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 16, 2004
Dear Shareholder:
You are cordially invited to attend the 2004 Annual Meeting of Shareholders
of NL Industries, Inc., which will be held on Thursday, May 20, 2004, at 10:15
a.m., local time, at NL's offices located 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 be at the meeting, please complete, date, sign
and return the proxy card or voting instruction form in the accompanying
envelope as promptly as possible to ensure that your shares are represented at
the meeting 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 for the meeting in accordance with NL's By-Laws.
Sincerely,
/s/ Harold C. Simmons
Harold C. Simmons
Chairman of the Board
NL Industries, Inc.
Three Lincoln Center
5430 LBJ Freeway
Suite 1700
Dallas, Texas 75240-2697
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 20, 2004
To the Shareholders of NL Industries, Inc.:
NOTICE IS HEREBY GIVEN that the 2004 Annual Meeting of Shareholders (the
"Annual Meeting") of NL Industries, Inc., a New Jersey corporation (the
"Company" or "NL"), will be held on Thursday, May 20, 2004, at 10:15 a.m., local
time, at NL's offices located at Three Lincoln Centre, 5430 LBJ Freeway, Suite
1700, Dallas, Texas, for the following purposes:
1. To elect six directors to serve until the 2005 Annual Meeting of
Shareholders and until their successors are duly elected and qualified; and
2. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
The Board of Directors of the Company set the close of business on March
29, 2004 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Annual Meeting. Only
holders of record of NL's Common Stock, $.125 par value per share, at the close
of business on the Record Date are entitled to notice of, and to vote at, the
Annual Meeting. The Company's stock transfer books will not be closed following
the Record Date.
You are cordially invited to attend the Annual Meeting. Whether or not
you plan to be at the meeting, please complete, date, sign and return the proxy
card or voting instruction form in the accompanying envelope as promptly as
possible to ensure that your shares are represented at the Annual Meeting and
voted in accordance with your wishes. You may revoke your proxy by following the
procedures set forth in the accompanying Proxy Statement. If you choose, you may
vote in person at the Annual 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 16, 2004
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 (the "Company" or "NL"), for use at the Company's
2004 Annual Meeting of Shareholders to be held at 10:15 a.m., local time, on
Thursday, May 20, 2004, at NL's offices located at Three Lincoln Centre, 5430
LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697, and at any adjournment or
postponement thereof (the "Annual Meeting"). The accompanying Notice of Annual
Meeting of Shareholders, this proxy statement, the accompanying proxy card or
voting instructions 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, 2003 (the
"Annual Report"), are first being mailed to the holders of the Company's Common
Stock, $.125 par value per share ("Common Stock"), on or about April 16, 2004.
PURPOSE OF ANNUAL MEETING
At the Annual Meeting, shareholders of the Company will consider and vote
upon (i) the election of six directors to serve until the Company's 2005 Annual
Meeting of Shareholders and until their successors are duly elected and
qualified, and (ii) such other business as may properly come before the Annual
Meeting. The Company is not aware of any other business expected to come before
the Annual Meeting.
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 Annual Meeting was the
close of business on March 29, 2004 (the "Record Date"). As of the Record Date,
there were issued and outstanding 48,323,984 shares of Common Stock. Each share
of Common Stock entitles the holder to one vote on all matters that come before
the Annual 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 Annual Meeting is
necessary to constitute a quorum for the conduct of business at the Annual
Meeting. Shares of Common Stock that are voted to abstain from any business
coming before the Annual Meeting and broker/nominee non-votes will be counted as
being in attendance at the Annual Meeting for purposes of determining whether a
quorum is present.
If a quorum is present, a plurality of the affirmative votes of the Common
Stock represented and entitled to be voted at the Annual Meeting is necessary to
elect each director of NL. The accompanying proxy card or voter instruction form
provides space for a shareholder to withhold authority to vote for any of the
nominees for 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 votes represented and entitled to vote at the Annual Meeting, a
vote withheld from a particular nominee will not affect the election of that
nominee.
Except as may be provided in the Company's Amended and Restated Certificate
of Incorporation (the "Certificate"), if a quorum is present, the approval of
any other matter that may properly come before the Annual Meeting will require
the affirmative vote of a majority of the votes represented and entitled to vote
at the Annual Meeting. Shares of Common Stock that are voted to abstain from any
other business coming before the Annual 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
Annual Meeting "FOR" the election of the nominees for director of the Board of
Directors and, to the extent allowed by the federal securities laws, in the
discretion of the agents on any other matter that may properly come before the
Annual Meeting.
EquiServe Trust Company N.A. or its successor ("EquiServe"), the transfer
agent and registrar for NL Common Stock as of the Record Date, has been
appointed by the Board of Directors to ascertain the number of shares
represented, receive proxies and ballots, tabulate the vote and serve as
inspector of election at the Annual Meeting (the "Inspector of Election"). All
proxies and ballots delivered to EquiServe shall be kept confidential by
EquiServe in accordance with the terms of the Company's By-Laws.
Each holder of record of Common Stock giving the proxy enclosed with this
proxy statement may revoke it at any time prior to the voting at the Annual
Meeting by delivering to EquiServe a written revocation of the proxy or a duly
executed proxy bearing a later date or by voting in person at the Annual
Meeting. Attendance by a shareholder at the Annual 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 a cost NL
estimates at $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.
2
CONTROLLED COMPANY
Valhi, Inc. ("Valhi") and Tremont LLC, a wholly owned subsidiary of Valhi
("Tremont"), are the direct holders of 62.4% and 21.1%, respectively, of the
outstanding shares of the Common Stock as of the Record Date. Together Valhi and
Tremont own 83.5% of the outstanding shares of the Common Stock. Valhi and
Tremont are each related to Contran Corporation ("Contran"). Harold C. Simmons
may be deemed to control Valhi, Tremont and Contran.
Valhi and Tremont have indicated their intention to have their shares
represented at the Annual Meeting and voted "FOR" the election of each of the
nominees for the Board of Directors. If Valhi alone attends the Annual Meeting
in person or by proxy and votes as indicated, the Annual Meeting will have a
quorum present and the shareholders will elect all the nominees for the Board of
Directors.
Because of the Common Stock ownership of Valhi and Tremont, NL is
considered a controlled company under the listing standards of the New York
Stock Exchange (the "NYSE"). Pursuant to the listing standards, a controlled
company may choose not to have a majority of independent directors, independent
compensation, nominating or corporate governance committees or charters for
these committees. 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
requirements of the NYSE listing standards, the Board of Directors has
determined that three of its directors are independent and have no material
relationship with NL. While the members of NL's Management Development and
Compensation committee (the "MD&C Committee") currently satisfy the independence
requirements of the NYSE listing standards, NL has chosen not to satisfy all of
the NYSE listing standards for a compensation committee. See "Meetings and
Committees" for more information on the committees of the Board of Directors.
See also "Shareholder Proposals for the 2005 Annual Meeting" for a description
of NL's policies and procedures for shareholder nominations of directors.
ELECTION OF DIRECTORS
The Certificate provides for a Board of Directors consisting of not less
than seven and not more than seventeen persons, as such number is determined
from time to time by a majority of the entire Board of Directors. The Board of
Directors has currently set the number of directors at seven. The directors
elected at the Annual Meeting will hold office until the 2005 Annual Meeting of
Shareholders and until their successors are duly elected and qualified or their
earlier removal, resignation or death.
All of the nominees are currently directors of NL whose terms will expire
at the Annual Meeting. All of the nominees have agreed to serve if elected. If
any nominee is not available for election at the Annual Meeting, 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 present nominees will
be available for election at the Annual Meeting and will serve if elected. There
is currently a vacancy in one directorship on the Board of Directors, and the
Board of Directors is seeking an appropriate candidate to fill this vacancy.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF THE
FOLLOWING NOMINEES FOR DIRECTOR.
3
Nominees For Director
The respective nominees for election as directors of NL for terms expiring
at the 2005 Annual Meeting of Shareholders have provided the following
information.
Cecil H. Moore, Jr., age 64, has been a director of NL since September
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 (the "Audit Committee") and
on the board of directors and audit committee of Kronos Worldwide, Inc. ("Kronos
Worldwide"). Mr. Moore is also a director of Perot Systems Corporation.
Glenn R. Simmons, age 76, has been a director of NL since 1986. Mr. Simmons
has been vice chairman of the board of Valhi and Contran since prior to 1999.
Mr. Simmons is also a director of Kronos Worldwide. 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 manufacturer of ergonomic
computer support systems, precision ball bearing slides and security products
that is related to Valhi ("CompX"). Mr. Simmons is also a director of Titanium
Metals Corporation ("TIMET"), an integrated producer of titanium metals products
that is related to Valhi. 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 72, has served as chief executive officer of NL
since July 2003, chairman of the board of NL since 1987 and a director of NL
since 1986. Mr. Simmons has been chairman of the board of Valhi and Contran
since prior to 1999 and was chief executive officer of Valhi from prior to 1999
to 2002. Mr. Simmons is also chairman of the board and chief executive officer
of Kronos Worldwide. 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 73, served as a director of NL
from 1984 to 1986 and was re-appointed in 2000. General 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,
General 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 53, has served as a director of NL since 2000. 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, Kronos Worldwide and TIMET. Mr. Watson has served as an
executive officer or director of various companies related to Valhi and Contran
since 1980.
Terry N. Worrell, age 59, has served as a director of NL since October
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 trust manager of Regency Centers Corporation and a
trust manager of Crescent Real Estate Equities Company, both real estate
investment trusts.
See also "Certain Relationships and Transactions."
4
MEETINGS AND COMMITTEES
The Board of Directors held seven meetings and took action by unanimous
written consent in lieu of a meeting on five occasions in 2003. Each of the
directors participated in more than 75% of the total number of meetings of the
Board of Directors and committees on which he served that were held during his
period of service in 2003. It is NL's policy that each director attend its
annual meeting of shareholders, which is generally held immediately before the
annual meeting of the Board of Directors. All members of the Board of Directors
attended NL's 2003 annual shareholders meeting.
The Board of Directors has established the following two standing
committees:
Audit Committee. The Audit Committee assists the Board of Directors'
oversight responsibilities relating to the financial accounting and reporting
processes and auditing processes of NL. The responsibilities of the Audit
Committee are more specifically set forth in the Audit Committee charter
attached as Appendix A to this Proxy Statement. Applying the requirements of the
NYSE listing standards and Securities and Exchange Commission (the "SEC")
regulations, as applicable, the Board of Directors has determined that:
o Each member of the Audit Committee is financially literate and
independent and has no material relationship with NL; and
o Mr. Cecil H. Moore, Jr. is the "Audit Committee financial expert."
The Audit Committee held eleven meetings and took action by written consent
in lieu of a meeting on one occasion in 2003. The current members of the Audit
Committee are General Stafford (chairman), and Messrs. Moore and Worrell. 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."
Management Development and Compensation Committee. The principal
responsibilities of the MD&C Committee are to review and make recommendations
regarding executive compensation, to administer and grant awards under the NL
Industries, Inc. 1998 Long-Term Incentive Plan (the "1998 Plan"), to approve
certain annual compensation awards, to provide oversight, take action or make
recommendations to the Board of Directors regarding NL's employee, pension,
welfare and fringe benefit plans or programs, including decisions with respect
to the management, disposition, or investment of plan assets and the appointment
of investment managers/advisors and to monitor investment performance of the
assets of the plans, and to administer such other compensation matters as the
Board of Directors may from time to time direct. The Board of Directors has
determined that each member of the MD&C Committee is independent, applying the
requirements of the NYSE listing standards. The MD&C Committee held one meeting
and took action by written consent in lieu of a meeting on one occasion in 2003.
Its current members are General Stafford (Chairman) and Mr. Worrell. The MD&C
Committee does not have a written charter.
The Board of Directors is expected to elect the members of the standing
committees at the Board of Directors annual meeting immediately following the
Annual Meeting. The Board of Directors has previously established, and from time
to time may establish, other committees to assist it in discharging its
responsibilities.
5
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information regarding the Company's executive
officers. Biographical information with respect to Mr. Simmons is set forth
above under "Election of Directors."
Name Age Position(s)
--------------------- ---- -------------------------------------------------
Harold C. Simmons 72 Chairman of the Board and Chief Executive Officer
James W. Brown 47 Vice President and Controller
Robert D. Graham 48 Vice President, General Counsel and Secretary
Gregory M. Swalwell 47 Vice President, Finance
John A. St. Wrba 47 Vice President and Treasurer
Kelly D. Luttmer 40 Tax Director
James W. Brown has served as vice president and controller of NL and Kronos
Worldwide since December 2003. From 1998 to 2002, he served as vice president
and chief financial officer of Software Spectrum, Inc. ("SSI"). SSI is a global
business-to-business software services provider that is a wholly owned
subsidiary of Level 3 Communications, Inc. From 1991 to 2002, SSI was a publicly
held corporation. From 1994 to 1998, Mr. Brown served as vice president,
corporate accounting of Affiliated Computer Services, Inc.
Robert D. Graham has served as vice president, general counsel and
secretary of NL since July 2003, vice president, general counsel and secretary
of Kronos Worldwide since August 2003 and as 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 and Sapp LLP.
Gregory M. Swalwell has served as vice president, finance of NL since July
2003, vice president, finance of Kronos Worldwide since August 2003 and vice
president and controller of Valhi and Contran since prior to 1999. Mr. Swalwell
has served in accounting positions with various companies related to Valhi and
Contran since 1988.
John A. St. Wrba has served as vice president and treasurer of NL since
February 2003 and treasurer of Kronos Worldwide since August 2003. He was NL's
assistant treasurer from 2002 to 2003. He served as NL's assistant treasurer
from prior to 1998 until 2000. From 2000 until 2002, he was assistant treasurer
of Kaiser Aluminum & Chemical Corporation.
Kelly D. Luttmer has served as tax director of NL since July 2003, tax
director of Kronos Worldwide since August 2003 and tax director of Valhi and
Contran since 1998. Ms. Luttmer has served in tax accounting positions with
various companies related to Valhi and Contran since 1989.
6
SECURITY OWNERSHIP
Ownership of NL Common Stock. The following table and accompanying notes
set forth as of the Record Date the beneficial ownership, as defined by the
regulations of the SEC, of Common Stock held by (a) each person or group of
persons known by NL to beneficially own more than 5% of the outstanding shares
of Common Stock, (b) each director or nominee for director of NL, (c) each
person listed in the Summary Compensation Table below, and (d) all current
executive officers and directors of NL as a group. See note (4) below for
information concerning individuals and entities that may be deemed to own
indirectly and beneficially those shares of Common Stock held directly by Valhi,
as reported in the table below. All information is taken from or based upon
ownership filings made by such persons with the SEC or information provided by
such persons to NL.
NL Common Stock
------------------------------------------------------
Amount and Nature Percent
Name of Beneficial Owner of Beneficial Ownership (1) of Class (2)
------------------------------------ ------------------------------ -----------------
Harold C. Simmons (3) 12,000 (4) *
Valhi, Inc. (3) 30,135,390 (4) 62.4%
Tremont LLC (3) 10,215,541 (4) 21.1%
Spouse (3) 69,475 (4) *
---------------------
40,432,406 (4) 83.7%
Cecil H. Moore, Jr. -0- -0-
Glenn R. Simmons 12,000 (4)(5) *
Gen. Thomas P. Stafford (ret.) 10,000 (6) *
Steven L. Watson 11,000 (4)(7) *
Terry N. Worrell -0- -0-
Gregory M. Swalwell -0- (4) -0-
John A. St. Wrba -0- -0-
J. Landis Martin -0- -0-
Dr. Lawrence A. Wigdor 90,800 (8) *
David B. Garten 11,000 (9) *
All current directors and executive
officers of the Company
as a group
(11 persons) 40,465,406 (4)(5)(6)(7) 83.7%
------------
* Less than 1%.
(1) Except as otherwise noted, the listed entities, individuals and group
have sole investment power and sole voting power as to all shares of
Common Stock set forth opposite their names. The number of shares and
percentage of ownership of Common Stock for each person or group
assumes the exercise by such person or group (exclusive of the
exercise by others) of stock options that such person or group may
exercise within 60 days subsequent to the Record Date.
7
(2) The percentages are based on 48,323,984 shares of Common Stock
outstanding as of the Record Date.
(3) The business address of Valhi, Tremont and Harold C. Simmons is Three
Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
75240-2697.
(4) Valhi is the direct holder of 100% of the membership interests of
Tremont. 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 Combined Master Retirement Trust (the "CMRT")
are the direct holders of approximately 77.6%, 9.1%, 3.1%, 0.9%, 0.4%
and 0.1%, respectively, of the outstanding shares of Valhi Common
Stock, par value $0.01 per share (the "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. As sole trustee of each of the Trusts,
Mr. Simmons has the power to vote and direct the disposition of the
shares of Contran stock held by each of the Trusts.
Harold C. Simmons is the chairman of the board and chief executive
officer of each of NL and Kronos Worldwide and the chairman of the
board of each of Tremont, Valhi, VGI, National, NOA, Dixie Holding,
Dixie Rice, Southwest and Contran.
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 0.1% of the outstanding shares
of Valhi Common Stock. Valhi established the CMRT to permit the
collective investment by master trusts that maintain the 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. Harold C. Simmons, Glenn R. Simmons, Steven L. Watson, J.
Landis Martin, Lawrence A. Wigdor, David B. Garten and certain other
executive officers of the Company are participants in one or more of
the employee benefit plans that invest through the CMRT. Each of such
persons disclaims beneficial ownership of all the shares held by the
CMRT, except to the extent of his or her individual vested beneficial
interest, if any, in the assets held by the CMRT.
8
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 such entities and (b) Mr. Simmons and certain of
such entities may be deemed to possess indirect beneficial ownership
of shares directly held by certain of such other entities. However,
Mr. Simmons disclaims such beneficial ownership of the shares
beneficially owned directly or indirectly by any of such entities,
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 Tremont directly holds.
All directors and executive officers of NL who are also directors or
executive officers of Valhi or Tremont disclaim beneficial ownership
of the shares of Common Stock that Valhi or Tremont directly hold.
Harold C. Simmons' spouse is the direct owner of 69,475 shares of
Common Stock and 35,233 shares of Kronos Worldwide Common Stock. Mr.
Simmons may be deemed to share indirect beneficial ownership of such
shares. Mr. Simmons disclaims all such beneficial ownership.
Harold C. Simmons directly holds 12,000 shares of Common Stock
(including stock options exercisable for 6,000 shares within 60 days
of the Record Date).
Valmont Insurance Company ("Valmont"), NL and a subsidiary of NL
directly hold 1,000,000, 3,522,967 and 1,186,200 shares of Valhi
Common Stock, respectively. Valhi is the direct holder of 100% of the
outstanding Common Stock of Valmont. Pursuant to Delaware law, Valhi
treats the shares that Valmont, 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 Valhi, Tremont LLC, VGI, National, NOA, Dixie
Holding, the CMRT, the Foundation 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.
(5) The shares of Common Stock shown as beneficially owned include 2,000
shares which Glenn R. Simmons has the right to acquire by exercise of
options within 60 days of the Record Date.
(6) The shares of Common Stock shown as beneficially owned include 6,000
shares which General Thomas P. Stafford has the right to acquire by
exercise of options within 60 days of the Record Date.
(7) The shares of Common Stock shown as beneficially owned include 4,000
shares of Common Stock which Mr. Watson has the right to acquire by
exercise of options within 60 days of the Record Date.
(8) The shares of Common Stock shown as beneficially owned include 89,800
shares of Common Stock which Dr. Lawrence A. Wigdor has the right to
acquire by exercise of options within 60 days of the Record Date.
(9) The shares of Common Stock shown as beneficially owned include 11,000
shares of Common Stock which Mr. Garten has the right to acquire by
exercise of options within 60 days of the Record Date.
The Company understands that Valhi 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 the Common Stock in the market, an assessment of the business
of and prospects for the Company, financial and stock market conditions and
other factors deemed relevant by such entities. NL may similarly consider
acquisitions of Common Stock and acquisitions or dispositions of securities
issued by related entities.
9
The Company further understands that Valhi has pledged approximately 62.0%
of its shares of Common Stock to secure bank borrowings by Valhi. Foreclosure by
the lender on this pledge in the event of Valhi's default on the loan, which
Valhi has advised the Company is unlikely, may at a subsequent date result in a
change in control of the Company.
Ownership of Valhi and Kronos Worldwide Common Stock. The following table
and accompanying notes set forth as of the Record Date the beneficial ownership,
as defined above, of Valhi Common Stock and Kronos Worldwide Common Stock held
by (a) each director or nominee for director of NL, (b) each person listed in
the Summary Compensation Table below, and (c) all current executive officers and
directors of NL as a group. All information is taken from or based upon
ownership filings made by such persons with the SEC or information provided by
such persons to NL.
Valhi Kronos Worldwide
Common Stock 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 3,383 (4) * 3,042 (4) *
Valhi Group, Inc. 92,739,554 (4) 77.6% -0- (4) -0-
National City Lines, Inc. 10,891,009 (4) 9.1% -0- (4) -0-
Contran Corporation 4,142,600 (4)(5) 3.5% -0- (4) -0-
Valhi, Inc. N/A N/A 16,029,146 (4) 32.8%
Tremont LLC -0- (4) -0- 5,180,738 (4) 10.6%
NL Industries, Inc. -0- (4) -0- 24,702,400 (4) 50.5%
Other 1,215,000 (4) 1.0% 35,233 (4) *
-------------- ---------------
108,991,546 (4) 91.2% 45,950,559 (4) 93.9%
Cecil H. Moore, Jr. -0- -0- -0- -0-
Glenn R. Simmons 13,247 (4)(6) * 2,071 (4) *
Gen. Thomas P. Stafford (ret.) -0- -0- 2,028 *
Steven L. Watson 117,246 (4)(7) * 3,549 (4) *
Terry N. Worrell -0- -0- -0- -0-
Gregory M. Swalwell 96,166 (4)(8) * -0- (4) -0-
John A. St. Wrba -0- -0- -0- -0-
J. Landis Martin 4 * -0- -0-
Dr. Lawrence A. Wigdor -0- -0- 107 *
David B. Garten -0- -0- 1,000 *
All current directors and
executive officers of NL
as a group
(11 persons) 109,280,809 (4)(5)(6)(7)(9)91.3% 45,958,208 (4) 93.9%
------------
* Less than 1%.
10
(1) Except as otherwise noted, the listed individuals and group have sole
investment power and sole voting power as to all shares set forth
opposite their names. The number of shares and percentage of ownership
for each person or group assumes the exercise by such person or group
(exclusive of others) of stock options that such person or group may
exercise within 60 days subsequent to the Record Date.
(2) The percentages are based on 119,466,678 shares of Valhi Common Stock
outstanding as of the Record Date. For purposes of calculating the
outstanding shares of Valhi Common Stock as of the Record Date,
1,000,000, 3,522,967 and 1,186,200 shares of Valhi Common Stock held
by Valmont, NL and a subsidiary of NL, respectively, are excluded from
the amount of Valhi Common Stock outstanding. Pursuant to Delaware
corporate law, Valhi treats these excluded shares held by these
majority owned subsidiaries as treasury stock for voting purposes.
(3) The percentages are based on 48,943,049 shares of Kronos Common Stock
outstanding as of the Record Date.
(4) Excludes certain shares that such individual may be deemed to
indirectly and beneficially own as to which such individual disclaims
beneficial ownership. See footnote (4) to the "Ownership of NL Common
Stock" table.
(5) Includes 439,400 shares of Valhi Common Stock the CDCT No. 2 directly
holds.
(6) The shares of Valhi Common Stock shown as beneficially owned include
2,383 shares of Valhi Common Stock held in Glenn R. Simmons'
individual retirement account. The Valhi shares also include 800
shares held in a retirement account for Mr. Simmons' wife, with
respect to all of which beneficial ownership is disclaimed by Mr.
Simmons.
(7) The shares of Valhi Common Stock shown as beneficially owned include
2,035 shares of Valhi Common Stock held in Steven L. Watson's
individual retirement account. The Valhi shares also include 100,000
shares that Mr. Watson has the right to acquire by exercise of options
within 60 days from the Record Date.
(8) The shares of Valhi Common Stock shown as beneficially owned include
1,166 shares of Valhi Common Stock held in Gregory M. Swalwell's
individual retirement account. The Valhi shares also include 95,000
shares that Mr. Swalwell has the right to acquire by exercise of
options within 60 days of the Record Date.
(9) The shares of Valhi Common Stock shown as beneficially owned by all
current directors and executive officers as a group include 62,600
shares of Valhi Common Stock that the other executive officers in the
group have the right to acquire by exercise of options within 60 days
of the Record Date.
11
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
AND OTHER INFORMATION
Compensation of Directors
Directors of NL are entitled to receive compensation for their services as
directors. Prior to May 20, 2003, directors received quarterly retainers of
$3,750, plus a fee of $1,000 per day for attendance at meetings (including
telephonic meetings) of the Board of Directors or its committees and for each
other day spent on NL business at the request of the Board of Directors or the
chairman of the board.
Beginning on May 20, 2003, directors received quarterly retainers of $5,000
plus a fee of $1,000 per day for attendance at meetings (including telephonic
meetings) of the Board of Directors or its committees and for each other day for
services rendered at the request of the Board of Directors or its committees not
related to meetings of the Board of Directors or its committees. Directors also
received quarterly retainers of $500 for each committee on which they served.
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 amount of the annual retainer then in effect. Throughout the year,
NL reimbursed 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, General Stafford receives an
annual payment of $15,000 as a result of his service on the Board of Directors
in the period prior to 1987.
Directors who received fees for serving on the Board of Directors and who
were entitled to receive the death benefit in 2003 are Messrs. G. Simmons, H.
Simmons, Moore, Watson, Worrell, and General Stafford. See "Certain
Relationships and Transactions."
On May 20, 2003, the Board of Directors also changed the equity
compensation paid to the non-employee directors. The Board of Directors
terminated the annual grant of stock options to the non-employee directors, but
authorized annual grants of shares of Common Stock to the non-employee directors
on the date of each annual shareholders meeting as determined by the following
formula based on the closing price of a share of Common Stock on the date of
grant.
Range of Closing Price Per Shares of Common
Share on the Date of Grant Stock to Be Granted
-------------------------- -------------------
Under $5.00 2,000
$5.00 to $9.99 1,500
$10.00 to $20.00 1,000
Over $20.00 500
As a result of the $16.22 per share closing price of Common Stock on May
20, 2003, each non-employee director received a grant of 1,000 shares of Common
Stock. Current directors who received the stock grant are Messrs. G. Simmons, H.
Simmons and Watson, and General Stafford.
Summary of Cash and Certain Other Compensation of Executive Officers
The Summary Compensation Table set forth below provides certain summary
information concerning annual and long-term compensation paid or accrued by NL
and its subsidiaries for services rendered to NL and its subsidiaries during
2003, 2002 and 2001 by NL's chief executive officer, two other executive
officers, the former chief executive officer and two other former executive
officers.
12
SUMMARY COMPENSATION TABLE
Long-Term
Compensation(1)
---------------
Annual Compensation(1) Awards
------------------------------------------ ------
Name and Other Annual Securities All Other
Principal Position Year Salary Bonus(2) Compensation(3) Underlying Options Compensation(4)
------------------ ---- -------- --------- --------------- ------------------ --------------
($) ($) ($) (#) ($)
Harold C. Simmons 2003 992,830 -0- -0- -0- -0-
Chairman of the Board
and Chief Executive
Officer (5)
Gregory M. Swalwell 2003 154,000 -0- -0- -0- -0-
Vice President,
Finance (6)
John A. St. Wrba 2003 154,167 182,900 43,203 -0- 18,496
Vice President
and Treasurer (7)
J. Landis Martin 2003 575,000 -0- 390 -0- 72,400
Former President and 2002 600,000 600,000 2,875 -0- 102,400
Chief Executive 2001 600,000 600,000 67,806 100,000 152,040
Officer (8)
Dr. Lawrence A. 2003 915,833 922,000 532 -0- 114,375
Wigdor 2002 750,000 750,000 68 -0- 186,848
Former Executive Vice 2001 750,000 1,350,000 2,729 100,000 351,658
President (9)
David B. Garten 2003 425,000 425,000 -0- -0- 108,343
Former Vice President, 2002 425,000 425,000 -0- -0- 82,342
General Counsel and 2001 425,000 525,000 -0- 50,000 93,309
Secretary (10)
(1) No shares of restricted stock were granted, and no payouts under any
long-term incentive plans (as defined by applicable federal securities
regulations) were made during 2003, 2002 or 2001 to the named
executive officers. Therefore the column for such compensation
otherwise required by applicable federal securities regulations has
been omitted.
(2) Unless otherwise noted, reflects amounts paid each year pursuant to
the Variable Compensation Plan and, for 2001, special discretionary
bonuses. See "Compensation Committee Report on Executive Compensation"
below.
(3) With respect to Mr. St. Wrba, the amount shown in the "Other Annual
Compensation" column for 2003 includes $42,200 for reimbursement of
relocation costs incurred in connection with his relocation to the
Company's headquarters in Dallas, Texas and payment for certain income
tax he incurred as a result of such reimbursement and $1,003 for
health club dues. With respect to Mr. Martin and Dr. Wigdor, includes
the amount which exceeds 120% of the applicable federal long-term
interest rate accrued on deferred compensation. In the case of Mr.
Martin, in 2001, the amount shown included $8,114 of such excess
interest and $50,518 in value attributed to the use of the Company's
aircraft by him.
13
(4) "All Other Compensation" amounts shown below represent (i) matching
contributions made or accrued by the Company pursuant to the savings
feature of the Savings Plan, (ii) retirement contributions made or
accrued by the Company pursuant to the Savings Plan, (iii) life
insurance premiums paid by the Company, and (iv) amounts paid by the
Company under the Supplemental Executive Retirement Plan ("SERP") in
2003, 2002 and 2001. In 2001, the MD&C Committee directed that the
Company amend the SERP to provide for the distribution of the accrued
balance in each SERP participant's account and the payment of future
SERP benefits to participants as accrued, thus reducing the Company's
interest costs. In connection with the amendment, in 2001 the Company
paid $1,761,661, $1,739,924, and $481,164, to Dr. Wigdor and Messrs.
Martin and Garten, respectively, which represented the accrued vested
balance in each of their SERP accounts with interest. These accrued
amounts were previously reported as compensation in the years accrued.
Amounts shown below with respect to Mr. St. Wrba are reflected for
2003 only, the first year in which he became an executive officer.
Year Martin Wigdor Garten St. Wrba
----------- ------------ ----------- ----------- -----------
Savings Match ($) 2003 -0- 8,000 8,000 6,860
2002 8,000 8,000 8,000 N/A
2001 6,800 6,800 6,800 N/A
Retirement Contribution ($) 2003 14,400 16,600 11,000 8,000
2002 14,400 16,600 11,000 N/A
2001 12,240 14,110 9,350 N/A
Life Insurance ($) 2003 -0- 6,109 3,342 1,916
2002 -0- 10,248 3,342 N/A
2001 -0- 10,248 2,909 N/A
SERP ($) 2003 58,000 83,666 86,001 1,720
2002 80,000 152,000 60,000 N/A
2001 133,000 320,500 74,250 N/A
(5) For all of 2003, Harold C. Simmons was an employee of Contran. Mr.
Simmons became chief executive officer effective July 17, 2003 and
provides executive officer services to NL pursuant to the 2003
intercorporate services agreement between Contran and NL (the "Contran
ISA"). The amount shown as his 2003 salary consists of $951,000 in
fees NL paid pursuant to the Contran ISA that relate to the services
he rendered to NL and its subsidiaries in 2003 and $41,830 in fees NL
paid to Mr. Simmons in the form of cash and shares of Common Stock for
his services as a director in 2003.
(6) For all of 2003, Gregory M. Swalwell was a Contran employee. Mr.
Swalwell became an executive officer effective July 17, 2003 and
provides executive officer services to NL pursuant to the Contran ISA.
The amount shown as his 2003 salary represents the fees NL paid
pursuant to the Contran ISA that relate to the services he rendered to
NL and its subsidiaries in 2003.
(7) John A. St. Wrba became an executive officer effective December 8,
2003. Beginning January 1, 2004, Mr. St. Wrba became a Contran
employee and provides his executive officer services to NL pursuant to
the Contran ISA. The amount shown in the table as the 2003 bonus for
Mr. St. Wrba includes $75,000 paid to him as a one-time bonus in
connection with his relocation to the Company's headquarters in
Dallas, Texas.
(8) During 2003, 2002 and 2001, Mr. Martin also served as an executive
officer of Tremont and TIMET and was compensated directly by Tremont
and TIMET. Mr. Martin resigned as an executive officer of NL effective
July 8, 2003 and elected to receive early retirement benefits under
the NL pension plan as of that date. From July to December 2003, Mr.
Martin served as a consultant to NL. Of the amount shown in the table
as the 2003 salary for Mr. Martin, $325,000 represents the salary paid
to him for his 2003 services while he was an employee, and $250,000
represents the amount paid to him for his 2003 services while he was a
consultant. See "-- Martin Consulting Arrangement."
14
(9) Dr. Wigdor resigned as an executive officer effective July 26, 2003
and elected to receive early retirement benefits under the NL pension
plan as of that date. Dr. Wigdor currently serves as a consultant to
Kronos Worldwide with ongoing management involvement in the TiO2
operations conducted by Kronos Worldwide. Of the amount shown in the
table as the 2003 salary for Dr. Wigdor, $495,833 represents the
salary Kronos Worldwide paid to him for his 2003 services while he was
an employee, and $420,000 represents the amount Kronos Worldwide paid
to him for his 2003 services while he was a consultant. The amount
shown in the table as the 2003 bonus for Dr. Wigdor represents amounts
Kronos Worldwide paid him for his 2003 services while he was a
consultant, which are comparable to 2003 bonus payments. See "--
Wigdor Compensatory Arrangement.
(10) Mr. Garten resigned as an executive officer effective July 22, 2003.
The amount shown in the table as the 2003 bonus for Mr. Garten
consists of $425,000 paid to him as a severance/bonus payment in
connection with his resignation from the Company.
No Grants of Stock Options or Stock Appreciation Rights
No stock options or stock appreciation rights were granted to NL directors,
executive officers or employees during 2003.
Stock Option Exercises and Holdings
The following table provides information with respect to the persons
named in the Summary Compensation Table, as set forth above, concerning the
exercise of options during the last fiscal year and the value of unexercised
options held as of December 31, 2003. No stock appreciation rights have been
granted by the Company.
15
AGGREGATED STOCK OPTION EXERCISES IN 2003 AND 12/31/03 OPTION VALUES
Number of Value of
Shares Securities Underlying Unexercised,
Acquired Unexercised Options In-the-Money Options
on Value at 12/31/03 (Exercisable/ at 12/31/03 (Exercisable/
Name(1) Exercise Realized (2) Unexercisable) Unexercisable) (3)
----------------------------- ------------ -------------- --------------------------- --------------------------
(#) ($) (#) ($)
Harold C. Simmons
NL Stock Options -0- -0- 8,000 / -0- 40,330 /
-0-
J. Landis Martin
NL Stock Options 33,200 109,915 301,400 / -0- 429,830 /
-0-
Dr. Lawrence A. Wigdor
NL Stock Options -0- -0- 154,000 / 159,600 181,772 / 640,245
David B. Garten
NL Stock Options 27,000 83,496 73,000 / 57,000 75,586 / 175,537
Gregory M. Swalwell
Valhi Stock Options -0- -0- 85,400 / 16,000 450,300 / 57,360
(1) Mr. St. Wrba did not exercise any stock options in 2003 and did not
hold any stock options at 12/31/03.
(2) The value is based on the difference between the exercise price of the
individual stock options and the closing sales price of such
underlying Common Stock as of the date of exercise as reported on the
NYSE.
(3) The value is based on the difference between the exercise price of the
individual stock options and the closing sales price of the underlying
Common Stock as reported on the NYSE on December 31, 2003. The closing
sales price for Common Stock on December 31, 2003 was $11.70. The
closing sales price for Valhi Common Stock on December 31, 2003 was
$14.96.
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, the Company approved the suspension of all future accruals under the
salaried component of the Pension Plan. The Pension Plan covers Messrs. Martin,
Wigdor and Garten. Following their resignations in July 2003, each of Messrs.
Martin and Wigdor elected to receive their retirement benefits at an early
retirement age. Beginning April 2004, Mr. Martin will receive a monthly payment
of $2,513 for the remainder of his life. Dr. Wigdor began receiving a monthly
payment amount of $2,428 in August 2003, which will continue for the remainder
of his life. The estimated accrued annual benefit payable under the Pension Plan
upon retirement at normal retirement age for Messrs. St. Wrba and Garten is
$1,840 and $26,410, respectively.
Martin Consulting Arrangement
Following his resignation as an executive officer of NL in July 2003, Mr.
Martin entered into a consultancy arrangement with NL, which terminated in
December 2003. Pursuant to such consulting arrangement, Mr. Martin received
payments of $50,000 monthly plus reimbursement of business expenses.
Wigdor Compensatory Arrangement
Concurrently with his resignation as an executive officer of NL in July
2003, Dr. Wigdor entered into a consultancy arrangement with Kronos Worldwide
pursuant to which Dr. Wigdor provides ongoing management involvement in Kronos
Worldwide's TiO2 operations. Dr. Wigdor received $461,000 on August 1, 2003 and
monthly payments of $84,000 beginning on August 1, 2003. On February 1, 2004,
Dr. Wigdor received a payment under the arrangement of $461,000 based on Kronos
Worldwide having achieved 2003 segment profit (as Kronos Worldwide defines that
term internally) in excess of $130 million. Beginning in 2004, Dr. Wigdor will
receive annual discretionary bonuses that are no less than the average bonus
paid to the three executives of NL and Kronos Worldwide combined receiving the
highest paid bonuses for 2004 and 2005, respectively, excluding NL's chief
executive officer. Under the consultancy arrangement, as amended in February
2004, if Kronos Worldwide terminates the consultancy arrangement prior to
December 31, 2006, Dr. Wigdor will receive twelve months compensation and
medical and dental coverage through December 31, 2006 and, if terminated in 2004
or after, a pro-rata portion of his discretionary bonus for the year in which
the termination occurs. The arrangement provides Dr. Wigdor various other
benefits, such as medical and dental benefits and office and secretarial support
at Kronos Worldwide's New Jersey office.
16
EQUITY COMPENSATION PLAN INFORMATION
The following table provides summary information with respect to NL's
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 consideration in the form of
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 1,140,000 $9.22 3,864,500
Equity compensation plans
not approved by security
holders -0- -0- -0-
-------------------------- ------------------------- -------------------------
Total 1,140,000 $9.22 3,864,500
17
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors and persons who own beneficially
more than 10% of a registered class of the Company's equity securities to file
reports of ownership and changes in ownership with the SEC, the NYSE, the
Pacific Exchange and the Company. Based solely on a review of copies of the
Section 16(a) reports furnished to the Company and written representations by
certain reporting persons, the Company believes that all of the Company's
executive officers, directors and greater than 10% beneficial owners filed on a
timely basis all reports required during and with respect to the fiscal year
ended December 31, 2003.
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. Any person may obtain a copy of the code, without charge, by sending
a written request to NL's corporate secretary at NL Industries, Inc., Three
Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697. Only the
Board of Directors may amend the code. The code shall be included on NL's
website at www.nl-ind.com in accordance with the NYSE listing standards. Only
the 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 intends to adopt corporate governance guidelines that will comply with
the NYSE listing standards. NL will also make the guidelines and its audit
committee charter available on NL's website at www.nl-ind.com in accordance with
the NYSE listing standards. Any person will be able to obtain a copy of the
guidelines (when adopted) or the audit committee charter, without charge, by
sending a written request to NL's corporate secretary at NL Industries, Inc.,
Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697.
18
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors of NL is comprised of three
directors and operates under a written charter adopted by the Board of
Directors. All members of the Audit Committee meet the independence standards
established by the Board of Directors and the NYSE and promulgated by the SEC
under the Sarbanes-Oxley Act of 2002. The Board of Directors adopted revisions
to the Audit Committee's charter in February 2004. The new Audit Committee
charter is included as Appendix A to this proxy statement, and shall be included
on NL's website at www.nl-ind.com in accordance with the NYSE listing standards.
NL's management is responsible for preparing NL's consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America ("GAAP"). NL's independent auditor is responsible for
auditing NL's consolidated financial statements in accordance with auditing
standards generally accepted in the United States of America and for expressing
an opinion on the conformity of NL's financial statements with GAAP. 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 the firm of PricewaterhouseCoopers LLP
("PwC"), the Company's independent auditor for 2003.
The Audit Committee met privately with PwC and discussed any issues deemed
significant by the independent auditor, including the required matters to be
discussed by Statement of Auditing Standards No. 61, Communication with Audit
Committee, as amended. PwC has provided to the Audit Committee written
disclosures and the letter required by Independence Standards Board No. 1,
Independence Discussions with Audit Committees, and the Audit Committee
discussed with PwC that firm's independence. The Audit Committee also concluded
that PwC's provision of non-audit services to 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 the audited financial statements be included in NL's
Annual Report on Form 10-K for 2003.
The foregoing report is respectfully submitted by members of the Audit
Committee of the Board of Directors:
Gen. Thomas P. Stafford (Ret.) Terry N. Worrell
Chairman of the Audit Committee Member of the Audit Committee
and Independent Director and Independent Director
Cecil H. Moore, Jr.
Member of the Audit Committee and
Independent Director
19
INDEPENDENT AUDITOR MATTERS
Independent Auditor. PwC served as NL's independent auditor for the year
ended December 31, 2003, and has been appointed 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 2004. NL expects that PwC
will be considered for appointment to audit NL's annual consolidated financial
statements for the year ending December 31, 2004. Representatives of PwC are not
expected to attend the Annual 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 2002 and 2003.
Audit Related All Other
Entity (1) Audit Fees (2) Fees (3) Tax Fees (4) Fees (5) Total
--------------------------------------- -------------- ------------- ------------ --------- -----------
NL and Subsidiaries
2002............................... $ 83,967 $ 34,167 $ -0- $ -0- $ 118,134
2003............................... 395,211 57,183 -0- -0- 452,394
Kronos Worldwide and Subsidiaries
2002............................... 1,534,425 77,134 41,826 2,206 1,655,591
2003............................... 834,399 73,773 124,873 -0- 1,033,045
Total
2002............................... 1,618,392 111,301 41,826 2,206 1,773,725
2003............................... 1,229,610 130,956 124,873 -0- 1,485,439
--------------------
(1) Fees are reported without duplication.
(2) Fees for the following services:
(a) Audits of consolidated year-end financials statements for each
year;
(b) Reviews of the unaudited quarterly financial statements appearing
in Forms 10-Q for each of the first three quarters of each year;
(c) Consents and assistance with registration statements filed with
the SEC;
(d) Normally provided statutory or regulatory filings or engagements
for each year; and
(e) The estimated out-of-pocket costs PwC incurred in providing all
of such services for which PwC is reimbursed.
(3) Fees for assurance and related services reasonably related to the
audit or review of financial statements for each year. These services
include employee benefit plan audits, accounting consultations and
attest services concerning financial accounting and reporting
standards and advice concerning internal controls.
(4) Fees for tax compliance, tax advice and tax planning services.
(5) Fees for all services not described in the other categories,
consisting of certain payroll administration services.
Preapproval Policies and Procedures. The Audit Committee has adopted a
preapproval policy, a copy of which is attached as Appendix B to this proxy
statement. As of May 6, 2003 the Audit Committee became responsible for
preapproving every engagement of PwC to perform audit or nonaudit services on
behalf of NL or any of its subsidiaries. Since May 6, 2003, the Audit Committee
preapproved all of PwC's services. Accordingly, there were no services for which
the de minimus exception, as defined in Section 202 of the Sarbanes-Oxley Act of
2002, was applicable.
20
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
During 2003, NL made changes to its executive management. As a result of
the changes, in 2003 NL's current executive officers (other than Mr. John A. St.
Wrba) provided their services to NL pursuant to the 2003 intercorporate services
agreement between NL and Contran (the "2003 Contran/NL ISA"), which was approved
by NL's then independent directors, comprised of Dr. R. Gerald Turner, Gen.
Stafford (ret.) and Mr. George E. Poston (collectively, the "Independent
Directors").
The Board of Directors, with directors other than the Independent Directors
abstaining, considered and approved the terms of the 2003 Contran/NL ISA,
pursuant to which Contran provided certain services to NL, including the
advisory services of Mr. Harold C. Simmons. No amendment was added to the 2003
Contran/NL ISA to reflect the increased scope of services provided following the
change in executive management. The amount of the fee NL pays under the 2003
Contran/NL ISA for a person who provides services to NL represents, in the view
of the Board of Directors, the reasonable equivalent of "compensation" for such
services.
In considering the 2003 Contran/NL ISA, the Independent Directors
considered the overall fee to be charged to NL under the 2003 Contran/NL ISA for
the services provided to NL. No specific formulas, guidelines or comparable
positions were considered in determining the amount of such fee, nor was there
any specific relationship between NL's current or future performance and the
level of such fee.
During 2003, the MD&C Committee reviewed and approved compensation actions
involving executive officers of NL, other than the chief executive officer's
base salary. With respect to the chief executive officer's base salary, the
Board of Directors reviewed and approved any changes after a recommendation by
the MD&C Committee.
Historically, NL's cash compensation system with respect to its executive
officers, including the chief executive officer, generally consisted of two
primary components: base salary and annual variable compensation provided by the
Variable Compensation Plan. Through the use of the foregoing and other incentive
compensation arrangements, the MD&C Committee sought to achieve a balanced
compensation package that would attract and retain high-quality key executives,
appropriately reflect each such executive officer's individual performance,
contributions and general market value, and provide further incentives to the
officers to maximize annual operating performance and long-term shareholder
value.
In 2003, the MD&C Committee reviewed and acted on the former chief
executive officer's recommendations regarding changes in base salaries for
certain executive officers. The former chief executive officer made these
recommendations after consultation with the chairman of the board. These
recommendations and the MD&C Committee's actions regarding base salaries in 2003
were based primarily on a subjective evaluation of past and potential future
individual performance and contributions, and alternative opportunities that
might be available to the executives in question. In 2003, the former chief
executive officer's base salary was not changed nor set based on any specific
relationship to NL's financial performance.
During 2003, the MD&C Committee established awards under the Variable
Compensation Plan to the executive officers at the time, other than the former
chief executive officer. The awards were contingent on NL achieving certain 2003
operating income goals. No NL executive officer, other than Mr. St. Wrba,
received any variable compensation award for 2003 under the Variable
Compensation Plan.
For 2003, NL's former chief executive officer did not become entitled to
receive a discretionary bonus due to his resignation in July 2003. For 2003,
certain former executive officers, including Dr. Wigdor and Mr. Garten, received
payments in connection with their resignations from the Company that were
comparable to the amounts they would have received under the Variable
Compensation Plan.
The MD&C continues to administer matters regarding the stock-based
compensation of NL's executive officers. With regard to stock-based compensation
(e.g. stock bonuses, stock options, restricted stock or stock appreciation
rights, among other types of stock-based compensation) the chief executive
officer makes recommendations to the MD&C Committee and it determines whether to
grant the recommended stock-based compensation. Consistent with its
determination in 2003, the MD&C Committee does not currently anticipate granting
stock-based compensation to anyone other than annual grants of stock to NL's
nonemployee directors, including the chief executive officer, for their services
as directors.
21
Section 162(m) of the Code generally disallows a tax deduction to public
companies for compensation over $1.0 million paid to the company's chief
executive officer and four other most highly compensated executive officers. It
is 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. In 2004, NL will not have a Variable
Compensation Plan.
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 Member of the MD&C Committee
and Independent Director and Independent Director
22
PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly change in the
cumulative total shareholder return on the Common Stock against the cumulative
total return of the S&P 500 Stock Index and the S&P Diversified Chemicals Index
for the period commencing December 31, 1998 and ending December 31, 2003. The
graph shows the value at December 31 of each year assuming an original
investment of $100 and reinvestment of dividends and other distributions to
shareholders.
[PERFORMANCE GRAPH OMITTED]
December 31,
----------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
------ ------ ------ ------ ------ ------
NL Industries, Inc. $100 $109 $183 $122 $157 $266
S&P 500 Stock Index 100 121 110 97 76 97
S&P Diversified Chemicals Index 100 119 107 100 97 122
23
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Relationships with Related Parties
As set forth under the caption "Security Ownership," Harold C. Simmons,
through Valhi, may be deemed to control NL. The Company 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 which resulted in the acquisition by one related party of a
publicly held equity interest in another related party. The Company from time to
time considers, reviews and evaluates, and understands that Contran, Valhi and
related entities consider, review and evaluate the transactions described above.
Depending upon the business, tax and other objectives then relevant, including,
without limitation, restrictions under certain indentures and other agreements
of the Company, it is possible that the Company might be a party to one or more
such transactions in the future. In connection with these activities NL may
consider issuing additional equity securities or incurring additional
indebtedness. NL acquisition activities may in the future include participation
in the acquisition or restructuring activities conducted by other companies that
may be deemed to be controlled by Mr. Simmons. It is the policy of the Company
to engage in transactions with related parties on terms, in the opinion of the
Company, no less favorable to the Company than could be obtained from unrelated
parties.
Certain directors and executive officers of Contran, Valhi, TIMET, CompX,
Keystone and Kronos Worldwide 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
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.
Certain Contractual Relationships and Transactions
Intercorporate Services Agreement. NL is a party to intercorporate services
agreements ("ISAs") with various related parties discussed below. Under the
ISAs, employees of one company will provide certain services, including
executive officer services, to the other company on a fee basis. Such charges
are based upon estimates of the time devoted by employees (or in certain
instances, groups of employees) of the provider of the services to the affairs
of the recipient, and the compensation of such persons.
Under the 2003 Contran ISA, Contran rendered or provided for certain
executive, management, financial, internal audit, accounting, tax, legal,
insurance, risk management, treasury, technical, consulting, administrative and
other services to NL, including executive officer services, and NL rendered or
provided certain risk management services to Contran, each on a fee basis. NL
paid Contran net fees of approximately $1.97 million for services rendered under
the Contran ISA in 2003, which represented $2.27 million for services Contran
provided to NL less $300,000 for services NL provided to Contran. NL expects to
pay approximately $3.6 million in 2004 for services performed pursuant to the
Contran ISA. The increase in service fees for 2004 is due to the increased
executive and management services to be performed by Contran as a result of the
change in 2003 to NL's executive management team. The Contran ISA, as amended,
has an initial term of twelve months commencing January 1, 2004 and thereafter
automatically extends on a quarter-to-quarter basis, subject to termination by
either party pursuant to written notice delivered 30 days prior to a
quarter-end. Kronos Worldwide and Contran are also parties to an ISA under which
the Company expects the 2004 service fees to be approximately $4.3 million.
Amounts paid under the Contran ISA and Kronos Worldwide ISA are approved by the
Company's independent directors. The Company pays directors' fees and expenses
separately to Harold C. Simmons, Glenn R. Simmons, and Steven L. Watson. See
"Compensation of Directors and Executive Officers and Other Information" above.
24
The Company and TIMET are parties to an ISA whereby the Company made
certain services available to TIMET. TIMET paid fees of approximately $14,000
pursuant to the TIMET ISA during 2003. The TIMET ISA is subject to automatic
renewal and may be terminated by either party pursuant to a written notice
delivered 30 days prior to a quarter-end.
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 ("Tall Pines"), Valmont and EWI RE, Inc. ("EWI") provide
for or broker these insurance policies. Tall Pines and Valmont are captive
insurance companies wholly owned by Valhi, and EWI is a reinsurance brokerage
firm wholly owned by NL. A son-in-law of Harold C. Simmons serves as EWI's
chairman of the board and chief marketing officer and is compensated as an
employee of EWI. Consistent with insurance industry practices, Tall Pines,
Valmont and EWI receive commissions from insurance and reinsurance underwriters
for the policies that they provide or broker.
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 and
certain of its subsidiaries or affiliates, have entered into a loss sharing
agreement under which any uninsured loss is shared by those entities who have
submitted claims under the relevant policy. 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 2003, Contran and its related parties paid premiums of approximately
$16.7 million for policies Tall Pines or Valmont provided or EWI brokered,
including approximately $8.0 million paid by NL and Louisiana Pigment Company,
L.P., a partnership of which a subsidiary of NL and Huntsman International 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, Valmont and EWI. In NL's opinion, the
amounts that NL 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,
Valmont and EWI will continue in 2004.
Tax Sharing Agreement. The Company and its qualifying subsidiaries are
included in the consolidated United States federal tax return of Contran (the
"Contran Tax Group"). As a member of the Contran Tax Group, the Company is a
party to a tax sharing agreement (the "Contran Tax Agreement"). The Contran Tax
Agreement provides that the Company computes its provision for U.S. income taxes
on a separate-company basis using the tax elections made by Contran. Pursuant to
the Contran Tax Agreement and using the tax elections made by Contran, the
Company makes payments to or receives payments from Valhi in amounts it would
have paid to or received from the Internal Revenue Service had it not been a
member of the Contran Tax Group. Refunds are limited to amounts previously paid
under the Contran Tax Agreement unless the Company was entitled to a refund from
the U.S. Internal Revenue Service on a separate-company basis. During 2003, the
Company paid a net amount of approximately $4.3 million to Valhi pursuant to the
terms of the Contran Tax Agreement.
25
Investment in Tremont Corporation and Tremont Group. At December 31, 2002
the Company owned 20% of Tremont Group, Inc. ("Tremont Group") and Valhi owned
the remaining 80%. At that time, Tremont Group's only asset was an 80% ownership
interest in Tremont Corporation. The Company's stock of Tremont Group was
redeemable at the option of the Company for fair value based on the value of the
underlying Tremont Corporation shares, and the Company accounted for its
investment in Tremont Group as an available-for-sale marketable security carried
at fair value based on the fair value of such underlying Tremont Corporation
shares. At December 31, 2002 the Company also directly held 8,167 Tremont
Corporation shares.
In February 2003 Valhi completed a series of merger transactions pursuant
to which, among other things, Tremont Group and Tremont Corporation were merged
into a new wholly owned subsidiary of Valhi. Under these merger transactions,
(i) Valhi issued 3.5 million shares of its Common Stock to the Company in return
for the Company's 20% ownership interest in Tremont Group and (ii) Valhi issued
3.4 shares of its Common Stock (plus cash in lieu of fractional shares) to all
Tremont Corporation stockholders (other than Valhi and Tremont Group) in
exchange for each Tremont Corporation share held by such stockholders. The
Company received approximately 27,770 shares of Valhi Common Stock in the second
transaction. The number of shares of Valhi Common Stock issued to the Company in
exchange for the Company's 20% ownership interest in Tremont Group was equal to
the Company's 20% pro-rata interest in the Tremont Corporation shares held by
Tremont Group, adjusted for the same 3.4 exchange ratio. The shares of Valhi
Common Stock owned by the Company are restricted securities under SEC Rule 144.
The shares of Valhi Common Stock cannot be voted by the Company under Delaware
corporate law, but the Company receives dividends from Valhi on these shares
when declared.
Tremont Corporation Loan Agreement. Prior to 2003, NL Environmental
Management Services, Inc. ("EMS"), the Company's majority-owned environmental
management subsidiary, loaned $13.4 million to Tremont Corporation under a
reducing revolving loan agreement that matured in March 2003. The loan was
approved by special committees of the Company's and EMS's boards of directors.
In October 2002 a special committee of the Board of Directors approved new loan
terms proposed by Tremont Corporation, whereby Tremont Corporation repaid the
outstanding principal and interest balance on the EMS loan with proceeds from a
new $15 million revolving loan agreement with the Company. As such, the EMS loan
was extinguished and cancelled. Similar to the EMS loan, the Company's loan to
Tremont Corporation bears interest at prime plus 2% (with interest payable
quarterly), and is collateralized by the 10.2 million shares of Common Stock and
the 5.1 million shares of Kronos Worldwide Common Stock owned by Tremont
Corporation. The loan is due December 31, 2004, with no principal payments
required prior to that date. The maximum amount available to Tremont Corporation
under the revolving loan agreement is $15 million. The creditworthiness of
Tremont Corporation is dependent in part on the value of the Company as Tremont
Corporation's interest in the Company is its most substantial asset. At December
31, 2003, no amounts were outstanding under this facility and Tremont
Corporation had $15 million of borrowing availability. As a result of the merger
of Tremont Corporation with Valhi in February 2003 discussed above, the
revolving loan agreement is now between a wholly owned subsidiary of Valhi and
NL.
Trust Loan Agreement. Prior to 2003, a wholly owned subsidiary of EMS
loaned $20 million to the Harold C. Simmons Family Trust No. 2 (the "Family
Trust") under a $25 million revolving credit agreement. The loan was approved by
special committees of the Company's and EMS's boards of directors. The loan
bears interest at the prime rate, is due on demand upon 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. The
value of this collateral is dependent in part on the value of the Company as
Contran's interest in the Company, through its beneficial ownership of Valhi, is
one of Contran's more substantial assets. In 2003, the Family Trust repaid $4
million principal amount of the revolving credit agreement. At December 31,
2003, $11 million was available for additional borrowing by the Family Trust,
and the outstanding loan balance was $14 million.
26
Other Matters. During 2003, Dr. Wigdor's sister-in-law was employed by the
Company and was paid $42,302, and received customary employee benefits,
including medical insurance. She continues to be employed by the Company.
SHAREHOLDER PROPOSALS FOR 2005 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 18, 2004 to be
considered for inclusion in the proxy statement and form of proxy card relating
to the Annual Meeting of Shareholders in 2005.
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 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 it is appropriate that
NL not have any additional policies or procedures with regard to the
consideration of director candidates recommended by its shareholders.
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 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 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.
2003 ANNUAL REPORT ON FORM 10-K
A copy of the Company's 2003 Annual Report on Form 10-K, as filed with the
SEC, may be obtained without charge by writing: Corporate Secretary, NL
Industries, Inc., Three Lincoln Centre, 5430 LBJ Freeway, Dallas, Texas 75240.
The Annual Report on Form 10-K may also be accessed on the Company's website at
www.nl-ind.com.
27
ADDITIONAL COPIES
SEC rules permit a single set of annual reports and proxy statements to 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 any 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 2003 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.
To obtain copies of NL's 2003 annual report or this proxy statement without
charge, please mail your request to, Corporate Secretary, at NL Industries,
Inc., Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas
75240-2697, or call 972.233.1700.
OTHER MATTERS
The Board of Directors does not know of any business except as described
above which may be presented for consideration at the Annual Meeting. If any
business not described in this Proxy Statement should properly come before the
Annual Meeting, the persons designated as agents in the enclosed proxy card or
voting instruction form will vote on those matters in accordance with their best
judgment.
NL INDUSTRIES, INC.
Dallas, Texas
April 16, 2004
28
APPENDIX A
NL Industries, Inc.
Audit Committee Charter
Adopted February 19, 2004
----------------
ARTICLE I.
PURPOSE
The audit committee assists the board of directors' oversight
responsibilities relating to the financial accounting and reporting processes
and auditing processes of the corporation. The audit committee shall assist in
the oversight of:
- the integrity of the corporation's financial statements;
- the corporation's compliance with legal and regulatory requirements;
- the independent auditor's qualifications and independence; and
- the performance of the corporation's internal audit function and
independent auditor.
ARTICLE II.
RELATIONSHIP WITH MANAGEMENT AND THE INDEPENDENT AUDITOR
Management is responsible for preparing the corporation's financial
statements. The corporation's independent auditor is responsible for auditing
the financial statements. The activities of the audit committee are in no way
designed to supersede or alter these traditional responsibilities. The
corporation's independent auditor and management have more time, knowledge and
detailed information about the corporation than do the audit committee members.
Accordingly, the audit committee's role does not provide any special assurances
with regard to the corporation's financial statements. Each member of the audit
committee, in the performance of such member's duties, will be entitled to rely
in good faith upon the information, opinions, reports or statements presented to
the audit committee by any of the corporation's officers or employees or by any
other person as to matters such member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the corporation.
ARTICLE III.
AUTHORITY AND RESOURCES
The audit committee shall have the authority and resources necessary or
appropriate to discharge its responsibilities. The audit committee shall be
provided with full access to all books, records, facilities and personnel of the
corporation in carrying out its duties. The audit committee shall have the sole
authority with regard to the independent auditor as set forth in Article V, and
the authority to engage independent counsel and other advisors, as it determines
is necessary to carry out its duties. The corporation shall provide appropriate
funding, as the audit committee determines is necessary or appropriate in
carrying out its duties, for the committee to engage and compensate the
independent auditor or legal counsel or other advisors to the committee, and to
pay the committee's ordinary administrative expenses.
A-1
ARTICLE IV.
COMPOSITION AND MEETINGS
The board of directors shall set the number of directors comprising the
audit committee from time to time, which number shall not be less than three.
The board of directors shall designate a chairperson of the audit committee. The
number of directors comprising the audit committee and the qualifications, which
members will all be financially literate with at least one being an audit
committee financial expert, and independence of each member of the audit
committee shall at all times satisfy all applicable requirements, regulations or
laws, including, without limitation, the rules of any exchange or national
securities association on which the corporation's securities trade. Simultaneous
service on more than three non-affiliated public company audit committees
requires a special determination by the board of directors and, if required,
disclosure in the annual proxy statement. The board of directors shall
determine, in its business judgment, whether the members of the audit committee
satisfy all such requirements, regulations or laws.
The audit committee shall meet at least quarterly and as circumstances
dictate. Regular meetings of the audit committee may be held with or without
prior notice at such time and at such place as shall from time to time be
determined by the chairperson of the audit committee, any of the corporation's
executive officers or the secretary of the corporation. Special meetings of the
audit committee may be called by or at the request of any member of the audit
committee, any of the corporation's executive officers, the secretary of the
corporation or the independent auditor, in each case on at least twenty-four
hours notice to each member.
A majority of the audit committee members shall constitute a quorum for the
transaction of the audit committee's business. The audit committee shall act
upon the vote of a majority of its members at a duly called meeting at which a
quorum is present. Any action of the audit committee may be taken by a written
instrument signed by all of the members of the audit committee. Meetings of the
audit committee may be held at such place or places as the audit committee shall
determine or as may be specified or fixed in the respective notice or waiver of
notice for a meeting. Members of the audit committee may participate in audit
committee proceedings by means of conference telephone or similar communications
equipment by means of which all persons participating in the proceedings can
hear each other, and such participation shall constitute presence in person at
such proceedings.
ARTICLE V.
RESPONSIBILITIES
To fulfill its responsibilities, the audit committee shall perform the
following activities.
Financial Disclosure
- Review and discuss the corporation's annual audited financial
statements and quarterly financial statements with management and the
independent auditor, and the corporation's related disclosure under
"Management's Discussion and Analysis of Financial Condition and
Results of Operations."
- Recommend to the board of directors, if appropriate, that the audited
financial statements be included in the corporation's Annual Report on
Form 10-K to be filed with the U.S. Securities and Exchange
Commission.
- Generally discuss (i.e., a discussion of the types of information to
be disclosed and the type of presentation to be made) with management
and the independent auditor, as appropriate, earnings press releases
and financial information and earnings guidance provided to analysts
and rating agencies. The audit committee need not discuss in advance
each earnings release or each instance in which the corporation may
provide earnings guidance.
- Prepare such reports of the audit committee for the corporation's
public disclosure documents as applicable requirements, regulations or
laws may require from time to time, which includes the audit committee
report as required by the U.S. Securities and Exchange Commission to
be included in the corporation's annual proxy statement.
A-2
- Review significant accounting and reporting issues, including recent
professional and regulatory pronouncements or proposed pronouncements,
and understand their impact on the corporation's financial statements.
- Ascertain from officers signing certifications whether there existed
any significant deficiencies or any material weaknesses of internal
control and any fraud.
Independent Auditor
- Appoint, compensate, retain and oversee (including the resolution of
disagreements between management and the independent auditor regarding
financial reporting) the work of any independent auditor engaged for
the purpose of preparing or issuing an audit report or performing
other audit, review or attest services for the corporation.
- Provide that the independent auditor report directly to the audit
committee.
- Annually review the qualifications, independence and performance of
the independent auditor, including an evaluation of the lead partner
- Receive such reports and communications from the independent auditor
and take such actions as are required by auditing standards generally
accepted in the United States of America or applicable requirements,
regulations or laws, including, to the extent so required, the
following:
o prior to the annual audit, review with management and the
independent auditor the scope and approach of the annual
audit;
o review any changes in the independent auditor's scope during
the audit, and after the annual audit, review with
management and the independent auditor the independent
auditor's reports on the results of the annual audit;
o review with the independent auditor any audit problems or
difficulties and management's response;
o review with the independent auditor prior to filing the
audit report with the U.S. Securities and Exchange
Commission the matters required to be discussed by the
Statement on Accounting Standards 61, as amended,
supplemented or superseded; and
o at least annually, obtain and review a report by the
independent auditor describing:
* the independent auditor's internal quality control
procedures;
* any material issues raised by the most recent internal
quality control review, or peer review, of the
independent auditor or by any inquiry or investigation
by governmental or professional authorities, within the
preceding five years, with respect to one or more
independent audits carried out by the independent
auditor, and any steps taken to deal with any such
issues; and
* all relationships between the independent auditor and
the corporation in order to assess the auditor's
independence, including the written disclosures
required by Independence Standards Board Standard No.
1, Independence Discussions with Audit Committees, as
amended, supplemented or superseded.
A-3
- Establish preapproval policies and procedures for audit and
permissible non-audit services provided by the independent auditor.
The audit committee shall be responsible for the preapproval of all of
the independent auditor's engagement fees and terms, as well as all
permissible non-audit engagements of the independent auditor, as
required by applicable requirements, regulations or laws. The audit
committee may delegate to one or more of its members who are
independent directors the authority to grant such preapprovals,
provided the decisions of any such member to whom authority is
delegated shall be presented to the full audit committee at its next
scheduled meeting.
- Set clear hiring policies for employees or former employees of the
independent auditor.
- Ensure that significant findings and recommendations made by the
independent auditor are received and discussed on a timely basis with
the audit committee and management.
Other Responsibilities
- Discuss periodically with management the corporation's policies
regarding risk assessment and risk management.
- Meet separately, periodically, with management, the internal auditors
(or other personnel responsible for the internal audit function) and
the independent auditor.
- Establish procedures for the receipt, retention and treatment of
complaints received by the corporation regarding accounting, internal
accounting controls or auditing matters, including procedures for the
confidential, anonymous submission by employees of concerns regarding
questionable accounting or auditing matters.
- Review periodically the reports and activities of the internal audit
function and the coordination of the internal audit function with the
independent auditor.
- Conduct an annual evaluation of its own performance.
- Report regularly to the board of directors on its oversight
responsibilities set forth in Article I.
- Review and reassess this charter periodically. Report to the board of
directors any suggested changes to this charter.
- Meet periodically with officers of the corporation responsible for
legal and regulatory compliance by the corporation.
ARTICLE VI.
MISCELLANEOUS
The audit committee may from time to time perform any other activities
consistent with this charter, the corporation's charter and bylaws and
applicable requirements, regulations or laws, as the audit committee or the
board of directors deems necessary or appropriate.
ADOPTED BY THE BOARD OF DIRECTORS OF
NL INDUSTRIES, INC. ON FEBRUARY 19, 2004.
/s/ Robert D. Graham
Robert D. Graham, Secretary
A-4
APPENDIX B
NL Industries, Inc.
Audit Committee Preapproval Policy
Adopted February 19, 2004
----------------
Section 1. -- Statement of Principles
The Audit Committee is required, subject to any de-minimus exceptions
permitted by applicable law or regulation, to preapprove the audit and non-audit
services performed by the independent auditor in order to assure that the
provision of such services do not impair the auditors' independence.
This Policy applies to services provided by the accounting firm that serves
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 is waived with
respect to the provision of permitted non-Audit Services to the extent allowed
by applicable law or regulation.
Section 2. -- Specific Preapproval
Subject to Sections 4 and 5 of this Policy, the following describes the
Audit and Audit-related services to be provided by the independent auditor that
must have the specific preapproval of the Audit Committee before the independent
auditor can be engaged:
- Annual audits of the consolidated financial statements of the Company,
attestation services associated with the Company's system of internal
control over financial reporting and other services associated with
the Company's Annual Report on Form 10-K;
- Quarterly review procedures associated with the Company's unaudited
interim consolidated financial statements and other services
associated with the Company's Quarterly Reports on Form 10-Q;
- Services associated with registration statements filed by the Company
with the Securities and Exchange Commission ("SEC"), including
responding to SEC comment letters and providing comfort letters;
- Statutory audits or annual audits of the annual financial statements
of subsidiaries of the Company;
- Quarterly review procedures of the interim financial statements of
subsidiaries of the Company;
- Services associated with potential business acquisitions/dispositions
involving the Company;
- Any other services provided to the Company not specifically described
above or in Section 3 of this Policy; and
- Any material changes in terms, conditions or fees with respect to the
foregoing resulting from changes in audit scope, Company structure or
other applicable matters.
B-1
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.
Subject to Section 5 of this Policy, the following Audit, Audit-related,
Tax and All Other services to be provided by the independent auditor will have
the preapproval of the Audit Committee, subject to the limitation that the
aggregate fees for such services provided by the independent auditor in any
calendar year may not exceed the limits established by the Audit Committee. The
Audit Committee will periodically revise the list of pre-approved services and
the fee limitation based on subsequent determinations as it deems appropriate.
- Audit Services:
o Consultations with the Company's management as to the accounting
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.
- 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).
- 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;
B-2
o Assistance with tax inquiries, audits and appeals of the Company
before the U.S. Internal Revenue Service and similar state, local and
international agencies;
o Consultations with the Company's management regarding domestic and
international statutory, regulatory or administrative tax
developments;
o Transfer pricing and cost segregation studies of the Company; and
o Expatriate tax assistance and compliance for the Company and its
employees.
- Other Services:
o Assistance with corporate governance matters (including preparation of
board minutes and resolutions) and assistance with the preparation and
filing of documents (such as paperwork to register new companies or to
de-register existing companies) involving the Company with non-U.S.
governmental and regulatory agencies, provided, however, that the
non-U.S. jurisdiction in which such services are provided does not
require that the individual providing such service be licensed,
admitted or otherwise qualified to practice law.
Any services provided by the independent auditor under this Section of the
Policy shall be reported to the full Audit Committee by an officer of the
Company at the first meeting of the Audit Committee held subsequent to the
engagement of the independent auditor to provide such services. Such report
shall include detailed back-up documentation provided by the independent auditor
regarding the services provided.
Section 4. -- Delegation
Subject to Section 5 of this Policy, the Audit Committee has delegated
preapproval authority to the Audit Committee Chairman or his/her designee for
(i) any proposed services described in Section 3 of this Policy to the extent
that the aggregate fees for such services provided by the independent auditor
during the then-current calendar year has exceeded the limits established by the
Audit Committee or (ii) any other proposed services that are not described in
Section 3 of this Policy that the Audit Committee Chairman or his/her designee
determines to be appropriate or necessary. The Chairman or his/her designee
shall report any pre-approval decisions under this Section 4 of the Policy to
the full Audit Committee at the first meeting of the Audit Committee held
subsequent to such pre-approval decision. The Audit Committee does not delegate
its responsibilities to pre-approve services performed by the independent
auditor to management.
Section 5. -- Prohibited Non-Audit Services
The following is a list of non-audit services for which the independent
auditor is prohibited from providing to the Company under the terms of the SEC's
rules on auditor independence:
- Bookkeeping or other services related to the accounting records or
financial statements of the Company;
- Financial information systems design and implementation;
- Appraisal or valuation services, fairness opinions or
contribution-in-kind reports;
- Actuarial services;
- Internal audit outsourcing services;
- Management functions;
- Human resources;
- Broker, dealer, investment adviser or investment banking services;
B-3
- Legal services to the extent that the jurisdiction in which such
services are provided requires that the individual providing such
service be licensed, admitted or otherwise qualified to practice law;
and
- Expert services unrelated to the audit.
Section 6. -- Procedures
Applications to provide services that require preapproval by the Audit
Committee under Section 2 of this Policy, or that require preapproval of the
Chairman of the Audit Committee or his/her designee under Section 4 of this
Policy, must be made by an auditor in writing. Such an application, which shall
include detailed back-up documentation provided by the independent auditor
regarding the services provided, shall be submitted to the Audit Committee or
the Chairman of the Audit Committee, as applicable, for final resolution.
Section 7. -- Engagement Letters
Engagement of the independent auditor under this Policy to provide the
following services must be evidenced pursuant to a written engagement letter
with the independent auditor that must at least be signed by the Chairman of the
Audit Committee or his/her designee before the engagement can commence:
- Annual audits of the consolidated financial statements of the Company,
attestation services associated with the Company's system of internal
control over financial reporting and other services associated with
the Company's Annual Report on Form 10-K;
- Quarterly review procedures associated with the Company's unaudited
interim consolidated financial statements and other services
associated with the Company's Quarterly Reports on Form 10-Q;
- Services associated with registration statements filed by the Company
with the SEC, including responding to SEC comment letters and
providing comfort letters; and
- Any other engagement as may be determined from time-to-time by the
Audit Committee or the Chairman of the Audit Committee or his/her
designee.
Any other engagement of the independent auditor under this Policy may be
evidenced pursuant to a written engagement letter with the independent auditor,
as may be required by the Audit Committee, the Chairman of the Audit Committee
or his/her designee, the independent auditor or an officer of the Company,
before the engagement can commence. Any such engagement letter may, but is not
required to, be signed by the Chairman of the Audit Committee or his/her
designee.
B-4
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 20, 2004.
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 20, 2004.
o Non-U.S. shareholders should call 1-201-536-8073.
Your electronic 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, 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 20, 2004
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 2004 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 20, 2004, at 10:15 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 the federal securities laws, in the discretion of the proxies
as to all other matters that may properly come before the Meeting and any
adjournment or postponement thereof.
PLEASE SIGN, DATE AND MAIL THIS PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE.
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 on Follow the easy recorded instructions.
the secured website.
If you vote over the internet or by telephone, please do not mail you 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 General 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:
------------ ------- ------------- ----------