SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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[ ] Soliciting Materials Pursuant to Section 240.14a-11(c) or Section
240.14a-12
NL Industries, Inc.
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(Name of Registrant as Specified in Its Charter)
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[LOGO GOES HERE] NL INDUSTRIES, INC.
THREE LINCOLN CENTRE
5430 LBJ FREEWAY
SUITE 1700
DALLAS, TEXAS 75240-2697
April 18, 2005
To our Shareholders:
You are cordially invited to attend the 2005 Annual Meeting of Shareholders
of NL Industries, Inc., which will be held on Thursday, May 19, 2005, at 10:00
a.m., local time, at NL's corporate offices at Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas. The matters to be acted upon at the meeting
are described in the attached Notice of Annual Meeting of Shareholders and Proxy
Statement.
Whether or not you plan to attend the meeting, please complete, date, sign
and return the enclosed proxy card or voting instruction form in the
accompanying envelope as promptly as possible to ensure that your shares are
represented and voted in accordance with your wishes. Your vote, whether given
by proxy or in person at the meeting, will be held in confidence by the
inspector of election as provided in NL's by-laws.
Sincerely,
/s/ Harold C. Simmons
Harold C. Simmons
Chairman of the Board and
Chief Executive Officer
NL INDUSTRIES, INC.
THREE LINCOLN CENTRE
5430 LBJ FREEWAY, SUITE 1700
DALLAS, TEXAS 75240-2697
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 19, 2005
To the Shareholders of NL Industries, Inc.:
NOTICE IS HEREBY GIVEN that the 2005 Annual Meeting of Shareholders (the
"Meeting") of NL Industries, Inc., a New Jersey corporation ("NL"), will be held
on Thursday, May 19, 2005, at 10:00 a.m., local time, at NL's corporate offices
at Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas for the
following purposes:
(1) To elect six directors to serve until the 2006 Annual Meeting of
Shareholders; and
(2) To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
The close of business on March 28, 2005 has been set as the record date
(the "Record Date") for the Meeting. Only holders of NL's common stock, par
value $0.125 per share, at the close of business on the Record Date are entitled
to notice of, and to vote at, the Meeting. NL's stock transfer books will not be
closed following the Record Date. A complete list of shareholders entitled to
vote at the Meeting will be available for examination during normal business
hours by any shareholder of NL, for purposes related to the Meeting, for a
period of ten days prior to the Meeting at the place where NL will hold the
Meeting.
You are cordially invited to attend the Meeting. Whether or not you plan to
attend the Meeting, please complete, date and sign the accompanying proxy card
or voting instruction form and return it promptly in the enclosed envelope. If
you choose, you may still vote in person at the Meeting even though you
previously submitted your proxy.
By Order of the Board of Directors,
/s/ Robert D. Graham
Robert D. Graham
Vice President, General Counsel and Secretary
Dallas, Texas
April 18, 2005
NL INDUSTRIES, INC.
THREE LINCOLN CENTRE
5430 LBJ FREEWAY, SUITE 1700
DALLAS, TEXAS 75240-2697
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PROXY STATEMENT
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GENERAL INFORMATION
This proxy statement and the accompanying proxy card or voting instruction
form are being furnished in connection with the solicitation of proxies by and
on behalf of the board of directors (the "Board of Directors") of NL Industries,
Inc., a New Jersey corporation ("NL"), for use at the 2005 Annual Meeting of
Shareholders of NL to be held on Thursday, May 19, 2005 and at any adjournment
or postponement thereof (the "Meeting"). The accompanying Notice of Annual
Meeting of Shareholders (the "Notice") sets forth the time, place and purposes
of the Meeting. The Notice, this proxy statement, the accompanying proxy card or
voting instruction form and NL's Annual Report to Shareholders, which includes
NL's Annual Report on Form 10-K for the fiscal year ended December 31, 2004, are
first being mailed to the holders of NL's common stock, par value $0.125 per
share ("Common Stock"), on or about April 18, 2005. NL's principal executive
offices are located at Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700,
Dallas, Texas 75240-2697.
QUORUM, VOTING RIGHTS AND PROXY SOLICITATION
The record date set by the Board of Directors for the determination of
shareholders entitled to notice of and to vote at the Meeting was the close of
business on March 28, 2005 (the "Record Date"). Only holders of shares of Common
Stock as of the close of business on the Record Date are entitled to vote at the
Meeting. As of the Record Date, there were 48,547,134 shares of Common Stock
issued and outstanding. Each share of Common Stock entitles its holder to one
vote on all matters to be acted on at the Meeting. The presence, in person or by
proxy, of the holders of a majority of the shares of Common Stock entitled to
vote at the Meeting is necessary to constitute a quorum for the conduct of
business at the Meeting. Under applicable rules of the New York Stock Exchange
(the "NYSE") and Securities and Exchange Commission (the "SEC"), brokers or
other nominees holding shares of record on behalf of a client who is the actual
beneficial owner of such shares are authorized to vote on certain routine
matters without receiving instructions from the beneficial owner of the shares.
If a broker/nominee who is entitled to vote on a routine matter does not vote
such shares, such shares are referred to herein as "broker/nominee non-votes."
Shares of Common Stock that are voted to abstain from any business coming before
the Meeting and broker/nominee non-votes will be counted as being in attendance
at the Meeting for purposes of determining whether a quorum is present.
If a quorum is present, a plurality of the affirmative votes of the
outstanding shares of Common Stock represented and entitled to be voted at the
Meeting, is necessary to elect each director of NL. The accompanying proxy card
or voting instruction form provides space for a shareholder to withhold
authority to vote for any or all of the nominees to the Board of Directors.
Neither shares as to which the authority to vote on the election of directors
has been withheld nor broker/nominee non-votes will be counted as affirmative
votes to elect director nominees to the Board of Directors. However, since
director nominees need only receive the vote of a plurality of the shares
represented and entitled to vote at the Meeting, a vote withheld from a
particular nominee will not affect the election of such nominee.
Except as NL's amended and restated certificate of incorporation and
applicable laws may otherwise provide, if a quorum is present, the approval of
any other matter that may properly come before the Meeting will require the
affirmative vote of a majority of the shares represented and entitled to vote at
the Meeting. Shares of Common Stock that are voted to abstain from any other
business coming before the Meeting and broker/nominee non-votes will not be
counted as votes for or against any such other matter.
Unless otherwise specified, the agents designated in the proxy card or
voting instruction form will vote the shares represented by a proxy at the
Meeting "FOR" the election of the director nominees to the Board of Directors
and, to the extent allowed by applicable law, in the discretion of the agents on
any other matter that may properly come before the Meeting.
EquiServe Trust Company N.A. ("EquiServe"), the transfer agent and
registrar for the Common Stock as of the Record Date, has been appointed by the
Board of Directors to receive proxies and ballots, ascertain the number of
shares represented, tabulate the vote and serve as inspector of election for the
Meeting. All proxy cards, ballots or voting instructions delivered to EquiServe
shall be kept confidential in accordance with NL's by-laws. Each holder of
record of Common Stock executing and delivering the proxy card enclosed with
this proxy statement may revoke it at any time prior to the voting at the
Meeting by delivering to EquiServe a written revocation of the proxy, a duly
executed proxy card bearing a later date or by voting in person at the Meeting.
Attendance by a shareholder at the Meeting will not in itself constitute the
revocation of such shareholder's proxy.
The Board of Directors is making this proxy solicitation. NL will pay all
expenses related to the solicitation, including charges for preparing, printing,
assembling and distributing all materials delivered to shareholders. In addition
to the solicitation by mail, directors, officers and regular employees of NL may
solicit proxies by telephone or in person, for which such persons will receive
no additional compensation. NL has retained The Altman Group, Inc. to aid in the
distribution of this proxy statement and related materials at an estimated cost
of $1,000. Upon request, NL will reimburse banking institutions, brokerage
firms, custodians, trustees, nominees and fiduciaries for their reasonable
out-of-pocket expenses incurred in distributing proxy materials and voting
instructions to the beneficial owners of Common Stock that such entities hold of
record.
CONTROLLED COMPANY
Valhi, Inc. ("Valhi") is the direct holder of 83.1% of the outstanding
shares of Common Stock. Contran Corporation ("Contran") holds, directly or
through subsidiaries, 90.8% of the outstanding shares of Valhi common stock, par
value $0.01 per share ("Valhi Common Stock").
Valhi has indicated its intention to have its shares of Common Stock
represented at the Meeting and voted "FOR" the election of each of the director
nominees to the Board of Directors. If Valhi attends the Meeting in person or by
proxy and votes as indicated, the Meeting will have a quorum present and the
shareholders will elect all the nominees to the Board of Directors.
Because of the Common Stock ownership by Valhi, NL is considered a
controlled company under the listing standards of the NYSE. Pursuant to the
listing standards, a controlled company may choose not to have a majority of
independent directors, independent compensation, nominating or corporate
governance committees or charters for these committees. NL has chosen not to
have a majority of independent directors or an independent nominating or
corporate governance committee. The Board of Directors believes that the full
Board of Directors best represents the interests of all of NL's shareholders and
that it is appropriate for all matters that would be considered by a nominating
or corporate governance committee to be considered and acted upon by the full
Board of Directors. Applying the NYSE director independence standards, the Board
of Directors has determined that three of its directors are independent and have
no material relationship with NL. While the members of NL's management
development and compensation committee (the "MD&C Committee") currently satisfy
the independence requirements of the NYSE, NL has chosen not to satisfy all of
the NYSE listing standards for a compensation committee. See "Meetings and
Committees of the Board of Directors" for more information on the committees of
the Board of Directors. See also "Shareholder Proposals and Director Nominations
for the 2006 Annual Meeting" for a description of NL's policies and procedures
for shareholder nominations of directors.
ELECTION OF DIRECTORS
NL's amended and restated certificate of incorporation provides that the
Board of Directors shall consist of not less than seven nor more than 17 members
as determined by the Board of Directors or the shareholders. The Board of
Directors has currently set the number of directors at seven. The directors
elected at the Meeting will hold office until the 2006 Annual Meeting of
Shareholders and until their successors are duly elected and qualified or their
earlier removal, resignation or death.
-2-
All of the nominees are currently directors of NL whose terms will expire
at the Meeting. All of the nominees have agreed to serve if elected. If any
nominee is not available for election at the Meeting, all shares represented by
a proxy will be voted "FOR" an alternate nominee to be selected by the Board of
Directors, unless the shareholder executing such proxy withholds authority to
vote for such nominee. The Board of Directors believes that all of its nominees
will be available for election at the Meeting and will serve if elected. There
is currently a vacancy in one directorship on the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
FOLLOWING NOMINEES FOR DIRECTOR.
Nominees for Director. The respective nominees for election as directors of
NL for terms expiring at the 2006 Annual Meeting of Shareholders have provided
the following information.
Cecil H. Moore, Jr., age 65, has been a director of NL since 2003. Mr.
Moore is currently a private investor and retired from KPMG LLP in 2000 after 37
years in which he served in various capacities with the firm. Among other
positions, he served as managing partner of the firm's Dallas, Texas business
unit from 1990 to 1999. Prior to 1990, Mr. Moore was partner-in-charge of the
audit and accounting practice of the firm's Dallas, Texas business unit for 12
years. He is a member of NL's audit committee and on the board of directors and
chairman of the audit committee of Kronos Worldwide, Inc., an international
manufacturer of titanium dioxide pigments that is related to Valhi ("Kronos
Worldwide"). Mr. Moore is also a director and chairman of the audit committee of
Perot Systems Corporation, a worldwide provider of information technology
services and business solutions.
Glenn R. Simmons, age 77, has been a director of NL since 1986. Mr. Simmons
has been vice chairman of the board of Valhi and Contran since prior to 2000.
Mr. Simmons is chairman of the board of Keystone Consolidated Industries, Inc.,
a steel fabricated wire products, industrial wire and carbon steel rod company
that is related to Contran ("Keystone"), and CompX International, Inc., a
subsidiary of NL that is a manufacturer of precision ball bearing slides,
security products and ergonomic computer support systems ("CompX"). Mr. Simmons
is also a director of Kronos Worldwide and Titanium Metals Corporation, an
integrated producer of titanium metals products that is related to Valhi
("TIMET"). In February 2004, Keystone filed a voluntary petition for
reorganization under federal bankruptcy laws. Mr. Simmons has been an executive
officer or director of various companies related to Valhi and Contran since
1969. He is a brother of Harold C. Simmons.
Harold C. Simmons, age 73, has served as chief executive officer of NL
since 2003, chairman of the board of NL since 1987 and as a director of NL since
1986. Mr. Simmons has served as chairman of the board and chief executive
officer of Kronos Worldwide since 2003. He also has served as vice chairman of
the board of TIMET since August 2004. Mr. Simmons has been chairman of the board
of Valhi and Contran since prior to 2000 and was chief executive officer of
Valhi from prior to 2000 to 2002. Mr. Simmons has been an executive officer or
director of various companies related to Valhi and Contran since 1961. Mr.
Simmons is a brother of Glenn R. Simmons.
General Thomas P. Stafford (retired), age 74, served as a director of NL
from 1984 to 1986 and was re-appointed in 2000. Gen. Stafford was a co-founder
of, and has been affiliated with, Stafford, Burke and Hecker, Inc., a
Washington-based consulting firm, since 1982. He was selected as an astronaut in
1962, piloted Gemini VI in 1965 and commanded Gemini IX in 1966. In 1969, Gen.
Stafford was named Chief of the Astronaut Office and was the Apollo X commander
for the first lunar module flight to the moon. He commanded the Apollo-Soyuz
joint mission with the Soviet cosmonauts in 1975. After his retirement from the
United States Air Force in 1979 as Lieutenant General, he became chairman of
Gibraltar Exploration Limited, an oil and gas exploration and production
company, and served in that position until 1984, when he joined General
Technical Services, Inc., a consulting firm. He is chairman of NL's audit
committee and MD&C Committee.
Steven L. Watson, age 54, has served as a director of NL since 2000. Mr.
Watson has served as vice chairman of the board of Kronos Worldwide since
October 2004 and a director of Kronos Worldwide since 2003. Mr. Watson has been
president and a director of Valhi and Contran since 1998 and chief executive
officer of Valhi since 2002. Mr. Watson is also a director of CompX, Keystone
and TIMET. Mr. Watson has served as an executive officer or director of various
companies related to Valhi and Contran since 1980.
-3-
Terry N. Worrell, age 60, has served as a director of NL since 2003. Mr.
Worrell has been a private investor with Worrell Investments, Inc., a real
estate investment company, since 1989. From 1974 to 1989, Mr. Worrell was
president and chief executive officer of Sound Warehouse of Dallas Inc., a chain
of retail music stores. Mr. Worrell also serves on NL's audit committee and MD&C
Committee. Mr. Worrell is a director of Regency Centers Corporation and a trust
manager of Crescent Real Estate Equities Company, both real estate investment
trusts.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held five meetings and took action by written
consent on two occasions in 2004. Each director participated in at least 75% of
such meetings and of the meetings of the committees on which he served at the
time. It is expected that each director will attend NL's annual meetings of
shareholders, which are held immediately before the annual meetings of the Board
of Directors. All members of the Board of Directors attended NL's 2004 annual
shareholder meeting.
The Board of Directors has established and delegated authority to the
following two standing committees.
Audit Committee. The audit committee assists with the Board of
Directors' oversight responsibilities relating to the financial accounting
and reporting processes and auditing processes of NL. The responsibilities
of the audit committee are more specifically set forth in the audit
committee charter, a copy of which is available under the corporate
governance section of NL's website, www.nl-ind.com. Applying the
requirements of the NYSE listing standards and SEC regulations, as
applicable, the Board of Directors has determined that
o each member of the audit committee is independent, financially
literate and has no material relationship with NL; and
o Mr. Cecil H. Moore, Jr. is an "audit committee financial expert."
No member of the audit committee serves on more than three public company
audit committees. For further information on the role of the audit
committee, see "Audit Committee Report." The current members of the audit
committee are Thomas P. Stafford (chairman), Cecil H. Moore, Jr. and Terry
N. Worrell. The audit committee held eight meetings and took action by
written consent on one occasion in 2004.
Management Development and Compensation Committee. The principal
responsibilities of the MD&C Committee are to recommend to the Board of
Directors whether or not to approve any proposed charge to NL or its
subsidiaries pursuant to an intercorporate services agreement with a
related party; to take action or to review and approve certain matters
regarding NL's employee benefit plans or programs; to administer and grant
awards under NL's equity compensation plans; and to review and administer
such other compensation matters as the Board of Directors may direct from
time to time. The Board of Directors has determined that each member of the
MD&C Committee is independent by applying the NYSE director independence
standards. For further information on the role of the MD&C Committee, see
"Executive Compensation Report." The current members of the MD&C Committee
are Thomas P. Stafford (chairman) and Terry N. Worrell. The MD&C Committee
held one meeting and took action by written consent on two occasions in
2004.
The Board of Directors is expected to elect the members of the standing
committees at the Board of Directors annual meeting immediately following the
Meeting. The Board of Directors has previously established, and from time to
time may establish, other committees to assist it in the discharge of its
responsibilities.
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EXECUTIVE OFFICERS
Set forth below is certain information relating to the executive officers
of NL. Each executive officer serves at the pleasure of the Board of Directors.
Biographical information with respect to Harold C. Simmons is set forth under
"Election of Directors--Nominees for Director."
Name Age Position(s)
----------------------------- --- --------------------------------------------------
Harold C. Simmons............ 73 Chairman of the Board and Chief Executive Officer
James W. Brown............... 48 Vice President and Controller
Robert D. Graham............. 49 Vice President, General Counsel and Secretary
Kelly D. Luttmer............. 41 Vice President and Tax Director
John A. St. Wrba............. 48 Vice President and Treasurer
Gregory M. Swalwell.......... 48 Vice President, Finance and Chief Financial Officer
James W. Brown has served as vice president and controller of NL and Kronos
Worldwide since 2003. From 1998 to 2002, he served as vice president and chief
financial officer of Software Spectrum, Inc., a global business-to-business
software services provider that is currently a wholly owned subsidiary of Level
3 Communications, but from 1991 to 2002 was a publicly traded corporation
("SSI"). From 1994 to 1998, Mr. Brown served as vice president, corporate
accounting of Affiliated Computer Services, Inc., a provider of business process
and information technology outsourcing solutions.
Robert D. Graham has served as vice president, general counsel and
secretary of NL and Kronos Worldwide since 2003 and vice president of Valhi and
Contran since 2002. From 1997 to 2002, Mr. Graham served as an executive
officer, and most recently as executive vice president and general counsel, of
SSI. From 1985 to 1997, Mr. Graham was a partner in the law firm of Locke
Purnell Rain Harrell (A Professional Corporation), a predecessor to Locke
Liddell & Sapp LLP.
Kelly D. Luttmer has served as vice president of NL, CompX, Contran, Kronos
Worldwide and Valhi since October 2004, tax director of Kronos Worldwide and NL
since 2003 and tax director of CompX, Valhi and Contran since 1998. Ms. Luttmer
has served in tax accounting positions with various companies related to Valhi
and Contran since 1989.
John A. St. Wrba has served as vice president and treasurer of NL since
2003, Valhi since February 2005 and Contran since October 2004. He has also
served as vice president of Kronos Worldwide since May 2004 and treasurer of
Kronos Worldwide since 2003. He was NL's assistant treasurer from 2002 to 2003
and from prior to 1998 until 2000. From 2000 until 2002, he was assistant
treasurer of Kaiser Aluminum & Chemical Corporation, a leading producer of
fabricated aluminum products.
Gregory M. Swalwell has served as chief financial officer of NL and Kronos
Worldwide since May 2004, vice president, finance of Kronos Worldwide and NL
since 2003 and vice president and controller of Valhi and Contran since prior to
2000. Mr. Swalwell has served in accounting and financial positions with various
companies related to Valhi and Contran since 1988.
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SECURITY OWNERSHIP
Ownership of NL. The following table and footnotes set forth as of the
Record Date the beneficial ownership, as defined by regulations of the SEC, of
Common Stock held by each individual, entity or group known to NL to own
beneficially more than 5% of the outstanding shares of Common Stock, each
director, each executive officer named in the summary compensation table in this
proxy statement (a "named executive officer") and all directors and executive
officers as a group. See footnote (4) below for information concerning the
relationships of certain individuals and entities that may be deemed to own
indirectly and beneficially more than 5% of the outstanding shares of Common
Stock. All information is taken from or based upon ownership filings made by
such individuals or entities with the SEC or upon information provided by such
individuals or entities.
NL Common Stock
------------------------------------------------------
Amount and Nature Percent
Name of Beneficial Owner of Beneficial Ownership (1) of Class (2)
------------------------------------ ------------------------------ -----------------
Harold C. Simmons (3).................... 30,800 (4)(5) *
Valhi, Inc. (3)........................ 40,350,931 (4) 83.1%
TIMET Finance Management Company (3)... 222,100 (4) *
Annette C. Simmons (3)................. 69,475 (4) *
---------------
40,673,306 (4)(5) 83.8%
Cecil H. Moore, Jr....................... -0- -0-
Glenn R. Simmons......................... 8,000 (4)(5) *
Thomas P. Stafford....................... 5,000 *
Steven L. Watson......................... 12,000 (4)(5) *
Terry N. Worrell......................... 1,000 *
Robert D. Graham......................... -0- (4) -0-
Gregory M. Swalwell...................... -0- (4) -0-
Kelly D. Luttmer......................... -0- (4) -0-
James W. Brown........................... -0- (4) -0-
All directors and
executive officers
as a group (11 persons)................. 40,699,306 (4)(5) 83.8%
--------------------
* Less than 1%.
(1) Except as otherwise noted, the listed entities, individuals or group have
sole investment power and sole voting power as to all shares set forth
opposite their names. The number of shares and percentage of ownership for
each entity, individual or group assumes the exercise by such entity,
individual or group (exclusive of others) of stock options that such
entity, individual or group may exercise within 60 days subsequent to the
Record Date.
(2) The percentages are based on 48,547,134 shares of Common Stock outstanding
as of the Record Date.
(3) The business address of Valhi and Harold C. and Annette C. Simmons is Three
Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697. The
business address of TIMET Finance Management Company ("TFMC") is 300
Delaware Avenue, Suite 900, Wilmington, Delaware 19801.
(4) TIMET is the direct holder of 100% of the outstanding shares of common
stock of TFMC. Tremont LLC ("Tremont"), Annette C. Simmons, The Combined
Master Retirement Trust (the "CMRT") and Valhi are the holders of
approximately 39.5%, 14.3%, 12.0% and 2.4% of the outstanding shares of
TIMET common stock, par value $0.01 per share ("TIMET Common Stock"). Valhi
is the sole member of Tremont. The ownership of Ms. Simmons is based on the
1,600,000 shares of TIMET's 6 3/4% Series A Convertible Preferred Stock,
par value $0.01 per share (the "TIMET Series A Preferred Stock"), that she
directly owns, which are convertible into 2,666,666 shares of TIMET Common
Stock. The ownership of Valhi includes 24,500 shares of TIMET Common Stock
that Valhi has the right to acquire upon conversion of 14,700 shares of
TIMET Series A Preferred Stock that Valhi directly holds. The percentage
ownership of TIMET Common Stock held by each of Ms. Simmons and Valhi
assumes the full conversion of only the shares of TIMET Series A Preferred
Stock she or Valhi owns, respectively.
-6-
Valhi Group, Inc. ("VGI"), National City Lines, Inc. ("National"), Contran,
the Harold Simmons Foundation, Inc. (the "Foundation"), the Contran
Deferred Compensation Trust No. 2 (the "CDCT No. 2") and the CMRT are the
direct holders of approximately 77.6%, 9.1%, 3.7%, 0.9%, 0.4% and 0.1%,
respectively, of the outstanding shares of Valhi Common Stock. National,
NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie Holding") are the
direct holders of approximately 73.3%, 11.4% and 15.3%, respectively, of
the outstanding common stock of VGI. Contran and NOA are the direct holders
of approximately 85.7% and 14.3%, respectively, of the outstanding common
stock of National. Contran and Southwest Louisiana Land Company, Inc.
("Southwest") are the direct holders of approximately 49.9% and 50.1%,
respectively, of the outstanding common stock of NOA. Dixie Rice
Agricultural Corporation, Inc. ("Dixie Rice") is the direct holder of 100%
of the outstanding common stock of Dixie Holding. Contran is the holder of
100% of the outstanding common stock of Dixie Rice and approximately 88.9%
of the outstanding common stock of Southwest.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of certain children and grandchildren of Harold
C. Simmons (the "Trusts"), of which Mr. Simmons is the sole trustee, or
held by Mr. Simmons or persons or other entities related to Mr. Simmons. As
sole trustee of the Trusts, Mr. Simmons has the power to vote and direct
the disposition of the shares of Contran stock held by the Trusts. Mr.
Simmons, however, disclaims beneficial ownership of any Contran shares the
Trusts hold.
The Foundation directly holds approximately 0.9% of the outstanding shares
of Valhi Common Stock. The Foundation is a tax-exempt foundation organized
for charitable purposes. Harold C. Simmons is the chairman of the board of
the Foundation.
The CDCT No. 2 directly holds approximately 0.4% of the outstanding shares
of Valhi Common Stock. U.S. Bank National Association serves as the trustee
of the CDCT No. 2. Contran established the CDCT No. 2 as an irrevocable
"rabbi trust" to assist Contran in meeting certain deferred compensation
obligations that it owes to Harold C. Simmons. If the CDCT No. 2 assets are
insufficient to satisfy such obligations, Contran must satisfy the balance
of such obligations. Pursuant to the terms of the CDCT No. 2, Contran
retains the power to vote the shares held by the CDCT No. 2, retains
dispositive power over such shares and may be deemed the indirect
beneficial owner of such shares.
The CMRT directly holds approximately 12.0% of the outstanding shares of
TIMET Common Stock and 0.1% of the outstanding shares of Valhi Common
Stock. Valhi established the CMRT to permit the collective investment by
master trusts that maintain assets of certain employee benefit plans Valhi
and related companies adopt. Harold C. Simmons is the sole trustee of the
CMRT and a member of the trust investment committee for the CMRT. Valhi's
board of directors selects the trustee and members of the trust investment
committee for the CMRT. All of NL's executive officers, Glenn R. Simmons
and Steven L. Watson are participants in one or more of the employee
benefit plans that invest through the CMRT. Each of such persons disclaims
beneficial ownership of any of the shares the CMRT holds, except to the
extent of his or her individual vested beneficial interest, if any, in the
assets the CMRT holds.
Harold C. Simmons is the chairman of the board and chief executive officer
of each of Kronos Worldwide and NL, vice chairman of the board of TIMET and
the chairman of the board of each of Tremont, Valhi, VGI, National, NOA,
Dixie Holding, Dixie Rice, Southwest and Contran.
By virtue of the holding of the offices, the stock ownership and his
services as trustee, all as described above, (a) Harold C. Simmons may be
deemed to control certain of such entities and (b) Mr. Simmons and certain
of such entities may be deemed to possess indirect beneficial ownership of
shares directly held by certain of such other entities. However, Mr.
Simmons disclaims beneficial ownership of the shares beneficially owned,
directly or indirectly, by any of such entities, except to the extent of
his vested beneficial interest, if any, in shares held by the CMRT and his
interest as a beneficiary of the CDCT No. 2. Mr. Harold Simmons disclaims
beneficial ownership of all shares of Common Stock that Valhi or TFMC
directly holds.
-7-
All directors or executive officers of NL who are also directors or
executive officers of Valhi, TFMC or their parent companies disclaim
beneficial ownership of the shares of Common Stock that Valhi or TFMC
directly hold.
Annette C. Simmons is the wife of Harold C. Simmons. She is the direct
owner of 69,475 shares of Common Stock. Mr. Simmons may be deemed to share
indirect beneficial ownership of such shares. Mr. Simmons disclaims all
such beneficial ownership.
The Annette C. Simmons Grandchildren's Trust, a trust of which Harold C.
Simmons and Annette C. Simmons are co-trustees and the beneficiaries of
which are the grandchildren of Annette C. Simmons, is the direct holder of
40,000 shares of Valhi Common Stock (the "Grandchildren's Trust"). Mr.
Simmons, as co-trustee of the Grandchildren's Trust, has the power to vote
and direct the disposition of the shares Valhi Common Stock the
Grandchildren's Trust directly holds. Mr. Simmons disclaims beneficial
ownership of any shares of Valhi Common Stock that the Grandchildren's
Trust holds.
NL and a subsidiary of NL directly hold 3,522,967 and 1,186,200 shares of
Valhi Common Stock, respectively. NL is a majority owned subsidiary of
Valhi. Pursuant to Delaware law, Valhi treats the shares of Valhi Common
Stock that NL and NL's subsidiary directly hold as treasury stock for
voting purposes, and for purposes of calculating the percentage ownership
of the outstanding shares of Valhi Common Stock as of the Record Date in
this proxy statement such shares are not deemed outstanding.
The business address of Tremont, VGI, National, NOA, Dixie Holding, the
Foundation, the CMRT and Contran is Three Lincoln Centre, 5430 LBJ Freeway,
Suite 1700, Dallas, Texas 75240-2697. The business address of Dixie Rice is
600 Pasquiere Street, Gueydan, Louisiana 70542. The business address of
Southwest is 402 Canal Street, Houma, Louisiana 70360. The business address
of TIMET is 1999 Broadway, Suite 4300, Denver, Colorado 80202.
(5) The shares of Common Stock shown as beneficially owned by such person
include the following number of shares such person has the right to acquire
upon the exercise of stock options granted pursuant to NL's stock option
plans that such person may exercise within 60 days subsequent to the Record
Date:
Shares of Common Stock
Issuable Upon the Exercise of
Stock Options
Name of Beneficial Owner On or Before May 27, 2005
----------------------------------- -----------------------------
Harold C. Simmons.................. 4,000
Glenn R. Simmons................... 2,000
Steven L. Watson................... 4,000
NL understands that Contran and related entities may consider acquiring or
disposing of shares of Common Stock through open-market or privately negotiated
transactions, depending upon future developments, including, but not limited to,
the availability and alternative uses of funds, the performance of Common Stock
in the market, an assessment of the business of and prospects for NL, financial
and stock market conditions and other factors deemed relevant by such entities.
NL may similarly consider acquisitions of shares of Common Stock and
acquisitions or dispositions of securities issued by related entities.
-8-
Ownership of Related Companies. Certain NL directors and executive officers
own equity securities of certain NL related companies.
Ownership of Kronos Worldwide and Valhi. The following table and footnotes
set forth the beneficial ownership, as of the Record Date, of the shares of
Kronos Worldwide common stock, par value $0.01 per share ("Kronos Worldwide
Common Stock"), and Valhi Common Stock held by each director, each named
executive officer and all directors and executive officers as a group. All
information is taken from or based upon ownership filings made by such
individuals or entities with the SEC or upon information provided by such
individuals or entities.
Kronos Worldwide Common Stock Valhi Common Stock
----------------------------------------- -----------------------------------
Amount and Amount and Nature
Nature of Beneficial Percent of of Beneficial Percent of
Name of Beneficial Owner Ownership (1) Class (1)(2) Ownership (1) Class (1)(3)
------------------------ --------------------- --------------- ------------------ -------------
Harold C. Simmons........... 4,255 (4)(5) * 3,383 (4) *
Valhi, Inc................ 27,840,953 (4)(5) 56.9% n/a n/a
NL Industries, Inc........ 17,550,532 (4)(5) 35.9% n/a n/a
TIMET Finance Management
Company................. 5,203 (4)(5) * -0- -0-
Valhi Group, Inc.......... -0- (4) -0- 92,739,554 (4) 77.6%
National City Lines, Inc.. -0- (4) -0- 10,891,009 (4) 9.1%
Contran Corporation....... -0- (4) -0- 4,864,300 (4)(6) 4.1%
Harold Simmons Foundation,
Inc..................... -0- (4) -0- 1,044,200 (4) *
The Combined Master
Retirement Trust........ -0- (4) -0- 115,000 (4) *
Annette C. Simmons........ 36,356 (4)(5) * 43,400 (4) *
Annette C. Simmons
Grandchildren's Trust... -0- (4) -0- 40,000 (4) *
------------- -----------
45,437,299 92.8% 109,740,846 91.8%
Cecil H. Moore, Jr.......... 512 (4) * -0- (4) -0-
Glenn R. Simmons............ 208 (4)(5) * 18,247 (4)(7) *
Thomas P. Stafford.......... 2,132 (4)(5) * -0- -0-
Steven L. Watson............ 4,233 (4)(5) * 117,246 (4)(8) *
Terry N. Worrell............ 5 (4)(5) * -0- -0-
Robert D. Graham............ -0- (4) -0- -0- (4) -0-
Gregory M. Swalwell......... -0- (4) -0- 101,166 (4)(8) *
Kelly D. Luttmer............ -0- (4) -0- 66,600 (4)(8) *
All directors and executive
officers of NL as a group
(11 persons).............. 45,444,389 (4)(5) 92.8% 110,044,105 (4)(6)(7)(8) 91.9%
--------------------
* Less than 1%.
-9-
(1) Except as otherwise noted, the listed entities, individuals or group have
sole investment power and sole voting power as to all shares set forth
opposite their names. The number of shares and percentage of ownership for
each entity, individual or group assumes the exercise by such entity,
individual or group (exclusive of others) of stock options that such
entity, individual or group may exercise, or the receipt by such entity,
individual or group of shares that such entity, individual or group has the
right to receive (if determinable), within 60 days subsequent to the Record
Date.
(2) The percentages are based on 48,946,049 shares of Kronos Worldwide Common
Stock outstanding as of the Record Date.
(3) The percentages are based on 119,535,878 shares of Valhi Common Stock
outstanding as of the Record Date. For purposes of calculating the
outstanding shares of Valhi Common Stock as of the Record Date, 3,522,967
and 1,186,200 shares of Valhi Common Stock held by NL and a subsidiary of
NL, respectively, are treated as treasury stock for voting purposes and
excluded from the amount of Valhi Common Stock outstanding.
(4) See footnote (4) to the "Ownership of NL" table for a description of
certain relationships among the individuals, entities or groups appearing
in this table. All directors or executive officers of NL disclaim
beneficial ownership of any shares of Kronos Worldwide Common Stock that NL
directly owns. All directors or executive officers of NL who are also
directors or executive officers of Valhi, TFMC, VGI, National, Contran, the
Foundation or their parent companies disclaim beneficial ownership of the
shares of Kronos Worldwide or Valhi Common Stock that such entities
directly hold. Based on the relationships described in footnote (4) to the
"Ownership of NL" table, these share amounts exclude certain shares that
such individual, entity or group may be deemed to indirectly and
beneficially own and as to which each such individual, entity or group
disclaims beneficial ownership.
Harold C. Simmons disclaims beneficial ownership of any and all securities
that his wife, Annette C. Simmons, directly holds.
(5) Includes (excludes) the following shares of Kronos Worldwide Common Stock
that such entity, individual or group received or distributed, as
applicable, on March 29, 2005 in a dividend NL declared that was paid in
the form of shares of Kronos Worldwide Common Stock, reported without
duplication:
Number of Shares of Kronos
Worldwide Common Stock
Received (Distributed) in NL
Stock Dividend Paid on
Name of Beneficial Owner March 29, 2005
------------------------------------ -----------------------------
Harold C. Simmons................... 145
Valhi, Inc.......................... 221,319
NL Industries, Inc.................. (266,229)
TIMET Finance Management Company.... 1,218
Annette C. Simmons.................. 380
Glenn R. Simmons.................... 32
Thomas P. Stafford.................. 27
Steven L. Watson.................... 42
Terry N. Worrell.................... 5
(6) Includes 439,400 shares of Valhi Common Stock the CDCT No. 2 directly
holds.
(7) The shares of Valhi Common Stock shown as beneficially owned by Glenn R.
Simmons include 800 shares his wife holds in her retirement account, with
respect to which shares he disclaims beneficial ownership.
-10-
(8) The shares of Valhi Common Stock shown as beneficially owned by such person
include the following number of shares such person has the right to acquire
upon the exercise of stock options granted pursuant to Valhi's stock option
plans that such person may exercise within 60 days subsequent to the Record
Date:
Shares of Valhi Common Stock
Issuable Upon the Exercise of
Stock Options
Name of Beneficial Owner On or Before May 27, 2005
-------------------------------- ------------------------------
Steven L. Watson................ 100,000
Gregory M. Swalwell............. 100,000
Kelly D. Luttmer................ 66,600
Ownership of CompX. The following table and footnotes set forth the
beneficial ownership, as of the Record Date, of the class A common stock, par
value $0.01 per share, of CompX ("CompX Class A Common Stock") and the class B
common stock, par value $0.01 per share, of CompX ("CompX Class B Common Stock,"
and collectively with the CompX Class A Common Stock, the "CompX Common Stock")
held by each director, each named executive officer and all directors and
executive officers as a group. All information is taken from or based upon
ownership filings made by such individuals or entities with the SEC or upon
information provided by such individuals or entities.
CompX Class
A and Class
CompX Class A CompX Class B B Common
Common Stock Common Stock (1) Stock
---------------------------------- -------------------------------- Combined
Amount and Nature of Percent Amount and Nature of Percent Percent of
Beneficial of Class Beneficial of Class Class
Beneficial Owner Ownership (2) (2)(3) Ownership (2) (2)(3) (2)(3)
------------------------------ ---------------------- ----------- --------------------- ---------- --------------
Harold C. Simmons............. 40,700 (4) * -0- (4) -0- *
CompX Group, Inc........... 2,586,820 (4) 49.8% 10,000,000 (4) 100.0% 82.8%
TIMET Finance Management
Company.................. 336,700 (4) 6.5% -0- (4) -0- 2.2%
Annette C. Simmons......... 20,000 (4) * -0- (4) -0- *
----------- ----------
2,984,220 (4) 57.5% 10,000,000 (4) 100.0% 85.5%
Cecil H. Moore, Jr............ -0- (4) -0- -0- (4) -0- -0-
Glenn R. Simmons.............. 69,300 (4)(5)(6) 1.3% -0- (4) -0- *
Thomas P. Stafford............ -0- (4) -0- -0- (4) -0- -0-
Steven L. Watson.............. 19,800 (4)(5) * -0- (4) -0- *
Terry N. Worrell.............. -0- (4) -0- -0- (4) -0- -0-
Robert D. Graham.............. -0- (4) -0- -0- (4) -0- -0-
Gregory M. Swalwell........... 5,000 (4)(5) * -0- (4) -0- *
Kelly D. Luttmer.............. 4,200 (4)(5) * -0- (4) -0- *
All directors and executive
officers of NL as a group (11
persons)...................... 3,082,520 (4)(5)(6) 58.4% 10,000,000 (4) 100.0% 85.7%
--------------------
* Less than 1%.
-11-
(1) Each share of CompX Class B Common Stock entitles the holder to one vote on
all matters except the election of directors, on which each share is
entitled to ten votes. In certain instances, shares of CompX Class B Common
Stock are automatically convertible into shares of CompX Class A Common
Stock.
(2) Except as otherwise noted, the listed entities, individuals or group have
sole investment power and sole voting power as to all shares set forth
opposite their names. The number of shares and percentage of ownership for
each entity, individual or group assumes the exercise by such entity,
individual or group (exclusive of others) of stock options that such
entity, individual or group may exercise within 60 days subsequent to the
Record Date.
(3) The percentages are based on 5,193,780 shares of CompX Class A Common Stock
outstanding as of the Record Date and 10,000,000 shares of CompX Class B
Common Stock outstanding as of the Record Date.
(4) NL and TFMC directly hold 82.4% and 17.6%, respectively, of the outstanding
shares of CGI common stock. Valhi holds indirectly through CGI and TFMC
approximately 85.1% of the combined voting power of the outstanding shares
of CompX Common Stock (approximately 97.8% for the election of directors).
See footnote (4) to the "Ownership of NL" table for a description of
certain relationships among the individuals, entities or groups appearing
in this table. All directors or executive officers of NL disclaim
beneficial ownership of any shares of CompX Common Stock that CGI directly
owns. All directors or executive officers of NL who are also directors or
executive officers of TFMC or its parent companies disclaim beneficial
ownership of the shares of Kronos Worldwide or Valhi Common Stock that TFMC
directly holds. Based on the relationships described in footnote (4) to the
"Ownership of NL" table, these share amounts exclude certain shares that
such individual, entity or group may be deemed to indirectly and
beneficially own and as to which each such individual, entity or group
disclaims beneficial ownership.
Harold C. Simmons disclaims beneficial ownership of any and all securities
that his wife, Annette C. Simmons, directly holds.
(5) The shares of CompX Class A Common Stock shown as beneficially owned by
such person include the following number of shares such person has the
right to acquire upon the exercise of stock options that such person or
group may exercise within 60 days subsequent to the Record Date:
Shares of CompX Class A Common
Stock Issuable Upon the
Exercise of Stock Options
Name of Beneficial Owner On or Before May 27, 2005
---------------------------- ------------------------------
Glenn R. Simmons............ 56,800
Steven L. Watson............ 14,800
Gregory M. Swalwell......... 5,000
Kelly D. Luttmer............ 4,000
(6) The shares of CompX Class A Common Stock shown as beneficially owned by
Glenn R. Simmons include 500 shares his wife holds in her retirement
account, with respect to which he disclaims beneficial ownership.
-12-
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
AND OTHER INFORMATION
Compensation of Directors. In 2004, directors received an annual retainer
of $20,000, paid in quarterly installments, plus a fee of $1,000 per day for
attendance at meetings and at a daily rate ($125 per hour) for other services
rendered on behalf of the Board of Directors or its committees. For the first
two quarters of 2004, directors also received an annual retainer of $2,000, paid
in quarterly installments, for each committee on which they served. Starting
with the third quarter of 2004, the Board of Directors increased the director
fees paid to members of the audit committee. The increase resulted in the
chairman of the audit committee and any member of the committee who NL
identified as an "audit committee financial expert" for purposes of the annual
proxy statement receiving an annual retainer of $10,000, paid in quarterly
installments (provided that if one person served in both capacities only one
such retainer was paid), and other members of the audit committee receiving an
annual retainer of $5,000, paid in quarterly installments. If any director dies
while serving on the Board of Directors, his or her designated beneficiary or
estate will be entitled to receive a death benefit equal to the annual retainer
then in effect. NL reimburses its directors for reasonable expenses incurred in
attending meetings and in the performance of other services rendered on behalf
of the Board of Directors or its committees. In addition, Gen. Stafford (ret.)
receives an annual payment of $15,000 as a result of his service on the Board of
Directors prior to 1987.
On the day of each annual shareholder meeting, each director receives a
grant of shares of Common Stock as determined by the following formula based on
the closing price of a share of Common Stock on the date of such meeting.
Range of Closing Price Per Shares of Common
Share on the Date of Grant Stock to Be Granted
-------------------------- -------------------
Under $5.00 2,000
$5.00 to $9.99 1,500
$10.00 to $20.00 1,000
Over $20.00 500
As a result of the $11.41 per share closing price of Common Stock on May 20,
2004, the date of the 2004 annual shareholder meeting, each director elected on
that date received a grant of 1,000 shares of Common Stock.
Intercorporate Services Agreements. Contran and certain of its
subsidiaries, including NL, have entered into intercorporate services agreements
(collectively, the "ISAs") pursuant to which Contran, among other things,
provides the services of all of the named executive officers to certain of
Contran's subsidiaries, including NL and its subsidiaries. For a discussion of
these ISAs, see "Certain Relationships and Transactions--Intercorporate Services
Agreements."
-13-
Summary of Cash and Certain Other Compensation of Executive Officers. The
summary compensation table below provides information concerning annual and
long-term compensation paid or accrued by NL and its subsidiaries for services
rendered to NL and its subsidiaries during 2004, 2003 and 2002 by NL's chief
executive officer and four other executive officers with the highest charge to
NL or its subsidiaries pursuant to an ISA between NL and Contran (the "Contran
ISA") in 2004.
SUMMARY COMPENSATION TABLE
Long Term
Compensation (1)
----------------
Awards
----------------
Annual Compensation (2) Shares
Name and -------------------------- Underlying
Principal Position Year Salary Options (#)
--------------------------------------------------- ---- -------------------------- ----------------
Harold C. Simmons (3).............................. 2004 $ 2,973,415 (4) -0-
Chairman of the Board and Chief Executive Officer 2003 990,830 (4) -0-
2002 984,220 (4) 2,000 (5)
Robert D. Graham (3)............................... 2004 455,900 (4) -0-
Vice President, General Counsel and Secretary 2003 20,000 (4) -0-
Gregory M. Swalwell (3)............................ 2004 323,300 (4) -0-
Vice President, Finance and Chief Financial Officer 2003 154,000 (4) -0-
Kelly D. Luttmer (3)............................... 2004 278,300 (4) -0-
Vice President and Tax Director 2003 8,000 (4) -0-
James W. Brown (3)................................. 2004 252,400 (4) -0-
Vice President and Controller 2003 -0- (4) -0-
----------------
(1) For the periods presented for each named executive officer, no shares of
restricted stock were granted nor payouts made pursuant to long-term
incentive plans. Therefore, the columns for such compensation have been
omitted.
(2) For the periods presented, no named executive officer received a bonus or
"other annual compensation," as defined by SEC rules, from NL or its
subsidiaries. Therefore, the columns for bonus and other annual
compensation have been omitted.
(3) Other than Mr. Simmons, none of the named executive officers were executive
officers of NL during 2002. Messrs. Graham and Swalwell and Ms. Luttmer
became executive officers of NL effective July 17, 2003. Mr. Brown became
an executive officer of NL effective December 8, 2003.
(4) All executive officers of NL are employees of Contran. The amounts shown in
the summary compensation table as salary for each named executive officer
represent the portion of the fees NL and its subsidiaries paid to Contran
pursuant to certain ISAs with respect to the services such officer rendered
to NL and its subsidiaries. The amount shown in the table as salary for Mr.
Simmons also includes director compensation paid to him by each of NL and
Kronos Worldwide. The components of salary shown in the summary
compensation table for the named executive officers are as follows.
-14-
2002 2003 2004
------------------- ------------------ ------------------
Harold C. Simmons
ISA Fees:
NL................................... $ 760,000 $ 761,000 $ 950,000
CompX................................ n/a (a) n/a (a) 1,000,000
Kronos Worldwide..................... 190,000 (b) 190,000 (b) 950,000 (b)
NL Cash Director Fees................... 19,000 23,500 24,000
NL Director Stock....................... 15,220 16,330 11,410
Kronos Worldwide Cash Director Fees..... -0- -0- 23,000
Kronos Worldwide Director Stock......... -0- -0- 15,005
-------------- --------------- --------------
$ 984,220 $ 990,830 $ 2,973,415
============== =============== ==============
Robert D. Graham
ISA Fees:
NL........................................................ $ 20,000 $ 298,000
CompX..................................................... n/a (a) 8,900
Kronos Worldwide.......................................... -0- (b) 149,000 (b)
--------------- -------------
$ 20,000 $ 455,900
=============== =============
Gregory M. Swalwell
ISA Fees:
NL........................................................ $ 154,000 $ 113,700
CompX..................................................... n/a (a) 39,000
Kronos Worldwide.......................................... -0- (b) 170,600 (b)
--------------- -------------
$ 154,000 $ 323,300
=============== =============
Kelly D. Luttmer
ISA Fees:
NL........................................................ $ 8,000 $ 82,500
CompX..................................................... n/a (a) 35,000
Kronos Worldwide.......................................... -0- (b) 160,800 (b)
--------------- -------------
$ 8,000 $ 278,300
=============== =============
James W. Brown
ISA Fees:
NL........................................................ $ -0- $ 50,500
CompX..................................................... n/a -0-
Kronos Worldwide.......................................... -0- (b) 201,900 (b)
--------------- -------------
$ -0- $ 252,400
=============== =============
(a) Prior to September 24, 2004, CompX was not a subsidiary of NL and
therefore any ISA charges to CompX for such executive officer's
compensation are not included in the summary compensation table for
2003. The 2002 ISA charge for Mr. Simmons to CompX was $1,000,000. The
2003 ISA charges for the named executive officers to CompX were as
follows:
2003 ISA Charge
Named Executive Officer to CompX
------------------------------------------- ---------------
Harold C. Simmons.......................... $1,000,000
Robert D. Graham........................... 27,000
Gregory M. Swalwell........................ 26,000
Kelly D. Luttmer........................... 109,000
James W. Brown............................. -0-
(b) Other than Mr. Simmons, the 2003 ISA charges to Kronos Worldwide and
its subsidiaries for the named executive officers' services were not
specifically identifiable to a particular officer and were not
allocable between Kronos Worldwide and Kronos International, Inc., a
wholly owned subsidiary of Kronos Worldwide ("KII"). In 2004, the ISA
charges to Kronos Worldwide were identifiable to each named executive
officer and include amounts allocable to KII.
(5) Represents shares of NL Common Stock underlying stock options NL granted to
this named executive officer for his services as a director of NL.
-15-
No Grants of Stock Options or Stock Appreciation Rights. Neither NL nor any
of its parent or subsidiary corporations granted any stock options or stock
appreciation rights ("SARs") to the named executive officers during 2004.
Stock Option Holdings. The following table provides information concerning
the value of unexercised stock options for Common Stock, Valhi Common Stock or
CompX Class A Common Stock the named executive officers held as of December 31,
2004, of which Messrs. Graham and Brown held none. Neither NL nor any of its
parent or subsidiary companies has granted any SARs nor has Kronos Worldwide
granted any stock options.
DECEMBER 31, 2004 OPTION VALUES
Number of Shares Underlying Value of Unexercised
Unexercised Options at In-the-Money Options
Name December 31, 2004 (#) at December 31, 2004 (1)
-------------------------------------------------- ----------------------------- ------------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------ -------------- ------------- --------------
Harold C. Simmons
NL Stock Options............................... 6,000 -0- $ 86,829 $ -0-
Gregory M. Swalwell
Valhi Stock Options............................ 95,000 5,000 583,450 25,450
CompX Stock Options............................ 5,000 -0- -0- -0-
------------ -------------- ------------- --------------
100,000 5,000 583,450 25,450
Kelly D. Luttmer
Valhi Stock Options............................ 66,600 5,000 351,386 25,450
CompX Stock Options............................ 4,000 -0- -0- -0-
------------ -------------- ------------- --------------
70,600 5,000 351,386 25,450
--------------------
(1) Each aggregate value is based on the difference between the exercise price
of the individual stock options and the closing sales price per share of
such underlying common stock on December 31, 2004. Such closing sales
prices were $16.09 per share for Valhi Common Stock, $22.10 per share for
Common Stock and $16.53 per share for CompX Class A Common Stock.
Pension Plan. The Retirement Program of NL Industries, Inc. for its U.S.
employees (the "Pension Plan") provides lifetime retirement benefits to eligible
employees. In 1996, NL approved the suspension of all future accruals under the
salaried component of the Pension Plan. No named executive officer of NL
participates in the Pension Plan.
-16-
EQUITY COMPENSATION PLAN INFORMATION
The following table provides summary information as of December 31, 2004
with respect to equity compensation plans under which NL's equity securities may
be issued to employees or nonemployees (such as directors, consultants,
advisers, vendors, customers, suppliers and lenders) in exchange for goods or
services.
Column (A) Column (B) Column (C)
-------------------------- ------------------------- -------------------------
Number of Securities
Remaining Available for
Future Issuance Under
Number of Securities to be Weighted-Average Exercise Equity Compensation Plans
Issued Upon Exercise of Price of Outstanding (Excluding Securities
Outstanding Options, Options, Reflected in
Plan Category Warrants and Rights Warrants and Rights Column (A))
-------------------------- -------------------------- ------------------------- -------------------------
Equity compensation plans
approved by security
holders.................... 245,100 $ 9.80 4,089,600
Equity compensation plans
not approved by security
holders.................... -0- -0- -0-
Total...................... 245,100 $ 9.80 4,089,600
CORPORATE GOVERNANCE DOCUMENTS
Code of Business Conduct and Ethics. NL has adopted a code of business
conduct and ethics that applies to all of NL's directors, officers and
employees, including NL's principal executive officer, principal financial
officer, principal accounting officer and controller. Only the Board of
Directors may amend the code. Only NL's audit committee or other committee of
the Board of Directors with specific delegated authority may grant a waiver of
the code. NL will disclose amendments to, or waivers of, the code as required by
law and the applicable rules of the NYSE.
Corporate Governance Guidelines. NL has adopted corporate governance
guidelines to assist the Board of Directors in exercising its responsibilities.
Among other things, the corporate governance guidelines provide for director
qualifications, independence standards and responsibilities, approval procedures
for ISAs and that the audit committee chairman preside at all meetings of the
independent directors.
Audit Committee Charter. NL has adopted an audit committee charter under
which the audit committee operates. Among other things, the audit committee
charter provides the purpose, authority, resources and responsibilities of the
committee.
A copy of each of these three documents, among others, is available on NL's
website at www.nl-ind.com under the corporate governance section. In addition,
any person may obtain a copy of these three documents without charge, by sending
a written request to the attention of NL's corporate secretary at NL Industries,
Inc., Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
75240-2697.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires NL's executive officers, directors and persons who own
more than 10% of a registered class of NL's equity securities to file reports of
ownership with the SEC, the NYSE and NL. Based solely on the review of the
copies of such forms and representations by certain reporting persons, NL
believes that for 2004 its executive officers, directors and 10% shareholders
complied with all applicable filing requirements under section 16(a).
-17-
EXECUTIVE COMPENSATION REPORT
During 2004, NL's independent directors and the MD&C Committee administered
matters regarding the compensation of NL's executive officers.
Contran ISA
During 2004, NL paid certain fees to Contran for services provided pursuant
to an ISA between Contran and NL (the "Contran ISA"). Such services provided
under the Contran ISA included the services of all of NL's executive officers.
Contran annually determines the aggregate fee to charge NL and its
subsidiaries based on (i) an estimate of the amount of time each Contran
employee that performs services for NL and its subsidiaries will spend on such
services over the year and (ii) Contran's cost related to such employee, which
includes the employee's base salary, incentive compensation and an overhead
component that takes into account other employment costs, including medical
benefits, unemployment and disability insurance and pension costs and other
costs of providing an office, equipment and supplies related to the provision of
such services. The portion of the annual charge NL pays under the Contran ISA
for the services of any particular individual is capped at $1.0 million to
enhance NL's ability to deduct such charge for federal income tax purposes. The
amount of the fee NL paid in 2004 under the Contran ISA for a person who
provided services to NL or its subsidiaries represents, in management's view,
the reasonable equivalent of "compensation" for such services. It is also
management's view that the proposed aggregate charge to NL under the Contran ISA
is fair to NL and its shareholders. See "Certain Relationships and
Transactions--Intercorporate Services Agreements" for the aggregate amount NL
paid to Contran in 2004 under the Contran ISA. For each named executive officer
that was a Contran employee in 2004, the portion of the annual charge NL paid in
2004 to Contran under the Contran ISA attributable to the services of such
executive officer is set forth in footnote (4) to the summary compensation table
in this proxy statement. The amount charged under the Contran ISA is not
dependent upon NL's financial performance.
Based upon the independent directors' review of Contran's ISA allocation
process and documentation as to how Contran determines the necessary personnel,
the estimated number of full time employees that are required to provide
services and the cost of such services under the Contran ISA and their related
discussions with management, the independent directors agreed that such
aggregate 2004 charge from Contran under the Contran ISA was fair and reasonable
to NL and its shareholders. In making such determination, the independent
directors relied on their collective business experience and judgment.
Common Stock Based Compensation
In 2004, the MD&C Committee administered matters regarding the Common Stock
based compensation of NL's executive officers. In 2004, however, management did
not recommend any Common Stock based compensation, and the MD&C Committee did
not grant any such compensation to any executive officers other than annual
stock grants to NL's directors, including the chief executive officer, for their
services as directors. The MD&C Committee does not currently anticipate granting
Common Stock based compensation to anyone in 2005 other than these annual grants
of stock to directors. See "Compensation of Directors and Executive Officers and
Other Information -- Compensation of Directors."
Deductibility of Compensation
Section 162(m) of the Code generally disallows a tax deduction to public
companies for non-performance based compensation over $1.0 million paid to the
company's chief executive officer and four other most highly compensated
executive officers. It is NL's general policy to structure the performance-based
portion of the compensation of its executive officers in a manner that enhances
NL's ability to deduct fully such compensation.
The following individuals, in the capacities indicated, hereby submit the
foregoing report.
Gen. Thomas P. Stafford (ret.) Terry N. Worrell
Chairman of the MD&C Committee and Member of the MD&C Committee and
Independent Director Independent Director
Cecil H. Moore, Jr.
Independent Director
-18-
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Relationships with Related Parties. As set forth under "Security
Ownership," Harold C. Simmons, through Contran, may be deemed to control NL. NL
and other entities that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (a) intercorporate transactions such as guarantees,
management and expense sharing arrangements, shared fee arrangements, tax
sharing agreements, joint ventures, partnerships, loans, options, advances of
funds on open account and sales, leases and exchanges of assets, including
securities issued by both related and unrelated parties and (b) common
investment and acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties and
have included transactions that resulted in the acquisition by one related party
of an equity interest in another related party. NL periodically considers,
reviews and evaluates and understands that Contran and related entities
periodically consider, review and evaluate such transactions. Depending upon the
business, tax and other objectives then relevant, it is possible that NL might
be a party to one or more of such transactions in the future. In connection with
these activities NL may consider issuing additional equity securities or
incurring additional indebtedness. NL's acquisition activities have in the past
and may in the future include participation in acquisition or restructuring
activities conducted by other companies that may be deemed to be controlled by
Mr. Simmons. It is the policy of NL to engage in transactions with related
parties on terms, in the opinion of NL, no less favorable to NL than could be
obtained from unrelated parties.
Certain directors or executive officers of Contran, CompX, Keystone, NL,
TIMET or Valhi also serve as directors or executive officers of NL. Such
relationships may lead to possible conflicts of interest. These possible
conflicts of interest may arise from the duties of loyalty owed by persons
acting as corporate fiduciaries to two or more companies under circumstances in
which such companies may have adverse interests. No specific procedures are in
place that govern the treatment of transactions among NL and its related
entities, although such entities may implement specific procedures as
appropriate for particular transactions. In addition, under applicable
principles of law, in the absence of shareholder ratification or approval by
directors who may be deemed disinterested, transactions involving contracts
among companies under common control must be fair to all companies involved.
Furthermore, directors owe fiduciary duties of good faith and fair dealing to
all shareholders of the companies for which they serve.
Intercorporate Services Agreements. NL and certain related companies have
entered into ISAs. Under the ISAs, employees of one company will provide certain
services, including executive officer services, to the other company on a fee
basis. The services rendered under the ISAs may include executive, management,
financial, internal audit, accounting, tax, legal, insurance, risk management,
treasury, aviation, human resources, technical, consulting, administrative,
office, occupancy and other services as required from time to time in the
ordinary course of the recipient's business. The fees paid pursuant to the ISAs
are generally based upon an estimate of the time devoted by employees of the
provider of the services to the affairs of the recipient and the employer's cost
related to such employees, which includes the employees' cash compensation and
an overhead component that takes into account other employment costs of the
employees. Each of the ISAs in their current form extends on a
quarter-to-quarter basis, generally subject to the termination by either party
pursuant to a written notice delivered 30 days prior to the start of the next
quarter. Because of the large number of companies affiliated with Contran and
NL, NL believes it benefits from cost savings and economies of scale gained by
not having certain management, financial and administrative staffs duplicated at
each entity, thus allowing certain individuals to provide services to multiple
companies but only be compensated by one entity. With respect to a publicly held
company that is a party to an ISA, the ISA and the related aggregate annual
charge is reviewed and approved by the independent directors of the company.
Under the Contran ISA, NL paid Contran fees of approximately $3.6 million
for services Contran provided in 2004. In 2005, NL expects to pay Contran fees
of approximately $4.2 million for Contran's services to be provided under the
Contran ISA. NL also pays director fees and expenses directly to Messrs. Glenn
and Harold Simmons and Watson for their services as directors of NL.
Under the ISA between Contran and CompX, CompX paid Contran fees of
approximately $2.3 million for the services Contran provided in 2004. In 2005,
CompX expects to pay Contran fees of approximately $2.6 million for Contran's
services to be provided under this ISA. NL also pays director fees and expenses
directly to Messrs. Glenn Simmons and Watson for their services as directors of
CompX.
-19-
Under the ISA between Contran and Kronos Worldwide, Kronos Worldwide paid
Contran fees of approximately $4.4 million for services Contran provided in
2004. In 2005, Kronos Worldwide expects to pay Contran fees of approximately
$5.7 million for services to be provided under the Contran ISA. Kronos Worldwide
also pays director fees and expenses directly to Messrs. Glenn and Harold
Simmons and Watson for their services as directors of NL.
Acquisition of CompX. On September 24, 2004, NL completed the acquisition
of approximately 68.4% of the then outstanding shares of CompX Common Stock
owned by Valhi and its wholly owned subsidiary, Valcor, Inc. ("Valcor"), at a
purchase price of $16.25 per share, or an aggregate of approximately $168.6
million (the "CompX Acquisition"). The purchase price was paid by NL's transfer
to Valhi and Valcor of $168.6 million of NL's $200 million long-term note
receivable from Kronos Worldwide (the "Kronos Worldwide Promissory Note"). The
acquisition was reviewed and approved by a special committee of the Board of
Directors, comprised of directors who were not affiliated with Valhi, after the
committee received an opinion from its financial advisor that the purchase price
was fair, from a financial point of view, to NL.
Subsequent to the acquisition and pursuant to a subscription agreement
effective October 1, 2004, NL and TFMC capitalized CGI by each contributing to
CGI 68.4% and 14.6%, respectively, of the then outstanding shares of CompX
Common Stock. As a result of the initial contribution, NL and TFMC held 82.4%
and 17.6% of the outstanding shares of common stock of CGI, respectively, and
CGI held 83.0% of the then outstanding shares of CompX Common Stock. Pursuant to
the subscription agreement, CGI agreed that it would not sell any of the shares
of CompX Common Stock contributed to CGI by TFMC without the express written
consent of TFMC. In addition, in accordance with the subscription agreement, the
parties entered into a voting agreement that provides, among other things, that
NL will elect one nominee of TFMC to CGI's five member board of directors.
Pursuant to CGI's certificate of incorporation, upon the written request of
a CGI stockholder, CGI is obligated to redeem such number of the stockholder's
shares of CGI common stock that the stockholder requests. The CGI stockholder is
also entitled to elect to receive as part of the redemption price such number of
shares of CompX Class A or Class B Common Stock that the holder contributed to
CGI based on the same ratio of shares of CGI received in the initial
contribution. CGI's board of directors is then obligated to determine in good
faith and in its best business judgment the redemption price. Pursuant to the
CGI's certificate of incorporation, in determining the redemption price, the
board of directors shall value each share of CompX Common Stock held by CGI at
the volume weighted average sales price of a share of CompX Class A Common Stock
for the ten trading days ending on the day CGI receives the redemption request.
With the initial capitalization of CGI, CompX became eligible to file
consolidated returns of U.S. federal income taxes with NL and Contran. See
"--Tax Matters" below for a discussion of this relationship with NL and Contran.
Loans between Related Parties. In 2001, a wholly owned subsidiary of NL
Environmental Management Services, Inc. ("EMS"), a majority owned subsidiary of
NL, loaned $20 million to one of the Trusts, the Harold C. Simmons Family Trust
No. 2 ("Family Trust No. 2"), under a $25 million revolving credit agreement.
Special independent committees of NL's and EMS' boards of directors approved the
loan. The loan bears interest at the prime rate (5.25% at December 31, 2004), is
due on demand with sixty days notice and is collateralized by 13,749 shares, or
approximately 35%, of Contran's outstanding class A voting common stock and
5,000 shares, or 100%, of Contran's series E cumulative preferred stock, both of
which are owned by the Family Trust No. 2. The value of this collateral is
dependent in part on the value of Valhi, as Contran's interest in Valhi is one
of Contran's more substantial assets. At December 31, 2004, the outstanding loan
balance under the revolving credit agreement was $10.0 million and $15.0 million
was available for the Family Trust No. 2 to borrow.
Effective October 22, 2002, NL had entered into a revolving credit facility
with Tremont, a wholly owned subsidiary of Valhi, pursuant to which Tremont
could borrow up to $15 million. The credit agreement bore interest at prime plus
2% (with interest payable quarterly) and was collateralized by the 10.2 million
shares of Common Stock and the 5.1 million shares of Kronos Worldwide Common
Stock then owned by Tremont. The loan matured and was terminated as of December
31, 2004.
-20-
On December 8, 2003, immediately prior to NL's distribution of 48.8% of the
outstanding shares of Kronos Worldwide Common Stock, Kronos Worldwide
distributed a dividend of the Kronos Worldwide Promissory Note. The Kronos
Worldwide Promissory Note was unsecured and bore interest at 9% per annum, with
interest payable quarterly and all principal due in 2010. On September 24, 2004,
pursuant to the CompX Acquisition, NL transferred to Valhi and Valcor an
aggregate $168.6 million of the Kronos Worldwide Promissory Note. In October
2004, Valcor distributed its note receivable from Kronos Worldwide to Valhi, and
subsequently, Kronos Worldwide prepaid $100.0 million of the consolidated note
payable to Valhi principally using available cash on hand. In December 2004,
Kronos Worldwide prepaid the remaining balances on the notes due Valhi and NL
that were originally represented by the Kronos Worldwide Promissory Note, and
the related notes were cancelled.
From time to time, other loans and advances are made between NL and various
related parties pursuant to term and demand notes. These loans and advances are
entered into principally for cash management purposes. When NL loans funds to
related parties, the lender is generally able to earn a higher rate of return on
the loan than the lender would earn if the funds were invested in other
instruments. While certain of such loans may be of a lesser credit quality than
cash equivalent instruments otherwise available to NL, NL believes that it has
evaluated the credit risks involved, and that those risks are reasonable and
reflected in the terms of the applicable loans. When NL borrows from related
parties, it is generally able to pay a lower rate of interest than it would pay
if it borrowed from other parties.
Interest income on all loans to unconsolidated related parties was $6.9
million in 2004, which amount includes (i) $1.5 million in interest income from
CompX's discontinued Thomas Regout operations in Europe and (ii) $4.7 million in
interest income related the Kronos Worldwide Promissory Note.
Short-Swing Trading Profits. From December 2004 through January 2005, NL
sold certain shares of Kronos Worldwide Common Stock in the open-market. In the
six months prior to such sales, Valhi had purchased shares of Kronos Worldwide
Common Stock in the open-market. Pursuant to section 16(b) of the Exchange Act,
certain of such sales and purchases might be deemed to be matched for purposes
of computing short-swing profits. As a result, Valhi made several voluntary
payments to Kronos Worldwide concurrently with NL's sales transactions
aggregating approximately $600,000, which amount represents the maximum amount
of any possible short-swing profits resulting from these transactions.
Insurance Matters. Contran and NL participate in a combined risk management
program. Pursuant to the program, Contran and certain of its subsidiaries and
affiliates, including NL and certain of its subsidiaries and affiliates,
purchase certain of their insurance policies as a group, with the costs of the
jointly owned policies being apportioned among the participating companies. Tall
Pines Insurance Company, including Valmont Insurance Company that merged into
Tall Pines in December 2004 ("Tall Pines"), and EWI RE, Inc. ("EWI") provide for
or broker these insurance policies. Tall Pines is a captive insurance company
wholly owned by Valhi, and EWI is a reinsurance brokerage and risk management
firm wholly owned by NL. A son-in-law of Harold C. Simmons serves as EWI's
chairman of the board and chief executive officer and is compensated as an
employee of EWI. Consistent with insurance industry practices, Tall Pines and
EWI receive commissions from insurance and reinsurance underwriters for the
policies that they provide or broker.
With respect to certain of such jointly owned insurance policies, it is
possible that unusually large losses incurred by one or more insureds during a
given policy period could leave the other participating companies without
adequate coverage under that policy for the balance of the policy period. As a
result, Contran and certain of its subsidiaries or affiliates, including NL,
have entered into a loss sharing agreement under which any uninsured loss is
shared by those entities who have submitted claims under the relevant policy. NL
believes the benefits in the form of reduced premiums and broader coverage
associated with the group coverage for such policies justify the risks
associated with the potential for any uninsured loss.
During 2004, Contran and its related parties paid premiums of approximately
$15.1 million for policies Tall Pines provided or EWI brokered, including
approximately $9.2 million paid by NL, CompX and Kronos Worldwide and their
subsidiaries and Louisiana Pigment Company, L.P., a partnership of which
subsidiaries of Kronos Worldwide and Huntsman LLC each own 50% ("LPC"). These
amounts principally included payments for reinsurance and insurance premiums
paid to unrelated third parties, but also included commissions paid to Tall
Pines and EWI. In NL's opinion, the amounts that NL, its subsidiaries and LPC
paid for these insurance policies and the allocation among NL and its affiliates
of relative insurance premiums are reasonable and at least as favorable to those
they could have obtained through unrelated insurance companies or brokers. NL
expects that these relationships with Tall Pines and EWI will continue in 2005.
-21-
Tax Matters. Prior to October 1, 2004, CompX was a separate U.S. federal
income taxpayer and was not a member of the consolidated U.S. federal tax return
of Contran (the "Contran Tax Group"). Effective with the formation of CGI on
October 1, 2004, CompX and its qualifying subsidiaries became members of the
Contran Tax Group and CompX entered into a tax sharing agreement with NL and
Contran.
As a member of the Contran Tax Group and pursuant to certain tax sharing
agreements, each of the members and its qualifying subsidiaries compute
provisions for U.S. income taxes on a separate company basis using tax elections
made by Contran. Pursuant to the tax sharing agreements and using tax elections
made by Contran, each of the parties makes payments or receives payments in
amounts it would have paid to or received from the U.S. Internal Revenue Service
had it not been a member of the Contran Tax Group but instead had been a
separate taxpayer. Refunds are generally limited to amounts previously paid
under the respective tax sharing agreement.
NL, CompX and Kronos Worldwide are also a part of consolidated tax returns
filed by Contran in certain U.S. state jurisdictions. For such consolidated
state tax returns, intercompany allocations of state tax provisions are computed
on a separate company basis using tax elections made by Contran. As a result,
NL, CompX and Kronos Worldwide make payments or receive payments in the amounts
that would have been paid to or received from the respective state tax authority
had they not been a part of the consolidated state tax return.
Under certain circumstances, tax regulations could require Contran to treat
items differently than NL, CompX or Kronos Worldwide would have treated them on
a stand alone basis. In 2004, pursuant to the tax sharing agreements and
consolidated state tax returns, NL paid $1.7 million to Valhi and CompX paid
$0.2 million to Valcor.
-22-
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly change in the
cumulative total shareholder return on Common Stock against the cumulative total
return of the S&P 500 Index, the S&P 500 Industrial Conglomerates Index and the
S&P 500 Diversified Chemicals Index for the period of five fiscal years
commencing December 31, 1999 and ending December 31, 2004. The S&P 500
Industrial Conglomerates Index is a new index used in this year's proxy
statement and the S&P 500 Diversified Chemicals Index is the old index used in
last year's proxy statement. The old index is provided below for comparison
purposes. NL management believes that the S&P 500 Industrial Conglomerates Index
better reflects NL's diversified operations. The graph shows the value at
December 31 of each year assuming an original investment of $100 and the
reinvestment of cash dividends and other distributions to shareholders.
Comparison of Cumulative Return among NL Industries, Inc. Common Stock,
the S&P 500 Index, the S&P 500 Industrial Conglomerates Index
and the S&P 500 Diversified Chemicals Index
[PERFORMANCE GRAPH OMITTED]
December 31,
---------------------------------------------------
1999 2000 2001 2002 2003 2004
------ ------ ------ ------ ------ ------
NL Industries, Inc. (1)...................... $100 $ 168 $ 112 $ 145 $ 167 $ 324
S&P 500 Index................................ 100 91 80 62 80 89
S&P 500 Industrial Conglomerates Index....... 100 101 90 54 72 87
S&P 500 Diversified Chemicals Index.......... 100 90 84 81 102 119
---------------------
(1) In determining the value of the reinvestment of NL distributions to its
shareholders of Kronos Worldwide Common Stock on December 8, 2003 and March
29, July 5, September 28 and December 29, 2004, the shares distributed were
deemed sold and reinvested in Common Stock, and in each case the shares
were valued at their closing price on the payment date or the last trading
date prior to the payment date, as applicable.
-23-
AUDIT COMMITTEE REPORT
The audit committee of the Board of Directors is comprised of three
directors and operates under a written charter adopted by the Board of
Directors. All members of the audit committee meet the independence standards
established by the Board of Directors and the NYSE and promulgated by the SEC
under the Sarbanes-Oxley Act of 2002. The audit committee charter is available
on NL's website at www.nl-ind.com under the corporate governance section.
NL's management is responsible for, among other things, preparing its
consolidated financial statements in accordance with accounting principles
generally accepted in the United States of America ("GAAP"), establishing and
maintaining internal control over financial reporting (as defined in Exchange
Act Rule 13a-15(f)) and evaluating the effectiveness of such internal control
over financial reporting. The independent auditor is responsible for auditing
NL's consolidated financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States) and for expressing an
opinion on the conformity of the financial statements with GAAP. The independent
auditor is also responsible for auditing NL's internal control over financial
reporting in accordance with such standards and for expressing an opinion on (i)
management's assessment of the effectiveness of its internal control over
financial reporting and (ii) the effectiveness of its internal control over
financial reporting. The audit committee assists the Board of Directors in
fulfilling its responsibility to oversee management's implementation of NL's
financial reporting process. In its oversight role, the audit committee reviewed
and discussed the audited financial statements with management and with
PricewaterhouseCoopers LLP ("PwC"), NL's independent auditor for 2004. The audit
committee also reviewed and discussed internal control over financial reporting
with management and with PwC.
The audit committee met with PwC and discussed any issues deemed
significant by the independent auditor, including the required matters to be
discussed by Statement of Auditing Standards No. 61, Communication with Audit
Committee, as amended. PwC has provided to the audit committee written
disclosures and the letter required by Independence Standards Board No. 1,
Independence Discussions with Audit Committees, and the audit committee
discussed with PwC that firm's independence. The audit committee also concluded
that PwC's provision of non-audit services to NL and its affiliates is
compatible with PwC's independence.
Based upon the foregoing considerations, the audit committee recommended to
the Board of Directors that NL's audited financial statements be included in its
Annual Report on Form 10-K for 2004.
Members of the audit committee of the Board of Directors respectfully
submit the foregoing report.
Gen. Thomas P. Stafford (ret.) Terry N. Worrell
Chairman of the Audit Committee Member of the Audit Committee
Cecil H. Moore, Jr.
Member of the Audit Committee
-24-
INDEPENDENT AUDITOR MATTERS
Independent Auditor. PwC served as NL's independent auditor for the year
ended December 31, 2004. NL's audit committee has appointed PwC to review NL's
quarterly unaudited consolidated financial statements to be included in its
Quarterly Reports on Form 10-Q for the first three quarters of 2005. NL expects
PwC will be considered for appointment to audit NL's annual consolidated
financial statements and internal control over financial reporting for the year
ending December 31, 2005. Representatives of PwC are not expected to attend the
Meeting.
Fees Paid to PwC. The following table shows the aggregate fees PwC has
billed or is expected to bill to NL and its subsidiaries for services rendered
for 2003 and 2004.
Audit
Audit Related Tax All Other
Entity (1) Fees (2) Fees (3) Fees (4) Fees (5) Total
----------------------------------------- ------------- ----------- ------------- ------------- -------------
NL and Subsidiaries
2003................................. $ 420,401 $ 57,183 $ -0- $ -0- $ 477,584
2004................................. $ 363,335 $ 40,050 $ -0- $ -0- $ 403,385
CompX and Subsidiaries
2003................................. 447,251 62,644 44,900 25,810 580,605
2004................................. 898,179 62,860 22,881 11,334 995,254
Kronos Worldwide and Subsidiaries (6)
2003................................. 891,709 73,773 124,873 -0- 1,090,355
2004................................. 2,571,259 20,236 51,735 -0- 2,643,230
Total
2003................................. $ 1,759,361 $ 193,600 $ 169,773 $ 25,810 $ 2,148,544
2004................................. $ 3,832,773 $ 123,146 $ 74,616 $ 11,334 $ 4,041,869
--------------------
(1) Fees are reported without duplication.
(2) Fees for the following services:
(a) audits of consolidated year-end financial statements for each year and
audit of internal control over financial reporting for 2004;
(b) reviews of the unaudited quarterly financial statements appearing in
Forms 10-Q for each of the first three quarters of each year;
(c) consents and assistance with registration statements filed with the
SEC;
(d) normally provided statutory or regulatory filings or engagements for
each year; and
(e) the estimated out-of-pocket costs PwC incurred in providing all of
such services for which PwC is reimbursed.
(3) Fees for assurance and related services reasonably related to the audit or
review of financial statements for each year. These services included
employee benefit plan audits, accounting consultations and attest services
concerning financial accounting and reporting standards and advice
concerning internal controls.
(4) Permitted fees for tax compliance, tax advice and tax planning services.
(5) Fees for all services not described in the other categories. For 2003, the
disclosed fees include fees for an annual software license and maintenance
and an agreed upon procedures report for the Dutch government related to a
CompX employee severance plan. For 2004, the disclosed fees include fees
for consultations relative to the disposition of CompX's Thomas Regout
operations in Europe and research and development claims.
(6) NL accounts for its interest in Kronos Worldwide by the equity method as of
December 31, 2004.
Preapproval Policies and Procedures. On February 22, 2005, the audit
committee adopted an amended and restated preapproval policy, a copy of which is
attached as Appendix A to this proxy statement, with respect to preapproving
engagements of PwC to perform audit or nonaudit services on behalf of NL or any
of its subsidiaries other than NL's publicly held subsidiaries and their
respective subsidiaries. As of May 6, 2003, the audit committee became
responsible for preapproving every engagement of PwC to perform such services.
Since May 6, 2003, the audit committee has preapproved the engagement of PwC for
all such services.
-25-
OTHER MATTERS
The Board of Directors knows of no other business that will be presented
for consideration at the Meeting. If any other matters properly come before the
Meeting, the persons designated as agents in the enclosed proxy card or voting
instruction form will vote on such matters in accordance with their reasonable
judgment.
SHAREHOLDER PROPOSALS AND DIRECTOR NOMINATIONS FOR THE 2006 ANNUAL MEETING
Shareholders may submit proposals on matters appropriate for shareholder
action at NL's annual shareholder meetings, consistent with rules adopted by the
SEC. NL must receive such proposals not later than December 19, 2005 to be
considered for inclusion in the proxy statement and form of proxy card relating
to the Annual Meeting of Shareholders in 2006.
The Board of Directors will consider the director nominee recommendations
of NL shareholders. The Board of Directors has no specific minimum
qualifications for director candidates. The Board of Directors will consider a
potential director nominee's ability to satisfy the need, if any, for any
required expertise on the Board of Directors or one of its committees.
Historically, NL's management has recommended director nominees to the Board of
Directors. Because under the NYSE listing standards NL may be deemed to be a
controlled company, the Board of Directors believes that additional policies or
procedures with regard to the consideration of director candidates recommended
by its shareholders are not appropriate.
Proposals and nominations should be addressed to: Corporate Secretary, NL
Industries, Inc., Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas,
Texas 75240-2697.
COMMUNICATIONS WITH THE BOARD OF DIRECTORS
Shareholders who wish to communicate with the Board of Directors may do so
through the following procedures. Shareholder communications not involving
complaints or concerns regarding accounting, internal accounting controls and
auditing matters related to NL ("Accounting Complaints or Concerns") may be sent
to the attention of NL's corporate secretary at NL Industries, Inc., Three
Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697.
Shareholder communications that relate to matters that are within the scope of
the responsibilities of the Board of Directors and its committees, or summaries
of such communications, will be forwarded to the chairman of the audit
committee.
Accounting Complaints or Concerns, which may be made anonymously, should be
sent to the attention of NL's general counsel with a copy to NL's chief
financial officer at the same address as the corporate secretary. Accounting
Complaints or Concerns will be forwarded to the chairman of the audit committee.
NL will keep Accounting Complaints or Concerns confidential and anonymous, to
the extent feasible, subject to applicable law. Information contained in an
Accounting Complaint or Concern may be summarized, abstracted and aggregated for
purposes of analysis and investigation.
2004 ANNUAL REPORT ON FORM 10-K
A copy of NL's Annual Report on Form 10-K for the fiscal year ended
December 31, 2004, as filed with the SEC, is included as part of the annual
report mailed to NL's shareholders with this proxy statement. This Annual Report
on Form 10-K may also be accessed on NL's website at www.nl-ind.com.
ADDITIONAL COPIES
Pursuant to an SEC rule concerning the delivery of annual reports and proxy
statements, a single set of these documents may be sent to any household at
which two or more shareholders reside if they appear to be members of the same
family. Each shareholder continues to receive a separate proxy card. This
procedure, referred to as householding, reduces the volume of duplicate
information shareholders receive and reduces mailing and printing expenses. A
number of brokerage firms have instituted householding. Certain beneficial
shareholders who share a single address may have received a notice that only one
annual report and proxy statement would be sent to that address unless a
shareholder at that address gave contrary instructions. If, at any time, a
shareholder who holds shares through a broker no longer wishes to participate in
householding and would prefer to receive a separate proxy statement and related
materials, or if such shareholder currently receives multiple copies of the
proxy statement and related materials at his or her address and would like to
request householding of NL communications, the shareholder should notify his or
her broker. Additionally, NL will promptly deliver a separate copy of NL's 2004
annual report or this proxy statement to any shareholder at a shared address to
which a single copy of such documents was delivered, upon the written or oral
request of the shareholder.
-26-
To obtain copies of NL's 2004 annual report or this proxy statement without
charge, please mail your request to the attention of Robert D. Graham, Corporate
Secretary, at NL Industries, Inc., Three Lincoln Centre, 5430 LBJ Freeway, Suite
1700, Dallas, Texas 75240-2697, or call him at 972.233.1700.
NL INDUSTRIES, INC.
Dallas, Texas
April 18, 2005
-27-
Appendix A
NL INDUSTRIES, INC.
AUDIT COMMITTEE PREAPPROVAL POLICY
AMENDED AND RESTATED AS OF FEBRUARY 22, 2005
----------------
Section 1. -- Statement of Principles
The Audit Committee is required, subject to any de-minimus exceptions
permitted by applicable law or regulation, to preapprove the audit and non-audit
services performed by the independent auditor in order to assure that the
provision of such services do not impair the auditors' independence.
This Policy applies to services provided by the accounting firm that serves
NL Industries, Inc. and its subsidiaries (the "Company") as its primary
independent auditor, and any international affiliates thereof.
Unless a type of service to be provided by the independent auditor is
subject to preapproval under Sections 3 or 4 of this Policy, it will require
specific preapproval by the Audit Committee under Section 2 of this Policy. In
addition, any proposed services subject to preapproval under Section 3 of this
Policy that exceeds the applicable preapproved fee level will also require
preapproval under either Section 2 or Section 4 of this Policy. Notwithstanding
the foregoing, the preapproval requirements under this Policy are waived with
respect to the provision of permitted non-Audit Services to the extent allowed
by applicable law or regulation.
Section 2. -- Specific Preapproval
Subject to Sections 4 and 5 of this Policy, the following describes the
Audit and Audit-related services to be provided by the independent auditor that
must have the specific preapproval of the Audit Committee before the independent
auditor can be engaged:
o Annual audits of the consolidated financial statements of the Company,
attestation services associated with the Company's system of internal
control over financial reporting and other services associated with
the Company's Annual Report on Form 10-K;
o Quarterly review procedures associated with the Company's unaudited
interim consolidated financial statements and other services
associated with the Company's Quarterly Reports on Form 10-Q;
o Services associated with registration statements filed by the Company
with the Securities and Exchange Commission ("SEC"), including
responding to SEC comment letters and providing comfort letters;
o Statutory audits or annual audits of the annual financial statements
of subsidiaries of the Company;
o Quarterly review procedures of the interim financial statements of
subsidiaries of the Company;
o Services associated with potential business acquisitions/dispositions
involving the Company;
o Any other services provided to the Company not specifically described
above or in Section 3 of this Policy; and
o Any material changes in terms, conditions or fees with respect to the
foregoing resulting from changes in audit scope, Company structure or
other applicable matters.
Section 3. -- Other Categories of Preapproval
Audit-related services are assurance and related services that are
reasonably related to the performance of the audit or review of the Company's
financial statements and that are traditionally performed by the independent
auditor. The Audit Committee believes that the provision of all of the services
described below does not impair the independence of the auditor and is
consistent with the SEC's rules on auditor independence.
A-1
Subject to Section 5 of this Policy, the following Audit, Audit-related,
Tax and All Other services to be provided by the independent auditor will have
the preapproval of the Audit Committee, subject to the limitation that the
aggregate fees for such services provided by the independent auditor in any
calendar year may not exceed the limits established by the Audit Committee. The
Audit Committee will periodically revise the list of pre-approved services and
the fee limitation based on subsequent determinations as it deems appropriate.
o Audit Services:
o Consultations with the Company's management as to the accounting
and/or disclosure treatment of transactions or events and/or the
actual or potential impact of final or proposed rules, standards
or interpretations of the SEC, the Financial Accounting Standards
Board, the Public Company Accounting Oversight Board or other
applicable domestic or international regulatory or
standard-setting bodies; and
o Assistance with responding to SEC comment letters received by the
Company other than in connection with a registration statement
filed with the SEC.
o Audit-related Services:
o Consultations with the Company's management as to the accounting
and/or disclosure treatment of transactions or events and/or the
actual or potential impact of final or proposed rules, standards
or interpretations of the SEC, the Financial Accounting Standards
Board, the Public Company Accounting Oversight Board or other
applicable domestic or international regulatory or
standard-setting bodies (note, under SEC rules, some
consultations may be "audit" rather than "audit-related").
o Financial statement audits of employee benefit plans of the
Company;
o Agreed-upon or expanded audit procedures related to the Company's
accounting records required to respond to or comply with
financial, accounting, legal, regulatory or contractual reporting
requirements; and
o Internal control reviews and assistance with internal control
reporting requirements of the Company (to the extent permitted by
applicable rule or regulation).
o Tax Services:
o Consultations with the Company's management as to the tax
treatment of transactions or events and/or the actual or
potential tax impact of final or proposed laws, rules and
regulations in U.S. federal, state and local and international
jurisdictions;
o Consultations with the Company's management related to compliance
with existing or proposed tax laws, rules and regulations in U.S.
federal, state and local and international jurisdictions;
o Assistance in the preparation of and review of the Company's U.S.
federal, state and local and international income, franchise and
other tax returns;
o Assistance with tax inquiries, audits and appeals of the Company
before the U.S. Internal Revenue Service and similar state, local
and international agencies;
o Consultations with the Company's management regarding domestic
and international statutory, regulatory or administrative tax
developments;
o Transfer pricing and cost segregation studies of the Company; and
o Expatriate tax assistance and compliance for the Company and its
employees.
o Other Services:
o Assistance with corporate governance matters (including
preparation of board minutes and resolutions) and assistance with
the preparation and filing of documents (such as paperwork to
register new companies or to de-register existing companies)
involving the Company with non-U.S. governmental and regulatory
agencies, provided, however, that the non-U.S. jurisdiction in
which such services are provided does not require that the
individual providing such service be licensed, admitted or
otherwise qualified to practice law.
Any services provided by the independent auditor under this Section of the
Policy shall be reported to the full Audit Committee by an officer of the
Company at the first meeting of the Audit Committee held subsequent to the
engagement of the independent auditor to provide such services. Such report
shall include detailed back-up documentation provided by the independent auditor
regarding the services provided.
A-2
Section 4. -- Delegation
Subject to Section 5 of this Policy, the Audit Committee has delegated
preapproval authority to the Audit Committee Chairman or his/her designee for
(i) any proposed services described in Section 3 of this Policy to the extent
that the aggregate fees for such services provided by the independent auditor
during the then-current calendar year has exceeded the limits established by the
Audit Committee or (ii) any other proposed services that are not described in
Section 3 of this Policy that the Audit Committee Chairman or his/her designee
determines to be appropriate or necessary. The Chairman or his/her designee
shall report any pre-approval decisions under this Section 4 of the Policy to
the full Audit Committee at the first meeting of the Audit Committee held
subsequent to such pre-approval decision. The Audit Committee does not delegate
its responsibilities to pre-approve services performed by the independent
auditor to management.
Section 5. -- Prohibited Non-Audit Services
The following is a list of non-audit services for which the independent
auditor is prohibited from providing to the Company under the terms of the SEC's
rules on auditor independence, or otherwise:
o Bookkeeping or other services related to the accounting records or
financial statements of the Company;
o Financial information systems design and implementation;
o Appraisal or valuation services, fairness opinions or
contribution-in-kind reports;
o Actuarial services;
o Internal audit outsourcing services;
o Management functions;
o Human resources;
o Broker, dealer, investment adviser or investment banking services;
o Any service for which no fee would be charged unless a specified
finding or result is obtained, or in which the amount of the fee is
otherwise dependent upon the finding or result of such service (other
than any such fee which is fixed by a court of competent authority or
other public authorities and not dependent on a finding or result);
o Any tax service involving (i) a listed transaction within the meaning
of 26 C.F.R. ss. 1.6011.1-4(b)(2) or (ii) a confidential transaction
within the meaning of 26 C.F.R. ss. 1.6011.1-4(b)(3), or that would be
a confidential transaction within the meaning of 26 C.F.R. ss.
1.6011.1-4(b)(3) if the fee for the transaction were equal to or more
than the minimum fee described in 26 C.F.R. ss. 1.6011.1-4(b)(3);
o Legal services to the extent that the jurisdiction in which such
services are provided requires that the individual providing such
service be licensed, admitted or otherwise qualified to practice law;
and
o Expert services unrelated to the audit.
Section 6. -- Procedures
Applications to provide services that require preapproval by the Audit
Committee under Section 2 of this Policy, or that require preapproval of the
Chairman of the Audit Committee or his/her designee under Section 4 of this
Policy, must be made by an auditor in writing. Such an application, which shall
include detailed back-up documentation provided by the independent auditor
regarding the services provided, shall be submitted to the Audit Committee or
the Chairman of the Audit Committee, as applicable, for final resolution.
Section 7. -- Engagement Letters
Engagement of the independent auditor under this Policy to provide the
following services must be evidenced pursuant to a written engagement letter
with the independent auditor that must at least be signed by the Chairman of the
Audit Committee or his/her designee before the engagement can commence:
A-3
o Annual audits of the consolidated financial statements of the Company,
attestation services associated with the Company's system of internal
control over financial reporting and other services associated with
the Company's Annual Report on Form 10-K;
o Quarterly review procedures associated with the Company's unaudited
interim consolidated financial statements and other services
associated with the Company's Quarterly Reports on Form 10-Q; and
o Any engagement for which applicable professional standards of the
independent auditor require an engagement letter.
Any other engagement of the independent auditor under this Policy may be
evidenced pursuant to a written engagement letter with the independent auditor,
as may be required by the Audit Committee, the Chairman of the Audit Committee
or his/her designee, the independent auditor or an officer of the Company,
before the engagement can commence. Any such engagement letter may, but is not
required to, be signed by the Chairman of the Audit Committee or his/her
designee.
A-4
NL INDUSTRIES, INC.
THREE LINCOLN CENTRE
5430 LBJ FREEWAY, SUITE 1700
DALLAS, TEXAS 75240-2697
Dear Shareholder:
NL Industries, Inc. encourages you to take advantage of new and convenient
ways by which you can vote your shares. You can vote your shares electronically
through the internet or by telephone. This eliminates the need to return this
proxy card.
1. To vote over the internet:
o Log on to the internet and go to the web site
http://www.eproxyvote.com/nl. Internet voting will be available until
12:01 A.M. on May 19, 2005.
2. To vote over the telephone:
o On a touch-tone telephone call 1-877-PRX-VOTE (1-877-779-8683) 24
hours a day, seven days a week. Telephone voting will be available
until 12:01 A.M. on May 19, 2005.
o Non-U.S. shareholders should call 1-201-536-8073.
Your electronic or telephonic vote authorizes the named proxies to vote in the
same manner as if you marked, dated and returned this proxy card. If you vote
your shares electronically or telephonically, do not mail back this proxy card.
Your vote is important. Thank you for voting.
DETACH HERE
--------------------------------------------------------------------------------
Proxy
NL INDUSTRIES, INC.
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, Texas 75240-2697
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NL INDUSTRIES,
INC. FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD MAY 19, 2005
The undersigned hereby appoints Gregory M. Swalwell, Robert D. Graham and A.
Andrew R. Louis, and each of them, proxy and attorney-in-fact for the
undersigned, with full power of substitution, to vote on behalf of the
undersigned at the 2005 Annual Meeting of Shareholders (the "Meeting") of NL
Industries, Inc., a New Jersey corporation ("NL"), to be held at NL's corporate
offices at Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas on
Thursday, May 19, 2005, at 10:00 a.m. (local time), and at any adjournment or
postponement of the Meeting, all of the shares of common stock, par value $0.125
per share, of NL standing in the name of the undersigned or that the undersigned
may be entitled to vote on the proposals set forth, and in the manner directed,
on this proxy card.
THIS PROXY MAY BE REVOKED AS SET FORTH IN THE NL PROXY STATEMENT THAT
ACCOMPANIED THIS PROXY CARD.
The proxies, if this card is properly executed, will vote in the manner directed
on this card. If no direction is made, the proxies will vote "FOR" all nominees
named on the reverse side of this card for election as directors and, to the
extent allowed by applicable law, in the discretion of the proxies as to all
other matters that may properly come before the Meeting and any adjournment or
postponement thereof.
PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
NL Industries, Inc.
C/O EQUISERVE TRUST COMPANY N.A.
P.O. BOX 8073
EDISON, NJ 08818-8073
Your vote is important. Please vote immediately.
Vote-by-Internet Vote-by-Telephone
Log on to the internet and go to Call toll-free
http://www.eproxyvote.com/nl. 1-877-PRX-VOTE (1-877-779-8683)
Follow the easy steps outlined Follow the easy recorded instructions.
on the secured website.
If you vote over the internet or by telephone, please do not mail your card.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL
--------------------------------------------------------------------------------
[ X ] Please mark votes as in this example.
This proxy, if properly executed, will be voted as specified below by you. If no
direction is given, this proxy will be voted "FOR" all nominees for directors
listed below and "FOR" proposal 2.
--------------------------------------------------------------------------------
The Board of Directors recommends a vote "FOR" all nominees for director listed
below and "FOR" proposal 2.
--------------------------------------------------------------------------------
1. Election of Directors.
(Please see reverse)
FOR WITHHOLD
FOR WITHHOLD
ALL [ ] [ ] FROM ALL
NOMINEES NOMINEES
----------------------------------------------
For all nominees except as written above.
Director Nominees:
01 Cecil H. Moore, Jr.,
02 Glenn R. Simmons,
03 Harold C. Simmons,
04 Thomas P. Stafford
05 Steven L. Watson, and
06 Terry N. Worrell.
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Meeting and any
adjournment or postponement thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Please sign exactly as the name that appears on this card. Joint owners should
each sign. When signing other than in an individual capacity, please fully
describe such capacity. Each signatory hereby revokes all proxies heretofore
given to vote at said Meeting and any adjournment or postponement thereof.
Signature: Date: Signature: Date:
------------ ------- ------------- --------