SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by Registrant: [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential,for Use of the Commission
Only as permitted by Rule 14a-6(e)(2)
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to SS. 240.14a-11(c) or SS. 240.14a-12
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NL INDUSTRIES, INC.
(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
NL Industries, Inc.
16825 Northchase Drive, Suite 1200
Houston, Texas 77060
March 30, 2001
Dear Shareholder:
You are cordially invited to attend the 2001 Annual Meeting of Shareholders
of NL Industries, Inc., which will be held on Wednesday, May 9, 2001 at 10:00
a.m. (C.D.T.) at the offices of Valhi, Inc. located at Three Lincoln Centre,
5430 LBJ Freeway, Suite 1700, Dallas, Texas. In addition to the matters to be
acted upon at the meeting, which are described in detail in the attached Notice
of Annual Meeting of Shareholders and Proxy Statement, we will update you on the
Company. I hope that you will be able to attend.
Whether or not you plan to be at the meeting, please complete, date, sign
and return the proxy card or voting instruction form enclosed with this Proxy
Statement promptly or vote via the Internet or telephone following the
instructions on the proxy card so 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,
J. Landis Martin
President and Chief Executive Officer
NL Industries, Inc.
16825 Northchase Drive, Suite 1200
Houston, Texas 77060
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 9, 2001
To the Shareholders of NL Industries, Inc.:
NOTICE IS HEREBY GIVEN that the 2001 Annual Meeting of Shareholders (the
"Annual Meeting") of NL Industries, Inc., a New Jersey corporation (the
"Company" or "NL"), will be held on Wednesday, May 9, 2001, at 10:00 a.m.
(C.D.T.) at the offices of Valhi, Inc. located at Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas, for the following purposes:
1. To elect seven directors to serve until the 2002 Annual Meeting of
Shareholders and until their successors are duly elected and qualified;
2. To consider and vote on a proposal to approve the Company's Variable
Compensation Plan; and
3. 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
23, 2001 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
expect to attend the Annual Meeting in person, please complete, sign, date and
mail the enclosed proxy card or voting instruction form promptly or vote via the
Internet or telephone following the instructions on the proxy card so that your
shares may be represented and voted at the Annual Meeting. 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,
David B. Garten
Vice President, General Counsel and Secretary
Houston, Texas
March 30, 2001
NL Industries, Inc.
16825 Northchase Drive, Suite 1200
Houston, Texas 77060
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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 NL Industries, Inc., a New
Jersey corporation (the "Company" or "NL"), for use at the Company's 2001 Annual
Meeting of Shareholders to be held at 10:00 a.m. (C.D.T.) on Wednesday, May 9,
2001, at the offices of Valhi, Inc. located at Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas 75240-2697, and at any adjournment or
postponement thereof (the "Annual Meeting"). This Proxy Statement and the
accompanying proxy card or voting instruction form were first mailed to the
holders of the Company's common stock, $.125 par value per share ("Common
Stock"), on or about April 9, 2001.
PURPOSE OF ANNUAL MEETING
At the Annual Meeting, shareholders of the Company will consider and vote
upon (i) the election of seven directors to serve until the Company's 2002
Annual Meeting of Shareholders and until their successors are duly elected and
qualified; (ii) a proposal to approve the Company's Variable Compensation Plan
(the "Variable Compensation Plan"); and (iii) 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 AND VOTING RIGHTS; PROXY SOLICITATION
The presence in person or by proxy of the holders of a majority of the
votes represented by the outstanding 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. Director nominees will be elected by a plurality
of the votes cast. Except as may be provided in the Company's Amended and
Restated Certificate of Incorporation (the "Certificate"), any other matter that
may be submitted to a shareholder vote, including the approval of the Variable
Compensation Plan, will require the affirmative vote of a majority of the votes
cast at the Annual Meeting. Shares of Common Stock that are voted to abstain
from 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, but will not be counted as votes for or
against any matter coming before the Annual Meeting. The accompanying proxy card
provides space for a shareholder to withhold voting for any or all nominees for
the Board. Because director nominees must receive a plurality of the votes cast
at the Annual Meeting, a vote withheld from a particular nominee will not affect
the election of that nominee.
The record date for determination of shareholders entitled to notice of,
and to vote at, the Annual Meeting is the close of business on March 23, 2001
(the "Record Date"). As of the Record Date, there were issued and outstanding
50,087,284 shares of Common Stock, each of which entitles the holder to one vote
on all matters that come before the Annual Meeting. Valhi, Inc. ("Valhi"), a
diversified company engaged in the titanium dioxide pigments (through its
ownership of NL stock), component products (ergonomic computer support systems,
precision ball bearing slides and security products), titanium metals products,
and waste management industries, and Tremont Corporation ("Tremont"), a holding
company engaged in the titanium metals and titanium dioxide pigments industries
(through its ownership of NL stock), held approximately 60.2% and 20.4%,
respectively, of the outstanding shares of the Common Stock as of the Record
Date and have indicated their intention to have their shares represented at the
Annual Meeting. Both Valhi and Tremont are affiliates of Contran Corporation
("Contran"). See "Security Ownership" and "Election of Directors." If the shares
of Common Stock held by Valhi and Tremont together or the shares of Common Stock
held by Valhi alone are represented at the Annual Meeting, a quorum will be
present.
All shares of Common Stock represented by properly executed proxies will,
unless such proxies have been previously revoked, be voted in accordance with
the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted (i) "FOR" the election of each of the seven
nominees for director, (ii) "FOR" approval of the Variable Compensation Plan,
and (iii) to the extent allowed by federal securities laws, in the discretion of
the proxy holders on any other matter that may properly come before the Annual
Meeting. Any holder of Common Stock has the unconditional right to revoke his or
her proxy at any time prior to the voting thereof at the Annual Meeting by (i)
filing with the Company's Secretary written revocation of his or her proxy, (ii)
giving a duly executed proxy bearing a later date, or (iii) voting in person at
the Annual Meeting. Attendance by a shareholder at the Annual Meeting will not
in and of itself revoke his or her proxy.
This proxy solicitation is made by and on behalf of the Board. Solicitation
of proxies for use at the Annual Meeting may be made by mail, telephone or in
person, by directors, officers and employees of the Company. Such persons will
receive no additional compensation for any solicitation activities. The Company
will request banking institutions, brokerage firms, custodians, trustees,
nominees and fiduciaries to forward solicitation materials to the beneficial
owners of Common Stock held of record by such entities, and the Company will,
upon the request of such record holders, reimburse reasonable forwarding
expenses. The costs of preparing, printing, assembling and mailing the Proxy
Statement, proxy card or voting instruction form and all materials used in the
solicitation of proxies from shareholders of the Company, and all clerical and
other expenses of such solicitation, will be borne by the Company.
First Chicago Trust Company, a division of EquiServe ("First Chicago"), the
transfer agent and registrar for the Common Stock, has been appointed by the
Board to serve as inspector of election (the "Inspector of Election") to
determine the number of shares of Common Stock represented and voted at the
Annual Meeting. All proxies and ballots delivered to First Chicago shall be kept
confidential by First Chicago in accordance with the terms of the Company's
By-Laws.
IT IS THE INTENTION OF THE AGENTS DESIGNATED IN THE ENCLOSED PROXY CARD TO
VOTE "FOR" THE ELECTION OF ALL SEVEN NOMINEES FOR DIRECTOR IDENTIFIED BELOW AND
"FOR" APPROVAL OF THE VARIABLE COMPENSATION PLAN, UNLESS AUTHORITY IS WITHHELD
BY THE SHAREHOLDER GRANTING THE PROXY. IF ANY NOMINEE BECOMES UNAVAILABLE TO
SERVE FOR ANY REASON, THE PROXY WILL BE VOTED FOR A SUBSTITUTE NOMINEE OR
NOMINEES TO BE SELECTED BY THE BOARD, UNLESS THE SHAREHOLDER WITHHOLDS AUTHORITY
TO VOTE FOR THE ELECTION OF DIRECTORS. VALHI AND TREMONT, WHICH HOLD
APPROXIMATELY 60.2% AND 20.4%, RESPECTIVELY, OF THE OUTSTANDING COMMON STOCK,
HAVE INFORMED THE COMPANY THAT THEY INTEND TO VOTE THEIR SHARES IN FAVOR OF THE
NOMINEES SET FORTH IN THIS PROXY STATEMENT AND "FOR" APPROVAL OF THE VARIABLE
COMPENSATION PLAN. VALHI'S AND TREMONT'S VOTES TOGETHER, OR VALHI'S VOTES ALONE,
ARE SUFFICIENT TO ELECT ALL SEVEN NOMINEES AND TO APPROVE THE VARIABLE
COMPENSATION PLAN.
ELECTION OF DIRECTORS
The Certificate provides for a Board 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. The Board has determined that it shall
consist of seven members.
At the Annual Meeting, holders of Common Stock will be asked to elect seven
nominees to the Board, each to serve for a one-year term ending at the 2002
Annual Meeting of Shareholders or until his successor shall have been elected
and qualified or until his earlier resignation, removal or death. All of the
nominees are currently directors of the Company and have agreed to serve if
elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES IDENTIFIED
BELOW.
Nominees for Director
The information provided below has been provided by the respective nominees
for election as directors for a term expiring at the 2002 Annual Meeting of
Shareholders of the Company. Each of the following nominees for election is
currently a director of the Company whose term expires at the Annual Meeting.
J. LANDIS MARTIN, age 55, has been President and Chief Executive Officer of
NL since 1987, and a director of NL since 1986. He has served as Chairman of the
Board, President and Chief Executive Officer of Tremont since prior to 1996. Mr.
Martin also has served as Chairman of the Board and Chief Executive Officer of
Titanium Metals Corporation, an integrated producer of titanium metals products
that is 39% owned by Tremont ("TIMET"), since prior to 1996. Mr. Martin is a
director of Halliburton Company, a diversified energy services company,
Apartment Investment and Management Corporation, a real estate investment trust,
and Crown Castle International Corporation, a telecommunications company.
KENNETH R. PEAK, age 55, has been a director of NL since 1989. Mr. Peak is
President and Chief Executive Officer and Chairman of the Board of Contango Oil
& Gas Company, an independent oil and gas exploration and production company.
Since prior to 1996 to 1999, Mr. Peak was president of Peak Enernomics, Inc., an
energy industry consulting firm. Mr. Peak is a director of Patterson Energy,
Inc., an oil and gas drilling services provider. He serves as Chairman of NL's
Audit Committee and Management Development and Compensation Committee and is a
member of NL's Nominations Committee.
GLENN R. SIMMONS, age 73, has been a director of NL since 1986. Mr. Simmons
is Chairman of the Board of Keystone Consolidated Industries, Inc. ("Keystone"),
a steel fabricated wire products, industrial wire and carbon steel rod company
that is affiliated with Contran, and CompX International, Inc., a manufacturer
of ergonomic computer support systems, precision ball bearing slides, and
security products that is affiliated with Valhi ("CompX"). Since prior to 1996,
Mr. Simmons has been Vice Chairman of the Board of Valhi and Contran, a
diversified holding company which directly and through related entities holds
approximately 94% of the outstanding common stock of Valhi and 50% of the
outstanding common stock of Keystone. Mr. Simmons is also a director of Tremont
and TIMET. Mr. Simmons has been an executive officer and/or director of various
companies related to Valhi and Contran since 1969. He serves as Chairman of NL's
Nominations Committee. He is a brother of Harold C. Simmons.
HAROLD C. SIMMONS, age 69, has been a director of NL since 1986 and
Chairman of the Board of NL since 1987. He has been Chairman of the Board and
Chief Executive Officer of Valhi and Contran since prior to 1996 and was
President of Valhi and Contran from 1994 until 1998. Mr. Simmons is also a
director of Tremont. Mr. Simmons has been an executive officer and/or director
of various companies related to Valhi and Contran since 1961. He is a brother of
Glenn R. Simmons.
GENERAL THOMAS P. STAFFORD (retired), age 70, served as a director of NL
from 1984 to 1986 and was re-appointed in February 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. General Stafford graduated from
the United States Naval Academy in 1952. He was commissioned as an officer in
the United States Air Force ("USAF") and attended the USAF Experimental Flight
Test School in 1958. 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 USAF 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. In
addition to serving as a director of NL, General Stafford is a director of
TIMET, Tremont, CMI Corporation, and The Wackenhut Corp. General Stafford is a
member of NL's Audit Committee and its Management Development and Compensation
Committee.
STEVEN L. WATSON, age 50, has been a director of NL since November 2000,
and has served as a director of Valhi since 1998. Mr. Watson has been president
of Valhi and Contran, and a director of Contran, since 1998. Mr. Watson is also
a director of CompX, Keystone, TIMET and Tremont. From prior to 1996 to 1998,
Mr. Watson served as Vice President and Secretary of Valhi and Contran. Mr.
Watson has served as an executive officer and/or director of various companies
related to Valhi and Contran since 1980.
LAWRENCE A. WIGDOR, age 59, has been a director and Executive Vice
President of NL since 1992. Dr. Wigdor has been President and Chief Executive
Officer of Kronos, Inc. ("Kronos"), a wholly owned subsidiary of NL involved in
the titanium dioxide pigments business, since prior to 1996 and was President
and Chief Executive Officer of Rheox, Inc. ("Rheox"), a wholly owned subsidiary
of NL involved in the specialty chemicals business, since prior to 1996 until it
was sold in January 1998.
See also "Certain Relationships and Transactions."
MEETINGS AND COMMITTEES
The Board held seven meetings and took action by unanimous written consent
in lieu of a meeting on eight occasions in 2000. Each of the directors
participated in more than 75% of the total number of meetings of the Board and
committees on which he served that were held during their period of service in
2000.
The Board has established three standing committees, an Audit Committee, a
Management Development and Compensation Committee and a Nominations Committee,
all of which are composed entirely of individuals who are not employees of the
Company.
Audit Committee. The principal responsibilities of the Audit Committee are
to serve as an independent and objective party to review the Company's auditing,
accounting, and financial reporting processes. The Company's Board of Directors
has adopted a written charter for the Audit Committee, a copy of which is
attached as Exhibit A to this proxy statement, which describes the Audit
Committee's activities more specifically. Each of the members of the Audit
Committee is independent within the meaning of the New York Stock Exchange
listing standards. The Committee held two meetings in 2000. The current members
of the Audit Committee are Mr. Peak (Chairman) and General Stafford. See
"Independent Auditor Matters - Audit Committee Report."
Management Development and Compensation Committee. The principal
responsibilities of the Management Development and Compensation Committee are to
review and make recommendations regarding executive compensation policies and
periodically review and approve or make recommendations with respect to matters
involving executive compensation, to take action or to review and make
recommendations to the Board regarding employee benefit plans or programs, and
to serve as a counseling committee to the Chief Executive Officer regarding
matters of key personnel selection, organization strategies and such other
matters as the Board may from time to time direct. The Management Development
and Compensation Committee also is responsible for reviewing and approving stock
option and other stock-based compensation awards under the Company's incentive
plan and for reviewing and approving the Company's target and performance levels
under the Variable Compensation Plan. The Management Development and
Compensation Committee held one meeting and took action by written consent in
lieu of a meeting on four occasions in 2000. Its current members are Mr. Peak
(Chairman) and General Stafford.
Nominations Committee. The principal responsibilities of the Nominations
Committee are to review and make recommendations to the Board regarding such
matters as the size and composition of the Board and criteria for director
nominations, director candidates, the term of office of directors, and such
other related matters as the Board may request from time to time. The
Nominations Committee held one meeting in 2000. The current members of the
Nominations Committee are Mr. Glenn Simmons (Chairman) and Mr. Peak. The
Nominations Committee made its recommendations to the Board of Directors with
respect to the election of directors at the Annual Meeting. The Nominations
Committee will consider recommendations by shareholders of the Company with
respect to nominees for election as director if such recommendations are
submitted in writing to the Secretary of the Company and received not later than
December 31 of the year prior to the next annual meeting of shareholders, and
are accompanied by a full statement of qualifications and confirmation of the
recommended nominees' willingness to serve.
The Board has previously established, and from time to time may establish,
other committees to assist it in discharging its responsibilities.
EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information regarding the Company's executive
officers. Biographical information with respect to Messrs. Simmons and Martin
and Dr. Wigdor is set forth above under "Election of Directors."
Name Age Position(s)
Harold C. Simmons................... 69 Chairman of the Board
J. Landis Martin.................... 55 President and Chief Executive Officer
Dr. Lawrence A. Wigdor.............. 59 Executive Vice President; President and
Chief Executive Officer of Kronos
Susan E. Alderton................... 49 Vice President, Chief Financial Officer
and Treasurer
David B. Garten..................... 49 Vice President, General Counsel and Secretary
Robert D. Hardy..................... 40 Vice President, Controller, Assistant Treasurer
and Assistant Secretary
Susan E. Alderton has been Chief Financial Officer of the Company since
1998 and Vice President and Treasurer of the Company since prior to 1996. Ms.
Alderton has been a director of Tremont since prior to 1996.
David B. Garten has been Vice President, General Counsel and Secretary of
the Company since prior to 1996.
Robert D. Hardy has been Vice President, Controller of the Company since
March 1999, Assistant Treasurer since prior to 1996 and Assistant Secretary
since May 1998. From prior to 1996 to February 1998, Mr. Hardy served as the
Company's Director of Taxes, and from February 1998 to March 1999 served as Vice
President-Tax.
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
regulations of the Securities and Exchange Commission (the "Commission"), 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 executive officer of NL
listed in the Summary Compensation Table below, and (d) all executive officers
and directors of NL as a group. See note (3) below for information concerning
individuals and entities which may be deemed to indirectly beneficially own
those shares of Common Stock directly beneficially held by Valhi and Tremont, as
reported in the table below. No securities of NL's subsidiaries are beneficially
owned by any director, nominee for director, or officer of NL. Information
concerning ownership of equity securities of NL's parent companies is contained
in note (3) below and the table under the caption "Ownership of Valhi and
Tremont Common Stock" below. All information is taken from or based upon
ownership filings made by such persons with the Commission or information
provided by such persons to NL.
NL Common Stock
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Name of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership(1) of Class(2)
---------------- ----------------------- -----------
Valhi, Inc. 30,135,390 (3) 60.2%
Three Lincoln Centre
5430 LBJ Freeway, Suite 1700
Dallas, TX 75240
Tremont Corporation 10,215,541 (3) 20.4%
1999 Broadway, Suite 4300
Denver, CO 80202
J. Landis Martin 348,500 (4) --
Kenneth R. Peak 9,825 (5) --
Glenn R. Simmons 7,000 (3)(6) --
Harold C. Simmons 78,475 (3)(7) --
General Thomas P. Stafford (retired) 3,000 (8) --
Steven L. Watson 4,000 (3) --
Dr. Lawrence A. Wigdor 205,400 (9) --
Susan E. Alderton 116,639 (10) --
David B. Garten 119,596 (11) --
Robert D. Hardy 59,344 (12) --
All directors and executive officers 951,779 (3)(4)(5)(6) 1.9%
of the Company as a group (10 persons) (7)(8)(9)(10)(11)(12)
(1) All beneficial ownership is sole and direct unless otherwise noted.
(2) No percent of class is shown for holdings of less than 1%.
(3) Tremont Group, Inc. ("TGI") is the holder of approximately 80.0% of the
outstanding common stock of Tremont ("Tremont Common Stock"). Valhi and
Tremont Holdings, LLC ("TRE Holdings") are the direct holders of 80.0%
and 20.0%, respectively, of the outstanding common stock of TGI. NL is
the sole member of TRE Holdings. Valhi and Tremont are the direct
holders of approximately 60.2% and 20.4%, respectively, of the
outstanding Common Stock. Valhi Group, Inc. ("VGI"), National City
Lines, Inc. ("National") and Contran are the holders of approximately
81.7%, 9.5% and 1.8%, respectively, of the outstanding common stock,
$.01 par value per share, of Valhi, Inc. (the "Valhi Common Stock").
National, NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie Holding")
are the holders of approximately 73.3%, 11.4% and 15.3%, respectively,
of the outstanding common stock of VGI. Contran and NOA are the holders
of approximately 85.7% and 14.3%, respectively, of the outstanding
common stock of National. Contran and Southwest Louisiana Land Company,
Inc. ("Southwest") are the holders of approximately 49.9% and 50.1%,
respectively, of the outstanding common stock of NOA. Dixie Rice
Agricultural Corporation, Inc. ("Dixie Rice") is the holder of 100% of
the outstanding common stock of Dixie Holding. Contran is the holder of
100% and approximately 88.9% of the outstanding common stock of Dixie
Rice and Southwest, respectively. 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 Harold C. Simmons is the sole trustee. As sole
trustee of the Trusts, Harold C. Simmons has the power to vote and
direct the disposition of the shares of Contran common stock held by
each of the Trusts. Mr. Simmons, however, disclaims beneficial ownership
of all Contran shares held by the Trusts.
Harold C. Simmons is Chairman of the Board of NL, a director of Tremont,
and Chairman of the Board and Chief Executive Officer of Contran, Dixie
Rice, Southwest, Dixie Holding, NOA, National, TGI, VGI and Valhi. By
virtue of the holding of such offices, the stock ownership and his
service as trustee, all as described above, (a) Mr. 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
the Common Stock directly beneficially owned by Valhi and Tremont and
the shares of Valhi Common Stock and Tremont Common Stock held by
Contran and its subsidiaries. However, Mr. Simmons disclaims beneficial
ownership of the shares of Common Stock, Valhi Common Stock and Tremont
Common Stock beneficially owned, directly and indirectly, by such
entities.
Glenn R. Simmons and Steven L. Watson are directors of Contran and
Valhi. Each of such persons disclaims beneficial ownership of the shares
of Common Stock that Valhi and Tremont directly or indirectly
beneficially hold.
The Combined Master Retirement Trust (the "Master Trust") holds
approximately 0.1% of the outstanding shares of Valhi Common Stock.
Valhi established the Master Trust 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 Master Trust and a member of the trust investment
committee for the Master Trust. Valhi's Board of Directors select the
trustee and members of the trust investment committee for the Master
Trust. Harold C. Simmons, Glenn R. Simmons and Steven L. Watson are
members of Valhi's Board of Directors and are participants in one or
more of the employee benefit plans which invest through the Master
Trust. Each of such persons, however, disclaims beneficial ownership of
the shares of Valhi Common Stock held by the Master Trust, except to the
extent of his individual vested beneficial interest in the assets held
by the Master Trust.
The Contran Deferred Compensation Trust No. 2 (the "CDCT No. 2")
directly holds approximately 0.4% of the outstanding Valhi Common Stock.
U.S. Bank National Association serves as trustee of the CDCT No. 2 (the
"Trustee"). Contran established the CDCT No. 2 as an irrevocable "rabbi
trust" to assist Contran in meeting certain deferred compensation
obligations that it owes to Harold C. Simmons. If the CDCT No. 2 assets
are insufficient to satisfy such obligations, Contran must satisfy the
balance of such obligations. Pursuant to the terms of the CDCT No. 2,
Contran (i) retains the sole power to vote the Valhi Common Stock held
by the CDCT No. 2, (ii) retains dispositive power over such shares, and
(iii) may be deemed the indirect beneficial owner of such shares.
However, Mr. Simmons disclaims such beneficial ownership of the shares
beneficially owned by the CDCT No. 2, except to the extent of his
interest as a beneficiary of CDCT No. 2.
The Foundation directly holds approximately 0.5% of the outstanding
Valhi Common Stock. The Foundation is a tax-exempt foundation organized
for charitable purposes. Harold C. Simmons is the chairman of the board
and chief executive officer of the Foundation and may be deemed to
control the Foundation. Mr. Simmons, however, disclaims beneficial
ownership of any shares held by the Foundation.
Valmont Insurance Company ("Valmont") and a subsidiary of the Company
directly own 1,000,000 shares and 1,186,200 shares, respectively, of
Valhi common stock. Valhi holds 100% of the outstanding common stock of
Valmont. Pursuant to Delaware law, Valhi treats the shares of Valhi
common stock owned by Valmont and the subsidiary of the Company as
treasury stock for voting purposes and for the purposes of this footnote
are not deemed outstanding.
The business address of VGI, National, TGI, 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. The business address of TRE Holdings is 16825 Northchase Dr.,
Suite 1200, Houston, TX 77060.
(4) The shares of Common Stock shown as beneficially owned include 228,600
shares of Common Stock which J. Landis Martin has the right to acquire
by exercise of options within 60 days of the Record Date under the
Company's 1989 and 1998 Long-Term Incentive Plans (the "1989 Incentive
Plan" and "1998 Incentive Plan," respectively, and collectively the
"Incentive Plans").
(5) The shares of Common Stock shown as beneficially owned include (i) 7,000
shares of Common Stock which Kenneth R. Peak has the right to acquire by
exercise of options within 60 days of the Record Date pursuant to the NL
Industries, Inc. 1992 Non-Employee Director Stock Option Plan (the
"Director Plan") and the 1998 Incentive Plan, and (ii) 21 shares of
Common Stock held by Mr. Peak's wife with respect to which Mr. Peak
disclaims beneficial ownership.
(6) The shares of Common Stock shown as beneficially owned include 6,000
shares which Glenn R. Simmons has the right to acquire by exercise of
options within 60 days of the Record Date under the 1998 Incentive Plan.
(7) The shares of Common Stock shown as beneficially owned by Harold C.
Simmons include 69,475 shares held by Harold C. Simmons' wife with
respect to which beneficial ownership is disclaimed by Mr. Simmons and
6,000 shares which Mr. Simmons has the right to acquire by exercise of
options within 60 days of the Record Date under the 1998 Incentive Plan.
(8) The shares of Common Stock shown as beneficially owned include 2,000
shares which General Thomas P. Stafford has the right to acquire by
exercise of options within 60 days of the Record Date under the 1998
Incentive Plan.
(9) The shares of Common Stock shown as beneficially owned include 163,600
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 under
the Incentive Plans.
(10) The shares of Common Stock shown as beneficially owned include (i)
63,000 shares of Common Stock which Susan E. Alderton has the right to
acquire by exercise of options within 60 days of the Record Date under
the Incentive Plans, and (ii) 12,482 shares credited to Ms. Alderton's
account under the Savings Plan.
(11) The shares of Common Stock shown as beneficially owned include (i)
93,000 shares of Common Stock which David B. Garten has the right to
acquire by exercise of options within 60 days of the Record Date under
the Incentive Plans, (ii) 3,261 shares credited to Mr. Garten's account
under the Savings Plan, and (iii) 23,335 shares held by Mr. Garten and
his wife as joint tenants.
(12) The shares of Common Stock shown as beneficially owned include (i)
43,000 shares of Common Stock which Robert D. Hardy has the right to
acquire by exercise of options within 60 days of the Record Date under
the Incentive Plans, and (ii) 16,344 shares held by Mr. Hardy and his
wife as joint tenants.
Ownership of Valhi and Tremont Common Stock. The following table and
accompanying notes set forth as of the Record Date (i) the beneficial ownership,
as defined above, of Valhi Common Stock held by (a) each director or nominee for
director of NL, (b) each executive officer of NL listed in the Summary
Compensation Table below, and (c) all executive officers and directors of NL as
a group, and (ii) the beneficial ownership, as defined above, of Tremont Common
Stock held by (a) each director or nominee for director of NL, (b) each
executive officer of NL listed in the Summary Compensation Table below, and (c)
all executive officers and directors of NL as a group. See note (3) to the table
following the caption "Ownership of NL Common Stock" above, for information
concerning individuals and entities who may be deemed to indirectly beneficially
own those shares of Common Stock directly beneficially held by Tremont and
Valhi. Except as described in note (3) above and the table below and the
accompanying notes, no equity securities of NL's parent companies are
beneficially owned by any director, nominee for director or executive officer of
NL. All information is taken from or based upon ownership filings made by such
persons with the Commission or information provided by such persons to NL.
Tremont Common Stock Valhi Common Stock
--------------------------- -----------------------------
Amount and Amount and
Nature of Nature of
Name of Beneficial Percent Beneficial Percent
Beneficial Owner Ownership(1) of Class(2) Ownership (1) of Class (2)
---------------- ------------ ----------- ------------- ------------
J. Landis Martin ................... 104,359(3) 1.6% -0- --
Kenneth R. Peak .................... -0- -- -0- --
Glenn R. Simmons ................... 534(4)(8) -- 353,183(4)(7)(8) --
Harold C. Simmons .................. -0-(4) -- 580,383(4)(7)(9) --
General Thomas P. Stafford (retired) 4,000(5) -- -0- --
Steven L. Watson ................... 4,474(4) -- 318,635(4)(7) --
Dr. Lawrence A. Wigdor ............. -0- -- -0- --
Susan E. Alderton .................. 4,727(10) -- -0- --
David B. Garten .................... 9,500(6) -- -0- --
Robert D. Hardy .................... 318 -- -0- --
All directors and executive ........
officers of the Company .........
as a group (10 persons) ......... 127,912(3)(4) 2.0% 1,252,201(4)(7) 1.1%
(5)(6)(8)(10) (8)(9)
(1) All beneficial ownership is sole and direct unless otherwise noted.
(2) No percent of class is shown for holdings of less than 1%. For purposes
of calculating the percent of class owned 1,186,200 shares of Valhi
Common Stock held by a subsidiary of NL and 1,000,000 shares of Valhi
Common Stock held by Valmont are excluded from the amount of Valhi
Common Stock outstanding. The Company understands that, pursuant to
Delaware law, Valhi treats these excluded shares as treasury stock for
voting purposes.
(3) The shares of Tremont Common Stock shown as beneficially owned by J.
Landis Martin include 60,000 shares of Tremont Common Stock which Mr.
Martin has the right to acquire by exercise of options within 60 days of
the Record Date.
(4) Excludes certain shares that may be deemed to be indirectly beneficially
owned by such individual as to which he disclaims beneficial ownership.
See note (3) to the table following "Ownership of NL Common Stock"
above.
(5) The shares of Tremont Common Stock shown as beneficially owned by Thomas
P. Stafford include 4,000 shares which General Stafford has the right to
acquire by exercise of options within 60 days of the Record Date.
(6) The shares of Tremont Common Stock shown as beneficially owned by David
B. Garten include 9,000 shares which Mr. Garten has the right to acquire
by exercise of options within 60 days of the Record Date.
(7) Includes shares that such person or group could acquire upon the
exercise of stock options within 60 days of the Record Date. During such
60-day period, options for 500,000 shares of Valhi Common Stock are
exercisable by Harold C. Simmons, options for 350,000 shares of Valhi
Common Stock are exercisable by Glenn R. Simmons, and options for
300,000 shares of Valhi Common Stock are exercisable by Steven L.
Watson, all of which shares are included in the amount outstanding for
purposes of calculating the percent of class owned by such persons. In
addition, includes 3,035 shares held in Mr. Watson's individual
retirement account.
(8) Includes 2,383 shares of Valhi Common Stock and 515 shares of Tremont
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.
(9) Includes 77,000 shares of Valhi Common Stock held by Harold C. Simmons'
wife, with respect to which beneficial ownership is disclaimed by Mr.
Simmons.
(10) The shares of Tremont Common Stock shown as beneficially owned by Susan
E. Alderton include 4,000 shares which Ms. Alderton has the right to
acquire by exercise of options within 60 days of the Record Date and 11
shares held by the trustee for the benefit of Ms. Alderton under the
Savings Plan.
The Company understands that Valhi, Tremont 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. The Company does not presently
intend, and understands that neither Valhi nor Tremont presently intends, to
engage in any transaction or series of transactions that would result in the
Common Stock becoming eligible for termination of registration under the
Securities Exchange Act of 1934, as amended, or ceasing to be traded on a
national securities exchange.
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
Commission, the New York Stock Exchange, 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, 2000, except one filing
by Dr. Wigdor inadvertently omitted a single sale transaction.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
AND OTHER INFORMATION
Compensation of Directors
During 2000, fees were paid to each director who was not an employee of the
Company or a subsidiary of the Company. Fees consisted of an annual retainer of
$15,000, payable in quarterly installments and 1,000 shares of Common Stock
granted pursuant to the 1998 Incentive Plan, plus an attendance fee of $1,000
for each meeting of the Board or a committee at which the director was present.
Such directors also received a fee of $1,000 per day for each day spent on NL
business at the request of the Board or the Chairman of the Board, other than
the day of Board or committee meetings. Directors are reimbursed for reasonable
expenses incurred in attending Board of Directors and committee meetings. If any
director who is not an officer or employee of NL or any subsidiary or affiliate
of NL dies while in active service, his designated beneficiary or estate will be
entitled to receive a life insurance benefit equal to the annual retainer then
in effect. Nominees for election as Director who received fees for serving on
the Board of Directors in 2000 are Messrs. Peak, G. Simmons, H. Simmons, and
Watson, and General Stafford. See "Certain Relationships and Transactions." In
addition, General Stafford receives an annual payment of $15,000 as a result of
his service on the Board in the period prior to 1987.
In 2000, Messrs. Peak, G. Simmons, H. Simmons, and General Stafford were
each granted an option pursuant to the 1998 Incentive Plan to purchase 2,000
shares of Common Stock at an exercise price of $14.4375 per share, representing
the last reported sales price of Common Stock on the New York Stock Exchange
Composite Tape on the date of the grant. These options become exercisable one
year after the date of grant and expire on the fifth anniversary following the
date of the grant.
Summary of Cash and Certain Other Compensation of Executive Officers
The Summary Compensation Table set forth below provides certain summary
information concerning annual and long-term compensation awarded to, earned by,
or paid to or on behalf of the Company's Chief Executive Officer and each of its
other four most highly compensated executive officers for services rendered
during the years ended December 31, 2000, 1999 and 1998.
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation (1) Compensation (1)
-------------------------------- -------------------------
Awards
------
Other Restricted Securities
Name and Annual Stock Underlying All Other
Principal Position Year Salary Bonus (2) Compensation Awards Options Compensation
($) ($) (3)($) ($) (#) (5)($)
- ------------------ ---- ------ --------- ------------ ------ --------- ------------
J. Landis Martin 2000 600,000 900,000 13,420 -0- 100,000 96,840
President and Chief 1999 500,000 500,000 17,281 -0- 99,000 125,320
Executive Officer (4) 1998 500,000 2,750,000 19,742 -0- 120,000 328,520
Dr. Lawrence A. Wigdor 2000 750,000 2,625,000 6,815 -0- 100,000 132,038
Executive Vice 1999 650,000 650,000 8,833 -0- 99,000 171,073
President 1998 650,000 2,175,000 11,125 -0- 90,000 277,987
Susan E. Alderton 2000 295,833 443,700 -0- -0- 45,000 48,579
Vice President, 1999 225,000 225,000 -0- -0- 45,000 52,944
Chief Financial 1998 212,813 419,200 -0- -0- 30,000 49,883
Officer and Treasurer
David B. Garten 2000 325,000 987,500 -0- -0- 45,000 100,252
Vice President,General 1999 325,000 325,000 -0- -0- 45,000 69,427
Counsel and Secretary 1998 250,000 575,000 -0- -0- 45,000 84,408
Robert D. Hardy 2000 275,000 662,500 -0- -0- 30,000 38,061
Vice President and 1999 200,000 147,500 -0- -0- 30,000 34,531
Controller 1998 170,000 385,300 -0- -0- 30,000 44,424
(1) No payouts under any long-term incentive plans (as defined by applicable
federal securities regulations) were made during 2000, 1999 or 1998.
Therefore the column for such compensation otherwise required by
applicable federal securities regulations has been omitted.
(2) Amounts paid with respect to each year pursuant to the Variable
Compensation Plan and, for 1998 and 2000, special discretionary bonuses.
See "Compensation Committee's Report on Executive Compensation" below.
(3) Amount which exceeds 120% of the applicable federal long-term interest
rate accrued on deferred compensation.
(4) During 2000, 1999 and 1998, Mr. Martin also served as an executive
officer of Tremont and TIMET. Mr. Martin is expected to continue to
serve as an executive officer of NL, TIMET and Tremont in 2001 and to be
compensated directly by NL for services to NL and by TIMET for services
to TIMET and Tremont. Mr. Martin is expected to continue to devote
approximately one-half of his working time to his duties as President
and Chief Executive Officer of NL. See "Certain Relationships and
Transactions."
(5) For 2000 represents (i) $9,328, $962, $2,302, and $861 of life insurance
premiums paid by the Company for the benefit of Dr. Wigdor, Ms.
Alderton, and Messrs. Garten and Hardy respectively, (ii) a contribution
of $10,200 to the account of each of the named executive officers under
the Savings Plan, (iii) a contribution of $14,110, $9,350, $12,240,
$9,350 and $6,800 to the Savings Plan accounts of Dr. Wigdor, Ms.
Alderton and Messrs. Martin, Garten and Hardy respectively, as a pension
contribution, and (iv) $98,400, $28,067, $74,400, $78,400 and $20,200
accrued by the Company in unfunded accounts for the benefit of Dr.
Wigdor, Ms. Alderton and Messrs. Martin, Garten, and Hardy,
respectively, under the NL Supplemental Executive Retirement Plan
("SERP"). For 1999 represents: (i) $6,493, $924, $1,827 and $801 of life
insurance premiums paid by the Company for the benefit of Dr. Wigdor,
Ms. Alderton, and Messrs. Garten and Hardy respectively, (ii) a
contribution of $6,400 to the account of each of the named executive
officers under the Savings Plan, (iii) a contribution of $11,680,
$7,200, $9,920, $7,200 and $4,800 to the Savings Plan accounts of Dr.
Wigdor, Ms. Alderton and Messrs Martin, Garten and Hardy respectively,
as a pension contribution, and (iv) $146,500, $38,420, $109,000, $54,000
and $22,530 accrued by the Company in unfunded accounts for the benefit
of Dr. Wigdor, Ms. Alderton, and Messrs. Martin, Garten and Hardy,
respectively, under the SERP. For 1998 represents: (i) $5,207, $672,
$1,108 and $574 of life insurance premiums paid by the Company for the
benefit of Dr. Wigdor, Ms. Alderton, and Messrs. Garten and Hardy,
respectively, (ii) a contribution of $7,500 to the account of Ms.
Alderton and $9,600 to the account of each of the other named executive
officers under the Savings Plan, and (iii) a contribution of $11,680,
$7,200, $9,920, $7,200 and $4,800 to the Savings Plan accounts of Dr.
Wigdor, Ms. Alderton and Messrs. Martin, Garten and Hardy respectively,
as a pension contribution, and (iv) $251,500, $34,511, $309,000, $66,500
and $29,450 accrued by the Company in unfunded accounts for the benefit
of Dr. Wigdor, Ms. Alderton, and Messrs. Martin, Garten and Hardy,
respectively, under the SERP.
Stock Option Grants
The following table provides information with respect to the individual
stock option grants to the executive officers named in the Summary Compensation
Table set forth above under the 1998 Incentive Plan during fiscal year 2000.
OPTION GRANTS IN LAST FISCAL YEAR
Potential Realizable Value at
Assumed Rates of Stock
Percent of Total Exercise Appreciation for
Number of Securities Options Granted or Base Option Term (3)
Underlying Options to Employees in Price(2) Expiration -----------------------------
Name Granted(#)(1) Fiscal Year ($/Share) Date 5% ($) 10% ($)
----- ------------------- ---------------- --------- --------- ------- ---------
J. Landis Martin 100,000 23.1% $14.25 2/9/10 896,175 2,271,083
Lawrence A. Wigdor 100,000 23.1% $14.25 2/9/10 896,175 2,271,083
Susan E. Alderton 45,000 10.4% $14.25 2/9/10 403,279 1,021,987
David B. Garten 45,000 10.4% $14.25 2/9/10 403,279 1,021,987
Robert D. Hardy 30,000 6.9% $14.25 2/9/10 268,852 681,325
(1) Grants of options to purchase shares of Common Stock under the Incentive
Plan vest over five years from the date of grant, at a rate of 40% on
the second anniversary of the date of grant, and 20% on each of the next
three succeeding anniversary dates. The options expire on the tenth
anniversary date of the date of grant.
(2) Exercise price is equal to the mean of the high and low prices of the
Common Stock on the New York Stock Exchange Composite Tape on the date
of grant.
(3) Pursuant to the rules of the Commission, these amounts reflect the
calculations at assumed 5% and 10% appreciation rates. Such calculations
are not intended to forecast future appreciation, if any, and do not
necessarily reflect the actual value, if any, that may be realized. The
actual value of such options, if any, would be realized only upon the
exercise of such options and depends upon the future performance of the
Common Stock. No assurance can be made that the amounts reflected in
these columns will be achieved. The potential realizable value was
computed as the difference between the appreciated value (at the end of
the ten-year term of the options) of the Common Stock into which the
listed options are exercisable and the aggregate exercise price of such
options. The appreciated value per share at the end of the ten-year term
would be $23.21 and $36.96 at the assumed 5% and 10% rates,
respectively, with respect to options granted to named executive
officers.
Stock Option Exercises and Holdings
The following table provides information with respect to the executive
officers named in the Summary Compensation Table, as set forth above, concerning
the exercise of options during the last fiscal year and the value of unexercised
options held as of December 31, 2000. Each of the executive officers exercised
options during 2000 as shown in the table below. No stock appreciation rights
have been granted under the Incentive Plans.
AGGREGATED OPTION EXERCISES IN 2000 AND 12/31/00 OPTION VALUES
Number of Securities
Underlying Unexercised Value of Unexercised In-the-
Shares Acquired on Options at 12/31/00(#) Money Options at 12/31/00 ($)
Name Exercise (#)(1) Value Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- ------------------ ------------------------- ----------------------------
J. Landis Martin 355,000 4,667,188 138,000/316,000 1,137,388/2,910,414
Lawrence A. Wigdor 126,000 1,612,019 83,800/290,200 606,512/2,745,578
Susan E. Alderton 51,000 670,009 31,200/121,800 242,810/1,182,278
David B. Garten 45,000 599,063 54,600/137,400 467,575/1,295,527
Robert D. Hardy 25,000 260,188 18,000/91,000 112,664/887,103
(1) In August 2000, Dr. Wigdor, Ms. Alderton and Messrs. Compofelice (the
Company's former Vice President and Chief Financial Officer and, at the
time, a member of the Board), Martin, Garten and Hardy entered into
agreements under which NL purchased 37,147 shares of Common Stock from
Dr. Wigdor, 15,474 shares of Common Stock from Ms. Alderton, 65,505
shares of Common Stock from Mr. Compofelice, 133,764 shares of Common
Stock from Mr. Martin, 18,375 shares of Common Stock from Mr. Garten,
and 4,138 shares of Common Stock from Mr. Hardy for an aggregate of $6.2
million. Under the agreements, the sellers also delivered certain shares
of Common Stock to the Company in payment of the exercise price and
applicable required withholding taxes (as permitted by the 1989
Incentive Plan).
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 each executive
officer named in the Summary Compensation Table set forth above. No amounts were
paid or distributed to any of the named executive officers in 2000. The
estimated accrued annual benefits payable under the Pension Plan upon retirement
at normal retirement age for Dr. Wigdor, Ms. Alderton, and Messrs. Martin,
Garten, and Hardy are $29,439, $34,419, $50,277, $26,410, and $12,348,
respectively.
Severance Agreements
Mr. Martin had an executive severance agreement with the Company which
expired in December 2000. The agreement provided that he may be terminated at
any time by action of the Board of Directors. The executive severance agreement
also provided that the following payments would be made to Mr. Martin in the
event Mr. Martin's employment was terminated by the Company without cause (as
defined in the agreement) or Mr. Martin terminated his employment with the
Company for good reason (as defined in the agreement): (i) two times Mr.
Martin's annual base salary plus target bonus (which target bonus shall not be
less than the amount of his annual salary); (ii) accrued salary and bonus
through the date of termination; and (iii) certain other benefits.
Dr. Wigdor has entered into an executive severance agreement with the
Company which provides that he may be terminated at any time by action of the
Board of Directors. The executive severance agreement also provides that the
following payments shall be made to Dr. Wigdor in the event Dr. Wigdor's
employment is terminated by the Company without cause (as defined in the
agreement) or Dr. Wigdor terminates his employment with the Company for good
reason (as defined in the agreement): (i) the greater of two times Dr. Wigdor 's
annual base salary plus target bonus (which target bonus shall not be less than
the amount of his annual salary) or Dr. Wigdor's actual salary and bonus for the
two years prior to termination; (ii) accrued salary and bonus through the date
of termination; (iii) an amount in cash or Common Stock equal to the fair market
value of outstanding stock options granted to Dr. Wigdor in excess of the
exercise price and unvested restricted stock grants; (iv) an amount equal to
unvested Company contributions together with an amount equal to the Company's
matching contributions to Dr. Wigdor's account under the Savings Plan for a
period of two years; (v) an amount equal to the vested and unvested portions of
Dr. Wigdor's account under the SERP; and (vi) certain other benefits. This
agreement is automatically extended for a one-year term commencing each January
1, unless the Company and Dr. Wigdor agree otherwise in writing.
INDEPENDENT AUDITOR MATTERS
Independent Auditors. The firm of PricewaterhouseCoopers LLP served as NL's
independent auditor for the year ended December 31, 2000, 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 2001 and
to audit NL's annual consolidated financial statements for the year ending
December 31, 2001. Representatives of PricewaterhouseCoopers LLP are not
expected to attend the Meeting.
Audit Committee Report. NL's management is responsible for preparing NL's
consolidated financial statements in accordance with accounting principles
generally accepted in the United States. NL's independent auditors are
responsible for auditing NL's consolidated financial statements in accordance
with auditing standards generally accepted in the United States. The audit
committee serves as an independent and objective party to review NL's auditing,
accounting and financial reporting processes.
The audit committee has reviewed and discussed NL's audited consolidated
financial statements for the year ended December 31, 2000 with NL's management
and independent auditor. The audit committee discussed with the independent
auditors the matters required by Statement on Auditing Standards No. 61
("Communication with Audit Committees"), received written disclosures from the
independent auditor required by Independence Standards Board Standard No. 1
("Independence Discussions with Audit Committees") and discussed with the
independent auditors their independence. The audit committee also considered
whether the independent auditors' provision of non-audit services to NL and its
subsidiaries is compatible with such auditors independence. Additionally, the
audit committee discussed with NL's management and the independent auditor such
other matters as the committee deemed appropriate. Based on the audit
committee's review of NL's audited consolidated financial statements and the
audit committee's discussions with NL's management and independent auditor, the
audit committee recommended to the Board of Directors that NL's audited
consolidated financial statements for the year ended December 31, 2000 be
included in NL's Annual Report on Form 10-K for the year ended December 31,
2000, which has been filed with the Commission.
Kenneth R. Peak General Thomas P. Stafford (retired)
Chairman of the Audit Committee Member of the Audit Committee
Audit and Other Fees. The aggregate fees PricewaterhouseCoopers LLP has
billed or is expected to bill to the Company for services rendered for 2000 for
audit fees is $528,611 and for all other fees is $195,421. No fees were billed
or expected to be billed for services performed in 2000 for financial
information systems design and implementation.
The amount for audit fees includes, without duplication, (a) fees for the
audit of the Company's consolidated financials statements for the year ended
December 31, 2000, (b) reviews of the unaudited quarterly consolidated financial
statements appearing in the Company's Form 10-Q for each of the first three
quarters of 2000, and (c) the estimated out-of-pocket costs
PricewaterhouseCoopers LLP incurred in such audits and reviews. The Company
reimburses PricewaterhouseCoopers LLP for such out-of-pocket costs.
COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION
The Company's Management Development and Compensation Committee (the "MDC
Committee") consists of individuals who are neither officers nor employees of
the Company or its subsidiaries and who are not eligible to participate in any
of the employee benefit plans administered by the MDC Committee.
The MDC Committee annually reviews and recommends compensation policies and
practices related to the Company's executive officers, including the Chief
Executive Officer (the "CEO"). The MDC Committee also was responsible for
reviewing and approving all compensation actions during 2000, including
stock-based compensation, involving the Company's executive officers. However,
any action in connection with the CEO's base salary is reviewed and approved by
the Board after recommendation by the MDC Committee.
The Company's executive compensation system with respect to its executive
officers, including the CEO, generally consists of three primary components:
base salary, annual variable compensation provided by the Variable Compensation
Plan, and the grant of stock options, restricted stock and/or stock appreciation
rights. Through the use of the foregoing, the Committee seeks to achieve a
balanced compensation package that will attract and retain high-quality key
executives, appropriately reflect each such executive officer's individual
performance, contributions, and general market value, and provide further
incentives to the officers to maximize annual operating performance and
long-term shareholder value.
Base Salaries
The MDC Committee reviews recommendations by the CEO regarding changes in
base salaries for executive officers, including the CEO. These recommendations
are made by the CEO after consultation with the Chairman of the Board. When
recommendations regarding changes in base salary levels are made by the CEO, the
MDC Committee may take such actions, including any modifications, as it deems
appropriate. The CEO's recommendations and the MDC Committee's actions in 2000
were based primarily on a subjective evaluation of past and potential future
individual performance and contributions, and alternative opportunities that
might be available to the executives in question. The Committee also had
available to it compensation data from companies employing executives in
positions similar to those whose salaries were being reviewed as well as market
conditions for executives in general with similar skills, background and
performance levels, both inside and outside of the chemicals industry (such
companies may have included companies contained in the peer group index plotted
on the Performance Graph following this report), and other companies with
similar financial and business characteristics as the Company, or where the
executive in question has similar responsibilities. In 2000, the MDC Committee
approved a base annual salary increase for Mr. Martin from $500,000 to $600,000,
a base annual salary increase for Dr. Wigdor from $650,000 to $750,000, a base
annual salary increase for Ms. Alderton from $225,000 to $325,000 and an
increase in Mr. Hardy's base annual salary from $200,000 to $275,000. In
approving these increases the MDC Committee reviewed the recommendations of the
CEO and an independently prepared compensation survey report that suggested that
each of the executives were compensated at a base salary level beneath their
peers at comparable companies. The MDC committee also took into account that Mr.
Martin had not received a salary increase since 1997; Ms. Alderton since 1998
(when she assumed the position of CFO); Dr. Wigdor since 1998; and Mr. Hardy
since 1999. The MDC Committee also considered the Chairman of the Board's
approval of these increases and the fact that the Company had performed well in
fiscal 1999 as compared to its operating targets.
No action was taken with respect to the base salaries of any of the other
named executive officers of the Company during 2000.
Variable Compensation Plan
Awards under the Variable Compensation Plan constitute a significant
portion of an executive's potential annual cash compensation (between 0% and
150% of base salary for the CEO and certain executive officers). Awards are
based primarily on Kronos achieving annual predetermined operating income goals,
and, secondarily, in the case of Mr. Hardy for awards with respect to 1999, on
individual performance. The Company's management makes recommendations to the
Board regarding the operating income plan for the year after reviewing market
conditions and the Company's operations, competitive position, marketing
opportunities, and strategies for maximizing financial performance. The Board
approves this recommendation with modifications it deems appropriate. Based on
the business plan for the year, the MDC Committee sets the Company's and its
business segment's operating income goals at three levels which are designed to
help focus the Company's executives on achieving superior annual operating
results in light of existing conditions: a threshold level, which is the minimum
operating income level for any award to be made under the Variable Compensation
Plan (the "Minimum Level"), a target level (the "Target Level"), and a maximum
level (the "Maximum Level"). The Variable Compensation Plan, in combination with
base salary, is designed to result in executive officers and other eligible
participants receiving annual cash compensation below competitive compensation
levels if the Minimum Level is not achieved.
Pursuant to the Variable Compensation Plan, if operating income is below
the Minimum Level, no variable compensation is paid. If the Minimum Level is
met, executive officers are eligible to receive variable compensation payments
that in 2000 ranged between 14% and 60% of base salary, depending on the
executive. If the Target Level is reached, the range of variable compensation
payments is higher, and in 2000 ranged between 22% and 100% of base salary,
depending on the executive. If the Maximum Level is reached or exceeded,
executives are eligible to receive the highest variable compensation payments,
and in 2000 the range of payments for which executives were eligible was between
35% and 150% of base salary, depending on the executive. In view of the
achievement of operating income above the Target Level during 1999, in 2000 the
MDC Committee approved Target Level payments under the Variable Compensation
Plan to the executive officers, including the CEO. Such awards to the CEO and
the four other highest paid executive officers under the Variable Compensation
Plan are reported in the bonus column in the Summary Compensation Table set
forth above. In addition, target levels for operating income performance were
utilized by the MDC Committee and the Board, as applicable, for determining the
contributions by the Company to the accounts of eligible participants, including
the CEO and the executive officers, under the Savings Plan, the Pension Plan,
and the SERP.
Stock-Based Compensation
The 1998 Incentive Plan further supports the goal of maximizing long-term
shareholder value by providing for stock-based compensation, the value of which
is directly related to increases in shareholder value. Stock option grants, in
particular, are considered a significant element of the Company's total
compensation package for the CEO and the other executive officers of the
Company. The Committee believes that compensation linked to stock price
performance helps focus the executives' attention on management of the Company
from the shareholders' perspective. While the Committee encourages share
ownership by the executive officers, it no longer employs ownership guidelines
in determining stock-based compensation.
Option grants are intended to provide incentives to increase shareholder
value in the future and to reward past performance by the executive. In 2000,
the MDC Committee reviewed recommendations by the CEO regarding option grants to
executive officers other than the CEO. Options were granted to executive
officers, including the CEO, in the MDC Committee's discretion based on a
subjective evaluation regarding each executive's performance and
responsibilities. In 2000, the MDC Committee included in its determination
regarding the number of options to be granted to each executive officer,
including the CEO, the amount and terms of options already held by such
officers. Grants made in 2000 are reported in the Option Grants in Last Fiscal
Year Table set forth above.
To help assure a focus on long-term creation of shareholder value, the MDC
Committee granted ten year options, which vest 40%, 60%, 80% and 100% on the
second, third, fourth and fifth anniversary dates of the date of grant,
respectively. Although permitted under the Incentive Plan, the MDC Committee in
2000 did not make or recommend any grants of restricted stock, stock
appreciation rights or other equity-based awards.
Special Discretionary Bonuses
Apart from the Variable Compensation Plan, the MDC Committee may award
other bonuses as the Committee deems appropriate from time to time under its
general authority or under a separate discretionary plan. During 2000 the
Committee approved awards to Mr. Garten and Mr. Hardy of $500,000 and $250,000,
respectively, in recognition of their performance during the year.
Tax Code Limitation on Executive Compensation Deductions
In 1993, Congress amended the Internal Revenue Code to impose a $1 million
deduction limit on compensation paid to the CEO and the four other most highly
compensated executive officers of public companies, subject to certain
transition rules and exceptions for compensation received pursuant to
non-discretionary performance-based plans approved by such company's
shareholders. In 1996, the Board and the Company's shareholders approved
amendments to the Company's Variable Compensation Plan and Incentive Plan which
permit compensation paid or awards or grants made to executives pursuant to such
plans to continue to qualify for deductibility by the Company.
The foregoing report on executive compensation has been furnished by the
Company's MDC Committee of the Board of Directors.
Mr. Kenneth R. Peak (Chairman)
General Thomas P. Stafford (retired)
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 Composite 500 Stock Index and the S & P Chemicals
Index for the period commencing December 31, 1995 and ending December 31, 2000.
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.
[GRAPHIC OMITTED - GRAPH DESCRIPTION] a line graph plotting the points
shown in the chart below which compares the yearly percentage change in the
cumulative total shareholder return on the Common Stock against the cumulative
total return of the S & P Composite 500 Stock Index and S & P Chemical Index for
the period commencing December 31, 1995 and ending December 31, 2000.
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
NL Industries, Inc. $100 $92 $115 $121 $130 $216
S & P 500 $100 $123 $164 $211 $255 $232
S & P Chemicals Index $100 $132 $162 $148 $193 $162
PROPOSAL TO APPROVE THE VARIABLE COMPENSATION PLAN
General
The Board believes short term incentive compensation is an important
element of compensation in order to attract and retain high quality executives,
officers and employees and provide further incentives to such executives and
employees to maximize the Company's annual financial performance and thereby
increase shareholder value. To this end, in 1989 the Board adopted the Variable
Compensation Plan to provide an annual incentive to all participants in such
plan and it was approved by the shareholders in 1996. With the exception of
Certain Executive Officers (as defined below), the Variable Compensation Plan
rewards employees based on a combination of individual and business segment
annual performance. Under the federal tax laws, unless the Variable Compensation
Plan is reapproved by the shareholders every five years, the costs to the
Company of continuing the Variable Compensation Plan will be increased by
eliminating the deductibility by the Company of annual compensation paid to
Certain Executive Officers in excess of $1 million unless such compensation
qualifies as performance-based compensation under the Internal Revenue Code of
1986, as amended (the "Code"). Therefore, the Board has recommended that the
Variable Compensation Plan, a copy of which is attached hereto as Exhibit B, be
submitted to the Company's shareholders for approval. The description of the
Variable Compensation Plan set forth herein is qualified in it entirety by
reference to the complete text of such plan, a copy of which is attached hereto
as Exhibit B.
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF THE
COMMON STOCK PRESENT AT THE ANNUAL MEETING IS NECESSARY FOR APPROVAL OF THE
VARIABLE COMPENSATION PLAN. THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
APPROVAL OF THE NL INDUSTRIES, INC. VARIABLE COMPENSATION PLAN.
Summary Description of the Plan
Participation and Administration. The Company's management selects from
among the Company's regular U.S. salaried employees those who shall participate
in the Variable Compensation Plan and the award group in which each such
participant shall be included; provided, however, that the Committee (as
described below) determines participation by the Company's executive officers.
Approximately 60 employees, including the Company's CEO and other executive
officers, currently participate in the plan. Any of the Company's approximately
90 domestic employees are eligible to be selected as a participant in the plan
at any time during the year. Certain Executive Officers may be designated as
participants under the plan only during the first 90 days of each fiscal year.
"Certain Executive Officers" means those executive officers of the Company whose
total non-performance based compensation from the Company would otherwise be in
excess of the amount deductible by the Company pursuant to Section 162(m) of the
Code. The Management Development and Compensation Committee or such other
committee as is designated by the Board from time to time (the "Committee") will
be responsible for administration of the plan. The Committee will consist of two
or more members who meet the requirements of Section 162(m) of the Code.
Determination of Variable Compensation Awards. Prior to the 90th day of the
current fiscal year, the Board shall approve the annual operating plan for the
Company and each of its business segments for such year. Based on such approved
annual operating plan, the Committee shall establish financial performance goals
at three levels, the minimum, target and maximum performance levels for the
Company and each of its business segments. The Committee, in its discretion,
establishes the applicable objective financial performance criteria for
determining Company and business segment performance levels. To date the
Committee has used operating income as the measure to determine financial
performance under the Variable Compensation Plan. During the first 90-day period
of each year, the Committee also shall set the performance percentage applicable
to each combination of individual performance level and business segment
performance level that could be achieved under the Variable Compensation Plan by
the participants under the Variable Compensation Plan; provided, however, that
the performance percentages with respect to Certain Executive Officers shall be
set solely by reference to the applicable business segment performance levels.
Performance percentages for group I participants range from 2% to 32% of such
participant's base salary, group II participants from 9% to 65%, group III
participants from 14% to 120%, and group IV participants from 50% to 150%,
depending on the applicable business segment performance level achieved. In the
event that the achieved performance by a business segment is below the minimum
business segment performance level for such year, no payments shall be made to
that business segment's participants under the plan. However, the CEO, with
respect to plan participants other than the executive officers, and the
Committee, with respect to executive officers other than Certain Executive
Officers, may approve payments of special awards to participants designated by
the CEO or the Committee, respectively.
Within 90 days of the end of each fiscal year, the Committee determines and
approves the performance level achieved by each of the Company's business
segments for such ended fiscal year. Such levels are then used in determining
the corresponding performance percentage and award for each Variable
Compensation Plan participant. Each participant's award under the plan is
determined by multiplying the applicable performance percentage times such
participant's base salary. The Committee approves payment of the variable
compensation awards in the aggregate to all participants and to each of the
executive officers including the CEO. Except in the case of death or total
disability, a participant must be employed by the Company on the date the
Committee approves the awards for the completed fiscal year in order for such
participant to receive an award under the Variable Compensation Plan for such
year. No participant may receive payments under the plan in excess of $3 million
annually.
The amounts that any participant in the Variable Compensation Plan,
including the Company's CEO and executive officers, will receive is not
determinable in advance prior to the completion of the Company's fiscal year and
the determination by the Committee of the actual performance level achieved by
the Company and applicable business segment for such year. As discussed in the
Compensation Committee's Report on Executive Compensation, benefits payable
under the Variable Compensation Plan vary depending upon whether the Company's
performance falls below the Minimum level set by the Committee, or exceeds
Minimum, Target, or Maximum levels. Payments under the Variable Compensation
Plan for each level of performance are a percentage of the individual's base
salary. The table below sets forth the range of payments possible under the Plan
with respect to 2000. Actual performance in 2000 exceeded the Maximum level and
therefore the benefits listed under the heading "Maximum Level" were paid with
respect to 2000 to the listed executive officers and such amounts are included
in the Summary Compensation Table.
Plan Benefits
Variable Compensation Plan
Below
Name & Position Minimum Minimum Level Target Level Maximum Level
--------------- ------- ------------- ------------ -------------
Chief Executive Officer $0 $300,000 $600,000 $900,000
Executive Vice President $0 $375,000 $750,000 $1,125,000
Vice President, Chief
Financial Officer, and
Treasurer $0 $147,917 $295,833 $443,750
Vice President, General
Counsel and Secretary $0 $162,500 $325,000 $487,500
Vice President and Controller $0 $137,500 $275,000 $412,500
All current executive officers
as a group $0 $1,122,917 $2,245,833 $3,368,900
All non-executive directors
as a group N/A N/A N/A N/A
Employees, other than
executive officers, as a group $0 $723,700 $1,221,949 $1,591,600
Certain Executive Officers. The Variable Compensation Plan, as revised in
1996, includes various limitations required by Section 162(m) of the Code
applicable only to Certain Executive Officers. For example, awards made to
Certain Executive Officers shall be based strictly on the achievement of
predetermined business segment performance levels and not on any individual
performance criteria. The salary used to determine awards to Certain Executive
Officers shall be the actual regular salaries at the rate in effect prior to the
90th day of the applicable fiscal year. Furthermore, Certain Executive Officers
may not become eligible to participate in the Variable Compensation Plan after
the 90th day of a fiscal year and applicable business segment performance
percentages and performance levels with respect to such officers may not be
changed after the first 90 days of the fiscal year. Finally, no discretionary
awards or bonuses may be paid to such officers under the Variable Compensation
Plan. However, the Committee or the Board may approve awards or bonuses under
their general authority or under any other discretionary plan.
In the event the Committee determines, on the advice of tax counsel, that
Section 162(m) of the Code will not adversely affect the deductibility for
federal income tax purposes of any amount paid to Certain Executive Officers if
the limitations set forth in the plan with respect to Certain Executive Officers
are not applied, then the Committee, in its discretion, may disregard such
limitations.
Amendments. The Committee, in its sole discretion, without notice, at any
time and from time to time, may modify or amend, in whole or in part, any or all
of the provisions of the Variable Compensation Plan, or suspend or terminate it
entirely.
Rights of Participants and Nontransferability. Nothing in the Variable
Compensation Plan shall interfere with or limit in any way the right of the
Company to terminate or change a participant's employment at any time, nor
confer upon any participant any right to continue in the employ of the Company
for any period of time or to continue such participant's present or any other
rate of compensation. No participant in a previous fiscal year, or other
employee at any time, shall have a right to be selected for participation in the
Variable Compensation Plan in a current or future year. No right or interest of
any participant in the Variable Compensation Plan shall be assignable or
transferable, or subject to any lien, directly, by operation of law or
otherwise, including execution, levy, garnishment, attachment, pledge, and
bankruptcy.
Effective Date. The Variable Compensation Plan in the form attached hereto
as Exhibit B, shall be effective as of January 1, 2001.
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Relationships with Related Parties
As set forth under the caption "Security Ownership," Harold C. Simmons,
through Valhi and Tremont, 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, such
transactions. 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. 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.
Harold C. Simmons and Glenn R. Simmons, each a director of NL, are also
directors and executive officers of Valhi and Contran. Each of the foregoing
persons and Mr. Martin, General Stafford, and Ms. Alderton are directors of
Tremont. Mr. Martin, the Company's President and Chief Executive Officer, serves
as an executive officer and director of Tremont and TIMET. General Stafford and
Glenn R. Simmons serve as directors of TIMET. Glenn R. Simmons also serves as
Chairman of the Board of Keystone and CompX. Mr. Watson, a director and
Assistant Secretary of NL, is also an executive officer of Contran and Valhi and
a director of Valhi, Contran, Tremont, TIMET, Keystone and CompX. Mr. Garten
serves as assistant secretary of Tremont, and Mr. Hardy serves as assistant
treasurer of Tremont and TIMET. Such persons served in their current capacities
in 2000 and expect to continue to serve in their current capacities in 2001.
Such management interrelationships and the existing intercorporate relationships
may lead to possible conflicts of interest. These possible conflicts may arise
from the duties of loyalty owed by persons acting as corporate fiduciaries of
two or more companies under circumstances where such companies may have adverse
interests. Mr. Martin devotes approximately one-half of his working time to NL
and the remainder of his working time to TIMET and Tremont. See "Certain
Contractual Relationships and Transactions" below.
Although no specific procedures are in place that govern the treatment of
transactions among the Company, Valhi, TIMET, Tremont and related entities, the
boards of directors of each of the Company, Valhi, TIMET and Tremont include one
or more members who are not officers or directors of any other entity that may
be deemed to be related to the Company. Additionally, under applicable
principles of law, in the absence of shareholder ratification or approval by
directors of the Company who may be deemed disinterested, transactions involving
contracts among the Company and any other companies under common control with
the Company must be fair to all companies involved. Furthermore, each director
and officer of the Company owes fiduciary duties of good faith and fair dealing
with respect to all shareholders of the company or companies for which they
serve.
Certain Contractual Relationships and Transactions
Intercorporate Services Agreements. The Company and Contran are parties to
an intercorporate services agreement (the "Contran ISA") whereby Contran makes
available to the Company the services of Harold C. Simmons to consult with the
Company and assist in the development and implementation of the Company's
strategic plans and objectives. The services do not include major corporate
acquisitions, divestitures and other special projects outside the scope of the
Company's business as it has been conducted in the past. NL paid Contran
approximately $950,000 in 2000 for services pursuant to the Contran ISA and
expects to pay approximately the same amount in 2001 for such services. The
Contran 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. The
Company will continue to pay directors' fees and expenses separately to Harold
C. Simmons. See "Compensation of Directors and Executive Officers and Other
Information" above.
The Company and Valhi are parties to an intercorporate services agreement
(the "Valhi ISA") whereby Valhi rendered certain management, financial and
administrative services to the Company and NL provided to Valhi certain
insurance and risk management services. The Company paid total net fees of
approximately $211,000 to Valhi for services provided during 2000. NL expects
that in 2001 Valhi, in addition to the services described above, will provide
certain insurance and risk management services to NL and that the total net fees
NL pays in 2001 will be higher than in 2000. The Valhi 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.
The Company and Tremont are parties to an intercorporate services agreement
(the "Tremont ISA") whereby the Company made available to Tremont certain
services with respect to Tremont's tax, insurance, risk management, real
property and internal audit needs. Tremont paid fees of approximately $78,000 to
the Company for services pursuant to the Tremont ISA during 2000. The Tremont
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. In 2001,
NL will cease providing real property and risk management services to Tremont,
and NL expects that it will receive a lower amount from Tremont for services
provided.
The Company and TIMET were parties to an intercorporate services agreement
(the "TIMET ISA") whereby the Company made available to TIMET certain services
with respect to TIMET's tax, insurance, risk management, real property, and
internal audit needs. TIMET paid fees of approximately $368,000 for services
pursuant to the TIMET ISA during 2000. 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. In 2001 NL will cease providing real
property and risk management services to TIMET and NL expects that it will
receive a lower amount from TIMET for services provided.
The Company and CompX were parties to an intercorporate services agreement
(the "CompX ISA") whereby the Company made available to CompX certain services
with respect to CompX's occupancy, accounting, computer support and internal
audit needs. CompX paid fees of approximately $180,000 for services pursuant to
the CompX ISA during 2000. The CompX ISA was terminated in the first quarter of
2001.
Aircraft. The Company owns a 25% undivided interest in an aircraft. The
Company charged $48,735, $24,425, and $34,260 to TIMET, Tremont and CompX,
respectively, for use of the aircraft during 2000.
Insurance Sharing Agreement. An insurance subsidiary of Tremont has assumed
the obligations of the issuer of certain reinsurance contracts that relate to
primary insurance policies issued by a third-party insurance company in favor of
Tremont and the Company. The Company and the Tremont insurance subsidiary are
parties to an insurance sharing agreement with respect to such reinsurance
contracts (the "Insurance Sharing Agreement"). Under the terms of the Insurance
Sharing Agreement, the Company will reimburse the Tremont insurance subsidiary
with respect to certain loss payments and reserves established by such Tremont
subsidiary that (a) arise out of claims against the Company and its subsidiaries
(the "NL Liabilities"), and (b) are subject to payment by such Tremont
subsidiary under its reinsurance contracts with the third-party insurance
company. Also pursuant to the Insurance Sharing Agreement, the Tremont insurance
subsidiary is to credit the Company with respect to certain underwriting profits
or recoveries that such Tremont subsidiary receives from independent reinsurers
that relate to the NL Liabilities. As of December 31, 2000, the Company had
current accounts payable to such Tremont subsidiary of approximately $1.9
million with respect to such Agreement. At December 31, 2000, the Company had
$9.7 million of restricted cash equivalents that collateralized letters of
credit relating to the NL Liabilities issued and outstanding on behalf of the
insurance subsidiary of Tremont pursuant to the Insurance Sharing Agreement.
Insurance Commissions. An insurance subsidiary of Tremont, Valmont and EWI
RE, Inc. ("EWI") arrange for or broker certain of the Company's insurance
policies and those of the Company's 50%-owned joint venture. Valmont is a wholly
owned subsidiary of Valhi. Parties related to Contran own all of the outstanding
common stock of EWI. Through December 31, 2000, a son-in-law of Harold C.
Simmons managed the operations of EWI. Subsequent to December 31, 2000, such
son-in-law provides advisory services to EWI as requested by EWI. Consistent
with insurance industry practices, the Tremont subsidiary, Valmont, and EWI
receive commissions from the insurance and reinsurance underwriters for the
policies that they arrange or broker. The Company and its joint venture paid
approximately $5.7 million for such policies brokered by the Tremont subsidiary,
Valmont and EWI in 2000. These amounts principally included payments for
insurance and reinsurance premiums paid to third parties, but also included
commissions paid to an insurance subsidiary of Tremont, Valmont, and EWI. In the
Company's opinion, the amounts that the Company and its joint venture paid for
these insurance policies and the allocation among the Company and its affiliates
of relative insurance premiums are reasonable and the terms are similar to those
the Company and its joint venture could have obtained through unrelated
insurance companies and/or broker. The Company expects that these relationships
with the Tremont subsidiary, Valmont, and EWI will continue in 2001.
Tremont Registration Rights Agreement. In connection with the 1991 purchase
by Tremont of 7.8 million shares of Common Stock from Valhi, the Company entered
into a Registration Rights Agreement pursuant to which Tremont received certain
registration rights with respect to the purchased shares. Unless all
registration rights are exercised earlier, such agreement expires in December
2001.
Tax Sharing Agreement. Effective January 1, 2001, the Company and its
qualifying subsidiaries will be 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
compute 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 will make payments to or
receive 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.
Investment in Tremont. During 2000 the Company purchased 1,000,000 shares
of Tremont Common Stock in market transactions for an aggregate of $26 million.
Before the close of business on December 31, 2000, the Company held 16% of the
outstanding Tremont Common Stock, including approximately 36,000 shares
previously held by the Company, and Valhi held an additional 64% of the
outstanding Tremont Common Stock. Effective with the close of business on
December 31, 2000, the Company contributed substantially all of its Tremont
Common Stock, and Valhi contributed all of its Tremont Common Stock, to a newly
formed company, TGI, in return for a 20% and 80% respective ownership interest
in TGI. After the contributions, TGI held the 80% of Tremont previously owned by
the Company and Valhi. The Company's stock of TGI is redeemable at the option of
the Company for fair value based upon the value of the underlying Tremont Common
Stock.
Affiliate Loan Agreement. In February 2001, NL Environmental Management
Services, Inc., a majority- owned subsidiary of the Company, made a revolving
loan of $13.4 million to Tremont. The amount available under the revolving loan
is reduced from the original principal amount by $250,000 each quarter beginning
June 30, 2001, bears interest of 2% above the prime rate, carries a commitment
fee of 1/2 of 1% per annum of the unused line and is due March 31, 2003. The
loan is collateralized by 10.2 million shares of NL Common Stock owned by
Tremont.
See also Note (1) to the Aggregated Option Exercise Table on page 14.
SHAREHOLDER PROPOSALS FOR 2001 ANNUAL MEETING
In order to be included in the Company's 2001 Proxy Statement and form of
proxy, shareholder proposals for the 2001 Annual Meeting of Shareholders must be
received at the principal executive offices of the Company, 16825 Northchase
Drive, Suite 1200, Houston, Texas 77060, Attention: Mr. David B. Garten,
Secretary, not later than December 15, 2001. All such proposals shall be treated
in accordance with applicable rules administered by the Commission.
2000 ANNUAL REPORT ON FORM 10-K
A copy of the Company's 2000 Annual Report on Form 10-K, as filed with the
Commission, may be obtained without charge by writing: Investor Relations
Department, NL Industries, Inc., 16825 Northchase Drive, Suite 1200, Houston,
Texas 77060. The Annual Report on Form 10-K may also be accessed on the
Company's website at www.nl-ind.com.
OTHER MATTERS
The Board 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.
Houston, Texas
March 30, 2001
EXHIBIT A
NL INDUSTRIES, INC.
Audit Committee Charter
May 10, 2000
----------------
ARTICLE I
PURPOSE
The Audit Committee (the "Committee") of NL Industries, Inc. (the
"Corporation") assists the Corporation's Board of Directors in fulfilling its
oversight responsibilities relating to the financial accounting and reporting
practices of the Corporation. The Committee's primary responsibilities are to
serve as an independent and objective party to review the Corporation's
auditing, accounting and financial reporting processes. The Committee is
intended to facilitate communications between the Corporation's Board of
Directors, its management, and its internal and independent auditors. The
Committee will primarily fulfill these responsibilities by carrying out the
activities enumerated in Article V of this Charter.
ARTICLE II
RELATIONSHIP WITH THE OUTSIDE AUDITORS
The Corporation's outside auditor is ultimately responsible to the Board of
Directors and the Committee. The Board of Directors, with the advice of the
Committee, has the ultimate authority and responsibility to select, evaluate and
replace the outside auditors.
Management is responsible for preparing the Corporation's financial
statements. The Corporation's outside auditors are responsible for auditing the
financial statements. The activities of the Committee are in no way designed to
supersede or alter these traditional responsibilities.
The Corporation's outside auditors, management and internal auditors have
more available time and information about the Corporation than does the
Committee. Accordingly, the Committee's role does not provide any special
assurances with regard to the Corporation's financial statements, nor does it
involve a professional evaluation of the quality of the audits performed by the
outside auditors.
ARTICLE III
COMPOSITION
The Committee shall be comprised of three or more directors as determined
by the Board (provided, however, that the number may be less than three to the
extent permitted by applicable law and the requirements of any exchange on which
the Corporation's securities are listed from time-to-time). The Board of
Directors shall also designate a chairperson of the Committee. The Board of
Directors shall, in its business judgment, assure that each member of the
Committee individually and the Committee as a whole satisfies in all respects
any requirements for audit committee membership or composition, including
without limitation any requirements with respect to independence, financial
literacy, or financial background, imposed under any applicable law or under the
requirements of any exchange on which the Corporation's securities are listed
from time-to-time.
A-1
ARTICLE IV
MEETINGS
The Committee shall meet regularly and as circumstances dictate, all as
determined by the Committee. Regular meetings of the Committee may be held
without notice at such time and at such place as shall from time to time be
determined by the chairperson of the Committee or by the chief executive
officer, president or secretary of the Corporation. Special meetings of the
Committee may be called by or at the request of any member of the Committee, any
of the Corporation's executive officers, the Corporation's principal accounting
officer, the Corporation's director of internal auditing or the Corporation's
outside auditors, in each case on at least twenty- four hours notice to each
member of the Committee.
If the Board of Directors, management of the Corporation, the Corporation's
director of internal auditing or the Corporation's outside auditors desire to
discuss matters in private, the Committee shall meet separately with such person
or group.
A majority of the Committee members shall constitute a quorum for the
transaction of the Committee's business. Unless otherwise required by applicable
law, the Corporation's certificate of incorporation or bylaws or the Board of
Directors, the Committee shall act upon the vote or consent of a majority of its
members at a duly called meeting at which a quorum is present. Any action of the
Committee may be taken by a written instrument signed by all of the members of
the Committee. Meetings of the Committee may be held at such place or places as
the Committee shall determine or as may be specified or fixed in the respective
notices or waivers of a meeting. Members of the Committee may participate in
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
SPECIFIC ACTIVITIES
Without limiting the Committee's authority, the Committee shall carry out the
following specific activities.
Section 5.1 Review of Documents and Reports
(a) Review and reassess this Charter at least annually.
(b) Review of the Corporation's Annual Report on Form 10-K,
including the Corporation's year end financial statements,
before its release each year. Consider whether the information
contained in the Annual Report on Form 10-K is adequate and
consistent with the Committee members' knowledge about the
Corporation and its operations. If determined to be
appropriate, recommend that the audited financial statements be
included in the Annual Report on Form 10-K.
(c) Review and discuss with management of the Corporation and the
Corporation's outside auditors the Corporation's interim
financial statements (which may be satisfied through a
discussion between the outside auditors and the chairperson of
the Committee.)
(d) Review the internal reports to management prepared by the
internal auditors and management's response thereto.
A-2
Section 5.2. Internal Auditing
(a) Review the activities of the Corporation's internal auditors.
Section 5.3. Outside Auditors
(a) Recommend to the Board of Directors the selection of the
outside auditors, consider the independence and effectiveness
of the outside auditors, and approve the fees and other
compensation to be paid to the outside auditors. The Committee
shall receive the written disclosures required by generally
accepted auditing standards. On an annual basis, the Committee
shall require the outside auditors to provide the Committee
with a written statement delineating all relationships between
the outside auditors and the Corporation. The Committee shall
actively engage in a dialogue with the outside auditor with
respect to any disclosed relationships or services that may
impact the objectivity and independence of the outside auditor.
The Committee shall recommend that the Board of Directors take
appropriate action in response to the outside auditors' report
to satisfy itself of the outside auditors' independence.
(b) Prior to the annual audit, review with management of the
Corporation and the Corporation's outside auditors the scope
and approach of the annual audit.
(c) After the annual audit, review with management of the
Corporation and the Corporation's outside auditors their report
on the results of the annual audit.
(d) Ensure that the outside auditors inform the Committee of any
fraud, illegal acts or deficiencies in internal control of
which they become aware and communicate certain required
matters to the Committee.
(e) Review with the outside auditors their performance and
recommend to the Board of Directors any proposed discharge of
the outside auditors when circumstances warrant.
(f) Direct and supervise special audit inquiries by the internal or
outside auditors as the Board of Directors or the Committee may
request.
Section 5.4. Financial Reporting Processes
(a) 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.
(b) Discuss with the Corporation's outside auditors the auditors'
judgments about the quality, not just the acceptability, of the
Corporation's accounting principles as applied in its financial
reporting.
Section 5.5. Process Improvement
(a) Ensure that significant findings and recommendations made by the
internal and outside auditors are received and discussed on a
timely basis with the Committee and management.
(b) Review any significant disagreement among management and the
internal or outside auditors in connection with the execution of
the annual audit or the preparation of the financial statements.
A-3
Section 5.6. Reporting Responsibilities
(a) Regularly update the Board of Directors about Committee
activities and make appropriate recommendations.
ARTICLE VI
MISCELLANEOUS
The Committee may perform any other activities consistent with this
Charter, the Corporation's certificate of incorporation and bylaws, and
governing law, as the Committee or the Board deems necessary or appropriate.
A-4
EXHIBIT B
NL INDUSTRIES, INC.
VARIABLE COMPENSATION PLAN
ARTICLE I
GENERAL
1.1. Establishment and Purpose of the Plan:
NL Industries, Inc., a New Jersey corporation, hereby adopts this Variable
Compensation Plan (the "Plan"). The purpose of the Plan is to attract and retain
high quality executives, officers and employees and provide further incentives
to such executives and employees to maximize the Company's annual financial
performance and thereby increase shareholder value.
1.2. Definitions:
Whenever used in this Plan, the following terms shall have the meanings set
forth below unless otherwise expressly provided.
(a) "Award Group" means one of the following groups to which Participants may be
designated as provided in the Plan or such other groups as may be designated by
the Committee from time to time:
Group I
Group II
Group III
Group IV
(b) Except as provided in Article VI, "Base Salary" means the regular salary
actually paid during a Plan Year to a Participant while participating in the
Plan. Regular salary shall include any salary reduction contributions made to
the Company's 401(k) Plan or other deferred compensation plans, but shall be
exclusive of any Variable Compensation Awards under the Plan and of any other
bonuses, incentive pay, or special awards.
(c) "Board" means the Board of Directors of NL Industries, Inc.
(d) "CEO" means the Company's Chief Executive Officer.
(e) "Certain Executive Officers" means those Executive Officers of the Company
who are designated by the Committee to be Group III or Group IV Participants and
whose total non-performance based compensation from the Company for the
applicable Plan Year would otherwise be in excess of the amount deductible by
the Company pursuant to Section 162(m) of the Code, including Qualifying Group
III Participants.
(f) "Code" means the Internal Revenue Code of 1986, as amended (the "Code").
(g) "Committee" means the Management Development and Compensation Committee of
the Board or such other committee as may be designated from time to time by the
Board, which shall consist of two or more members who meet the requirements of
Section 162(m) of the Code. The members of the Committee shall be appointed by
the Board, and any vacancy on the Committee shall be filled by the Board.
(h) "Company" means NL Industries, Inc. and its direct or indirect subsidiaries.
B-1
(i) "Company Performance Level" means with respect to each Award Group the
Minimum Company Performance Level, Target Company Performance Level or Maximum
Company Performance Level (each as described in Section 4.3 below) achieved or
to be achieved by the Company or applicable Company business segment for the
applicable Plan Year.
(j) "Employee" means a regular U.S. salaried employee of the Company.
(k) "Executive Officers" shall have the meaning set forth in rule 16a-1(f)
promulgated under section 16(a) of the Securities Exchange Act of 1934.
(l) "401(k) Plan" means an employee welfare plan of the Company qualified under
the provisions and regulations of Section 401(k) of the Code.
(m) "Individual Performance Level" with respect to each Participant (excluding
Certain Executive Officers) means the individual performance rating assigned by
the Company to such Participant for the applicable Plan Year. Individual
performance rating initially shall consist of a relative rating scale from
"outstanding" to "marginal" for all Participants (excluding Certain Executive
Officers) for any Plan Year. The Committee may terminate, change or adopt a
different individual performance rating scale as it determines appropriate from
time to time.
(n) "Participant" means an Employee selected or designated for participation in
the Plan for a specified Plan Year including Certain Executive Officers.
(o) "Performance Percentage" with respect to Award Groups I, II, and III
(excluding Qualifying Group III Participants, as defined below) means the
percentage assigned by the Committee to each such Award Group at each different
combination of Individual Performance Level and Company Performance Level for
such Award Group. With respect to Participants in Award Group III whose total
non-performance based compensation from the Company for the applicable Plan Year
otherwise would be in excess of the amount deductible by the Company pursuant to
Section 162(m) of the Code ("Qualifying Group III Participants"), no Individual
Performance Level shall be assigned to such Qualifying Group III Participants in
determining the applicable Performance Percentage for such Plan Year. Instead
the Performance Percentage for Qualifying Group III Participants shall be the
highest Performance Percentage available at the applicable Company Performance
Level for Award Group III Participants in general. The Committee, in its sole
discretion, may decrease such Performance Percentage and the corresponding
Variable Compensation Awards applicable to such Qualifying Group III
Participants. With respect to Award Group IV Participants, the initial
Performance Percentages for the Company Performance Levels shall be as follows:
150% for Maximum Company Performance Level, 100% for Target Company Performance
Level and 50% for Minimum Company Performance Level. The Performance Percentages
with respect to each Award Group for any Plan Year may be set or changed by the
Committee during the first ninety (90) days of such Plan Year.
(p) "Plan Year" means the Company's fiscal year.
(q) "Variable Compensation Award" with respect to any Participant for any Plan
Year means an amount to be paid by the Company to such Participant under the
terms of the Plan equal to the product of (A) the applicable Performance
Percentage for such Participant for such Plan Year, times (B) the Base Salary of
such Participant for such Plan Year.
1.3 Gender and Number:
Except when otherwise indicated by the context, words in the masculine gender,
when used in the Plan, shall include the feminine gender, the singular shall
include the plural, and the plural shall include the singular.
B-2
ARTICLE II
ADMINISTRATION OF THE PLAN
2.1 Administration:
(a) The Plan shall be administered by the Committee. Except with respect to
Committee's administrative authority regarding Executive Officers, the Committee
may delegate its day-to-day administrative authority regarding the Plan to the
CEO. The CEO may in turn re-delegate from time to time said administrative
authority to such officers and employees of the Company as he deems appropriate.
The Company's management shall assist and provide such recommendations to the
Committee as the Committee may request from time to time in connection with the
administration of the Plan.
(b) Subject to the limitations of the Plan, the Committee shall: (i) designate
the Executive Officers who shall be Participants and the Award Groups in which
they shall be included, (ii) designate and approve Performance Percentages
applicable in determining Variable Compensation Awards for payment to
Participants in such forms and amounts as it shall determine from time to time,
(iii) impose such limitations, restrictions, and conditions upon such Variable
Compensation Awards as it shall deem appropriate, (iv) interpret the Plan and
adopt, amend, and rescind administrative guidelines relating to the Plan, (v)
correct any defects or omissions or reconcile any inconsistencies in the Plan,
the Performance Percentages or in any Variable Compensation Award granted
hereunder, and (vi) make all other necessary determinations and take all other
actions necessary or advisable for the implementation and administration of the
Plan. The Committee's determinations on matters within its authority shall be
conclusive and binding.
(c) All expenses associated with the Plan shall be borne by the Company subject
to such allocation to its subsidiaries and business segments as it deems
appropriate.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility and Participation:
The Company's management shall determine the Employees to be selected as
Participants under the Plan and the Award Group in which each such Participant
may be included, except that participation by Executive Officers shall be
determined by the Committee. Any Employee, except Certain Executive Officers,
may be designated and selected as a Participant in the Plan at any time during a
Plan Year, including after the ninetieth (90th) day of such Plan Year.
ARTICLE IV
VARIABLE COMPENSATION AWARDS
4.1 Designation of Variable Compensation Awards:
The Company's management shall approve, or in case of Executive Officers
recommend to the Committee, the Performance Percentage and the corresponding
Variable Compensation Award to be paid to each Participant in accordance with
the terms of the Plan for the immediately preceding Plan Year. Within the first
ninety (90) days
B-3
after the end of each Plan Year, the Committee shall review such
recommendations, make any adjustment it deems appropriate in accordance with the
terms of the Plan, and approve the grant and payment of the corresponding
Variable Compensation Awards in the aggregate and to the Executive Officers.
4.2 Establishment of Performance Percentages:
Management of the Company shall assist and provide to the Committee management's
recommendations regarding the Performance Percentages applicable to each
combination of Individual Performance Level and Company Performance Level for
Award Groups I, II and III. No later than the ninetieth (90th) day of each Plan
Year, the Committee shall review such recommendations, make any adjustments it
deems appropriate in accordance with the terms of the Plan, and approve the
Performance Percentages for Award Groups I, II and III for such Plan Year. At
that same time, the Committee also shall set the Performance Percentages for
Group IV Participants. As described in Section 1.2(o), Performance Percentages
with respect to Award Group III and Award Group IV Participants who qualify as
Certain Executive Officers shall be based solely on the achievement of Company
Performance Levels. In the event the Committee takes no action prior to the
ninetieth (90th) day of such Plan Year to change, amend or rescind the
Performance Percentages in effect for the immediately preceding Plan Year, the
Performance Percentages for such Plan Year shall be deemed to be the Performance
Percentages for said immediately preceding Plan Year.
4.3 Company Performance Levels:
Prior to the ninetieth (90th) day of a Plan Year, the Company's management shall
make recommendations to the Board regarding the annual operating plan for the
Company and each of the Company's business segments for such Plan Year (the
"Annual Operating Plan"). The Board shall approve the Annual Operating Plan with
any modifications it deems appropriate. Based on the approved Annual Operating
Plan for such Plan Year, the Committee shall establish the financial performance
goals for the Company and its applicable business segments at the following
three levels which shall be designed to help focus the Participants' attention
on achieving superior annual financial performance results in light of existing
conditions: a threshold level, which is the minimum financial performance income
level for any award to be made under the Plan (the "Minimum Company Performance
Level"), a target financial performance income level (the "Target Company
Performance Level"), and a maximum financial performance level (the "Maximum
Company Performance Level"). The Committee shall in its discretion establish the
applicable objective Company financial performance criteria for determining
Company Performance Levels.
4.4 Determination of Performance Percentages:
Performance Percentages for Award Group I, Award Group II and Award Group III
Participants (excluding Qualifying Group III Participants) shall be based upon
the Performance Percentage assigned by the Committee for such Participant's
Award Group with respect to each combination of achieved Company Performance
Level for such Plan Year and the Individual Performance Level achieved by such
Participant for such Plan Year. Performance Percentages for Award Group I
Participants will range from 2% to 32%; Award Group II Participants initially
will range from 9% to 65%; and Group III Participants initially will range from
14% to 120%. Variable Compensation Awards for Group IV Participants and
Qualifying Group III Participants shall be based solely upon the Performance
Percentage assigned by the Committee with respect to the achieved Company
Performance Level. Performance Percentages will range from 50% to 150% for Award
Group IV Participants and from 60% to 120% for Qualifying Group III
Participants, depending on the Company Performance Level achieved. In the event
that the Company Performance Level achieved is below the Minimum Company
Performance Level, the Variable Compensation Award for Group IV and for
Qualifying Group III Participants shall be 0%. The Performance Percentages with
respect to each Award Group for any Plan Year may be set or changed by the
Committee during the first ninety (90) days of such Plan Year.
B-4
4.5 Adjustment of Company Performance Levels:
Except with respect to Certain Executive Officers as provided in Article VI, if
during any Plan Year external or internal changes or other unanticipated
business conditions have materially affected the appropriateness of the Company
Performance Levels, the Committee may, in its sole discretion, determine
appropriate increases or decreases to the Company Performance Levels for such
Plan Year.
Participants shall not be entitled to any Variable Compensation Award under the
Plan unless the Company achieves at the corresponding Company Performance Level;
provided, however, except as provided in Article VI, the CEO in the case of
Participants other than Executive Officers, and the Committee in the case of
Executive Officers other than Certain Executive Officers, in their discretion,
may approve payment of special awards to designated Participants.
4.6 Determination of Company Performance Level Achieved and Payment of
Variable Compensation Awards:
Within ninety (90) days after the end of each Plan Year, the Company's
management shall report to the Committee the Company Performance Level achieved
by the Company and each applicable business segment for such Plan Year. The
Committee shall review such report and certify in writing or set forth in a
resolution of the Committee the Company Performance Level achieved by the
Company and each applicable Company business segment for such Plan Year. Such
achieved Company Performance Level shall be used in determining the
corresponding Performance Percentage and Variable Compensation Award for such
Plan Year as provided in Sections 4.1 and 4.4 above. The Committee shall approve
the grant and payment of the corresponding Variable Compensation Awards to
Participants pursuant to terms of the Plan. Payment of Variable Compensation
Awards shall be made following certification by the Committee of the Company
Performance Level achieved for such Plan Year and shall be paid in cash in a
lump sum or shares of NL Common Stock. Except as provided in Article 5,
Participants must be employed by the Company on the date the Committee approves
the Variable Compensation Awards to receive the approved award for such Plan
Year.
4.7 Limitation on Payments:
The amount payable to a Participant pursuant to this Plan with respect to any
Plan Year shall not exceed $3 million.
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 Termination of Employment Due to Death, Disability, Retirement, Or
Transfer To Affiliate Not Included In Plan:
In the event a Participant's employment with the Company is terminated by reason
of death, total and permanent disability, retirement, or a Participant is
transferred to an affiliate which does not participate in the Plan, the
Participant's Variable Compensation Award shall be based on (i) Participant's
actual Base Salary paid through the date of termination or transfer, and (ii)
the applicable Performance Percentage. The Variable Compensation Award shall be
paid in accordance with Article IV.
"Total and permanent disability" and "retirement" shall have the meaning as
defined in the Retirement Programs of NL Industries, Inc.
B-5
5.2 Termination For Any Other Reason:
Except for terminations listed in Section 5.1, in the event a Participant's
employment is terminated for any other reason including voluntary and
involuntary termination prior to certification by the Committee of the Company
Performance Level achieved for such Plan Year, the Participant shall not be
entitled to a Variable Compensation Award with respect to such Plan Year.
However, the CEO, in his sole discretion, may approve the payment to such
Participant of a Variable Compensation Award under the Plan with respect to such
Plan Year, except that in the case of Executive Officers the CEO may make such
recommendation to the Committee, which shall have sole discretion to approve
such award.
ARTICLE VI
CERTAIN EXECUTIVE OFFICERS
6.1 Applicability Of Article VI:
The provisions of this Article VI shall apply only to Certain Executive
Officers. In the event of any inconsistencies between this Article VI and the
other Plan provisions, the provisions of this Article VI shall control.
6.2 Definition Applicable To Article VI Only:
The following term shall have the meaning set forth below:
(a) "Base Salary" shall mean as to any Plan Year a Participant's actual regular
salary at the rate in effect prior to the ninetieth (90th) day of the Plan Year
and not after the date the Company Performance Levels are established. Regular
salary shall include any salary reduction contributions made to the Company's
401(k) Plan or other deferred compensation plans, but exclusive of any Variable
Compensation Awards under this Plan and of any other bonuses, incentive pay, or
special awards.
6.3 No Partial Plan Year Participation:
A Certain Executive Officer who becomes eligible after the ninetieth (90th) day
of a Plan Year may not participate in the Plan for such Plan Year, but may
participate in the Plan for the succeeding Plan Year.
6.4 Components Of Individual Awards:
Each Variable Compensation Award shall be based strictly on the Company's
achievement of predetermined Company Performance Levels. Prior to ninety (90)
days after the beginning of the Plan Year, the Committee shall determine the
Company Performance Levels for such Plan Year.
6.5 No Mid-Year Change In Award Percentages:
Variable Compensation Awards for Certain Executive Officers shall be based
solely on the Performance Percentage for the applicable Award Group as set by
the Committee during the first ninety (90) days of the Plan Year.
6.6 No Adjustments Of Performance Goals:
Once established, Company Performance Levels shall not be changed after the
first ninety (90) days of the Plan Year with respect to Certain Executive
Officers. Certain Executive Officers shall not receive any Variable
B-6
Compensation Award under this Plan when the Company or the applicable Company
business segment fails to achieve at least the applicable Minimum Company
Performance Level.
6.7 Individual Performance and Discretionary Adjustments:
Individual performance shall not be reflected in the Variable Compensation
Awards to Certain Executive Officers. However, the Committee retains the
discretion to eliminate or decrease the amount of the Variable Compensation
Award otherwise payable to a Certain Executive Officer.
6.8 Possible Modification:
If, on advice of the Company's tax counsel, the Committee determines that Code
Section 162(m) and the regulations thereunder will not adversely affect the
deductibility for federal income tax purposes of any amount paid to a Certain
Executive Officer under the Plan (i) by applying one or more of Sections 1.2(b),
1.2(m), 1.2(o), 3.1, 4.2, 4.4, or 4.5 to such Certain Executive Officer without
regard to the limitations regarding Certain Executive Officers in such
Section(s) or (ii) by not applying one or more Sections of this Article VI, then
the Committee may, in its sole discretion, disregard such limitations.
6.9 No Discretionary Awards or Bonuses:
No discretionary awards or bonuses shall be paid to Certain Executive Officers
pursuant to this Plan. However, nothing in this Plan shall be construed as
limiting the right of the Committee or the Board to make any other award or
bonus under their general authority or under any other plan.
ARTICLE VII
MISCELLANEOUS PROVISION
7.1 Nontransferability:
No right or interest of any Participant in the Plan shall be assignable or
transferable, or subject to any lien, directly, by operation of law or
otherwise, including execution, levy, garnishment, attachment, pledge, and
bankruptcy.
7.2 Tax Withholding:
The Company shall have the right to deduct from all awards or payments under
this Plan, whether paid in cash or stock, any foreign, Federal, state, or local
taxes required by law to be withheld with respect to such payments.
7.3 Amendments:
The Committee, in its sole discretion, without notice, at any time and from time
to time, may modify or amend, in whole or in part, any or all of the provisions
of this Plan, or suspend or terminate it entirely.
7.4 Indemnification:
Each person who is or shall have been a member of the Committee or the Board or
who is or shall have been an Employee of the Company acting on behalf of the
Committee shall be indemnified and held harmless by the Company against and from
any loss, cost, liability, or expense, including without limitation, fees and
expenses of legal counsel, that may have been imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit, or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him in
B-7
settlement thereof, with the Company's approval, or paid by him in satisfaction
of any judgment in any such action, suit or proceeding against him, provided he
shall give the Company an opportunity, at its own expense, to handle and defend
the same before he undertakes to handle and defend it on his own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such person may be entitled under the Company's
Certificate of Incorporation or Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify him or hold him harmless.
7.5 Beneficiary Designation:
Each Participant under the Plan may name, from time to time, any beneficiary or
beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his death before he received any
or all of such benefit. Each designation will revoke all prior designations by
the same Participant, shall be in a form prescribed by the Company, and will be
effective only when filed by the Participant in writing with the Company during
his lifetime. In the absence of any such designation, or if the designated
beneficiary is no longer living, benefits shall be paid to the surviving
member(s) of the following classes of beneficiaries, with preference for classes
in the order listed below:
(a) Participant's spouse (unless the parties were divorced or legally
separated by court decree);
(b) Participant's children (including children by adoption);
(c) Participant's parents (including parents by adoption);
(d) Participant's executor or administrator.
Payment of benefits, in accordance with Section 5.1, shall be made exclusively
to the member(s) of the first class, in the order listed above, which has
surviving member(s). If that class has more than one member, benefit payments
shall be made in equal shares among members of the class.
7.6 Rights of Participants:
Nothing in this Plan shall interfere with or limit in any way the right of the
Company to terminate or change a Participant's employment at any time, nor
confer upon any Participant, any right to continue in the employ of the Company
for any period of time or to continue his present or any other rate of
compensation. No Participant in a previous Plan Year, or other employee at any
time, shall have a right to be selected for participation in a current or future
Plan Year.
7.7 Governing Law:
The Plan shall be construed in accordance with and governed by the laws of the
State of Texas.
7.8 Effective Date:
The Plan shall be deemed effective as of January 1, 2001.
B-8
APPENDIX A
NL INDUSTRIES, INC.
16825 NORTHCHASE DRIVE, SUITE 1200
HOUSTON, TEXAS 77060
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 9, 2001
The undersigned hereby appoints David B. Garten and Robert D. Hardy and each of
them, the proxy and attorney-in-fact for the undersigned, with full power of
substitution in each, to represent the undersigned and to vote on behalf of the
undersigned at the Annual Meeting of Shareholders of NL Industries, Inc. to be
held on May 9, 2001, and at any adjournment or postponement of such meeting
(the "Annual Meeting"), all shares of Common Stock of NL Industries, Inc.
standing in the name of the undersigned or which the undersigned may be entitled
to vote on the matters described on the reverse side.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NL INDUSTRIES,
INC.
You are encouraged to specify your voting choices by marking the appropriate
boxes on the reverse side of this card but you need not mark any boxes if you
wish to vote in accordance with the Board of Directors' recommendations. The
above-named proxies cannot vote your shares unless you sign, date and promptly
return this card. Please use the enclosed return envelope. This proxy may be
revoked by a proxy accepted at a later date or otherwise as set forth in the NL
Proxy Statement that accompanied this proxy card.
SEE REVERSE
SIDE
/X/ Please mark your votes as in this example
This proxy, if properly executed, will be voted as specified below by the
shareholder. If no direction is given, this proxy will be voted "FOR" all
nominees for Director listed below and "FOR" the Variable Compensation Plan.
The Board of Directors recommends a vote "FOR" all nominees for Director listed
below and "FOR" the Variable Compensation Plan.
1. Election of Directors.
For Withheld Election of Directors.
/ / / / Nominees: 01. J. Landis Martin, 02. Kenneth R. Peak,
03. Glenn R. Simmons, 04. Harold C. Simmons,
05. General Thomas P. Stafford, 06. Steven L.
Watson, and 07. Lawrence A. Wigdor
Withhold authority to vote for the following individual nominees:
- ---------------------------------------------------
2.Proposal to approve the NL Industries, Inc. Variable Compensation Plan.
For Against Abstain
/ / / / / /
3. In their discretion, proxies are authorized to vote upon other such
business as may properly come before the Annual Meeting or any adjournments
or postponements thereof.
Please sign exactly as shareholder's name appears
on this card. Joint owners should each sign. When
signing as attorney, executor, administrator,
trustee or guardian, please give full title as
such. If a corporation or partnership, please sign
full corporate or partnership name and sign
authorized person's name and title.
The undersigned shareholder hereby revokes all
proxies heretofore given by the undersigned to
vote at the Annual Meeting or any adjournments or
postponements thereof.
----------------------------------------
----------------------------------------
SIGNATURE(S) DATE
Dear Stockholder:
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 the telephone. This eliminates the need to return the
proxy card.
To vote your shares electronically, you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear in
the box above must be used to access the system.
1. To vote over the Internet:
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 9, 2001.
2. To vote over the telephone:
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 9, 2001.
Non-U.S. stockholders should call 1-201-536-8073
Your electronic vote authorizes the named Proxies in the same manner as if you
marked, signed, dated and returned the proxy card. If you vote your shares
electronically, do not mail back your proxy card.
Your vote is important. Thank you for voting.