measure  on the  receipt of  dividends  or other  distributions  from its
subsidiaries.  NL increased its regular quarterly  dividend from $.035 per share
to $.15 per share in the first  quarter of 2000,  and NL further  increased  its
regular  quarterly  dividend to $.20 per share in the fourth quarter of 2000. At
the current  $.20 per share  quarterly  rate,  and based on the 30.1  million NL
shares held by Valhi at September 30, 2002, Valhi would receive aggregate annual
regular dividends from NL of approximately $24.1 million. NL also expects to pay
a special  dividend in the fourth quarter of 2002, as discussed  below.  Tremont
Group, Inc. owns 80% of Tremont Corporation. Tremont Group is owned 80% by Valhi
and 20% by NL. Tremont's regular quarterly dividend is currently $.07 per share.
At that rate,  and based upon the 5.1 million  Tremont  shares  owned by Tremont
Group at September  30,  2002,  Tremont  Group would  receive  aggregate  annual
regular  dividends  from Tremont of  approximately  $1.4 million.  Tremont Group
intends to  pass-through  the regular  dividends it receives from Tremont to its
shareholders  (Valhi and NL).  Based on Valhi's 80% ownership of Tremont  Group,
Valhi would receive $1.2 million in annual regular  dividends from Tremont Group
as a pass-through  of Tremont  Group's  dividends from Tremont.  CompX's regular
quarterly  dividend is currently $.125 per share. At this current rate and based
on the 10.4 million CompX shares held by Valhi and its  wholly-owned  subsidiary
Valcor  at  September  30,  2002,  Valhi/Valcor  would  receive  annual  regular
dividends from CompX of $5.2 million. Various credit agreements to which certain
subsidiaries  or affiliates  are parties  contain  customary  limitations on the
payment  of  dividends,  typically  a  percentage  of net  income or cash  flow;
however,  such restrictions in the past have not significantly  impacted Valhi's
ability  to  service  its  parent  company  level  obligations.  Valhi  has  not
guaranteed any  indebtedness of its  subsidiaries  or affiliates.  To the extent
that one or more of Valhi's  subsidiaries  were to become unable to maintain its
current  level  of  dividends,  either  due  to  restrictions  contained  in the
applicable  subsidiary's credit agreements or otherwise,  Valhi parent company's
liquidity  could  become  adversely  impacted.  In such an  event,  Valhi  might
consider   reducing  or  eliminating  its  dividend  or  selling   interests  in
subsidiaries or other assets.

     At September 30, 2002, Valhi had $5.2 million of parent level cash and cash
equivalents,  had $35 million of outstanding borrowings under its revolving bank
credit  agreement  and had $23 million of  short-term  demand  loans  payable to
Contran.  In addition,  Valhi had $36.4 million of borrowing  availability under
its bank credit facility. During the first quarter of 2002, Valhi sold in market
transactions 515,000 shares of Halliburton common stock that had been classified
as trading  securities for an aggregate of $8.7 million,  and used a majority of
the proceeds to reduce its outstanding  borrowings from Contran.  In January and
February  2002,  the size of Valhi's bank credit  facility  was  increased by an
aggregate  of  $17.5  million  to  $72.5  million.   In  October  2002,  holders
representing  substantially  all of the Company's LYONs exercised their right to
require the Company to redeem their LYONs for a cash  redemption  price of $27.3
million.  Funds to pay the  redemption  price were provided by borrowings  under
Valhi's   revolving   bank  credit   facility.   Following  the   redemption  of
substantially  all of Valhi's remaining LYONs,  approximately  619,000 shares of
Halliburton  common stock were released to the Company from the LYONs escrow and
were sold in market  transactions  for aggregate  proceeds of $9.5 million.  The
Company  has called the  remaining  nominal  amount of LYONs for  redemption  in
December 2002.

     In November  2002,  the maturity  date of Valhi's bank credit  facility was
extended to October 31,  2003.  At the same time,  the size of the  facility was
reduced to $70 million.

     Valhi expects to receive  approximately  $75.3 million from NL's additional
dividend in the fourth quarter of 2002, as discussed above. Valhi expects to use
a portion of such  dividend to repay the  outstanding  balance of its  revolving
bank credit  facility ($62 million),  which revolving bank credit facility Valhi
expects to maintain.  Valhi  expects to use the  remainder  of such  dividend to
reduce the outstanding balance of its short-term demand loan payable to Contran.

     The terms of The  Amalgamated  Sugar  Company LLC provide for annual  "base
level" of cash dividend  distributions  (sometimes  referred to as distributable
cash) by the LLC of $26.7  million,  from which the Company is entitled to a 95%
preferential share.  Distributions from the LLC are dependent, in part, upon the
operations of the LLC. The Company records dividend  distributions  from the LLC
as  income  upon  receipt,  which  occurs  in the same  month in which  they are
declared  by the LLC. To the extent the LLC's  distributable  cash is below this
base level in any given  year,  the Company is  entitled  to an  additional  95%
preferential  share of any future annual LLC distributable cash in excess of the
base  level  until  such  shortfall  is  recovered.  Based on the LLC's  current
projections for 2002, Valhi currently expects that  distributions  received from
the LLC in 2002 will  approximate its debt service  requirements  under its $250
million loans from Snake River Sugar Company.

     Certain covenants  contained in Snake River's third-party senior debt allow
Snake River to pay periodic installments of debt service payments (principal and
interest) under Valhi's $80 million loan to Snake River prior to its maturity in
2010, and such loan is subordinated to Snake River's third-party senior debt. At
September 30, 2002,  the accrued and unpaid  interest on the $80 million loan to
Snake River  aggregated  $26.6  million.  Such  accrued  and unpaid  interest is
classified as a noncurrent  asset at September 30, 2002.  The Company  currently
believes it will ultimately  realize both the $80 million  principal  amount and
the accrued and unpaid interest,  whether through cash generated from the future
operations of Snake River and the LLC or otherwise (including any liquidation of
Snake River or the LLC).  Following the  repayment of Snake River's  third-party
senior  debt in April 2009,  Valhi  believes it will  receive  significant  debt
service  payments  on its loan to Snake River as the cash flows that Snake River
previously would have been using to fund debt service on its third-party  senior
debt ($14.5 million in 2002) would then become available, and would be required,
to be used to fund debt  service  payments on its loan from Valhi.  Prior to the
repayment  of the  third-party  senior  debt,  Snake  River might also make debt
service payments to Valhi, if permitted by the terms of the senior debt.

     The Company  may, at its  option,  require the LLC to redeem the  Company's
interest in the LLC  beginning in 2010,  and the LLC has the right to redeem the
Company's  interest  in the LLC  beginning  in  2027.  The  redemption  price is
generally $250 million plus the amount of certain undistributed income allocable
to the  Company.  In the  event  the  Company  requires  the LLC to  redeem  the
Company's  interest  in the LLC,  Snake  River has the right to  accelerate  the
maturity of and call Valhi's $250 million loans from Snake River.  Redemption of
the Company's  interest in the LLC would result in the Company  reporting income
related to the disposition of its LLC interest for both financial  reporting and
income tax purposes.  However, because of Snake River's ability to call its $250
million loans to Valhi upon redemption of the Company's interest in the LLC, the
net cash proceeds  (after  repayment of the debt) generated by redemption of the
Company's  interest  in the LLC could be less than the  income  taxes that would
become payable as a result of the disposition.

     The Company routinely  compares its liquidity  requirements and alternative
uses of capital against the estimated  future cash flows to be received from its
subsidiaries,  and the estimated sales value of those units. As a result of this
process,  the  Company  has in the  past  and may in the  future  seek to  raise
additional   capital,   refinance  or   restructure   indebtedness,   repurchase
indebtedness in the market or otherwise,  modify its dividend policies, consider
the sale of interests in subsidiaries,  affiliates,  business units,  marketable
securities or other assets,  or take a combination of such steps or other steps,
to increase  liquidity,  reduce  indebtedness and fund future  activities.  Such
activities have in the past and may in the future involve related companies.

     The  Company  and  related  entities  routinely  evaluate  acquisitions  of
interests in, or combinations  with,  companies,  including  related  companies,
perceived by management to be undervalued in the  marketplace.  These  companies
may or may  not be  engaged  in  businesses  related  to the  Company's  current
businesses.  The Company intends to consider such acquisition  activities in the
future and, in connection with this activity,  may consider  issuing  additional
equity   securities  and  increasing  the  indebtedness  of  the  Company,   its
subsidiaries and related  companies.  From time to time, the Company and related
entities  also evaluate the  restructuring  of ownership  interests  among their
respective subsidiaries and related companies.

ITEM 4.  CONTROLS AND PROCEDURES

     The Company maintains a system of disclosure  controls and procedures.  The
term  "disclosure  controls and  procedures,"  as defined by  regulations of the
Securities and Exchange Commission ("SEC"),  means controls and other procedures
that are  designed to ensure that  information  required to be  disclosed in the
reports  that the  Company  files or  submits  to the SEC under  the  Securities
Exchange Act of 1934, as amended (the "Act"), is recorded, processed, summarized
and  reported,  within the time periods  specified in the SEC's rules and forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that information  required to be disclosed by the
Company  in the  reports  that it files or  submits  to the SEC under the Act is
accumulated  and  communicated  to  the  Company's  management,   including  its
principal  executive officer and its principal financial officer, as appropriate
to allow timely  decisions to be made  regarding  required  disclosure.  Each of
Steven L. Watson, the Company's President and Chief Executive Officer, and Bobby
D. O'Brien, the Company's Vice President, Chief Financial Officer and Treasurer,
have  evaluated the Company's  disclosure  controls and  procedures as of a date
within  90 days  of the  filing  date  of  this  Form  10-Q.  Based  upon  their
evaluation,   these  executive   officers  have  concluded  that  the  Company's
disclosure  controls  and  procedures  are  effective  as of the  date  of  such
evaluation.

     The  Company  also  maintains  a  system  of  internal  controls.  The term
"internal  controls," as defined by the American  Institute of Certified  Public
Accountants'  Codification of Statement on Auditing  Standards,  AU Section 319,
means controls and other  procedures  designed to provide  reasonable  assurance
regarding the  achievement  of objectives  in the  reliability  of the Company's
financial   reporting,   the  effectiveness  and  efficiency  of  the  Company's
operations and the Company's  compliance with  applicable laws and  regulations.
There have been no significant  changes in the Company's internal controls or in
other factors that could  significantly  affect such controls  subsequent to the
date of their last evaluation,  including any corrective  actions with regard to
significant deficiencies and material weaknesses.

         Part II. OTHER INFORMATION


Item 1.  Legal Proceedings.

     Reference is made to the 2001 Annual Report and prior 2002 periodic reports
for descriptions of certain legal proceedings.

     In late July 2002,  following the  announcement  of the proposed  merger of
Tremont and Valhi, four separate  complaints were filed in the Court of Chancery
of the State of Delaware,  New Castle County, against Tremont, Valhi and members
of Tremont's board of directors  (Crandon Capital Partners,  et al. v. J. Landis
Martin,  et al.,  Andrew Neyman v. J. Landis Martin,  et al.,  Herman M. Weisman
Revocable  Trust v. J. Landis  Martin,  et al. and Alice  Middleton v. J. Landis
Martin,  et al.).  In August  2002,  at the  request of the  parties,  the court
ordered  that these  actions  be  consolidated  under the  caption In Re Tremont
Corporation Shareholders Litigation (Consolidated C.A. No. 19785-NC) and that by
November 21, 2002, or such later date as the parties may agree,  counsel for the
plaintiffs must file and serve a consolidated amended shareholder complaint. The
complaints,  purported class actions, generally allege, among other things, that
the terms of the  proposed  merger of Valhi and  Tremont  are  unfair,  and that
defendants  have violated their fiduciary  duties.  The complaints  seek,  among
other things,  an order  enjoining  consummation  of the proposed merger and the
award of unspecified  damages,  including  attorney's fees and other costs.  The
Company  believes,  and understands that each of the other  defendants  believe,
that the complaint is without merit,  and intends,  and understands that each of
the other defendants intend, to defend against the action vigorously.

     State of Rhode  Island v. Lead  Industries  Association,  et al.  (Superior
Court  of  Rhode  Island,  No.  99-5226).   Trial  began  in  phase  I  of  this
previously-reported  case before a Rhode  Island  state court jury in  September
2002. On October 29, 2002,  the trial judge declared a mistrial in the case when
the jury was unable to reach a verdict on the  question of whether  lead pigment
in paint on Rhode Island  buildings is a public  nuisance.  No date has been set
for any  further  proceedings,  including  any  possible  retrial  of the public
nuisance issue. Other claims made by the Attorney General,  including  violation
of the Rhode Island Unfair Trade  Practices and Consumer  Protection Act, strict
liability,  negligence,   negligent  and  fraudulent  misrepresentation,   civil
conspiracy,  indemnity,  and unjust  enrichment  remain pending and were not the
subject of this  trial.  Post trial  motions by  plaintiff  and  defendants  for
judgment notwithstanding the mistrial are pending.

     In  September  2002,  NL was served with a complaint  in City of Chicago v.
American  Cyanamid,  et  al.  (Circuit  Court  of  Cook  County,  Illinois,  No.
02CH16212).  The  City of  Chicago  seeks  damages  to  abate  lead  paint  in a
single-count  complaint  alleging  public  nuisance  against NL and seven  other
former  manufacturers of lead pigment.  The time to respond to the complaint has
not yet occurred.

     In  October  2002,  NL was  served  with  a  complaint  in  Walters  v.  NL
Industries,  et al. (Kings County Supreme Court,  New York, No.  28087/2002).  A
single individual seeks compensatory and punitive damages from NL and five other
former  manufacturers of lead pigment for childhood exposures to lead paint. The
complaint  alleges causes of action in negligence  and strict product  liability
and seeks joint and several liability with claims of civil  conspiracy,  concert
of action,  enterprise liability, and market share or alternative liability. The
time to respond to the complaint has not yet occurred.

     Borden, et al. v. The  Sherwin-Williams  Company,  et al. (Circuit Court of
Jefferson County, Mississippi,  Civil Action No. 2000-587). In October 2002, the
court set a June 2003 trial date in this previously-reported matter.

     Spring Branch Independent  School District v. Lead Industries  Association,
et al. (District Court of Harris County,  Texas, No. 2000-31175).  Plaintiff has
filed an appeal of the grant of summary judgment in favor of NL.

     In the previously  reported cases of Houston  Independent  School District,
Harris County,  Brownsville Independent School District, and Liberty Independent
School District,  pending in various Texas state courts,  each court has entered
an order abating,  or staying,  the case pending the result of the appeal in the
Spring Branch Independent School District case.

     Gaines, et al., v. The  Sherwin-Williams  Company, et al. (Circuit Court of
Jefferson  County,  Mississippi,  Civil Action No.  2000-0604).  Plaintiffs have
voluntarily dismissed NL with prejudice in this previously-reported case.

     In re Lead Paint  Litigation  (Superior Court of New Jersey,  Law Division,
Middlesex  County  Civil Action  Docket No.  Mid-L-2754-01,  Case Code 247).  In
November 2002, the court entered an order  dismissing  this  previously-reported
action with prejudice. The time for the filing of an appeal has not run.

     Jefferson  County School  District v. Lead Industries  Association,  et al.
(District Court of Jefferson County, Mississippi, Case No. 2001-69). In November
2002,   plaintiffs   agreed  to   voluntarily   dismiss  with   prejudice   this
previously-reported case.

     El Paso Independent School District v. Lead Industries Association,  et al.
(District Court of El Paso County, Texas, No. 2002-2675).  In November 2002, the
plaintiff in this previously-reported case dismissed its case without prejudice.

     Since the  filing  of NL's  Quarterly  Report on Form 10-Q for the  quarter
ended June 30, 2002, NL has been named as a defendant in asbestos  and/or silica
cases  in  various  jurisdictions  brought  on  behalf  of  approximately  2,700
additional  personal  injury  claimants.  Included in the foregoing total is one
case in Mississippi state court involving  approximately 2,100 plaintiffs (Jones
v. A. O.  Smith,  et al.,  Circuit  Court,  Judicial  District,  Jasper  County,
Mississippi).  NL anticipates  that various of these cases will be set for trial
from time-to-time for the foreseeable  future.  In addition,  cases on behalf of
approximately  2,600 such  personal  injury  plaintiffs  have been  dismissed or
settled for immaterial amounts.

Item 6. Exhibits and Reports on Form 8-K.

        (a)    Exhibits

               10.1 -   Agreement  and Plan of Merger dated  November 4, 2002 by
                        and among  Valhi,  Inc.,  Valhi  Acquisition  Corp.  and
                        Tremont Corporation.

               10.2 -   Amendment  No. 1 to the  Agreement and Plan of Merger by
                        and among  Valhi,  Inc.,  Valhi  Acquisition  Corp.  and
                        Tremont Corporation dated November 12, 2002.

               10.3 -   Agreement  and Plan of Merger dated  November 4, 2002 by
                        and among Valhi,  Inc.,  Tremont  Group,  Inc. and Valhi
                        Acquisition Corp. II.

               10.4 -   Intercorporate   Services   Agreement   between  Contran
                        Corporation and Valhi,  Inc.  effective as of January 1,
                        2002.

              *10.5 -   Agreement  between  Sachtleben  Chemie  GmbH and  Kronos
                        Titan-GmbH   effective   as  of  December   30,  1988  -
                        incorporated  by reference to Exhibit No. 10.1 to Kronos
                        International's  Quarterly Report on Form 10-Q (File No.
                        333-100047) for the quarter ended September 30, 2002.

              *10.6 -   Supplementary  Agreement  dated as of May 3, 1996 to the
                        Agreement  effective  as of December  30,  1986  between
                        Sachtleben   Chemie  GmbH  and  Kronos   Titan-GmbH.   -
                        incorporated  by reference to Exhibit No. 10.2 to Kronos
                        International's  Quarterly Report on Form 10-Q (File No.
                        333-100047) for the quarter ended September 30, 2002.

              *10.7 -   Second  Supplementary  Agreement  dated as of January 8,
                        2002 to the Agreement  effective as of December 30, 1986
                        between Sachtleben Chemie GmbH and Kronos Titan-GmbH.  -
                        incorporated  by reference to Exhibit No. 10.3 to Kronos
                        International's  Quarterly Report on Form 10-Q (File No.
                        333-100047) for the quarter ended September 30, 2002.

               99.1 -   Certification  Pursuant to 18 U.S.C.  Section  1350,  as
                        adopted  pursuant to Section  906 of the  Sarbanes-Oxley
                        Act of 2002.

               99.2 -   Certification  Pursuant to 18 U.S.C.  Section  1350,  as
                        adopted  pursuant to Section  906 of the  Sarbanes-Oxley
                        Act of 2002.

*    Portions  of these  exhibit  have been  omitted  pursuant  to a request for
     confidential treatment made by NL.


        (b)    Reports on Form 8-K

               Reports on Form 8-K for the quarter ended September 30, 2002.

               None.

                                   SIGNATURES


Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
Registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.



                                          VALHI, INC.
                                         (Registrant)



Date   November 14, 2002      By /s/ Bobby D. O'Brien
                                 ---------------------------------
                                 Bobby D. O'Brien
                                 Vice President, Chief
                                 Financial Officer and Treasurer
                                 (Principal Financial Officer)



Date   November 14, 2002      By /s/ Gregory M. Swalwell
                                 ------------------------------------
                                 Gregory M. Swalwell
                                 Vice President and Controller
                                 (Principal Accounting Officer)


I, Steven L. Watson,  the President and Chief Executive Officer of Valhi,  Inc.,
certify that:

I have reviewed this quarterly report on Form 10-Q of Valhi, Inc.;

1)   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

2)   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

3)   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

4)   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

5)   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date: November 14, 2002

/s/ Steven L. Watson
- ---------------------------------------
Steven L. Watson
President and Chief Executive Officer

I, Bobby D. O'Brien,  the Vice President,  Chief Financial Officer and Treasurer
of Valhi, Inc., certify that:

I have reviewed this quarterly report on Form 10-Q of Valhi, Inc.;

1)   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

2)   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

3)   The  registrant's  other  certifying  officers  and I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during  the  period in which  this  quarterly
          report is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this quarterly report (the "Evaluation Date"); and

     c)   presented  in  this  quarterly   report  our  conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

4)   The registrant's other certifying  officers and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

5)   The  registrant's  other  certifying  officers and I have indicated in this
     quarterly report whether or not there were significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date: November 14, 2002

/s/ Bobby D. O'Brien
- ---------------------------------------------
Bobby D. O'Brien
Vice President, Chief Financial Officer and Treasurer



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>3
<FILENAME>vqex101.txt
<TEXT>
                          AGREEMENT AND PLAN OF MERGER
                                  by and among
                                  VALHI, INC.,
                             VALHI ACQUISITION CORP.
                                       and
                               TREMONT CORPORATION
                          Dated as of November 4, 2002


<PAGE>


                                Table of Contents
                                                                           Page

ARTICLE I         THE MERGER..................................................1
 Section 1.1  The Merger......................................................1
 Section 1.2  Effective Time..................................................1
 Section 1.3  Certificate of Incorporation and Bylaws of the
                Surviving Corporation..                 ......................1
 Section 1.4  Directors and Officers of the Surviving Corporation.............1

ARTICLE II    EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
               CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES             1
 Section 2.1  Effect on Capital Stock.........................................1
 Section 2.2  Exchange of Certificates........................................1
 Section 2.3  Certain Adjustments.............................................1

ARTICLE III       REPRESENTATIONS AND WARRANTIES OF VALHI AND SUB.............1
 Section 3.1  Organization....................................................1
 Section 3.2  Capitalization..................................................1
 Section 3.3  Authority.......................................................1
 Section 3.4  No Violations: Consents and Approvals...........................1
 Section 3.5  SEC Documents...................................................1
 Section 3.6  Financial Statements............................................1
 Section 3.7  Absence of Certain Changes......................................1
 Section 3.8  Proxy Statement/Registration Statement..........................1
 Section 3.9  State Anti-Takeover Statutes....................................1
 Section 3.10 Brokers' Fees...................................................1
 Section 3.11 Compliance with Laws............................................1
 Section 3.12 No Litigation...................................................1
 Section 3.13 Employee Matters................................................1
 Section 3.14 Environmental Liability.........................................1
 Section 3.15 Certain Tax Matters.............................................1
 Section 3.16 Interim Operations of Sub.......................................1
 Section 3.17 Knowledge.......................................................1
 Section 3.18 No Undisclosed Information......................................1

ARTICLE IV        REPRESENTATIONS AND WARRANTIES OF TREMONT...................1
 Section 4.1  Organization....................................................1
 Section 4.2  Capitalization..................................................1
 Section 4.3  Authority.......................................................1
 Section 4.4  No Violations: Consents and Approvals...........................1
 Section 4.5  SEC Documents...................................................1
 Section 4.6  Financial Statements............................................1
 Section 4.7  Absence of Certain Changes......................................1
 Section 4.8  Proxy Statement/Registration Statement..........................1
 Section 4.9  State Anti-Takeover Statutes....................................1
 Section 4.10 Brokers' Fees...................................................1
 Section 4.11 Compliance with Laws............................................1
 Section 4.12 No Litigation...................................................1
 Section 4.13 Employee Matters................................................1
 Section 4.14 Intellectual Property...........................................1
 Section 4.15 Required Vote of Tremont Stockholders...........................1
 Section 4.16 Certain Contracts...............................................1
 Section 4.17 Environmental Liability.........................................1
 Section 4.18 Taxes...........................................................1
 Section 4.19 Knowledge.......................................................1
 Section 4.20 No Undisclosed Information......................................1

ARTICLE V         COVENANTS...................................................1
 Section 5.1  Conduct of Business of Tremont..................................1
 Section 5.2  Conduct of Business of Valhi....................................1
 Section 5.3  Tremont Board Recommendation....................................1
 Section 5.4  Access to Information...........................................1
 Section 5.5  Registration Statement and Proxy Statement......................1
 Section 5.6  Tremont Stockholders' Meeting...................................1
 Section 5.7  Reasonable Efforts; Other Actions...............................1
 Section 5.8  Public Announcements............................................1
 Section 5.9  Notification of Certain Matters.................................1
 Section 5.10 Expenses........................................................1
 Section 5.11 Rule 145 Affiliates.............................................1
 Section 5.12 Stock Exchange Listing..........................................1
 Section 5.13 State Anti-Takeover Laws........................................1
 Section 5.14 Tax-Free Transaction............................................1

ARTICLE VI        CONDITIONS PRECEDENT........................................1
 Section 6.1  Conditions to Each Party's Obligation to Effect the Merger......1
 Section 6.2  Conditions to the Obligations of Valhi and
               Sub to Effect the Merger.....              ....................1
 Section 6.3  Conditions to the Obligations of Tremont to Effect the Merger...1

ARTICLE VII       CLOSING.....................................................1
 Section 7.1  Time and Place..................................................1
 Section 7.2  Filings at the Closing..........................................1

ARTICLE VIII      TERMINATION AND ABANDONMENT.................................1
 Section 8.1  Termination by Valhi and/or Tremont.............................1
 Section 8.2  Termination by Valhi............................................1
 Section 8.3  Termination by Tremont..........................................1
 Section 8.4  Procedure for Termination.......................................1
 Section 8.5  Effect of Termination and Abandonment...........................1

ARTICLE IX        SURVIVABILITY; INVESTIGATION................................1
 Section 9.1  Survival of Representations and Warranties......................1
 Section 9.2  Investigation...................................................1

ARTICLE X         MISCELLANEOUS...............................................1
 Section 10.1 Notices.........................................................1
 Section 10.2 Binding Effect..................................................1
 Section 10.3 Consent to Jurisdiction.........................................1
 Section 10.4 Headings........................................................1
 Section 10.5 Exhibits and Schedules..........................................1
 Section 10.6 Certain Definitions.............................................1
 Section 10.7 Governing Law...................................................1
 Section 10.8 Waivers.........................................................1
 Section 10.9 Counterparts....................................................1
 Section 10.10Time Periods....................................................1
 Section 10.11Amendment.......................................................1
 Section 10.12Entire Agreement................................................1
 Section 10.13Severability....................................................1


Exhibits
Exhibit A         Directors and Officers of the Surviving Corporation
Exhibit B         Form of Rule 145 Affiliate Letter

Schedules
Schedule 3.13     Valhi Employee Matters
Schedule 4.7      Absence of Certain Changes
Schedule 4.11     Compliance with Laws
Schedule 4.12     Litigation
Schedule 4.13     Tremont Employee Matters
Schedule 4.16     Certain Contracts
Schedule 5.1      Conduct of Business of Tremont
Schedule 5.1      Conduct of Business of Valhi

<PAGE>


                             Index of Defined Terms

         Term                                                            Section
         ----                                                            -------
Acquisition Proposal.......................................................10.6
Affiliate..................................................................10.6
Agreement..........................................................Introduction
CERCLA.....................................................................3.14
Certificate of Merger...................... ................................1.2
Certificates.............................................................2.2(a)
Closing..................................... ...............................7.1
Closing Date................................. ..............................7.1
Code...................................................................Recitals
Constituent Corporations.................................................1.1(a)
DGCL.....................................................................1.1(a)
Effective Time............................ .................................1.2
ERISA...................................................................3.13(a)
Exchange Act............................... ............................ 3.4(b)
Exchange Agent...........................................................2.2(a)
Exchange Ratio...........................................................2.1(b)
Fairness Opinion...........................................................4.10
GAAP........................................  ..............................3.6
Governmental Authority.....................................................10.6
Intellectual Property......................................................4.14
Law......................................................................3.4(a)
Liens....................................................................3.3(a)
LLC Merger.................................................................10.6
Merger...................................................................1.1(a)
NL SEC Documents...........................................................10.6
NYSE.....................................................................2.2(f)
Person.....................................................................10.6
Proxy Statement..........................................................3.4(b)
Registration Statement...................................................3.4(b)
Rule 145 Affiliate.........................................................5.11
SEC......................................................................3.4(b)
Securities Act................................ .............................3.5
Sub................................................................Introduction
Sub Common Stock........................................................ 2.1(c)
Surviving Corporation....................................................1.1(a)
Taxes....................................................................  4.18
TGI....................................................................Recitals
TGI Merger................................................................ 10.6
Tremont............................................................Introduction
Tremont Benefit Plans...................................................4.13(a)
Tremont Common Stock........................... .........................2.1(a)
Tremont Contracts..........................................................4.18
Tremont ERISA Affiliate.................................................4.13(a)
Tremont Financial Advisor..................................................4.10
Tremont Interim Balance Sheet................... ...........................4.6
Tremont LLC................................................................10.6
Tremont Material Adverse Effect.................. ..........................4.1
Tremont Preferred Stock........................... .........................4.3
Tremont SEC Documents.............................. ........................4.5
Tremont Stockholder Meeting......................... .......................3.8
Tremont Stockholders' Approval...........................................3.4(b)
Valhi............................................................. Introduction
Valhi Benefit Plans.....................................................3.13(a)
Valhi Common Stock............................... .......................2.1(b)
Valhi ERISA Affiliate...................................................3.13(a)
Valhi Interim Balance Sheet...............................................  3.6
Valhi Material Adverse Effect...............................................3.1
Valhi Preferred Stock....................................................3.2(a)
Valhi SEC Documents............................... .........................3.5
Valhi Subsidiaries.........................................................10.6



<PAGE>


                          AGREEMENT AND PLAN OF MERGER

     Agreement  and  Plan  of  Merger,  dated  as  of  November  4,  2002  (this
"Agreement"),  by and among Valhi, Inc., a Delaware corporation ("Valhi"), Valhi
Acquisition Corp., a Delaware  corporation and a direct wholly-owned  subsidiary
of Valhi ("Sub"), and Tremont Corporation, a Delaware corporation ("Tremont").

     WHEREAS,  the board of directors of each of Tremont,  Valhi and Sub deem it
advisable  and  in  the  best  interests  of  its  respective   corporation  and
stockholders that Tremont become a wholly-owned  subsidiary of Valhi pursuant to
the Merger (as defined below) on the terms and subject to the conditions of this
Agreement; and

     WHEREAS,  it is intended that, for Federal income tax purposes,  the Merger
(or if the LLC Merger (as defined below) occurs,  the Merger followed by the LLC
Merger) shall be a tax-free  reorganization as described in the Internal Revenue
Code of 1986,  as amended  (the  "Code"),  with respect to the holders of common
stock,  par value $1.00 per share ("Tremont  Common Stock"),  of Tremont,  other
than Valhi and Tremont Group, Inc., a Delaware corporation ("TGI").

     NOW,   THEREFORE,   in   consideration  of  the  premises  and  the  mutual
representations,  warranties,  covenants,  agreements and  conditions  contained
herein, the parties hereto agree as follows:

                                   ARTICLE I

                                   THE MERGER

     Section 1.1.......The Merger.

            (a) In  accordance  with the  provisions  of this  Agreement and the
Delaware General Corporation Law, as amended (the "DGCL"), at the Effective Time
(as defined  below),  Sub shall be merged (the  "Merger") with and into Tremont,
and Tremont shall be the surviving corporation (hereinafter sometimes called the
"Surviving  Corporation")  in  the  Merger  and  shall  continue  its  corporate
existence under the DGCL. At the Effective  Time, the separate  existence of Sub
shall cease,  and the Surviving  Corporation  shall succeed to and assume all of
the rights and  obligations of Sub.  Tremont and Sub are  hereinafter  sometimes
collectively referred to as the "Constituent Corporations."

            (b) The  Merger  shall  have the  effects  on  Tremont  and Sub,  as
Constituent Corporations of the Merger, provided for under the DGCL.

     Section 1.2 Effective  Time. The Merger shall become  effective at the time
of filing of a certificate of merger with the Secretary of State of the State of
Delaware  in  accordance  with the  provisions  of Section  252 of the DGCL (the
"Certificate  of  Merger").  The date and time  when  the  Merger  shall  become
effective is herein referred to as the "Effective Time."

     Section  1.3  Certificate  of  Incorporation  and  Bylaws of the  Surviving
Corporation.

            (a) At the Effective  Time,  the  Certificate  of  Incorporation  of
Tremont,  as in effect immediately prior to the Effective Time, shall be amended
so  that  the  operative  provisions  read  in  their  entirety  exactly  as the
Certificate  of  Incorporation  of Sub as in  effect  immediately  prior  to the
Effective Time, except that the name of the corporation  specified therein shall
be Tremont Corporation.

            (b) At the  Effective  Time,  the  Bylaws of  Tremont,  as in effect
immediately  prior to the Effective Time, shall be amended so that the operative
provisions  read in their  entirety  exactly  as the  Bylaws of Sub as in effect
immediately prior to the Effective Time, except that the name of the corporation
specified therein shall be Tremont Corporation.

     Section 1.4  Directors  and  Officers  of the  Surviving  Corporation.  The
directors and officers of the Surviving  Corporation  shall be the Persons named
on Exhibit A hereto,  all of whom will hold office from and after the  Effective
Time until their respective successors are duly elected or appointed and qualify
in the manner  provided in the  Certificate of  Incorporation  and Bylaws of the
Surviving  Corporation  or as  otherwise  provided by Law (as defined  below) or
their earlier resignation or removal.

                                   ARTICLE II

          EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
                     CORPORATIONS; EXCHANGE OF CERTIFICATES

     Section 2.1 Effect on Capital Stock. As of the Effective Time, by virtue of
the Merger and  without  any  action on the part of Valhi,  Sub,  Tremont or the
holder of any shares of the following securities:

            (a) Cancellation of Treasury Stock and Valhi-Owned Stock. Each share
of Tremont Common Stock (i) that is owned by Valhi, (ii) that is held by Tremont
as treasury  stock and (iii)  assuming the effective  time of the TGI Merger (as
defined  below) has occurred prior to the Effective  Time,  that is owned by TGI
shall,  in each case,  automatically  be canceled and retired and shall cease to
exist, and no consideration shall be delivered in exchange therefor.

            (b) Conversion of Tremont Common Stock.  Subject to Section  2.2(f),
each issued and outstanding  share of Tremont Common Stock (other than shares to
be canceled in accordance with Section 2.1(a) above) shall be converted into 3.4
shares of common stock,  par value $.01 per share  ("Valhi  Common  Stock"),  of
Valhi (the "Exchange Ratio").

            (c) Sub Common Stock. Each share of common stock, par value $.01 per
share,  of Sub ("Sub Common Stock") shall be converted into and become one share
of common stock, par value $1.00 per share, of the Surviving Corporation.

     Section 2.2 Exchange of Certificates.

            (a) Exchange Agent.  As of the Effective  Time,  Valhi shall appoint
Computershare  Investor  Services  LLC or such  other  exchange  agent  mutually
agreeable to Valhi and Tremont to act as exchange agent (the  "Exchange  Agent")
in the Merger.  At or prior to the  Effective  Time,  Valhi shall provide to the
Exchange  Agent,  for the benefit of holders of shares of Tremont  Common Stock,
certificates   representing   Valhi  Common  Stock   issuable  in  exchange  for
certificates  representing  shares of Tremont  Common Stock  pursuant to Section
2.1(b)  ("Certificates")  and an estimated  amount in cash sufficient to satisfy
Valhi's obligations under Sections 2.2(e) and (f)

            (b) As soon as  reasonably  practicable  after the  Effective  Time,
Valhi shall cause the Exchange  Agent to mail to each holder of record of shares
of Tremont  Common Stock whose shares were converted into shares of Valhi Common
Stock  pursuant  to Section  2.1(b)  (i) a letter of  transmittal  (which  shall
specify  that  delivery  shall be  effected,  and risk of loss and  title to the
Certificates  shall pass, only upon delivery of the Certificates to the Exchange
Agent  and  shall be in a form and  have  such  other  provisions  as Valhi  may
reasonably  specify) and (ii) instructions for use in effecting the surrender of
the  Certificates in exchange for  certificates  evidencing  Valhi Common Stock.
Upon  surrender of a Certificate  for  cancellation  to the Exchange Agent or to
such other  agent or agents as may be  appointed  by Valhi,  together  with such
letter of transmittal, duly executed, and such other documents as may reasonably
be required  by the  Exchange  Agent,  the holder of such  Certificate  shall be
entitled to receive in exchange  therefor a certificate  representing the number
of whole  shares of Valhi  Common  Stock to which the holder is entitled  and an
amount  of cash in lieu  of any  fractional  share  of  Valhi  Common  Stock  in
accordance  with  Section  2.2(f),  and the  Certificate  so  surrendered  shall
forthwith  be  canceled.  In the event of a transfer of  ownership  of shares of
Tremont Common Stock that is not registered in the transfer  records of Tremont,
payment  may be made to a  Person  other  than  the  Person  in  whose  name the
Certificate so surrendered is registered if such  Certificate  shall be properly
endorsed or otherwise  be in proper form for transfer and the Person  requesting
such payment  either shall pay any transfer or other taxes required by reason of
such  payment  being made to a Person other than the  registered  holder of such
Certificate  or  establish to the  satisfaction  of Valhi that such tax or taxes
have been paid or are not applicable.  Until surrendered as contemplated by this
Section 2.2,  each  Certificate  shall be deemed at any time after the Effective
Time to  represent  only the right to  receive  upon such  surrender  such whole
number of shares of Valhi Common Stock  provided by Section 2.1(b) and an amount
in cash in lieu of any fractional share of Valhi Common Stock in accordance with
Section  2.2(f).  No interest  will be paid or will accrue on the  consideration
payable upon the surrender of any Certificate or on any cash payable pursuant to
Sections 2.2(e) or (f).

            (c) All shares of Valhi Common Stock delivered,  and cash in lieu of
any  fractional  shares  thereof  paid,  upon the surrender of  Certificates  in
accordance  with the terms of this  Article II shall be deemed to have been paid
in full satisfaction of all rights pertaining to such shares.  There shall be no
further  registration of transfers on the stock transfer books of Tremont or its
transfer  agent of the shares of  Tremont  Common  Stock  that were  outstanding
immediately  prior  to  the  Effective  Time.  If,  after  the  Effective  Time,
Certificates  are presented to the Surviving  Corporation  for any reason,  they
shall be canceled and exchanged as provided in this Article II.

            (d) None of  Valhi,  Tremont,  Sub or the  Exchange  Agent  shall be
liable to any Person in respect  of any  shares or funds  delivered  to a public
official pursuant to any applicable abandoned property,  escheat or similar law.
All Certificates and funds held by the Exchange Agent for payment to the holders
of unsurrendered  Certificates that remain unclaimed for twelve months after the
Effective Time shall be redelivered by the Exchange Agent to Valhi, upon demand,
and any holders of Certificates  who have not theretofore  complied with Section
2.2(b) shall  thereafter look only to the Surviving  Corporation for delivery of
any shares or funds, subject to applicable escheat and other similar Laws.

            (e) Distributions  With Respect to Unexchanged  Shares. No dividends
or other  distributions  with  respect to Valhi  Common Stock with a record date
after  the  Effective  Time  shall be paid to the  holder  of any  unsurrendered
Certificate with respect to the Valhi Common Stock represented  thereby,  and no
cash  payment  in lieu of  fractional  shares  shall be paid to any such  holder
pursuant to Section 2.2(f), in each case until the surrender of such Certificate
in accordance with this Article II. Subject to the effect of applicable  escheat
Laws,  as  soon  as  reasonably  practicable  following  surrender  of any  such
Certificate  there  shall be paid to the  holder  of such  Certificate,  without
interest,  (i) at the time of such surrender,  the amount of any cash payable in
lieu of any  fractional  share of Valhi  Common  Stock to which  such  holder is
entitled pursuant to Section 2.2(f) and (ii) if such Certificate is exchangeable
for one or more  whole  shares of Valhi  Common  Stock,  (x) at the time of such
surrender  the amount of  dividends  or other  distributions  with a record date
after the Effective Time  theretofore  paid with respect to such whole shares of
Valhi  Common  Stock and (y) at the  appropriate  payment  date,  the  amount of
dividends or other distributions with a record date after the Effective Time but
prior to such  surrender and with a payment date  subsequent  to such  surrender
payable with respect to such whole shares of Valhi Common Stock.

            (f) No Fractional Shares.  Notwithstanding  anything to the contrary
contained  herein,  no certificates or scrip  representing  fractional shares of
Valhi  Common  Stock  shall  be  issued  upon  the  surrender  for  exchange  of
Certificates,  no  dividend  or  distribution  of  Valhi  shall  relate  to such
fractional  share interests and such fractional share interests will not entitle
the owner thereof to vote or to any rights of a stockholder of Valhi. In lieu of
the issuance of such  fractional  shares,  Valhi shall pay each former holder of
Tremont  Common  Stock an  amount  in cash  equal  to the  product  obtained  by
multiplying (A) the fractional  share interest to which such former holder would
otherwise be entitled by (B) the average  closing  price per share for shares of
Valhi Common Stock as reported by the New York Stock  Exchange  (the "NYSE") (as
reported in The Wall Street  Journal,  or, if not  reported  therein,  any other
authoritative  source)  during the ten trading  days ending on the  business day
that  immediately  precedes the Closing Date. The parties  acknowledge and agree
that any such cash is not separately bargained-for  consideration in the Merger,
but is being  paid  solely  to avoid the  inconvenience  of  issuing  fractional
shares.

            (g) Lost  Certificates.  If any  Certificate  shall  have been lost,
stolen or destroyed,  upon the making of an affidavit of that fact by the Person
claiming such  Certificate  to be lost,  stolen or destroyed and, if required by
the  Surviving  Corporation,  the  posting  by  such  Person  of a bond  in such
reasonable  amount as the Surviving  Corporation may direct as indemnity against
any claim that may be made  against it with  respect  to such  Certificate,  the
Exchange  Agent  shall  issue in  exchange  for such lost,  stolen or  destroyed
Certificate the number of whole shares of Valhi Common Stock to which the holder
is  entitled  and,  if  applicable,   any  unpaid  dividends  and  distributions
deliverable  in respect  thereof and any cash in lieu of fractional  shares,  in
each case pursuant to this Agreement.

     Section  2.3  Certain  Adjustments.  If  between  the date  hereof  and the
Effective  Time,  the  outstanding  shares of Valhi  Common  Stock or of Tremont
Common Stock shall be changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of shares,
or any  dividend or  distribution  shall be declared  thereon with a record date
within such period (other than normal  quarterly cash  dividends),  the Exchange
Ratio shall be adjusted  accordingly to provide to the holders of Tremont Common
Stock the same economic  effect as  contemplated by this Agreement prior to such
reclassification,  recapitalization, split-up, combination, exchange or dividend
provided,  however,  that no  portion  of the  consideration  paid to holders of
Tremont  Common  Stock shall be in the form of anything  other than voting stock
(within the meaning of Sections  368(a)(2)(B)  and  368(a)(1)(C) of the Code) of
Valhi (except as provided in Section 2.2(f) above).

                                  ARTICLE III

                 REPRESENTATIONS AND WARRANTIES OF VALHI AND SUB

     Valhi and Sub jointly  and  severally  represent  and warrant to Tremont as
follows:

     Section  3.1  Organization.  Each of Valhi  and Sub is a  corporation  duly
organized,  validly existing and in good standing under the laws of the State of
Delaware.  Valhi owns directly all of the outstanding capital stock of Sub. Each
of Valhi and Sub has all requisite  corporate  power and authority to own, lease
and operate its properties and to carry on its business as now being  conducted.
Each of Valhi and Sub is duly  qualified or licensed and in good  standing to do
business in each jurisdiction in which the property owned, leased or operated by
it or the nature of the business  conducted by it makes such  qualifications  or
licenses necessary, except in such jurisdictions where the failure to be so duly
qualified or licensed and in good  standing  would not,  individually  or in the
aggregate,  reasonably  be  expected  to have a material  adverse  effect on the
business,  operations,  financial condition or results of operations of Valhi or
would not  reasonably  be expected to delay or prevent the  consummation  of the
transactions  contemplated  hereby (a "Valhi Material  Adverse  Effect").  Valhi
previously  has  delivered  to  Tremont  accurate  and  complete  copies  of its
Certificate of Incorporation and Bylaws,  and Sub's Certificate of Incorporation
and Bylaws, each as currently in effect.

     Section 3.2 Capitalization.

            (a) The  authorized  capital stock of Valhi  consists of 150,000,000
shares of Valhi Common Stock and 5,000,000  shares of Valhi preferred stock, par
value $.01 per share ("Valhi Preferred Stock"). As of the date hereof, there are
115,118,917 shares of Valhi Common Stock issued and outstanding and no shares of
Valhi Preferred Stock outstanding.  As of the date hereof, there are outstanding
options to purchase 1,180,900 shares of Valhi Common Stock, and 4,065,000 shares
of Valhi  Common  Stock were  reserved for future  issuance  under  Valhi's 1997
Long-Term  Incentive  Plan.  As of the date hereof,  except as set forth in this
Section  3.2(a),  no capital  shares or other  voting  securities  of Valhi were
outstanding  or reserved  for  issuance.  All shares of Valhi Common Stock to be
issued  in the  Merger  at the  Effective  Time  shall  be,  when  issued,  duly
authorized and validly issued,  fully paid and  nonassessable  and free from all
pledges, claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever  (collectively,  "Liens").  There are no bonds, debentures,
notes or other  indebtedness  of Valhi having the right to vote (or  convertible
into, or exchangeable for, securities having the right to vote) on any matter on
which stockholders of Valhi may vote. Except as set forth in this Section 3.2(a)
and for the  transactions  contemplated  by this Agreement  (including,  without
limitation,  the TGI  Merger),  there are no  outstanding  securities,  options,
warrants, calls, rights, commitments,  agreements,  arrangements or undertakings
of any kind to  which  Valhi is a party or  bound,  obligating  Valhi to  issue,
deliver or sell, or cause to be issued,  delivered or sold,  additional  capital
shares,  voting  securities or other ownership  interests of Valhi or obligating
Valhi to issue, grant, extend or enter into any such security,  option, warrant,
call, right,  commitment,  agreement,  arrangement or undertaking.  There are no
outstanding contractual obligations of Valhi to repurchase,  redeem or otherwise
acquire any capital shares of Valhi.

            (b) The authorized  capital stock of Sub consists of 1,000 shares of
Sub  Common  Stock,  all of which are  issued and  outstanding  and are  validly
issued,  fully  paid and  nonassessable.  As of the date  hereof,  there  are no
outstanding  options  entitling  the holders  thereof to purchase  shares of Sub
Common Stock.

     Section 3.3 Authority.  Each of Valhi and Sub has full corporate  power and
authority  to  execute  and  deliver  this   Agreement  and  to  consummate  the
transactions  contemplated  hereby. The execution and delivery of this Agreement
and the consummation of the transactions  contemplated hereby have been duly and
validly  authorized and approved by the boards of directors of Valhi and Sub and
by Valhi as the sole  stockholder of Sub, and no other corporate  proceedings on
the  part of  Valhi or Sub are  necessary  to  authorize  this  Agreement  or to
consummate the transactions  contemplated  hereby.  This Agreement has been duly
and validly  executed and delivered by each of Valhi and Sub and,  assuming this
Agreement   constitutes  a  legal,  valid  and  binding  agreement  of  Tremont,
constitutes a legal,  valid and binding  agreement of Valhi and Sub, as the case
may be, enforceable against each of them in accordance with its terms.

     Section 3.4 No Violations: Consents and Approvals.

            (a) Neither the  execution  and delivery of this  Agreement  nor the
consummation of the transactions contemplated hereby nor compliance by Valhi and
Sub with any of the provisions hereof conflicts with, violates or results in any
breach of (i) any provision of the  Certificate  of  Incorporation  or Bylaws of
either  of  Valhi  or  Sub,   (ii)  any  contract,   agreement,   instrument  or
understanding  to which Valhi or Sub is a party or by which Valhi, Sub or any of
their  respective  assets or  properties is bound,  or (iii) any law,  judgment,
decree,  order,  statute,  rule or regulation (a "Law") of any  jurisdiction  or
Governmental  Authority (as defined below)  applicable to Valhi or Sub or any of
their respective assets or properties,  other than, in the case of the foregoing
clauses (ii) and (iii),  such  conflicts,  violations or breaches that would not
reasonably  be expected  to have a Valhi  Material  Adverse  Effect or for which
Valhi  or Sub have  received  or,  prior  to the  Merger,  shall  have  received
appropriate consents or waivers.

            (b)  No   consent,   approval,   order  or   authorization   of,  or
registration, declaration or filing with, any Governmental Authority is required
by or with respect to Valhi in  connection  with the  execution  and delivery of
this  Agreement  by  Valhi  or Sub or the  consummation  by  Valhi or Sub of the
transactions  contemplated hereby, except for (i) the filing with the Securities
and Exchange  Commission  (the "SEC") of (x) a proxy  statement  relating to the
approval by Tremont's  stockholders  as set forth in Section 4.15 (the  "Tremont
Stockholders'  Approval") of this  Agreement and the  transactions  contemplated
hereby (as amended or  supplemented  from time to time, the "Proxy  Statement"),
(y) a  registration  statement  on  Form  S-4 (or  other  appropriate  form)  in
connection  with the  registration of the Valhi Common Stock to be issued in the
Merger  (as  amended  or  supplemented  from  time to  time,  the  "Registration
Statement") and (z) such reports under Section 13(a) of the Securities  Exchange
Act of 1934, as amended (the "Exchange  Act"),  as may be required in connection
with this Agreement and the transactions contemplated hereby, (ii) the filing of
the  Certificate  of Merger with the Secretary of State of the State of Delaware
and (iii) such other consents, approvals, orders, authorizations, registrations,
declarations,  licenses  and filings (A) as may be required  under (1)  federal,
state or local  environmental  laws or (2) the "blue sky" laws of various states
or (B) that,  if not obtained or made,  would  reasonably  be expected to have a
Valhi Material Adverse Effect.

     Section 3.5 SEC Documents.  Valhi has timely filed or will timely file with
the SEC all documents (the "Valhi SEC Documents") required to be filed under the
Securities Act of 1933, as amended (the "Securities Act"), and the Exchange Act,
in each case since December 31, 1999. As of their  respective  dates,  the Valhi
SEC  Documents  (other than  preliminary  materials)  complied  in all  material
respects with the  requirements  of the  Securities Act and the Exchange Act, as
the  case  may be,  and in each  case  the  rules  and  regulations  promulgated
thereunder  applicable  to such  Valhi  SEC  Documents.  None of the  Valhi  SEC
Documents at the time of filing and effectiveness contained any untrue statement
of a material  fact or omitted to state a material  fact  required  to be stated
therein  or  necessary  to  make  the  statements   therein,  in  light  of  the
circumstances  under which they were made, not misleading,  except to the extent
such statements have been modified or superseded by later Valhi SEC Documents.

     Section  3.6  Financial  Statements.  As of  their  respective  dates,  the
financial  statements  of Valhi  (including,  in each case,  any related  notes)
included in the Valhi SEC Documents complied as to form in all material respects
with applicable accounting  requirements and the published rules and regulations
of the SEC with respect  thereto,  were prepared in accordance  with  accounting
principles  generally accepted in the United States of America ("GAAP") (except,
in the case of unaudited financial statements,  as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may be
indicated  therein or in the notes thereto) and present fairly the  consolidated
financial position of Valhi as at the dates thereof and the consolidated results
of its  operations  and  statements  of cash flows for the  periods  then ended.
Valhi's  balance sheet  included in its Form 10-Q for the quarter ended June 30,
2002 shall be referred to as the "Valhi Interim Balance Sheet."

     Section 3.7 Absence of Certain  Changes.  Except as  disclosed in the Valhi
SEC Documents and for the transactions  contemplated  hereby,  since the date of
the Valhi  Interim  Balance  Sheet,  there has not been any change or event that
would have, or would  reasonably be expected to have, a Valhi  Material  Adverse
Effect.

     Section 3.8 Proxy Statement/Registration Statement. None of the information
regarding  Valhi  or  Sub to be  supplied  by  Valhi  or Sub  for  inclusion  or
incorporation by reference in the Registration  Statement or the Proxy Statement
will,  in the  case  of the  Registration  Statement,  at the  time  it  becomes
effective and at the Effective Time, and, in the case of the Proxy Statement, at
the time of its mailing to  stockholders of Tremont and at the time of Tremont's
stockholders  meeting for the  purpose of  obtaining  the Tremont  Stockholders'
Approval (the "Tremont Stockholder Meeting"),  contain any untrue statement of a
material fact or omit to state any material  fact required to be stated  therein
or necessary in order to make the statements  therein not misleading in light of
the  circumstances  when made.  If at any time prior to the  Effective  Time any
event with  respect to Valhi or Sub shall occur that is required to be described
in the Proxy  Statement or the  Registration  Statement,  such event shall be so
described,  and an amendment or supplement  shall be promptly filed with the SEC
and, as required by Law,  disseminated to the stockholders of Tremont. The Proxy
Statement and the  Registration  Statement  will (with respect to Valhi and Sub)
comply as to form in all material respects with the provisions of the Securities
Act and the Exchange Act.

     Section 3.9 State Anti-Takeover  Statutes.  Each of Valhi and Sub has taken
all action  necessary,  if any, to exempt the transactions  contemplated  hereby
from the operation of any "business combination," "moratorium," "control share,"
"fair price," "interested stockholder," "affiliated transactions" or other state
anti-takeover statute or regulation.

     Section  3.10  Brokers'  Fees.  Neither  Valhi  nor Sub nor any of  Valhi's
Affiliates  (other than  Tremont) or their  respective  officers,  directors  or
agents has  employed  any broker,  finder or  financial  advisor or incurred any
liability for any broker's fees, commissions,  or financial advisory or finder's
fees in connection with any of the transactions  contemplated by this Agreement,
other than McDonald Investments Inc.

     Section  3.11  Compliance  with Laws.  Except as disclosed in the Valhi SEC
Documents or the NL SEC Documents (as defined below) filed with the SEC prior to
the date hereof,  to the knowledge of Valhi,  none of Valhi nor any of the Valhi
Subsidiaries (as defined below) has violated or failed to comply with any Law of
any Governmental Authority applicable to its business, properties or operations,
and Valhi has not received notification of asserted present or past violation or
failure to comply,  except for  violations and failures to comply that would not
reasonably be expected to have a Valhi Material Adverse Effect.

     Section 3.12 No Litigation.  Except as set forth in the Valhi SEC Documents
or the  NL SEC  Documents,  there  is no  claim,  litigation,  investigation  or
proceeding  by any  Person or  Governmental  Authority  pending  or, to  Valhi's
knowledge,  threatened,  against  Valhi or the  Valhi  Subsidiaries  that  would
reasonably be anticipated to have a Valhi Material Adverse Effect,  nor is there
any judgment, decree, injunction, rule or order of any Governmental Authority or
arbitrator  outstanding against Valhi or the Valhi Subsidiaries having, or that,
insofar as  reasonably  can be  foreseen,  in the  future  would  reasonably  be
anticipated to have a Valhi Material Adverse Effect.

     Section  3.13  Employee  Matters.  Except  as set forth on  Schedule  3.13:

            (a) With respect to each employee benefit plan,  policy or agreement
covering  employees,  former employees or directors (or their beneficiaries ) of
Valhi or of any trade or  business,  whether or not  incorporated  that would be
deemed a "single  employer"  within the  meaning of Section  4001(b) of ERISA (a
"Valhi ERISA  Affiliate"),  including  without  limitation any employee  benefit
plans  within the  meaning of Section  3(3) of the  Employee  Retirement  Income
Security  Act of 1974,  as amended  ("ERISA"),  and any  employment,  retention,
severance  or  change in  control  agreement,  in each  case that is  sponsored,
maintained  or  contributed  to or required to be  contributed  to by Valhi or a
Valhi ERISA Affiliate (collectively,  the "Valhi Benefit Plans"), since the date
of the Valhi Interim  Balance Sheet,  there have been no new plans adopted,  nor
changes, additions or modification to any Valhi Benefit Plan, nor as of the date
hereof,  any plans to adopt,  change, add or modify any Valhi Benefit Plan which
either  individually  or in the aggregate  would have a Valhi  Material  Adverse
Effect.

            (b) All  contributions and other payments required to have been made
by Valhi or any  Valhi  ERISA  Affiliate  to any Valhi  Benefit  Plan (or to any
Person  pursuant  to the terms  thereof)  have  been made or the  amount of such
payment  or  contribution   obligation  has  been  reflected  in  the  financial
statements in Valhi's  Quarterly  Report on Form 10-Q for the quarter ended June
30, 2002.

            (c) Each of the  Valhi  Benefit  Plans  intended  to be  "qualified"
within the meaning of Section 401(a) of the Code and any trust that forms a part
of any of the Valhi  Benefit  Plans that is intended to be exempt under  Section
501(a) or Section  501(c)(9) of the Code has been determined by the IRS to be so
qualified or exempt,  as the case may be, and no circumstances  exist that could
reasonably be expected to result in the  revocation  of any such  determination.
Each of the  Valhi  Benefit  Plans  is and has  been  operated  in all  material
respects  in  compliance  with its  terms  and all  applicable  laws,  rules and
regulations  governing such plan, including,  without limitation,  ERISA and the
Code.

            (d) With respect to the Valhi Benefit Plans, individually and in the
aggregate, no event has occurred,  there does not now exist any condition or set
of  circumstances,  that could  reasonably  be expected to subject  Valhi or any
Valhi ERISA Affiliate to any material liability arising under the Code, ERISA or
any other applicable Law, or under any indemnity agreement to which Valhi or any
Valhi ERISA Affiliate is a party, excluding liability relating to benefit claims
and funding obligations payable in the ordinary course.

     Section 3.14 Environmental Liability.  Except as disclosed in the Valhi SEC
Documents or the NL SEC Documents, there are no legal, administrative,  arbitral
or other proceedings,  claims,  actions, causes of action, private environmental
investigations or remediation  activities or governmental  investigations of any
nature pending or, to Valhi's  knowledge,  threatened against Valhi or the Valhi
Subsidiaries  seeking to impose,  or that could reasonably be expected to result
in the  imposition of any  liability or  obligation  arising under common law or
under  any  local,  state  or  federal  environmental  Law,  including,  without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of  1980,  as  amended  ("CERCLA"),  which  liability  or  obligation  could
reasonably be expected to result in a Valhi Material Adverse Effect.  To Valhi's
knowledge,  there is no reasonable basis for any such proceeding,  claim, action
or governmental investigation that would impose any liability or obligation that
could reasonably be expected to result in a Valhi Material Adverse Effect.

     Section 3.15 Certain Tax Matters.  Neither Valhi nor, to Valhi's knowledge,
any other person,  has taken or agreed to take any action that could  reasonably
be expected to prevent  the Merger  (or,  if the LLC Merger  occurs,  the Merger
followed by the LLC Merger) from constituting a  "reorganization"  under Section
368(a) of the Code with  respect to the  holders of Tremont  Common  Stock other
than  Valhi  and  TGI.  Valhi  is not  aware  of any  agreement,  plan or  other
circumstance that could reasonably be expected to prevent such qualification.

     Section  3.16  Interim  Operations  of Sub.  Sub was formed  solely for the
purpose of engaging in the Merger and has not engaged in any business activities
or conducted any operations other than in connection with the Merger.

     Section 3.17 Knowledge.

            The phrases "to Valhi's  knowledge"  or "to the  knowledge of Valhi"
shall mean the actual knowledge of any executive officer of Valhi.

     Section 3.18 No Undisclosed  Information.  To Valhi's knowledge,  Valhi has
not failed to disclose to Tremont any fact material to the business, properties,
prospects, operations, financial condition or results of operations of Valhi. To
Valhi's  knowledge,  no  representation or warranty by Valhi or Sub contained in
this Agreement and no statement contained in any document (including  historical
financial statements and the Schedules to this Agreement),  certificate or other
writing  furnished  or to be  furnished  by  Valhi  to  Tremont  or  any  of its
representatives  pursuant to the  provisions  hereof or in  connection  with the
transactions  contemplated hereby, contains or will contain any untrue statement
of material fact or omits or will omit to state any material fact necessary,  in
light  of the  circumstances  under  which  it was  made,  in  order to make the
statements  herein or therein not misleading.  Notwithstanding  the foregoing or
any other provision  herein,  Valhi has made no  representation or warranty with
respect to any financial or other projections made by Valhi.

                                   ARTICLE IV

                    REPRESENTATIONS AND WARRANTIES OF TREMONT

     Tremont represents and warrants to Valhi and Sub as follows:

     Section 4.1 Organization.  Tremont is a corporation duly organized, validly
existing and in good standing  under the laws of the State of Delaware.  Tremont
has all requisite  corporate  power and authority to own,  lease and operate its
properties and to carry on its business as now being conducted.  Tremont is duly
qualified or licensed and in good  standing to do business in each  jurisdiction
in which the  property  owned,  leased or  operated  by it or the  nature of the
business conducted by it makes such qualifications or licenses necessary, except
in such jurisdictions  where the failure to be so duly qualified or licensed and
in good standing  would not,  individually  or in the  aggregate,  reasonably be
expected  to  have  a  material  adverse  effect  on the  business,  operations,
financial  condition or results of operations of Tremont or would not reasonably
be  expected  to  delay  or  prevent  the   consummation  of  the   transactions
contemplated  hereby (a "Tremont Material Adverse Effect").  Tremont  previously
has  delivered  to Valhi  accurate  and complete  copies of its  Certificate  of
Incorporation and Bylaws, each as currently in effect.

     Section  4.2  Capitalization.  The  authorized  capital  stock  of  Tremont
consists of 14,000,000  shares of Tremont  Common Stock and 1,000,000  shares of
Tremont preferred stock, par value $1.00 per share ("Tremont  Preferred Stock").
As of the date hereof, there are 6,424,858 shares of Tremont Common Stock issued
and  outstanding  (net of 1,392,101  shares held in Tremont's  treasury)  and no
shares of Tremont Preferred Stock outstanding.  As of the date hereof, there are
outstanding  no options to purchase  shares of Tremont  Common Stock.  As of the
date hereof, except as set forth in this Section 4.2, no capital shares or other
voting securities of Tremont were issued,  reserved for issuance or outstanding.
There are no bonds,  debentures,  notes or other  indebtedness of Tremont having
the right to vote (or convertible into, or exchangeable  for,  securities having
the right to vote) on any  matter on which  stockholders  of  Tremont  may vote.
There  are  no  outstanding  securities,   options,   warrants,  calls,  rights,
commitments,  agreements,  arrangements  or  undertakings  of any  kind to which
Tremont is a party or bound,  obligating  Tremont to issue,  deliver or sell, or
cause  to be  issued,  delivered  or sold,  additional  capital  shares,  voting
securities  or other  ownership  interests of Tremont or  obligating  Tremont to
issue, grant,  extend or enter into any such security,  option,  warrant,  call,
right,  commitment,   agreement,   arrangement  or  undertaking.  There  are  no
outstanding  contractual  obligations  of  Tremont  to  repurchase,   redeem  or
otherwise acquire any capital shares of Tremont.

     Section 4.3 Authority.  Tremont has full  corporate  power and authority to
execute  and  deliver  this  Agreement  and  to  consummate   the   transactions
contemplated  hereby.  The  execution  and  delivery of this  Agreement  and the
consummation of the transactions  contemplated hereby have been duly and validly
authorized  and approved by the board of directors of Tremont,  and,  except for
the  requisite  approval of this  Agreement  and the  transactions  contemplated
hereby,  no other corporate  proceedings on the part of Tremont are necessary to
authorize this Agreement or to consummate the transactions  contemplated hereby.
This Agreement has been duly and validly  executed and delivered by Tremont and,
assuming  this  Agreement  constitutes a legal,  valid and binding  agreement of
Valhi,  constitutes a legal, valid and binding agreement of Tremont  enforceable
against it in accordance with its terms.

     Section 4.4 No Violations: Consents and Approvals.

            (a) Neither the  execution  and delivery of this  Agreement  nor the
consummation of the transactions  contemplated  hereby nor compliance by Tremont
with any of the provisions  hereof  conflicts  with,  violates or results in any
breach of (i) any provision of the  Certificate  of  Incorporation  or Bylaws of
Tremont,  (ii) any contract,  agreement,  instrument or  understanding  to which
Tremont is a party or by which  Tremont or any of its  assets or  properties  is
bound, or (iii) any Law of any jurisdiction or Governmental Authority applicable
to Tremont or any of its assets or  properties,  other than,  in the case of the
foregoing  clauses (ii) and (iii),  such conflicts,  violations or breaches that
would not  reasonably be expected to have a Tremont  Material  Adverse Effect or
for which  Tremont has  received or,  prior to the Merger,  shall have  received
appropriate consents or waivers.

            (b)  No   consent,   approval,   order  or   authorization   of,  or
registration, declaration or filing with, any Governmental Authority is required
by or with respect to Tremont in  connection  with the execution and delivery of
this  Agreement by Tremont or the  consummation  by Tremont of the  transactions
contemplated  hereby,  except for (i) the  filing  with the SEC of (x) the Proxy
Statement,  (y) the  Registration  Statement  and (z) such reports under Section
13(a) of the Exchange Act as may be required in connection  with this  Agreement
and the transactions  contemplated hereby, (ii) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware and (iii) such other
consents,  approvals,  orders,  authorizations,   registrations,   declarations,
licenses and filings (A) as may be required  under (1)  federal,  state or local
environmental  laws or (2) the "blue sky" laws of various states or (B) that, if
not obtained or made,  would  reasonably be expected to have a Tremont  Material
Adverse Effect.

     Section 4.5 SEC  Documents.  Tremont  has timely  filed or will timely file
with the SEC all documents  (the "Tremont SEC  Documents")  required to be filed
under the Securities and the Exchange Act, in each case since December 31, 1999.
As of their respective  dates, the Tremont SEC Documents (other than preliminary
materials)  complied  in all  material  respects  with the  requirements  of the
Securities  Act and the  Exchange  Act, as the case may be, and in each case the
rules and  regulations  promulgated  thereunder  applicable  to such Tremont SEC
Documents.  None  of the  Tremont  SEC  Documents  at the  time  of  filing  and
effectiveness  contained  any untrue  statement of a material fact or omitted to
state a material  fact  required to be stated  therein or  necessary to make the
statements  therein,  in light of the circumstances  under which they were made,
not  misleading,  except to the extent  such  statements  have been  modified or
superseded by later Tremont SEC Documents.

     Section  4.6  Financial  Statements.  As of  their  respective  dates,  the
financial  statements of Tremont  (including,  in each case,  any related notes)
included  in the  Tremont  SEC  Documents  complied  as to form in all  material
respects with  applicable  accounting  requirements  and the published rules and
regulations of the SEC with respect  thereto,  were prepared in accordance  with
GAAP (except,  in the case of unaudited  financial  statements,  as permitted by
Form 10-Q of the SEC) applied on a consistent  basis during the periods involved
(except as may be indicated  therein or in the notes thereto) and present fairly
the consolidated  financial  position of Tremont as at the dates thereof and the
consolidated  results of its  operations  and  statements  of cash flows for the
periods then ended.  Tremont's  balance sheet  included in its Form 10-Q for the
quarter ended June 30, 2002 shall be referred to as the "Tremont Interim Balance
Sheet."

     Section 4.7 Absence of Certain Changes.  Except as disclosed in the Tremont
SEC Documents or on Schedule 4.7 and for the transactions  contemplated  hereby,
since the date of the  Tremont  Interim  Balance  Sheet,  there has not been any
change or event that would have,  or would  reasonably  be  expected to have,  a
Tremont Material Adverse Effect.

     Section 4.8 Proxy Statement/Registration Statement. None of the information
regarding  Tremont to be supplied by Tremont for inclusion or  incorporation  by
reference in the Registration Statement or the Proxy Statement will, in the case
of the  Registration  Statement,  at the time it  becomes  effective  and at the
Effective  Time,  and,  in the case of the Proxy  Statement,  at the time of its
mailing to  stockholders  of Tremont and at the time of the Tremont  Stockholder
Meeting,  contain any untrue  statement of a material  fact or omit to state any
material  fact  required to be stated  therein or necessary in order to make the
statements therein not misleading in light of the circumstances when made. If at
any time prior to the  Effective  Time any event with  respect to Tremont  shall
occur  that  is  required  to  be  described  in  the  Proxy  Statement  or  the
Registration  Statement,  such event shall be so described,  and an amendment or
supplement  shall  be  promptly  filed  with the SEC and,  as  required  by Law,
disseminated  to the  stockholders  of  Tremont.  The  Proxy  Statement  and the
Registration  Statement will (with respect to Tremont)  comply as to form in all
material  respects with the  provisions of the  Securities  Act and the Exchange
Act.

     Section  4.9 State  Anti-Takeover  Statutes.  Tremont  has taken all action
necessary,  if any,  to exempt the  transactions  contemplated  hereby  from the
operation of any "business  combination,"  "moratorium,"  "control share," "fair
price,"  "interested  stockholder,"  "affiliated  transactions"  or other  state
anti-takeover statute or regulation.

     Section 4.10 Brokers'  Fees.  Neither  Tremont nor Sub nor any of Tremont's
Affiliates (other than Valhi) or their respective officers,  directors or agents
has employed any broker,  finder or financial  advisor or incurred any liability
for any broker's fees,  commissions,  or financial  advisory or finder's fees in
connection with any of the  transactions  contemplated by this Agreement,  other
than Morgan Joseph & Co. Inc. (the "Tremont Financial  Advisor").  Substantially
concurrently  herewith,  Tremont's  board of directors or the special  committee
thereof has received the opinion of the Tremont  Financial Advisor to the effect
that, on the date thereof,  the  consideration  to be received by holders (other
than Valhi and its  Affiliates)  of shares of Tremont  Common Stock  pursuant to
this  Agreement  is fair from a  financial  point of view to such  holders  (the
"Fairness Opinion").

     Section 4.11 Compliance  with Laws.  Except as disclosed in the Tremont SEC
Documents  filed with the SEC prior to the date hereof or on Schedule  4.11,  to
the knowledge of Tremont,  Tremont has not violated or failed to comply with any
Law of any  Governmental  Authority  applicable to its  business,  properties or
operations,  and Tremont has not received  notification  of asserted  present or
past  violation  or failure to comply,  except for  violations  and  failures to
comply that would not reasonably be expected to have a Tremont  Material Adverse
Effect.

     Section  4.12  No  Litigation.  Except  as set  forth  in the  Tremont  SEC
Documents or on Schedule 4.12, there is no claim,  litigation,  investigation or
proceeding  by any Person or  Governmental  Authority  pending or, to  Tremont's
knowledge  threatened,  against Tremont that would  reasonably be anticipated to
have a Tremont  Material  Adverse  Effect,  nor is there any  judgment,  decree,
injunction,   rule  or  order  of  any  Governmental   Authority  or  arbitrator
outstanding  against  Tremont  having,  or that,  insofar as  reasonably  can be
foreseen,  in the  future  would  reasonably  be  anticipated  to have a Tremont
Material Adverse Effect.

     Section 4.13 Employee Matters.

            (a) Schedule 4.13 contains a true and complete list of each employee
benefit  plan,  policy or  agreement  covering  employees,  former  employees or
directors of any of Tremont or their  beneficiaries,  or  providing  benefits to
such  persons in respect of  services  provided  to any such  entity,  including
without limitation any employee benefit plans within the meaning of Section 3(3)
of  ERISA,  and any  employment,  retention,  severance  or  change  in  control
agreement,  in each case that is  sponsored,  maintained  or  contributed  to or
required to be contributed to by Tremont or by any trade or business, whether or
not  incorporated (a "Tremont ERISA  Affiliate")  that would be deemed a "single
employer"  within the  meaning of Section  4001(b) of ERISA  (collectively,  the
"Tremont  Benefit  Plans").  Other  than as set forth on  Schedule  4.13,  since
December 31, 1999, there have been no new plans adopted, nor changes,  additions
or modification to any Tremont Benefit Plan. As of the date hereof,  Tremont has
no plans to adopt, change, add or modify any Tremont Benefit Plan.

            (b)  With  respect  to  each  Tremont  Benefit  Plan,   Tremont  has
previously  delivered or made available to Valhi or its representatives true and
complete  copies of the  following:  (i) the plan  document  and all  amendments
thereto  (or,  if such plan is  unwritten,  a true and  complete  summary of its
terms);  (ii) any related trust or other funding  vehicle;  (iii) if applicable,
the two most recent Internal Revenue Service Forms 5500 and related attachments;
(iv) if  applicable,  the most recent  Internal  Revenue  Service  determination
letter; and (v) any material correspondence or employee communications.

            (c) Except as set forth on  Schedule  4.13,  all  contributions  and
other  payments  required  to have been made by  Tremont  or any  Tremont  ERISA
Affiliate to any Tremont  Benefit  Plan (or to any Person  pursuant to the terms
thereof) have been made or the amount of such payment or contribution obligation
has been reflected in the financial  statements in Tremont's Quarterly Report on
Form 10-Q for the quarter ended June 30, 2002.

            (d)  Except  as set  forth on  Schedule  4.13,  each of the  Tremont
Benefit Plans intended to be "qualified" within the meaning of Section 401(a) of
the Code and any trust that  forms a part of any of the  Tremont  Benefit  Plans
that is intended to be exempt under Section  501(a) or Section  501(c)(9) of the
Code has been  determined  by the IRS to be so qualified or exempt,  as the case
may be, and no  circumstances  exist that could reasonably be expected to result
in the revocation of any such  determination.  Each of the Tremont Benefit Plans
is and has been operated in all material  respects in compliance  with its terms
and all applicable laws, rules and regulations  governing such plan,  including,
without limitation, ERISA and the Code.

            (e)  Except as set  forth on  Schedule  4.13,  with  respect  to the
Tremont Benefit Plans, individually and in the aggregate, no event has occurred,
there  does not now exist any  condition  or set of  circumstances,  that  could
reasonably be expected to subject  Tremont or any Tremont ERISA Affiliate to any
material liability arising under the Code, ERISA or any other applicable Law, or
under any indemnity agreement to which Tremont or any Tremont ERISA Affiliate is
a party,  excluding liability relating to benefit claims and funding obligations
payable in the ordinary course.

            (f) Other than  continuation  coverage required to be provided under
Section 4980B of the Code or Part 6 of Title I of ERISA or otherwise as provided
by state law or as set forth on Schedule 4.13, none of the Tremont Benefit Plans
that are "welfare plans," within the meaning of Section 3(1) of ERISA,  provides
for any  benefits  with  respect  to  current or former  employees  for  periods
extending  beyond their retirement or other  termination of service,  other than
benefits the full cost of which is borne by such former employees.

            (g) Except as otherwise  disclosed to Valhi, the consummation of the
Merger will not, either alone or in combination with another event undertaken by
Tremont  prior to the date hereof,  (i) entitle any current or former  employee,
agent,   independent   contractor  or  officer  of  Tremont  to  severance  pay,
unemployment  compensation  or any other  payment,  (ii)  accelerate the time of
payment or vesting or increase the amount of compensation due any such employee,
officer,  agent or  independent  contractor  or (iii)  constitute  a "change  in
control" under any Tremont Benefit Plan.

     Section 4.14 Intellectual  Property.  Title to all registered  Intellectual
Property  is  recorded  on  records in the name of  Tremont  and,  to the extent
applicable,  all affidavits of continued use and  incontestability in respect of
such registered  intellectual  property have been timely filed.  Tremont owns or
possesses  licenses or other valid rights to use, and upon  consummation  of the
transactions contemplated by this Agreement, the Surviving Corporation shall own
or possess  licenses or other  valid  rights to use  (without  the making of any
payment to others or the obligation to grant rights to others in exchange),  all
Intellectual  Property  necessary  to the conduct of the  business of Tremont as
currently  conducted,  including,  without limitation,  all releases required in
connection  with quotes,  testimonials  or  likenesses  utilized in editorial or
promotional  material.  Tremont's right title and interest in such  Intellectual
Property  is not being  opposed  by any  claim or  demand or in any  proceeding,
action,  litigation  or order to which  Tremont or any Person who has  granted a
license or other right to use  Intellectual  Property to Tremont or who has been
granted a license or other right to use Intellectual  Property by Tremont,  is a
party or subject,  nor to the knowledge of Tremont,  is any such claim,  demand,
proceeding,  action,  litigation, or court order threatened.  The conduct of the
business  of Tremont as  currently  conducted  does not  materially  infringe or
conflict with any  intellectual  property of others.  As used in this Agreement,
"Intellectual  Property"  means (i) all U.S.  and foreign  trademarks,  patents,
service marks, trade names, copyrights, mask works and designs that are pending,
applied for, granted,  or registered in any country or jurisdiction of the world
and that are owned by Tremont and used in connection with its business; (ii) all
unregistered trademarks,  patents, service marks, and trade names that are owned
by Tremont and used in  connection  with its  business;  and (iii) all licenses,
contracts,  permissions and other  agreements  relating to the business to which
Tremont is a party relating in any way to rights in any of the foregoing.

     Section 4.15 Required Vote of Tremont Stockholders. The affirmative vote of
the holders of a majority of the  outstanding  shares of Tremont Common Stock is
required to approve the Merger.  No other vote of the stockholders of Tremont is
required by Law, the  Certificate of  Incorporation  or the Bylaws of Tremont or
otherwise  in order for Tremont to  consummate  the Merger and the  transactions
contemplated hereby.

     Section  4.16  Certain  Contracts.  Except as  disclosed in the Tremont SEC
Documents, Tremont is not a party to or bound by (i) any "material contract" (as
such term is defined in Item  601(b)(10) of Regulation S-K of the SEC), (ii) any
non-competition  agreement or any other agreement or obligation that purports to
limit in any material  respect the manner in which,  or the  localities in that,
all or any material portion of the business of Tremont is or would be conducted,
(iii) any exclusive supply or purchase  contracts or any exclusive  requirements
contracts  or (iv) any  contract  or other  agreement  that  would  prohibit  or
materially  delay the  consummation  of the  Merger  or any of the  transactions
contemplated by this Agreement (collectively,  the "Tremont Contracts"). Tremont
has  delivered to Valhi or provided to Valhi for review,  prior to the execution
of this  Agreement,  complete and correct  copies of all Tremont  Contracts  not
filed as exhibits to the Tremont SEC Documents.  Each Tremont  Contract is valid
and  binding  on  Tremont  and is in full  force and  effect,  and  Tremont  has
performed in all material  respects all obligations  required to be performed by
it to date under each Tremont Contract,  except where such  noncompliance  would
not reasonably be expected to result in a Tremont  Material  Adverse Effect.  To
Tremont's knowledge, Tremont has not received notice of any violation or default
under (nor does there exist any  condition  that with the passage of time or the
giving of notice or both would result in such a violation or default  under) any
Tremont Contract.

     Section 4.17  Environmental  Liability.  Except as disclosed in the Tremont
SEC  Documents,   there  are  no  legal,   administrative,   arbitral  or  other
proceedings,   claims,   actions,   causes  of  action,   private  environmental
investigations or remediation  activities or governmental  investigations of any
nature pending or, to Tremont's knowledge, threatened against Tremont seeking to
impose,  or that could reasonably be expected to result in the imposition of any
liability or obligation  arising  under common law or under any local,  state or
federal  environmental  Law,  including,   without  limitation,   CERCLA,  which
liability  or  obligation  could  reasonably  be expected to result in a Tremont
Material Adverse Effect.  To Tremont's  knowledge,  there is no reasonable basis
for any such proceeding,  claim, action or governmental investigation that would
impose any liability or obligation  that could  reasonably be expected to result
in a Tremont Material Adverse Effect.

     Section 4.18 Taxes.  Except as set forth on Schedule 4.18,  Tremont has (i)
filed all Tax  returns  and  reports  required  to be filed by it (after  giving
effect to any filing  extension  properly  granted by a  Governmental  Authority
having  authority  to do so) and all such  returns and reports are  accurate and
complete in all material respects; and (ii) paid all Taxes shown on such returns
and  reports as  required  to be paid by it,  and,  except as  disclosed  in the
Tremont SEC Documents,  the most recent  financial  statements  contained in the
Tremont SEC Documents reflect an adequate reserve for all material Taxes payable
by Tremont for all taxable periods and portions thereof through the date of such
financial  statements.  Since the date of the  Tremont  Interim  Balance  Sheet,
Tremont has not  incurred  any  material  liability  for Taxes other than in the
ordinary course of business.  To Tremont's  knowledge,  no deficiencies  for any
Taxes have been proposed,  asserted or assessed against Tremont, and no requests
for  waivers of the time to assess any such Taxes are  pending.  As used in this
Agreement,  "Taxes" shall include all federal,  state, local and foreign income,
property,  sales, excise and other taxes, tariffs or governmental charges of any
nature  whatsoever,  together with penalties,  interest or additions to Tax with
respect thereto.

     Section 4.19  Knowledge.

            The  phrases  "to  Tremont's  knowledge"  or "to  the  knowledge  of
Tremont" shall mean the actual knowledge of any executive officer of Tremont.

     Section 4.20 No Undisclosed  Information.  To Tremont's knowledge,  Tremont
has not  failed  to  disclose  to  Valhi  any  fact  material  to the  business,
properties,  prospects, operations, financial condition or results of operations
of Tremont.  To Tremont's  knowledge,  no  representation or warranty by Tremont
contained  in  this  Agreement  and  no  statement  contained  in  any  document
(including historical financial statements and the Schedules to this Agreement),
certificate or other writing furnished or to be furnished by Tremont to Valhi or
any of its  representatives  pursuant to the provisions  hereof or in connection
with the transactions  contemplated hereby,  contains or will contain any untrue
statement  of  material  fact or omits or will omit to state any  material  fact
necessary,  in light of the  circumstances  under which it was made, in order to
make the  statements  herein or  therein  not  misleading.  Notwithstanding  the
foregoing or any other provision  herein,  Tremont has made no representation or
warranty with respect to any financial or other projections made by Tremont.

                                    ARTICLE V

                                    COVENANTS

     Section 5.1 Conduct of Business of Tremont. During the period from the date
of this Agreement to the Effective  Time,  Tremont shall carry on its businesses
in the usual,  regular and ordinary course in  substantially  the same manner as
heretofore conducted and, to the extent consistent  therewith,  use commercially
reasonable  efforts  to  preserve  intact  its  current  business  organization,
goodwill and ongoing  businesses;  provided,  however,  and without limiting the
generality of the  foregoing,  during the period from the date of this Agreement
to the Effective  Time,  except as expressly  permitted or  contemplated by this
Agreement,  as  shall  be  consented  by  Valhi  (which  consent  shall  not  be
unreasonably withheld or delayed) or as set forth on Schedule 5.1, Tremont shall
not and shall not authorize or commit or agree to:

            (a) (i) except for  dividends  paid on Tremont  Common  Stock in the
ordinary course of Tremont's business,  consistent with past practice,  declare,
set aside or pay any dividends on, or make any other distributions in respect of
any of Tremont's capital shares,  (ii) split,  combine or reclassify any capital
stock or other  partnership  interests or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of such
capital shares or partnership  interests or (iii) purchase,  redeem or otherwise
acquire  any  capital  shares of Tremont or any  options,  warrants or rights to
acquire,  or security  convertible  into,  such  capital  shares or  partnership
interests;

            (b) issue,  deliver or sell,  or grant any option or other  right in
respect  of,  any  capital  shares,  any  other  voting  securities   (including
partnership  interests) of Tremont or any  securities  convertible  into, or any
rights,  warrants or options to acquire,  any such shares,  voting securities or
convertible securities;

            (c) except as otherwise  contemplated by this  Agreement,  amend the
certificate or articles of incorporation, bylaws, partnership agreement or other
comparable charter or organizational documents of Tremont;

            (d) merge or consolidate with any Person;

            (e) (i)  acquire or agree to  acquire  by  merging or  consolidating
with, or by purchasing all or a substantial  portion of the equity securities or
all or substantially all of the assets of, or by any other manner,  any business
or any  corporation,  partnership,  limited  liability  company,  joint venture,
association,  business trust or other business  organization or division thereof
or  interest  therein;  (ii)  subject  to any Lien or sell,  lease or  otherwise
dispose  of any  material  assets  or assign or  encumber  the right to  receive
income,  dividends,  distributions  and the like except pursuant to contracts or
agreements  in effect at the date of this  Agreement  and set forth on  Schedule
5.1;  (iii)  make or agree  to make  any new  capital  expenditures,  except  in
accordance with budgets relating to Tremont that have been previously  delivered
to and approved by Valhi; or (iv) incur any  indebtedness  for borrowed money or
guarantee  any  such  indebtedness  of  another  Person,  issue or sell any debt
securities  or  warrants  or other  rights to  acquire  any debt  securities  of
Tremont,  guarantee any debt securities of another Person,  enter into any "keep
well" or other  agreement  to maintain  any  financial  statement  condition  of
another Person or enter into any  arrangement  having the economic effect of any
of the  foregoing,  prepay or  refinance  any  indebtedness  or make any  loans,
advances or capital contributions to, or investments in, any other Person;

            (f) make or rescind  any Tax  election  (unless  required  by Law or
necessary to preserve any of Tremont's subsidiaries as a partnership for federal
income tax purposes);

            (g) (i) change in any material manner any of its methods, principles
or  practices of  accounting  for GAAP or (ii) settle or  compromise  any claim,
action,  suit,  litigation,  proceeding,  arbitration,  investigation,  audit or
controversy  relating to Taxes, or change any of its methods of reporting income
or deductions  for Tax purposes from those  employed in the  preparation  of the
applicable Tax return for the most recently  completed  taxable year except,  in
the case of clause (i), as may be required by the SEC, applicable Law or GAAP;

            (h) adopt any new employee benefit plan,  incentive plan,  severance
plan, bonus plan, stock option or similar plan, grant new stock options or stock
appreciation rights or amend any existing plan or rights, except such changes as
are  required  by Law or that  are  not  more  favorable  to  participants  than
provisions presently in effect;

            (i)  except  as  contractually  required  pursuant  to the  terms of
agreements existing on the date hereof,  pay,  discharge,  settle or satisfy any
claims,  liabilities or objections (absolute,  accrued,  asserted or unasserted,
contingent or otherwise),  other than the payment,  discharge or satisfaction in
the ordinary  course of business  consistent with past practice or in accordance
with  their  terms,  of  liabilities   reflected  or  reserved  against  in,  or
contemplated by, the most recent consolidated financial statements (or the notes
thereto) of Tremont  included in the  Tremont SEC  Documents  or incurred in the
ordinary course of business consistent with past practice;

            (j) settle any stockholder derivative or class action claims arising
out of or in connection with any of the transactions contemplated hereby; or

            (k)  take  any  action   that  would   result  in  (i)  any  of  the
representations  and  warranties  of such party  (without  giving  effect to any
"knowledge"  qualification) set forth in this Agreement that are qualified as to
materiality  becoming untrue,  (ii) any of such  representations  and warranties
(without  giving  effect  to any  "knowledge"  qualification)  that  are  not so
qualified becoming untrue in any material respect or (iii) any of the conditions
to the Merger set forth in Sections 6.1 or 6.2 not being satisfied.

     Section 5.2  Conduct of Business of Valhi.  During the period from the date
of this Agreement to the Effective Time,  Valhi shall carry on its businesses in
the usual,  regular  and  ordinary  course in  substantially  the same manner as
heretofore conducted and, to the extent consistent  therewith,  use commercially
reasonable  efforts  to  preserve  intact  its  current  business  organization,
goodwill and ongoing  businesses;  provided,  however,  and without limiting the
generality of the  foregoing,  during the period from the date of this Agreement
to the Effective  Time,  except as expressly  permitted or  contemplated by this
Agreement,  as shall  be  consented  by  Tremont  (which  consent  shall  not be
unreasonably  withheld or delayed) or as set forth on Schedule 5.2,  Valhi shall
not and shall not authorize or commit or agree to:

            (a) (i)  except  for  dividends  paid on Valhi  Common  Stock in the
ordinary course of Valhi's business, consistent with past practice, declare, set
aside or pay any dividends on, or make any other distributions in respect of any
of Valhi's capital shares,  (ii) split,  combine or reclassify any capital stock
or other  partnership  interests or issue or authorize the issuance of any other
securities  in  respect  of, in lieu of or in  substitution  for  shares of such
capital shares or partnership  interests or (iii) purchase,  redeem or otherwise
acquire  any  capital  shares  of Valhi or any  options,  warrants  or rights to
acquire,  or security  convertible  into,  such  capital  shares or  partnership
interests;

            (b) except as otherwise  contemplated by this  Agreement,  amend the
certificate or articles of incorporation, bylaws, partnership agreement or other
comparable charter or organizational documents of Valhi;

            (c) merge or consolidate with any Person;

            (d) acquire or agree to acquire by merging or consolidating with, or
by purchasing  all or a substantial  portion of the equity  securities or all or
substantially all of the assets of, or by any other manner,  any business or any
corporation, partnership, limited liability company, joint venture, association,
business trust or other business  organization  or division  thereof or interest
therein; or

            (e)  take  any  action   that  would   result  in  (i)  any  of  the
representations  and  warranties  of such party  (without  giving  effect to any
"knowledge"  qualification) set forth in this Agreement that are qualified as to
materiality  becoming untrue,  (ii) any of such  representations  and warranties
(without  giving  effect  to any  "knowledge"  qualification)  that  are  not so
qualified becoming untrue in any material respect or (iii) any of the conditions
to the Merger set forth in Sections 6.1 or 6.3 not being satisfied.

     Section 5.3 Tremont Board Recommendation. In connection with the Merger and
the Tremont Stockholders'  Approval, the board of directors of Tremont shall (i)
unless  this  Agreement  is earlier  terminated  in  accordance  with its terms,
recommend  to the  holders  of Tremont  Common  Stock that they vote in favor of
approval of this Agreement and the transactions  contemplated hereby and use all
commercially  reasonable  efforts  to  obtain  the  necessary  approvals  by the
stockholders  of Tremont of this  Agreement  and the  transactions  contemplated
hereby and (ii) otherwise comply with all legal requirements  applicable to such
approval.

     Section 5.4 Access to Information.

            (a) From the date of this  Agreement  until the Effective  Time, (i)
each of Valhi and Tremont, upon reasonable notice, will provide to the other and
their  respective  lenders and authorized  representatives  (including  counsel,
environmental  and other  consultants,  accountants  and  auditors)  full access
during normal business hours to all facilities,  personnel and operations and to
all books and records of Tremont,  Valhi and Sub, (ii) each of Valhi and Tremont
will  permit the other to make such  inspections  as it may  reasonably  require
(including  without limitation any air, water or soil testing or sampling deemed
necessary)  and (iii) each of  Tremont  and Valhi  will  cause its  officers  to
furnish  the  other  party  with such  financial  and  operating  data and other
information  with respect to its business and  properties as the other party may
from time to time reasonably request.

            (b) Valhi and Tremont will hold and will cause their representatives
to hold in  confidence,  all documents and  information  furnished in connection
with this  Agreement.  Other than documents or information  (i) available to the
public,  (ii) that are or become  known by Valhi or Tremont  from a source other
than  Tremont  or  Valhi,  as the  case  may be,  other  than by a  breach  of a
confidentiality  obligation  owed to  Tremont or Valhi,  respectively,  or (iii)
required by Law to be disclosed.

     Section  5.5  Registration  Statement  and  Proxy  Statement.  As  soon  as
practicable following the date of this Agreement, Tremont shall prepare and file
with the SEC a  preliminary  Proxy  Statement in form and  substance  reasonably
satisfactory to each of Valhi and Tremont, and Valhi shall prepare and file with
the SEC the  Registration  Statement,  in  which  the  Proxy  Statement  will be
included.  Each of Valhi and Tremont shall use its reasonable commercial efforts
to (i)  respond  to any  comments  of the SEC and  (ii)  have  the  Registration
Statement  declared  effective  under  the  Securities  Act  and the  rules  and
regulations  promulgated thereunder as promptly as practicable after such filing
and to keep  the  Registration  Statement  effective  as  long as is  reasonably
necessary to consummate the Merger.  Tremont will use its reasonable  commercial
efforts  to cause  the Proxy  Statement  to be  mailed  to its  stockholders  as
promptly as practicable after the Registration  Statement is declared  effective
under the  Securities  Act.  Each party will  notify the other  promptly  of the
receipt  of any  comments  from  the  SEC  and of any  request  by the  SEC  for
amendments or supplements to the  Registration  Statement or the Proxy Statement
or for  additional  information  and will  supply the other  with  copies of all
correspondence  between  such party or any of its  representatives  and the SEC,
with respect to the Registration Statement or the Proxy Statement.  Whenever any
event occurs that is required to be set forth in an amendment or  supplement  to
the Registration Statement or the Proxy Statement, Valhi or Tremont, as the case
may be, shall  promptly  inform the other of such  occurrences  and cooperate in
filing with the SEC and/or mailing to the stockholders of Tremont such amendment
or supplement.  The Proxy Statement  shall,  subject to Section 5.3, include the
recommendation of the board of directors of Tremont in favor of approval of this
Agreement and the transactions  contemplated  hereby.  The Proxy Statement shall
also include the Fairness Opinion of the Tremont Financial Advisor.  Valhi shall
take any action  required to be taken under any applicable  state  securities or
"blue  sky" laws in  connection  with the  issuance  of the Valhi  Common  Stock
pursuant to the Merger,  and Tremont  shall furnish all  information  concerning
Tremont and the holders of shares of Tremont  Common Stock and rights to acquire
such shares pursuant to the Tremont Option Plans as may be reasonably  requested
in connection  with any such action.  Valhi will use its  reasonable  commercial
efforts to obtain,  prior to the effective date of the  Registration  Statement,
all necessary  state  securities or "blue sky" permits or approvals  required to
carry out the transactions contemplated hereby.

     Section  5.6  Tremont  Stockholders'  Meeting.  Tremont  will,  as  soon as
practicable following the date of this Agreement (but in no event sooner than 30
days  following the date the Proxy  Statement is mailed to the  stockholders  of
Tremont),  duly call,  give notice of, convene and hold the Tremont  Stockholder
Meeting for the purpose of obtaining the Tremont  Stockholders'  Approval as set
forth in Section 4.15.  Subject to Section 5.3, Tremont will,  through its board
of directors,  recommend to its stockholders  approval of this Agreement and the
transactions contemplated hereby.

     Section 5.7 Reasonable Efforts; Other Actions.  Tremont, Valhi and Sub each
shall use all commercially  reasonable  efforts promptly to take, or cause to be
taken,  all  other  actions  and do,  or  cause  to be done,  all  other  things
necessary,  proper or  appropriate  under  applicable Law to consummate and make
effective the transactions  contemplated by this Agreement,  including,  without
limitation,  (i) the  taking of any  actions  required  to  qualify  the  Merger
treatment as a tax-free reorganization within the meaning of Code Section 368(a)
and (ii) the obtaining of all necessary consents, approvals or waivers under its
material contracts. If, at any time after the Effective Time, any further action
is  necessary or  desirable  to carry out the  purposes of this  Agreement,  the
officers and  directors of the parties  hereto shall use  reasonable  commercial
efforts to take all such action.

     Section  5.8 Public  Announcements.  Before  issuing  any press  release or
otherwise  making any public  statements with respect to the Merger,  Valhi, Sub
and Tremont will consult with each other as to its form and  substance and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by Law or the rules of the NYSE.

     Section  5.9  Notification  of Certain  Matters.  Each of Tremont and Valhi
shall  give  prompt  notice to the other  party of (i) any  notice  of, or other
communication relating to, a default or event that, with notice of lapse of time
or both,  would become a default,  received by it subsequent to the date of this
Agreement and prior to the Effective  Time,  under any contract to which it is a
party or is  subject  that could  reasonably  be  expected  to result in a Valhi
Material Adverse Effect or a Tremont  Material  Adverse Effect,  as the case may
be, (ii) any notice or other  communication  from any third party  alleging that
the consent of such third party is or may be  required  in  connection  with the
transactions  contemplated  by  this  Agreement,   (iii)  any  change  in  their
respective financial condition, properties, businesses or results of operations,
or the occurrence of any event that is reasonably expected to result in any such
change, that in any such event could reasonably be expected to result in a Valhi
Material  Adverse Effect or Tremont Material  Adverse,  as the case may be, (iv)
the  occurrence or existence of any event that would,  or could with the passage
of time or otherwise,  make any representation or warranty contained herein that
is qualified as to materiality untrue in any respect or any such  representation
or warranty that is not so qualified  becoming untrue in any material respect or
(v) the  failure by it to comply  with or satisfy in any  material  respect  any
covenant,  condition or  agreement to be complied  with or satisfied by it under
this Agreement;  provided, however, that the delivery of notice pursuant to this
Section 5.9 shall not limit or otherwise affect the remedies available hereunder
to the  party  receiving  such  notice.  Each  party  shall  use its  reasonable
commercial efforts to prevent or promptly remedy the same.

     Section 5.10 Expenses.  Valhi and Sub, on the one hand, and Tremont, on the
other hand,  shall bear their  respective  expenses  incurred in connection with
this Agreement and the transactions  contemplated hereby,  except that Valhi and
Tremont shall each pay one-half of the expenses  incurred in connection with the
printing and mailing of the Proxy Statement and the Registration Statement.

     Section 5.11 Rule 145  Affiliates.  Tremont shall deliver to Valhi a letter
identifying  all  Persons  who,  as of the date  hereof,  may be deemed to be an
"affiliate"  thereof for purposes of Rule 145 under the  Securities Act (a "Rule
145 Affiliate") and shall advise Valhi in writing of any Persons who become Rule
145  Affiliates  prior to the Effective  Time.  Tremont shall use all reasonable
efforts to cause each Person who is so  identified  as a Rule 145  Affiliate  to
deliver  to  Valhi,  no later  than  the  earlier  of the 30th day  prior to the
Effective Time or the date such Person  becomes a Rule 145 Affiliate,  a written
agreement substantially in the form of Exhibit B hereto.

     Section 5.12 Stock Exchange Listing. Valhi shall file a listing application
on or before the Closing and thereafter shall take all action to effect approval
to list on the NYSE, the Valhi Common Stock to be issued pursuant to the Merger.

     Section  5.13 State  Anti-Takeover  Laws.  If any "fair  price" or "control
share  acquisition"  statute or other  similar  anti-takeover  regulation  shall
become applicable to the transactions contemplated hereby, Valhi and Tremont and
their  respective  board of  directors  shall  use their  reasonable  commercial
efforts to grant such  approvals and to take such other actions as are necessary
so that the transactions  contemplated  hereby may be consummated as promptly as
practicable  on the terms  contemplated  hereby  and shall  otherwise  use their
reasonable  commercial  efforts to eliminate  the effects of any such statute or
regulation on the transactions contemplated hereby.

     Section  5.14  Tax-Free  Transaction.  From  and  after  the  date  of this
Agreement,  each party hereto  shall use its  reasonable  commercial  efforts to
cause the Merger (or, if the LLC Merger occurs,  the Merger  followed by the LLC
Merger) to qualify,  and shall not take, or cause to be taken,  any actions that
could  reasonably  be  expected  to prevent  the Merger  (or,  if the LLC Merger
occurs,   the  Merger   followed  by  the  LLC  Merger)  from  qualifying  as  a
"reorganization" under Section 368(a) of the Code with respect to the holders of
Tremont Common Stock other than Valhi and TGI.

                                   ARTICLE VI

                              CONDITIONS PRECEDENT

     Section 6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective  obligations  of each party to effect the Merger  shall be subject to
the  fulfillment  at or  prior  to the  Closing  Date of  each of the  following
conditions:

            (a) Registration  Statement.  The Registration  Statement shall have
become  effective in accordance  with the provisions of the  Securities  Act. No
stop order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and remain in effect.  All necessary state  securities or
blue sky authorizations shall have been received.

            (b) Stockholder Approval.  The requisite vote of the stockholders of
Tremont necessary to consummate the transactions  contemplated by this Agreement
shall have been obtained.

            (c) Consents and Approvals.  All necessary consents and approvals of
any  United  States  or  any  other  Governmental  Authority  required  for  the
consummation of the transactions  contemplated by this Agreement shall have been
obtained.

            (d) Listing.  The Valhi Common Stock issued in the Merger shall have
been authorized for listing on the NYSE.

            (e) No  Orders.  No  temporary  restraining  order,  preliminary  or
permanent   injunction   or  other  order  issued  by  any  court  of  competent
jurisdiction or other legal restraint or prohibition preventing the consummation
of the Merger or any of the other transactions  contemplated  hereby shall be in
effect.

            (f)  "Blue  Sky"  Permits.  Valhi  shall  have  received  all  state
securities or "blue sky" permits and other authorizations necessary to issue the
Valhi Common Stock pursuant to this Agreement.

     Section 6.2  Conditions to the  Obligations  of Valhi and Sub to Effect the
Merger.  The  obligation  of Valhi and Sub to effect  the  Merger and to perform
under this  Agreement is subject to the  fulfillment on or before to the Closing
Date of the  following  additional  conditions,  any one or more of which may be
waived, in writing, by Valhi and Sub:

            (a) Representations  Accurate. The representations and warranties of
Tremont contained herein shall be true and correct on the date of this Agreement
and at and on the Closing  Date as though such  representations  and  warranties
were made at and on such date,  except to the extent that the  representation or
warranty is expressly limited by its terms to another date. This condition shall
be deemed satisfied unless any or all breaches of Tremont's  representations and
warranties  in  this  Agreement   (without  giving  effect  to  any  materiality
qualification  or  limitation)  is  reasonably  expected  to result in a Tremont
Material  Adverse  Effect or is reasonably  expected to prevent or materially to
burden  or  impair  the  ability  of  Tremont  to  consummate  the  transactions
contemplated by this Agreement.  In addition,  a  representation  or warranty of
Tremont  shall not be deemed to be  untrue or  incorrect  if (i) any of  Valhi's
executive  officers had actual and conscious (and not  constructive,  imputed or
implied)  knowledge on the date hereof that such  representation or warranty was
untrue or incorrect or (ii) such representation or warranty was true on the date
hereof and Valhi caused such  representation or warranty to subsequently  become
untrue or incorrect.

            (b)  Performance.  Tremont  shall  have  complied,  in all  material
respects,  with all  agreements,  obligations  and  conditions  required by this
Agreement to be complied with by it on or prior to the Closing Date.

            (c)  Certificates.  Valhi and Sub  shall  have  received  (i) a duly
executed  certificate  signed by the  President  or a Vice  President of Tremont
certifying as to compliance  with the conditions  set forth in Sections  6.2(a),
(b) and (h) and (ii) a duly  executed  certificate  signed by the  Secretary  of
Tremont certifying the accuracy and completeness of the resolutions of the board
of  directors  of  Tremont   approving  this  Agreement,   the  Merger  and  the
transactions contemplated hereby.

            (d) Certified Certificate of Incorporation. Valhi and Sub shall have
received  a  certificate  of the  Secretary  of State of the  State of  Delaware
certifying  the  Certificate  of  Incorporation  of Tremont  and all  amendments
thereof, dated not more than ten days prior to the Closing Date.

            (e) Good  Standing.  Valhi and Sub shall have received a certificate
of good standing,  or its  equivalent,  dated no more than ten days prior to the
Closing  Date,  from the State of Delaware and each other state in which Tremont
is qualified to do business.

            (f) Consents.  Valhi and Sub shall have received  copies of consents
of all third parties necessary for Tremont to execute,  deliver and perform this
Agreement and consummate the Merger.

            (g) Tax Opinion.  Valhi and Sub shall have received an executed copy
of a tax opinion of Locke  Liddell & Sapp LLP,  Valhi's  legal  counsel,  to the
effect that the Merger (or, if the LLC Merger occurs, the Merger followed by the
LLC  Merger)  will  constitute  a  reorganization  within the meaning of Section
368(a) of the Code with  respect to the  holders of Tremont  Common  Stock other
than Valhi and TGI and,  if the LLC Merger  occurs,  a complete  liquidation  of
Tremont under Section 332 of the Code with respect to Valhi.

            (h) No Material  Adverse  Change.  Since the date of this Agreement,
there shall have been no change that could reasonably be expected to result in a
Tremont Material Adverse Effect.

            (i) Agreements  with Rule 145  Affiliates.  Valhi and Sub shall have
received  from each Person who is a Rule 145  Affiliate  under  Section  5.11 an
executed  copy of the written  agreement  referred  to in Section  5.11 and such
agreements shall be in full force and effect and there shall be no breach, or in
existence  any facts that with passage of time or otherwise  could  constitute a
breach, thereof.

            (j) Certificate of Merger. Tremont shall have delivered to Valhi the
Certificate of Merger as executed by duly authorized officers of Tremont.

     Section 6.3 Conditions to the  Obligations of Tremont to Effect the Merger.
The  obligation  of Tremont  to effect  the  Merger  and to  perform  under this
Agreement  is subject to the  fulfillment  on or before the Closing  Date of the
following  additional  conditions,  any one or more of which may be  waived,  in
writing, by Tremont:

            (a) Representations  Accurate. The representations and warranties of
Valhi  contained  herein shall be true and correct on the date of this Agreement
and at and on the Closing  Date as though such  representations  and  warranties
were made at and on such date,  except to the extent that the  representation or
warranty is expressly limited by its terms to another date. This condition shall
be deemed  satisfied unless any or all breaches of Valhi's  representations  and
warranties  in  this  Agreement   (without  giving  effect  to  any  materiality
qualification  or  limitation)  is  reasonably  expected  to  result  in a Valhi
Material  Adverse  Effect or is reasonably  expected to prevent or materially to
burden  or  impair  the  ability  of  Valhi  to  consummate   the   transactions
contemplated by this Agreement.  In addition,  a  representation  or warranty of
Valhi  shall  not be  deemed  to be  untrue  or  incorrect  if any of  Tremont's
executive  officers had actual and conscious (and not  constructive,  imputed or
implied)  knowledge on the date hereof that such  representation or warranty was
untrue or incorrect.

            (b) Performance.  Valhi and Sub shall have complied, in all material
respects,  with all  agreements,  obligations  and  conditions  required by this
Agreement to be complied with by them on or prior to the Closing Date.

            (c)  Certificates.  Tremont  shall have received (i) a duly executed
certificate signed by the President or a Vice President of each of Valhi and Sub
certifying as to compliance  with the conditions  set forth in Sections  6.3(a),
(b) and (h) and (ii) a duly executed certificate signed by the Secretary of each
of Valhi and Sub certifying the accuracy and  completeness of the resolutions of
the board of directors of each of Valhi and Sub approving  this  Agreement,  the
Merger and the transactions contemplated hereby.

            (d)  Certified  Certificates  of  Incorporation.  Tremont shall have
received  certificates  of the  Secretary  of  State of the  State  of  Delaware
certifying the  Certificate  of  Incorporation  of Valhi and the  Certificate of
Incorporation  of Sub and all amendments  thereof,  dated not more than ten days
prior to the Closing Date.

            (e) Good Standing. Tremont shall have received a certificate of good
standing,  or its  equivalent,  dated no more than ten days prior to the Closing
Date, from the State of Delaware and each other state in which Valhi and Sub are
qualified to do business.

            (f) Consents.  Tremont shall have received copies of consents of all
third parties  necessary for Valhi and Sub to execute,  deliver and perform this
Agreement and consummate the Merger.

            (g) Tax Opinion.  Tremont  shall have received an executed copy of a
tax opinion of Piper Rudnick LLP, legal counsel to the Special  Committee of the
Board of  Directors  of  Tremont,  to the effect that the Merger (or, if the LLC
Merger  occurs,  the  Merger  followed  by the LLC  Merger)  will  constitute  a
reorganization  within the meaning of Section 368(a) of the Code with respect to
shareholders of Tremont other than Valhi or TGI.

            (h) No Material  Adverse  Change.  Since the date of this Agreement,
there shall have been no change that could reasonably be expected to result in a
Valhi Material Adverse Effect.

            (i)  Certificate of Merger.  Sub shall have delivered to Tremont the
Certificate of Merger, executed by duly authorized officers of Sub.

                                   ARTICLE VII

                                     CLOSING

     Section 7.1 Time and Place.  Subject to the  provisions  of Articles VI and
VIII, the closing of the Merger (the "Closing")  shall take place at the offices
of Locke Liddell & Sapp LLP, 2200 Ross Avenue,  Suite 2200,  Dallas,  Texas,  as
soon as  practicable,  but in no event later than the second  business day after
the date on which each of the  conditions  set forth in  Article VI (other  than
those  conditions  that by their  nature are to be  satisfied at the Closing but
subject to such  conditions) have been satisfied or waived,  in writing,  by the
party or parties  entitled to the benefit of such  conditions;  or at such other
place or on such other date as Valhi, Sub and Tremont may, in writing,  mutually
agree.  The date on which the Closing  actually  occurs is herein referred to as
the "Closing Date."

     Section 7.2 Filings at the Closing.  Subject to the  provisions of Articles
VI and VIII, Tremont,  Valhi and Sub shall cause to be executed and filed at the
Closing the  Certificate of Merger and shall cause the  Certificate of Merger to
be recorded in accordance  with the applicable  provisions of the DGCL and shall
take any and all other  lawful  actions and do any and all other  lawful  things
necessary to cause the Merger to become effective.

                                  ARTICLE VIII

                           TERMINATION AND ABANDONMENT

     Section 8.1  Termination  by Valhi and/or  Tremont.  This  Agreement may be
terminated  at any time prior to the  Effective  Time,  whether  before or after
approval  of this  Agreement  and the  transactions  contemplated  hereby by the
stockholders of Tremont:

            (a) by the mutual consent of Valhi and Tremont;

            (b)  by  either  Valhi  or  Tremont,   if  any  court  of  competent
jurisdiction or other  Governmental  Authority shall have issued an order (other
than a temporary  restraining order), decree or ruling or taken any other action
restraining,  enjoining or  otherwise  prohibiting  the Merger,  and such order,
decree, ruling or other action shall have become final and nonappealable;

            (c)  by  either  Valhi  or  Tremont,  if the  Tremont  Stockholders'
Approval is not obtained at the Tremont Stockholder Meeting;

            (d) by either  Valhi or Tremont,  if the Tremont  Financial  Advisor
shall have  withdrawn,  modified  or changed  its  Fairness  Opinion in a manner
adverse to the holders of Tremont Common Stock; or

            (e) by either  Valhi or Tremont,  if the Merger  shall not have been
consummated  by February 28, 2003,  provided that a party in material  breach of
this Agreement may not terminate this Agreement pursuant to this Section 8.1(e).

     Section 8.2 Termination by Valhi. This Agreement may be terminated by Valhi
at any time prior to the Effective  Time,  whether  before or after  approval of
this Agreement and the transactions  contemplated  hereby by the stockholders of
Tremont if:

            (a) (i) Tremont shall have failed to comply in any material  respect
with any of the  covenants  or  agreements  contained  in this  Agreement  to be
complied with by Tremont at or prior to such date of  termination  or (ii) there
exists a breach of any  representation  or warranty of Tremont contained in this
Agreement such that the closing conditions set forth in Section 6.2(a) would not
be  satisfied,  provided,  however,  that with respect to either (i) or (ii), if
such failure or breach is capable of being  cured,  such failure or breach shall
not have been cured  within 15 days of delivery to Tremont of written  notice of
such failure or breach; or

            (b)  the  board  of  directors  of  Tremont  shall  have  failed  to
recommend,  or shall have withdrawn,  modified or changed its  recommendation of
this  Agreement  or the  Merger  in a manner  adverse  to  Valhi  or shall  have
recommended or issued a neutral  recommendation  with respect to any proposal in
respect  of an  Acquisition  Proposal  with a  Person  other  than  Valhi or any
Affiliate of Valhi (or the Tremont board of directors or any  committee  thereof
shall have resolved to do any of the foregoing).

     Section 8.3  Termination  by Tremont.  This  Agreement may be terminated by
Tremont  at any time  prior  to the  Effective  Time,  whether  before  or after
approval  of this  Agreement  and the  transactions  contemplated  hereby by the
stockholders of Tremont if:

            (a) (i) Valhi or Sub  shall  have  failed to comply in any  material
respect with any of the covenants or agreements  contained in this  Agreement to
be complied with by Valhi or Sub at or prior to such date of termination or (ii)
there  exists  a  breach  of any  representation  or  warranty  of  Valhi or Sub
contained  in this  Agreement  such  that the  closing  conditions  set forth in
Section 6.3(a) would not be satisfied,  provided, however, that, with respect to
either (i) or (ii),  if such failure or breach is capable of being  cured,  such
failure or breach  shall not have been cured within 15 days of delivery to Valhi
or Sub of written notice of such failure or breach;

            (b)  the  board  of  directors  of  Tremont  shall  have  failed  to
recommend,  or shall have withdrawn,  modified or changed its recommendation of,
this  Agreement  or the  Merger  in a manner  adverse  to  Valhi  or shall  have
recommended or issued a neutral  recommendation  with respect to any proposal in
respect  of an  Acquisition  Proposal  with a  Person  other  than  Valhi or any
Affiliate of Valhi (or the Tremont board of directors or any  committee  thereof
shall have resolved to do any of the foregoing), in each case in order to permit
Tremont to execute a definitive  agreement for a transaction  contemplated by an
Acquisition  Proposal  from a third party that the board of directors of Tremont
determines in its good faith judgment (based on, among other things, the written
advice of an  independent  financial  advisor)  to be no less  favorable  to its
stockholders than the Merger, taking into account all relevant factors.

     Section 8.4  Procedure for  Termination.  In the event of  termination  and
abandonment  of the Merger by Valhi or Tremont  pursuant to this  Article  VIII,
written notice thereof shall forthwith be given to the other.

     Section  8.5  Effect  of  Termination  and  Abandonment.  In the  event  of
termination  of this Agreement and  abandonment  of the Merger  pursuant to this
Article VIII,  no party hereto (or any of its directors or officers)  shall have
any liability or further obligation to any other party to this Agreement, except
as provided in this Section 8.5 and in Sections 5.4(b), 5.8 and 5.10. Nothing in
this Section 8.5 shall relieve any party from  liability  for willful  breach of
this Agreement.

                                   ARTICLE IX

                          SURVIVABILITY; INVESTIGATION

     Section  9.1  Survival  of  Representations  and  Warranties.  None  of the
representations,  warranties and covenants of Tremont, Valhi or Sub will survive
the Effective Time.

     Section 9.2 Investigation. The respective representations and warranties of
Valhi, Sub and Tremont contained herein or in any certificate or other documents
delivered  prior to or at the Closing  shall not be deemed  waived or  otherwise
affected by any investigation made by any party hereto.

                                    ARTICLE X

                                  MISCELLANEOUS

     Section 10.1 Notices.

            All notices shall be in writing delivered as follows: If to Valhi or
Sub, to:

                  Valhi, Inc.
                  5430 LBJ Freeway, Suite 1700
                  Dallas, TX  75240
                  Attention:        J. Mark Hollingsworth
                                    Vice President and General Counsel
                  Facsimile No.:    (972) 448-1445

                  With a copy (which copy shall not constitute notice) to:

                  Locke Liddell & Sapp LLP
                  2200 Ross Avenue, Suite 2200
                  Dallas, TX  75206
                  Attention:        Don M. Glendenning, Esq.
                  Facsimile No.:    (214) 740-8800

         If to Tremont, to:

                  Tremont Corporation
                  1999 Broadway, Suite 4300
                  Denver, CO  80202
                  Attention:      Robert E. Musgraves
                                  Vice President, General Counsel and Secretary
                  Facsimile No.:  (303) 296-9645

                  With a copy (which copy shall not constitute notice) to:

                  Piper Rudnick LLP
                  1251 Avenue of the Americas
                  New York, NY  10020-1104
                  Attention:  Theodore Altman, Esq.
                  Facsimile No.:  (212) 835-6001

or to such other address as may have been  designated in a prior notice pursuant
to this  Section  10.1.  Notices  shall be deemed to be  effectively  served and
delivered (a) when delivered  personally,  (b) when sent by telephone  facsimile
(with a copy mailed by first-class  U.S.  mail),  (c) one business day following
deposit with a recognized  national  air courier  service or (d) three  business
days after  being  deposited  in the United  States  mail in a sealed  envelope,
postage prepaid, return receipt requested, to the appropriate party.

     Section 10.2 Binding Effect.  Except as may be otherwise  provided  herein,
this  Agreement  will be binding  upon and inure to the  benefit of the  parties
hereto and their respective  successors and permitted assigns,  but neither this
Agreement nor any of the rights or  obligations  hereunder  shall be assigned by
any of the  parties  hereto  without  the  prior  written  consent  of the other
parties. Except as otherwise specifically provided in this Agreement, nothing in
this  Agreement  is intended or will be  construed to confer on any Person other
than the parties hereto any rights or benefits hereunder.

     Section  10.3  Consent  to  Jurisdiction.  Each of the  parties  hereto (a)
consents to submit  itself to the  personal  jurisdiction  of any federal  court
located in the State of  Delaware or any  Delaware  state court in the event any
dispute arises out of this Agreement or any of the transactions  contemplated by
this  Agreement,  (b) agrees  that it will not  attempt  to deny or defeat  such
personal  jurisdiction  by motion or other request for leave from any such court
and (c) agrees that it will not bring any action  relating to this  Agreement or
any of the transactions contemplated by this Agreement in any court other than a
federal court sitting in the State of Delaware or a Delaware state court.

     Section 10.4 Headings. The headings and table of contents contained in this
Agreement are intended  solely for convenience of reference and will be given no
effect in the construction or interpretation of this Agreement.

     Section 10.5 Exhibits and Schedules.

            The Exhibits and  Schedules  referred to in this  Agreement  will be
deemed to be a part of this Agreement.

     Section 10.6 Certain Definitions.

            For purposes of this Agreement:

            "Acquisition  Proposal" means any bona fide proposal with respect to
a merger,  consolidation,  share exchange,  tender offer or similar  transaction
involving Tremont or any purchase or other acquisition of all or any significant
portion of the assets of or any equity interest in Tremont.

            An  "Affiliate"  of any Person means another Person that directly or
indirectly,  through one or more intermediaries,  controls, is controlled by, or
is under common control with, such first Person.

            "Governmental   Authority"   means  any  federal,   state  or  local
government or any court,  administrative  or regulatory  agency or commission or
other governmental  authority or agency,  domestic or foreign federal,  state or
local government or agency, domestic or foreign.

            "LLC Merger" means the merger of the Surviving  Corporation  and TGI
with and into a limited  liability  company ("Tremont LLC") all of the interests
in which are  wholly-owned  directly by Valhi,  with Tremont LLC  surviving  the
mergers,  provided that (i)  immediately  following such mergers  Tremont LLC is
treated as a disregarded entity pursuant to Treas. Reg. ss.  1.7701-3(b)(1)(ii),
and (ii) at such time,  Valhi has no plan or intention  to cause  Tremont LLC to
make an election  pursuant to Treas.  Reg. ss.  1.7701-3(c) or to take any other
action  which  would  result in Tremont LLC not being  treated as a  disregarded
entity.

            "NL SEC  Documents"  means all documents  required to be filed under
the Securities Act and the Exchange Act by NL Industries, Inc.

            "Person"  means an  individual,  corporation,  partnership,  limited
liability   company,   joint  venture,   associations,   trust,   unincorporated
organization or other entity.

            "TGI  Merger"  means the  merger of Valhi  Acquisition  Corp.  II, a
Delaware  corporation and a wholly-owned  subsidiary of Valhi, with and into TGI
pursuant  to the  Agreement  and Plan of Merger,  of even date  herewith,  among
Valhi, TGI and Valhi Acquisition Corp. II.

            "Valhi Subsidiaries" means NL Industries, Inc., CompX International,
Inc. and Waste Control Specialists LLC.

     Section 10.7 Governing Law.

            This Agreement will be governed by the laws of the State of Delaware
without regard to conflict of laws principles thereof.

     Section 10.8 Waivers.  Compliance with the provisions of this Agreement may
be waived only by means of a written instrument  specifically  referring to this
Agreement and signed by the party waiving compliance.  No course of dealing, nor
any failure or delay in exercising any right, will be construed as a waiver, and
no single or  partial  exercise  of a right will  preclude  any other or further
exercise of that or any other right.

     Section 10.9  Counterparts.  This  Agreement may be executed in one or more
counterparts,  all of which shall be considered  one and the same  agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.

     Section 10.10 Time Periods. Unless "business days" is specified, any action
required  hereunder  to be taken  within a certain  number of days will be taken
within that number of calendar days; provided, however, that if the last day for
taking such action falls on a weekend or a holiday, the period during which such
action may be taken will be automatically extended to the next business day.

     Section 10.11  Amendment.  Subject to compliance  with applicable Law, this
Agreement may be amended by the parties at any time before or after the approval
of Tremont's  stockholders;  provided,  however,  that after any such  approval,
there may not be, without further  approval of such the stockholders of Tremont,
any  amendment  of this  Agreement  that  changes  the amount or the form of the
consideration  to be delivered to the holders of Tremont Common Stock hereunder,
or which by Law  otherwise  expressly  requires  the  further  approval  of such
stockholders.  This  Agreement  may not be amended  except by an  instrument  in
writing signed on behalf of each of the parties hereto.

     Section  10.12 Entire  Agreement.  This  Agreement and the  agreements  and
documents referred to in this Agreement or delivered hereunder are the exclusive
statement  of the  agreement  among the parties  concerning  the subject  matter
hereof. All negotiations  among the parties are merged into this Agreement,  and
there  are  no  representations,   warranties,  covenants,   understandings,  or
agreements,  oral or otherwise, in relation thereto among the parties other than
those incorporated herein and to be delivered hereunder.

     Section 10.13  Severability.  If any one or more of the  provisions of this
Agreement shall be held to be invalid,  illegal or unenforceable,  the validity,
legality or enforceability  of the remaining  provisions of this Agreement shall
not be affected  thereby.  To the extent permitted by applicable Law, each party
waives  any  provision  of Law that  renders  any  provision  of this  Agreement
invalid, illegal or unenforceable in any respect.



<PAGE>


     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
signed by their  respective duly authorized  officers as of the date first above
written.

                                      VALHI, INC.



                             By:      /s/ Bobby D. O'Brien
                                      ----------------------------------------
                                      Bobby D. O'Brien
                                      Vice President, Chief Financial Officer
                                       and Treasurer

                                      VALHI ACQUISITION CORP.



                             By:      /s/ Bobby D. O'Brien
                                      ----------------------------------------
                                      Bobby D. O'Brien
                                      Vice President, Chief Financial Officer
                                       and Treasurer

                                      TREMONT CORPORATION



                             By:      /s/ Robert E. Musgraves
                                      ----------------------------------------
                                      Robert E. Musgraves
                                      Vice President, General Counsel
                                       and Secretary


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>4
<FILENAME>vqex102.txt
<TEXT>
                               AMENDMENT NO. 1 TO
                          AGREEMENT AND PLAN OF MERGER

     This  Amendment No. 1 to Agreement and Plan of Merger,  dated  November 12,
2002 (this  "Amendment"),  by and among  Valhi,  Inc.,  a  Delaware  corporation
("Valhi"),  Valhi  Acquisition  Corp.,  a  Delaware  corporation  and  a  direct
wholly-owned  subsidiary of Valhi ("Sub"), and Tremont  Corporation,  a Delaware
corporation ("Tremont"),  and will amend the Agreement and Plan of Merger, dated
as of November 4, 2002, among Valhi, Sub and Tremont (the "Merger Agreement").

     WHEREAS,  the  parties to the Merger  Agreement  desire to amend the Merger
Agreement to clarify their mutual intent relating thereto.

     NOW,  THEREFORE,  in  consideration  of the  foregoing,  the parties hereto
hereby agree as follows:

     1. The second  recital of the Merger  Agreement  is restated to read in its
entirety as follows:

          "WHEREAS,  it is intended that,  for Federal income tax purposes,  the
     Merger  followed by the LLC Merger (as defined  below)  shall be a tax-free
     reorganization  as  described  in the  Internal  Revenue  Code of 1986,  as
     amended  (the  "Code"),  with respect to the holders of common  stock,  par
     value $1.00 per share  ("Tremont  Common  Stock"),  of Tremont,  other than
     Valhi and Tremont Group, Inc., a Delaware corporation ("TGI")."

     2.  Section  2.1(a) of the  Merger  Agreement  is  restated  to read in its
entirety as follows:

          "(a) Cancellation of Treasury Stock and Valhi-Owned  Stock. Each share
     of Tremont  Common  Stock (i) that is owned by Valhi,  (ii) that is held by
     Tremont as  treasury  stock and (iii)  that is owned by TGI shall,  in each
     case,  automatically  be canceled and retired and shall cease to exist, and
     no consideration shall be delivered in exchange therefor."

     3. Section 3.15 of the Merger Agreement is restated to read in its entirety
as follows:

          "Section  3.15  Certain  Tax  Matters.  Neither  Valhi nor, to Valhi's
     knowledge,  any other  person,  has taken or agreed to take any action that
     could  reasonably  be expected  to prevent  the Merger  followed by the LLC
     Merger from  constituting  a  "reorganization"  under Section 368(a) of the
     Code with  respect to the holders of Tremont  Common Stock other than Valhi
     and TGI.  Valhi is not aware of any agreement,  plan or other  circumstance
     that could reasonably be expected to prevent such qualification."

     4. Section 5.14 of the Merger Agreement is restated to read in its entirety
as follows:

          "Section  5.14 Tax-Free  Transaction.  From and after the date of this
     Agreement, each party hereto shall use its reasonable commercial efforts to
     cause the Merger followed by the LLC Merger to qualify, and shall not take,
     or cause to be taken,  any  actions  that could  reasonably  be expected to
     prevent  the  Merger  followed  by the  LLC  Merger  from  qualifying  as a
     "reorganization"  under  Section  368(a)  of the Code with  respect  to the
     holders of Tremont Common Stock other than Valhi and TGI."

     5. The following Section 5.15 is added to the Merger Agreement:

          "Section 5.15 Other Transactions.  Valhi shall cause the TGI Merger to
     be  consummated  prior to the Effective Time and shall cause the LLC Merger
     to be consummated as soon as practicable after the Effective Time."

     6.  Section  6.2(g) of the  Merger  Agreement  is  restated  to read in its
entirety as follows:

          "(g) Tax Opinion.  Valhi and Sub shall have  received an executed copy
     of a tax opinion of Locke Liddell & Sapp LLP, Valhi's legal counsel, to the
     effect  that the  Merger  followed  by the LLC  Merger  will  constitute  a
     reorganization  within  the  meaning  of  Section  368(a)  of the Code with
     respect to the holders of Tremont Common Stock other than Valhi and TGI and
     a  complete  liquidation  of  Tremont  under  Section  332 of the Code with
     respect to Valhi."

     7.  Section  6.3(g) of the  Merger  Agreement  is  restated  to read in its
entirety as follows:

          "(g) Tax Opinion.  Tremont  shall have  received an executed copy of a
     tax opinion of Piper Rudnick LLP, legal counsel to the Special Committee of
     the Board of Directors of Tremont,  to the effect that the Merger  followed
     by the LLC Merger will  constitute a  reorganization  within the meaning of
     Section  368(a) of the Code with respect to  shareholders  of Tremont other
     than Valhi or TGI."

     8. The following Section 6.3(j) is added to the Merger Agreement:

          (j)  Closing  of the TGI  Merger.  The TGI Merger  shall  have  become
     effective.


     9. Capitalized  terms used herein and not otherwise  defined shall have the
meanings ascribed to such terms in the Merger Agreement.



<PAGE>


     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Amendment to be
signed by their  respective duly authorized  officers as of the date first above
written.

                                    VALHI, INC.


                              By:   /s/ Bobby D. O'Brien
                                    ----------------------------------------
                                    Bobby D. O'Brien
                                    Vice President, Chief Financial Officer and
                                     Treasurer

                                    VALHI ACQUISITION CORP.


                           By:      /s/ Bobby D. O'Brien
                                    ----------------------------------------
                                    Bobby D. O'Brien
                                    Vice President, Chief Financial Officer and
                                     Treasurer

                                    TREMONT CORPORATION


                           By:      /s/ Robert E. Musgraves
                                    -----------------------------------------
                                    Robert E. Musgraves
                                    Vice President, General Counsel and
                                     Secretary


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>5
<FILENAME>vqex103.txt
<TEXT>
                          AGREEMENT AND PLAN OF MERGER

     This Agreement and Plan of Merger, dated as of November 4, 2002, is entered
into by and among Valhi, Inc., a Delaware corporation ("Valhi"),  Tremont Group,
Inc., a Delaware corporation ("TGI"), and Valhi Acquisition Corp. II, a Delaware
corporation and a wholly-owned subsidiary of Valhi ("Sub").

     WHEREAS,  there are currently outstanding 5,141.421 shares of common stock,
par value $.01 per share ("TGI Common  Stock"),  of TGI,  4,113.421 of which are
owned by Valhi  and  1,028.000  of which  are owned by NL  Industries,  Inc.,  a
Delaware corporation ("NL"); and

     WHEREAS,  the board of  directors  of each of Valhi,  TGI and Sub deems the
Merger (as  defined  below) to be  desirable  and in the best  interests  of its
respective corporation and stockholders.

     NOW,  THEREFORE,  in  consideration  of the  foregoing  and  of the  mutual
agreements and covenants contained herein, the parties hereto agree as follows:

     1. The Merger.  Upon the terms and subject to the  conditions  set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL"),  Sub shall be merged with and into TGI (the  "Merger") at the Effective
Time (as defined below). TGI shall be the surviving  corporation (the "Surviving
Corporation") in the Merger. From and after the Effective Time, the identity and
separate  corporate  existence  of Sub shall cease and TGI shall  succeed to and
assume all the rights and obligations of Sub.

     2. The Effective  Time.  The parties shall file a certificate  of merger or
other appropriate documents (the "Certificate of Merger") executed in accordance
with the DGCL and shall make all other filings or recordings  required under the
DGCL. The Merger shall become  effective  upon the filing of the  Certificate of
Merger with the  Secretary of State of the State of  Delaware,  or at such later
time that TGI and Sub shall have agreed upon and  designated  in such filings in
accordance with applicable law (the time the Merger becomes  effective being the
"Effective Time").

     3.  Effects of the Merger.  The Merger  shall have the effects set forth in
the DGCL.

     4.   Certificate  of   Incorporation   and  Bylaws.   The   Certificate  of
Incorporation  of Sub, as in effect  immediately  prior to the  Effective  Time,
shall be the Certificate of  Incorporation of the Surviving  Corporation  except
that the name of the  corporation  specified  therein  shall be "Tremont  Group,
Inc.," until duly amended in accordance  with applicable law. The Bylaws of Sub,
as in effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving  Corporation  (the "Bylaws")  except that the name of the  corporation
specified  therein  shall be  "Tremont  Group,  Inc.,"  until  duly  amended  in
accordance with applicable law.

     5. Directors and Officers.  The directors of Sub  immediately  prior to the
Effective Time shall be the directors of the Surviving Corporation, each of whom
shall  serve in  accordance  with the DGCL and the Bylaws.  The  officers of Sub
immediately  prior to the Effective  Time shall be the officers of the Surviving
Corporation,  each  of  whom  shall  serve  until  the  earlier  of  his  or her
resignation  or  removal  or until  his or her  successor  is duly  elected  and
qualified, as the case may be.

     6. Conversion of Shares.  By virtue of the Merger and without any action on
the part of any holder of capital  stock of Valhi,  TGI or Sub, at the Effective
Time:

          (a) each share of TGI  Common  Stock that is owned by Valhi or is held
     by TGI as treasury  stock shall be  converted  into and become one share of
     common stock, par value $.01 per share, of the Surviving Corporation;

          (b) subject to Section 7, each share of TGI Common Stock that is owned
     by NL shall be converted into 3,400 shares (the "Merger  Shares") of common
     stock,  par value $.01 per share ("Valhi Common  Stock"),  of Valhi,  or an
     aggregate of 3,495,200 shares of Valhi Common Stock; and

          (c) each share of common stock,  par value $.01 per share ("Sub Common
     Stock"), of Sub shall automatically be canceled and retired and shall cease
     to exist, and no consideration shall be delivered in exchange therefore.

     7. Dissenting Shares. Notwithstanding anything to the contrary contained in
this  Agreement,  holders of TGI Common Stock with respect to which  dissenters'
rights,  if any,  are granted by reason of the Merger  under the DGCL and who do
not vote in favor of the Merger and  otherwise  comply  with  Section 262 of the
DGCL  ("Dissenting  Shares"),  shall not be entitled  to shares of Valhi  Common
Stock  pursuant to Section 6 hereof  unless and until the holder  thereof  shall
have failed to perfect or shall have effectively withdrawn or lost such holder's
right to  dissent  from the  Merger  under the DGCL,  and shall be  entitled  to
receive only the payment provided for by Section 262 of the DGCL. If such holder
shall have failed to perfect or shall have  effectively  withdrawn  or lost such
holder's dissenters' rights under the DGCL, such holders Dissenting Shares shall
thereupon  be deemed to  represent  shares of Valhi Common Stock as set forth in
Section 6 hereof.

     8.  Condition to the Merger.  In order for the Merger to be effective,  the
Merger shall have received the  requisite  approval of the holders of Sub Common
Stock and TGI Common Stock pursuant to the DGCL.

     9. Certain Understandings.

          (a) TGI has been advised and  understands  that the Merger Shares have
     not been and will not be registered  under the  Securities  Act of 1933, as
     amended, or any applicable state securities or "blue sky" laws.

          (b) Each  certificate  representing  the Merger  Shares shall bear the
     following legend:

               "THE  SECURITIES  REPRESENTED BY THIS  CERTIFICATE  HAVE NOT BEEN
               REGISTERED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED  (THE
               "ACT"),  OR THE  SECURITIES  LAWS  OF ANY  STATE  AND  MAY NOT BE
               TRANSFERRED,  SOLD, ASSIGNED, PLEDGED,  HYPOTHECATED OR OTHERWISE
               DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION  UNLESS VALHI HAS
               BEEN FURNISHED WITH AN OPINION OF COUNSEL REASONABLY SATISFACTORY
               TO VALHI,  TO THE EFFECT THAT SUCH  TRANSFER,  SALE,  ASSIGNMENT,
               PLEDGE,  HYPOTHECATION  OR  OTHER  DISPOSITION  MAY  BE  EFFECTED
               WITHOUT  REGISTRATION  UNDER THE ACT AND UNDER  APPLICABLE  STATE
               SECURITIES OR 'BLUE SKY' LAWS."

     10. Termination.  This Agreement may be terminated at any time prior to the
Effective Time,  whether before or after approval by the  stockholders of Sub or
TGI,  by the  mutual  written  consent  of Valhi,  Sub and TGI.  In the event of
termination  of this  Agreement  by the parties  hereto,  this  Agreement  shall
forthwith become void.

     11.  Amendment.  This Agreement may be amended by the parties hereto at any
time before or after approval hereof by the stockholders of TGI or Sub, provided
that after any such  approval  no  amendment  shall be made that (i) changes the
number of shares of TGI Common  Stock are to be  converted  into shares of Valhi
Common  Stock  pursuant  to  Section  6(b)  hereof,  (ii) in any way  materially
adversely  affects the rights of holders of shares of TGI Common  Stock or (iii)
changes any of the principal terms of this  Agreement,  in each case without the
further approval of such stockholders.  This Agreement may not be amended except
by an instrument in writing signed on behalf of each of the parties hereto.

     12. General Provisions

          (a) Further Assurances. From time to time, as and when required by the
     Surviving  Corporation  or by its  successors  or  assigns,  there shall be
     executed and delivered on behalf of Sub such  instruments,  and there shall
     be taken or cause to be taken by it all such  further  action,  as shall be
     appropriate,  advisable or necessary to vest, perfect or confirm, of record
     or otherwise,  in the Surviving  Corporation title to and possession of all
     property,  interests,  assets,  rights,  privileges,   immunities,  powers,
     franchises  and authority of Sub and otherwise to carry out the purposes of
     this Agreement, and the officers and directors of the Surviving Corporation
     are fully authorized in the name and on behalf of Sub or otherwise, to take
     any and all  such  action  and to  execute  and  deliver  any and all  such
     instruments.

          (b)  Counterparts.  This  Agreement  may be  executed  in one or  more
     counterparts,  all of which shall be considered  one and the same Agreement
     and shall become effective when one or more  counterparts  have been signed
     by each of the parties and delivered to the other parties.

          (c) Entire Agreement; No Third-Party Beneficiaries. This Agreement and
     the other agreements entered into in connection herewith (i) constitute the
     entire  Agreement and supersedes all prior  agreements and  understandings,
     both written and oral, among the parties with respect to the subject matter
     of this Agreement and (ii) are not intended to confer upon any Person other
     than the parties hereto any rights or remedies.

          (d) Governing Law. This Agreement  shall be governed by, and construed
     in accordance  with,  the laws of the State of Delaware,  regardless of the
     laws that might otherwise govern under applicable principles of conflict of
     laws thereof.

          (e)  Assignment.  Neither  this  Agreement  nor  any  of  the  rights,
     interests  or  obligations  under  this  Agreement  shall  be  assigned  or
     delegated,  in whole or in part, by operation of law or otherwise by any of
     the parties without the prior written consent of the other parties. Subject
     to the preceding  sentence,  this Agreement will be binding upon,  inure to
     the benefit  of, and be  enforceable  by, the parties and their  respective
     successors and assigns.



<PAGE>


     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
signed by their respective  officers  thereunto duly  authorized,  all as of the
date first written above.

                                   VALHI, INC.



                          By:      /s/ Bobby D. O'Brien
                                   ------------------------------------------
                                   Bobby D. O'Brien
                                   Vice President, Chief Financial Officer
                                    and Treasurer

                                   VALHI ACQUISITION CORP. II



                          By:      /s/ Bobby D. O'Brien
                                   ---------------------------------------
                                   Bobby D. O'Brien
                                   Vice President, Chief Financial Officer
                                    and Treasurer

                                  TREMONT GROUP, INC.



                        By:       /s/ Steven L. Watson
                                  ------------------------------------------
                                  Steven L. Watson
                                  President



</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.4
<SEQUENCE>6
<FILENAME>vqex104.txt
<TEXT>
                        INTERCORPORATE SERVICES AGREEMENT


     This INTERCORPORATE  SERVICES AGREEMENT (the "Agreement"),  effective as of
January 1, 2002,  amends and  supersedes  that certain  Intercorporate  Services
Agreement effective as of January 1, 2001 by and between CONTRAN CORPORATION,  a
Delaware  corporation  ("Contran"),  and VALHI,  INC.,  a  Delaware  corporation
("Recipient").

                                    Recitals

     A. Without  direct  compensation  from  Recipient,  employees and agents of
Contran  and  affiliates  of  Contran  perform  (i)  management,  financial  and
administrative  functions  for  Recipient  and (ii) pilot  services and aircraft
management  functions  with  respect  to  certain  aircraft  owned or  leased by
Recipient.

     B. Recipient does not separately  maintain the full internal  capability to
perform all necessary  management,  financial and administrative  functions that
Recipient requires.

     C. The cost of maintaining the additional  personnel by Recipient necessary
to perform the functions provided for by this Agreement would exceed the fee set
forth in Section 3 of this  Agreement,  and the terms of this  Agreement  are no
less favorable to Recipient than could  otherwise be obtained from a third party
for comparable services.

     D. Recipient desires to continue  receiving the services presently provided
by Contran  and  affiliates  of Contran  and  Contran is willing to  continue to
provide such services under the terms of this Agreement.

                                    Agreement

     For  and in  consideration  of the  mutual  premises,  representations  and
covenants herein contained, the parties hereto mutually agree as follows:

     Section 1.  Services to be Provided.  Contran  agrees to make  available to
Recipient,  upon request, the following services (the "Services") to be rendered
by the internal staff of Contran and affiliates of Contran:

          (a) Consultation and assistance in the development and  implementation
     of Recipient's corporate business strategies, plans and objectives;

          (b) Consultation and assistance in management and conduct of corporate
     affairs and corporate governance  consistent with the charter and bylaws of
     Recipient;

          (c)  Consultation  and assistance in maintenance of financial  records
     and  controls,  including  preparation  and  review of  periodic  financial
     statements and reports to be filed with public and regulatory  entities and
     those  required to be prepared for  financial  institutions  or pursuant to
     indentures and credit agreements;

          (d)  Consultation  and assistance in cash  management and in arranging
     financing necessary to implement the business plans of Recipient;

          (e) Consultation and assistance in tax management and  administration,
     including,  without limitation,  preparation and filing of tax returns, tax
     reporting, examinations by government authorities and tax planning;

          (f) Consultation and assistance with respect to employee benefit plans
     and incentive compensation arrangements;

          (g) Pilot services and aircraft  management  functions with respect to
     aircraft owned or leased by Recipient;

          (h) Certain  administration  and  management  services with respect to
     Recipient's  insurance  and  risk  management  needs,  including,   without
     limitations, administration of Recipient's:

               (i) property and casualty insurance program,

               (ii) claims management program,

               (iii) property loss control program, and

          (i) Such other  services as may be requested by Recipient from time to
     time.

     This Agreement  does not apply to, and the Services  provided for herein do
not include, any services that Harold C. Simmons,  Glenn R. Simmons or Steven L.
Watson may provide to Recipient in their roles as members of  Recipient's  board
of directors or any other activity related to such board of directors.

     Section 2. Miscellaneous  Services.  It is the intent of the parties hereto
that Contran provide only the Services requested by Recipient in connection with
routine  functions  related to the ongoing  operations of Recipient and not with
respect to special projects,  including corporate investments,  acquisitions and
divestitures.  The parties  hereto  contemplate  that the  Services  rendered in
connection with the conduct of Recipient's  business will be on a scale compared
to that existing on the effective date of this Agreement,  adjusted for internal
corporate  growth or contraction,  but not for major  corporate  acquisitions or
divestitures,  and  that  adjustments  may be  required  to the  terms  of  this
Agreement in the event of such major  corporate  acquisitions,  divestitures  or
special  projects.  Recipient will continue to bear all other costs required for
outside  services  including,  but not  limited  to,  the  outside  services  of
attorneys, auditors, trustees, consultants,  transfer agents and registrars, and
it is expressly understood that Contran assumes no liability for any expenses or
services  other than those  stated in Section 1. In  addition to the fee paid to
Contran by  Recipient  for the  Services  provided  pursuant to this  Agreement,
Recipient  will pay to Contran  the amount of  out-of-pocket  costs  incurred by
Contran in rendering such Services.

     Section 3. Fee for Services.  Recipient agrees to pay to Contran $1,044,750
quarterly on the first business day of each quarter, commencing as of January 1,
2002, pursuant to this Agreement.

     Section 4. Original  Term.  Subject to the  provisions of Section 5 hereof,
the original  term of this  Agreement  shall be from January 1, 2002 to December
31, 2002.

     Section  5.   Extensions.   This   Agreement   shall  be   extended   on  a
quarter-to-quarter  basis  after the  expiration  of its  original  term  unless
written  notification  is given by  Contran  or  Recipient  thirty  (30) days in
advance of the first day of each  successive  quarter or unless it is superseded
by a subsequent written agreement of the parties hereto.

     Section 6.  Limitation of Liability.  In providing its Services  hereunder,
Contran  shall  have a duty  to act,  and to  cause  its  agents  to  act,  in a
reasonably  prudent  manner,  but  neither  Contran nor any  officer,  director,
employee or agent of Contran or its affiliates  shall be liable to Recipient for
any error of judgment or mistake of law or for any loss incurred by Recipient in
connection  with the  matter  to which  this  Agreement  relates,  except a loss
resulting from willful misfeasance, bad faith or gross negligence on the part of
Contran.

     Section  7.  Indemnification  of  Contran  by  Recipient.  Recipient  shall
indemnify  and hold  harmless  Contran,  its  affiliates  and  their  respective
officers,  directors  and  employees  from  and  against  any  and  all  losses,
liabilities,  claims, damages, costs and expenses (including attorneys' fees and
other  expenses of  litigation)  to which  Contran or any such person may become
subject  arising  out of the  Services  provided  by  Contran  to the  Recipient
hereunder, provided that such indemnity shall not protect any person against any
liability to which such person  would  otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence on the part of such person.

     Section 8. Confidentiality. Except as otherwise required by applicable law,
each of the parties agrees that it will maintain in confidence all  confidential
information  regarding  the  other  party  supplied  to it in the  course of the
performance of this Agreement.

     Section 9.  Further  Assurances.  Each of the parties  will make,  execute,
acknowledge and deliver such other instruments and documents,  and take all such
other actions,  as the other party may reasonably  request and as may reasonably
be required in order to effectuate  the purposes of this  Agreement and to carry
out the terms hereof.

     Section 10. Notices.  All communications  hereunder shall be in writing and
shall be addressed,  if intended for Contran,  to Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240,  Attention:  Chairman of the Board, or
such other  address as it shall have  furnished to Recipient in writing,  and if
intended for Recipient,  to Three Lincoln Centre, 5430 LBJ Freeway,  Suite 1700,
Dallas, Texas 75240, Attention: President or such other address as it shall have
furnished to Contran in writing.

     Section 11. Amendment and Modification. Neither this Agreement nor any term
hereof may be changed, waived,  discharged or terminated other than by agreement
in writing signed by the parties hereto.

     Section 12. Successor and Assigns. This Agreement shall be binding upon and
inure to the benefit of Contran and  Recipient and their  respective  successors
and  assigns,  except  that  neither  party may  assign  its  rights  under this
Agreement without the prior written consent of the other party.

     Section  13.  Governing  Law.  This  Agreement  shall be  governed  by, and
construed and interpreted in accordance with, the laws of the state of Texas.

     IN WITNESS  WHEREOF,  the parties  hereto have caused this  Agreement to be
duly executed and delivered as of the date first above written.


                                    CONTRAN CORPORATION




                                    By:
                                       ------------------------------------
                                       Steven L. Watson, President


                                   VALHI, INC.




                                   By:
                                      -------------------------------------
                                      Bobby D. O'Brien, Vice President


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.1
<SEQUENCE>7
<FILENAME>vqex991.txt
<TEXT>


                                                                   Exhibit 99.1


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly  Report of Valhi,  Inc. (the "Company") on Form
10-Q for the period ended  September 30, 2002 as filed with the  Securities  and
Exchange  Commission  on the date hereof (the  "Report"),  I, Steven L.  Watson,
President and Chief Executive  Officer of the Company,  certify,  pursuant to 18
U.S.C.  Section 1350, as adopted  pursuant to Section 906 of the  Sarbanes-Oxley
Act of 2002, that:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.



/s/  Steven L. Watson
- -------------------------------------
Steven L. Watson
President and Chief Executive Officer
November 14, 2002




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-99.2
<SEQUENCE>8
<FILENAME>vqex992.txt
<TEXT>

                                                                   Exhibit 99.2



                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly  Report of Valhi,  Inc. (the "Company") on Form
10-Q for the period ended  September 30, 2002 as filed with the  Securities  and
Exchange Commission on the date hereof (the "Report"), I, Bobby D. O'Brien, Vice
President,  Chief  Financial  Officer and  Treasurer  of the  Company,  certify,
pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:

     (1) The Report fully  complies  with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Company.



/s/  Bobby D. O'Brien
- -----------------------------------------
Bobby D. O'Brien
Vice President, Chief Financial Officer and Treasurer
November 14, 2002




</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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