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<SEC-DOCUMENT>0000072162-01-000001.txt : 20010313
<SEC-HEADER>0000072162-01-000001.hdr.sgml : 20010313
ACCESSION NUMBER:		0000072162-01-000001
CONFORMED SUBMISSION TYPE:	10-K405
PUBLIC DOCUMENT COUNT:		7
CONFORMED PERIOD OF REPORT:	20001231
FILED AS OF DATE:		20010312

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			NL INDUSTRIES INC
		CENTRAL INDEX KEY:			0000072162
		STANDARD INDUSTRIAL CLASSIFICATION:	INDUSTRIAL INORGANIC CHEMICALS [2810]
		IRS NUMBER:				135267260
		STATE OF INCORPORATION:			NJ
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		10-K405
		SEC ACT:		
		SEC FILE NUMBER:	001-00640
		FILM NUMBER:		1566112

	BUSINESS ADDRESS:	
		STREET 1:		TWO GREENSPOINT PLZ
		STREET 2:		16825 NORTHCHASE DR STE 1200
		CITY:			HOUSTON
		STATE:			TX
		ZIP:			77060-2544
		BUSINESS PHONE:		2814233300

	MAIL ADDRESS:	
		STREET 1:		TWO GREENSPOINT PLAZA
		STREET 2:		16825 NORTHCHASE DR., SUITE 1200
		CITY:			HOUSTON
		STATE:			TX
		ZIP:			77060-2544

	FORMER COMPANY:	
		FORMER CONFORMED NAME:	NATIONAL LEAD CO
		DATE OF NAME CHANGE:	19710520
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>NL INDUSTRIES, INC. 12/31/00 FORM 10-K
<TEXT>

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

|X|     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
        ACT OF 1934 - For the fiscal year ended December 31, 2000

                                       OR

|_|     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934

                          Commission file number 1-640

                               NL INDUSTRIES, INC.
- --------------------------------------------------------------------------------

             (Exact name of registrant as specified in its charter)

           New Jersey                                        13-5267260
- -------------------------------                         -------------------
(State or other jurisdiction of                            (IRS Employer
incorporation or organization)                          Identification No.)

16825 Northchase Drive, Suite 1200, Houston, Texas           77060-2544
- --------------------------------------------------           ----------
     (Address of principal executive offices)                (Zip Code)

Registrant's telephone number, including area code:      (281)  423-3300
                                                       ---------------------
Securities registered pursuant to Section 12(b) of the Act:

                                                       Name of each exchange on
     Title of each class                                   which registered
- ------------------------------                         ------------------------
Common stock ($.125 par value)                         New York Stock Exchange
                                                       Pacific Exchange

Securities registered pursuant to Section 12(g) of the Act:  None.

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months,  and (2) has been subject to such filing  requirements
for the past 90 days.    Yes X         No

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant at March 9, 2001 approximated $191 million.

There were 50,086,684 shares of common stock outstanding at March 9, 2001.

                      Documents incorporated by reference:

The  information  required by Part III is  incorporated  by  reference  from the
Registrant's  definitive  proxy  statement to be filed with the  Securities  and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.


<PAGE>



Forward-Looking Information.

        The  statements  contained in this Annual  Report on Form 10-K  ("Annual
Report")  which  are  not  historical  facts,  including,  but not  limited  to,
statements found (i) under the captions  "Industry,"  "Products and operations,"
"Manufacturing   process  and  raw  materials,"   "Competition,"   "Patents  and
Trademarks," "Foreign  Operations," and "Regulatory and Environmental  Matters,"
all  contained  in Item 1.  Business;  (ii)  under the  captions  "Lead  pigment
litigation," "Environmental matters and litigation," and "Other Litigation," all
contained in Item 3. Legal  Proceedings;  (iii) under the  captions  "Results of
Operations"  and  "Liquidity and Capital  Resources,"  both contained in Item 7.
Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations;  and (iv) under the captions "Currency exchange rates,"  "Marketable
equity security prices," and "Other," all contained in Item 7A. Quantitative and
Qualitative  Disclosures About Market Risk, are forward-looking  statements that
represent  management's  beliefs and  assumptions  based on currently  available
information.  Forward-looking  statements  can be identified by the use of words
such  as  "believes,"   "intends,"  "may,"  "will,"   "should,"   "anticipates,"
"expects," or comparable  terminology  or by  discussions of strategy or trends.
Although  the  Company  believes  that  the   expectations   reflected  in  such
forward-looking  statements are  reasonable,  it cannot give any assurances that
these  expectations  will prove to be correct.  Such  statements by their nature
involve  risks  and  uncertainties  that  could  significantly  affect  expected
results,  and actual future results could differ materially from those described
in such forward-looking statements.

        Among the  factors  that could  cause  actual  future  results to differ
materially are the risks and  uncertainties  discussed in this Annual Report and
those  described  from  time to time in the  Company's  other  filings  with the
Securities  and  Exchange  Commission.  While it is not possible to identify all
factors,  the Company continues to face many risks and uncertainties  including,
but not limited to, the  cyclicality of the titanium  dioxide  industry,  global
economic  and  political  conditions,   global  productive  capacity,   customer
inventory levels, changes in product pricing,  competitive technology positions,
operating interruptions  (including,  but not limited to, labor disputes, leaks,
fires, explosions,  unscheduled downtime and transportation interruptions),  the
ultimate  resolution of pending or possible  future lead pigment  litigation and
legislative  developments  related to the lead paint litigation,  the outcome of
other litigation,  and other risks and  uncertainties  included in the Company's
filings with the Securities and Exchange Commission. Should one or more of these
risks materialize (or the consequences of such a development  worsen), or should
the  underlying  assumptions  prove  incorrect,   actual  results  could  differ
materially  from those  forecasted or expected.  The Company  assumes no duty to
update any  forward-looking  statements  whether as a result of new information,
future events or otherwise.



<PAGE>



                                            PART I

ITEM 1.        BUSINESS

General

        NL  Industries,  Inc.,  organized as a New Jersey  corporation  in 1891,
conducts  its  continuing   operations   through  its  principal   wholly  owned
subsidiary,  Kronos,  Inc.  Kronos is the  world's  fifth  largest  producer  of
titanium dioxide pigments ("TiO2") with an estimated 12% share of worldwide TiO2
sales volume in 2000. Approximately one-half of Kronos' 2000 sales volume was in
Europe,  where  Kronos  is the  second  largest  producer  of  TiO2.  NL and its
consolidated  subsidiaries are sometimes referred to herein  collectively as the
"Company."

        The Company's primary objective is to maximize total shareholder return.
The  Company  has  taken a number  of steps  towards  achieving  its  objective,
including (i) increasing its regular quarterly  dividend to $.20 per share, (ii)
controlling  costs,  (iii)  investing in certain cost effective  debottlenecking
projects to increase TiO2 production capacity and efficiency, and (iv) improving
its  capital   structure.   The  Company   periodically   considers  mergers  or
acquisitions  within the chemical  industry and  acquisitions of additional TiO2
production capacity to meet its objective.

Industry

        Titanium  dioxide  pigments are  chemical  products  used for  imparting
whiteness, brightness and opacity to a wide range of products, including paints,
plastics,  paper,  fibers and ceramics.  TiO2 is considered a  "quality-of-life"
product with demand affected by gross domestic product in various regions of the
world.

        Pricing  within the global  TiO2  industry is  cyclical,  and changes in
industry economic conditions can significantly impact the Company's earnings and
operating  cash flows.  The  Company's  average TiO2 selling  price on a billing
currency basis increased from the preceding quarter during each quarter of 2000,
continuing  the upward trend in prices that began in the fourth quarter of 1999.
Industry-wide  demand for TiO2 was strong  throughout most of 2000, but weakened
in the fourth  quarter of 2000.  The Company  believes that the weaker demand in
the fourth  quarter  was due to a  softening  worldwide  economy  and  customers
reducing inventory levels.

        Kronos has an estimated  18% share of European  TiO2 sales volume and an
estimated 12% share of North American TiO2 sales volume.  Per capita consumption
of TiO2 in the United States and Western  Europe far exceeds that in other areas
of the world and these  regions  are  expected  to  continue  to be the  largest
consumers  of TiO2.  Significant  regions for TiO2  consumption  could emerge in
Eastern Europe,  the Far East or China if the economies in these regions develop
to the point  that  quality-of-life  products,  including  TiO2,  are in greater
demand.  Kronos believes that, due to its strong presence in Western Europe,  it
is well  positioned to  participate  in growth in consumption of TiO2 in Eastern
Europe.   Geographic  segment   information  is  contained  in  Note  3  to  the
Consolidated Financial Statements.

Products and operations

        TiO2 is produced in two crystalline  forms:  rutile and anatase.  Rutile
TiO2 is a more tightly  bound  crystal that has a higher  refractive  index than
anatase TiO2 and, therefore, better opacification and tinting

                                            -1-

<PAGE>



strength in many applications. Although many end-use applications can use either
form of TiO2,  rutile TiO2 is the preferred  form for use in coatings,  plastics
and ink.  Anatase TiO2 has a bluer  undertone  and is less  abrasive than rutile
TiO2, and it is often preferred for use in paper, ceramics,  rubber and man-made
fibers.

        The Company  believes that there are no effective  substitutes for TiO2.
However,  extenders  such as  kaolin  clays,  calcium  carbonate  and  polymeric
opacifiers  are used in a number of Kronos'  markets.  Generally,  extenders are
used to reduce to some extent the  utilization of  higher-cost  TiO2. The use of
extenders has not  significantly  changed TiO2  consumption over the past decade
because,  to date,  extenders  generally  have  failed to match the  performance
characteristics  of TiO2.  As a result,  the  Company  believes  that the use of
extenders  will not  materially  alter the  growth of the TiO2  business  in the
foreseeable future.

        Kronos currently produces over 40 different TiO2 grades,  sold under the
Kronos  trademark,  which  provide a variety of  performance  properties to meet
customers' specific  requirements.  Kronos' major customers include domestic and
international paint, plastics and paper manufacturers.

        Kronos is one of the world's  leading  producers  and marketers of TiO2.
Kronos and its distributors and agents sell and provide  technical  services for
its  products to over 4,000  customers  with the majority of sales in Europe and
North America.  TiO2 is  distributed by rail,  truck and ocean carrier in either
dry or slurry form.  Kronos'  manufacturing  facilities  are located in Germany,
Canada,  Belgium  and  Norway  and Kronos  owns a  one-half  interest  in a TiO2
manufacturing  joint venture located in Louisiana,  U.S.A.  Kronos has sales and
marketing   activities  in  over  100  countries   worldwide.   Kronos  and  its
predecessors  have  produced and marketed  TiO2 in North  America and Europe for
over 80 years. As a result,  Kronos believes that it has developed  considerable
expertise and efficiency in the manufacture,  sale,  shipment and service of its
products  in  domestic  and  international  markets.  By  volume,  approximately
one-half of Kronos'  2000 TiO2 sales were to Europe,  with 37% to North  America
and the balance to export markets.

        Kronos is also  engaged in the mining  and sale of  ilmenite  ore (a raw
material used as a feedstock by  sulfate-process  TiO2 plants) and has estimated
ilmenite  reserves  that are expected to last at least 20 years.  Kronos is also
engaged in the  manufacture  and sale of iron-based  water  treatment  chemicals
(derived from co-products of the pigment production processes).  Water treatment
chemicals are used as treatment and conditioning agents for industrial effluents
and municipal wastewater, and in the manufacture of iron pigments.

Manufacturing process and raw materials

        TiO2 is manufactured  by Kronos using both the chloride  process and the
sulfate process. Approximately two-thirds of Kronos' current production capacity
is based on its chloride  process  which  generates  less waste than the sulfate
process. The sulfate process is a batch chemical process that uses sulfuric acid
to extract TiO2. Sulfate  technology  normally produces either anatase or rutile
pigment.  The chloride process is a continuous process in which chlorine is used
to extract rutile TiO2. In general,  the chloride process is also less intensive
than the  sulfate  process in terms of  capital  investment,  labor and  energy.
Because  much  of  the  chlorine  is  recycled  and  higher  titanium-containing
feedstock  is  used,  the  chloride  process   produces  less  waste.   Once  an
intermediate  TiO2  pigment has been  produced by either the chloride or sulfate
process,   it  is   `finished'   into   products   with   specific   performance
characteristics   for  particular  end-use   applications   through  proprietary
processes  involving  various chemical surface  treatments and intensive milling
and micronizing.


                                            -2-

<PAGE>



        Due to environmental factors and customer considerations, the proportion
of TiO2 industry sales  represented by  chloride-process  pigments has increased
relative to sulfate-process pigments and, in 2000,  chloride-process  production
facilities represented almost 60% of industry capacity.

        Kronos  produced a record 441,000 metric tons of TiO2 in 2000,  compared
to 411,000  metric tons produced in 1999 and its previous  record 434,000 metric
tons in 1998. Kronos' average production  capacity  utilization rate in 2000 was
near full capacity, up from 93% in 1999, primarily due to the Company's decision
to  return to  higher  production  levels  to meet  strengthening  demand  after
curtailing  production  volume at the  beginning of the first quarter of 1999 to
manage  inventory   levels.   Kronos  believes  its  current  annual  attainable
production capacity is approximately 450,000 metric tons, including its one-half
interest in the joint  venture-owned  Louisiana  plant (see "TiO2  manufacturing
joint venture").  The Company expects its production  capacity will be increased
by approximately 15,000 metric tons primarily at its chloride  facilities,  with
moderate  capital  expenditures,  bringing  Kronos'  capacity  to  approximately
465,000 metric tons during 2002.

        The primary raw materials used in the TiO2 chloride  production  process
are  titanium-containing  feedstock  derived from beach sand  ilmenite,  natural
rutile ore, chlorine and coke.  Chlorine and coke are available from a number of
suppliers.  Titanium-containing  feedstock  suitable  for  use in  the  chloride
process  is  available  from a limited  number of  suppliers  around  the world,
principally in Australia, South Africa, Canada, India and the United States.

        Kronos purchases slag refined from beach sand ilmenite from Richards Bay
Iron and Titanium  (Proprietary)  Limited (South Africa), a 51%-owned subsidiary
of Rio Tinto plc (U.K.),  under a long-term  supply contract that expires at the
end of 2003.  Natural rutile ore is purchased  primarily  from Iluka  Resources,
Inc.  (Australia),  a  wholly  owned  subsidiary  of  Westralian  Sands  Limited
(Australia),  under a long-term supply contract that expires at the end of 2005.
The  Company  does not  expect to  encounter  difficulties  obtaining  long-term
extensions  to  existing  supply  contracts  prior  to  the  expiration  of  the
contracts.  Raw materials purchased under these contracts and extensions thereof
are  expected to meet  Kronos'  chloride  feedstock  requirements  over the next
several years.

        The primary raw materials  used in the TiO2 sulfate  production  process
are  titanium-containing  feedstock  derived  primarily from rock and beach sand
ilmenite  and  sulfuric  acid.  Sulfuric  acid is  available  from a  number  of
suppliers. Titanium-containing feedstock suitable for use in the sulfate process
is available from a limited number of suppliers around the world. Currently, the
principal  active sources are located in Norway,  Canada,  Australia,  India and
South  Africa.   As  one  of  the  few   vertically   integrated   producers  of
sulfate-process  pigments, Kronos operates a rock ilmenite mine in Norway, which
provided  all of Kronos'  feedstock  for its  European  sulfate-process  pigment
plants in 2000. For its Canadian  sulfate-process  plant,  Kronos also purchases
sulfate  grade slag from Q.I.T.  Fer et Titane  Inc.  (Canada),  a wholly  owned
subsidiary  of Rio Tinto,  under a long-term  supply  contract  which expires in
2003.

        Kronos believes the  availability of  titanium-containing  feedstock for
both the chloride and sulfate  processes is adequate for the next several years.
Kronos  does not expect to  experience  any  interruptions  of its raw  material
supplies  because of its  long-term  supply  contracts.  However,  political and
economic  instability in certain  countries from which the Company purchases its
raw material supplies could adversely affect the availability of such feedstock.
Should  Kronos'  vendors not be able to meet their  contractual  obligations  or
should Kronos be otherwise unable to obtain necessary raw materials, the Company
may incur higher costs for raw materials or may be required to reduce production
levels,  which may have a material  adverse  effect on the  Company's  financial
position, results of operations or liquidity.

                                            -3-

<PAGE>



TiO2 manufacturing joint venture

        Subsidiaries of Kronos and Huntsman ICI Holdings ("Huntsman") each own a
50%-interest  in  a  manufacturing  joint  venture,  Louisiana  Pigment  Company
("LPC").  LPC owns and operates a  chloride-process  TiO2 plant  located in Lake
Charles,  Louisiana.  Production  from the plant is shared equally by Kronos and
Huntsman (the "Partners") pursuant to separate offtake agreements.

        A  supervisory  committee,  composed  of four  members,  two of whom are
appointed by each  Partner,  directs the  business and affairs of LPC  including
production  and output  decisions.  Two  general  managers,  one  appointed  and
compensated  by each Partner,  manage the operations of the joint venture acting
under the direction of the supervisory committee.

        The  manufacturing  joint  venture  operates on a break-even  basis and,
accordingly,  the Company  reports no equity in  earnings of the joint  venture.
Kronos'  cost for its  share of the TiO2  produced  is equal to its share of the
joint venture's costs.  Kronos' share of the joint venture's interest expense in
1998 was reported as a component of interest expense. Kronos' share of all other
net costs is  reported as cost of sales as the related  TiO2  acquired  from the
joint venture is sold.

Competition

        The TiO2 industry is highly  competitive.  Kronos competes  primarily on
the basis of price,  product quality and technical service, and the availability
of high performance pigment grades.  Although certain TiO2 grades are considered
specialty  pigments,  the majority of Kronos'  grades and  substantially  all of
Kronos' production are considered  commodity pigments with price generally being
the most significant competitive factor. During 2000 Kronos had an estimated 12%
share of worldwide TiO2 sales volume, and Kronos believes that it is the leading
seller of TiO2 in a number of countries, including Germany and Canada.

        Kronos'  principal  competitors  are  E.I.  du  Pont  de  Nemours  & Co.
("DuPont");  Millennium Chemicals, Inc.; Huntsman;  Kerr-McGee Corporation;  and
Ishihara Sangyo Kaisha,  Ltd.  Kronos' five largest  competitors  have estimated
individual  shares of TiO2  production  capacity  ranging from 23% to 5%, and an
estimated  aggregate 70% share of worldwide TiO2 production  volume.  DuPont has
about one-half of total U.S. TiO2 production  capacity and is Kronos'  principal
North American competitor. In 2000 Kerr-McGee acquired Kemira Pigments Oy's TiO2
businesses in the Netherlands and the U.S.

        Capacity  additions  that are the result of  construction  of greenfield
plants in the worldwide TiO2 market require  significant capital and substantial
lead  time,  typically  three to five  years  in the  Company's  experience.  No
greenfield plants have been announced,  but industry capacity can be expected to
increase as Kronos and its competitors  debottleneck  existing plants.  Based on
the factors  described under the caption  "Industry"  above, the Company expects
that  the  average   annual   increase  in  industry   capacity  from  announced
debottlenecking  projects will be less than the average annual demand growth for
TiO2 over the next three to five years.

        No assurance  can be given that future  increases  in the TiO2  industry
production  capacity and future average annual demand growth rates for TiO2 will
conform to the Company's  expectations.  If actual  developments differ from the
Company's expectations, the Company and the TiO2 industry's performance could be
unfavorably affected.


                                            -4-

<PAGE>



Discontinued operations

        On January 30, 1998, the Company sold its specialty  chemicals  business
for $465 million.  The Company has reported its specialty  chemicals business as
discontinued operations.

Research and Development

        The  Company's  expenditures  for research and  development  and certain
technical support programs,  excluding  discontinued  operations,  have averaged
approximately  $6 million  annually  during the past three  years.  Research and
development  activities  are conducted  principally at the  Leverkusen,  Germany
facility.  Such  activities  are directed  primarily  toward  improving both the
chloride  and  sulfate  production  processes,  improving  product  quality  and
strengthening   Kronos'   competitive   position  by   developing   new  pigment
applications.

Patents and Trademarks

        Patents held for products and  production  processes  are believed to be
important to the Company and to the  continuing  business  activities of Kronos.
The Company continually seeks patent protection for its technical  developments,
principally  in the  United  States,  Canada and  Europe,  and from time to time
enters into licensing arrangements with third parties.

        The  Company's  major  trademarks,  including  Kronos,  are protected by
registration  in the United States and elsewhere  with respect to those products
it manufactures and sells.

Foreign Operations

        The Company's  chemical  businesses  have  operated in non-U.S.  markets
since the  1920s.  Most of Kronos'  current  production  capacity  is located in
Europe and Canada with  non-U.S.  net property and  equipment  aggregating  $316
million at December 31, 2000. Net property and equipment in the U.S.,  including
50% of the property and equipment of the TiO2 manufacturing  joint venture,  was
$140  million  at  December  31,  2000.  Kronos'  European   operations  include
production facilities in Germany, Belgium and Norway. Approximately $639 million
of the Company's 2000 consolidated sales were to non-U.S.  customers,  including
$106  million to  customers  in areas  other than  Europe and  Canada.  Sales to
customers in the U.S.  aggregated $283 million in 2000.  Foreign  operations are
subject to, among other  things,  currency  exchange rate  fluctuations  and the
Company's  results of  operations  have,  in the past,  been both  favorably and
unfavorably  affected by  fluctuations in currency  exchange  rates.  Effects of
fluctuations in currency  exchange rates on the Company's  results of operations
are  discussed  in Item 7.  "Management's  Discussion  and Analysis of Financial
Condition and Results of Operations" and Item 7A.  "Quantitative and Qualitative
Disclosures about Market Risk."

        Political  and  economic  uncertainties  in certain of the  countries in
which the Company  operates may expose it to risk of loss.  The Company does not
believe  that  there is  currently  any  likelihood  of  material  loss  through
political or economic  instability,  seizure,  nationalization or similar event.
The Company cannot predict,  however,  whether events of this type in the future
could have a material effect on its operations.  The Company's manufacturing and
mining  operations  are also  subject to  extensive  and  diverse  environmental
regulation  in  each  of the  foreign  countries  in  which  they  operate.  See
"Regulatory and Environmental Matters."

                                            -5-

<PAGE>



Customer Base and Seasonality

        The Company  believes that neither its aggregate  sales nor those of any
of its principal product groups are concentrated in or materially dependent upon
any single  customer or small group of customers.  Kronos' largest ten customers
accounted  for 24% of net sales in 2000.  Neither  the  Company's  business as a
whole  nor  that of any of its  principal  product  groups  is  seasonal  to any
significant  extent.  Due in part to the  increase  in paint  production  in the
spring to meet the spring  and summer  painting  season  demand,  TiO2 sales are
generally higher in the second and third calendar quarters than in the first and
fourth calendar quarters.

Employees

        As of December  31,  2000,  the  Company  employed  approximately  2,500
persons, excluding the joint venture employees, with approximately 100 employees
in the United States and approximately 2,400 at sites outside the United States.
Hourly  employees  in  production  facilities  worldwide,   including  the  TiO2
manufacturing joint venture,  are represented by a variety of labor unions, with
labor agreements having various expiration dates. The Company believes its labor
relations are good.

Regulatory and Environmental Matters

        Certain of the  Company's  businesses  are and have been  engaged in the
handling,  manufacture  or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable  environmental laws. As with
other  companies  engaged  in  similar  businesses,  certain  past  and  current
operations and products of the Company have the potential to cause environmental
or other damage.  The Company has implemented and continues to implement various
policies  and programs in an effort to minimize  these risks.  The policy of the
Company  is to  maintain  compliance  with  applicable  environmental  laws  and
regulations  at all its  facilities  and to strive to improve its  environmental
performance.  It  is  possible  that  future  developments,   such  as  stricter
requirements of environmental laws and enforcement  policies  thereunder,  could
adversely   affect   the   Company's   production,   handling,   use,   storage,
transportation,  sale or disposal of such  substances  as well as the  Company's
consolidated financial position, results of operations or liquidity.

        The  Company's  U.S.  manufacturing  operations  are governed by federal
environmental and worker health and safety laws and regulations, principally the
Resource  Conservation and Recovery Act ("RCRA"),  the  Occupational  Safety and
Health Act, the Clean Air Act, the Clean Water Act, the Safe Drinking Water Act,
the Toxic Substances Control Act and the Comprehensive  Environmental  Response,
Compensation  and  Liability  Act, as amended by the  Superfund  Amendments  and
Reauthorization  Act  ("CERCLA"),  as well as the  state  counterparts  of these
statutes.  The Company  believes the  Louisiana  plant owned and operated by the
joint  venture and a slurry  facility  owned by the  Company are in  substantial
compliance  with  applicable  requirements  of these laws or  compliance  orders
issued thereunder.  The Company has no other U.S. plants. From time to time, the
Company's  facilities  may be subject to  environmental  regulatory  enforcement
under  such  statutes.   Resolution  of  such  matters  typically  involves  the
establishment of compliance programs. Occasionally, resolution may result in the
payment of  penalties,  but to date such  penalties  have not  involved  amounts
having  a  material  adverse  effect  on the  Company's  consolidated  financial
position, results of operations or liquidity.


                                            -6-

<PAGE>



        The Company's European and Canadian production  facilities operate in an
environmental  regulatory framework in which governmental  authorities typically
are granted  broad  discretionary  powers  which  allow them to issue  operating
permits  required for the plants to operate.  The Company  believes that all its
plants are in substantial compliance with applicable environmental laws.

        While the laws regulating  operations of industrial facilities in Europe
vary from country to country, a common regulatory denominator is provided by the
European Union (the "EU").  Germany and Belgium are members of the EU and follow
its  initiatives.   Norway,  although  not  a  member,  generally  patterns  its
environmental  regulatory actions after the EU. The Company believes that Kronos
is in substantial  compliance with agreements  reached with European  regulatory
authorities  and with an EU directive to control the effluents  produced by TiO2
production facilities.

        The Company has a contract with a third party to treat certain effluents
of its German  sulfate-process  plants.  Either party may terminate the contract
after giving four years  advance  notice with regard to its  Nordenham,  Germany
plant.  Under certain  circumstances,  Kronos may  terminate the contract  after
giving  six months  notice  with  respect to  treatment  of  effluents  from the
Leverkusen, Germany plant.

        The Company  completed in 2000 an $8 million landfill  expansion for its
Belgian  plant  which is  expected  to provide  the plant with  twenty  years of
storage space for neutralized chloride-process solids.

        The Company's capital expenditures related to its ongoing  environmental
protection and improvement  programs are currently  expected to be approximately
$6 million in 2001 and $5 million in 2002.

        The Company has been named as a defendant, potentially responsible party
("PRP"),  or both, pursuant to CERCLA and similar state laws in approximately 75
governmental  and private actions  associated with waste disposal sites,  mining
locations and facilities currently or previously owned,  operated or used by the
Company, or its subsidiaries, or their predecessors, certain of which are on the
U.S.   Environmental   Protection   Agency's  ("U.S.  EPA")  Superfund  National
Priorities List or similar state lists. See Item 3. "Legal Proceedings."

Principal Shareholders

        At  December  31,  2000,  Valhi,  Inc.  and  Tremont  Corporation,  each
affiliates of Contran Corporation, held approximately 60% and 20%, respectively,
of NL's  outstanding  common  stock.  At  December  31,  2000,  Contran  and its
subsidiaries held  approximately 93% of Valhi's  outstanding common stock, and a
subsidiary  of Valhi  and NL held  approximately  80% of  Tremont's  outstanding
common stock. Substantially all of Contran's outstanding voting stock is held by
trusts  established  for the benefit of certain  children and  grandchildren  of
Harold C. Simmons,  of which Mr. Simmons is the sole trustee.  Mr. Simmons,  the
Chairman of the Board of NL and the  Chairman  of the Board and Chief  Executive
Officer of Contran and Valhi and a director of Tremont, may be deemed to control
each of such companies.

ITEM 2.        PROPERTIES

        Kronos currently operates four TiO2 facilities in Europe (Leverkusen and
Nordenham, Germany;  Langerbrugge,  Belgium; and Fredrikstad,  Norway). In North
America,  Kronos has a facility in  Varennes,  Quebec,  Canada and,  through the
manufacturing  joint venture  described above, a one-half interest in a plant in
Lake Charles,  Louisiana.  The Company also owns a slurry plant in Lake Charles,
Louisiana. The

                                            -7-

<PAGE>



Company's  Fredrikstad  TiO2  plant  has a lien on it that  secures  a claim  by
Norwegian tax  authorities,  pending  resolution of certain tax litigation.  See
Notes 9 and 12 to the Consolidated Financial Statements.

        Kronos' principal German operating  subsidiary leases the land under its
Leverkusen  TiO2 production  facility  pursuant to a lease expiring in 2050. The
Leverkusen  facility,  with about  one-third of Kronos'  current TiO2 production
capacity,  is located within an extensive  manufacturing  complex owned by Bayer
AG. Kronos is the only unrelated  party so situated.  Under a separate  supplies
and services  agreement  expiring in 2011,  Bayer  provides some raw  materials,
auxiliary and operating  materials and utilities  services  necessary to operate
the Leverkusen facility.  Both the lease and the supplies and services agreement
have certain restrictions regarding Kronos' ability to transfer ownership or use
of the Leverkusen facility.

        All of  Kronos'  principal  production  facilities  described  above are
owned,  except  for  the  land  under  the  Leverkusen  facility.  Kronos  has a
governmental  concession  with an unlimited term to operate its ilmenite mine in
Norway.

        The Company has under lease various corporate and administrative offices
located in the U.S. and various sales offices located in the U.S.,  France,  the
Netherlands, Denmark and the U.K.

ITEM 3.        LEGAL PROCEEDINGS

Lead pigment litigation

        The Company was formerly  involved in the  manufacture  of lead pigments
for use in paint and lead-based paint. The Company has been named as a defendant
or third party defendant in various legal proceedings  alleging that the Company
and other manufacturers are responsible for personal injury, property damage and
governmental  expenditures  allegedly  associated with the use of lead pigments.
The Company is vigorously  defending such litigation.  Considering the Company's
previous involvement in the lead pigment and lead-based paint businesses,  there
can be no assurance that additional litigation, similar to that described below,
will not be filed. In this regard, the Company is aware that the City Council of
the City of Milwaukee, Wisconsin has authorized the filing of litigation against
former lead pigment  manufacturers.  While the suit has not yet been filed,  the
Company  believes  that  the  suit may seek to  recover  costs  associated  with
diagnosing and treating  children who have been exposed to lead-based  paint and
the cost of abating lead-based paint in the City's public housing.  In addition,
it is possible that other  governmental  entities may take similar action in the
future.

        In addition,  various  legislation and administrative  regulations have,
from time to time,  been  enacted or  proposed  that seek to (a) impose  various
obligations on present and former  manufacturers  of lead pigment and lead-based
paint with respect to asserted health  concerns  associated with the use of such
products and (b)  effectively  overturn court decisions in which the Company and
other  pigment  manufacturers  have been  successful.  Examples of such proposed
legislation  include bills which would permit civil liability for damages on the
basis of market  share,  rather  than  requiring  plaintiffs  to prove  that the
defendant's  product  caused the alleged  damage,  and bills which would  revive
actions  barred  by  the  statute  of  limitations.   While  no  legislation  or
regulations  have been  enacted  to date which are  expected  to have a material
adverse  effect on the Company's  consolidated  financial  position,  results of
operations  or  liquidity,  the  imposition  of market share  liability or other
legislation could have such an effect.


                                            -8-

<PAGE>



        The Company has not accrued any amounts for the pending lead pigment and
lead-based  paint  litigation.  There is no assurance  that the Company will not
incur  future  liability in respect of this  pending  litigation  in view of the
inherent  uncertainties  involved  in court  and jury  rulings  in  pending  and
possible  future cases.  However,  based on, among other things,  the results of
such litigation to date, the Company  believes that the pending lead pigment and
lead-based paint litigation is without merit. Liability that may result, if any,
cannot reasonably be estimated.

        In 1989 and 1990 the Housing  Authority  of New Orleans  ("HANO")  filed
third-party  complaints for indemnity and/or  contribution  against the Company,
other alleged  manufacturers  of lead pigment  (together  with the Company,  the
"pigment  manufacturers") and the Lead Industries  Association (the "LIA") in 14
actions  commenced by residents of HANO units seeking  compensatory and punitive
damages for injuries allegedly caused by lead pigment.  The actions,  which were
pending  in the  Civil  District  Court  for the  Parish  of  Orleans,  State of
Louisiana,  were  dismissed by the district  court in 1990.  Subsequently,  HANO
agreed to  consolidate  all the cases and appealed.  In March 1992 the Louisiana
Court of Appeals,  Fourth  Circuit,  dismissed  HANO's  appeal as untimely  with
respect to three of these cases. With respect to the other cases included in the
appeal,  the court of appeals  reversed the lower court decision  dismissing the
cases. These cases were remanded to the District Court for further  proceedings.
In November  1994 the  District  Court  granted  defendants'  motion for summary
judgment  in one of the  remaining  cases  and in June 1995 the  District  Court
granted  defendants'  motion for summary  judgment  in several of the  remaining
cases.  After such grant,  only two cases remain  pending and have been inactive
since 1992,  Hall v. HANO,  et al. (No.  89-3552) and Allen v. HANO, et al. (No.
89-427) Civil District Court for the Parish of Orleans, State of Louisiana.

        In June 1989 a complaint  was filed in the Supreme Court of the State of
New York,  County of New York,  against the pigment  manufacturers  and the LIA.
Plaintiffs seek damages, contribution and/or indemnity in an amount in excess of
$50 million for monitoring and abating  alleged lead paint hazards in public and
private  residential  buildings,  diagnosing  and  treating  children  allegedly
exposed to lead paint in city  buildings,  the costs of educating city residents
to the hazards of lead paint,  and liability in personal  injury actions against
the City and the  Housing  Authority  based on alleged  lead  poisoning  of city
residents (The City of New York, the New York City Housing Authority and the New
York City Health and Hospitals  Corp. v. Lead Industries  Association,  Inc., et
al., No. 89-4617).  In December 1991 the court granted the defendants' motion to
dismiss claims alleging negligence and strict liability and denied the remainder
of the motion.  In January 1992 defendants  appealed the denial. In May 1993 the
Appellate  Division of the Supreme  Court  affirmed  the denial of the motion to
dismiss plaintiffs' fraud,  restitution and indemnification  claims. In May 1994
the trial  court  granted  the  defendants'  motion to dismiss  the  plaintiffs'
restitution and indemnification  claims, and plaintiffs  appealed.  In June 1996
the  Appellate  Division  reversed the trial  court's  dismissal of  plaintiffs'
restitution and  indemnification  claims,  reinstating those claims. In December
1998  plaintiffs  moved for partial  summary  judgment on their claims of market
share,  alternative liability,  enterprise liability,  and concert of action. In
February  1999  plaintiffs  New York City and New York City Health and  Hospital
Corporation dismissed with prejudice all their claims and were no longer parties
to the case. Also in February 1999 the New York City Housing Authority dismissed
with  prejudice all of its claims except for claims for damages  relating to two
housing  projects.  In  September  1999 the trial court  denied the  plaintiffs'
motions for summary  judgment on market share and  conspiracy  issues and denied
defendants'  April 1999  motion for summary  judgment on statute of  limitations
grounds. In September 2000 the First Department denied plaintiffs' appeal of the
trial court's  denial of plaintiffs'  motion for summary  judgment on the market
share issue. Discovery is proceeding.


                                            -9-

<PAGE>



        In August  1992 the  Company  was served  with an amended  complaint  in
Jackson,  et al. v. The Glidden  Co., et al.,  Court of Common  Pleas,  Cuyahoga
County,  Cleveland,  Ohio (Case No. 236835).  Plaintiffs seek  compensatory  and
punitive  damages for personal  injury caused by the  ingestion of lead,  and an
order directing  defendants to abate lead-based  paint in buildings.  Plaintiffs
purport to represent a class of similarly  situated persons throughout the State
of Ohio. The amended complaint asserts causes of action under theories of strict
liability,  negligence  per  se,  negligence,  breach  of  express  and  implied
warranty,  fraud, nuisance,  restitution,  and negligent infliction of emotional
distress.  The complaint  asserts several theories of liability  including joint
and several,  market share,  enterprise and  alternative  liability.  Plaintiffs
moved for class certification in October 1998, and all briefing on the issue was
completed in April 1999.  No decision  regarding  class  certification  has been
issued by the trial court.

        In November 1993 the Company was served with a complaint in Brenner,  et
al. v. American  Cyanamid,  et al., (No.  12596-93) Supreme Court,  State of New
York, Erie County alleging injuries to two children  purportedly  caused by lead
pigment.  The  complaint  seeks $24 million in  compensatory  and $10 million in
punitive damages for alleged negligent failure to warn, strict liability,  fraud
and   misrepresentation,   concert  of  action,  civil  conspiracy,   enterprise
liability,  market share  liability,  and  alternative  liability.  In June 1998
defendants  moved for partial summary  judgment  dismissing  plaintiffs'  market
share and alternative  liability claims. In January 1999 the trial court granted
defendants'  summary  judgment motion to dismiss the  alternative  liability and
enterprise liability claims, but denied defendants' motion to dismiss the market
share  liability  claim.  In May 1999  defendants  appealed  the denial of their
motion to dismiss  the  market  share  liability  claim.  The Fourth  Department
intermediate  appellate  court in  December  1999  reversed  the trial court and
dismissed  the market share claim.  The case was remanded to the trial court for
further  proceedings  on the  remaining  claims and in June 2000 the trial court
dismissed all remaining claims. Plaintiffs have filed a notice of appeal.

        In April 1997 the Company  was served  with a complaint  in Parker v. NL
Industries,  et al.  (Circuit  Court,  Baltimore  City,  Maryland,  No. 97085060
CC915).  Plaintiff,  now an adult, and his wife, seek  compensatory and punitive
damages from the Company,  another former manufacturer of lead paint and a local
paint retailer,  based on claims of negligence,  strict liability and fraud, for
plaintiff's  alleged  ingestion of lead paint as a child.  In February  1998 the
Court dismissed the fraud claim. In June 2000,  following a two-week trial,  the
jury returned a verdict for the Company. Plaintiffs have abandoned their appeal.

        In December  1998 the  Company was served with a complaint  on behalf of
four  children  and their  guardians  in  Sabater,  et al.  v.  Lead  Industries
Association,  et al.  (Supreme Court of the State of New York,  County of Bronx,
Index No. 25533/98). Plaintiffs purport to represent a class of all children and
mothers  similarly  situated in New York City. The complaint alleges against the
Company,  the LIA, and other former manufacturers of lead pigment various causes
of  action  including   negligence,   strict  products   liability,   fraud  and
misrepresentation,  concert of action, civil conspiracy,  enterprise  liability,
market share  liability,  breach of warranties,  nuisance,  and violation of New
York  State's   consumer   protection  act.  The  complaint  seeks  damages  for
establishment   of  property   abatement  and  medical   monitoring   funds  and
compensatory  damages for alleged  injuries to plaintiffs.  In February 2000 the
trial court granted defendants'  motions to dismiss the product defect,  express
warranty, nuisance and consumer fraud statute claims. In October 2000 defendants
filed a third-party complaint against the Federal Home Loan Mortgage Corporation
(FHLMC), and FHLMC removed the case to federal court in the Southern District of
New York and moved to dismiss  the claims.  Plaintiffs  have moved to remand the
case to state court.


                                            -10-

<PAGE>



        In  September  1999 an  amended  complaint  was  filed in Thomas v. Lead
Industries Association,  et al. (Circuit Court, Milwaukee,  Wisconsin,  Case No.
99-CV-6411)  adding as defendants the Company and seven other companies  alleged
to have  manufactured  lead products in paint to a suit originally filed against
plaintiff's  landlords.  Plaintiff, a minor, alleges injuries purportedly caused
by lead on the  surfaces of  premises  in homes in which he  resided.  Plaintiff
seeks  compensatory and punitive  damages.  Plaintiff  alleges strict liability,
negligence,    negligent    misrepresentation    and    omissions,    fraudulent
misrepresentations  and  omissions,  concert of action,  civil  conspiracy,  and
enterprise  liability causes of action against the Company,  seven other alleged
former  manufacturers  of lead  products  contained  in paint,  and the LIA.  In
January 2000 the Company filed an answer  denying all  wrongdoing and liability.
In June 2000 the trial court granted  defendants' January 2000 motion to dismiss
the product defect and Wisconsin consumer  protection statute claims.  Discovery
is proceeding.

        In October  1999 the Company  was served  with a  complaint  in State of
Rhode Island v. Lead  Industries  Association,  et al.  (Superior Court of Rhode
Island, No. 99-5226).  Rhode Island, by and through its Attorney General,  seeks
compensatory  and punitive damages for medical,  school,  and public and private
building  abatement  expenses  that the State alleges were caused by lead paint,
and for funding of a public education campaign and screening programs. Plaintiff
seeks judgments of joint and several liability against the Company,  seven other
companies  alleged to have  manufactured  lead  products in paint,  and the LIA.
Plaintiffs  allege public  nuisance,  violation of the Rhode Island Unfair Trade
Practices and Consumer Protection Act, strict liability,  negligence,  negligent
misrepresentation  and omissions,  fraudulent  misrepresentation  and omissions,
civil conspiracy, unjust enrichment,  indemnity, and equitable relief to protect
children.  In January 2000 defendants moved to dismiss all claims. The court has
not ruled.

        In October 1999 the Company was served with a complaint  in Cofield,  et
al. v. Lead  Industries  Association,  et al. (Circuit Court for Baltimore City,
Maryland,  Case  No.  24-C-99-004491).   Plaintiffs,  six  homeowners,  seek  to
represent a class of all owners of nonrental residential properties in Maryland.
Plaintiffs  seek   compensatory  and  punitive  damages  for  the  existence  of
lead-based paint in their homes,  including funds for monitoring,  detecting and
abating  lead-based  paint  in  those  residences.  Plaintiffs  allege  that the
Company,  fourteen other companies  alleged to have  manufactured  lead pigment,
paint and/or  gasoline  additives,  the LIA, and the National Paint and Coatings
Association  are jointly and  severally  liable for  alleged  negligent  product
design,    negligent   failure   to   warn,    supplier    negligence,    strict
liability/defective   design,   strict   liability/failure  to  warn,  nuisance,
indemnification,  fraud and deceit,  conspiracy,  concert of action,  aiding and
abetting, and enterprise liability. Plaintiffs seek damages in excess of $20,000
per household.  In October 1999 defendants  removed the case to Maryland federal
court. In February 2000 defendants moved to dismiss the design defect, fraud and
deceit,  indemnification  and nuisance  claims.  In March 2000 the Federal trial
court (No.  MJG-99-3277)  denied plaintiffs' motion to remand to State Court. In
April 2000 defendants filed an additional  motion to dismiss all claims for lack
of product identification.  In August 2000 the federal court dismissed the fraud
and deceit,  indemnification,  and  nuisance  claims,  and  remanded the case to
Maryland  state  court.  In August 2000  plaintiffs  also filed a third  amended
complaint, with the case renamed Young, et al. v. Lead Industries,  Association,
et al.. In  November  2000  defendants  filed  motions to dismiss all  remaining
claims except conspiracy and aiding and abetting. The court has not ruled. Class
discovery is proceeding.

        In October 1999 the Company was served with a complaint in Smith, et al.
v. Lead  Industries  Association,  et al.  (Circuit  Court for  Baltimore  City,
Maryland,   Case  No.  24-C-99-004490).   Plaintiffs,   six  minors,  each  seek
compensatory  damages  of $5  million  and  punitive  damages  of  $10  million.
Plaintiffs  allege that the Company,  fourteen other  companies  alleged to have
manufactured lead pigment, paint and/or

                                            -11-

<PAGE>



gasoline additives, the LIA, and the National Paint and Coatings Association are
jointly and severally  liable for alleged  negligent  product design,  negligent
failure to warn, supplier negligence,  fraud and deceit, conspiracy,  concert of
action,  aiding and  abetting,  strict  liability/  failure to warn,  and strict
liability/defective  design.  In October  1999  defendants  removed  the case to
Maryland  federal  court and in  November  1999 the case was  remanded  to state
court.  In  February  2000 the Company  answered  the  complaint  and denied all
wrongdoing  and  liability,  and all  defendants  filed  motions to dismiss  the
product defect and fraud and deceit  claims.  In June 2000  defendants  moved to
dismiss all claims for lack of product identification. The court has not ruled.

        In February  2000 the Company was served with a complaint in City of St.
Louis v. Lead  Industries  Association,  et al.  (Missouri  Circuit  Court  22nd
Judicial  Circuit,  St. Louis City, Cause No. 002-245,  Division 1). The City of
St. Louis seeks  compensatory and punitive damages for its expenses  discovering
and  abating  lead,   detecting  lead  poisoning  and  providing  medical  care,
educational  programs for City  residents,  and the costs of educating  children
suffering injuries due to lead exposure.  Plaintiff seeks judgments of joint and
several  liability  against the Company,  eight other companies  alleged to have
manufactured  lead products for paint, and the LIA.  Plaintiff alleges claims of
public nuisance,  product liability,  negligence,  negligent  misrepresentation,
fraudulent   misrepresentation,   civil  conspiracy,   unjust  enrichment,   and
indemnity.  In March 2000 defendants removed the case to Missouri federal court.
In April 2000  plaintiff  filed a motion to remand to State Court and an amended
complaint seeking to add additional  Missouri defendant  residents.  In May 2000
defendants moved to dismiss all claims. The court has not ruled.

        In April 2000 the Company was served with a complaint in County of Santa
Clara v. Atlantic  Richfield  Company,  et al.  (Superior  Court of the State of
California, County of Santa Clara, Case No. CV788657). The County of Santa Clara
seeks to represent a class of California  governmental  entities (other than the
state and its  agencies).  The County seeks from  defendants,  eight  present or
former  pigment  or paint  manufacturing  companies  and the  LIA,  compensatory
damages  for  funds  the  plaintiffs   have  expended  for  medical   treatment,
educational expenses,  abatement or other costs due to exposure to, or potential
exposure to, lead paint, disgorgement of profit, and punitive damages. Plaintiff
alleges  causes  of  action  for  violations  of  the  California  Business  and
Professions Code, strict product liability,  negligence,  fraud and concealment,
unjust   enrichment,   and  indemnity,   and  includes  market  share  liability
allegations. Defendants filed demurrers to the original complaint in August 2000
and to the first  amended  complaint in October 2000. In December 2000 the Court
dismissed all claims except the claim for fraud, but granted plaintiffs leave to
amend.  The  plaintiffs  filed a second  amended  complaint in January 2001 that
included as plaintiffs:  Santa Cruz, Solano,  Alameda,  San Francisco,  and Kern
counties; the cities of San Francisco and Oakland; the Oakland and San Francisco
unified school districts and housing authorities;  and the Oakland Redevelopment
Agency. The second amended complaint omits indemnification and unjust enrichment
claims, but adds public and private nuisance claims.

        In June 2000 two  complaints  were filed in Texas  state  court,  Spring
Branch  Independent  School  District  v. Lead  Industries  Association,  et al.
(District  Court  of  Harris  County,   Texas,  No.  2000-31175),   and  Houston
Independent  School District v. Lead Industries  Association,  et al.  (District
Court of Harris County,  Texas, No. 2000-33725).  The School Districts seek past
and future damages and exemplary damages for costs they have allegedly  incurred
due to the presence of lead-based paint in their buildings from the Company, the
LIA and seven other companies sued as former  manufacturers of lead-based paint.
Plaintiffs  allege  claims for design  defect and  marketing  defect,  negligent
product  design and  failure to warn,  fraudulent  misrepresentation,  negligent
misrepresentation, concert of action, conspiracy, and indemnity. In October

                                            -12-

<PAGE>



2000 the  Company  filed  answers  in both  cases  denying  all  allegations  of
wrongdoing and liability. Discovery is proceeding.

        In June 2000 a complaint was filed in Illinois  state court,  Lewis,  et
al.  v. Lead  Industries  Association,  et al.  (Circuit  Court of Cook  County,
Illinois, County Department, Chancery Division, Case No. 00CH09800).  Plaintiffs
seek to represent two classes, one of all minors between ages six months and six
years who  resided in housing in  Illinois  built  before  1978,  and one of all
individuals  between ages six and twenty years who lived between ages six months
and six years in Illinois housing built before 1978 and had blood lead levels of
10  micrograms/deciliter  or more. The complaint seeks a medical  screening fund
for the first class to determine  blood lead levels,  a medical  monitoring fund
for the second  class to detect the onset of latent  diseases,  and a fund for a
public  education  campaign.  The complaint  seeks to hold jointly and severally
liable  the  Company,  the  LIA,  and  seven  other  companies  sued  as  former
manufacturers  of lead pigment and/or lead paint.  Plaintiffs  allege claims for
negligent product design,  negligent failure to warn, strict products liability,
violation of the Illinois  Consumer Fraud Act,  fraud by omission,  market share
liability,  civil  conspiracy,  concert  of  action,  enterprise  liability  and
alternative  liability.  In October 2000 defendants moved to dismiss all claims.
In November 2000 plaintiffs  moved to amend the complaint.  Plaintiffs  filed an
amended complaint in January 2001.

        In  October  2000 the  Company  was  served  with a  complaint  filed in
California state court.  Justice,  et al. v.  Sherwin-Williams  Company,  et al.
(Superior Court of California,  County of San Francisco, No. 314686). Plaintiffs
are two minors who seek  general,  special and  punitive  damages  for  injuries
alleged to be due to  ingestion  of paint  containing  lead in their  residence.
Defendants  are the Company,  the LIA, and nine other  companies  sued as former
manufacturers  of lead paint.  Plaintiffs  allege claims for negligence,  strict
products liability,  concert of action, market share liability,  and intentional
tort.  The  Company   answered  the  complaint  in  December  2000  denying  all
allegations of wrongdoing and liability.

        In January  2001 the Company was served with a complaint  in Gaines,  et
al., v. The Sherwin-Williams Company, et al. (Circuit Court of Jefferson County,
Mississippi,  Civil Action No. 2000-0604). The complaint seeks joint and several
liability  for  compensatory  and punitive  damages  from the Company,  Sherwin-
Williams,  and four local retailers on behalf of a minor and his mother alleging
injuries  due to  lead  pigment  and/or  paint.  The  complaint  alleges  strict
liability,  negligence, and fraudulent concealment and misrepresentation claims.
In February 2001 the Company  removed the case to federal  court.  In March 2001
the Company  moved to dismiss the  negligence  and  fraudulent  concealment  and
misrepresentation claims.

        In February  2001 the Company was served with a complaint in Borden,  et
al. v. The Sherwin-Williams  Company, et al. (Circuit Court of Jefferson County,
Mississippi,  Civil Action No. 2000-587).  The complaint seeks joint and several
liability for  compensatory and punitive damages from more than 40 manufacturers
and retailers of lead pigment and/or paint,  including the Company, on behalf of
18 adult  residents of  Mississippi  who were  allegedly  exposed to lead during
their employment in construction and repair  activities.  The complaint  asserts
strict liability, negligence, fraudulent concealment and misrepresentation,  and
medical  monitoring  claims.  The  Company  intends to deny all  allegations  of
wrongdoing and liability.

        The Company believes that the foregoing lead pigment actions are without
merit  and  intends  to  continue  to deny all  allegations  of  wrongdoing  and
liability and to defend such actions vigorously.


                                            -13-

<PAGE>



        The Company has filed  actions  seeking  declaratory  judgment and other
relief against various  insurance  carriers with respect to costs of defense and
indemnity coverage for certain of its environmental and lead pigment litigation.
NL Industries,  Inc. v. Commercial  Union Insurance Cos., et al., Nos.  90-2124,
- -2125 (HLS) (District Court of New Jersey).  The action relating to lead pigment
litigation  defense costs filed in May 1990 against  Commercial  Union Insurance
Company  ("Commercial  Union")  sought to recover  defense costs incurred in the
City of New York lead pigment  case and two other lead pigment  cases which have
since been resolved in the Company's  favor.  The action  relating to lead paint
litigation  defense  costs  has been  settled.  The  Company  has  also  settled
insurance  coverage claims concerning  environmental  claims with certain of the
defendants in the New Jersey environmental  coverage  litigation,  including the
Company's principal former carriers,  as more fully described below. The settled
claims are to be dismissed from the New Jersey litigation in accordance with the
terms of the settlement agreements. The Company also continues to negotiate with
several other insurance  carriers with respect to possible  settlement of claims
that are being  asserted in the New Jersey  environmental  litigation,  although
there can be no assurance that  settlement  agreements can be reached with these
other  carriers.   No  further  material   settlements  relating  to  litigation
concerning environmental remediation coverage are expected.

        Other than granting  motions for summary  judgment brought by two excess
liability  insurance  carriers,  which  contended that their policies  contained
absolute  pollution  exclusion  language,  and certain summary  judgment motions
regarding policy periods and ruling  regarding  choice of law issues,  the Court
has not made any final  rulings  on defense  costs or  indemnity  coverage  with
respect to the Company's  pending  environmental  litigation.  Nor has the Court
made any final ruling on indemnity coverage in the lead pigment  litigation.  No
trial  dates  have been set.  Other than  rulings to date,  the issue of whether
insurance coverage for defense costs or indemnity or both will be found to exist
depends  upon a variety  of  factors,  and there can be no  assurance  that such
insurance coverage will exist in other cases. The Company has not considered any
potential insurance  recoveries for lead pigment or environmental  litigation in
determining related accruals.

Environmental matters and litigation

        The Company  has been named as a  defendant,  PRP, or both,  pursuant to
CERCLA and  similar  state laws in  approximately  75  governmental  and private
actions  associated with waste disposal sites,  mining  locations and facilities
currently  or  previously  owned,  operated  or  used  by  the  Company,  or its
subsidiaries,  or their  predecessors,  certain  of which are on the U.S.  EPA's
Superfund  National  Priorities List or similar state lists.  These  proceedings
seek cleanup  costs,  damages for  personal  injury or property  damage,  and/or
damages for injury to natural  resources.  Certain of these proceedings  involve
claims  for  substantial  amounts.  Although  the  Company  may be  jointly  and
severally  liable  for such  costs,  in most cases it is only one of a number of
PRPs who may also be jointly and severally liable.

        The extent of CERCLA liability cannot accurately be determined until the
Remedial  Investigation and Feasibility Study ("RIFS") is complete, the U.S. EPA
issues a record of decision and costs are  allocated  among PRPs.  The extent of
liability under analogous state cleanup  statutes and for common law equivalents
are  subject to similar  uncertainties.  The Company  believes  it has  provided
adequate  accruals for reasonably  estimable  costs for CERCLA matters and other
environmental  liabilities.  At December 31, 2000,  the Company had accrued $110
million for those  environmental  matters which are  reasonably  estimable.  The
Company  determines the amount of accrual on a quarterly  basis by analyzing and
estimating the range of possible costs to the Company. Such costs include, among
other things,  expenditures for remedial investigations,  monitoring,  managing,
studies, certain legal fees, cleanup, removal and remediation. It is

                                            -14-

<PAGE>



not possible to estimate the range of costs for certain  sites.  The Company has
estimated  that the upper end of the range of reasonably  possible  costs to the
Company for sites for which it is possible  to estimate  costs is  approximately
$170 million.  The Company's  estimate of such liability has not been discounted
to present  value and the Company has not reduced its accruals for any potential
insurance  recoveries.  No  assurance  can be given that  actual  costs will not
exceed either accrued  amounts or the upper end of the range for sites for which
estimates  have been made,  and no assurance can be given that costs will not be
incurred  with respect to sites as to which no estimate  presently  can be made.
The imposition of more stringent  standards or requirements under  environmental
laws or  regulations,  new  developments or changes with respect to site cleanup
costs or  allocation  of such costs  among  PRPs,  or a  determination  that the
Company is potentially  responsible  for the release of hazardous  substances at
other  sites  could  result  in  expenditures  in excess  of  amounts  currently
estimated by the Company to be required for such matters. Furthermore, there can
be no  assurance  that  additional  environmental  matters will not arise in the
future.  More detailed  descriptions  of certain legal  proceedings  relating to
environmental matters are set forth below.

        In June  2000 the  Company  recognized  a $43  million  net gain  from a
settlement  with one of the two  principal  former  insurance  carriers,  and in
December 2000 the Company  recognized a $26.5 million net gain from a settlement
with  certain  members of the other  principal  former  insurance  carrier.  The
settlement  gains are stated net of $3.1 million in  commissions,  and the gross
settlement proceeds of $72.6 million were transferred by the carriers to special
purpose trusts  established to pay future  remediation  and other  environmental
expenditures of the Company.  A settlement with remaining  members of the second
carrier group was reached in January 2001, and the Company  expects to recognize
a $10 million gain in the first quarter of 2001. The settlements  resolved court
proceedings that the Company  initiated to seek  reimbursement for legal defense
expenditures and indemnity coverage for certain of its environmental remediation
expenditures.

        In July 1991 the  United  States  filed an  action in the U.S.  District
Court for the  Southern  District  of  Illinois  against  the Company and others
(United States of America v. NL Industries,  Inc., et al., Civ. No. 91-CV 00578)
with respect to the Granite City,  Illinois lead smelter  formerly  owned by the
Company.  The  complaint  seeks  injunctive  relief to compel the  defendants to
comply with an  administrative  order issued  pursuant to CERCLA,  and fines and
treble damages for the alleged failure to comply with the order. The Company and
the other  parties  did not  implement  the  order,  believing  that the  remedy
selected by the U.S. EPA was invalid, arbitrary, capricious and was not selected
in accordance  with law. The complaint  also seeks  recovery of past costs and a
declaration that the defendants are liable for future costs. Although the action
was filed against the Company and ten other defendants, there are 330 other PRPs
who have  been  notified  by the U.S.  EPA.  Some of those  notified  were  also
respondents to the administrative order. In September 1995 the U.S. EPA released
its amended  decision  selecting  cleanup remedies for the Granite City site. In
September  1997 the U.S. EPA  informed the Company that past and future  cleanup
costs are estimated to total  approximately  $63.5 million. In 1999 the U.S. EPA
and certain other PRPs entered into a consent decree settling their liability at
the site for  approximately  50% of the site costs. The Company and the U.S. EPA
reached an agreement in principle in 1999 to settle the  Company's  liability at
the site for $31.5  million.  The Company  and the U.S.  EPA are  negotiating  a
consent decree embodying the terms of this agreement in principle.

        The  Company  reached  an  agreement  in 1999 with the  other  PRPs at a
formerly  owned  lead  smelter  site in  Pedricktown,  New  Jersey to settle the
Company's  liability  for $6 million,  of which $3.2 million has been paid as of
December  31,  2000.  The  settlement  does not  resolve  issues  regarding  the
Company's  potential  liability in the event site costs exceed $21 million.  The
Company does not  presently  expect site costs to exceed such amount and has not
provided accruals for such contingency.

                                            -15-

<PAGE>



        In 1998 the Company  reached an agreement to settle  litigation with the
other PRPs at a lead smelter site in Portland, Oregon that was formerly owned by
the Company. Under the agreement,  the Company agreed to pay a portion of future
cleanup costs. In 2000 the  construction of the remediation was completed and is
now in the operation and maintenance phase.

        In 2000 the  Company  reached  an  agreement  with the other PRPs at the
Baxter  Springs  subsite in Cherokee  County,  Kansas,  to resolve the Company's
liability.  The  Company and others  formerly  mined lead and zinc in the Baxter
Springs subsite. Under the agreement, the Company agreed to pay a portion of the
cleanup  costs  associated  with the Baxter  Springs  subsite.  The U.S. EPA has
estimated  the total  cleanup  costs in the  Baxter  Springs  subsite to be $5.4
million. The remedial design phase of the cleanup is underway.

        In 1996 the U.S. EPA ordered the Company to perform a removal  action at
a formerly  owned facility in Chicago,  Illinois.  The Company has complied with
the order and has  completed  the on-site work at the  facility.  The Company is
conducting an investigation regarding potential offsite contamination.

        Residents  in the vicinity of the  Company's  former  Philadelphia  lead
chemicals  plant  commenced a class  action  allegedly  comprised  of over 7,500
individuals seeking medical monitoring and damages allegedly caused by emissions
from the plant.  Wagner, et al. v. Anzon, Inc. and NL Industries,  Inc., No. 87-
4420,  Court  of  Common  Pleas,   Philadelphia  County.  The  complaint  sought
compensatory  and punitive damages from the Company and the current owner of the
plant, and alleged causes of action for, among other things, negligence,  strict
liability,  and nuisance.  A class was certified to include persons who resided,
owned or rented property,  or who work or have worked within up to approximately
three-quarters  of a mile from the plant  from 1960  through  the  present.  The
Company  answered the complaint,  denying  liability.  In December 1994 the jury
returned  a  verdict  in  favor  of  the  Company.  Plaintiffs  appealed  to the
Pennsylvania  Superior  Court and in September  1996 the Superior Court affirmed
the  judgment in favor of the  Company.  In  December  1996  plaintiffs  filed a
petition for allowance of appeal to the  Pennsylvania  Supreme Court,  which was
declined.  Residents  also  filed  consolidated  actions  in the  United  States
District  Court for the Eastern  District of  Pennsylvania,  Shinozaki v. Anzon,
Inc.  and Wagner and  Antczak v. Anzon and NL  Industries,  Inc.  Nos.  87-3441,
87-3502, 87-4137 and 87-5150. The consolidated action is a putative class action
seeking  CERCLA  response  costs,  including  cleanup  and  medical  monitoring,
declaratory and injunctive relief and civil penalties for alleged  violations of
the RCRA,  and also asserting  pendent  common law claims for strict  liability,
trespass,  nuisance and punitive  damages.  The court  dismissed  the common law
claims without prejudice,  dismissed two of the three RCRA claims as against the
Company  with  prejudice,  and stayed the case  pending the outcome of the state
court litigation.

        In 2000 the  Company  reached  an  agreement  with the other PRPs at the
Batavia  Landfill  Superfund Site in Batavia,  New York to resolve the Company's
liability.  The Batavia  Landfill is a former  industrial  waste  disposal site.
Under  the  agreement,  the  Company  agreed to pay 40% of the  future  remedial
construction  costs,  which the U.S. EPA has estimated to be  approximately  $11
million.  Under  the  settlement,  the  Company  is not  responsible  for  costs
associated with the operation and maintenance of the remedy.  In connection with
the settlement,  the U.S. EPA waived  approximately  $4 million in past response
costs. In addition,  the Company received approximately $2 million from settling
PRPs. The remedial design phase of the remedy is underway.

        In October 2000 the Company was served with a complaint  in Pulliam,  et
al. v. NL  Industries,  Inc., et al., No.  49DO20010CT001423,  filed in superior
court in Marion County, Indiana, on behalf of an alleged

                                            -16-

<PAGE>



class of all persons and entities who own or have owned property or have resided
within a one-mile radius of an industrial facility formerly owned by the Company
in Indianapolis,  Indiana.  Plaintiffs  allege that they and their property have
been  injured  by  lead  dust  and  particulates  from  the  facility  and  seek
unspecified  actual  and  punitive  damages  and a removal of all  alleged  lead
contamination.  In  December  2000 the  Company  filed  an  answer  denying  all
allegations of wrongdoing and liability. Discovery is proceeding.

        See Item 1.  "Business - Regulatory and Environmental Matters."

Other litigation

        The  Company  has been named as a  defendant  in various  lawsuits  in a
variety of jurisdictions  alleging personal injuries as a result of occupational
exposure to asbestos, silica and/or mixed dust in connection with formerly owned
operations.  Various of these actions  remain  pending,  including the following
matters.

        In March 1997 the Company was served with a complaint in Ernest  Hughes,
et al. v. Owens-Corning Fiberglass,  Corporation, et al., No. 97-C-051, filed in
the  Fifth  Judicial  District  Court  of  Cass  County,  Texas,  on  behalf  of
approximately 4,000 plaintiffs and their spouses alleging injury due to exposure
to asbestos and seeking compensatory and punitive damages. The Company has filed
an answer  denying the material  allegations.  The case has been inactive  since
1998.

        In February 1999 and October 2000 the Company was served with complaints
in Cosey, et al. v. Bullard, et al., No. 95-0069,  and Pierce, et al. v. GAF, et
al., No. 2006-150, filed in the Circuit Court of Jefferson County,  Mississippi,
on behalf of approximately  1,600  plaintiffs and 275 plaintiffs,  respectively,
alleging   injury  due  to  exposure  to  asbestos  and/or  silica  and  seeking
compensatory and punitive  damages.  The Cosey case was removed to federal court
and  has  been   transferred  to  the  eastern   district  of  Pennsylvania  for
consolidated  proceedings.  The Company has filed  answers in both cases denying
the material allegations of the complaint.

        In  addition,  the  Company is a  defendant  in various  asbestos  cases
pending in Ohio,  Indiana  and West  Virginia on behalf of  approximately  4,600
personal injury claimants.

        In August and  September  2000 the Company and one of its  subsidiaries,
NLO, Inc.  ("NLO"),  were named as defendants in four lawsuits  filed in federal
court in the  western  district of Kentucky  against  the  Department  of Energy
("DOE") and a number of other defendants alleging that nuclear material supplied
by, among others, the Feed Material Production Center ("FMPC") in Fernald, Ohio,
owned by the DOE and formerly  managed under contract by NLO,  harmed  employees
and others at the DOE's Paducah, Kentucky Gaseous Diffusion Plant ("PGDP"). With
respect to each of the cases listed below,  the Company believes that the DOE is
obligated to provide defense and  indemnification  pursuant to its contract with
NLO,  and  pursuant  to its  statutory  obligation  to do so,  as the DOE has in
several  previous  cases relating to management of the FMPC, and the Company has
so advised the DOE.  Answers in the four cases have not been filed.  The Company
and NLO have moved to dismiss  Rainer I. The  Company and NLO intend to deny all
allegations of wrongdoing and liability and to defend the cases vigorously.

        * In Rainer, et al. v. E.I. du Pont de Nemours, et al., ("Rainer I") No.
          5:00CV-223-J,  plaintiffs  purport  to  represent  a class  of  former
          employees at the PGDP and members of their households and seek

                                            -17-

<PAGE>



          actual and punitive damages of $5 billion each for alleged negligence,
          infliction  of  emotional  distress,  ultra-hazardous  activity/strict
          liability and strict products liability.

        * In  Rainer,  et al.  v. Bill  Richardson,  et al.,  No.  5:00CV-220-J,
          plaintiffs  purport to represent  the same classes  regarding the same
          matters alleged in Rainer I, and allege a violation of  constitutional
          rights and seek the same recovery sought in Rainer I.

        * In  Dew,  et  al.  v.  Bill  Richardson,  et  al.,  No.  5:00CV00221R,
          plaintiffs  purport to  represent  classes of all PGDP  employees  who
          sustained  pituitary  tumors  or cancer  as a result  of  exposure  to
          radiation and seek actual and punitive  damages of $2 billion each for
          alleged violation of constitutional rights, assault and battery, fraud
          and misrepresentation,  infliction of emotional distress,  negligence,
          ultra-hazardous  activity/strict liability, strict products liability,
          conspiracy, concert of action, joint venture and enterprise liability,
          and equitable estoppel.

        * In  Shaffer,  et  al.  v.  Atomic  Energy  Commission,   et  al.,  No.
          5:00CV00307M,   plaintiffs   purport  to  represent  classes  of  PGDP
          employees  and  household   members,   subcontractors   at  PGDP,  and
          landowners  near the PGDP and seek actual and  punitive  damages of $1
          billion  each and medical  monitoring  for the same counts  alleged in
          Dew.

        The   Company  is  also   involved  in  various   other   environmental,
contractual,  product liability and other claims and disputes  incidental to its
present and former businesses, and the disposition of past properties and former
businesses.

ITEM 4.        SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        No matters  were  submitted  to a vote of  security  holders  during the
quarter ended December 31, 2000.

                                            -18-

<PAGE>



                                     PART II

ITEM 5.        MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
               MATTERS

        NL's  common  stock is listed and traded on the New York Stock  Exchange
and the Pacific  Exchange under the symbol "NL." As of March 9, 2001, there were
approximately  6,000 holders of record of NL common stock.  The following  table
sets  forth the high and low sales  prices  for NL common  stock on the New York
Stock Exchange  ("NYSE")  Composite Tape. On March 9, 2001, the closing price of
NL common stock according to the NYSE Composite Tape was $19.63.

<TABLE>
<CAPTION>

                                                             Dividends
                                  High             Low       Declared
                                ---------      ----------   ----------

<S>                             <C>            <C>           <C>
Year ended December 31, 1999:
  First quarter                 $14-15/16      $    8-3/4    $   .035
  Second quarter                  13-9/16          9-1/16        .035
  Third quarter                   13-5/16          11-1/8        .035
  Fourth quarter                  15-7/16           9-3/4        .035

Year ended December 31, 2000:
  First quarter                 $  16-3/8      $       13    $    .15
  Second quarter                       19          13-1/8         .15
  Third quarter                    24-3/8          15-1/2         .15
  Fourth quarter                       25        18-15/16         .20

</TABLE>

        The  Company's  indenture  to its Senior Notes limits the ability of the
Company to pay  dividends,  acquire  treasury  shares and make other  restricted
payments,  as defined.  The aggregate  amount of dividends and other  restricted
payments since October 1993 may not exceed 50% of the aggregate consolidated net
income,  as defined in the indenture,  since October 1993. At December 31, 2000,
$20  million  was  available  for  restricted   payments  including   dividends,
acquisition of treasury shares and affiliate stock purchases.

        In October 2000 the Company increased the regular quarterly  dividend to
$.20 per  share and  subsequently  paid a $.20 per share  cash  dividend  in the
fourth  quarter of 2000. On February 7, 2001,  the Company's  Board of Directors
declared  a regular  quarterly  dividend  of $.20 per share to  shareholders  of
record as of March 14, 2001 to be paid on March 28, 2001.  The  declaration  and
payment of future dividends is  discretionary,  and the amount,  if any, will be
dependent  upon  the  Company's  results  of  operations,  financial  condition,
contractual  restrictions  and other  factors  deemed  relevant by the Company's
Board of Directors.

        Pursuant  to  its  share  repurchase  program,   the  Company  purchased
1,682,000  shares of its common stock at an aggregate  cost of $30.9  million in
2000 and 552,000  shares of its common  stock in the open market at an aggregate
cost of $7.2  million  in 1999.  Approximately  766,000  additional  shares  are
available  for  purchase  under the  Company's  share  repurchase  program.  The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.


                                            -19-

<PAGE>



ITEM 6.        SELECTED FINANCIAL DATA

        The selected consolidated  financial data set forth below should be read
in conjunction with the Consolidated Financial Statements and Notes thereto, and
Item 7. "Management's Discussion and Analysis of Financial Condition and Results
of  Operations."  Certain  amounts  have been  reclassified  to conform with the
current year's consolidated financial statement presentation.

<TABLE>
<CAPTION>

                                                                   Years ended December 31,
                                                 -------------------------------------------------------------
                                                    2000         1999        1998          1997         1996
                                                 ---------    ---------    ---------    ---------    ---------
                                                              (In millions, except per share amounts)
<S>                                              <C>          <C>          <C>          <C>          <C>
INCOME STATEMENT DATA:
Net sales ....................................   $   922.3    $   908.4    $   894.7    $   837.2    $   851.2
Operating income .............................       212.5        145.7        171.2         82.5         71.6
Income (loss) from continuing operations .....       155.3        159.8         89.9        (29.9)       (11.7)
Net income (loss) ............................       154.6        159.8        366.7         (9.5)        10.8

Earnings per share:
  Basic:
    Income (loss) from continuing operations .   $    3.08    $    3.09    $    1.75    $    (.58)   $    (.23)
    Net income (loss) ........................        3.07         3.09         7.13         (.19)         .21
  Diluted:
    Income (loss) from continuing operations .   $    3.06    $    3.08    $    1.73    $    (.58)   $    (.23)
    Net income (loss) ........................        3.05         3.08         7.05         (.19)         .21

Cash dividends ...............................   $     .65    $     .14    $     .09    $      --    $     .30

BALANCE SHEET DATA at year end:
Cash, cash equivalents, current marketable
 securities, current and noncurrent restricted
 cash equivalents ............................   $   207.6    $   151.8    $   163.1    $   106.1    $   114.1
Current assets ...............................       553.8        506.4        546.8        454.9        500.2
Total assets .................................     1,120.8      1,056.2      1,155.6      1,098.5      1,221.4
Current liabilities ..........................       298.0        264.8        310.7        276.7        290.3
Long-term debt including current maturities ..       196.1        244.5        357.6        744.2        829.0
Shareholders' equity (deficit) ...............       344.5        271.1        152.3       (222.3)      (203.5)

CASH FLOW DATA:
Operating activities .........................   $   139.7    $   108.3    $    45.1    $    89.2    $    16.5
Investing activities .........................       (56.2)       (38.4)       417.3        (11.1)       (68.4)
Financing activities .........................       (95.7)       (88.0)      (396.2)       (82.6)        26.6
Operating, investing and financing activities        (12.2)       (18.1)        66.2         (4.5)       (25.3)

OTHER NON-GAAP FINANCIAL DATA:
EBITDA (1) ...................................   $   286.3    $   162.5    $   187.4    $    67.6    $    90.7

OTHER DATA:
Net debt at year end (2) .....................   $    58.5    $   149.8    $   226.7    $   652.0    $   740.7
Interest expense, net (3) ....................        22.9         30.3         43.1         63.0         64.6
Cash interest expense, net (4) ...............        23.8         28.6         24.8         39.9         44.2
Capital expenditures .........................        31.1         35.6         22.4         28.2         64.2

</TABLE>

                                            -20-

<PAGE>
<TABLE>
<CAPTION>
                                                                   Years ended December 31,
                                                 -------------------------------------------------------------
                                                    2000         1999        1998          1997         1996
                                                 ---------    ---------    ---------    ---------    ---------
                                                              (In millions, except per share amounts)

<S>                                                    <C>          <C>          <C>          <C>          <C>
TiO2 OPERATING STATISTICS:
Average selling price in billing currencies

  index (1983=100) .............................       162          153          154          133          139
Sales volumes (metric tons in thousands) .......       436          427          408          427          388
Production volume (metric tons in thousands) ...       441          411          434          408          373
Production capacity at beginning of year
  (metric tons in thousands) ...................       440          440          420          400          390
Production rate as a percentage of capacity ....      Full          93%         Full         Full          95%

</TABLE>


(1)     EBITDA,  as  presented,   represents  operating  income  less  corporate
        expense, plus (i) litigation settlement gains, net, (ii) other corporate
        income and (iii)  depreciation,  depletion and  amortization.  EBITDA is
        presented as a supplement  to the  Company's  operating  income and cash
        flow from  operations  because  the  Company  believes  that EBITDA is a
        widely  accepted  financial  indicator  of cash flows and the ability to
        service debt.  EBITDA should not be considered as an alternative  to, or
        more meaningful than,  operating  income or net income  determined under
        generally accepted accounting principles ("GAAP") as an indicator of the
        Company's operating performance, or cash flows from operating, investing
        and  financing  activities   determined  under  GAAP  as  a  measure  of
        liquidity.  EBITDA  is  not  intended  to  depict  funds  available  for
        reinvestment or other discretionary uses, as the Company has significant
        debt  requirements  and other  commitments.  Investors  should  consider
        certain factors in evaluating the Company's EBITDA,  including  interest
        expense,  income taxes,  noncash  income and expense  items,  changes in
        assets  and  liabilities,  capital  expenditures,  investments  in joint
        ventures  and other items  included in GAAP cash flows as well as future
        debt  repayment  requirements  and other  commitments,  including  those
        described  in  Notes  9,  12  and  17  to  the  Consolidated   Financial
        Statements.  The  Company  believes  that  the  trend of its  EBITDA  is
        consistent  with the trend of its GAAP operating  income,  except in (i)
        1997 when EBITDA  decreased and  operating  income  increased  from 1996
        amounts due to a $30 million  noncash  charge  related to the  Company's
        adoption of SOP 96-1,  "Environmental  Remediation Liabilities" and (ii)
        2000 when $70 million of net litigation settlement gains are included in
        EBITDA and excluded from operating income,  which treatment results in a
        higher  percentage  increase  over 1999 for  EBITDA as  compared  to the
        percentage  increase over 1999 for operating  income.  See "Management's
        Discussion  and Analysis" for a discussion of operating  income and cash
        flows during the last three years and the Company's outlook. EBITDA as a
        measure  of a  company's  performance  may not be  comparable  to  other
        companies,  unless  substantially  all companies and analysts  determine
        EBITDA as computed and presented herein.

(2)     Net debt  represents  notes payable and long-term  debt less cash,  cash
        equivalents,  current  marketable  securities and current and noncurrent
        restricted cash equivalents.

(3)     Interest expense, net represents interest expense less general corporate
        interest and dividend income.

(4)     Cash interest expense,  net represents interest expense,  net as defined
        in (3) above less noncash interest expense plus noncash interest income.
        Noncash  interest  expense  includes  deferred  interest  expense on the
        Senior Secured  Discount Notes in 1996 through 1998 and  amortization of
        deferred  financing  costs.  Noncash  interest income includes  interest
        income on restricted cash in 2000.


                                            -21-

<PAGE>



ITEM 7.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
               RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

  General

        The Company's continuing  operations are conducted by Kronos in the TiO2
business  segment.  As discussed  below,  average TiO2 selling prices in billing
currencies  increased  in 2000 and slightly  decreased  in 1999  compared to the
prior  year.  Kronos'  operating  income  increased  $66.8  million  in 2000 and
declined  $25.5 million in 1999.  Gross profit  margins were 34% in 2000, 27% in
1999 and 31% in 1998.

        Many factors  influence  TiO2  pricing  levels,  including  (i) industry
capacity,  (ii) worldwide  demand growth,  (iii) customer  inventory  levels and
purchasing  decisions and (iv)  relative  changes in foreign  currency  exchange
rates. Kronos believes that the TiO2 industry has long-term growth potential, as
discussed in "Item 1. Business - Industry" and "- Competition."

<TABLE>
<CAPTION>

                                                 Years ended December 31,     % Change
                                                -------------------------  -----------------

                                                 2000      1999     1998   2000-99   1999-98
                                                -----      ----     ----   -------   -------
                                                                 (In millions)
<S>                                               <C>      <C>      <C>      <C>        <C>
Net sales and operating income
  Net sales ...................................   $922.3   $908.4   $894.7    +2%        +2%
  Operating income ............................   $212.5   $145.7   $171.2   +46%       -15%
  Operating income margin percentage ..........      23%      16%      19%

TiO2 operating statistics
  Percent change in average selling prices
    (in billing currencies) ...................                               +6%        -1%
  Sales volume (metric tons in thousands) .....      436      427      408    +2%        +5%
  Production volume (metric tons in thousands).      441      411      434    +7%        -5%
  Production rate as a percent of capacity ....     Full      93%     Full

</TABLE>

        Kronos'  operating  income for 2000 was  higher  than 1999 due to higher
average TiO2 selling  prices in billing  currencies  and higher  production  and
sales volumes.  Kronos' operating income in 1999 was lower than 1998,  primarily
due to lower average TiO2 selling prices and lower production volume,  partially
offset by higher sales volume.

        Average TiO2 selling prices in billing  currencies  (which  excludes the
effects of foreign currency translation) during 2000 were 6% higher than in 1999
with higher  prices in all major  regions  with the greatest  improvement  being
realized in the European and export markets.  Pigment prices  increased from the
preceding quarter during each quarter of 2000,  continuing the upward trend that
began in the fourth quarter of 1999. The rate of price  increases  slowed in the
fourth  quarter to 1% over the third  quarter of 2000,  and prices at the end of
the fourth quarter of 2000 were slightly lower than the average for the quarter.
Since  prices  began to  increase  in the fourth  quarter of 1999,  prices  have
increased  an  aggregate  of 16% in  Europe  and 3% in  North  America  over the
five-quarter period. Average TiO2 selling prices in 1999 were 1% lower than 1998
with higher prices in North America  offset by lower prices in Europe and export
markets.


                                            -22-

<PAGE>



        Record sales volume of 436,000 metric tons of TiO2 in 2000 was 2% higher
than 1999,  primarily due to higher sales in Europe and North  America.  Kronos'
sales volume in the fourth  quarter of 2000 decreased 16% from the record fourth
quarter of 1999.  Approximately  one-half of Kronos'  2000 TiO2 sales volume was
attributable to markets in Europe with  approximately  37% attributable to North
America,  and the balance to other  regions.  Sales volume in 1999 was 5% higher
than 1998 with growth in all major regions.  Industry-wide demand was strong for
the first half of 1998,  before  moderating in the second half of 1998 and early
1999. Demand in the second half of 1999 and the first three quarters of 2000 was
stronger  than  comparable  year-earlier  periods  as a result of,  among  other
things,  customers  buying in advance of  anticipated  price  increases.  Demand
softened in the fourth quarter of 2000.

        The Company's  record  production  volume of 441,000 metric tons in 2000
was 7% higher than the 411,000  metric tons  produced in 1999.  Operating  rates
were near full  capacity  in 2000  compared to 93% in 1999.  Kronos'  production
volume in 1999 was 5% lower than the 434,000  metric tons  produced in 1998 with
operating rates near full capacity in 1998.  Production  volume was curtailed in
the beginning of the first quarter of 1999 in order to manage inventory  levels.
Finished goods inventory  levels  increased in the fourth quarter of 2000 and at
the end of 2000 represent about two months of sales.

        The Company's efforts to debottleneck  Kronos' production  facilities to
meet long-term demand continue to prove successful.  The Company expects Kronos'
production  capacity of 450,000 metric tons at the end of 2000 will be increased
to  approximately  465,000  metric tons during  2002,  primarily at its chloride
facilities, with moderate capital expenditures.

        Industry  demand in 2001 is  expected to heavily  depend upon  worldwide
economic  conditions.  The Company  believes 2001 sales and  production  volumes
should approximate 2000 levels. The price increase that was originally scheduled
for  October  2000 in North  America  has not  been  implemented  due to  market
conditions. The Company recently announced a European price increase of euro 140
per metric ton scheduled to be  implemented  late in the first quarter and early
in the second quarter of 2001. The Company believes that its average 2001 prices
will approximate its average 2000 prices. The extent to which Kronos can realize
these or other price increases in 2001 will depend on market conditions.

        Kronos expects its operating income in the first quarter of 2001 will be
comparable  to the first  quarter of 2000.  Operating  income for the balance of
2001 will depend on worldwide economic  conditions.  If the economy continues to
soften,  selling  prices and sales volume could be lower than  expected and full
year 2001 operating income would likely be below 2000 levels factoring in higher
anticipated costs,  particularly energy. However, if demand strengthens later in
the year the Company should be able to realize price increases.  Kronos believes
this  would put its  operating  income  closer to or above the 2000  level.  The
Company's  expectations  as to the future  prospects of the Company and the TiO2
industry  are based  upon a number of  factors  beyond  the  Company's  control,
including continued  worldwide growth of gross domestic product,  competition in
the market place,  unexpected or  earlier-than-expected  capacity  additions and
technological  advances.  If  actual  developments  differ  from  the  Company's
expectations, the Company's performance could be unfavorably affected.

        Excluding the effects of foreign currency translation, which reduced the
Company's  expenses in both 2000 and 1999 compared to the year-earlier  periods,
Kronos'  cost of sales in 2000 was lower than 1999  primarily  due to lower unit
costs, which resulted  primarily from higher production levels.  Kronos' cost of
sales in 1999 was higher  than 1998 due to higher  sales  volume and higher unit
costs, which resulted primarily from lower production levels.  Cost of sales, as
a percentage of net sales, decreased in 2000 primarily due to the

                                            -23-

<PAGE>



impact on net sales of higher average  selling prices and lower unit costs,  and
increased  in 1999  primarily  due to the  impact on net sales of lower  average
selling prices and higher unit costs.

        Excluding the effects of foreign currency translation, which reduced the
Company's  expense in both 2000 and 1999 compared to the  year-earlier  periods,
selling,  general and  administrative  expenses  ("SG&A"),  excluding  corporate
expenses, increased in 2000 from the year-earlier period primarily due to higher
variable  compensation  expense  and higher  selling and  distribution  expenses
associated with higher 2000 sales volumes.  SG&A,  excluding corporate expenses,
increased  in 1999  from the  year-earlier  period  due to  higher  selling  and
distribution  expenses associated with higher 1999 sales volume. SG&A, excluding
corporate expenses,  as a percentage of net sales, was 12% in each of 2000, 1999
and 1998. See discussion of corporate expenses below.

        The Company has  substantial  operations and assets located  outside the
United States (principally Germany,  Norway,  Belgium and Canada). The Company's
non-U.S.  sales and  operating  costs are  subject  to  currency  exchange  rate
fluctuations which may impact reported earnings and may affect the comparability
of  period-to-period   revenues  and  expenses  expressed  in  U.S.  dollars.  A
significant  amount of the  Company's  sales  (59% in 2000) are  denominated  in
currencies  other  than the U.S.  dollar,  principally  the  euro,  other  major
European currencies and the Canadian dollar. Certain purchases of raw materials,
primarily titanium-containing feedstocks, are denominated in U.S. dollars, while
labor and other production costs are primarily  denominated in local currencies.
Fluctuations  in the  value of the U.S.  dollar  relative  to other  currencies,
primarily a stronger U.S.  dollar  compared to the euro,  decreased sales by $68
million and $15  million  during  2000 and 1999,  respectively,  compared to the
year-earlier  period.  When translated to U.S.  dollars using currency  exchange
rates prevailing during the respective  periods,  Kronos' average selling prices
for 2000 decreased 1% from 1999.  Kronos' average selling prices in U.S. dollars
for 1999  decreased  3% from 1998.  The effect of the  stronger  U.S.  dollar on
Kronos'  operating  costs  that  are not  denominated  in U.S.  dollars  reduced
operating  costs in 2000 and 1999  compared to the  respective  prior  year.  In
addition,  sales to export markets are typically denominated in U.S. dollars and
a stronger U.S. dollar improves margins on these sales at the Company's non-U.S.
subsidiaries.  The  favorable  margin  on  export  sales  tends  to  offset  the
unfavorable  effect of translating  local currency  profits to U.S. dollars when
the dollar is stronger.  As a result,  the net impact of currency  exchange rate
fluctuations  on  operating  income  in 2000 and 1999,  excluding  the 1999 $5.3
million foreign currency  transaction gain, was not significant when compared to
the year-earlier periods.


                                            -24-

<PAGE>



  General corporate

        The following  table sets forth certain  information  regarding  general
corporate income (expense).

<TABLE>
<CAPTION>

                                  Years ended December 31,            Change
                               -----------------------------    ------------------
                                 2000      1999       1998      2000-99    1999-98
                               -------    -------    -------    -------    -------
                                                  (In millions)

<S>                            <C>        <C>        <C>        <C>        <C>
Securities earnings:
    Interest and dividends     $   8.3    $   6.6    $  14.9    $   1.7    $  (8.3)
    Securities gains, net          2.5         --         --        2.5         --
Corporate income .........        73.7        4.6        4.4       69.1         .2
Corporate expense ........       (29.6)     (21.5)     (22.7)      (8.1)       1.2
Interest expense .........       (31.2)     (36.9)     (58.1)       5.7       21.2
                               -------    -------    -------    -------    -------

                               $  23.7    $ (47.2)   $ (61.5)   $  70.9    $  14.3
                               =======    =======    =======    =======    =======

</TABLE>

        Corporate  interest  and dividend  income,  including  noncash  interest
income on restricted  cash balances,  fluctuate in part based upon the amount of
funds  invested and yields  thereon.  Average funds invested in 2000 were higher
than 1999 primarily due to the increase in restricted  cash related to the $43.0
million litigation  settlement in July 2000. Average funds invested in 1999 were
lower than 1998  primarily due to the repayment of certain of the Company's debt
in the last half of 1998.

        Securities  gains,  net in 2000 includes a  second-quarter  $5.6 million
securities gain related to common stock received from the  demutualization of an
insurance  company  from  which the  Company  had  purchased  certain  insurance
policies and a fourth-quarter $3.1 million noncash securities loss related to an
other-than-temporary  decline in value of certain available-for-sale  securities
held by the Company. See Note 4 to the Consolidated Financial Statements.

        Corporate  income  in  2000  includes  a $69.5  million  net  gain  from
settlements with former insurance carriers.  In January 2001 the Company reached
a $10  million  settlement  with the  remaining  group of its  principal  former
insurance  carriers and expects to report the gain in the first quarter of 2001.
No further material settlements relating to litigation concerning  environmental
remediation  coverage are expected.  See Note 14 to the  Consolidated  Financial
Statements.  The Company  recognized $4.0 million in both 2000 and 1999 and $3.7
million in 1998 of income related to the straight-line,  five-year  amortization
of $20  million  of  proceeds  received  in  conjunction  with  the  sale of its
specialty  chemicals  business  attributable  to a  five-year  agreement  by the
Company not to compete in the rheological products business.

        Corporate expense in 2000 was higher than 1999, primarily as a result of
higher legal and environmental  expenses.  The Company expects corporate expense
in 2001 will be  slightly  lower  than  2000  primarily  due to lower  legal and
environmental expenses.

        Interest  expense in 2000  declined  compared to 1999  primarily  due to
reduced levels of outstanding  euro-denominated  debt.  Interest expense in 1999
declined compared to 1998 due to the prepayment of the Company's former Deutsche
mark bank credit facility in 1999 and prepayments of outstanding indebtedness in
1998,  principally the Senior Secured  Discount Notes, a joint venture term loan
and a portion of the  Company's  former DM bank  credit  facility.  Assuming  no
significant change in interest rates, interest expense in 2001 is expected to be
lower compared to 2000 due to (i) lower levels of outstanding indebtedness and

                                            -25-

<PAGE>



(ii) lower average  interest rates as a result of the December 2000  refinancing
of $50  million  of  the  Company's  high  fixed-rate  public  debt  with  lower
variable-rate bank debt.

  Provision for income taxes

        The  principal  reasons  for the  difference  between  the U.S.  federal
statutory  income  tax rates and the  Company's  effective  income tax rates are
explained in Note 12 to the  Consolidated  Financial  Statements.  The Company's
operations  are conducted on a worldwide  basis and the geographic mix of income
can  significantly  impact the Company's  effective income tax rate. In 2000 the
Company's  effective  income tax rate varied  from the  normally  expected  rate
primarily due to the geographic mix of income,  changes in the German income tax
"base"  rate  and  the  recognition  of  certain  deductible  tax  assets  which
previously did not meet the "more-likely-than-not" recognition criteria. In 1999
and 1998 the Company's effective tax rate varied from the normally expected rate
due predominantly to the recognition of certain  deductible tax attributes which
previously did not meet the "more-likely-than-not" recognition criteria. Also in
2000, 1999 and 1998, the Company recognized certain one-time benefits related to
German tax settlements.

        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.

  Other

        Minority  interest  primarily  relates to the  Company's  majority-owned
environmental management subsidiary,  NL Environmental Management Services, Inc.
("EMS").  EMS was established in 1998, at which time EMS  contractually  assumed
certain of the Company's environmental liabilities.  EMS' earnings are based, in
part,  upon its ability to favorably  resolve these  liabilities on an aggregate
basis.   The  minority   interest   shareholders  of  EMS  actively  manage  the
environmental  liabilities  and  share in 39% of EMS'  cumulative  earnings,  as
defined  in  the  formation   documents.   The  Company   includes   liabilities
contractually assumed by EMS in its consolidated balance sheet.

        Discontinued operations in 1998 represent the Company's former specialty
chemicals  operation which was sold in January 1998. The extraordinary  items in
2000 and 1998 resulted from early extinguishment of debt.


                                            -26-

<PAGE>



LIQUIDITY AND CAPITAL RESOURCES

        The Company's  consolidated cash flows,  including certain  discontinued
operations in 1998, for each of the past three years are presented below.

<TABLE>
<CAPTION>

                                                       Years ended December 31,
                                                     ----------------------------
                                                        2000     1999       1998
                                                     --------  --------  --------
                                                            (In millions)
<S>                                                  <C>       <C>       <C>

Net cash provided (used) by:
  Operating activities:
    Before changes in assets and liabilities .....   $  153.1  $  115.7  $  137.0
    Changes in assets and liabilities ............      (13.4)     (7.4)    (91.9)
                                                     --------  --------  --------
                                                        139.7     108.3      45.1
  Investing activities ...........................      (56.2)    (38.4)    417.3
  Financing activities ...........................      (95.7)    (88.0)   (396.2)
                                                     --------  --------  --------
Net cash provided (used) by operating, investing
 and financing activities ........................   $  (12.2) $  (18.1) $   66.2
                                                     ========  ========  ========

</TABLE>


  Operating cash flows

        Certain  items  included  in  the  determination  of net  income  do not
represent  current  inflows or outflows of cash.  For example,  the $3.1 million
security transaction loss recognized in 2000 for an other-than-temporary decline
in value of certain marketable securities held by the Company, did not result in
a current outflow of cash.  Depreciation,  depletion and amortization is another
noncash  expense item.  Noncash  interest  expense  consists of  amortization of
original issue discount on certain  indebtedness  and  amortization  of deferred
financing costs. Certain other items included in the determination of net income
have an impact on cash flows from operating  activities,  but the impact of such
items on cash will differ  from their  impact on net income.  For  example,  the
amount of income or expense recorded for pension and OPEB assets and obligations
(which depend upon a number of factors,  including actuarial assumptions used to
value  obligations)  will  generally  differ from the  outflows of cash for such
benefits. See Note 10 to the Consolidated Financial Statements.

        The TiO2 industry is cyclical and changes in economic  conditions within
the industry  significantly  impact the earnings and operating cash flows of the
Company.  Cash flow from  operations,  before changes in assets and  liabilities
increased  $37.4  million in 2000 and  decreased  $21.3 million in 1999 from the
preceding year.

        Operating cash flows in 2000 compared to 1999 were favorably affected by
$66.8 million  higher  operating  income and $4.8 million of lower cash interest
expense,  net,  partially  offset by $5.3 million of higher payments to fund the
Company's  pension  plans,  $8.2  million of higher  corporate  expenses,  $16.1
million of higher current tax expense,  and $6.1 million of lower  distributions
from the TiO2 manufacturing joint venture.

        Operating cash flows in 1999 compared to 1998 were unfavorably  affected
by $25.5 million of lower operating  income,  $7.4 million of higher current tax
expense and $3.8 million of higher cash interest expense,  net, partially offset
by $13.7 million of distribution from the joint venture.


                                            -27-

<PAGE>



        Changes in the Company's assets and liabilities (excluding the effect of
currency  translation)  used  cash in  2000,  1999  and  1998  primarily  due to
increases  in  inventory  levels in 2000 and 1998 and  increases  in  receivable
levels in 1999 due to high year-end demand.

  Investing cash flows

        The Company's capital expenditures were $31 million, $36 million and $22
million in 2000, 1999 and 1998, respectively.  Capital expenditures in 1999 were
higher due to $6  million  of  expenditures  for a  landfill  expansion  for the
Company's Belgian facility.  Capital expenditures of the 50%-owned manufacturing
joint  venture  were $4  million  in each of  2000,  1999  and  1998 and are not
included in the Company's capital expenditures.

        The Company's capital  expenditures  during the past three years include
an  aggregate  of $24  million ($8  million in 2000) for the  Company's  ongoing
environmental  protection and compliance programs.  The Company's estimated 2001
and 2002  capital  expenditures  are $37 million  for each year,  and include $6
million and $5 million,  respectively,  in the area of environmental  protection
and compliance.

        During 2000 the Company  purchased  1,000,000 shares of Tremont's common
stock in market transactions for an aggregate of $26 million.  See Notes 1 and 4
to the Consolidated  Financial Statements.  Tremont owns 10.2 million shares, or
20%, of NL's outstanding common stock.

        In  February  2001  NL  Environmental   Management  Services,   Inc.,  a
majority-owned  subsidiary of the Company,  loaned $13.4 million to Tremont. The
loan  bears   interest  at  prime  plus  2%,  is  due  March  31,  2003  and  is
collateralized by 10.2 million shares of NL common stock owned by Tremont.

        The Company sold the net assets of its specialty  chemicals  business in
January 1998 for $465 million and recognized an after-tax gain of  approximately
$286 million on the sale of this business segment.

  Financing cash flows

        In the second and third  quarters of 2000 the  Company  repaid euro 17.9
million  ($16.7  million  when paid) and euro 13.0 million  ($12.2  million when
paid), respectively, of its euro-denominated short-term debt with cash flow from
operations. In December 2000 the Company borrowed $43 million of short-term non-
U.S.  dollar-denominated bank debt and used the proceeds along with cash on hand
to redeem $50 million (par value) of the Company's 11.75% Senior Secured Notes.

        In the first quarter of 1999 the Company  prepaid the remaining  balance
of DM 107 million  ($60  million  when paid) of a term loan that was part of the
Company's  previous  DM bank  credit  facility,  principally  by  drawing DM 100
million  ($56  million  when  drawn) on the  revolving  portion of the DM credit
facility.  In the second and third  quarters of 1999,  the Company  repaid DM 60
million ($33 million when paid) of the DM revolving  credit  facility  with cash
provided from operations.  The revolver's  outstanding balance of DM 120 million
was further reduced in October 1999 by DM 20 million ($11 million when paid). In
December  1999  the  Company  borrowed  $26  million  of  short-term   unsecured
euro-denominated  bank  debt and used the  proceeds  along  with cash on hand to
prepay the  remaining  balance of DM 100 million  ($52 million when paid) of the
revolving  portion of the DM credit  facility.  The DM credit  facility was then
terminated,  which released  collateral and eliminated certain  restrictive loan
covenants.


                                            -28-

<PAGE>



        Borrowings  in 1998  included DM 35 million ($19 million when  borrowed)
under the Company's short-term non-U.S. credit facilities and DM 20 million ($11
million  when  borrowed)  under the  Company's  DM  revolving  credit  facility.
Repayments  in 1998  included DM 40 million  ($23  million  when paid) of the DM
revolving  credit  facility  and DM 81 million ($44 million when paid) of its DM
term loan. The Company's  borrowings and principal  repayments excludes activity
related to the Company's discontinued operations.

        With a majority of the $380 million after-tax net proceeds from the sale
of its specialty chemicals business, the Company (i) prepaid $118 million of the
Rheox term loan  (included as  Discontinued  operations,  net, on the  Company's
Consolidated  Statements  of Cash  Flows),  (ii)  prepaid $42 million of Kronos'
tranche  of the  LPC  joint  venture  term  loan,  (iii)  made  $65  million  of
open-market  purchases of the Company's  13% Senior  Secured  Discount  Notes at
prices ranging from $101.25 to $105.19 per $100 of their principal amounts, (iv)
purchased  $6  million  of the Senior  Secured  Notes and  $61,000 of the Senior
Secured Discount Notes at a price of $100 and $96.03 per $100 of their principal
amounts,  respectively,  pursuant to a June 1998 pro rata  tender  offer to Note
holders as required  under the terms of the  indenture,  and (v)  redeemed  $121
million of 13% Senior Secured Discount Notes  outstanding on October 15, 1998 at
the redemption  price of 106% of the principal  amount,  in accordance  with the
terms of the Senior Secured Discount Notes indenture.

        Dividends paid during 2000,  1999 and 1998 totaled $32.7  million,  $7.2
million and $4.6 million,  respectively.  At December 31, 2000,  the Company had
$20 million available for payment of dividends,  acquisition of treasury shares,
acquisition of affiliate stock and other  restricted  payments as defined in the
Senior  Secured Notes  indenture.  On February 7, 2001,  the Company's  Board of
Directors   declared  a  regular  quarterly   dividend  of  $.20  per  share  to
shareholders of record as of March 14, 2001 to be paid on March 28, 2001.

        Pursuant  to  its  share  repurchase  program,   the  Company  purchased
1,682,000  shares of its common stock at an aggregate  cost of $30.9  million in
2000 and 552,000  shares of its common  stock in the open market at an aggregate
cost of $7.2  million  in 1999.  Approximately  766,000  additional  shares  are
available  for  purchase  under the  Company's  share  repurchase  program.  The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.

        In 1998,  as a result  of the  settlement  of a  shareholder  derivative
lawsuit on behalf of the Company, Valhi transferred $14.4 million in cash to the
Company,  and the Company paid plaintiffs'  attorneys' fees and expenses of $3.2
million.

  Cash, cash equivalents, restricted cash and borrowing availability

        At  December  31,  2000,  the  Company  had cash  and  cash  equivalents
aggregating $120 million (38% held by non-U.S.  subsidiaries) and $87 million of
restricted cash equivalents held by U.S. subsidiaries,  of which $18 million was
classified  as  a  noncurrent   asset.  At  December  31,  2000,  the  Company's
subsidiaries  had $16 million  available for  borrowing  under  non-U.S.  credit
facilities.  At December 31, 2000,  the Company had complied  with all financial
covenants governing its debt agreements.

        Based  upon  the  Company's  expectations  for  the  TiO2  industry  and
anticipated  demands on the Company's  cash resources as discussed  herein,  the
Company expects to have sufficient  liquidity to meet its near-term  obligations
including operations,  capital  expenditures,  debt service and current dividend
policy.   To  the  extent  that  actual   developments   differ  from  Company's
expectations, the Company's liquidity could be adversely affected.

                                            -29-

<PAGE>



  Income taxes

        A  reduction  in the  German  "base"  income  tax rate  from 30% to 25%,
enacted in October 2000,  became effective January 1, 2001. The reduction in the
German income tax rate resulted in $5.7 million of  additional  deferred  income
tax expense in the fourth  quarter of 2000 due to a reduction  of the  Company's
deferred income tax asset related to certain German tax attributes.  The Company
does not expect its future current income tax expense to be affected by the rate
change in Germany.

        Certain  of the  Company's  tax  returns in various  U.S.  and  non-U.S.
jurisdictions  are being  examined  and tax  authorities  have  proposed  or may
propose tax deficiencies, including interest.

        The  Company  has  received  tax  assessments  from  the  Norwegian  tax
authorities   proposing  tax   deficiencies   including   related   interest  of
approximately  NOK 38 million  ($4.3  million at December 31, 2000)  relating to
1994 and 1996. The Company is currently  litigating the primary issue related to
the 1994  assessment  and in February 2001 the Norwegian  Appeals Court ruled in
favor of the Norwegian tax authorities. The Company has appealed the case to the
Norwegian  Supreme  Court  and  believes  that the  outcome  of the 1996 case is
dependent  on the eventual  outcome of the 1994 case.  The Company has granted a
lien for the 1994 and 1996 tax assessments on its Fredrikstad, Norway TiO2 plant
in favor of the Norwegian tax authorities.

        The Company has received  preliminary tax assessments for the years 1991
to 1997 from the Belgian tax authorities  proposing tax deficiencies,  including
related interest,  of approximately euro 12.7 million ($11.8 million at December
31, 2000).  The Company has filed protests to the assessments for the years 1991
to 1996 and  expects to file a protest for 1997.  The Company is in  discussions
with the Belgian tax authorities and believes that a significant  portion of the
assessments are without merit.

        No  assurance  can be  given  that the  Company's  tax  matters  will be
favorably resolved due to the inherent  uncertainties  involved in court and tax
proceedings.  The Company  believes that it has provided  adequate  accruals for
additional taxes and related  interest expense which may ultimately  result from
all such  examinations  and  believes  that  the  ultimate  disposition  of such
examinations  should  not  have a  material  adverse  effect  on  the  Company's
consolidated financial position, results of operations or liquidity.

        At December 31, 2000,  the Company had net deferred tax  liabilities  of
$136 million. The Company operates in numerous tax jurisdictions,  in certain of
which it has  temporary  differences  that net to  deferred  tax assets  (before
valuation  allowance).  The  Company  has  provided  a  deferred  tax  valuation
allowance of $190 million at December 31, 2000,  principally related to Germany,
partially  offsetting  deferred  tax assets  which the  Company  believes do not
currently meet the "more-likely-than-not" recognition criteria.

  Environmental matters and litigation

        The Company has been named as a defendant,  PRP, or both, in a number of
legal  proceedings  associated  with  environmental  matters,   including  waste
disposal sites,  mining locations and facilities  currently or previously owned,
operated  or used  by the  Company,  certain  of  which  are on the  U.S.  EPA's
Superfund National Priorities List or similar state lists. On a quarterly basis,
the Company evaluates the potential range of its liability at sites where it has
been  named  as  a  PRP  or  defendant,   including  sites  for  which  EMS  has
contractually  assumed the  Company's  obligation.  The Company  believes it has
adequate  accruals  for  reasonably  estimable  costs of such  matters,  but the
Company's ultimate liability may be affected

                                            -30-

<PAGE>



by a number of factors, including changes in remedial alternatives and costs and
the allocation of such costs among PRPs.

        The Company is also a defendant in a number of legal proceedings seeking
damages for personal  injury and property damage arising out of the sale of lead
pigments and lead-based paints.  There is no assurance that the Company will not
incur  future  liability in respect of this  pending  litigation  in view of the
inherent  uncertainties  involved  in court  and jury  rulings  in  pending  and
possible  future cases.  However,  based on, among other things,  the results of
such litigation to date, the Company  believes that the pending lead pigment and
paint  litigation is without merit.  The Company has not accrued any amounts for
such pending litigation. Liability that may result, if any, cannot reasonably be
estimated.  The Company  currently  believes the  disposition  of all claims and
disputes,  individually and in the aggregate, should not have a material adverse
effect on the Company's consolidated  financial position,  results of operations
or liquidity.  There can be no assurance that additional  matters of these types
will not arise in the future. See Item 3. "Legal Proceedings" and Note 17 to the
Consolidated Financial Statements.

  Foreign operations

        As  discussed  above,  the Company has  substantial  operations  located
outside  the United  States for which the  functional  currency  is not the U.S.
dollar. As a result, the reported amount of the Company's assets and liabilities
related to its non-U.S. operations, and therefore the Company's consolidated net
assets,  will  fluctuate  based upon  changes in  currency  exchange  rates.  At
December 31, 2000,  the Company had  substantial  net assets  denominated in the
euro, Canadian dollar, Norwegian kroner and United Kingdom pound sterling.

  Euro currency

        Beginning January 1, 1999, certain members of the European Union ("EU"),
including Germany,  Belgium, the Netherlands and France,  adopted a new European
currency  unit (the  "euro")  as their  common  legal  currency.  Following  the
introduction  of the euro,  the  participating  countries'  national  currencies
remain  legal tender as  denominations  of the euro from January 1, 1999 through
January 1, 2002,  and the  exchange  rates  between  the euro and such  national
currency units are fixed.

        The Company conducts substantial  operations in Europe. As of January 1,
2001, the functional currency of the Company's German, Belgian, Dutch and French
operations  have been  converted  to the euro  from  their  respective  national
currencies.  The  Company  has  assessed  and  evaluated  the impact of the euro
conversion on its business and made the necessary system  conversions.  The euro
conversion may impact the Company's  operations  including,  among other things,
changes  in  product  pricing  decisions   necessitated  by  cross-border  price
transparencies.  Such  changes in product  pricing  decisions  could impact both
selling prices and purchasing costs and, consequently,  favorably or unfavorably
impact results of operations, financial condition or liquidity.

  Other

        The  Company   periodically   evaluates  its   liquidity   requirements,
alternative uses of capital, capital needs and availability of resources in view
of, among other things,  its debt service and capital  expenditure  requirements
and estimated  future  operating  cash flows.  As a result of this process,  the
Company  in the  past  has  sought,  and in the  future  may  seek,  to  reduce,
refinance, repurchase or restructure indebtedness; raise

                                            -31-

<PAGE>



additional capital; issue additional securities; repurchase shares of its common
stock;  modify  its  dividend  policy;  restructure  ownership  interests;  sell
interests in subsidiaries  or other assets;  or take a combination of such steps
or other  steps to manage its  liquidity  and capital  resources.  In the normal
course  of  its  business,   the  Company  may  review   opportunities  for  the
acquisition,  divestiture,  joint venture or other business  combinations in the
chemicals  or other  industries,  as well as the  acquisition  of  interests  in
related companies. In the event of any acquisition or joint venture transaction,
the Company may consider using  available  cash,  issuing  equity  securities or
increasing its indebtedness to the extent permitted by the agreements  governing
the  Company's  existing  debt.  See  Note  9  to  the  Consolidated   Financial
Statements.

ITEM 7A.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  General

        The Company is exposed to market risk from changes in currency  exchange
rates,  interest rates and equity security prices.  In the past, the Company has
periodically  entered  into  interest  rate swaps or other types of contracts in
order to manage a portion of its  interest  rate  market  risk.  Otherwise,  the
Company has not  generally  entered into  forward or option  contracts to manage
such market risks,  nor has the Company  entered into any such contract or other
type of derivative instrument for trading purposes.  The Company was not a party
to any forward or  derivative  option  contracts  related to  currency  exchange
rates,  interest rates or equity  security  prices at December 31, 2000 or 1999.
See Notes 2 and 18 to the Consolidated Financial Statements.

  Interest rates

        The  Company is exposed to market risk from  changes in interest  rates,
primarily related to indebtedness. At December 31, 2000, the Company's aggregate
indebtedness  was  split  between  73%  of  fixed-rate  instruments  and  27% of
variable-rate borrowings (1999 -81% fixed-rate and 19% variable-rate). The large
percentage of fixed-rate debt instruments  minimizes  earnings  volatility which
would  result from  changes in interest  rates.  The  following  table  presents
principal amounts and  weighted-average  interest rates, by contractual maturity
dates, for the Company's  aggregate  indebtedness at December 31, 2000 and 1999.
At December  31, 2000 and 1999,  all  outstanding  fixed-rate  indebtedness  was
denominated in U.S. dollars, and all outstanding variable-rate  indebtedness was
denominated  in either euros or Norwegian  kroner.  Information  shown below for
such euro- and  kronor-denominated  indebtedness is presented in its U.S. dollar
equivalent at December 31, 2000 using that date's exchange rate of 1.08 euro per
U.S.  dollar (1999 - .99 euro per U.S.  dollar) and 8.90 kroner per U.S.  dollar
(1999-n/a).  Certain  kroner-denominated capital leases totaling $2.1 million in
2000 and $.5 million in 1999 have been excluded from the table below.

                                            -32-

<PAGE>


<TABLE>
<CAPTION>

                                                                                             Fair Value at
                                                      Contractual Maturity Date               December 31,
                                              ---------------------------------------------  -------------
December 31, 1999:                             2000     2001    2002      2003       Total       1999
                                              ------   ------  ------  --------    --------  -------------
                                                                     (In millions)
<S>                                           <C>      <C>     <C>     <C>         <C>         <C>
Fixed-rate debt (U.S. dollar- denominated):
  Principal amount ........................   $  --    $  --   $  --   $  244.0    $  244.0    $ 253.2
  Weighted-average interest rate ..........      --       --      --     11.75%      11.75%
Variable-rate debt (euro- denominated):
  Principal amount ........................   $57.1    $  --   $  --   $     --    $  57.1     $  57.1
  Weighted-average interest rate ..........    3.6%       --      --         --        3.6%


<CAPTION>

December 31, 2000:                             N/A      2001    2002     2003        Total        2000
                                              ------   ------  ------  --------    --------  -------------
                                                                     (In millions)
<S>                                                    <C>     <C>     <C>         <C>         <C>
Fixed-rate debt (U.S. dollar-denominated):
  Principal amount .......................             $  --   $  --   $ 194.0     $  194.0    $   195.9
  Weighted-average interest rate .........                --      --    11.75%       11.75%
Variable-rate debt (Non-U.S ..............
  dollar-denominated):
    Principal amount .....................             $70.0   $  --   $    --     $   70.0    $    70.0
    Weighted-average interest rate .......              6.3%      --        --         6.3%

</TABLE>

  Currency exchange rates

        The Company is exposed to market risk  arising  from changes in currency
exchange rates as a result of manufacturing and selling its products  worldwide.
Earnings are primarily  affected by fluctuations in the value of the U.S. dollar
relative to the euro,  Canadian dollar,  Norwegian kroner and the United Kingdom
pound sterling.  See Item 7. "Management's  Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of risks and uncertainties
related to the conversion of certain of these currencies to the euro.

        At December  31,  2000,  the  Company  had $48  million of  indebtedness
denominated  in euros  (1999 - $58  million)  and $24  million  of  indebtedness
denominated in Norwegian kroner (1999-$.5 million) The potential increase in the
U.S.  dollar  equivalent of the principal  amount  outstanding  resulting from a
hypothetical  10% adverse  change in exchange  rates would be  approximately  $7
million (1999 - $6 million).

  Marketable equity security prices

        The  Company is  exposed to market  risk due to changes in prices of the
marketable  securities which are held. The fair value of such equity  securities
at December 31, 2000 and 1999 was $47 million and $15 million, respectively. The
potential  change in the aggregate fair value of these  investments,  assuming a
10% change in prices, would be $4.7 million and $1.5 million, respectively.

  Other

        The Company  believes there are certain  shortcomings in the sensitivity
analyses  presented above,  which analyses are required under the Securities and
Exchange  Commission's  regulations.  For example,  the  hypothetical  affect of
changes in interest rates discussed above ignores the potential  effect on other
variables which affect the Company's  results of operations and cash flows, such
as demand for the  Company's  products,  sales  volumes and  selling  prices and
operating expenses. Contrary to the above assumptions, changes in interest rates
rarely  result  in   simultaneous   parallel   shifts  along  the  yield  curve.
Accordingly,  the  amounts  presented  above  are not  necessarily  an  accurate
reflection  of the  potential  losses  the  Company  would  incur  assuming  the
hypothetical changes in market prices were actually to occur.


                                            -33-

<PAGE>




        The above discussion and estimated  sensitivity analysis amounts include
forward-looking  statements of market risk which assume hypothetical  changes in
market prices.  Actual future market  conditions  will likely differ  materially
from such assumptions.  Accordingly,  such forward-looking statements should not
be  considered  to be  projections  by the  Company of future  events,  gains or
losses.

ITEM 8.        FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The information required by this Item is contained in a separate section
of this Annual Report. See "Index of Financial Statements and Schedules" on page
F-1.


ITEM 9.        CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
               FINANCIAL DISCLOSURE

     Not applicable.

                                    PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

        The  information  required by this Item is  incorporated by reference to
the Company's  definitive  proxy  statement to be filed with the  Securities and
Exchange  Commission pursuant to Regulation 14A within 120 days after the end of
the fiscal year covered by this report (the "NL Proxy Statement").

ITEM 11.       EXECUTIVE COMPENSATION

        The  information  required by this Item is  incorporated by reference to
the NL Proxy Statement.

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The  information  required by this Item is  incorporated by reference to
the NL Proxy Statement.

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The  information  required by this Item is  incorporated by reference to
the  NL  Proxy  Statement.  See  also  Note  16 to  the  Consolidated  Financial
Statements.


                                            -34-

<PAGE>



                                     PART IV

ITEM 14.       EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K

 (a) and (d)Financial Statements and Schedules

                  The consolidated  financial statements and schedules listed by
                  the  Registrant  on  the   accompanying   Index  of  Financial
                  Statements  and Schedules  (see page F-1) are filed as part of
                  this Annual Report.


 (b)              Reports on Form 8-K

                  Reports on Form 8-K for the quarter  ended  December  31, 2000
                  and thereafter through the date of this report.

                  October 18, 2000      -   reported Items 5 and 7.

 (c)              Exhibits

                  Included  as  exhibits  are the items  listed  in the  Exhibit
                  Index.  NL will furnish a copy of any of the  exhibits  listed
                  below upon  payment of $4.00 per exhibit to cover the costs to
                  NL of furnishing the exhibits. Instruments defining the rights
                  of  holders  of  debt  issues  which  do  not  exceed  10%  of
                  consolidated  total assets will be furnished to the Securities
                  and Exchange Commission upon request.

                                            -35-

<PAGE>



Item No.                              Exhibit Index

  3.1          By-Laws,  as amended on June 28, 1990 - incorporated by reference
               to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
               the year ended December 31, 1990.

  3.2          Certificate of Amended and Restated  Certificate of Incorporation
               dated June 28, 1990 -  incorporated  by reference to Exhibit 1 to
               the  Registrant's  Proxy Statement on Schedule 14A for the annual
               meeting held on June 28, 1990.

  4.1          Registration  Rights  Agreement  dated  October 30, 1991,  by and
               between the Registrant and Tremont  Corporation - incorporated by
               reference  to Exhibit 4.3 to the  Registrant's  Annual  Report on
               Form 10-K for the year ended December 31, 1991.

  4.2          Indenture  dated  October 20,  1993  governing  the  Registrant's
               11.75% Senior  Secured Notes due 2003,  including  form of Senior
               Note  -   incorporated   by  reference  to  Exhibit  4.1  to  the
               Registrant's  Quarterly Report on Form 10-Q for the quarter ended
               September 30, 1993.

  4.3          Senior  Mirror  Notes dated  October 20, 1993 -  incorporated  by
               reference to Exhibit 4.3 to the Registrant's  Quarterly Report on
               Form 10-Q for the quarter ended September 30, 1993.

  4.4          Senior Note  Subsidiary  Pledge  Agreement dated October 20, 1993
               between  Registrant and Kronos,  Inc. - incorporated by reference
               to Exhibit 4.4 to the Registrant's  Quarterly Report on Form 10-Q
               for the quarter ended September 30, 1993.

  4.5          Third Party Pledge and Intercreditor  Agreement dated October 20,
               1993  between   Registrant,   Chase   Manhattan   Bank  (National
               Association)  and Chemical  Bank -  incorporated  by reference to
               Exhibit 4.5 to the Registrant's Quarterly Report on Form 10-Q for
               the quarter ended September 30, 1993.

  10.1         Lease Contract dated June 21, 1952, between Farbenfabrieken Bayer
               Aktiengesellschaft and Titangesellschaft mit beschrankter Haftung
               (German  language  version  and  English  translation  thereof) -
               incorporated  by reference to Exhibit  10.14 to the  Registrant's
               Annual Report on Form 10-K for the year ended December 31, 1985.

  10.2         Contract  on  Supplies  and  Services   among  Bayer  AG,  Kronos
               Titan-GmbH  and Kronos  International,  Inc.  dated June 30, 1995
               (English   translation   from   German   language   document)   -
               incorporated  by reference  to Exhibit  10.1 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1995.

 10.3**        Richards  Bay Slag  Sales  Agreement  dated May 1,  1995  between
               Richards Bay Iron and Titanium  (Proprietary) Limited and Kronos,
               Inc.  -  incorporated  by  reference  to  Exhibit  10.17  to  the
               Registrant's  Annual  Report  on Form  10-K  for the  year  ended
               December 31, 1995.

 10.4**        Amendment to Richards Bay Slag Sales  Agreement dated May 1, 1999
               between Richards Bay Iron and Titanium  (Proprietary) Limited and
               Kronos,  Inc. - incorporated  by reference to Exhibit 10.4 to the
               Registrant's  Annual  Report  on Form  10-K  for the  year  ended
               December 31, 1999.

                                            -36-

<PAGE>



  10.5         Formation  Agreement  dated as of October 18, 1993 among  Tioxide
               Americas  Inc.,  Kronos  Louisiana,  Inc. and  Louisiana  Pigment
               Company,  L.P. - incorporated by reference to Exhibit 10.2 to the
               Registrant's  Quarterly Report on Form 10-Q for the quarter ended
               September 30, 1993.

  10.6         Joint  Venture  Agreement  dated as of October 18,  1993  between
               Tioxide Americas Inc. and Kronos  Louisiana,  Inc. - incorporated
               by reference to Exhibit 10.3 to the Registrant's Quarterly Report
               on Form 10-Q for the quarter ended September 30, 1993.

  10.7         Kronos  Offtake  Agreement  dated as of October 18, 1993  between
               Kronos  Louisiana,  Inc. and Louisiana  Pigment  Company,  L.P. -
               incorporated  by reference  to Exhibit  10.4 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.8         Amendment No. 1 to Kronos Offtake  Agreement dated as of December
               20, 1995 between  Kronos  Louisiana,  Inc. and Louisiana  Pigment
               Company, L.P. - incorporated by reference to Exhibit 10.22 to the
               Registrant's  Annual  Report  on Form  10-K  for the  year  ended
               December 31, 1995.

  10.9         Tioxide Americas  Offtake  Agreement dated as of October 18, 1993
               between Tioxide Americas Inc. and Louisiana Pigment Company, L.P.
               - incorporated  by reference to Exhibit 10.5 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.10        Amendment No. 1 to Tioxide Americas Offtake Agreement dated as of
               December 20, 1995 between  Tioxide  Americas  Inc. and  Louisiana
               Pigment  Company,  L.P. -  incorporated  by  reference to Exhibit
               10.24 to the Registrant's Annual Report on Form 10-K for the year
               ended December 31, 1995.

  10.11        TCI/KCI Output  Purchase  Agreement  dated as of October 18, 1993
               between   Tioxide   Canada  Inc.  and  Kronos   Canada,   Inc.  -
               incorporated  by reference  to Exhibit  10.6 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.12        TAI/KLA Output  Purchase  Agreement  dated as of October 18, 1993
               between  Tioxide  Americas  Inc.  and  Kronos  Louisiana,  Inc. -
               incorporated  by reference  to Exhibit  10.7 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.13        Master Technology Exchange Agreement dated as of October 18, 1993
               among Kronos, Inc., Kronos Louisiana, Inc., Kronos International,
               Inc.,  Tioxide Group Limited and Tioxide Group Services Limited -
               incorporated  by reference  to Exhibit  10.8 to the  Registrant's
               Quarterly Report on Form 10-Q for the quarter ended September 30,
               1993.

  10.14        Parents'  Undertaking  dated as of October 18,  1993  between ICI
               American  Holdings  Inc.  and  Kronos,  Inc.  -  incorporated  by
               reference to Exhibit 10.9 to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended September 30, 1993.


                                            -37-

<PAGE>



  10.15        Allocation Agreement dated as of October 18, 1993 between Tioxide
               Americas  Inc., ICI American  Holdings,  Inc.,  Kronos,  Inc. and
               Kronos  Louisiana,  Inc. -  incorporated  by reference to Exhibit
               10.10 to the  Registrant's  Quarterly Report on Form 10-Q for the
               quarter ended September 30, 1993.

 10.16         Form  of  Director's  Indemnity  Agreement  between  NL  and  the
               independent   members  of  the  Board  of   Directors   of  NL  -
               incorporated  by reference to Exhibit  10.20 to the  Registrant's
               Annual Report on Form 10-K for the year ended December 31, 1987.

  10.17*       1989 Long Term Performance Incentive Plan of NL Industries,  Inc.
               -  incorporated  by  reference  to Exhibit B to the  Registrant's
               Proxy  Statement  on  Schedule  14A for  the  annual  meeting  of
               shareholders held on May 8, 1996.

 10.18*        NL Industries,  Inc. Variable Compensation Plan - incorporated by
               reference  to Exhibit A to the  Registrant's  Proxy  Statement on
               Schedule 14A for the annual meeting of  shareholders  held on May
               8, 1996.

 10.19*        NL  Industries,  Inc.  Retirement  Savings  Plan,  as amended and
               restated  effective  April 1, 1996 - incorporated by reference to
               Exhibit 10.38 to the Registrant's  Annual Report on Form 10-K for
               the year ended December 31, 1996.

 10.20*        Amendment  to  NL  Industries,   Inc.   Retirement  Savings  Plan
               effective  as of January 1, 2000 -  incorporated  by reference to
               Exhibit 10.1 to the  Registrant's  Quarterly  Report on Form 10-Q
               for the quarter ended June 30, 2000

 10.21*        NL Industries, Inc. 1992 Non-Employee Director Stock Option Plan,
               as adopted  by the Board of  Directors  on  February  13,  1992 -
               incorporated by reference to Appendix A to the Registrant's Proxy
               Statement on Schedule 14A for the annual meeting of  shareholders
               held April 30, 1992.

 10.22*        NL Industries,  Inc. 1998 Long-Term Incentive Plan - incorporated
               by reference to Appendix A to the Registrant's Proxy Statement on
               Schedule 14A for the annual meeting of  shareholders  held on May
               6, 1998.

  10.23        Intercorporate  Services Agreement by and between Valhi, Inc. and
               the Registrant  effective as of January 1, 2000 - incorporated by
               reference to Exhibit 10.2 to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended June 30, 2000.

 10.24         Intercorporate   Services   Agreement  by  and  between   Contran
               Corporation and the Registrant  effective as of January 1, 2000 -
               incorporated  by reference  to Exhibit  10.3 to the  Registrant's
               Quarterly  Report on Form  10-Q for the  quarter  ended  June 30,
               2000.

 10.25         Intercorporate  Service  Agreement by and between Titanium Metals
               Corporation and the Registrant  effective as of January 1, 2000 -
               incorporated  by reference  to Exhibit  10.4 to the  Registrant's
               Quarterly  Report on Form  10-Q for the  quarter  ended  June 30,
               2000.


                                            -38-

<PAGE>



10.26          Intercorporate   Services   Agreement  by  and  between   Tremont
               Corporation and the Registrant  effective as of January 1, 2000 -
               incorporated  by reference  to Exhibit  10.5 to the  Registrant's
               Quarterly  Report on Form  10-Q for the  quarter  ended  June 30,
               2000.

 10.27         Intercorporate   Services   Agreement   by  and   between   CompX
               International, Inc. and the Registrant effective as of January 1,
               2000  -  incorporated   by  reference  to  Exhibit  10.6  to  the
               Registrant's  Quarterly Report of Form 10-Q for the quarter ended
               June 30, 2000.

  10.28        Insurance  Sharing  Agreement,  effective January 1, 1990, by and
               between  the   Registrant,   NL  Insurance,   Ltd.  (an  indirect
               subsidiary  of  Tremont  Corporation)  and Baroid  Corporation  -
               incorporated  by reference to Exhibit  10.20 to the  Registrant's
               Annual Report on Form 10-K for the year ended December 31, 1991.

 10.29*        Executive  severance  agreement  effective as of March 9, 1995 by
               and between the  Registrant and Lawrence A. Wigdor - incorporated
               by reference to Exhibit 10.3 to the Registrant's Quarterly Report
               on Form 10-Q for the quarter ended September 30, 1996.

 10.30*        Executive  severance  agreement  effective as of July 24, 1996 by
               and between the Registrant and J. Landis Martin - incorporated by
               reference to Exhibit 10.1 to the Registrant's Quarterly Report on
               Form 10-Q for the quarter ended March 31, 1997.

 10.31*        Supplemental   Executive   Retirement  Plan  for  Executives  and
               Officers of NL Industries, Inc. effective as of January 1, 1991 -
               incorporated  by reference to Exhibit  10.26 to the  Registrant's
               Annual Report on Form 10-K for the year ended December 31, 1992.

 10.32*        Agreement to Defer Bonus Payment dated  February 20, 1998 between
               the Registrant and Lawrence A. Wigdor and related trust agreement
               - incorporated by reference to Exhibit 10.48 to the  Registrant's
               Annual Report of Form 10-K for the year ended December 31, 1997.

 10.33*        Agreement to Defer Bonus Payment dated  February 20, 1998 between
               the Registrant and J. Landis Martin and related trust agreement -
               incorporated  by reference to Exhibit  10.49 to the  Registrant's
               Annual Report of Form 10-K for the year ended December 31, 1997.

  10.34        Revolving   Loan  Note  dated   February  9,  2001  with  Tremont
               Corporation as Maker and NL  Environmental  Management  Services,
               Inc. as Payee.

 10.35         Security  Agreement dated February 9, 2001 by and between Tremont
               Corporation and NL Environmental Management Services, Inc.

  10.36        Tax  Agreement  between  Valhi,  Inc.  and  NL  Industries,  Inc.
               effective as of January 1, 2001.

  10.37        Subscription   Agreement  by  and  among  Valhi,   Inc.,  Tremont
               Holdings,  LLC and Tremont Group,  Inc.  effective as of December
               31, 2000.

 21.1          Subsidiaries of the Registrant.

 23.1          Consent of Independent Accountants.

                                            -39-

<PAGE>



  99.1         Annual  Report of NL  Industries,  Inc.  Retirement  Savings Plan
               (Form  11-K) to be filed  under Form  10-K/A to the  Registrant's
               Annual  Report on Form 10-K  within 180 days after  December  31,
               2000.

All  documents  in the  Exhibit  Index  above  that  have been  incorporated  by
reference were previously filed by the Registrant under SEC File Number 1-640.

*       Management contract, compensatory plan or arrangement.

**      Portions  of  the  exhibit  have  been  omitted  pursuant  to a  request
        for confidential treatment.

                                            -40-

<PAGE>



                                          SIGNATURES


        Pursuant to the  requirements  of Section 13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                       NL Industries, Inc.
                                                       (Registrant)


                                       By /s/ J. Landis Martin
                                          -------------------------------------
                                          J. Landis Martin, March 9, 2001
                                          President and Chief Executive Officer

        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the date indicated:


/s/ J. Landis Martin                       /s/ Harold C. Simmons
- -------------------------------            ---------------------------------
J. Landis Martin, March 9, 2001            Harold C. Simmons, March 9, 2001
Director, President and                    Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)

/s/ Glenn R. Simmons                       /s/ Steven L. Watson
- -------------------------------            ---------------------------------
Glenn R. Simmons, March 9, 2001            Steven L. Watson, March 9, 2001
Director                                   Director


/s/ Kenneth R. Peak                        /s/ Dr. Lawrence A. Wigdor
- ------------------------------             ---------------------------------
Kenneth R. Peak, March 9, 2001             Dr. Lawrence A. Wigdor, March 9, 2001
Director                                   Director, President and Chief
                                           Executive Officer of Kronos


/s/ General Thomas P. Stafford             /s/ Susan E. Alderton
- -----------------------------------------  ---------------------------------
General Thomas P. Stafford, March 9, 2001  Susan E. Alderton, March 9, 2001
Director                                   Vice President and Chief Financial
                                            Officer
                                           (Principal Financial Officer)

                                           /s/ Robert D. Hardy
                                           ---------------------------------
                                           Robert D. Hardy, March 9, 2001
                                           Vice President and Controller
                                           (Principal Accounting Officer)


                                            -41-

<PAGE>



                               NL INDUSTRIES, INC.

                           ANNUAL REPORT ON FORM 10-K

                            Items 8, 14(a) and 14(d)

                   Index of Financial Statements and Schedules
                   -------------------------------------------


Financial Statements                                                Pages
- --------------------                                                -----

  Report of Independent Accountants                                 F-2

  Consolidated Balance Sheets - December 31, 2000 and 1999          F-3 / F-4

  Consolidated Statements of Income - Years ended
   December 31, 2000, 1999 and 1998                                 F-5 / F-6

  Consolidated Statements of Comprehensive Income - Years
   ended December 31, 2000, 1999 and 1998                           F-7

  Consolidated Statements of Shareholders' Equity - Years
   ended December 31, 2000, 1999 and 1998                           F-8

  Consolidated Statements of Cash Flows - Years ended
   December 31, 2000, 1999 and 1998                                 F-9 / F-11

  Notes to Consolidated Financial Statements                        F-12 / F-53


Financial Statement Schedules

  Report of Independent Accountants                                 S-1

  Schedule I - Condensed Financial Information of Registrant        S-2 / S-7

  Schedule II - Valuation and qualifying accounts                   S-8





                                            F-1

<PAGE>







                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Shareholders and Board of Directors of NL Industries, Inc.:

        In our opinion,  the  accompanying  consolidated  balance sheets and the
related consolidated statements of income,  comprehensive income,  shareholders'
equity and cash flows present fairly, in all material respects, the consolidated
financial position of NL Industries, Inc. at December 31, 2000 and 1999, and the
consolidated  results of their  operations  and their cash flows for each of the
three years in the period ended December 31, 2000 in conformity  with accounting
principles  generally accepted in the United States of America.  These financial
statements   are  the   responsibility   of  the   Company's   management;   our
responsibility  is to express an opinion on these financial  statements based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
auditing  standards  generally  accepted in the United States of America,  which
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.





                                            PricewaterhouseCoopers LLP

Houston, Texas
February 28, 2001






                                            F-2

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2000 and 1999

                      (In thousands, except per share data)

<TABLE>
<CAPTION>


                          ASSETS                            2000         1999
                                                         ----------   ----------

<S>                                                      <C>          <C>
Current assets:
    Cash and cash equivalents ........................   $  120,378   $  134,224
    Restricted cash equivalents ......................       69,242       17,565
    Accounts and notes receivable,
      less allowance of $2,222 and $2,075 ............      131,540      143,768
    Receivable from affiliates .......................          214          747
    Refundable income taxes ..........................       12,302        4,473
    Inventories ......................................      205,973      191,184
    Prepaid expenses .................................        2,458        2,492
    Deferred income taxes ............................       11,673       11,974
                                                         ----------   ----------

        Total current assets .........................      553,780      506,427
                                                         ----------   ----------



Other assets:
    Marketable securities ............................       47,186       15,055
    Investment in TiO2 manufacturing joint venture ...      150,002      157,552
    Prepaid pension cost .............................       22,789       23,271
    Restricted cash equivalents ......................       17,942         --
    Other ............................................        4,707        5,410
                                                         ----------   ----------

        Total other assets ...........................      242,626      201,288
                                                         ----------   ----------




Property and equipment:
    Land .............................................       24,978       23,678
    Buildings ........................................      129,019      133,682
    Machinery and equipment ..........................      530,920      550,842
    Mining properties ................................       67,134       71,952
    Construction in progress .........................        4,586        6,805
                                                         ----------   ----------
                                                            756,637      786,959
    Less accumulated depreciation and depletion ......      432,255      438,501
                                                         ----------   ----------

        Net property and equipment ...................      324,382      348,458
                                                         ----------   ----------

                                                         $1,120,788   $1,056,173
                                                         ==========   ==========
</TABLE>




                                            F-3

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

                            CONSOLIDATED BALANCE SHEETS (CONTINUED)

                                  December 31, 2000 and 1999

                             (In thousands, except per share data)

<TABLE>
<CAPTION>


     LIABILITIES AND SHAREHOLDERS' EQUITY                    2000           1999
                                                         -----------    -----------
<S>                                                      <C>            <C>
Current liabilities:
    Notes payable ....................................   $    69,970    $    57,076
    Current maturities of long-term debt .............           730            212
    Accounts payable and accrued liabilities .........       147,877        143,132
    Payable to affiliates ............................        10,634         11,240
    Accrued environmental costs ......................        53,307         47,228
    Income taxes .....................................        13,616          5,605
    Deferred income taxes ............................         1,822            326
                                                         -----------    -----------

        Total current liabilities ....................       297,956        264,819
                                                         -----------    -----------

Noncurrent liabilities:
    Long-term debt ...................................       195,363        244,266
    Deferred income taxes ............................       145,673        108,226
    Accrued environmental costs ......................        57,133         64,491
    Accrued pension cost .............................        21,220         32,946
    Accrued postretirement benefits cost .............        29,404         37,105
    Other ............................................        23,272         29,330
                                                         -----------    -----------

        Total noncurrent liabilities .................       472,065        516,364
                                                         -----------    -----------

Minority interest ....................................         6,279          3,903
                                                         -----------    -----------

Shareholders' equity:
    Preferred stock - 5,000 shares authorized,
      no shares issued or outstanding ................          --             --
    Common stock - $.125 par value; 150,000
      shares authorized; 66,839 shares issued ........         8,355          8,355
    Additional paid-in capital .......................       777,528        774,304
    Retained earnings ................................       141,073         19,150
    Accumulated other comprehensive income (loss):
      Currency translation ...........................      (190,757)      (160,022)
      Marketable securities ..........................         8,885          2,857
      Pension liabilities ............................          --           (1,756)
    Treasury stock, at cost (16,787 and 15,555 shares)      (400,596)      (371,801)
                                                         -----------    -----------

        Total shareholders' equity ...................       344,488        271,087
                                                         -----------    -----------

                                                         $ 1,120,788    $ 1,056,173
                                                         ===========    ===========

</TABLE>

Commitments and contingencies (Notes 12 and 17)

                 See accompanying notes to consolidated financial statements.
                                            F-4

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME

                  Years ended December 31, 2000, 1999 and 1998

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                                     2000           1999           1998
                                                 -----------    -----------    -----------
<S>                                              <C>            <C>            <C>
Revenues and other income:
    Net sales ................................   $   922,319    $   908,387    $   894,724
    Litigation settlement gains, net .........        69,465           --             --
    Other, net ...............................        23,283         23,646         25,453
                                                 -----------    -----------    -----------

                                                   1,015,067        932,033        920,177
                                                 -----------    -----------    -----------

Costs and expenses:
    Cost of sales ............................       610,449        662,315        618,447
    Selling, general and administrative ......       137,178        134,342        133,970
    Interest .................................        31,243         36,884         58,070
                                                 -----------    -----------    -----------

                                                     778,870        833,541        810,487
                                                 -----------    -----------    -----------

      Income from continuing operations before
        income taxes and minority interest ...       236,197         98,492        109,690

Income tax expense (benefit) .................        78,420        (64,601)        19,788
                                                 -----------    -----------    -----------

      Income from continuing operations before
        minority interest ....................       157,777        163,093         89,902

Minority interest ............................         2,436          3,322             40
                                                 -----------    -----------    -----------

      Income from continuing operations ......       155,341        159,771         89,862

Discontinued operations ......................          --             --          287,396

Extraordinary items - early extinguishment of
  debt, net of tax benefit of $394 and $5,698           (732)          --          (10,580)
                                                 -----------    -----------    -----------

      Net income .............................   $   154,609    $   159,771    $   366,678
                                                 ===========    ===========    ===========

</TABLE>


                                            F-5

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                  CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

                  Years ended December 31, 2000, 1999 and 1998

                      (In thousands, except per share data)

<TABLE>
<CAPTION>

                                              2000         1999          1998
                                          ----------    ----------   ----------
<S>                                       <C>           <C>          <C>
Basic earnings per share:
    Continuing operations .............   $     3.08    $     3.09   $     1.75
    Discontinued operations ...........         --            --           5.59
    Extraordinary items ...............         (.01)         --           (.21)
                                          ----------    ----------   ----------

      Net income ......................   $     3.07    $     3.09   $     7.13
                                          ==========    ==========   ==========


Diluted earnings per share:
    Continuing operations .............   $     3.06    $     3.08   $     1.73
    Discontinued operations ...........         --            --           5.52
    Extraordinary items ...............         (.01)         --           (.20)
                                          ----------    ----------   ----------

      Net income ......................   $     3.05    $     3.08   $     7.05
                                          ==========    ==========   ==========

Weighted average shares used in the
  calculation of earnings per share:
    Basic .............................       50,415        51,774       51,460
    Dilutive impact of stock options ..          334            93          540
                                          ----------    ----------   ----------

    Diluted ...........................       50,749        51,867       52,000
                                          ==========    ==========   ==========

</TABLE>



                 See accompanying notes to consolidated financial statements.

                                            F-6

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

                  Years ended December 31, 2000, 1999 and 1998

                                 (In thousands)

<TABLE>
<CAPTION>


                                                    2000         1999         1998
                                                 ---------    ---------    ---------

<S>                                              <C>          <C>          <C>
Net income ...................................   $ 154,609    $ 159,771    $ 366,678
                                                 ---------    ---------    ---------

Other comprehensive income (loss), net of tax:
  Marketable securities adjustment:
    Unrealized holding gains (losses) arising
     during the period .......................       4,064       (1,641)         201
       Add:  reclassification adjustment for
        loss included in net income .........        1,964         --           --
                                                 ---------    ---------    ---------

                                                     6,028       (1,641)         201

    Minimum pension liabilities adjustment ...       1,756        1,431       (3,187)

    Currency translation adjustment ..........     (30,735)     (26,582)         370
                                                 ---------    ---------    ---------

      Total other comprehensive loss .........     (22,951)     (26,792)      (2,616)
                                                 ---------    ---------    ---------

    Comprehensive income .....................   $ 131,658    $ 132,979    $ 364,062
                                                 =========    =========    =========
</TABLE>




                 See accompanying notes to consolidated financial statements.

                                            F-7

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

                         Years ended December 31, 2000, 1999 and 1998

                                        (In thousands)
<TABLE>
<CAPTION>
                                                                                                         Accumulated other
                                                                                                     comprehensive income (loss)
                                                                      Additional   Retained    -------------------------------------
                                                            Common      paid-in    earnings    Currency       Pension     Marketable
                                                            Stock       capital    (deficit)   translation   liabilities  securities
                                                          ---------   ----------  ----------   -----------  ------------ -----------

<S>                                                       <C>         <C>         <C>          <C>          <C>          <C>
Balance at December 31, 1997 ..........................   $   8,355   $ 759,281   $(495,421)   $(133,810)   $    --      $   4,297

Net income ............................................        --          --       366,678         --           --           --
Other comprehensive income (loss), net of tax .........        --          --          --            370       (3,187)         201
Common dividends declared -  $.09 per share ...........        --          --        (4,636)        --           --           --
Cash received upon settlement of shareholder derivative        --        11,211        --           --           --           --
  lawsuit,  net of $3,198 in legal fees and  expenses
Tax benefit of stock options exercised ................        --         3,796        --           --           --           --
Treasury stock reissued (544 shares) ..................        --          --          --           --           --           --
                                                           --------   ---------   --------     ---------    ---------    ---------

Balance at December 31, 1998 ..........................       8,355     774,288    (133,379)    (133,440)      (3,187)       4,498

Net income ............................................        --          --       159,771         --           --           --
Other comprehensive income (loss), net of tax .........        --          --          --        (26,582)       1,431       (1,641)
Common dividends declared -  $.14 per share ...........        --          --        (7,242)        --           --           --
Tax benefit of stock options exercised ................        --            16        --           --           --           --
Treasury stock:
    Acquired (552 shares) .............................        --          --          --           --           --           --
    Reissued (25 shares) ..............................        --          --          --           --           --           --
                                                           --------   ---------   --------     ---------    ---------    ---------


Balance at December 31, 1999 ..........................       8,355     774,304      19,150     (160,022)      (1,756)       2,857

Net income ............................................        --          --       154,609         --           --           --
Other comprehensive income (loss), net of tax .........        --          --          --        (30,735)       1,756        6,028
Common dividends declared - $.65 per share ............        --          --       (32,686)        --           --           --
Tax benefit of stock options exercised ................        --         3,224        --           --           --           --
Treasury stock:
    Acquired (1,682 shares) ...........................        --          --          --           --           --           --
    Reissued (450 shares) .............................        --          --          --           --           --           --
                                                           --------   ---------   --------     ---------    ---------    ---------

Balance at December 31, 2000 ..........................   $   8,355   $ 777,528   $ 141,073    $(190,757)   $    --      $   8,885

<CAPTION>
                                                           Treasury
                                                            stock        Total
                                                          ----------   ---------

<S>                                                       <C>          <C>
Balance at December 31, 1997 ..........................   $(364,971)   $(222,269)

Net income ............................................        --        366,678
Other comprehensive income (loss), net of tax .........        --         (2,616)
Common dividends declared -  $.09 per share ...........        --         (4,636)
Cash received upon settlement of shareholder derivative        --         11,211
  lawsuit,  net of $3,198 in legal fees and  expenses
Tax benefit of stock options exercised ................        --          3,796
Treasury stock reissued (544 shares) ..................         170          170
                                                          ---------    ---------

Balance at December 31, 1998 ..........................    (364,801)     152,334

Net income ............................................        --        159,771
Other comprehensive income (loss), net of tax .........        --        (26,792)
Common dividends declared -  $.14 per share ...........        --         (7,242)
Tax benefit of stock options exercised ................        --             16
Treasury stock:
    Acquired (552 shares) .............................      (7,210)      (7,210)
    Reissued (25 shares) ..............................         210          210
                                                          ---------    ---------

Balance at December 31, 1999 ..........................    (371,801)     271,087

Net income ............................................        --        154,609
Other comprehensive income (loss), net of tax .........        --        (22,951)
Common dividends declared - $.65 per share ............        --        (32,686)
Tax benefit of stock options exercised ................        --          3,224
Treasury stock:
    Acquired (1,682 shares) ...........................     (30,886)     (30,886)
    Reissued (450 shares) .............................       2,091        2,091
                                                          ---------    ---------

Balance at December 31, 2000 ..........................   $(400,596)   $ 344,488

</TABLE>
                 See accompanying notes to consolidated financial statements.

                                            F-8

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                  Years ended December 31, 2000, 1999 and 1998

                                 (In thousands)
<TABLE>
<CAPTION>



                                                            2000          1999         1998
                                                          ---------    ---------    ---------
<S>                                                       <C>          <C>          <C>
Cash flows from operating activities:
    Net income ........................................   $ 154,609    $ 159,771    $ 366,678
    Depreciation, depletion and amortization ..........      29,733       33,730       34,545
    Noncash interest income on restricted cash ........      (1,531)        --           --
    Noncash interest expense ..........................         599        1,682       18,393
    Deferred income taxes .............................      40,186      (86,772)       4,988
    Minority interest .................................       2,436        3,322           40
    Net (gains) losses from:
      Securities transactions .........................      (2,531)        --           --
      Disposition of property and equipment ...........       1,562          429          768
    Pension cost, net .................................     (11,816)      (4,702)      (5,566)
    Other postretirement benefits, net ................       1,062       (5,459)      (6,299)
    Distributions from TiO2 manufacturing joint venture       7,550       13,650         --
    Litigation settlement gains, net ..................     (69,465)        --           --
    Discontinued operations, net ......................        --           --       (287,396)
    Extraordinary items ...............................         732         --         10,580
    Other, net ........................................        --           --            317
                                                          ---------    ---------    ---------

                                                            153,126      115,651      137,048

    Discontinued operations, net ......................        --           --        (30,587)
    Change in assets and liabilities:
      Accounts and notes receivable ...................       1,417      (22,289)      (2,012)
      Inventories .....................................     (23,395)      20,663      (49,839)
      Prepaid expenses ................................        (244)        (463)         436
      Accounts payable and accrued liabilities ........       9,301        7,315       (2,741)
      Income taxes ....................................       4,843        6,729      (12,976)
      Accounts with affiliates ........................        (123)      (3,572)       2,286
      Other noncurrent assets .........................        (168)       1,090         (178)
      Other noncurrent liabilities ....................      (5,002)     (16,816)       3,650
                                                          ---------    ---------    ---------

          Net cash provided by operating activities ...     139,755      108,308       45,087
                                                          ---------    ---------    ---------
</TABLE>





                                            F-9

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2000, 1999 and 1998

                                 (In thousands)


<TABLE>
<CAPTION>

                                                              2000         1999         1998
                                                           ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>
Cash flows from investing activities:
    Capital expenditures ...............................   $ (31,089)   $ (35,559)   $ (22,392)
    Purchase of Tremont Corporation common stock .......     (26,040)        --           --
    Change in restricted cash equivalents, net .........         630       (5,176)      (2,638)
    Proceeds from disposition of property and equipment.         139        2,344          769
    Proceeds from disposition of marketable securities .         158         --          6,875
    Other, net .........................................         (33)        --           (372)
    Proceeds from sale of specialty chemicals business .        --           --        435,080
    Discontinued operations, net .......................        --           --            (26)
                                                           ---------    ---------    ---------

        Net cash provided (used) by investing activities     (56,235)     (38,391)     417,296
                                                           ---------    ---------    ---------

Cash flows from financing activities:
    Indebtedness:
      Borrowings .......................................      44,923       82,038       30,491
      Principal payments ...............................     (79,162)    (155,787)    (315,892)
    Dividends paid .....................................     (32,686)      (7,242)      (4,636)
    Treasury stock:
      Purchased ........................................     (30,886)      (7,210)        --
      Reissued .........................................       2,091          210          170
    Settlement of shareholder derivative lawsuit, net ..        --           --         11,211
    Distributions to minority interests ................          (6)          (6)          (2)
    Discontinued operations, net .......................        --           --       (117,500)
                                                           ---------    ---------    ---------

        Net cash used by financing activities ..........     (95,726)     (87,997)    (396,158)
                                                           ---------    ---------    ---------

        Net change during the year from operating
          investing and financing activities ...........   $ (12,206)   $ (18,080)   $  66,225
                                                           =========    =========    =========

</TABLE>



                                            F-10

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 2000, 1999 and 1998

                                 (In thousands)

<TABLE>
<CAPTION>


                                               2000         1999        1998
                                            ---------    ---------    ---------

<S>                                          <C>         <C>          <C>
Cash and cash equivalents:
  Net change during the year from:
    Operating, investing and financing
      activities ........................    $(12,206)   $ (18,080)   $   66,225
    Currency translation ................      (1,640)      (2,649)         (36)
    Sale of discontinued operation ......        --           --         (7,630)
                                            ---------    ---------    ---------

                                              (13,846)     (20,729)      58,559
        Balance at beginning of year ....     134,224      154,953       96,394
                                            ---------    ---------    ---------

        Balance at end of year ..........   $ 120,378    $ 134,224    $ 154,953
                                            =========    =========    =========

Supplemental disclosures - cash paid for:
  Interest, net of amounts capitalized ..   $  32,354    $  35,540    $  37,965
  Income taxes ..........................      33,398       14,963       54,230

</TABLE>


                 See accompanying notes to consolidated financial statements.
                                            F-11

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


Note 1 - Organization and basis of presentation:

        NL Industries,  Inc.  conducts its titanium  dioxide  pigments  ("TiO2")
operations  through its wholly owned  subsidiary,  Kronos,  Inc. At December 31,
2000,  Valhi,  Inc.  and  Tremont   Corporation,   each  affiliates  of  Contran
Corporation,  held approximately 60% and 20%, respectively,  of NL's outstanding
common  stock.  At  December  31,  2000,   Contran  and  its  subsidiaries  held
approximately 93% of Valhi's outstanding common stock, and a subsidiary of Valhi
and  NL  held   approximately  80%  of  Tremont's   outstanding   common  stock.
Substantially  all of  Contran's  outstanding  voting  stock  is held by  trusts
established for the benefit of certain  children and  grandchildren of Harold C.
Simmons, of which Mr. Simmons is sole trustee.  Mr. Simmons, the Chairman of the
Board of NL and the Chairman of the Board and Chief Executive Officer of Contran
and Valhi and a  director  of  Tremont,  may be deemed to  control  each of such
companies.

Note 2 - Summary of significant accounting policies:

Principles of consolidation and management's estimates

        The accompanying  consolidated financial statements include the accounts
of NL and its majority-owned  subsidiaries  (collectively,  the "Company").  All
material  intercompany  accounts  and  balances  have been  eliminated.  Certain
prior-year  amounts  have been  reclassified  to  conform  to the  current  year
presentation.  The  preparation  of  financial  statements  in  conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements,  and the  reported  amount  of  revenues  and  expenses  during  the
reporting  period.  Ultimate  actual results may in some  instances  differ from
previously estimated amounts.

Translation of foreign currencies

        Assets and  liabilities of  subsidiaries  whose  functional  currency is
other than the U.S.  dollar are  translated  at year-end  rates of exchange  and
revenues  and  expenses  are  translated  at  weighted  average  exchange  rates
prevailing during the year.  Resulting  translation  adjustments are included in
other  comprehensive  income  (loss),  net of  related  income  taxes.  Currency
transaction gains and losses are recognized in income currently.

Cash equivalents

        Cash  equivalents  include  U.S.  Treasury  securities  purchased  under
short-term  agreements to resell and bank  deposits with original  maturities of
three months or less.



                                            F-12

<PAGE>



Restricted cash equivalents

        At December 31, 2000,  restricted cash equivalents of approximately  $17
million   collateralized   undrawn  letters  of  credit,   and  restricted  cash
equivalents  of  approximately  $70 million was held by special  purpose  trusts
established  to pay  future  environmental  remediation  obligations  and  other
environmental  expenditures  of the Company.  Restricted  cash  equivalents  are
primarily  invested in U.S.  government  securities  and money market funds that
invest primarily in U.S. government securities. At December 31, 1999, restricted
cash equivalents of approximately $18 million  collateralized undrawn letters of
credit.  Restricted  cash is classified as either a current or noncurrent  asset
depending upon the  classification of the liability to which the restricted cash
relates.

Marketable securities and securities transactions

        Marketable  securities  are  carried  at market  based on quoted  market
prices.  Unrealized  gains  and  losses  on  available-for-sale  securities  are
included in other  comprehensive  income (loss),  net of related deferred income
taxes.  See Note 4.  Gains  and  losses  on  available-for-sale  securities  are
recognized  in  income  upon  realization  and are  computed  based on  specific
identification of the securities sold.

Inventories

        Inventories are stated at the lower of cost  (principally  average cost)
or market. Amounts are removed from inventories at average cost.

Investment in TiO2 manufacturing joint venture

        Investment in a 50%-owned  manufacturing  joint venture is accounted for
by the equity method.

Intangible assets

        Intangible assets, included in other noncurrent assets, are amortized by
the  straight-line  method  over the  periods  expected  to be  benefitted,  not
exceeding ten years. At December 31, 2000 and 1999, accumulated  amortization of
intangible assets was $20.4 million and $22.1 million, respectively.

Property, equipment, depreciation and depletion

        Property and  equipment  are stated at cost.  Interest  costs related to
major, long-term capital projects are capitalized as a component of construction
costs.  Expenditures for  maintenance,  repairs and minor renewals are expensed;
expenditures for major improvements are capitalized.

        Depreciation is computed  principally by the  straight-line  method over
the  estimated  useful  lives of ten to forty years for  buildings  and three to
twenty years for  machinery  and  equipment.  Depletion of mining  properties is
computed by the unit-of-production and straight-line methods.


                                            F-13

<PAGE>



Long-term debt

        Long-term  debt is stated net of  unamortized  original  issue  discount
("OID").  OID is amortized  over the period during which cash interest  payments
are not required and deferred financing costs are amortized over the term of the
applicable issue, both by the interest method.

Employee benefit plans

        Accounting and funding policies for retirement plans and  postretirement
benefits other than pensions ("OPEB") are described in Note 10.

        The Company accounts for stock-based employee compensation in accordance
with Accounting  Principles Board Opinion ("APBO") No. 25, "Accounting for Stock
Issued to  Employees,"  and its various  interpretations.  Under APBO No. 25, no
compensation  cost is generally  recognized for fixed stock options in which the
exercise price is not less than the market price on the grant date. Compensation
cost  recognized by the Company in accordance  with APBO No. 25 was $1.7 million
in 2000 and nil in each of 1999 and 1998.

Environmental remediation costs

        Environmental  remediation  costs  are  accrued  when  estimated  future
expenditures  are  probable  and  reasonably  estimable.  The  estimated  future
expenditures  generally  are not  discounted  to present  value.  Recoveries  of
remediation  costs from other parties,  if any, are reported as receivables when
their receipt is deemed probable.  At December 31, 2000 and 1999, no receivables
for recoveries have been recognized.

Net sales

        The Company  adopted the  Securities and Exchange  Commission's  ("SEC")
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition," as amended, in
2000.  Revenue  generally is realized or  realizable  and earned when all of the
requirements of SAB 101 are met,  including when title and the risks and rewards
of  ownership  passes to the  customer.  The impact of adopting  SAB 101 was not
material. Amounts charged to customers for shipping and handling are included in
net sales.

Repair and maintenance costs

        The Company performs  planned major  maintenance  activities  during the
year.  Repair and maintenance  costs estimated to be incurred in connection with
planned major maintenance  activities are accrued in advance and are included in
cost of goods sold.

Shipping and handling costs

        Shipping  and  handling  costs are  included  in  selling,  general  and
administrative  expense  and were $50 million in 2000 and $54 million in each of
1999 and 1998.


                                            F-14

<PAGE>



Income taxes

        Deferred  income tax  assets  and  liabilities  are  recognized  for the
expected future tax consequences of temporary differences between the income tax
and financial  reporting  carrying amounts of assets and liabilities,  including
investments in subsidiaries  and  unconsolidated  affiliates not included in the
Company's  U.S.  tax  group  (the  "NL Tax  Group").  The  Company  periodically
evaluates its deferred tax assets and adjusts any related  valuation  allowance.
The Company's  valuation allowance is equal to the amount of deferred tax assets
which the Company  believes do not meet the  "more-likely-than-not"  recognition
criteria.

        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.

Interest rate swaps and contracts

        The Company periodically uses interest rate swaps and contracts (such as
caps and floors) to manage  interest rate risk with respect to financial  assets
or liabilities. The Company has not entered into these contracts for speculative
purposes in the past, nor does it currently  anticipate  doing so in the future.
Any cost associated with the swap or contract designated as a hedge of assets or
liabilities  is deferred  and  amortized  over the life of the  agreement  as an
adjustment to interest income or expense. If the swap or contract is terminated,
the resulting  gain or loss is deferred and amortized over the remaining life of
the underlying asset or liability.  If the hedged instrument is disposed of, the
swap or contract  agreement is marked to market with any resulting  gain or loss
included with the gain or loss from the disposition. The Company was not a party
to any such contracts at December 31, 2000 or 1999.

Earnings per share

        Basic  earnings  per share is based on the  weighted  average  number of
common  shares  outstanding  during each period.  Diluted  earnings per share is
based on the  weighted  average  number of  common  shares  outstanding  and the
dilutive  impact of outstanding  stock options.  The weighted  average number of
outstanding  stock options which were excluded from the  calculation  of diluted
earnings per share because their impact would have been antidilutive  aggregated
222,000, 1,511,000 and 483,000 in 2000, 1999 and 1998, respectively.  There were
no  adjustments  to  income  from  continuing  operations  or net  income in the
computation of the diluted earnings per share amounts.

New accounting principles not yet adopted

        The Company  will adopt  Statement  of  Financial  Accounting  Standards
("SFAS") No. 133, Accounting for Derivative  Instruments and Hedging Activities,
as  amended,  effective  January 1, 2001.  SFAS No. 133  establishes  accounting
standards for derivative  instruments,  including certain derivative instruments
embedded in other contracts, and for hedging activities. Under SFAS No. 133, all
derivatives will be

                                            F-15

<PAGE>



recognized  as either  assets or  liabilities  and  measured at fair value.  The
accounting  for  changes  in fair  value of  derivatives  will  depend  upon the
intended use of the  derivative,  and such charges will be recognized  either in
net  income  or other  comprehensive  income.  As  permitted  by the  transition
requirements of SFAS No. 133, as amended, the Company will exempt from the scope
of SFAS No. 133 all host contracts  containing  embedded  derivatives which were
issued,  acquired or not  substantially  modified  prior to January 1, 1999. The
Company  is not a party to any  significant  derivative  or  hedging  instrument
covered by SFAS No. 133 at December 31, 2000.  The adoption of SFAS No. 133 will
not have a material  effect on the Company's  consolidated  financial  position,
liquidity or results of operations.

Note 3 - Business and geographic segments:

        The  Company's  operations  are  conducted  by Kronos  in one  operating
business  segment - the production and sale of TiO2.  Titanium  dioxide pigments
are used to impart  whiteness,  brightness  and  opacity  to a wide  variety  of
products,  including paints, plastics, paper, fibers and ceramics.  Discontinued
operations  consists of the Company's former specialty  chemicals business which
was sold in January  1998.  See Note 20. At December 31, 2000 and 1999,  the net
assets of non-U.S. subsidiaries included in consolidated net assets approximated
$352 million and $375 million, respectively.

        The Company  evaluates its TiO2 segment  performance  based on operating
income.  Operating income is defined as income from continuing operations before
minority interest,  income taxes,  interest expense,  certain nonrecurring items
and certain  general  corporate  items.  Corporate items excluded from operating
income include interest and dividend income not attributable to TiO2 operations,
litigation  settlement gains and securities  transaction  gains and losses.  The
accounting  policies of the TiO2 segment are the same as those described in Note
2. Interest  income  included in the  calculation  of TiO2  operating  income is
disclosed in Note 13 as "Trade interest income."

        Segment  assets  are  comprised  of  all  assets   attributable  to  the
reportable operating segment. The Company's investment in the TiO2 manufacturing
joint  venture  (see  Note 6) is  included  in  TiO2  business  segment  assets.
Corporate assets are not attributable to the TiO2 operating  segment and consist
principally  of  cash,  cash   equivalents,   restricted  cash  equivalents  and
marketable securities.  For geographic information,  net sales are attributed to
the place of  manufacture  (point of origin) and the  location  of the  customer
(point of destination);  property and equipment are attributed to their physical
location.


                                            F-16

<PAGE>


<TABLE>
<CAPTION>
                                                 Years ended December 31,
                                               2000        1999         1998
                                            ---------    ---------    ---------
                                                      (In thousands)
Business segment - TiO2
<S>                                         <C>          <C>          <C>
Net sales ...............................   $ 922,319    $ 908,387    $ 894,724
Other income, excluding corporate .......       8,167       12,484        6,110
                                            ---------    ---------    ---------
                                              930,486      920,871      900,834

Cost of sales ...........................     610,449      662,315      618,447
Selling, general and administrative,
 excluding corporate ....................     107,554      112,888      111,206
                                            ---------    ---------    ---------

    Operating income ....................     212,483      145,668      171,181

General corporate income (expense):
    Securities earnings:
        Interest and dividends ..........       8,346        6,597       14,921
        Securities gains, net ...........       2,531         --           --
    Litigation settlement gains,
     net and other income ...............      73,704        4,565        4,421
    Corporate expense ...................     (29,624)     (21,454)     (22,763)
    Interest expense ....................     (31,243)     (36,884)     (58,070)
                                            ---------    ---------    ---------

                                            $ 236,197    $  98,492    $ 109,690
                                            =========    =========    =========

Capital expenditures:
    Kronos ..............................   $  31,066    $  32,703    $  22,310
    General corporate ...................          23        2,856           82
                                            ---------    ---------    ---------

                                            $  31,089    $  35,559    $  22,392
                                            =========    =========    =========

Depreciation, depletion and amortization:
    Kronos ..............................   $  28,989    $  33,047    $  34,341
    General corporate ...................         744          683          204
                                            ---------    ---------    ---------

                                            $  29,733    $  33,730    $  34,545
                                            =========    =========    =========
</TABLE>


                                            F-17

<PAGE>

<TABLE>
<CAPTION>
                                                 Years ended December 31,
                                            -----------------------------------
                                              2000          1999         1998
                                            ---------    ---------    ---------
                                                       (In thousands)

<S>                                         <C>          <C>          <C>
Geographic areas
    Net sales - point of origin:

        Germany .........................   $ 444,050    $ 459,467    $ 451,061
        United States ...................     313,426      299,520      289,701
        Canada ..........................     154,579      162,746      158,967
        Belgium .........................     137,829      138,671      159,558
        Norway ..........................      98,300       88,277       91,112
        Other ...........................      92,691       90,442       96,912
        Eliminations ....................    (318,556)    (330,736)    (352,587)
                                            ---------    ---------    ---------

                                            $ 922,319    $ 908,387    $ 894,724
                                            =========    =========    =========

    Net sales - point of destination:
        Europe ..........................   $ 480,388    $ 478,652    $ 493,942
        United States ...................     283,327      268,037      246,209
        Canada ..........................      53,060       60,834       66,843
        Latin America ...................      27,104       35,308       35,281
        Asia ............................      45,922       41,612       21,042
        Other ...........................      32,518       23,944       31,407
                                            ---------    ---------    ---------

                                            $ 922,319    $ 908,387    $ 894,724
                                            =========    =========    =========
</TABLE>

<TABLE>
<CAPTION>

                                                      December 31,
                                        ----------------------------------------
                                           2000           1999           1998
                                        ----------     ----------     ----------
                                                    (In thousands)
<S>                                     <C>            <C>            <C>
Identifiable assets

Net property and equipment:
    Germany .......................     $  173,385     $  190,292     $  223,605
    Canada ........................         57,929         62,334         60,574
    Belgium .......................         46,778         49,146         51,683
    Norway ........................         38,361         39,845         42,336
    Other .........................          7,929          6,841          3,961
                                        ----------     ----------     ----------

                                        $  324,382     $  348,458     $  382,159
                                        ==========     ==========     ==========

Total assets:
    Kronos ........................     $  893,340     $  972,549     $  997,893
    General corporate .............        227,448         83,624        157,752
                                        ----------     ----------     ----------

                                        $1,120,788     $1,056,173     $1,155,645
                                        ==========     ==========     ==========
</TABLE>


                                            F-18

<PAGE>



Note 4 - Marketable securities and securities transactions:
<TABLE>
<CAPTION>

                                                                December 31,
                                                          ---------------------
                                                             2000       1999
                                                          --------     --------
                                                              (In thousands)
<S>                                                       <C>          <C>
Available-for-sale marketable equity securities:
    Unrealized gains .................................    $ 14,912     $  6,700
    Unrealized losses ................................      (1,244)      (2,304)
    Cost .............................................      33,518       10,659
                                                          --------     --------

        Aggregate fair value .........................    $ 47,186     $ 15,055
                                                          ========     ========
</TABLE>

        During 2000 the Company  purchased  1,000,000 shares of Tremont's 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 Tremont's  outstanding
common  stock,  including  approximately  36,000 shares  previously  held by the
Company, and Valhi held an additional 64% of Tremont's outstanding common stock.
Effective  with the  close  of  business  on  December  31,  2000,  the  Company
contributed  substantially all of its Tremont shares,  and Valhi contributed all
of its Tremont shares, to a newly formed company, Tremont Group, Inc., in return
for a 20% and 80%  respective  ownership  interest in Tremont  Group.  After the
contributions,  Tremont  Group held the 80% of Tremont  previously  owned by the
Company and Valhi.

        The Company's  stock of Tremont Group is redeemable at the option of the
Company for fair value based upon the value of the  underlying  Tremont  shares,
and  the  Company   accounts  for  its   investment   in  Tremont  Group  as  an
available-for-sale  marketable security.  The Company also held approximately 1%
of Valhi's  outstanding  common stock at December 31, 2000 and 1999. The Company
accounts  for  investments  in  its  parent  companies  as  "available-for-sale"
marketable securities carried at fair value. See Note 1.

        In 2000 the  Company  received  approximately  390,000  shares of common
stock  pursuant to the  demutualization  of an insurance  company from which the
Company had purchased certain insurance policies.  The Company recognized a $5.6
million securities gain based on the insurance company's initial public offering
price of $14-1/4 per share.  The shares  were  placed in a Voluntary  Employees'
Beneficiary  Association ("VEBA") trust, the assets of which may only be used to
pay for certain  retiree  benefits.  The Company  accounted for the $5.6 million
contribution of the insurance company's common stock to the trust as a reduction
of its accrued postretirement  benefits cost liability.  The shares were sold by
the trust in 2000 for $7.8 million or $20 per share. See Notes 10 and 13.

        In 2000 the Company  recognized a $3.1 million  noncash  securities loss
related   to   an    other-than-temporary    decline   in   value   of   certain
available-for-sale securities held by the Company. See Note 13.


                                            F-19

<PAGE>



Note 5 - Inventories:

<TABLE>
<CAPTION>
                                                                 December 31,
                                                             -------------------
                                                               2000       1999
                                                             --------   --------
                                                               (In thousands)

<S>                                                          <C>        <C>
Raw materials ............................................   $ 66,061   $ 54,861
Work in process ..........................................      7,117      8,065
Finished products ........................................    107,120    100,824
Supplies .................................................     25,675     27,434
                                                             --------   --------

                                                             $205,973   $191,184
                                                             ========   ========

</TABLE>

Note 6 - Investment in TiO2 manufacturing joint venture:

        Kronos  Louisiana,  Inc.  ("KLA"),  a wholly owned subsidiary of Kronos,
owns a 50%  interest  in  Louisiana  Pigment  Company,  L.P.  ("LPC").  LPC is a
manufacturing  joint  venture that is also  50%-owned by Tioxide  Americas  Inc.
("Tioxide"),  a subsidiary of Huntsman ICI Holdings,  a 70%-owned  subsidiary of
Huntsman  Corporation.  LPC owns and operates a  chloride-process  TiO2 plant in
Lake Charles, Louisiana.

        KLA is required to purchase  one-half of the TiO2  produced by LPC.  LPC
operates on a break-even basis and,  accordingly,  the Company reports no equity
in earnings of LPC.  Kronos' cost for its share of the TiO2 produced is equal to
its share of LPC's costs.  Kronos' share of LPC's  interest  expense in 1998 was
reported as a  component  of interest  expense.  Kronos'  share of all other net
costs is  reported  as cost of sales as the related  TiO2  acquired  from LPC is
sold.

        LPC made cash  distributions  of $15.1 million in 2000 and $27.3 million
in 1999, equally split between the partners.

        Summary balance sheets of LPC are shown below.

<TABLE>
<CAPTION>

                                                              December 31,
                                                         -----------------------
                                                           2000        1999
                                                         --------       --------

                                                             (In thousands)
           ASSETS

<S>                                                      <C>            <C>
Current assets ...................................       $ 56,063       $ 55,999
Property and equipment, net ......................        264,918        279,567
                                                         --------       --------

                                                         $320,981       $335,566
                                                         ========       ========

   LIABILITIES AND PARTNERS' EQUITY

Other liabilities, primarily current .............       $ 18,749       $ 18,234
Partners' equity .................................        302,232        317,332
                                                         --------       --------

                                                         $320,981       $335,566
                                                         ========       ========

</TABLE>


                                            F-20

<PAGE>



        Summary income statements of LPC are shown below.

<TABLE>
<CAPTION>
                                                  Years ended December 31,
                                            ------------------------------------
                                              2000          1999          1998
                                            --------      --------      --------

                                                      (In thousands)

<S>                                         <C>           <C>           <C>
Revenues and other income:
    Kronos ...........................      $ 92,530      $ 85,304      $ 90,392
    Tioxide ..........................        93,366        86,309        89,879
    Interest .........................           578           569           753
                                            --------      --------      --------

                                             186,474       172,182       181,024
                                            --------      --------      --------

Cost and expenses:
    Cost of sales ....................       186,045       171,829       178,803
    General and administrative .......           429           353           348
    Interest .........................          --            --           1,873
                                            --------      --------      --------

                                             186,474       172,182       181,024
                                            --------      --------      --------

        Net income ...................      $   --        $   --        $   --
                                            ========      ========      ========
</TABLE>


Note 7 - Accounts payable and accrued liabilities:

<TABLE>
<CAPTION>


                                                             December 31,
                                                     ---------------------------
                                                       2000               1999
                                                     --------           --------
                                                             (In thousands)

<S>                                                  <C>                <C>
Accounts payable .........................           $ 64,553           $ 56,597
                                                     --------           --------
Accrued liabilities:
    Employee benefits ....................             34,160             35,243
    Interest .............................              5,019              6,761
    Deferred income ......................              4,000              4,000
    Other ................................             40,145             40,531
                                                     --------           --------

                                                       83,324             86,535
                                                     --------           --------

                                                     $147,877           $143,132
                                                     ========           ========

</TABLE>

                                            F-21

<PAGE>



Note 8 - Other noncurrent liabilities:

<TABLE>
<CAPTION>
                                                              December 31,
                                                       -------------------------
                                                        2000              1999
                                                       -------           -------
                                                             (In thousands)

<S>                                                    <C>               <C>
Insurance claims expense ...................           $10,314           $11,688
Employee benefits ..........................             7,721             7,816
Deferred income ............................             4,333             8,333
Other ......................................               904             1,493
                                                       -------           -------

                                                       $23,272           $29,330
                                                       =======           =======
</TABLE>

Note 9 - Notes payable and long-term debt:

<TABLE>
<CAPTION>

                                                                December 31,
                                                           ---------------------
                                                             2000        1999
                                                           --------     --------
                                                               (In thousands)

<S>                                                        <C>          <C>
Notes payable ........................................     $ 69,970     $ 57,076
                                                           ========     ========

Long-term debt:
    NL Industries - 11.75% Senior Secured Notes ......     $194,000     $244,000
    Kronos ...........................................        2,093          478
                                                           --------     --------

                                                            196,093      244,478
    Less current maturities ..........................          730          212
                                                           --------     --------

                                                           $195,363     $244,266
                                                           ========     ========
</TABLE>


        The Company's  $194 million of 11.75% Senior Secured Notes due 2003 (the
"Notes")  are  collateralized  by a series of  intercompany  notes  from  Kronos
International,  Inc.  ("KII"),  a wholly owned subsidiary of Kronos,  to NL, the
interest  rate and payment terms of which mirror those of the  respective  Notes
(the "Mirror Notes"). The Notes are also collateralized by a first priority lien
on the stock of Kronos.

        In the event of foreclosure,  the holders of the Notes would have access
to the  consolidated  assets,  earnings and equity of the  Company.  The Company
believes  the  collateralization  of  the  Notes,  as  described  above,  is the
functional  economic  equivalent  of a full and  unconditional  guarantee of the
Notes by Kronos. In lieu of providing  separate audited financial  statements of
Kronos, the Company has included condensed  consolidating  financial information
in accordance with Rule 3-10 (e) of the SEC's Regulation S-X. See Note 21.

        The Company  redeemed  $50 million  (par value) of the Notes on December
29, 2000 at 101.5%. The remaining Notes are redeemable, at the Company's option,
at a redemption  price of 101.5% of the principal  amount,  declining to 100% in
October 2001. In the event of a Change of Control,  as defined in the indenture,
the Company  would be required to make an offer to purchase the Notes at 101% of
the principal amount of the Notes. The Notes are issued pursuant to an indenture
which  contains a number of covenants  and  restrictions  which,  among  others,
restrict the ability of the Company and its  subsidiaries  to incur debt,  incur
liens,  pay  dividends,  merge or  consolidate  with, or sell or transfer all or
substantially  all of their assets to another entity.  At December 31, 2000, $20
million was available for payment of dividends pursuant to

                                            F-22

<PAGE>



the  terms of the  indenture.  The  quoted  market  price of the  Notes per $100
principal   amount  was  $101  and  $103.75  at  December  31,  2000  and  1999,
respectively.

        Notes payable consist of short-term  borrowings  denominated in non-U.S.
currencies due within one year from non-U.S. banks. Borrowings total $70 million
(euro 51 million and NOK 200 million) at December 31, 2000 and $57million  (euro
57 million) at December 31, 1999.  Interest  rates on notes payable  ranged from
5.33% to 7.92% at  December  31,  2000 and from 3.03% to 4.30% at  December  31,
1999.

        Unused  lines of credit  available  for  borrowing  under the  Company's
non-U.S. credit facilities approximated $16 million at December 31, 2000.

        During 1998 the Company redeemed (i) $6 million  principal amount of its
Senior  Secured  Notes at par value  pursuant  to a tender  offer;  and (ii) the
entire issue of its 13% Senior Secured Discount Notes ($187.5 million  principal
amount  at  maturity)  with  premiums  ranging  between  1.25%  and 6% in market
transactions or pursuant to a tender offer.

        The  aggregate  maturities  of  long-term  debt at December 31, 2000 are
shown in the table below.

<TABLE>
<CAPTION>

Years ending December 31,                                           Amount
                                                               --------------
                                                               (In thousands)

        <S>                                                      <C>
        2001                                                     $    730
        2002                                                          627
        2003                                                      194,549
        2004                                                           61
        2005                                                           66
        2006                                                           60
                                                                 --------

                                                                 $196,093
                                                                 ========
</TABLE>

Note 10 - Employee benefit plans:

Company-sponsored pension plans

        The Company maintains  various defined benefit and defined  contribution
pension plans  covering  substantially  all  employees.  Non-U.S.  employees are
covered by plans in their respective  countries and a majority of U.S. employees
are eligible to participate in a contributory savings plan.

        The Company  contributes to eligible U.S.  employees' accounts an amount
equal  to  approximately  4% (3% in 1999  and  1998)  of the  employee's  annual
eligible  earnings and  partially  matches  employee  contributions  to the U.S.
contributory  savings  plan.  The  Company  also has an  unfunded,  nonqualified
defined contribution plan covering certain executives, and participants' account
balances  are  credited  based on a formula  involving  eligible  earnings.  The
Company's  expense related to these plans included in continuing  operations was
$1.6 million in 2000,  $1.1  million in 1999 and $1.3  million in 1998.  Expense
related to these plans included in discontinued operations was nil in 1998.


                                            F-23

<PAGE>



        Certain  actuarial  assumptions  used in measuring  the defined  benefit
pension assets, liabilities and expenses are presented below.

<TABLE>
<CAPTION>

                                                               December 31,
                                                  -----------------------------------
                                                    2000          1999         1998
                                                    ----          ----         ----
                                                               (Percentages)

<S>                                               <C>          <C>          <C>
Discount rate .................................   6.0 to 7.8   5.8 to 7.5   5.5 to 8.5
Rate of increase in future compensation levels.   3.0 to 4.5   2.5 to 4.5   2.5 to 6.0
Long-term rate of return on plan assets .......   7.0 to 9.0   6.0 to 9.0   6.0 to 9.0

</TABLE>

        During 1998 the Company curtailed certain U.S. employee pension benefits
and  recognized  a gain of $1.5  million,  which  is  included  in  discontinued
operations.  Plan assets are  comprised  primarily  of  investments  in U.S. and
non-U.S.  corporate equity and debt securities,  short-term investments,  mutual
funds and group annuity contracts.

        SFAS No. 87, "Employers'  Accounting for Pension Costs" requires that an
additional pension liability be recognized when the unfunded accumulated pension
benefit  obligation  exceeds the unfunded accrued pension  liability.  Variances
from  actuarially  assumed rates will change the actuarial  valuation of accrued
pension liabilities, pension expense and funding requirements in future periods.

        The  components  of the  net  periodic  defined  benefit  pension  cost,
excluding  curtailment  (gain) loss and discontinued  operations,  are set forth
below.
<TABLE>
<CAPTION>

                                                                 Years ended December 31,
                                                            --------------------------------
                                                              2000        1999       1998
                                                            --------    --------    --------
                                                                    (In thousands)

<S>                                                         <C>         <C>         <C>
Net periodic pension cost:
    Service cost benefits ...............................   $  4,063    $  3,942    $  3,835
    Interest cost on projected benefit obligation ("PBO")     15,088      16,170      15,669
    Expected return on plan assets ......................    (15,403)    (15,567)    (15,172)
    Amortization of prior service cost ..................        238         267         332
    Amortization of net transition obligation ...........        530         578         173
    Recognized actuarial losses .........................        226       1,144         385
                                                            --------    --------    --------

                                                            $  4,742    $  6,534    $  5,222
                                                            ========    ========    ========
</TABLE>


                                            F-24

<PAGE>



        The funded status of the Company's  defined benefit pension plans is set
forth below.

<TABLE>
<CAPTION>

                                                               December 31,
                                                         ----------------------
                                                            2000         1999
                                                         ---------    ---------
                                                              (In thousands)
<S>                                                      <C>          <C>
Change in PBO:
    Beginning of year ................................   $ 260,186    $ 296,013
    Service cost .....................................       4,063        3,942
    Interest .........................................      15,088       16,170
    Participant contributions ........................       1,027          939
    Actuarial (gain) loss ............................       1,022      (14,303)
    Benefits paid ....................................     (16,993)     (16,345)
    Change in currency exchange rates ................     (16,038)     (26,230)
                                                         ---------    ---------

        End of year ..................................     248,355      260,186
                                                         ---------    ---------

Change in fair value of plan assets:
    Beginning of year ................................     218,942      221,035
    Actual return on plan assets .....................      11,762       21,444
    Employer contributions ...........................      16,558       11,236
    Participant contributions ........................       1,027          939
    Benefits paid ....................................     (16,993)     (16,345)
    Change in currency exchange rates ................     (14,312)     (19,367)
                                                         ---------    ---------

        End of year ..................................     216,984      218,942
                                                         ---------    ---------

Funded status at year end:
    Plan assets less than PBO ........................     (31,371)     (41,244)
    Unrecognized actuarial loss ......................      24,191       21,603
    Unrecognized prior service cost ..................       1,693        2,137
    Unrecognized net transition obligation ...........         786          514
                                                         ---------    ---------

                                                         $  (4,701)   $ (16,990)
                                                         =========    =========

Amounts recognized in the balance sheet:
    Prepaid pension cost .............................   $  22,789    $  23,271
    Accrued pension cost:
        Current ......................................      (6,270)      (9,071)
        Noncurrent ...................................     (21,220)     (32,946)
    Accumulated other comprehensive income (loss) ....        --          1,756
                                                         ---------    ---------

                                                         $  (4,701)   $ (16,990)
                                                         =========    =========
</TABLE>

        Selected  information  related to the Company's  defined benefit pension
plans that have accumulated  benefit obligations in excess of fair value of plan
assets is presented  below.  At December 31, 2000, 76% of the projected  benefit
obligations of such plans relate to non-U.S. plans (1999 - 75%).


                                            F-25

<PAGE>



<TABLE>
<CAPTION>

                                                             December 31,
                                                       -------------------------
                                                        2000              1999
                                                       --------         --------
                                                            (In thousands)

<S>                                                    <C>              <C>
Projected benefit obligation .................         $190,141         $194,204
Accumulated benefit obligation ...............          169,077          164,262
Fair value of plan assets ....................          149,767          146,435

</TABLE>

Incentive bonus programs

        Certain  employees are eligible to participate in the Company's  various
incentive bonus programs. The programs provide for annual payments, which may be
in the form of cash or NL common stock. The amount of the annual payment paid to
an employee,  if any, is based on formulas involving the profitability of Kronos
in  relation  to the annual  operating  plan and,  for most of these  employees,
individual performance.

Postretirement benefits other than pensions

        In  addition  to  providing  pension  benefits,  the  Company  currently
provides  certain health care and life insurance  benefits for eligible  retired
employees.  Certain of the Company's  Canadian employees may become eligible for
such  postretirement  health  care and life  insurance  benefits  if they  reach
retirement age while working for the Company.  In 1989 the Company began phasing
out such benefits for currently active U.S. employees over a ten-year period and
U.S.  employees  retiring after 1998 are not entitled to any such benefits.  The
majority of all  retirees  are  required to  contribute a portion of the cost of
their benefits and certain  current and future retirees are eligible for reduced
health  care  benefits  at age  65.  With  the  exception  of the  $5.6  million
contributed  to the VEBA trust  discussed in Note 4, the Company's  policy is to
fund  medical  claims  as they are  incurred,  net of any  contributions  by the
retirees.

        For measuring the OPEB liability at December 31, 2000, the expected rate
of  increase in health  care costs is 8.5% in 2001  decreasing  to 5.5% in 2007.
Other weighted-average assumptions used to measure the liability and expense are
presented below.

<TABLE>
<CAPTION>
                                                                 December 31,
                                                            -----------------------
                                                            2000     1999      1998
                                                            ----     ----      ----
                                                                 (Percentages)

<S>                                                          <C>      <C>      <C>
Discount rate .......................................        7.3      7.5      6.5
Long-term rate for compensation increases ...........        6.0      6.0      6.0
Long-term rate of return on plan assets .............        7.7      9.0      9.0

</TABLE>

        Variances  from  actuarially  assumed  rates will  change  accrued  OPEB
liabilities,  net  periodic  OPEB  expense  and funding  requirements  in future
periods.  If the health care cost trend rate was  increased  (decreased)  by one
percentage  point for each  year,  postretirement  benefit  expense  would  have
increased  approximately $.1 million (decreased by $.1 million) in 2000, and the
projected  benefit  obligation  at  December  31, 2000 would have  increased  by
approximately $1.7 million (decreased by $1.5 million). During 1998, as a result
of the sale of Rheox,  the Company settled  certain U.S.  employee OPEB benefits
and  recognized a $3.2 million  gain,  all of which is included in  discontinued
operations.


                                            F-26

<PAGE>



        The  components  of the Company's  net periodic  postretirement  benefit
cost,  excluding  curtailment and settlement gains and discontinued  operations,
are set forth below. The net periodic  postretirement  benefit costs included in
discontinued operations excluding the settlement gain was nil in 1998.

<TABLE>
<CAPTION>

                                                    Years ended December 31,
                                                -------------------------------
                                                  2000         1999       1998
                                                -------     -------     -------
                                                        (In thousands)

<S>                                             <C>         <C>         <C>
Net periodic OPEB cost (benefit):
    Service cost benefits ..................    $    84     $    40     $    43
    Interest cost on PBO ...................      2,646       2,069       2,393
    Expected return on plan assets .........       (521)       (526)       (583)
    Amortization of prior service cost .....     (2,075)     (2,075)     (2,075)
    Recognized actuarial losses (gains) ....         24        (573)       (811)
                                                -------     -------     -------

                                                $   158     $(1,065)    $(1,033)
                                                =======     =======     =======
</TABLE>

<TABLE>
<CAPTION>
                                                             December 31,
                                                        -----------------------
                                                           2000           1999
                                                        --------       --------

                                                             (In thousands)
<S>                                                     <C>            <C>
Change in PBO:
    Beginning of year ............................      $ 37,354       $ 33,812
    Service cost .................................            84             40
    Interest cost ................................         2,646          2,069
    Actuarial losses .............................         1,672          5,714
    Benefits paid from:
        Company funds ............................        (1,790)        (3,316)
        Plan assets ..............................        (2,859)        (1,078)
    Change in currency exchange rates ............           (67)           113
                                                        --------       --------

        End of year ..............................        37,040         37,354
                                                        --------       --------

Change in fair value of plan assets:
    Beginning of year ............................         5,968          6,365
    Actual return on plan assets .................         2,705            206
    Employer contributions .......................         6,028            475
    Benefits paid ................................        (2,859)        (1,078)
                                                        --------       --------

        End of year ..............................        11,842          5,968
                                                        --------       --------

Funded status at year end:
    Plan assets less than PBO ....................       (25,198)       (31,386)
    Unrecognized actuarial gain ..................        (1,135)          (575)
    Unrecognized prior service cost ..............        (7,858)        (9,933)
                                                        --------       --------

                                                        $(34,191)      $(41,894)
                                                        ========       ========

Amounts recognized in the balance sheet:
    Current ......................................      $ (4,787)      $ (4,789)
    Noncurrent ...................................       (29,404)       (37,105)
                                                        --------       --------

                                                        $(34,191)      $(41,894)
                                                        ========       ========
</TABLE>
                                            F-27


<PAGE>


Note 11 - Shareholders' equity:

Common stock
<TABLE>
<CAPTION>

                                                    Shares of common stock
                                              ----------------------------------
                                                         Treasury
                                              Issued      stock     Outstanding
                                              ------     --------   -----------
                                                       (In thousands)

<S>                                           <C>          <C>           <C>
Balance at December 31, 1997 ..........       66,839       15,572        51,267
    Treasury shares reissued ..........         --           (544)          544
                                              ------       ------        ------

Balance at December 31, 1998 ..........       66,839       15,028        51,811
    Treasury shares acquired ..........         --            552          (552)
    Treasury shares reissued ..........         --            (25)           25
                                              ------       ------        ------

Balance at December 31, 1999 ..........       66,839       15,555        51,284
    Treasury shares acquired ..........         --          1,682        (1,682)
    Treasury shares reissued ..........         --           (450)          450
                                              ------       ------        ------

Balance at December 31, 2000 ..........       66,839       16,787        50,052
                                              ======       ======        ======
</TABLE>


        Pursuant  to  its  share  repurchase  program,   the  Company  purchased
1,682,000  shares of its common stock at an aggregate  cost of $30.9  million in
2000 and 552,000  shares of its common  stock in the open market at an aggregate
cost of $7.2  million  in 1999.  Approximately  766,000  additional  shares  are
available  for  purchase  under the  Company's  share  repurchase  program.  The
available shares may be purchased over an unspecified period of time, and are to
be held as treasury shares available for general corporate purposes.

        The Company  reinstated  a regular  quarterly  dividend in June 1998 and
subsequently  paid three  quarterly  $.03 per share cash  dividends in 1998.  In
February 1999 the Company increased the regular quarterly  dividend to $.035 per
share and  subsequently  paid four  quarterly  $.035 per share cash dividends in
1999. In February 2000 the Company increased the regular  quarterly  dividend to
$.15 per  share and  subsequently  paid  three  quarterly  $.15 per  share  cash
dividends  in the  first  nine  months  of 2000.  In  October  2000 the  Company
increased the regular quarterly dividend to $.20 per share and subsequently paid
a  quarterly  $.20 per share cash  dividend  in the fourth  quarter of 2000.  On
February 7, 2001, the Company's Board of Directors  declared a regular quarterly
dividend of $.20 per share to  shareholders of record as of March 14, 2001 to be
paid on March 28, 2001.

Common stock options

        The NL Industries,  Inc. 1998  Long-Term  Incentive Plan (the "NL Option
Plan") provides for the discretionary  grant of restricted  common stock,  stock
options,  stock appreciation rights ("SARs") and other incentive compensation to
officers and other key employees of the Company.  Although certain stock options
granted  pursuant  to a similar  plan which  preceded  the NL Option  Plan ("the
Predecessor Option Plan") remain outstanding at December 31, 2000, no additional
options may be granted under the Predecessor Option Plan.

        Up to five million  shares of NL common stock may be issued  pursuant to
the NL Option Plan and, at December 31, 2000,  4,147,000  shares were  available
for future  grants.  The NL Option Plan  provides  for the grant of options that
qualify  as  incentive  options  and for  options  which  are not so  qualified.
Generally,  stock options and SARs  (collectively,  "options")  are granted at a
price equal to or greater than 100% of the

                                            F-28

<PAGE>



market  price at the date of grant,  vest over a five year period and expire ten
years  from the date of grant.  Restricted  stock,  forfeitable  unless  certain
periods  of  employment  are  completed,  is held in  escrow  in the name of the
grantee until the restriction  period  expires.  No SARs have been granted under
the NL Option Plan.

        In addition to the NL Option  Plan,  the Company had a stock option plan
for its nonemployee  directors that expired in 1998. At December 31, 2000, there
were  options to acquire  2,000 shares of common  stock  outstanding  under this
plan, all of which were fully vested. Future grants to directors are expected to
be granted from the NL Option Plan.

        Changes in outstanding  options granted  pursuant to the NL Option Plan,
the Predecessor Option Plan and the nonemployee  director plan are summarized in
the table below.
<TABLE>
<CAPTION>

                                                       Exercise price    Amount
                                                         per share       payable
                                                   --------------------    upon
                                        Shares        Low       High     exercise
                                        ------     ---------  ---------  --------
                                        (In thousands, except per share amounts)

<S>                                     <C>        <C>        <C>        <C>
Outstanding at December 31, 1997        2,845      $    4.81  $   24.19  $ 34,761


    Granted ....................          474          17.97      21.97     9,334
    Exercised ..................         (960)          4.81      17.25    (8,740)
    Forfeited ..................         (240)          5.00      19.97    (4,336)
                                        -----      ---------  ---------  --------
Outstanding at December 31, 1998        2,119           5.00      24.19    31,019

    Granted ....................          410          11.28      15.19     5,377
    Exercised ..................          (25)          5.00      11.81      (209)
    Forfeited ..................          (67)          8.69      22.63    (1,244)
                                        -----      ---------  ---------  --------
Outstanding at December 31, 1999        2,437           5.00      24.19    34,943

    Granted ....................          432          14.25      14.44     6,165
    Exercised ..................         (918)          5.00      17.97    (9,508)
    Forfeited ..................         (349)          8.69      24.19    (7,237)
                                        -----      ---------  ---------  --------
Outstanding at December 31, 2000        1,602      $    5.00  $   21.97  $ 24,363
                                        =====      =========  =========  ========

</TABLE>

        At  December  31,  2000,  1999 and 1998  options  to  purchase  363,480,
1,255,901 and 957,861  shares,  respectively,  were  exercisable  and options to
purchase  340,800  shares become  exercisable  in 2001.  All of the  exercisable
options  at  December  31,  2000 had  exercise  prices  less than the  Company's
December 31, 2000 quoted market price of $24.25 per share.  Outstanding  options
at  December  31,  2000  expire  at  various   dates   through   2010,   with  a
weighted-average remaining life of eight years.

        The pro forma  information  required  by SFAS No. 123,  "Accounting  for
Stock-Based  Compensation,"  is based  on an  estimation  of the  fair  value of
options issued subsequent to January 1, 1995. The  weighted-average  fair values
of options  granted during 2000,  1999 and 1998 were $4.83,  $6.94 and $9.78 per
share,  respectively.  The fair values of employee stock options were calculated
using the Black-Scholes stock option valuation model with the following weighted
average assumptions for grants in 2000, 1999 and 1998: stock price volatility of
48%, 50% and 51% in 2000, 1999 and 1998, respectively;  risk-free rate of return
of

                                            F-29

<PAGE>



5% in 2000, 6% in 1999 and 4% in 1998;  dividend yield of 4.9% in 2000,  1.2% in
1999 and .9% in  1998;  and an  expected  term of 9 years in 2000 and 1999 and 8
years in 1998. For purposes of pro forma  disclosures,  the estimated fair value
of the options is amortized to expense over the options' vesting period.

        The Company's pro forma net income and basic net income per common share
were as follows.  The pro forma  impact on earnings  per common  share for 2000,
1999 and 1998 is not  necessarily  indicative of future  effects on earnings per
share.

<TABLE>
<CAPTION>

                                                               Years ended December 31,
                                                    -------------------------------------------
                                                        2000            1999            1998
                                                    -----------     -----------     -----------
                                                      (In thousands except per share amounts)

<S>                                                 <C>             <C>             <C>
Net income - as reported ......................     $   154,609     $   159,771     $   366,678
Net income - pro forma ........................     $   152,201     $   156,868     $   363,843
Net income per basic common share - as reported     $      3.07     $      3.09     $      7.13
Net income per basic common share - pro forma .     $      3.02     $      3.03     $      7.07

</TABLE>

Preferred stock

        The Company is  authorized  to issue a total of five  million  shares of
preferred  stock.  The rights of preferred  stock as to  dividends,  redemption,
liquidation and conversion are determined upon issuance.

Note 12 - Income taxes:

        The components of (i) income from  continuing  operations  before income
taxes and minority interest ("pretax  income"),  (ii) the difference between the
provision  for income taxes  attributable  to pretax income and the amounts that
would be expected using the U.S. federal statutory income tax rate of 35%, (iii)
the  provision  for income taxes and (iv) the  comprehensive  tax  provision are
presented below.

<TABLE>
<CAPTION>
                                                Years ended December 31,
                                      ------------------------------------------
                                        2000             1999             1998
                                      --------         --------         --------
                                                    (In thousands)
<S>                                   <C>              <C>              <C>
Pretax income:
    U.S .....................         $ 73,646         $ 23,642         $ 57,638
    Non-U.S .................          162,551           74,850           52,052
                                      --------         --------         --------

                                      $236,197         $ 98,492         $109,690
                                      ========         ========         ========
</TABLE>


                                            F-30

<PAGE>

<TABLE>
<CAPTION>
                                                                      Years ended December 31,
                                                               ------------------------------------
                                                                 2000          1999         1998
                                                               --------      --------      --------

                                                                           (In thousands)


<S>                                                            <C>           <C>           <C>
Expected tax expense .....................................     $ 82,669      $ 34,472      $ 38,391
Non-U.S. tax rates .......................................       (6,445)        6,119         2,507
Resolution of German income tax audits ...................       (5,500)      (36,490)         --
Change in valuation allowance:
    Corporate restructuring in Germany and other .........         --         (77,580)         --
    Change in German income tax law ......................         --          24,070          --
    Recognition of certain deductible tax attributes which
      previously did not meet the "more-likely-than-not" .       (2,600)      (15,807)      (19,143)
      recognition criteria
Incremental tax on income of companies not included in the
  NL Tax Group ...........................................        1,943         2,747         4,277
German rate change adjustment of deferred taxes ..........        5,695          --            --
Refund of prior-year German dividend withholding taxes ...         --            --          (8,219)
U.S. state income taxes ..................................        1,348          (680)          307
Other, net ...............................................        1,310        (1,452)        1,668
                                                               --------      --------      --------

    Income tax expense (benefit) .........................     $ 78,420      $(64,601)     $ 19,788
                                                               ========      ========      ========

Provision for income taxes:
    Current income tax expense (benefit):
        U.S. federal .....................................     $ (8,255)     $    193      $    850
        U.S. state .......................................          622        (2,489)          307
        Non-U.S ..........................................       45,867        24,467        13,643
                                                               --------      --------      --------

                                                                 38,234        22,171        14,800
                                                               --------      --------      --------

    Deferred income tax expense (benefit):
        U.S. federal .....................................       32,128       (47,426)        2,112
        U.S. state .......................................          726         1,809          --
        Non-U.S ..........................................        7,332       (41,155)        2,876
                                                               --------      --------      --------
                                                                 40,186       (86,772)        4,988
                                                               --------      --------      --------

                                                               $ 78,420      $(64,601)     $ 19,788
                                                               ========      ========      ========

Comprehensive provision (benefit) for
  income taxes allocable to:
      Pretax income ......................................     $ 78,420      $(64,601)     $ 19,788
      Discontinued operations ............................         --            --          87,000
      Extraordinary item .................................         (394)         --          (5,698)
      Additional paid-in capital .........................       (3,224)          (16)       (3,796)
      Other comprehensive income - marketable securities .        3,244          (883)          108
                                                               --------      --------      --------

                                                               $ 78,046      $(65,500)     $ 97,402
                                                               ========      ========      ========
</TABLE>


                                            F-31

<PAGE>



        The components of the net deferred tax liability are summarized below:

<TABLE>
<CAPTION>
                                                                          December 31,
                                                      --------------------------------------------------------
                                                                 2000                     1999
                                                                 ----                     ----
                                                             Deferred tax                   Deferred tax
                                                      --------------------------    --------------------------
                                                       Assets        Liabilities     Assets        Liabilities
                                                      ---------      -----------    ---------      -----------
                                                                            (In thousands)

<S>                                                   <C>            <C>            <C>            <C>
Tax effect of temporary differences relating to:
    Inventories .................................     $   4,027      $  (2,966)     $   4,025      $  (2,086)
    Property and equipment ......................        61,738        (53,753)        96,548        (53,313)
    Accrued postretirement benefits cost ........        13,145           --           14,575           --
    Accrued (prepaid) pension cost ..............         4,348        (22,928)         6,288        (24,830)
    Accrued environmental costs .................        37,761           --           37,439           --
    Noncompete agreement ........................         2,917           --            4,317           --
    Other accrued liabilities and deductible
      differences ...............................        18,327           --           16,878           --
    Other taxable differences ...................          --         (122,561)          --          (87,041)
Tax on unremitted earnings of non-U.S
  subsidiaries ..................................          --           (4,396)          --          (20,727)
Tax loss and tax credit carryforwards ...........       119,064           --          144,985           --
Valuation allowance .............................      (190,312)          --         (233,595)          --
                                                      ---------      ---------      ---------      ---------

    Gross deferred tax assets (liabilities) .....        71,015       (206,604)        91,460       (187,997)

Reclassification, principally netting by
  tax jurisdiction ..............................       (59,109)       59,109         (79,445)        79,445
                                                      ---------      ---------      ---------      ---------

    Net total deferred tax assets (liabilities) .        11,906       (147,495)        12,015       (108,552)
    Net current deferred tax assets (liabilities)        11,673         (1,822)        11,974           (326)
                                                      ---------      ---------      ---------      ---------

    Net noncurrent deferred tax assets
      (liabilities)..............................     $     233      $(145,673)     $      41      $(108,226)
                                                      =========      =========      =========      =========
</TABLE>


        Changes in the Company's  deferred  income tax  valuation  allowance are
summarized  below.  The deductible  temporary  differences in 1998 include items
that have been reported as discontinued operations.

<TABLE>
<CAPTION>
                                                                               Years ended December 31,
                                                                        ---------------------------------------
                                                                           2000           1999           1998
                                                                        ---------      ---------      ---------
                                                                                     (In thousands)


<S>                                                                     <C>            <C>            <C>
Balance at the beginning of year ..................................     $ 233,595      $ 134,477      $ 188,585

    Recognition of certain deductible tax attributes which
      previously did not meet the "more-likely-than-not"
      recognition criteria ........................................        (2,600)       (70,946)       (64,274)
    Increase in certain deductible temporary differences which
      the Company believes do not meet the "more-likely-than-
      not" recognition criteria ...................................          --            1,629          6,964
    Offset to the change in gross deferred income tax assets
      due principally to redeterminations of certain tax attributes
      and implementation of certain tax planning strategies .......       (24,955)       183,150         (3,734)
    Foreign currency translation ..................................       (15,728)       (14,715)         6,936
                                                                        ---------      ---------      ---------

Balance at the end of year ........................................     $ 190,312      $ 233,595      $ 134,477
                                                                        =========      =========      =========
</TABLE>


                                            F-32

<PAGE>



        A  reduction  in the  German  "base"  income  tax rate  from 30% to 25%,
enacted in October 2000,  became effective January 1, 2001. The reduction in the
German income tax rate resulted in $5.7 million of  additional  deferred  income
tax expense in the fourth  quarter of 2000 due to a reduction  of the  Company's
deferred income tax asset related to certain German tax attributes.  The Company
does not expect its future current income tax expense to be affected by the rate
change in Germany.

        Certain  of the  Company's  tax  returns in various  U.S.  and  non-U.S.
jurisdictions  are being  examined  and tax  authorities  have  proposed  or may
propose tax deficiencies, including interest.

        The  Company  has  received  tax  assessments  from  the  Norwegian  tax
authorities   proposing  tax   deficiencies   including   related   interest  of
approximately  NOK 38 million  ($4.3  million at December 31, 2000)  relating to
1994 and 1996. The Company is currently  litigating the primary issue related to
the 1994  assessment  and in February 2001 the Norwegian  Appeals Court ruled in
favor of the Norwegian tax authorities. The Company has appealed the case to the
Norwegian  Supreme  Court  and  believes  that the  outcome  of the 1996 case is
dependent  on the eventual  outcome of the 1994 case.  The Company has granted a
lien for the 1994 and 1996 tax assessments on its Fredrikstad, Norway TiO2 plant
in favor of the Norwegian tax authorities.

        The Company has received  preliminary tax assessments for the years 1991
to 1997 from the Belgian tax authorities  proposing tax deficiencies,  including
related interest,  of approximately euro 12.7 million ($11.8 million at December
31, 2000).  The Company has filed protests to the assessments for the years 1991
to 1996 and  expects to file a protest for 1997.  The Company is in  discussions
with the Belgian tax authorities and believes that a significant  portion of the
assessments are without merit.

        No  assurance  can be  given  that the  Company's  tax  matters  will be
favorably   resolved  due  to  the  inherent   uncertainties   involved  in  tax
proceedings.  The Company  believes that it has provided  adequate  accruals for
additional taxes and related  interest expense which may ultimately  result from
all such  examinations  and  believes  that  the  ultimate  disposition  of such
examinations  should  not  have a  material  adverse  effect  on  the  Company's
consolidated financial position, results of operations or liquidity.

        The Company  recognized a $90 million noncash income tax benefit in 1999
related to (i) a favorable  resolution of the Company's  previously reported tax
contingency  in Germany ($36  million) and (ii) a net reduction in the Company's
deferred  income tax  valuation  allowance  due to a change in  estimate  of the
Company's   ability  to  utilize   certain  income  tax  attributes   under  the
"more-likely-than-not" recognition criteria ($54 million).

        The $54 million  net  reduction  in the  Company's  deferred  income tax
valuation  allowance is comprised of (i) a $78 million decrease in the valuation
allowance to recognize the benefit of certain  deductible  income tax attributes
which the Company now believes  meets the  recognition  criteria as a result of,
among  other  things,   a  corporate   restructuring  of  the  Company's  German
subsidiaries offset by (ii) a $24 million increase in the valuation allowance to
reduce the previously  recognized benefit of certain other deductible income tax
attributes  which the Company now believes do not meet the recognition  criteria
due to a change in German tax law.

        At December 31,  2000,  the Company  had,  for U.S.  federal  income tax
purposes,  a net operating loss  carryforward of  approximately $3 million which
expires in 2019. The Company also has  approximately  $315 million of income tax
loss  carryforwards  in Germany  with no  expiration  date.  In 1998 the Company
utilized  $13  million of  alternative  minimum  tax credit  carryforwards  (the
benefit of which was recognized in

                                            F-33

<PAGE>



discontinued  operations) to reduce U.S. federal income tax expense.  Unutilized
foreign tax credit  carryovers of $2 million and $6 million  expired in 1999 and
1998, respectively.

Note 13 - Other income, net:

<TABLE>
<CAPTION>

                                                  Years ended December 31,
                                           ------------------------------------
                                             2000        1999        1998
                                           --------      --------      --------

                                                   (In thousands)
<S>                                        <C>           <C>           <C>
Securities earnings:
    Interest and dividends ...........     $  8,346      $  6,597      $ 14,921
    Securities gains, net ............        2,531          --            --
                                           --------      --------      --------
                                             10,877         6,597        14,921
Currency transaction gains, net ......        6,499        10,161         4,157
Noncompete agreement income ..........        4,000         4,000         3,667
Trade interest income ................        2,333         2,365         2,115
Disposition of property and equipment        (1,562)         (429)         (768)
Other, net ...........................        1,136           952         1,361
                                           --------      --------      --------

                                           $ 23,283      $ 23,646      $ 25,453
                                           ========      ========      ========
</TABLE>

        The  Company  received a $20 million fee as part of the sale of Rheox in
January 1998 in payment for entering into a five-year covenant not to compete in
the rheological  products business.  The Company is amortizing the fee to income
using the  straight-line  method over the five-year  noncompete period beginning
January 30, 1998.

Note 14 - Litigation settlement gains, net:

        In June  2000 the  Company  recognized  a $43  million  net gain  from a
settlement  with one of its two  principal  former  insurance  carriers,  and in
December 2000 the Company  recognized a $26.5 million net gain from a settlement
with  certain  members of the other  principal  former  insurance  carrier.  The
settlement  gains are stated net of $3.1 million in  commissions,  and the gross
settlement proceeds of $72.6 million were transferred by the carriers to special
purpose trusts  established to pay future  remediation  and other  environmental
expenditures of the Company.  A settlement with remaining  members of the second
carrier group was reached in January 2001, and the Company  expects to recognize
a $10 million gain in the first quarter of 2001. The settlements  resolved court
proceedings that the Company  initiated to seek  reimbursement for legal defense
expenditures and indemnity coverage for certain of its environmental remediation
expenditures.

Note 15 - Other items:

        Advertising  expense  included in  continuing  operations is expensed as
incurred and was $1 million in each of 2000, 1999 and 1998.

        Research, development and certain sales technical support costs included
in continuing  operations is expensed as incurred and approximated $6 million in
2000 and $7 million in each of 1999 and 1998.

        Interest capitalized related to continuing operations in connection with
long-term  capital  projects  was nil in each of 2000 and 1999 and $1 million in
1998.

                                            F-34

<PAGE>



Note 16 - Related party transactions:

        The  Company  may be deemed  to be  controlled  by  Harold  C.  Simmons.
Corporations  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 minority  equity  interest in another  related  party.
While no  transactions  of the type described above are planned or proposed with
respect to the  Company  other than as set forth in this  Annual  Report on Form
10-K,  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,  and  restrictions  under the  indentures  and other
agreements, 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.

        The  Company is a party to an  intercorporate  services  agreement  with
Contran (the "Contran ISA") whereby Contran provides certain management services
to the Company on a fee basis.  Intercorporate  services fee expense  related to
the Contran ISA was and $1.0 million in each of 2000, 1999 and 1998.

        The  Company is a party to an  intercorporate  services  agreement  with
Valhi  (the  "Valhi  ISA")  whereby  Valhi  and  the  Company   provide  certain
management,  financial and administrative services to each other on a fee basis.
Net intercorporate services fee expense related to the Valhi ISA was $.2 million
in 2000, $.1 million in 1999 and nil in 1998.

        The  Company  is  party to an  intercorporate  services  agreement  with
Tremont  (the  "Tremont  ISA").  Under the terms of the  contract,  the  Company
provides  certain  management and financial  services to Tremont on a fee basis.
Intercorporate services fee income related to the Tremont ISA was $.1 million in
each of 2000, 1999 and 1998.

        The Company is party to an intercorporate services agreement (the "Timet
ISA") with  Titanium  Metals  Corporation  ("Timet"),  approximately  47% of the
outstanding  common  stock of which is  currently  held by Tremont  and  another
entity  related  to Harold C.  Simmons.  Under  the terms of the  contract,  the
Company  provides  certain  management and financial  services to Timet on a fee
basis.  Intercorporate  services  fee  income  related  to the Timet ISA was $.3
million in each of 2000, 1999 and 1998.

        The Company is party to an intercorporate services agreement (the "CompX
ISA") with CompX International, Inc. ("CompX"), a subsidiary of Valhi. Under the
terms  of  the  contract,   the  Company   provides   certain   management   and
administrative  services to CompX on a fee basis.  Intercorporate  services  fee
income  related to the CompX ISA was $.2 million in 2000 and $.1 million in each
of 1999 and 1998.

        Purchases of TiO2 from LPC were $92.5 in 2000, $85.3 million in 1999 and
$89.0 million in 1998.


                                            F-35

<PAGE>



        The Company and Tall Pines Insurance Company ("Tall Pines") (formerly NL
Insurance,  Ltd. of Vermont),  a wholly owned subsidiary of Tremont, are parties
to an Insurance  Sharing  Agreement  with  respect to certain loss  payments and
reserves  established  by Tall Pines that (i) arise out of claims  against other
entities for which the Company is contractually responsible and (ii) are subject
to payment by Tall Pines under certain reinsurance  contracts.  Also, Tall Pines
will credit the Company with respect to certain  underwriting  profits or credit
recoveries that Tall Pines receives from  independent  reinsurers that relate to
retained  liabilities.  At December  31,  2000,  the Company has $9.7 million of
restricted cash that  collateralizes  certain of Tall Pines' outstanding letters
of credit.

        Tall  Pines,  Valmont  and EWI RE,  Inc.  ("EWI")  provide for or broker
certain of the  Company's,  its joint  venture's and its  affiliates'  insurance
policies.  Valmont is a wholly owned insurance company 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,  Tall
Pines,  Valmont and EWI receive  commissions  from the insurance and reinsurance
underwriters  for the policies that they provide or broker.  The Company and its
joint venture paid approximately $5.7 million,  $3.7 million and $3.0 million in
2000,  1999 and 1998,  respectively,  for policies  provided or brokered by Tall
Pines,  Valmont  and  EWI.  These  amounts  principally  included  payments  for
reinsurance  and insurance  premiums paid to unrelated  third parties,  but also
included  commissions  paid to Tall Pines,  Valmont  and EWI.  In the  Company's
opinion,  the amounts that the Company paid for these insurance policies and the
allocation among the Company and its affiliates of relative  insurance  premiums
are reasonable and similar to those they could have obtained  through  unrelated
insurance companies and/or brokers. The Company expects that these relationships
with Tall Pines, Valmont and EWI will continue in 2001.

        In  February  2001  NL  Environmental   Management  Services,   Inc.,  a
majority-owned  subsidiary of the Company,  loaned $13.4 million to Tremont. The
loan  bears   interest  at  prime  plus  2%,  is  due  March  31,  2003  and  is
collateralized by 10.2 million shares of NL common stock owned by Tremont.

        During 2000 the Company  purchased  414,000  shares of its common  stock
from  officers and  directors  of the Company for an aggregate of $9.4  million.
Such purchases were at market prices on the respective dates of purchase.


                                            F-36

<PAGE>



        Amounts  receivable from and payable to affiliates are summarized in the
following table.

<TABLE>
<CAPTION>
                                                              December 31,
                                                        ------------------------
                                                         2000             1999
                                                        -------          -------
                                                            (In thousands)
<S>                                                     <C>              <C>
Receivable from affiliates:
    Timet ....................................          $     1          $   310
    CompX ....................................               82              176
    Other ....................................              131              261
                                                        -------          -------
                                                        $   214          $   747
                                                        =======          =======

Payable to affiliates:
    Tremont Corporation ......................          $ 1,923          $ 2,859
    LPC ......................................            8,711            8,381
                                                        -------          -------
                                                        $10,634          $11,240
                                                        =======          =======

</TABLE>

        Amounts  payable to LPC are generally for the purchase of TiO2 (see Note
6), and amounts payable to Tremont principally relate to the Company's Insurance
Sharing Agreement described above.

Note 17 - Commitments and contingencies:

Leases

        The Company leases,  pursuant to operating leases, various manufacturing
and  office  space and  transportation  equipment.  Most of the  leases  contain
purchase  and/or  various  term  renewal  options at fair market and fair rental
values,  respectively.  In most cases  management  expects  that,  in the normal
course of business, leases will be renewed or replaced by other leases.

        Kronos' principal German operating  subsidiary leases the land under its
Leverkusen  TiO2 production  facility  pursuant to a lease expiring in 2050. The
Leverkusen  facility,  with  approximately  one-third  of Kronos'  current  TiO2
production  capacity,  is located  within the lessor's  extensive  manufacturing
complex,  and Kronos is the only unrelated  party so situated.  Under a separate
supplies and services  agreement  expiring in 2011, the lessor provides some raw
materials, auxiliary and operating materials and utilities services necessary to
operate the  Leverkusen  facility.  Both the lease and the supplies and services
agreements  restrict the Company's  ability to transfer  ownership or use of the
Leverkusen facility.


                                            F-36

<PAGE>



        Net rent expense included in continuing operations aggregated $9 million
in each of 2000 and 1999 and $7 million in 1998.  At December 31, 2000,  minimum
rental commitments under the terms of noncancellable operating leases, excluding
discontinued operations, were as follows:
<TABLE>
<CAPTION>


Years ending December 31,                            Real Estate        Equipment
                                                     -----------        ---------
                                                            (In thousands)

 <S>                                                   <C>               <C>
 2001                                                  $ 1,985           $ 1,496
 2002                                                    1,780               808
 2003                                                    1,630               464
 2004                                                    1,243               295
 2005                                                    1,094                77
 2006 and thereafter                                    18,886                20
                                                       -------           -------
                                                       $26,618           $ 3,160
                                                       =======           =======
</TABLE>

Capital expenditures

        At December 31, 2000, the estimated cost to complete capital projects in
process approximated $16 million,  including $4 million to complete an expansion
project increasing finishing capacity at the Company's Belgian facility.

Purchase commitments

        The  Company  has  long-term  supply  contracts  that  provide  for  the
Company's chloride feedstock  requirements  through 2003. The agreements require
the Company  purchase  certain  minimum  quantities  of  feedstock  with average
minimum annual purchase commitments aggregating approximately $155 million.

Legal proceedings

        Lead  pigment   litigation.   Since  1987  the  Company,   other  former
manufacturers  of lead pigments for use in paint and lead-based  paint,  and the
Lead  Industries  Association  have been named as  defendants  in various  legal
proceedings  seeking damages for personal  injury and property damage  allegedly
caused by the use of lead-based paints. Certain of these actions have been filed
by or on behalf of states,  large United States  cities or their public  housing
authorities and certain others have been asserted as class actions.  These legal
proceedings  seek  recovery  under a variety of  theories,  including  negligent
product  design,  failure  to  warn,  strict  liability,   breach  of  warranty,
conspiracy/concert  of action,  enterprise  liability,  market share  liability,
intentional tort, and fraud and misrepresentation.

        The  plaintiffs  in  these  actions  generally  seek  to  impose  on the
defendants  responsibility for lead paint abatement and asserted health concerns
associated  with the use of lead-based  paints,  including  damages for personal
injury,  contribution  and/or  indemnification  for  medical  expenses,  medical
monitoring  expenses  and costs for  educational  programs.  Most of these legal
proceedings are in various pre-trial stages; some are on appeal.


                                            F-38

<PAGE>



        The Company  believes that these actions are without  merit,  intends to
continue to deny all  allegations  of wrongdoing and liability and to defend all
actions vigorously. The Company has not accrued any amounts for the pending lead
pigment litigation.  Considering the Company's previous  involvement in the lead
and  lead  pigment  businesses,  there  can  be  no  assurance  that  additional
litigation similar to that currently pending will not be filed.

        Environmental matters and litigation.  Some of the Company's current and
former facilities, including several divested secondary lead smelters and former
mining  locations,   are  the  subject  of  civil   litigation,   administrative
proceedings  or  investigations  arising under  federal and state  environmental
laws. Additionally,  in connection with past disposal practices, the Company has
been named a potential  responsible  party ("PRP") pursuant to the Comprehensive
Environmental  Response,  Compensation  and  Liability  Act,  as  amended by the
Superfund  Amendments and  Reauthorization  Act ("CERCLA") in  approximately  75
governmental  and private  actions  associated  with  hazardous  waste sites and
former  mining  locations,  certain  of  which  are  on the  U.S.  Environmental
Protection  Agency's  Superfund  National  Priorities  List.  These actions seek
cleanup costs, damages for personal injury or property damage and/or damages for
injury to natural  resources.  While the Company  may be jointly  and  severally
liable for such costs,  in most cases it is only one of a number of PRPs who are
also jointly and  severally  liable.  In  addition,  the Company is a party to a
number of  lawsuits  filed in  various  jurisdictions  alleging  CERCLA or other
environmental claims.

        At December  31,  2000,  the Company had accrued  $110 million for those
environmental  matters  which are  reasonably  estimable.  It is not possible to
estimate  the range of costs for  certain  sites.  The upper end of the range of
reasonably  possible  costs to the  Company  for sites  which it is  possible to
estimate costs is approximately  $170 million.  The Company's  estimates of such
liabilities  have not been discounted to present value,  and the Company has not
recognized any potential insurance recoveries other than the settlements in 2000
discussed in Note 14.

        The  imposition  of  more  stringent  standards  or  requirements  under
environmental  laws or regulations,  new developments or changes respecting site
cleanup costs or allocation  of such costs among PRPs, or a  determination  that
the Company is potentially  responsible for the release of hazardous  substances
at other  sites  could  result in  expenditures  in excess of amounts  currently
estimated by the Company to be required for such  matters.  No assurance  can be
given that actual costs will not exceed accrued  amounts or the upper end of the
range for sites for which estimates have been made and no assurance can be given
that costs will not be  incurred  with  respect to sites as to which no estimate
presently  can be made.  Further,  there  can be no  assurance  that  additional
environmental matters will not arise in the future.

        Certain of the  Company's  businesses  are and have been  engaged in the
handling,  manufacture  or use of substances or compounds that may be considered
toxic or hazardous within the meaning of applicable  environmental laws. As with
other  companies  engaged  in  similar  businesses,  certain  past  and  current
operations and products of the Company have the potential to cause environmental
or other damage.  The Company has implemented and continues to implement various
policies  and programs in an effort to minimize  these risks.  The policy of the
Company  is to  maintain  compliance  with  applicable  environmental  laws  and
regulations at all of its facilities and to strive to improve its  environmental
performance.  It  is  possible  that  future  developments,   such  as  stricter
requirements of environmental laws and enforcement  policies  thereunder,  could
adversely   affect   the   Company's   production,   handling,   use,   storage,
transportation,  sale or disposal of such  substances  as well as the  Company's
consolidated financial position, results of operations or liquidity.


                                            F-39

<PAGE>



        Other  litigation.  The  Company  is  also  involved  in  various  other
environmental,  contractual,  product  liability  and other  claims and disputes
incidental to its present and former businesses.

        The  Company  currently  believes  the  disposition  of all  claims  and
disputes  individually or in the aggregate,  should not have a material  adverse
effect on the Company's consolidated financial condition,  results of operations
or liquidity.

Concentrations of credit risk

        Sales of TiO2  accounted for more than 90% of net sales from  continuing
operations  during each of the past three years. The remaining sales result from
the mining and sale of ilmenite ore (a raw material used in the sulfate  pigment
production process),  and the manufacture and sale of iron-based water treatment
chemicals (derived from co-products of the TiO2 production  processes).  TiO2 is
generally  sold to the paint,  plastics and paper  industries.  Such markets are
generally  considered   "quality-of-life"  markets  whose  demand  for  TiO2  is
influenced  by  the  relative  economic  well-being  of the  various  geographic
regions.  TiO2 is  sold to over  4,000  customers,  with  the top ten  customers
approximating  25% of net sales in each of the last three  years.  Approximately
one-half  of the  Company's  TiO2 sales by volume  were to Europe in each of the
past three years and  approximately  37% in each of 1998, 1999 and 2000 of sales
were attributable to North America.

        Consolidated cash, cash equivalents,  current and noncurrent  restricted
cash equivalents includes $159 million and $78 million invested in U.S. Treasury
securities purchased under short-term  agreements to resell at December 31, 2000
and 1999, respectively,  of which $67 million and $58 million,  respectively, of
such securities are held in trust for the Company by a single U.S. bank.

Note 18 - Financial instruments:

        Summarized  below is the  estimated  fair value and related net carrying
value of the Company's financial instruments.

<TABLE>
<CAPTION>

                                                                  December 31,           December 31,
                                                                      2000                   1999
                                                              --------------------   -------------------
                                                              Carrying      Fair     Carrying      Fair
                                                               Amount      Value      Amount      Value
                                                              --------     -----     --------     -----
                                                                           (In millions)

<S>                                                          <C>        <C>          <C>        <C>
Cash, cash equivalents, current and noncurrent
  restricted cash equivalents ..........................     $  207.6   $    207.6   $  151.8   $  151.8
Marketable securities - classified as available-for-sale         47.2         47.2       15.1       15.1

Notes payable and long-term debt:
    Fixed rate with market quotes - Senior Secured Notes     $  194.0   $    195.9   $  244.0   $  253.2
    Variable rate debt .................................         72.1         72.1       57.6       57.6

Common shareholders' equity ............................     $  344.5   $  1,213.8   $  271.1   $  774.1

</TABLE>

        Fair value of the Company's  marketable  securities  and Notes are based
upon  quoted  market  prices  and  the  fair  value  of  the  Company's   common
shareholder's equity is based upon quoted market prices for NL's common stock at
the end of the year.  The Company held no derivative  financial  instruments  at
December 31, 2000 or 1999.

                                            F-40

<PAGE>



Note 19 - Quarterly financial data (unaudited):

<TABLE>
<CAPTION>

                                                                 Quarter ended
                                                   -----------------------------------------
                                                   March 31   June 30    Sept. 30   Dec. 31
                                                   --------   --------   --------   --------
                                                    (In thousands, except per share amounts)

<S>                                                <C>        <C>        <C>        <C>
Year ended December 31, 2000:


    Net sales ..................................   $231,009   $251,126   $242,309   $197,875
    Cost of sales ..............................    159,265    164,033    159,021    128,130
    Operating income ...........................     46,235     62,743     57,511     45,994
    Income from continuing operations ..........     23,708     63,438     30,169     38,026(a)
    Net income .................................     23,708     63,438     30,169     37,294(a)

    Earnings per share:
        Basic:
            Income from continuing operations ..   $    .47   $   1.26   $    .60   $    .76(a)
                                                   ========   ========   ========   ========
            Net income .........................   $    .47   $   1.26   $    .60   $    .75(a)
                                                   ========   ========   ========   ========
        Diluted:
            Income from continuing operations ..   $    .46   $   1.25   $    .60   $    .75(a)
                                                   ========   ========   ========   ========
            Net income .........................   $    .46   $   1.25   $    .60   $    .74(a)
                                                   ========   ========   ========   ========

    Weighted average common shares and potential
      common shares outstanding:
        Basic ..................................     50,920     50,499     50,203     50,045
        Diluted ................................     51,154     50,850     50,606     50,385

Year ended December 31, 1999:

    Net sales ..................................   $201,569   $232,568   $242,621   $231,629
    Cost of sales ..............................    147,040    167,779    181,745    165,751
    Operating income ...........................     30,961     44,136     34,759     35,812
    Net income .................................     13,940    111,823     17,146     16,862

    Earnings per share - net income:
        Basic ..................................   $    .27   $   2.16   $    .33   $    .33
                                                   ========   ========   ========   ========
        Diluted ................................   $    .27   $   2.16   $    .33   $    .33
                                                   ========   ========   ========   ========

    Weighted average common shares and potential
      common shares outstanding:
        Basic ..................................     51,819     51,826     51,835     51,614
        Diluted ................................     51,870     51,883     51,943     51,758
</TABLE>


(a)     Income from continuing operations in the fourth quarter of 2000 includes
        a $26.5 million pretax net litigation  settlement gain (see Note 14) and
        a $3.1 million  noncash  securities loss (see Note 4). Net income in the
        fourth  quarter of 2000 also includes a $.7 million  extraordinary  item
        for early extinguishment of debt, net of tax.


                                            F-41

<PAGE>



Note 20 - Discontinued operations:

        The Company sold the net assets of its Rheox specialty chemical business
to Elementis  plc for $465  million  cash (before fees and  expenses) in January
1998, including $20 million attributable to a five-year agreement by the Company
not to compete in the rheological  products business.  The Company recognized an
after-tax  gain of  approximately  $286  million  on the  sale of this  business
segment.  As a result of the sale, the Company has presented the results of this
business segment as discontinued operations.

        Condensed  income statement  related to discontinued  operations for the
month ended January 31, 1998 is as follows.  Interest expense has been allocated
to discontinued  operations based on the amount of debt specifically  attributed
to Rheox's operations.

<TABLE>
<CAPTION>

                                                                      Month ended
                                                                       January 31,
                                                                          1998
                                                                    --------------
                                                                    (In thousands)

<S>                                                                   <C>
Net sales ......................................................      $  12,630
Other expense, net .............................................            (50)
                                                                      ---------

                                                                         12,580
                                                                      ---------

Cost of sales ..................................................          6,969
Selling, general and administrative ............................          2,737
Interest expense ...............................................            771
                                                                      ---------

                                                                         10,477
                                                                      ---------

    Income before income taxes .................................          2,103

Income tax expense .............................................            778
                                                                      ---------

                                                                          1,325

Gain from sale of Rheox, net of tax expense of $86,222 .........        286,071
                                                                      ---------

                                                                      $ 287,396
                                                                      =========
</TABLE>


        Condensed  cash  flow  data  for  Rheox  (excluding  dividends  paid to,
contributions received from and intercompany loans with NL) is presented below.

<TABLE>
<CAPTION>
                                                                     Month ended
                                                                     January 31,
                                                                        1998
                                                                    --------------
                                                                    (In thousands)
<S>                                                                   <C>
Cash flows from:
    Operating activities ......................................       $ (30,587)
    Investing activities - capital expenditures ...............             (26)
    Financing activities - indebtedness, net ..................        (117,500)
                                                                      ---------

        Net change from operating, investing and
          financing activities ................................       $(148,113)
                                                                      =========
</TABLE>


                                            F-42

<PAGE>



Note 21 - Condensed consolidating financial information:

        The Company's 11.75% Senior Secured Notes are collateralized by a series
of  intercompany  notes  to  NL  (the  "Parent  Issuer").  The  Notes  are  also
collateralized  by a first  priority  lien on the  stock  of  Kronos.  A  second
priority lien on the stock of NL Capital Corporation ("NLCC") collateralized the
notes  until  February  2000,  at such time it was  merged  into KII and  became
included in the first priority lien on the stock of Kronos.

        In the event of foreclosure,  the holders of the Notes would have access
to the  consolidated  assets,  earnings and equity of the  Company.  The Company
believes  the  collateralization  of  the  Notes,  as  described  above,  is the
functional  economic  equivalent of a joint and several,  full and unconditional
guarantee of the Notes by Kronos and, prior to its merger into KII, NLCC.

        Management believes that separate audited financial statements would not
provide  additional  material  information that would be useful in assessing the
financial position of Kronos and NLCC (the "Guarantor Subsidiaries"). In lieu of
providing separate audited financial  statements of the Guarantor  Subsidiaries,
the Company has included condensed  consolidating  financial  information of the
Parent  Issuer,   Guarantor  Subsidiaries  and  non-guarantor   subsidiaries  in
accordance  with  Rule  3-10 (e) of the  SEC's  Regulation  S-X.  The  Guarantor
Subsidiaries and the non-guarantor  subsidiaries  comprise all of the direct and
indirect subsidiaries of the Parent Issuer.

        Investments  in  subsidiaries  are  accounted for by NL under the equity
method,  wherein  the parent  company's  share of  earnings  is  included in net
income.   The  elimination   entries   eliminate  the  parent's   investment  in
subsidiaries and the equity in earnings of subsidiaries,  intercompany  payables
and receivables and other transactions between subsidiaries.

                                            F-43

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                            Condensed Consolidating Balance Sheet
                                      December 31, 2000
                                        (In thousands)

<TABLE>
<CAPTION>


                                                                      Combined
                                      NL Industries,                Non-guarantor
                                           Inc.       Kronos, Inc.  Subsidiaries   Eliminations    Consolidated
                                      --------------  ------------  -------------  ------------    ------------

                     ASSETS
<S>                                    <C>           <C>           <C>            <C>            <C>
Current assets:
    Cash and cash equivalents ......   $     3,632   $    52,979   $    63,767    $      --      $   120,378
    Restricted cash equivalents ....        69,242          --            --             --           69,242
    Accounts and notes receivable ..           172       131,295            73           --          131,540
    Receivable from affiliates .....         6,189          --             216         (6,191)           214
    Refundable income taxes ........        10,512         1,790          --             --           12,302
    Inventories ....................          --         205,973          --             --          205,973
    Prepaid expenses ...............           347         2,111          --             --            2,458
    Deferred income taxes ..........         6,394         5,279          --             --           11,673
                                       -----------   -----------   -----------    -----------    -----------

        Total current assets .......        96,488       399,427        64,056         (6,191)       553,780
                                       -----------   -----------   -----------    -----------    -----------

Other assets:
    Investment in subsidiaries .....       687,300          --             285       (687,585)          --
    Marketable securities ..........           452          --          46,734           --           47,186
    Notes receivable from affiliates       194,000       301,695        23,000       (518,695)          --
    Investment in joint venture ....          --         150,002          --             --          150,002
    Prepaid pension cost ...........         1,772        21,017          --             --           22,789
    Restricted cash equivalents ....        17,942          --            --             --           17,942
    Other ..........................         1,739         2,968          --             --            4,707
                                       -----------   -----------   -----------    -----------    -----------

        Total other assets .........       903,205       475,682        70,019     (1,206,280)       242,626
                                       -----------   -----------   -----------    -----------    -----------

Property and equipment, net ........         4,425       319,957          --             --          324,382
                                       -----------   -----------   -----------    -----------    -----------

                                       $ 1,004,118   $ 1,195,066   $   134,075    $(1,212,471)   $ 1,120,788
                                       ===========   ===========   ===========    ===========    ===========
</TABLE>


                                           F - 44

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                      Condensed Consolidating Balance Sheet, (Continued)
                                      December 31, 2000
                                        (In thousands)

<TABLE>
<CAPTION>
                                                                                Combined
                                                NL Industries,                Non-guarantor
                                                    Inc.       Kronos, Inc.   Subsidiaries    Eliminations    Consolidated
                                                -----------    -----------    -------------   ------------    ------------

      LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                             <C>            <C>            <C>             <C>             <C>
Current liabilities:

    Notes payable ..........................    $      --      $    69,970    $      --       $      --       $    69,970
    Current maturities of long-term debt ...           --              730           --              --               730
    Accounts payable and accrued liabilities         29,144        123,555         48,485            --           201,184
    Payable to affiliates ..................          2,140         14,073            612          (6,191)         10,634
    Income taxes ...........................           --           13,604             12            --            13,616
    Deferred income taxes ..................           --            1,822           --              --             1,822
                                                -----------    -----------    -----------     -----------     -----------

        Total current liabilities ..........         31,284        223,754         49,109          (6,191)        297,956
                                                -----------    -----------    -----------     -----------     -----------

Noncurrent liabilities:
    Long-term debt .........................        194,000          1,363           --              --           195,363
    Notes payable to affiliate .............        324,695        194,000           --          (518,695)           --
    Deferred income taxes ..................         70,985         73,699            989            --           145,673
    Accrued pension cost ...................          1,438         19,782           --              --            21,220
    Accrued postretirement benefits cost ...         15,039         14,365           --              --            29,404
    Other ..................................         22,189         16,511         41,705            --            80,405
                                                -----------    -----------    -----------     -----------     -----------

        Total noncurrent liabilities .......        628,346        319,720         42,694        (518,695)        472,065
                                                -----------    -----------    -----------     -----------     -----------

Minority interest ..........................           --              299          5,980            --             6,279
                                                -----------    -----------    -----------     -----------     -----------

Shareholders' equity .......................        344,488        651,293         36,292        (687,585)        344,488
                                                -----------    -----------    -----------     -----------     -----------

                                                $ 1,004,118    $ 1,195,066    $   134,075     $(1,212,471)    $ 1,120,788
                                                ===========    ===========    ===========     ===========     ===========
</TABLE>


                                           F - 45

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                            Condensed Consolidating Balance Sheet
                                      December 31, 1999
                                        (In thousands)

<TABLE>
<CAPTION>
                                                        Combined       Combined
                                       NL Industries,   Guarantor     Non-guarantor
                                           Inc.        Subsidiaries    Subsidiaries   Eliminations    Consolidated
                                       --------------  ------------   -------------   ------------    ------------

                     ASSETS
<S>                                     <C>            <C>            <C>             <C>             <C>
Current assets:

    Cash and cash equivalents ......    $    13,415    $   113,062    $     7,747     $      --       $   134,224
    Restricted cash equivalents ....         17,565           --             --              --            17,565
    Accounts and notes receivable ..             61        143,647             60            --           143,768
    Receivable from affiliates .....         11,668           --              562         (11,483)            747
    Refundable income taxes ........            317          4,155              1            --             4,473
    Inventories ....................           --          191,184           --              --           191,184
    Prepaid expenses ...............            227          2,265           --              --             2,492
    Deferred income taxes ..........          5,774          6,200           --              --            11,974
                                        -----------    -----------    -----------     -----------     -----------

        Total current assets .......         49,027        460,513          8,370         (11,483)        506,427
                                        -----------    -----------    -----------     -----------     -----------

Other assets:
    Investment in subsidiaries .....        558,898           --              285        (559,183)           --
    Marketable securities ..........          2,600           --           12,455            --            15,055
    Notes receivable from affiliates        244,000        185,839         78,000        (507,839)           --
    Investment in joint venture ....           --          157,552           --              --           157,552
    Prepaid pension cost ...........           --           24,127           --              (856)         23,271
    Deferred income taxes ..........          3,992             41           --            (3,992)             41
    Other ..........................          2,620          2,749           --              --             5,369
                                        -----------    -----------    -----------     -----------     -----------

        Total other assets .........        812,110        370,308         90,740      (1,071,870)        201,288
                                        -----------    -----------    -----------     -----------     -----------

Property and equipment, net ........          5,174        343,284           --              --           348,458
                                        -----------    -----------    -----------     -----------     -----------

                                        $   866,311    $ 1,174,105    $    99,110     $(1,083,353)    $ 1,056,173
                                        ===========    ===========    ===========     ===========     ===========
</TABLE>


                                           F - 46

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                      Condensed Consolidating Balance Sheet, (Continued)
                                      December 31, 1999
                                        (In thousands)


<TABLE>
<CAPTION>

                                                                  Combined       Combined
                                              NL Industries,     Guarantor     Non-guarantor
                                                   Inc.         Subsidiaries    Subsidiaries   Eliminations    Consolidated
                                              --------------   -------------   -------------   ------------    ------------

      LIABILITIES AND SHAREHOLDERS' EQUITY
<S>                                             <C>            <C>            <C>             <C>             <C>
Current liabilities:

    Notes payable ..........................    $      --      $    57,076    $      --       $      --       $    57,076
    Current maturities of long-term debt ...           --              212           --              --               212
    Accounts payable and accrued liabilities         30,397        114,512         45,451            --           190,360
    Payable to affiliates ..................          3,444         20,368            614         (13,186)         11,240
    Income taxes ...........................          1,470          4,135           --              --             5,605
    Deferred income taxes ..................           --              326           --              --               326
                                                -----------    -----------    -----------     -----------     -----------

        Total current liabilities ..........         35,311        196,629         46,065         (13,186)        264,819
                                                -----------    -----------    -----------     -----------     -----------

Noncurrent liabilities:
    Long-term debt .........................        244,000            266           --              --           244,266
    Notes payable to affiliate .............        263,839        244,000           --          (507,839)           --
    Deferred income taxes ..................           --          111,932            286          (3,992)        108,226
    Accrued pension cost ...................          8,410         25,392           --              (856)         32,946
    Accrued postretirement benefits cost ...         21,625         15,480           --              --            37,105
    Other ..................................         22,039         21,076         50,706            --            93,821
                                                -----------    -----------    -----------     -----------     -----------

        Total noncurrent liabilities .......        559,913        418,146         50,992        (512,687)        516,364
                                                -----------    -----------    -----------     -----------     -----------

Minority interest ..........................           --              312          3,591            --             3,903
                                                -----------    -----------    -----------     -----------     -----------

Shareholders' equity (deficit) .............        271,087        559,018         (1,538)       (557,480)        271,087
                                                -----------    -----------    -----------     -----------     -----------

                                                $   866,311    $ 1,174,105    $    99,110     $(1,083,353)    $ 1,056,173
                                                ===========    ===========    ===========     ===========     ===========
</TABLE>


                                           F - 47

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                         Condensed Consolidating Statement of Income
                                 Year ended December 31, 2000
                                        (In thousands)

<TABLE>
<CAPTION>

                                                                      Combined       Combined
                                                  NL Industries,     Guarantor     Non-guarantor
                                                       Inc.         Subsidiaries    Subsidiaries   Eliminations    Consolidated
                                                  --------------    ------------   -------------   ------------    ------------
<S>                                                 <C>             <C>             <C>             <C>             <C>
Revenues and other income:

    Net sales ..................................    $      --       $   922,319     $      --       $      --       $   922,319
    Interest and dividends .....................         31,598          25,587           5,937         (52,443)         10,679
    Equity in income of subsidiaries ...........        173,620            --              --          (173,620)           --
    Litigation settlement gains, net ...........         69,465            --              --              --            69,465
    Other income, net ..........................         12,595           5,834            --            (5,825)         12,604
                                                    -----------     -----------     -----------     -----------     -----------

                                                        287,278         953,740           5,937        (231,888)      1,015,067
                                                    -----------     -----------     -----------     -----------     -----------

Costs and expenses:
    Cost of sales ..............................           --           610,449            --              --           610,449
    Selling, general and administrative ........         25,381         112,429            (632)           --           137,178
    Interest ...................................         52,701          30,985            --           (52,443)         31,243
                                                    -----------     -----------     -----------     -----------     -----------

                                                         78,082         753,863            (632)        (52,443)        778,870
                                                    -----------     -----------     -----------     -----------     -----------

        Income before income taxes, minority
          interest and extraordinary item ......        209,196         199,877           6,569        (179,445)        236,197
Income tax expense .............................         53,855          22,850              12           1,703          78,420
                                                    -----------     -----------     -----------     -----------     -----------

        Income before minority interest and
          extraordinary item ...................        155,341         177,027           6,557        (181,148)        157,777

Minority interest ..............................           --                47           2,389            --             2,436
                                                    -----------     -----------     -----------     -----------     -----------

        Income before extraordinary item .......        155,341         176,980           4,168        (181,148)        155,341

Extraordinary item-early extinguishment of debt,
  net of tax benefit of $394 ...................           (732)           --              --              --              (732)
                                                    -----------     -----------     -----------     -----------     -----------

        Net income .............................    $   154,609     $   176,980     $     4,168     $  (181,148)    $   154,609
                                                    ===========     ===========     ===========     ===========     ===========

</TABLE>

                                           F - 48

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                         Condensed Consolidating Statement of Income
                                 Year ended December 31, 1999
                                        (In thousands)

<TABLE>
<CAPTION>

                                                        Combined       Combined
                                        NL Industries,  Guarantor   Non-guarantor
                                            Inc.       Subsidiaries Subsidiaries  Eliminations   Consolidated
                                        -------------- ------------ ------------- ------------   ------------
<S>                                        <C>          <C>          <C>           <C>           <C>
Revenues and other income:

    Net sales .........................    $    --      $ 908,387    $    --       $    --       $ 908,387
    Interest and dividends ............       30,843       24,425        6,823       (53,129)        8,962
    Equity in income of subsidiaries ..      154,625         --           --        (154,625)         --
    Other income, net .................        4,565       10,119         --            --          14,684
                                           ---------    ---------    ---------     ---------     ---------

                                             190,033      942,931        6,823      (207,754)      932,033
                                           ---------    ---------    ---------     ---------     ---------

Costs and expenses:
    Cost of sales .....................         --        662,315         --            --         662,315
    Selling, general and administrative       16,037      116,138        2,167          --         134,342
    Interest ..........................       49,872       40,141         --         (53,129)       36,884
                                           ---------    ---------    ---------     ---------     ---------

                                              65,909      818,594        2,167       (53,129)      833,541
                                           ---------    ---------    ---------     ---------     ---------

        Income before income taxes
          and minority interest .......      124,124      124,337        4,656      (154,625)       98,492

Income tax benefit ....................       35,647       26,955        1,999          --          64,601
                                           ---------    ---------    ---------     ---------     ---------

        Income before minority interest      159,771      151,292        6,655      (154,625)      163,093

Minority interest .....................         --             48        3,274          --           3,322
                                           ---------    ---------    ---------     ---------     ---------

        Net income ....................    $ 159,771    $ 151,244    $   3,381     $(154,625)    $ 159,771
                                           =========    =========    =========     =========     =========

</TABLE>

                                           F - 49

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                         Condensed Consolidating Statement of Income
                                 Year ended December 31, 1998
                                        (In thousands)

<TABLE>
<CAPTION>


                                                                    Combined     Combined
                                                   NL Industries,   Guarantor   Non-guarantor
                                                       Inc.        Subsidiaries Subsidiaries  Eliminations  Consolidated
                                                   --------------  ------------ ------------  ------------  ------------
<S>                                                   <C>           <C>          <C>           <C>           <C>
Revenues and other income:

    Net sales ....................................    $    --       $ 894,724    $    --       $    --       $ 894,724
    Interest and dividends .......................       57,901        18,481        3,559       (62,905)       17,036
    Equity in income of subsidiaries .............       73,839          --           --         (73,839)         --
    Other income, net ............................       10,056         4,069       (1,997)       (3,711)        8,417
                                                      ---------     ---------    ---------     ---------     ---------
                                                        141,796       917,274        1,562      (140,455)      920,177
                                                      ---------     ---------    ---------     ---------     ---------
Costs and expenses:
    Cost of sales ................................         --         618,754         --            (307)      618,447
    Selling, general and administrative ..........       10,756       122,523          691          --         133,970
    Interest .....................................       55,078        70,762         --         (67,770)       58,070
                                                      ---------     ---------    ---------     ---------     ---------
                                                         65,834       812,039          691       (68,077)      810,487
                                                      ---------     ---------    ---------     ---------     ---------

        Income from continuing operations before
          income taxes and minority interest .....       75,962       105,235          871       (72,378)      109,690

Income tax expense (benefit) .....................      (13,900)       33,601         --              87        19,788
                                                      ---------     ---------    ---------     ---------     ---------

        Income from continuing operations before
          minority interest ......................       89,862        71,634          871       (72,465)       89,902
Minority interest ................................         --              40         --            --              40
                                                      ---------     ---------    ---------     ---------     ---------

        Income from continuing operations ........       89,862        71,594          871       (72,465)       89,862

Discontinued operations ..........................      287,396       285,385         --        (285,385)      287,396
Extraordinary item - early extinguishment of debt,
  net of tax benefit of $5,698 ...................      (10,580)          999         --            (999)      (10,580)
                                                      ---------     ---------    ---------     ---------     ---------

        Net income ...............................    $ 366,678     $ 357,978    $     871     $(358,849)    $ 366,678
                                                      =========     =========    =========     =========     =========

</TABLE>

                                           F - 50

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                       Condensed Consolidating Statement of Cash Flows
                                 Year ended December 31, 2000
                                        (In thousands)

<TABLE>
<CAPTION>

                                                                          Combined      Combined
                                                         NL Industries,  Guarantor    Non-guarantor
                                                             Inc.        Subsidiaries   Subsidiaries Eliminations   Consolidated
                                                         --------------  ------------ -------------- ------------   ------------

<S>                                                         <C>           <C>           <C>           <C>           <C>
Net cash provided (used) by operating activities .......    $  12,318     $ 177,642     $   4,795     $ (55,000)    $ 139,755
                                                            ---------     ---------     ---------     ---------     ---------
Cash flows from investing activities:
    Capital expenditures ...............................          (23)      (31,066)         --            --         (31,089)
    Purchase of Tremont Corporation common stock .......      (26,040)         --            --            --         (26,040)
    Change in restricted cash ..........................        4,480          --          (3,850)         --             630
    Loans to affiliates ................................       50,000      (115,856)       55,000        10,856          --
    Other, net .........................................          107            77          --              80           264
                                                            ---------     ---------     ---------     ---------     ---------

        Net cash provided (used) by investing activities       28,524      (146,845)       51,150        10,936       (56,235)
                                                            ---------     ---------     ---------     ---------     ---------


Cash flows from financing activities:
    Indebtedness:
        Borrowings .....................................         --          44,923          --            --          44,923
        Principal payments .............................      (50,000)      (29,162)         --            --         (79,162)
    Treasury stock:
        Purchased ......................................      (30,886)         --            --            --         (30,886)
        Reissued .......................................        2,091          --            --            --           2,091
    Dividends, net .....................................      (32,686)      (55,000)         --          55,000       (32,686)
    Loans from affiliates ..............................       60,856       (50,000)         --         (10,856)         --
    Other, net .........................................         --              (6)           80           (80)           (6)
                                                            ---------     ---------     ---------     ---------     ---------

        Net cash provided (used) by financing activities      (50,625)      (89,245)           80        44,064       (95,726)
                                                            ---------     ---------     ---------     ---------     ---------


Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities ..       (9,783)      (58,448)       56,025          --         (12,206)
        Currency translation ...........................         --          (1,635)           (5)         --          (1,640)
                                                            ---------     ---------     ---------     ---------     ---------

                                                               (9,783)      (60,083)       56,020          --         (13,846)
    Balance at beginning of year .......................       13,415       113,062         7,747          --         134,224
                                                            ---------     ---------     ---------     ---------     ---------


    Balance at end of year .............................    $   3,632     $  52,979     $  63,767     $    --       $ 120,378
                                                            =========     =========     =========     =========     =========
</TABLE>


                                           F - 51

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                       Condensed Consolidating Statement of Cash Flows
                                 Year ended December 31, 1999
                                        (In thousands)

<TABLE>
<CAPTION>
                                                                            Combined     Combined
                                                           NL Industries,   Guarantor   Non-guarantor
                                                                Inc.       Subsidiaries  Subsidiaries Eliminations  Consolidated
                                                           --------------  ------------ ------------- ------------  ------------

<S>                                                         <C>           <C>           <C>           <C>           <C>
Net cash provided (used) by operating activities .......    $  28,742     $ 134,937     $  (5,371)    $ (50,000)    $ 108,308
                                                            ---------     ---------     ---------     ---------     ---------

Cash flows from investing activities:
    Capital expenditures ...............................       (2,856)      (32,703)         --            --         (35,559)
    Change in restricted cash ..........................      (12,065)         --           6,889          --          (5,176)
    Other, net .........................................          (17)        2,334          --              27         2,344
                                                            ---------     ---------     ---------     ---------     ---------
        Net cash provided (used) by investing activities      (14,938)      (30,369)        6,889            27       (38,391)
                                                            ---------     ---------     ---------     ---------     ---------
Cash flows from financing activities:
    Indebtedness:
        Borrowings .....................................         --          82,038          --            --          82,038
        Principal payments .............................         --        (155,787)         --            --        (155,787)
    Treasury stock purchased ...........................       (7,000)         --            --            --          (7,000)
    Dividends, net .....................................       (7,242)      (50,030)           30        50,000        (7,242)
    Other, net .........................................         --              (6)           27           (27)           (6)
                                                            ---------     ---------     ---------     ---------     ---------

        Net cash provided (used) by financing activities      (14,242)     (123,785)           57        49,973       (87,997)
                                                            ---------     ---------     ---------     ---------     ---------
Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities ..         (438)      (19,217)        1,575          --         (18,080)
        Currency translation ...........................         --          (2,649)         --            --          (2,649)
                                                                 (438)      (21,866)        1,575          --         (20,729)
    Balance at beginning of year .......................       13,853       134,928         6,172          --         154,953
                                                            ---------     ---------     ---------     ---------     ---------

    Balance at end of year .............................    $  13,415     $ 113,062     $   7,747     $    --       $ 134,224
                                                            =========     =========     =========     =========     =========
</TABLE>


                                           F - 52

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                       Condensed Consolidating Statement of Cash Flows
                                 Year ended December 31, 1998
                                        (In thousands)

<TABLE>
<CAPTION>

                                                                                  Combined     Combined
                                                                 NL Industries,  Guarantor   Non-guarantor
                                                                      Inc.      Subsidiaries  Subsidiaries Eliminations Consolidated
                                                                 -------------- ------------ ------------- ------------ ------------

<S>                                                                <C>           <C>           <C>           <C>          <C>
Net cash provided (used) by operating activities ..............    $  92,846     $  35,899     $ (68,658)    $ (15,000)   $  45,087
                                                                   ---------     ---------     ---------     ---------    ---------
Cash flows from investing activities:
    Capital expenditures ......................................          (82)      (22,310)         --            --        (22,392)
    Proceeds from disposition of securities ...................        6,875          --            --            --          6,875
    Change in restricted cash .................................         (566)        4,817        (6,889)         --         (2,638)
    Loans to affiliates .......................................         --        (224,660)         --         224,660         --
    Proceeds from sale of specialty chemicals business ........         --         435,080          --            --        435,080
    Other, net ................................................           87           284          --            --            371
                                                                   ---------     ---------     ---------     ---------    ---------
        Net cash provided (used) by investing activities ......        6,314       193,211        (6,889)      224,660      417,296
                                                                   ---------     ---------     ---------     ---------    ---------
Cash flows from financing activities:
    Indebtedness:
        Borrowings ............................................         --          30,491          --            --         30,491
        Principal payments ....................................     (193,498)     (108,113)      (14,281)         --       (315,892)
    Settlement of shareholder derivative lawsuit, net .........       11,211          --            --            --         11,211
    Dividends, net ............................................       (4,636)      (15,000)         --          15,000       (4,636)
    Loans from affiliates .....................................       89,839        38,821        96,000      (224,660)        --
    Discontinued operations, net ..............................         --        (117,500)         --            --       (117,500)
    Other, net ................................................          170            (2)         --            --            168
                                                                   ---------     ---------     ---------     ---------    ---------
        Net cash provided (used) by financing activities ......      (96,914)     (171,303)       81,719      (209,660)    (396,158)
                                                                   ---------     ---------     ---------     ---------    ---------
Cash and cash equivalents:
    Net change from:
        Operating, investing and financing activities .........        2,246        57,807         6,172          --         66,225
        Currency translation ..................................         --             (36)         --            --            (36)
        Sale of discontinued operation ........................         --          (7,630)         --            --         (7,630)
                                                                   ---------     ---------     ---------     ---------    ---------
                                                                       2,246        50,141         6,172          --         58,559
    Balance at beginning of year ..............................       11,607        84,787          --            --         96,394
                                                                   ---------     ---------     ---------     ---------    ---------
    Balance at end of year ....................................    $  13,853     $ 134,928     $   6,172     $    --      $ 154,953
                                                                   =========     =========     =========     =========    =========

</TABLE>

                                           F - 53

<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS
                        ON FINANCIAL STATEMENT SCHEDULES


To the Board of Directors of NL Industries, Inc.:

        Our audits of the consolidated  financial  statements referred to in our
report dated  February 28, 2001  appearing on page F-2 in the 2000 Annual Report
to  Shareholders  on  Form  10-K  of  NL  Industries,  Inc.  (which  report  and
consolidated  financial  statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the financial statement schedules
listed in Item 14(a) and (d) of this Form 10-K. In our opinion,  these financial
statement  schedules present fairly, in all material  respects,  the information
set  forth  therein  when  read in  conjunction  with the  related  consolidated
financial statements.




PricewaterhouseCoopers LLP

Houston, Texas
February 28, 2001


                                            S-1

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES
                   SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                   Condensed Balance Sheets
                                  December 31, 2000 and 1999
                                        (In thousands)
<TABLE>
<CAPTION>

                                                           2000          1999
                                                        ----------    ----------

                    ASSETS
<S>                                                     <C>           <C>
Current assets:

    Cash and cash equivalents ......................    $    3,632    $   13,415
    Restricted cash equivalents ....................        69,242        17,565
    Accounts and notes receivable ..................           172            61
    Receivable from subsidiaries ...................         6,189        11,668
    Refundable income taxes ........................        10,512           317
    Prepaid expenses ...............................           347           227
    Deferred income taxes ..........................         6,394         5,774
                                                        ----------    ----------
        Total current assets .......................        96,488        49,027
                                                        ----------    ----------
Other assets:
    Marketable securities ..........................           452         2,600
    Notes receivable from subsidiary ...............       194,000       244,000
    Investment in subsidiaries .....................       687,300       558,898
    Deferred income taxes ..........................          --           3,992
    Restricted cash equivalents ....................        17,942          --
    Prepaid pension cost ...........................         1,772          --
    Other ..........................................         1,739         2,620
                                                        ----------    ----------
        Total other assets .........................       903,205       812,110
                                                        ----------    ----------
Property and equipment, net ........................         4,425         5,174
                                                        ----------    ----------
                                                        $1,004,118    $  866,311
                                                        ==========    ==========
               LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
    Accounts payable and accrued liabilities .......    $   29,144    $   30,397
    Payable to affiliates ..........................         2,140         3,444
    Income taxes ...................................          --           1,470
                                                        ----------    ----------
        Total current liabilities ..................        31,284        35,311
                                                        ----------    ----------
Noncurrent liabilities:
    Long-term debt .................................       194,000       244,000
    Notes payable to affiliates ....................       324,695       263,839
    Deferred income taxes ..........................        70,985          --
    Accrued pension cost ...........................         1,438         8,410
    Accrued postretirement benefits cost ...........        15,039        21,625
    Other ..........................................        22,189        22,039
                                                        ----------    ----------
        Total noncurrent liabilities ...............       628,346       559,913
                                                        ----------    ----------
Shareholders' equity ...............................       344,488       271,087
                                                        ----------    ----------
                                                        $1,004,118    $  866,311
                                                        ==========    ==========
</TABLE>
Contingencies (Note 4)

                                            S-2

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

            SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                                Condensed Statements of Income

                         Years ended December 31, 2000, 1999 and 1998

                                        (In thousands)


<TABLE>
<CAPTION>

                                               2000           1999          1998
                                             ---------     ---------     ---------
<S>                                          <C>           <C>           <C>
Revenues and other income:
    Equity in income from continuing
      operations of subsidiaries ........    $ 173,620     $ 154,625     $  73,839
    Interest and dividends ..............        2,961         1,184         1,812
    Interest income from subsidiaries ...       28,637        29,659        56,089
    Securities gains, net ...............        8,356          --           5,635
    Litigation settlement gains, net ....       69,465          --            --
    Other income, net ...................        4,239         4,565         4,421
                                             ---------     ---------     ---------

                                               287,278       190,033       141,796
                                             ---------     ---------     ---------
Costs and expenses:
    General and administrative ..........       25,381        16,037        10,756
    Interest ............................       52,701        49,872        55,078
                                             ---------     ---------     ---------
                                                78,082        65,909        65,834
                                             ---------     ---------     ---------
        Income from continuing operations
          before income taxes ...........      209,196       124,124        75,962

Income tax expense (benefit) ............       53,855       (35,647)      (13,900)
                                             ---------     ---------     ---------
        Income from continuing operations      155,341       159,771        89,862

Discontinued operations .................         --            --         287,396
Extraordinary items .....................         (732)         --         (10,580)
                                             ---------     ---------     ---------

        Net income ......................    $ 154,609     $ 159,771     $ 366,678
                                             =========     =========     =========

</TABLE>


                                            S-3

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

            SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                              Condensed Statements of Cash Flows

                         Years ended December 31, 2000, 1999 and 1998

                                        (In thousands)

<TABLE>
<CAPTION>


                                                               2000          1999          1998
                                                            ---------     ---------     ---------
<S>                                                         <C>           <C>           <C>
Cash flows from operating activities:

    Net income .........................................    $ 154,609     $ 159,771     $ 366,678
    Equity in income of subsidiaries:
        Continuing .....................................     (173,620)     (154,625)      (73,839)
        Discontinued ...................................         --            --        (287,396)
    Distributions from subsidiaries ....................       55,000        50,000        15,000
    Noncash interest income, net .......................         (932)         (390)       (8,660)
    Deferred income taxes ..............................       71,837       (18,071)       (3,862)
    Securities gains, net ..............................       (8,356)         --          (3,711)
    Litigation settlement gains, net ...................      (69,465)         --            --
    Other, net .........................................       (4,399)       (3,164)       (3,382)
                                                            ---------     ---------     ---------

                                                               24,674        33,521           828

    Change in assets and liabilities, net ..............      (12,356)       (4,779)       92,018
                                                            ---------     ---------     ---------

        Net cash provided by operating activities ......       12,318        28,742        92,846
                                                            ---------     ---------     ---------

Cash flows from investing activities:
    Change in restricted cash equivalents, net .........        4,480       (12,065)         (566)
    Capital expenditures ...............................          (23)       (2,856)          (82)
    Purchase of Tremont Corporation common stock .......      (26,040)         --            --
    Loans to affiliates ................................       50,000          --            --
    Investments in subsidiaries ........................          (80)          (27)         --
    Proceeds from disposition of marketable securities .          158          --           6,875
    Other, net .........................................           29            10            87
                                                            ---------     ---------     ---------

        Net cash provided (used) by investing activities       28,524       (14,938)        6,314
                                                            ---------     ---------     ---------

</TABLE>

                                            S-4

<PAGE>



                             NL INDUSTRIES, INC. AND SUBSIDIARIES

            SCHEDULE I-CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                        Condensed Statements of Cash Flows (Continued)

                         Years ended December 31, 2000, 1999 and 1998

                                        (In thousands)


<TABLE>
<CAPTION>

                                                            2000          1999          1998
                                                         ---------     ---------     ---------
<S>                                                      <C>           <C>           <C>
Cash flows from financing activities:
    Dividends .......................................    $ (32,686)    $  (7,242)    $  (4,636)
    Treasury stock:
        Purchased ...................................      (30,886)       (7,210)         --
        Reissued ....................................        2,091           210           170
    Indebtedness - principal payments ...............      (50,000)         --        (193,498)
    Loans from affiliates ...........................       60,856          --          89,839
    Settlement of shareholder derivative lawsuit, net         --            --          11,211
                                                         ---------     ---------     ---------

        Net cash used by financing activities .......      (50,625)      (14,242)      (96,914)
                                                         ---------     ---------     ---------

    Net change from operating, investing and
      financing activities ..........................       (9,783)         (438)        2,246
    Balance at beginning of year ....................       13,415        13,853        11,607
                                                         ---------     ---------     ---------

    Balance at end of year ..........................    $   3,632     $  13,415     $  13,853
                                                         =========     =========     =========

</TABLE>


                                            S-5

<PAGE>



                      NL INDUSTRIES, INC. AND SUBSIDIARIES

     SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued)

                    Notes to Condensed Financial Information


Note 1 - Basis of presentation:

         The  Consolidated  Financial  Statements  of NL  Industries,  Inc. (the
"Company")  and the  related  Notes to  Consolidated  Financial  Statements  are
incorporated herein by reference.

Note 2 - Net receivable from (payable to) subsidiaries and affiliates:

<TABLE>
<CAPTION>
                                                             December 31,
                                                    ---------------------------
                                                       2000              1999
                                                    ---------         ---------

                                                           (In thousands)
<S>                                                 <C>               <C>
Current:
    Receivable from:
        Kronos:

            Income taxes ...................        $   1,260         $   3,790
            Other, net .....................            4,103             6,507
        Timet ..............................                1               310
        CompX ..............................               82               176
        Other ..............................              743               885
                                                    ---------         ---------

                                                    $   6,189         $  11,668
                                                    =========         =========

    Payable to:
        Tremont ............................        $  (1,925)        $  (2,859)
        NLEMS ..............................             (146)             (562)
        Other ..............................              (69)              (23)
                                                    ---------         ---------

                                                    $  (2,140)        $  (3,444)
                                                    =========         =========
Noncurrent:
    Notes receivable from Kronos ...........        $ 194,000         $ 244,000
                                                    =========         =========

    Notes payable to:
        Kronos .............................        $(301,695)        $(185,839)
        NLEMS ..............................          (23,000)          (78,000)
                                                    ---------         ---------

                                                    $(324,695)        $(263,839)
                                                    =========         =========
</TABLE>


                                            S-6

<PAGE>



Note 3 - Long-term debt:

        See Note 9 of the Consolidated Financial Statements for a description of
the Notes.  The Company's  $194 million of Senior  Secured Notes at December 31,
2000  are  due  October  2003.  The  Company  has  guaranteed  Kronos'  non-U.S.
dollar-denominated notes payable of $70 million.

Note 4 - Contingencies:

See Legal proceedings in Note 17 to the Consolidated Financial Statements.


                                            S-7

<PAGE>


                             NL INDUSTRIES, INC. AND SUBSIDIARIES

                        SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                                        (In thousands)

<TABLE>
<CAPTION>

                                                                         Charges
                                                                        (credits)
                                                            Balance at   to costs                          Currency
                                                            beginning      and                            translation  Balance at
                       Description                           of year     expenses     Deductions          adjustments  end of year
                       -----------                          ----------  ---------    -----------          -----------  -----------

<S>                                                         <C>         <C>          <C>                   <C>          <C>
Year ended December 31, 2000:

    Allowance for doubtful accounts and notes receivable    $  2,075    $    342     $    (67) (a)         $   (128)    $  2,222
                                                            ========    ========     =========             ========     ========

    Amortization of intangibles ........................    $ 22,095    $    113     $     --              $ (1,779)    $ 20,429
                                                            ========    ========     =========             ========     ========

Year ended December 31, 1999:
    Allowance for doubtful accounts and notes receivable    $  2,377    $    140     $    (180) (a)        $   (262)    $  2,075
                                                            ========    ========     =========             ========     ========

    Amortization of intangibles ........................    $ 23,704    $  1,851     $      --             $ (3,460)    $ 22,095
                                                            ========    ========     =========             ========     ========

Year ended December 31, 1998:
    Allowance for doubtful accounts and notes receivable    $  2,828    $   (208)    $    (363) (a)(b)     $    120     $  2,377
                                                            ========    ========     =========             ========     ========

    Amortization of intangibles ........................    $ 22,366    $  2,438     $  (2,757) (b)        $  1,657     $ 23,704
                                                            ========    ========     =========             ========     ========
</TABLE>

- ---------------------------------------------
(a)     Amounts written off, less recoveries.
(b)     Sale of Rheox's assets.













                                            S-8

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.34
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>REVOLVING LOAN NOTE WITH TREMONT AND NLEMS
<TEXT>

                                                                 Exhibit 10.34


                               REVOLVING LOAN NOTE


$13,400,000                                                   February 9, 2001

      FOR VALUE  RECEIVED,  the  undersigned,  Tremont  Corporation,  a Delaware
corporation  ("Maker"),  promises  to pay,  on or  before  March  31,  2003 (the
"Maturity Date"), to the order of NL Environmental  Management Services, Inc., a
New Jersey  corporation  ("Payee") or any subsequent  holder,  at its offices at
16825  Northchase  Drive,  Suite  1200,  Houston TX 77060,  or such other  place
designated  by holder in writing,  the  principal  sum of THIRTEEN  MILLION FOUR
HUNDRED THOUSAND DOLLARS ($13,400,000), or such lesser amount as shall equal the
aggregate  principal  amount  of all  revolving  loans  made to  Maker  by Payee
hereunder (the "Revolving  Loans"),  together with interest from the date hereof
on the unpaid balance of this Note as it may exist from time to time at the rate
(herein  called  the  "Applicable  Rate") of prime plus two  percent  per annum,
determined at the beginning of each calendar quarter,  and in no event shall the
Applicable  Rate exceed the maximum  interest rate  permitted to be charged from
time to time under  applicable  law  (herein  called the  "Maximum  Rate").  The
Applicable Rate shall be determined based upon the published prime rate. Accrued
interest on the unpaid  principal of this Note shall be computed on the basis of
a 360-day  year  applied to the  actual  number of days in each  calendar  month
payable on the last business day of each calendar quarter.  Notwithstanding  the
foregoing, if at any time the Applicable Rate exceeds the Maximum Rate, the rate
of  interest  payable  under this Note shall be limited to the  Maximum  Rate as
provided above.

      Subject to the terms and  conditions  set forth in this Note,  Payee shall
make Revolving Loans to Maker at any time and from time to time from the date of
this Note until the  Maturity  Date,  in an  aggregate  principal  amount not to
exceed at any one time the Maximum  Revolving  Loan Amount (as defined below) at
such time. Revolving Loans made under this Note shall be in an integral multiple
of  $200,000  and shall be wired by Payee to the account of Maker  requested  by
Maker prior to 3:00 p.m.,  New York time, on the date  proposed by Maker.  Maker
shall give Payee irrevocable  written notice of all proposed Revolving Loans not
later than three  business  days prior to the proposed  borrowing (a  "Borrowing
Notice").  Such Borrowing Notice shall specify the aggregate principal amount of
the  Revolving  Loan that Maker is  requesting  Payee to make and the  requested
effective date of the proposed  Revolving  Loan.  Each Revolving Loan shall bear
interest  on the  outstanding  principal  balance  thereof  from the  date  such
Revolving  Loan is made at the  Applicable  Rate.  The "Maximum  Revolving  Loan
Amount" shall mean Thirteen Million Four Hundred Thousand Dollars ($13,400,000),
subject to reduction in accordance with the provisions of this Note.

      The Maximum  Revolving  Loan Amount  shall be  permanently  reduced by the
amount of $250,000 on the last day of each  calendar  quarter  beginning on June
30, 2001 (a "Reduction  Date") and any principal and accrued  interest  shall be
due and payable on each  Reduction  Date to the extent that the Revolving  Loans
then outstanding would otherwise exceed the Maximum Revolving Loan Amount. Payee
shall,  and is hereby  authorized by Maker to, endorse on the schedule  attached
hereto an appropriate  notation evidencing the date and amount of each Revolving
Loan from Payee and the

                                   Page 1 of 7

<PAGE>



date and amount of each payment and prepayment  with respect  thereto;  provided
that the  failure of the Payee to make such a notation on this Note or any error
in such notation shall not affect the obligations of Maker under this Note.

      Maker shall pay Payee on each  Reduction  Date, in  immediately  available
funds, a revolving loan  commitment fee (the "Fee") equal to 1/2 of 1% per annum
on the  average  unused  amount of the  Maximum  Revolving  Loan Amount for each
quarter ending on a Reduction  Date.  Such Fee shall be computed on the basis of
the  actual  number  of days  elapsed  over a year of 360  days.  Such Fee shall
commence  on the date of this Note and cease to  accrue  on the  earlier  of the
Maturity Date or any termination of Payee's commitment to make Revolving Loans.

      Maker shall have the right at any time,  in its sole  discretion  and upon
not less than 10 days written notice to Payee, to further  permanently reduce or
terminate  the Maximum  Revolving  Loan  Amount,  provided,  however,  that each
partial  reduction  thereof  shall be in an integral  multiple of $250,000.  Any
reduction of the Maximum  Revolving  Loan Amount shall be accompanied by payment
in full of any  principal  over the Maximum  Revolving  Loan Amount plus accrued
interest and accrued Fee computed as provided in the previous paragraph.

      The principal  balance of this Note may be prepaid and discharged in whole
or in part by Maker at any time and from time to time, without premium,  penalty
or fee.  Notwithstanding  the prior  sentence,  all interest that is accrued and
unpaid  with  respect to the  prepaid  principal  amount and the Fee accrued and
unpaid with respect to the unpaid Maximum Revolving Loan Amount shall be paid at
the time of the prepayment.

      The Maker,  signers,  sureties,  guarantors  and  endorsers  of this Note,
jointly and  severally,  except as otherwise  expressly set forth herein,  waive
demand, presentment,  notice of nonpayment or dishonor, diligence in collecting,
grace,  notice of any protest,  and consent to all extensions for any periods of
time and partial payments, before or after maturity.

      If this  Note is not paid at  maturity,  howsoever  such  maturity  may be
brought  about,  and  the  same  is  placed  in the  hands  of an  attorney  for
collection, or if this Note is collected by suit or through bankruptcy,  probate
or other legal  proceedings,  Maker agrees to pay holder's  costs of collection,
when incurred, including reasonable attorney's fees.

      No delay in the  payments  to  holder or in the  exercise  of any power or
right  under this  Note,  or under any  instrument  securing  payment  hereof or
executed in connection herewith,  shall operate as a waiver thereof, nor shall a
single or  partial  exercise  of any power or right  preclude  other or  further
exercise thereof or exercise of any other power or right.

      Payment  of the  indebtedness  evidenced  by this Note is  secured  by the
security  interests  established  by  the  following  documents  (the  "Security
Documents"), to wit:

            A Security  Agreement  dated as of February 9, 2001  executed by the
      Maker and Payee covering certain securities owned by Maker.


                                   Page 2 of 7

<PAGE>



      If at any  time  the  Payee  shall  notify  the  Maker  that a  Collateral
Deficiency (as hereinafter  defined) exits, then within 5 days of its receipt of
such notice, the Maker shall, at its option, do one of the following:

      (a) prepay principal amounts  outstanding  under this Note,  together with
          accrued and unpaid  interest on such  principal  amount to the date of
          prepayment,   so  that   immediately   following  such  prepayment  no
          Collateral Deficiency exists, or

      (b) provide  the Payee  with  additional  collateral  under  the  Security
          Documents  reasonably  acceptable  to the  Payee  so that  immediately
          following  delivery  of  such  additional   collateral  no  Collateral
          Deficiency exists.

      In the event a Collateral  Deficiency  occurs,  Payee's commitment to make
further Revolving Loans shall be terminated without notice, at the option of the
Payee, until such time as no Collateral Deficiency shall exist.

For purposes of this Note,

      (a) a  Collateral  Deficiency  exists  at any time  when  the  outstanding
          principal amount together with accrued and unpaid interest on the Note
          and the Fee exceeds 20% of the Collateral Value,

      (b) Collateral  Value  is  defined  as the  Current  Market  Value  of all
          securities pledged under the Security Documents, and

      (c) Current Market Value is defined as, with respect to any security,  the
          most  recent  closing  price of such  security  on the New York  Stock
          Exchange or any other nationally recognized securities exchange, or if
          such  security is not listed on a national  securities  exchange,  the
          closing price of such security as reported on the National Association
          of Securities Dealers Automated  Quotation System  ("NASDAQ"),  or, if
          applicable,  the average of the closing bid and ask quotation for such
          security as reported on the NASDAQ.

      The term default shall include any or all of the following:

            (a) The assignment,  voluntary or involuntary conveyance of legal or
      beneficial interest,  mortgage,  pledge or grant of a security interest in
      any of the Collateral (as defined in the Security Agreement); or

            (b) The  filing or  issuance  of a notice of any lien,  warrant  for
      distraint or notice of levy for taxes or assessment against the Collateral
      (except  for those which are being  contested  in good faith and for which
      adequate reserves have been created); or

            (c) Maker's nonpayment of any installment of principal,  interest or
      the Fee under this Note; or


                                   Page 3 of 7

<PAGE>



            (d) The  adjudication  of Maker as  bankrupt,  or the  taking of any
      voluntary action by Maker or any involuntary  action against Maker seeking
      an  adjudication  of Maker as  bankrupt,  or seeking  relief by or against
      Maker under any provision of the Bankruptcy Code;

            (e) Maker failing to comply with any other  covenant in this Note or
      in the Security Documents;

            (f)  Maker's  default  in any  payment  (regardless  of  amount)  of
      principal of or interest on any other indebtedness for borrowed money; or

            (g) Maker's  default in the  observance or  performance of any other
      agreement  or  condition  relating  to any  such  other  indebtedness  for
      borrowed  money or contained  in any  instrument  evidencing,  securing or
      relating  thereto or any other event shall occur or condition  exist,  the
      effect of which  default or other event or  condition  is to cause,  or to
      permit the holder of the  indebtedness to cause,  such other  indebtedness
      for borrowed money to become due prior to its stated maturity.

      An "Event of Default"  shall be deemed to have occurred  immediately  upon
any default  described in clause (d) or (g) above,  if any default  described in
clauses  (c) or (f)  above  is not  cured  within  5  days,  and if any  default
described in clauses (a),  (b), or (e) is not cured within 30 days after written
notice from Payee to Maker.

      If an  Event  of  Default  has  occurred  and is  continuing,  the  entire
principal balance and accrued interest owing hereof shall at once become due and
payable and the commitment to make Revolving  Loans shall be terminated  without
notice,  at the option of the Payee,  and the  property  covered by the Security
Documents  shall be subject to  foreclosure  under  applicable  law.  Failure to
exercise this option shall not  constitute a waiver of the right to exercise the
same in the event of any subsequent default. In the event any payment, including
interest or principal, required to be made under this Note is not made when due,
interest on the overdue sum shall accrue at a rate of prime plus four percent.

      So long as the Note shall remain  unpaid,  the Maker shall  furnish to the
Payee:

      (a) as soon as available and in any event not later than 45 days after the
          end of each of the first  three  quarters  of each  fiscal year of the
          Maker,  the  consolidated  balance sheet of the Maker as of the end of
          such quarter and the  consolidated  statements  of income and retained
          earnings and cash flows of the Maker for the period  commencing at the
          end of the previous year and ending with the end of such quarter,  all
          in  reasonable   detail  and  duly  certified  with  respect  to  such
          consolidated  statements  (subject  to  year-end  adjustments)  by  an
          officer  of the Maker as  having  been  prepared  in  accordance  with
          generally accepted accounting principles;

      (b) as soon as available and in any event not later than 90 days after the
          end of each  fiscal  year of the  Maker,  a copy of the  annual  audit
          report for such year for the  Maker,  including  therein  consolidated
          balance  sheets  of the  Maker as of the end of such  fiscal  year and
          consolidated statements of income and retained earnings

                                   Page 4 of 7

<PAGE>



          and of cash  flows of the Maker  for such  fiscal  year,  in each case
          certified by PricewaterhouseCoopers LLP or other independent certified
          public  accountants of recognized  standing  reasonably  acceptable to
          Payee.

      This Note shall be construed in  accordance  with the laws of the State of
New Jersey and the laws of the United States  applicable to  transactions in New
Jersey.



                                   Page 5 of 7

<PAGE>



      IN WITNESS WHEREOF, the undersigned Maker has executed this Note as of the
9th day of February, 2001.

                               Tremont Corporation




                                       By:  /s/ Robert E. Musgraves
                                            ------------------------------------
                                            Robert E. Musgraves

                                       Its: Vice President
                                            ------------------------------------


Acknowledged  and  agreed  to by the  undersigned  solely  with  respect  to its
obligations in the second and third paragraph of this Note:

NL Environmental Management Services, Inc.


By:  /s/ Robert D. Hardy
     -------------------------------------
     Robert D. Hardy


Its: Assistant Treasurer
     -------------------------------------



                                   Page 6 of 7

<PAGE>


                           SCHEDULE OF REVOLVING LOANS

Type of Transaction
(Loan or Payment)                Date                  Amount
- -------------------              ----                  ------



















                                   Page 7 of 7




</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.35
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>SECURITY AGREEMENT BETWEEN TREMONT AND NL
<TEXT>

                                                                 Exhibit 10.35

                               SECURITY AGREEMENT

      THIS SECURITY AGREEMENT (the "Agreement"), dated this 9th day of February,
2001, by and between Tremont Corporation,  a Delaware  Corporation  (hereinafter
called  "Pledgor"),  whose  principal  office is at 1999  Broadway,  Suite 4300,
Denver,  Colorado 80202 and NL Environmental  Management  Services,  Inc., a New
Jersey  Corporation (the "Secured Party"),  in its capacity as the holder of the
Note (as defined below).

      Section 1. Security Interest. For value received, Pledgor hereby grants to
Secured  Party,  upon the terms and  conditions  of this  Agreement,  a security
interest in and to any and all present or future rights of Pledgor in and to all
of the following  rights,  interests  and property  (all of the following  being
herein sometimes called the "Pledged Shares"):

            10,215,541 shares of NYSE-traded NL Industries, Inc. ("NL") common
        stock, par value of $1.25 per share.

As used in this  Agreement,  the  "Collateral"  shall include the Pledged Shares
together  with  any  and  all  products  and  proceeds  of the  Pledged  Shares,
including, without limitation, all dividends, cash, instruments,  subscriptions,
warrants and any other rights and options and other  property  from time to time
received,  receivable or otherwise  distributed in respect of or in exchange for
any or all of the Pledged Shares.

      Section 2. Loan Agreement.  This Agreement is being executed and delivered
pursuant to the terms,  conditions and  requirements  of that certain  revolving
note, dated as of February 9, 2001 ("Revolving Note"), pursuant to which Secured
Party has  loaned  monies  to  Tremont  Corporation  ("Tremont").  The  security
interests herein granted  ("Security  Interests")  shall secure full payment and
performance  of: (a) that certain  Revolving  Note of even date  herewith in the
principal  amount of  $13,400,000,  made by Tremont  and payable to the order of
Secured Party (such note and any notes given in modification, renewal, extension
or substitution thereof being herein sometimes  collectively  referred to as the
"Notes" and individually as the "Note"); and (b) the due and punctual observance
and performance of each and every agreement, covenant and condition on Pledgor's
part to be observed or performed  under this Agreement or the Note (all of which
debts, duties, liabilities and obligations hereinbefore described and covered by
this Agreement and the Note are hereinafter referred to as the "Obligation").

      Section 3.  Priority.  Pledgor  represents  and warrants that the Security
Interests  are  first  and  prior  security  interests  in  and  to  all  of the
Collateral, subject to the following liens thereon or security interests therein
in existence prior to the Pledgor's acquisition of the Collateral:

                                     [NONE]

      Section 4. Title to Collateral. Pledgor represents and warrants to Secured
Party that: (a) Pledgor is the owner of the Collateral; (b) no dispute, right of
offset,  counterclaim,  or defense to the Security Interests exists with respect
to all or any part of the Collateral; and (c) Pledgor will defend the Collateral
against the claims and demands of all persons other than any subordinate  claims
or liens acknowledged by Secured Party.


<PAGE>




      Section  5.  Pledgor's  Obligations.  So long as the Note is  outstanding,
Pledgor  covenants and agrees with Secured Party: (a) not to permit any material
part of the  Collateral  to be levied upon under any legal  process;  (b) not to
dispose of any of the  Collateral  without the prior written  consent of Secured
Party;  (c) to comply with all  applicable  federal,  state and local  statutes,
laws, rules and regulations,  the noncompliance with which could have a material
and  adverse  effect  on the value of the  Collateral;  and (d) to pay all taxes
accruing  after the Closing Date which  constitute,  or may  constitute,  a lien
against the  Collateral,  prior to the date when  penalties  or  interest  would
attach to such taxes;  provided,  that Pledgor may contest any such tax claim if
done diligently and in good faith.

      Section  6. Event of  Default.  As used  herein,  the term  default  shall
include any or all of the following:

            (a) The assignment,  voluntary or involuntary conveyance of legal or
      beneficial interest,  mortgage,  pledge or grant of a security interest in
      any of the Collateral; or

            (b) The  filing or  issuance  of a notice of any lien,  warrant  for
      distraint or notice of levy for taxes or assessment against the Collateral
      (except  for those which are being  contested  in good faith and for which
      adequate reserves have been created); or

            (c) Nonpayment of any installment of principal or interest under the
      Notes; or

            (d) The  adjudication  of Tremont as bankrupt,  or the taking of any
      voluntary  action by Tremont or any  involuntary  action  against  Tremont
      seeking an  adjudication  of Tremont as bankrupt,  or seeking relief by or
      against Tremont under any provision of the Bankruptcy Code; or

            (e) Pledgor  failing to comply with any other covenant  contained in
      the Notes or this Agreement; or

            (f)  Pledgor's  default  in any  payment  (regardless  of amount) of
      principal of or interest on any other indebtedness for borrowed money; or

            (g) Pledgor's  default in the observance or performance of any other
      agreement  or  condition  relating  to any  such  other  indebtedness  for
      borrowed  money or contained  in any  instrument  evidencing,  securing or
      relating  thereto or any other event shall occur or condition  exist,  the
      effect of which  default or other event or  condition  is to cause,  or to
      permit the holder of the  indebtedness to cause,  such other  indebtedness
      for borrowed money to become due prior to its stated maturity.

An "Event of  Default"  shall be deemed to have  occurred  immediately  upon any
default  described  in clause  (d) or (g) above,  if any  default  described  in
clauses  (c) or (f)  above  is not  cured  within  5  days,  and if any  default
described in clauses (a),  (b), or (e) is not cured within 30 days after written
notice from Secured Party to Pledgor.


                                       -2-

<PAGE>



      Section 7. Remedies. Upon the occurrence and during the continuation of an
Event of Default as defined herein,  in addition to any and all other rights and
remedies  which Secured Party may then have  hereunder or under the Note,  under
the Uniform Commercial Code of the State of New Jersey or of any other pertinent
jurisdiction (the "Code"),  or otherwise,  Secured Party may, at its option: (a)
reduce its claim to judgment or  foreclosure  or otherwise  enforce the Security
Interests,  in whole or in part, by any available judicial procedure;  (b) sell,
or otherwise  dispose of, at the office of Secured Party,  or elsewhere,  all or
any part of the Collateral,  and any such sale or other  disposition may be as a
unit or in parcels, by public or private proceedings,  and by way of one or more
contracts (it being agreed that the sale of any part of the Collateral shall not
exhaust the Secured  Party's  power of sale,  but sales may be made from time to
time,  and at any time,  until all of the  Collateral has been sold or until the
Obligation has been paid and performed in full);  (c) at its discretion,  retain
the Collateral in satisfaction of the Obligation  whenever the circumstances are
such that Secured  Party is entitled to do so under the Code or  otherwise;  and
(d) exercise any and all other rights, remedies and privileges he may have under
the Note and the other documents defining the Obligation.

      Section 8.  Application of Proceeds by Secured Party. Any and all proceeds
ever  received  by  Secured  Party  from any sale or  other  disposition  of the
Collateral,  or any part thereof,  or the exercise of any other remedy  pursuant
hereto  shall be applied by Secured  Party to the  Obligation  in such order and
manner  as  Secured  Party,  in  its  sole  discretion,  may  deem  appropriate,
notwithstanding  any  directions  or  instructions  to the  contrary by Pledgor;
provided that the proceeds and/or accounts shall be applied toward  satisfaction
of the Obligation.  Any proceeds  received by Secured Party under this Agreement
in excess of those  necessary  to fully and  completely  satisfy the  Obligation
shall be distributed to Pledgor.

      Section 9. Notice of Sale.  Reasonable  notification of the time and place
of any public sale of the  Collateral,  or reasonable  notification  of the time
after which any private sale or other intended  disposition of the Collateral is
to be made, shall be sent to Pledgor and to any other persons entitled under the
Code to notice;  provided,  that if any of the  Collateral  threatens to decline
speedily  in  value or is of a type  customarily  sold on a  recognized  market,
Secured Party may sell,  pledge,  assign or otherwise  dispose of the Collateral
without  notification,  advertisement  or other notice of any kind. It is agreed
that  notice  sent or given not less than ten (10)  calendar  days  prior to the
taking of the action to which the notice relates is reasonable  notification and
notice for the purposes of this paragraph.

      Section 10.  Right to Vote Collateral; Receipt of Dividends, Etc.

      (a) Unless an Event of Default shall have occurred and be continuing,  the
Pledgor shall have the right,  from time to time, to vote and to give  consents,
ratifications and waivers with respect to the Collateral,  and the Secured Party
shall, upon receiving a written request from the Pledgor, which request shall be
deemed to be a  representation  and  warranty  by the  Pledgor  that no Event of
Default has occurred and is continuing,  deliver to the Pledgor or, as specified
in such request, such proxies, powers of attorney,  consents,  ratifications and
waivers in respect of any  Collateral  which are  registered  in the name of the
Secured  Party or a nominee as shall be specified in such request and be in form
and substance satisfactory to the Secured Party.


                                       -3-

<PAGE>



      (b) If an Event of Default  shall have  occurred  and be  continuing,  all
rights of the Pledgor to exercise the voting and other  consensual  rights which
it would  otherwise  be entitled  to  exercise  pursuant to Section 10 (a) above
shall end upon five days'  notice  from the  Secured  Party to the  Pledgor  and
thereafter  the Secured  Party shall have the right to the extent  permitted  by
law,  and the  Pledgor  shall  take  all  such  action  as may be  necessary  or
appropriate  to  give  effect  to such  right,  to  vote  and to give  consents,
ratifications  and  waivers,  and take any  other  action  with  respect  to all
Collateral  with the same  force and  effect as if the  Secured  Party  were the
absolute and sole owner thereof.

      (c) Unless an Event of Default shall have occurred and be continuing,  the
Pledgor shall be entitled to receive all regular  quarterly cash dividends.  Any
other  dividends  or  distributions  or  proceeds  therefrom  on  account of the
Collateral  shall,  if  received  by the  Pledgor,  be received in trust for the
benefit of the Secured Party,  be segregated from the other property or funds of
the Pledgor,  and be forthwith  delivered to the Secured  Party as collateral in
the same form as so received (with any necessary endorsement).

      Section 11. Delivery of Notices. Any notice or demand required to be given
hereunder  shall be in  writing  and shall be deemed to have been duly given and
received, if given by hand, when a writing containing such notice is received by
the person to whom addressed or, if given by mail, two (2) business days after a
certified or registered letter containing such notice,  with postage prepaid, is
deposited in the United States mails, addressed to:

            If to Secured Party:

            NL Environmental Management Services, Inc.
            16825 Northchase Drive
            Suite 1200
            Houston TX 77060
            Attn:  Vice President and Secretary

            If to Pledgor:

            Tremont Corporation
            1999 Broadway
            Suite 4300
            Denver, Colorado 80202
            Attn:  General Counsel

Any such address may be changed from time to time by serving notice to the other
party as above  provided.  A business  day shall mean a day of the week which is
not  a  Saturday  or  Sunday  or  a  holiday   recognized  by  national  banking
associations.

      Section 12. Binding Effect.  This Agreement shall be binding upon Pledgor,
its successors and assigns, and shall inure to the benefit of Secured Party, its
heirs, successors,  assigns,  executors,  administrators,  and personal or legal
representatives.


                                       -4-

<PAGE>



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

      Section  14.  Severability.  In the  event  that  any  one or  more of the
provisions  contained  in this  Agreement  are held to be  invalid,  illegal  or
unenforceable in any respect,  such invalidity,  illegality or  unenforceability
shall not affect any other provision of this Agreement.


                                       -5-

<PAGE>


      EXECUTED as of the day and year first herein set forth.



SECURED PARTY:


NL Environmental Management Services, Inc.

By:      /s/ Robert D. Hardy
         ---------------------------------
         Robert D. Hardy

Title:   Assistant Treasurer
         ---------------------------------


PLEDGOR:


Tremont Corporation

By:      /s/ Robert E. Musgraves
         ---------------------------------
         Robert E. Musgraves

Title:   Vice President
         ---------------------------------



                                       -6-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.36
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>TAX AGREEMENT BETWEEN VALHI AND NL INDUSTRIES
<TEXT>

                                                                 Exhibit 10.36

                                  TAX AGREEMENT
                                     between
                                 VALHI, INC.
                                       and
                             NL INDUSTRIES, INC.

      AGREEMENT dated as of January 1, 2001 by and among Valhi, Inc. ("VHI"),  a
Delaware  corporation  having its principal  executive  offices at Three Lincoln
Centre, 5430 LBJ Freeway,  Suite 1700, Dallas,  Texas 75240, Contran Corporation
("Contran"),  a Delaware  corporation having its principal  executive offices at
Three Lincoln  Centre,  5430 LBJ Freeway,  Suite 1700,  Dallas,  TX 75240 and NL
Industries, Inc. ("NL"), a New Jersey corporation having its principal executive
offices at 16825 Northchase Drive, Suite 1200, Houston, Texas 77060.

      WHEREAS,  VHI and NL are eligible to file consolidated  returns of federal
income taxes and, subject to certain jurisdictional limitations, will be subject
to combined state and local tax reporting effective January 1, 2001;

      WHEREAS, VHI and NL wish to provide for the allocation of liabilities, and
procedures  to be followed,  with respect to federal  income taxes of NL and any
subsidiaries of NL and with respect to certain combined state and local taxes on
the terms of this Agreement.

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

      1.  Definitions.  As used in this Agreement,  the following terms have the
meanings set forth below:

            (a) Code:  The Internal  Revenue Code of 1986, as amended,  and with
      respect to any section thereof any successor provisions under such Code or
      any successor Code.

            (b) Combined  Foreign,  State and Local Taxes: For a taxable period,
      the  amount  of all  foreign,  state and local  taxes,  together  with all
      interest  and  penalties  with  respect  thereto,  for which  liability is
      computed (1) on the basis of a combined,  unitary or  consolidated  return
      (whether at the  initiative  of the tax  authority or of the taxpayer) and
      (2) by  reference  to one or more  members of the NL Group and one or more
      members of the VHI Group not included in the NL Group.

            (c) Contran  Corporation:  A Delaware corporation that is the common
      parent of a group of corporations  electing to file a consolidated federal
      income tax return.

            (d) Federal  Taxes:  All federal  income  taxes,  together  with all
      interest and penalties with respect thereto.



<PAGE>



            (e) VHI Group: VHI and those of its direct and indirect subsidiaries
      which join in the filing of a consolidated  federal income tax return with
      its common  parent,  Contran (the  "Contran Tax Group"),  as such Group is
      constituted  from time to time.  For  purposes of this  Agreement  (to the
      extent related to Combined Foreign,  State and Local Taxes), the term "VHI
      Group"  shall  include all direct and  indirect  subsidiaries  of VHI with
      reference to which Combined Foreign, State and Local Taxes are determined.

            (f) NL Group:  NL  Industries,  Inc.  and each  direct  or  indirect
      subsidiary  of NL which would be a member of an affiliated  group,  within
      the  meaning  of section  1504(a) of the Code,  of which NL was the common
      parent,  as such Group is  constituted  from time to time. For purposes of
      this Agreement (to the extent related to Combined Foreign, State and Local
      Taxes) , the  term "NL  Group"  shall  include  all  direct  and  indirect
      subsidiaries  of NL with reference to which Combined,  Foreign,  State and
      Local taxes are determined.

            (g) NL Group Tax Liability:  For a taxable period, the liability for
      Federal Taxes and Combined Foreign,  State and Local taxes, as applicable,
      that the NL Group  would have had if it were not a member of the VHI Group
      during such taxable period (or during any taxable  period prior  thereto),
      and instead filed a separate  consolidated  return for such taxable period
      (and during all prior taxable periods  beginning after December 31, 2000);
      provided,  however,  that for purposes of determining such liability for a
      taxable  period  all  tax  elections  shall  be  consistent  with  the tax
      elections made by Contran for such period. In making such tax elections it
      is understood the Contran  Corporation will make those tax elections which
      are  beneficial  to  the  Contran  Tax  Group  on  a  consolidated  basis.
      Nevertheless,  Contran  will  use its  best  efforts  in the case of those
      elections which affect the  computation of the NL Group Tax Liability,  to
      make  elections in a reasonable  manner so as to minimize the NL Group Tax
      Liability.

2.    Contran as Agent.  Contran shall be the sole agent for the NL Group in all
      matters relating to the NL Group Tax Liability. The NL Group shall not (a)
      terminate such agency or (b) without the consent of Contran,  participate,
      or  attempt to  participate,  in any  matters  related to the NL Group Tax
      Liability,  including,  but not limited to,  preparation  or filing of, or
      resolution  of  disputes,  protests  or audits with the  Internal  Revenue
      Service, state or local taxing authorities concerning, the Contran Group's
      consolidated returns of Federal Taxes, returns of Combined Foreign,  State
      and Local Taxes or the NL Group Tax Liability with respect thereto for any
      taxable  period  beginning  after  December 31,  2000.  The NL Group shall
      cooperate  fully in providing  Contran with all  information and documents
      necessary or desirable to enable Contran to perform its obligations  under
      this Section,  including  completion of Internal Revenue Service and state
      or local tax audits in  connection  with such NL Group Tax  Liability  and
      determination of the proper liability for such NL Group Tax Liability.


                                     Page 2

<PAGE>



3.       Liability for Taxes; Refunds.

            (a) VHI, as the common parent of the NL Group,  shall be responsible
      for, and shall pay to Contran or a taxing  authority,  as applicable,  the
      consolidated tax liability for the VHI Group and has the sole right to any
      refunds  received  from  Contran  or a taxing  authority,  as  applicable,
      subject to the provisions of Sections 5 and 6 of this Agreement.

            (b)  Notwithstanding  any other provision of this Agreement,  NL and
      each subsidiary of NL which is a member of the NL Group shall be severally
      liable to VHI for the NL Group Tax Liability.

            (c) NL shall  indemnify VHI and hold it and the VHI Group other than
      the NL Group, harmless from and against any deficiency in the NL Group Tax
      Liability that may be due to VHI.

            (d) VHI  shall  indemnify  NL and hold it and the NL Group  harmless
      from and against any Federal Taxes and Combined  Foreign,  State and Local
      Taxes attributable to the VHI Group or any other member of the Contran Tax
      Group,  other than the NL Group,  as such taxes are determined  under this
      and other tax sharing agreements.

      4. Tax  Returns.  VHI  shall  file on  behalf  of the NL Group any and all
federal,  foreign, state and local tax returns that are required as they pertain
to the NL Group Tax Liability. The NL Group, at VHI's request, shall join in any
applicable  consolidated  returns of Federal  Taxes and any  returns of Combined
Foreign,  State and Local  Taxes (for which  returns  have not been  theretofore
filed)  and  execute  its  consent  to each  such  filing  on any form as may be
prescribed  for such consent if such consent is required.  The decision of VHI's
Senior  Vice  President  (or any  other  officer  so  designated  by  VHI)  with
responsibility  for  tax  matters  shall,  subject  to the  provisions  of  this
Agreement, be binding in any dispute between VHI and the NL Group as to what tax
position  should be taken  with  respect  to any item or  transaction  of the NL
Group. The preceding sentence is limited to the tax positions that affect the NL
Group Tax  Liability  and the  combined  VHI Group and  Contran  Tax  Group.  In
addition,  VHI and members of the VHI Group,  including NL and members of the NL
Group,   shall  provide  each  other  with  such  cooperation,   assistance  and
information  as each of them may request of the other with respect to the filing
of any tax return,  amended return,  claim for refund or other document with any
taxing  authority.  NL shall be solely  responsible for all taxes due for the NL
Group with  respect to tax returns  filed by NL or a member of the NL Group that
are required to be filed on a separate company basis, independent of VHI.

      5. Payment of NL Group Tax Liability for Federal Taxes.  On or before each
date,  as  determined  under  section  6655  of  the  Code,  for  payment  of an
installment of estimated  Federal Taxes,  NL shall pay to VHI an amount equal to
the  installment  which  the NL Group  would  have  been  required  to pay as an
estimated  payment of Federal Taxes to the Internal  Revenue  Service if it were
filing a separate  consolidated return in respect of the NL Group Tax Liability.
Any balance owed with

                                     Page 3

<PAGE>



respect to the NL Group Tax Liability  for such taxable  period shall be paid to
VHI on or before the 15th day of the third month after the close of such taxable
period.  If it is not  possible to  determine  the amount of such  balance on or
before such day, (a) a reasonable  estimate  thereof  shall be paid on or before
such day,  (b) the  amount of such  balance  shall be finally  determined  on or
before the  earlier  of; (i) the 15th day of the ninth  month after the close of
such  taxable  period  and (ii) the date on which the  consolidated  tax  return
containing  the NL Group for such  period  is filed  with the  Internal  Revenue
Service,  and (c) any  difference  between  the  amount  so  determined  and the
estimated  amount paid shall;  (i) in the case of an  underpayment,  be promptly
paid to VHI and (ii) in the case of an  overpayment,  be  promptly  refunded  or
applied  against  the  estimated  NL Group  Tax  Liability  for the  immediately
following tax period, at the option of VHI. If the overpayment is not applied to
the  immediately  following  tax  period,  such  overpayment  shall be  promptly
refunded to the NL Group. As between the parties to this Agreement, the NL Group
shall be solely  responsible  for the NL Group Tax  Liability  and shall have no
responsibility  for Federal  Taxes of the VHI Group or the  Contran  Group other
than payment of the NL Group Tax Liability in accordance  with the terms of this
Agreement.

      6.  Refunds for NL Group  Losses and Credits  for  Federal  Taxes.  If the
calculation with respect to the NL Group Tax Liability for Federal Taxes results
in a net operating  loss ("NOL") for the current tax period that, in the absence
of a Code Section 172(b)(3) election made by Contran, is carried back under Code
Sections 172 and 1502 to a prior taxable  period or periods of the NL Group with
respect to which the NL Group  previously  made  payments to VHI,  then, in that
event,  VHI shall pay (or credit) NL an amount  equal to the tax refund to which
the NL  Group  would  have  been  entitled  had the NL  Group  filed a  separate
consolidated  federal  income tax return for such year (but not in excess of the
net aggregate  amount of the NL Group Tax Liability  paid to VHI with respect to
the preceding two taxable  periods).  If the calculation  with respect to the NL
Group Tax Liability  results in an NOL for the current tax period,  that subject
to the Code  Section  172(b)(3)  election  made by Contran,  is not carried back
under Code Sections 172 and 1502 to a prior taxable  period or periods of the NL
Group  with  respect to which NL made  payments  to VHI or is not  carried  back
because the Contran Tax Group does not have a  consolidated  net operating  loss
for the  current  tax  period,  then,  in that  event  such NOL  shall be an NOL
carryover to be used in computing the NL Group Tax Liability for future  taxable
periods,  under the law  applicable to NOL  carryovers  in general,  as such law
applies to the relevant taxable period.  Furthermore, if the NL Group would have
been entitled to a refund of Federal Taxes for any year had the NL Group filed a
separate  consolidated  federal  income  tax  return  for the loss  year and the
carryback year, VHI shall pay to NL the amount which NL would have received as a
refund from the Internal Revenue Service. Payments made pursuant to this Section
6 shall be made on the date that Contran (or any  successor  common  parent of a
tax group to which the VHI Group is a  member)  files its  consolidated  federal
income tax return for the taxable period involved.  Principles  similar to those
discussed in this Section 6 shall apply in the case of the utilization of all NL
Group loss and credit carrybacks and carryovers.


                                     Page 4

<PAGE>



      7. Payment of NL Group Tax Liability  for Foreign,  State and Local Taxes.
The  foregoing  principles  contained in Sections 5 and 6 shall apply in similar
fashion to any consolidated or combined foreign, state or other local income tax
returns,  containing  any member of the VHI Group and any member of the NL Group
that is not also a member of the VHI Group, which may be filed.

       8. Subsequent  Adjustments.  If any settlement with the Internal  Revenue
 Service,  foreign,  state or local tax  authority or court  decision  which has
 become final results in any adjustment to any item of income,  deduction,  loss
 or credit to the VHI Group in respect  of any  taxable  period  subject to this
 Agreement,  which, in any such case, affects or relates to any member of the NL
 Group as constituted  during such taxable  period,  the NL Tax Group  Liability
 shall be  redetermined to give effect to such adjustment as if it had been made
 as  part  of or  reflected  in the  original  computation  of the NL Tax  Group
 Liability and proper  adjustment of amounts paid or owing  hereunder in respect
 of such liability and allocation shall be promptly made in light thereof.

      9.  Amendments.  This  Agreement may be amended,  modified,  superseded or
cancelled,  and any of the terms, covenants, or conditions hereof may be waived,
only by a  written  instrument  specifically  referring  to this  Agreement  and
executed by both  parties  (or, in the case of a waiver,  by or on behalf of the
party waiving  compliance).  The failure of either party at any time or times to
require performance of any provision of this Agreement shall in no manner affect
the right at a later time to enforce the same.  No waiver by either party of any
condition,  or of  any  breach  of any  term  or  covenant,  contained  in  this
Agreement, in any one or more instances, shall be deemed to be or construed as a
further or continuing waiver of any such condition or breach, or a waiver of any
other condition or of any breach of any other term or covenant.

      10. Retention of Records.  VHI shall retain all tax returns,  tax reports,
related  workpapers and all schedules  (along with all documents that pertain to
any such tax returns,  reports or workpapers) that relate to a taxable period in
which the NL Group is included  in a  consolidated  or combined  tax return with
VHI. VHI shall make such  documents  available to NL at NL's request.  VHI shall
not dispose of such documents without the permission of NL.

      11.  Headings.  The  headings of this  Agreement  are for  convenience  of
reference only, and shall not in any way affect the meaning or interpretation of
this Agreement.

      12.  Governing  Law.  This  Agreement  shall be construed  and enforced in
accordance with the laws of the State of Delaware without regard to conflicts of
laws provisions.

      13. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be an original,  but all of which shall  constitute  but one
agreement.

      14.  Successors.  This  Agreement  shall be binding  upon and inure to the
benefit of the  parties  hereto  and their  respective  subsidiaries,  and their
respective successors and assigns.

                                     Page 5

<PAGE>




      15.  Effective  Date.  This Agreement  shall be effective as of January 1,
2001.


                                     Page 6

<PAGE>


      IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
  date first above written.

                                       VALHI, INC.


                                       By:
                                                /s/ William J. Lindquist
                                                --------------------------------
                                                William J. Lindquist
                                                Senior Vice President
[Seal]

ATTEST:




                               CONTRAN CORPORATION


                                       By:
                                                /s/ William J. Lindquist
                                                --------------------------------
                                                William J. Lindquist
                                                Senior Vice President
[Seal]

ATTEST:





                               NL INDUSTRIES, INC.


                                       By:
                                                /s/ Robert D. Hardy
                                                --------------------------------
                                                Robert D. Hardy
                                                Vice President and Controller


ATTEST:




                                     Page 7

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.37
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>SUBSCRIPTION AGREEMENT
<TEXT>


                                                                   EXHIBIT 10.37

                             SUBSCRIPTION AGREEMENT

         This Subscription  Agreement (the "Agreement") is made and entered into
as of December 31, 2000, among Valhi,  Inc., a Delaware  corporation  ("Valhi"),
Tremont Holdings,  LLC, a Delaware limited liability company ("TRE Holdings" and
together with Valhi,  the  "Purchasers"),  and Tremont  Group,  Inc., a Delaware
corporation ("TGI").

                                    Recitals

         A. The  Purchasers  are  beneficial  owners  of  shares  (the  "Tremont
Shares") of the common stock, par value $1.00 per share, of Tremont Corporation,
a Delaware corporation ("Tremont").

         B. Each of the  Purchasers  wishes to  subscribe  for and  purchase one
thousandth  of a share of common stock,  par value $0.01 per share,  of TGI (the
"TGI  Shares"),  for each Tremont Share they  contribute to TGI on the terms and
subject to the  conditions of this Agreement  (each time a contribution  is made
shall be referred to as a "Transaction").

         C. The certificate of incorporation and the bylaws of TGI, to which the
Stockholders  have agreed in connection  with the  transactions  contemplated by
this  Agreement  are  attached  as  Exhibits  A and  B,  respectively,  to  this
Agreement.

                                    Agreement

         The parties agree as follows:

                                   ARTICLE I.
                                 THE TRANSACTION

         Section 1.1. Initial  Contribution of Tremont Shares for TGI Shares. In
consideration  of TGI's  issuance  of one  thousandth  of a TGI  Share  for each
Tremont Share the Purchasers contribute to TGI on the date hereof, each of Valhi
and TRE Holdings hereby sells, transfers,  assigns and delivers to TGI 4,113,421
and 1,028,000  Tremont  Shares,  respectively.  Certificates  representing  such
Tremont Shares are hereby delivered accompanied by stock powers duly endorsed in
blank.

         Section 1.2. Subsequent Contributions of Tremont Shares for TGI Shares.
In  consideration  of TGI's  issuance of one  thousandth of a TGI Share for each
Tremont Share the Purchasers  may  contribute to TGI in the future,  each of the
Purchasers may in the future sell,  transfer,  assign and deliver Tremont Shares
to TGI.  Certificates  representing  such  Tremont  Shares  shall  be  delivered
accompanied by stock powers duly endorsed in blank on the date of the respective
contribution.

         Section 1.3.  Voting  Agreement.  Each of the parties as a condition to
all  Transactions  shall  execute  and  deliver  to the  other  parties a Voting
Agreement  substantially  in the form of Exhibit C attached  hereto (the "Voting
Agreement").

<PAGE>

                                   ARTICLE II.
                REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

         Each of the Purchasers hereby  individually  represents and warrants to
TGI as of the date of this  Agreement,  and each time a  Purchaser  subsequently
contributes  Tremont  Shares  to  TGI  as  though  made  on  the  date  of  such
contribution, as follows.

         Section 2.1.  Authority.  It is validly  existing and in good  standing
under the laws of the state of its incorporation or formation.  It has the power
and authority,  without the consent or approval of any other person,  to execute
and deliver this  Agreement and to consummate the  respective  Transaction.  All
action  required to be taken by or on behalf of it to authorize  the  execution,
delivery and  performance of this Agreement and the respective  Transaction  has
been duly and properly taken.

         Section 2.2. Validity. This Agreement is duly executed and delivered by
it and  constitutes  its lawful,  valid and binding  obligation,  enforceable in
accordance with its terms.  The execution and delivery of this Agreement and the
consummation  of the respective  Transaction by it are not prohibited by, do not
violate or conflict  with any provision of, and do not result in a default under
(a) its charter,  bylaws or company agreement,  as applicable;  (b) any material
contract, agreement or other instrument to which it is a party or by which it is
bound;  (c) any order,  writ,  injunction,  decree or  judgment  of any court or
governmental  agency  applicable  to it;  or (d) any  law,  rule  or  regulation
applicable  to it,  except  in each  case  for  such  prohibitions,  violations,
conflicts or defaults that would not have a material adverse  consequence to the
respective Transaction.

         Section 2.3. Ownership of Tremont Shares. It is the beneficial owner of
the Tremont Shares it will  contribute to TGI in the respective  Transaction and
upon  consummation  of the  respective  Transaction  TGI will  acquire  good and
marketable   title  to  such  Tremont  Shares  free  and  clear  of  any  liens,
encumbrances,    security   interests,   restrictive   agreements,   claims   or
imperfections  of any nature  whatsoever,  other than  restrictions  on transfer
imposed by applicable securities laws.

         Section 2.4.  Purchase for Investment.  It is purchasing the TGI Shares
issued and delivered to it in the respective  Transaction for investment  solely
for its own  account and not with a view to, or for resale in  connection  with,
the  distribution  thereof.  It understands  that such TGI Shares are restricted
securities under the Securities Act of 1933, as amended (the "Securities  Act"),
and that such TGI Shares must be held  indefinitely  unless they are  registered
under the Securities Act and any applicable state securities or blue sky laws or
an exemption from such registration is available.

         Section 2.5. Nature of Purchaser.  It has such knowledge and experience
in financial and business  matters that it is capable of  evaluating  the merits
and risks of the  purchase  of TGI  Shares  issued  and  delivered  to it in the
respective Transaction.

                                       -2-
<PAGE>

                                  ARTICLE III.
                      REPRESENTATIONS AND WARRANTIES OF TGI

         TGI hereby  represents and warrants to each of the Purchasers as of the
date of this  Agreement,  and each  time a  Purchaser  subsequently  contributes
Tremont  Shares  to TGI as  though  made on the  date of such  contribution,  as
follows.

         Section 3.1. Authority. It is a corporation duly incorporated,  validly
existing and in good standing under the laws of the state of its  incorporation.
It has the corporate power and authority, without the consent or approval of any
other  person,  to execute and deliver  this  Agreement  and to  consummate  the
respective  Transaction.  All  corporate  action  required  to be taken by or on
behalf of it to  authorize  the  execution,  delivery  and  performance  of this
Agreement and the respective Transaction has been duly and properly taken.

         Section 3.2. Validity. This Agreement is duly executed and delivered by
it and  constitutes  its lawful,  valid and binding  obligation,  enforceable in
accordance with its terms.  The execution and delivery of this Agreement and the
consummation  of the respective  Transaction by it are not prohibited by, do not
violate or conflict  with any provision of, and do not result in a default under
(a) its  charter  or  bylaws;  (b) any  material  contract,  agreement  or other
instrument to which it is a party or by which it is bound; (c) any order,  writ,
injunction, decree or judgment of any court or governmental agency applicable to
it; or (d) any law, rule or regulation applicable to it, except in each case for
such  prohibitions,  violations,  conflicts  or  defaults  that would not have a
material adverse consequence to the respective Transaction.

         Section  3.3.  Issuance of TGI Shares.  Upon the  consummation  of each
Transaction,  the TGI Shares issued in such  Transaction will be validly issued,
fully paid and non-assessable shares and the respective Purchaser receiving such
shares will acquire good and  marketable  title to such shares free and clear of
any liens, encumbrances,  security interests,  restrictive agreements, claims or
imperfections  of any nature  whatsoever,  other than  restrictions  on transfer
imposed by applicable  securities  laws,  except that Valhi's TGI Shares will be
subject to the restrictions of the Voting Agreement.

         Section 3.4.  Purchase for  Investment.  It is  purchasing  the Tremont
Shares sold and delivered to it in the  respective  Transaction  for  investment
solely for its own account  and not with a view to, or for resale in  connection
with, the  distribution  thereof.  It  understands  that such Tremont Shares are
restricted securities under the Securities Act and that such Tremont Shares must
be held indefinitely unless they are registered under the Securities Act and any
applicable  state  securities  or  blue  sky  laws  or an  exemption  from  such
registration is available.

         Section 3.5.  Nature of TGI. It has such  knowledge  and  experience in
financial and business  matters that it is capable of evaluating  the merits and
risks of the  purchase of the Tremont  Shares  sold and  delivered  to it in the
respective Transaction.

                                       -3-
<PAGE>

                                   ARTICLE IV.
                               GENERAL PROVISIONS

         Section 4.1.  Restricted Shares. Each of the Purchasers hereby consents
to the  placing  of a legend on any stock  certificates  evidencing  TGI  Shares
issued to it in a  Transaction  stating  that  such TGI  Shares  are  restricted
securities.  Valhi  agrees to the placing of a legend on any stock  certificates
evidencing its TGI Shares stating that such TGI Shares are subject to the Voting
Agreement.

         Section  4.2.  Access  to  Information.  Each of the  Purchasers  shall
provide TGI and its  representatives  access to all information  with respect to
the business of Tremont possessed by such party and reasonably requested by TGI.
TGI shall  provide each of the  Purchasers  and its  respective  representatives
access to all  information  with respect to the business of TGI possessed by TGI
and reasonably requested by such Purchaser.

         Section 4.3. Survival.  The representations and warranties set forth in
this   Agreement   shall  survive  the  execution  of  this  Agreement  and  the
consummation of the transactions contemplated herein.

         Section  4.4.  Amendment  and  Waiver.  No  amendment  or waiver of any
provision  of this  Agreement  shall in any event be  effective  unless the same
shall be in a writing  referring  to this  Agreement  and signed by the  parties
hereto,  and then such  amendment,  waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.

         Section 4.5. Parties and Interest.  This Agreement shall bind and inure
to the benefit of the parties named herein and their  respective  successors and
assigns.

         Section  4.6.  Entire  Agreement.  This  Agreement  contains the entire
understanding  among the parties with respect to the  transactions  contemplated
hereby and supersedes all other agreements and understandings  among the parties
with respect to the subject matter of this Agreement.

         Section 4.7.  Applicable  Law. This Agreement  shall be governed by and
construed in accordance with the domestic laws of the state of Delaware, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the  state of  Delaware  or any  other  jurisdiction)  that  would  cause the
application of the laws of any jurisdiction other than the state of Delaware.

         Section 4.8. Severability.  If any provision of this Agreement is found
to violate any statute,  regulation,  rule,  order or decree of any governmental
authority,  court,  agency or exchange,  such invalidity  shall not be deemed to
effect any other  provision  hereof or the  validity  of the  remainder  of this
Agreement  and such  invalid  provision  shall be deemed  deleted to the minimum
extent necessary to cure such violation.

         Section  4.9.  Notice.  All notices and other  communications  that are
required  to be or may be given  under this  Agreement  shall be in writing  and
shall be deemed to have been duly given when  delivered in person or transmitted
by confirmed telecopy or upon receipt after dispatch by overnight courier or by


                                       -4-
<PAGE>

certified or registered mail,  postage prepaid,  to the party to whom the notice
is  given.  Notices  shall be  given to the  address  for the  respective  party
appearing under the party's signature to this Agreement or to such other address
as such party may  designate  by giving  notice of such change of address to the
other parties to this Agreement.

         Section 4.10.  Headings.  The sections and other headings  contained in
this  Agreement are for reference  purposes only and shall not effect in any way
the meaning or interpretation of this Agreement.

         Section  4.11.   Counterparts.   This  Agreement  may  be  executed  in
counterparts  each of which will be an original and all of which taken  together
shall constitute one and the same agreement.

         Section 4.12. Expenses.  Except as otherwise expressly provided herein,
each party to this Agreement  shall pay its own costs and expenses in connection
with the transactions contemplated hereby.

                                       -5-
<PAGE>


         The parties  hereto have caused this  Agreement to be executed by their
duly authorized officers as of the date first written above.

                                   VALHI, INC.




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

                                       Address:    Three Lincoln Centre
                                                   5430 LBJ Freeway, Suite 1700
                                                   Dallas, Texas   75240-2697
                                                   FAX:  972.448.1445
                                                   Attention:  General Counsel

                                   TREMONT HOLDINGS, LLC



                                   By: /s/ Robert D. Hardy
                                       -----------------------------------------
                                       Robert D. Hardy, Vice President

                                       Address:    Two Greenspoint Plaza
                                                   16825 Northchase Drive
                                                   Suite 1200
                                                   Houston, Texas   77060-2544
                                                   FAX:  281.423.3333
                                                   Attention:  General Counsel

                                   TREMONT GROUP, INC.




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

                                       Address:    Three Lincoln Centre
                                                   5430 LBJ Freeway, Suite 1700
                                                   Dallas, Texas   75240-2697
                                                   FAX:  972.448.1445
                                                   Attention:  General Counsel


                                       -6-
<PAGE>




                                    EXHIBIT A

                          CERTIFICATE OF INCORPORATION

                                       OF

                               TREMONT GROUP, INC.


- --------------------------------------------------------------------------------

                                   ARTICLE I.
                                      NAME

         The name of the corporation is TREMONT GROUP, INC. (the "Corporation").

                                   ARTICLE II.
                           REGISTERED OFFICE AND AGENT

         The  address  of the  Corporation's  registered  office in the state of
Delaware is Corporation Service Company,  2711 Centerville Road, Suite 400, city
of Wilmington,  county of New Castle,  state of Delaware 19808.  The name of the
Corporation's registered agent at such address is Corporation Service Company.

                                  ARTICLE III.
                                     PURPOSE

         The nature of the  business or purposes to be  conducted or promoted by
the Corporation is to engage in any lawful  business,  act or activity for which
corporations may be organized under the General  Corporation Law of the state of
Delaware.

                                   ARTICLE IV.
                                AUTHORIZED STOCK

         The Corporation shall have authority to issue six thousand five hundred
(6,500)  shares of common stock having a par value of one cent ($0.01) per share
(the  "Common  Stock").  The rights of the holders of common stock are set forth
below.

                  Section 1. Voting Rights. The holders of Common Stock shall be
         entitled  to one vote per  share on all  matters  to be voted on by the
         stockholders of the Corporation.

                  Section 2.  Dividends.  The  holders of Common  Stock shall be
         entitled to participate in such  dividends and other  distributions  or
         proceeds in cash, stock or property of the Corporation ratably on a per
         share  basis as the board of  directors  may  declare  out of assets or
         funds legally available therefor.

                  Section 3.  Liquidation.  The holders of Common Stock shall be
         entitled  to   participate   ratably  on  a  per  share  basis  in  all
         distributions  to the  holders  of  Common  Stock  in any  liquidation,
         dissolution or winding up of the Corporation.

                                       -1-
<PAGE>

                  Section 4. Redemption.  The Corporation shall redeem shares of
         Common Stock on a date (the  "Redemption  Date") that is on or prior to
         the 45th day (if such 45th day is a business  day, and if not, the next
         successive  business day) after the date (the "Redemption Notice Date")
         that the  Corporation  and each other  holder of shares of Common Stock
         receives written notice (a "Redemption Notice") from a holder of shares
         of Common Stock (the  "Holder")  setting forth the number of shares the
         Holder wants the Corporation to redeem (the "Redemption Shares"). After
         the  Redemption  Notice  Date,  the Holder  shall only be  entitled  to
         receive from the  Corporation  on the  Redemption  Date the fair market
         value of the  Redemption  Shares  on the  Redemption  Notice  Date (the
         "Redemption Price").

                  In the  Redemption  Notice,  the Holder may elect (a  "Tremont
         Share Election") to receive as part of the Redemption Price such number
         of shares of the common  stock,  par value $1.00 per share,  of Tremont
         Corporation, a Delaware Corporation (the "Tremont Common Stock"), equal
         to the product of 1,000 and the number of Redemption Shares.

                  After a Redemption Notice Date but before the Redemption Date,
         the board of  directors  shall  determine in good faith and in its best
         business  judgment the Redemption  Price. In determining the Redemption
         Price,  the board of directors shall value each share of Tremont Common
         Stock held by the  Corporation  on the  Redemption  Notice  Date at the
         volume weighted  average sales price of a share of Tremont Common Stock
         as  reported  on the New York  Stock  Exchange  composite  transactions
         reporting  system for the ten  trading  days  ending on the  Redemption
         Notice  Date,  if  such  date is a  trading  day,  and if  not,  on the
         immediately prior trading day (the "Tremont Common Stock Value").

                  If the Holder does not make a Tremont Share  Election,  on the
         Redemption Date the Corporation may pay the Redemption  Price, in whole
         or in part, in cash,  shares of Tremont Common Stock or other property,
         which other  property the board of directors  shall value in good faith
         and in its best business judgment. In determining the fair market value
         of securities traded on an exchange that are used to pay the Redemption
         Price,  the board of  directors  shall value each such  security on the
         Redemption  Notice Date at the volume  weighted  average sales price of
         such  security  as  reported  on the  applicable  exchange  for the ten
         trading days ending on the  Redemption  Notice Date,  if such date is a
         trading day, and if not, on the immediately prior trading day.

                  If shares of Tremont  Common Stock are used to pay all or part
         of the Redemption Price, on the Redemption Date:

                           (a) if the Tremont Common Stock Value for such shares
                  is less than or equal to the Redemption Price, the Corporation
                  shall  transfer such shares to the Holder and such  additional
                  cash or property in an amount equal in value on the Redemption
                  Notice  Date,  as the board of  directors  determines  in good
                  faith and in its best  business  judgment,  to the excess,  if
                  any, of the  Redemption  Price over the Tremont  Common  Stock
                  Value for such shares;

                           (b) if the Tremont Common Stock Value for such shares
                  is greater than the Redemption  Price,  the Corporation  shall
                  transfer such shares to the Holder and the Holder shall pay in

                                       -2-
<PAGE>

                  cash to the  Corporation  an amount equal to the excess of the
                  Tremont Common Stock Value for such shares over the Redemption
                  Price; and

                           (c) the  Corporation  shall  deliver  to the holder a
                  stock  certificate  representing  the shares of Tremont Common
                  Stock comprising the Redemption  Price  accompanied by a stock
                  power duly endorsed in blank and the holder shall acquire good
                  and  marketable  title to such  shares  free and  clear of any
                  liens,   encumbrances,    security   interests,    restrictive
                  agreements,  claims or imperfections of any nature whatsoever,
                  other than  restrictions  on  transfer  imposed by  applicable
                  securities laws.

                  On the  Redemption  Date,  the  Holder  shall  deliver  to the
         Corporation a stock  certificate  representing  the  Redemption  Shares
         accompanied by a stock power duly endorsed in blank and the Corporation
         shall acquire good and  marketable  title to such shares free and clear
         of any liens, encumbrances, security interests, restrictive agreements,
         claims  or   imperfections  of  any  nature   whatsoever,   other  than
         restrictions on transfer imposed by applicable securities laws.

                  After the Redemption  Notice Date, the Redemption Shares shall
         not be  deemed  to be  outstanding  and the  Holder  will  only  hold a
         contractual right from the Corporation to receive the Redemption Price.

                  Section 5. Protective  Provision.  The  Corporation  shall not
         amend this Article IV without  obtaining the approval of the holders of
         90% of the outstanding shares of Common Stock.

                  Section 6. Record Holders.  The Corporation  shall be entitled
         to treat the person in whose name any share of its stock is  registered
         as the  owner  thereof  for all  purposes  and  shall  not be  bound to
         recognize  any  equitable or other claim to, or interest in, such share
         on the part of any other person,  whether or not the Corporation  shall
         have notice thereof, except as expressly provided by applicable law.

                                   ARTICLE V.
                                    EXISTENCE

         The Corporation is to have perpetual existence.

                                   ARTICLE VI.
                                     BYLAWS

         In  furtherance  and  not in  limitation  of the  powers  conferred  by
statute,  the board of  directors  is expressly  authorized  to adopt,  amend or
repeal the bylaws or adopt new bylaws.

                                       -3-
<PAGE>

                                  ARTICLE VII.
                            MEETINGS OF STOCKHOLDERS
                              BOOKS OF CORPORATION
                              ELECTION OF DIRECTORS

         Meetings  of  stockholders  may be held  within or without the state of
Delaware,  as the  bylaws  of the  Corporation  may  provide.  The  books of the
Corporation may be kept outside the state of Delaware at such place or places as
may be  designated  from time to time by the board of directors or in the bylaws
of the Corporation.  Election of directors need not by written ballot unless the
bylaws of the Corporation so provide.

                                  ARTICLE VIII.
                               BOARD OF DIRECTORS

         The number of  directors  constituting  the board of  directors  of the
Corporation  shall be five.  The  Corporation  shall not  change  the  number of
directors on the board of  directors  from five members  without  obtaining  the
approval of the holders of 90% of the outstanding shares of Common Stock.

         The name and  address  of each of the  persons  to serve as a  director
until the first annual  meeting of the  stockholders  or until his successor has
been duly elected and  qualified or his earlier  resignation,  removal or death,
is:

           Name                                     Mailing Address
- -------------------------               ----------------------------------------

Harold C. Simmons                       Three Lincoln Centre
                                        5430 LBJ Freeway, Suite 1700
                                        Dallas, Texas   75240-2697

Glenn R. Simmons                        Three Lincoln Centre
                                        5430 LBJ Freeway, Suite 1700
                                        Dallas, Texas   75240-2697

Steven L. Watson                        Three Lincoln Centre
                                        5430 LBJ Freeway, Suite 1700
                                        Dallas, Texas   75240-2697

William J. Lindquist                    Three Lincoln Centre
                                        5430 LBJ Freeway, Suite 1700
                                        Dallas, Texas   75240-2697

J. Landis Martin                        1999 Broadway, Suite 4300
                                        Denver, Colorado   80202

                                       -4-
<PAGE>

                                   ARTICLE IX.
                                 INDEMNIFICATION

         The  Corporation  shall,  to  the  fullest  extent  permitted  by  law,
indemnify any and all officers and directors of the Corporation, and may, to the
fullest extent permitted by law or to such lesser extent as is determined in the
discretion  of the board of  directors,  indemnify  all other  persons  from and
against all expenses,  liabilities or other matters and advance  expenses to all
persons whom it shall have the power to indemnify.

                                   ARTICLE X.
                               DIRECTOR LIABILITY

         A director of the  Corporation  shall not be  personally  liable to the
Corporation  or its  stockholders  for monetary  damages for breach of fiduciary
duty as a director,  except for such  liability as is  expressly  not subject to
limitation under the Delaware General Corporation Law, as the same exists or may
hereafter be amended to further limit or eliminate such liability. Any repeal or
modification of this ARTICLE by the  stockholders  of the Corporation  shall not
adversely  affect  any right or  protection  of a  director  of the  Corporation
existing at the time of such repeal or modification.

                                   ARTICLE XI.
                          CERTAIN BUSINESS COMBINATIONS

         The Corporation  expressly  elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.

                                  ARTICLE XII.
                   SETTLEMENTS WITH CREDITORS OR STOCKHOLDERS

         Whenever  a  compromise  or   arrangement   is  proposed   between  the
Corporation  and  its  creditors  or  any  class  of  them  and/or  between  the
Corporation  and its  stockholders  or any class of them, any court of equitable
jurisdiction  within the state of Delaware may, on the  application in a summary
way of the  Corporation  or of any  creditor  or  stockholder  thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the  application
of trustees in  dissolution  or of any receiver or receivers  appointed  for the
Corporation  under the provisions of Section 279 of Title 8 of the Delaware Code
order  a  meeting  of  the  creditors  or  class  of  creditors,  and/or  of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such  manner as the said court  directs.  If a majority in number
representing  three-fourths  in value of the  creditors  or class of  creditors,
and/or of the stockholders or class of stockholders of the  Corporation,  as the
case may be, agree to any compromise or arrangement and to any reorganization of
the  Corporation as a consequence of such  compromise or  arrangement,  the said
compromise or arrangement  and said  reorganization  shall, if sanctioned by the
court to which the said  application  has been made, be binding on all creditors
or class of creditors,  and/or on all the stockholders or class of stockholders,
of the Corporation, as the case may be, and also on the Corporation.

                                       -5-
<PAGE>

                                  ARTICLE XIII.
                                    AMENDMENT

         The Corporation shall have the right, subject to any express provisions
or restrictions  contained in this certificate of incorporation or bylaws of the
Corporation,  from time to time, to amend this  certificate of  incorporation or
any  provision  thereof in any manner now or hereafter  provided by law, and all
rights and powers of any kind  conferred  upon a director or  stockholder of the
Corporation by this certificate of  incorporation  or any amendment  thereof are
conferred subject to such right.

                                  ARTICLE XIV.
                                  INCORPORATOR

         The  name  and  mailing  address  of  the  sole   incorporator  of  the
Corporation is A. Andrew R. Louis, Three Lincoln Centre, 5430 LBJ Freeway, Suite
1700, Dallas, Texas 75240-2697.

         THE UNDERSIGNED,  being the sole  incorporator of the Corporation,  for
the purpose of forming a corporation  pursuant to the General Corporation Law of
the state of Delaware,  does make this  certificate to acknowledge,  declare and
certify that this certificate of incorporation is his act and deed and the facts
stated in this certificate of incorporation  are true, and accordingly  executes
this certificate of incorporation this 21st day of December, 2000.



                                       /s/ A. Andrew R. Louis
                                       -------------------------------------
                                       A. Andrew R. Louis, Sole Incorporator



                                       -6-
<PAGE>



                                    EXHIBIT B

                                     BYLAWS

                                       OF

                               TREMONT GROUP, INC.
                             a Delaware Corporation
                       (Incorporated on December 21, 2000)

                             As of December 31, 2000


<PAGE>




<TABLE>
<CAPTION>

                                TABLE OF CONTENTS

                                                                                                               Page
<S>                                                                                                              <C>
TABLE OF CONTENTS.................................................................................................i
ARTICLE I.  REGISTERED AGENT AND OFFICES..........................................................................1
         Section 1.1.  Registered Agent and Office................................................................1
         Section 1.2.  Other Offices..............................................................................1
ARTICLE II.  MEETINGS OF STOCKHOLDERS.............................................................................1
         Section 2.1.  Place and Time of Meetings.................................................................1
         Section 2.2.  Notice.....................................................................................1
         Section 2.3.  List of Stockholders.......................................................................1
         Section 2.4.  Quorum.....................................................................................1
         Section 2.5.  Proxies....................................................................................2
         Section 2.6.  Order of Business..........................................................................2
         Section 2.7.  Appointment of Inspectors of Election......................................................2
         Section 2.8.  Informal Action............................................................................2
         Section 2.9.  Fixing A Record Date.......................................................................3
         Section 2.10.  Telephone Meetings........................................................................4
         Section 2.11.  Minutes...................................................................................4
ARTICLE III.  DIRECTORS...........................................................................................4
         Section 3.1.  Number, Qualifications and Term of Office..................................................4
         Section 3.2.  Removals...................................................................................4
         Section 3.3.  Vacancies..................................................................................4
         Section 3.4.  Annual Meeting.............................................................................4
         Section 3.5.  Other Meetings and Notice..................................................................4
         Section 3.6.  Quorum.....................................................................................4
         Section 3.7.  Committees.................................................................................4
         Section 3.8.  Committee Rules............................................................................5
         Section 3.9.  Telephonic Meetings........................................................................5
         Section 3.10.  Presumption of Assent.....................................................................5
         Section 3.11.  Informal Action...........................................................................5
         Section 3.12.  Compensation..............................................................................5
         Section 3.13.  Minutes...................................................................................5
ARTICLE IV.  OFFICERS.............................................................................................5
         Section 4.1.  Number.....................................................................................5
         Section 4.2.  Election and Term of Office................................................................5
         Section 4.3.  The Chairman of the Board..................................................................6
         Section 4.4.  The Vice Chairman of the Board.............................................................6
         Section 4.5.  The President..............................................................................6
         Section 4.6.  Vice Presidents............................................................................6
         Section 4.7.  The Secretary and Assistant Secretary......................................................6
         Section 4.8.  The Treasurer and Assistant Treasurer......................................................7
         Section 4.9.  Vacancies..................................................................................7
         Section 4.10.  Other Officers, Assistant Officers and Agents.............................................7
ARTICLE V.  INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND OTHERS.......................................7
         Section 5.1.  Indemnification............................................................................7
         Section 5.2.  Advancement of Expenses....................................................................7
         Section 5.3.  Expenses of Contested Indemnification Claims...............................................8
         Section 5.4.  Indemnification Not Exclusive..............................................................8
         Section 5.5.  Survival of Indemnification and Advancement of Expenses....................................8

                                       -i-
<PAGE>

         Section 5.6.  Permissive Indemnification of Employees, Agents and Others.................................8
         Section 5.7.  Contract Right.............................................................................8
         Section 5.8.  Insurance..................................................................................8
         Section 5.9.  Certain References Under Article V.........................................................8
ARTICLE VI.  CERTIFICATES OF STOCK................................................................................8
         Section 6.1.  Form.......................................................................................8
         Section 6.2.  Transfers..................................................................................9
         Section 6.3.  Lost or Destroyed Certificates.............................................................9
         Section 6.4.  Registered Stockholders....................................................................9
ARTICLE VII.  CERTAIN BUSINESS COMBINATIONS.......................................................................9
ARTICLE VIII. GENERAL PROVISIONS..................................................................................9
         Section 8.1.  Dividends..................................................................................9
         Section 8.2.  Moneys.....................................................................................9
ARTICLE IX.  NOTICES..............................................................................................9
         Section 9.1.  General....................................................................................9
         Section 9.2.  Waivers...................................................................................10
         Section 9.3.  Attendance as Waiver......................................................................10
         Section 9.4.  Omission of Notice to Stockholders........................................................10

</TABLE>

                                      -ii-
<PAGE>




                                     BYLAWS

                                       OF

                               TREMONT GROUP, INC.
                             a Delaware Corporation
                       (Incorporated on December 21, 2000)

                             As of December 31, 2000

- --------------------------------------------------------------------------------

                                   ARTICLE I.
                          REGISTERED AGENT AND OFFICES

         Section 1.1.  Registered  Agent and Office.  The  registered  agent and
office of the  corporation  shall be such  person or entity and  located at such
place  within the state of Delaware as the board of  directors  may from time to
time determine.

         Section 1.2. Other Offices.  The  corporation  may also have offices at
such  other  places,  both  within and  without  the state of  Delaware,  as the
corporation's board of directors may from time to time determine or the business
of the corporation may require.

                                   ARTICLE II.
                            MEETINGS OF STOCKHOLDERS

         Section  2.1.  Place  and  Time  of  Meetings.   All  meetings  of  the
stockholders  shall be held on such date and at such time and  place,  within or
without the state of Delaware,  as shall be determined from time to time, by the
board of directors.  The place at which a meeting of stockholders  shall be held
shall be stated in the notice and call of the meeting or a duly executed  waiver
of  notice  thereof.  Special  meetings  of  stockholders  may be  called by the
chairman of the board,  the president,  the board of directors or the holders of
at least ten percent of the shares of the corporation  that would be entitled to
vote at such a meeting.

         Section 2.2. Notice.  Notice of the time and place of an annual meeting
of  stockholders  and notice of the time,  place and  purpose or  purposes  of a
special meeting of the stockholders shall be given by mailing written or printed
notice of the same not less than ten,  nor more than  sixty,  days  prior to the
meeting,  with postage prepaid, to each stockholder of record of the corporation
entitled to vote at such meeting,  and addressed to the stockholder's last known
post office  address or to the address  appearing on the corporate  books of the
corporation.

         Section 2.3. List of  Stockholders.  The officer or agent having charge
of the stock  transfer  books of the  corporation  shall make, at least ten days
before every meeting of the  stockholders,  a complete list of the  stockholders
entitled to vote at such meeting arranged in alphabetical order,  specifying the
address of and the number of shares  registered in the name of each stockholder.
Such list shall be open to the examination of any  stockholder,  for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days  prior to the  meeting,  either at a place  within  the city  where the
meeting  is to be held,  which  place  shall be  specified  in the notice of the
meeting or, if not so  specified,  at the place where the meeting is to be held.
The list shall also be  produced  and kept at the time and place of the  meeting
during the whole time  thereof and may be inspected  by any  stockholder  who is
present.  The original stock transfer books shall be the only evidence as to who
are the  stockholders  entitled to examine such list or transfer book or to vote
at any such meeting of stockholders.

         Section 2.4. Quorum. The holders of a majority of the votes entitled to
be cast at any meeting of  stockholders,  counted as a single  class if there be
more than one class of stock entitled to vote at such meeting, present in person
or represented by proxy, shall constitute a quorum at all meetings of the

<PAGE>

stockholders  except as otherwise  provided by statute or by the  certificate of
incorporation.  Once a quorum is present at a meeting of the  stockholders,  the
stockholders  represented  in person or by proxy at the meeting may conduct such
business as may be properly  brought  before the meeting  until it is adjourned,
and the subsequent withdrawal from the meeting by any stockholder or the refusal
of any  stockholder  represented  in person or by proxy to vote shall not affect
the presence of a quorum at the meeting. If a quorum is not present, the holders
of the shares  present in person or  represented  by proxy at the  meeting,  and
entitled to vote thereat,  shall have the power, by the affirmative  vote of the
holders of a majority of such  shares,  to adjourn  the meeting to another  time
and/or place.  Unless the  adjournment  is for more than thirty days or unless a
new record date is set for the  adjourned  meeting,  no notice of the  adjourned
meeting need be given to any stockholder provided that the time and place of the
adjourned  meeting were  announced at the meeting at which the  adjournment  was
taken.  At the adjourned  meeting the corporation may transact any business that
might have been transacted at the original meeting.

         Section 2.5. Proxies. Each stockholder entitled to vote at a meeting of
stockholders  or to express  consent or dissent to  corporate  action in writing
without a meeting  may  authorize  another  person or  persons to act for him by
proxy. A telegram,  telex, cablegram or similar transmission by the stockholder,
or a photographic,  photostatic,  facsimile or similar reproduction of a writing
executed  by the  stockholder  shall be treated as an  execution  in writing for
purposes  of this  section.  No proxy  shall be valid after three years from the
date of its execution unless otherwise  provided in the proxy.  Each proxy shall
be  revocable  unless  the proxy  form  conspicuously  states  that the proxy is
irrevocable and the proxy is coupled with an interest.

         Section  2.6.  Order of  Business.  The order of  business at each such
stockholders  meeting shall be as determined by the chairman of the meeting. One
of the  following  persons,  in the order in which they are  listed  (and in the
absence of the first,  the next,  and so on),  shall  serve as  chairman  of the
meeting: the chairman of the board, vice chairman of the board, president,  vice
presidents (in the order of their seniority if more than one) and secretary. The
chairman of the meeting  shall have the right and  authority to  prescribe  such
rules,  regulations  and  procedures  and to do all such acts and  things as are
necessary or desirable for the proper conduct of the meeting, including, without
limitation,  the  establishment  of procedures for the  maintenance of order and
safety, limitations on the time allotted to questions or comments on the affairs
of the  corporation,  restrictions  on  entry  to such  meeting  after  the time
prescribed  for the  commencement  thereof,  and the  opening and closing of the
voting polls.

         Section  2.7.  Appointment  of  Inspectors  of  Election.  The board of
directors shall appoint one or more inspectors of election ("inspectors") to act
at such meeting or any  adjournment or  postponement  thereof and make a written
report  thereof.  The board of directors  may  designate  one or more persons as
alternate  inspectors to replace any inspector who fails to act. If no inspector
or alternate is so appointed or if no inspector or alternate is able to act, the
chairman  of the  board  shall  appoint  one or more  inspectors  to act at such
meeting.  Each  inspector,  before  entering  upon the  discharge  of his or her
duties,  shall  take  and sign an oath  faithfully  to  execute  the  duties  of
inspector  with  strict  impartiality  and  according  to the best of his or her
ability.  The  inspectors  may  be  directors,  officers  or  employees  of  the
corporation.

         Section 2.8.  Informal Action.

                  (a) Any action to be taken at a meeting  of the  stockholders,
         may be taken without a meeting,  without  prior  notice,  and without a
         vote, if a consent or consents in writing,  setting forth the action so
         taken,  shall be signed by the holder or  holders of shares  having not
         less than the minimum  number of votes that would be  necessary to take
         such action at a meeting at which the holders of all shares entitled to
         vote on the action were present and voted.

                  (b) Every written consent of the  stockholders  shall bear the
         date of signature of each stockholder who signs the consent. No written
         consent  shall be  effective  to take the action that is the subject of
         the consent  unless,  within  sixty days after the date of the earliest
         dated consent delivered to the corporation as provided below, a consent
         or consents  signed by the holder or holders of shares  having not less
         than the minimum number of votes that would be necessary to take the


                                       -2-
<PAGE>

         action  that  is  the  subject  of the  consent  are  delivered  to the
         corporation by delivery to its registered  office,  its principal place
         of business,  or an officer or agent of the corporation  having custody
         of the books in which  proceedings of meetings of the  stockholders are
         recorded.  Such  delivery  shall  be made by  hand or by  certified  or
         registered mail, return receipt requested,  and in the case of delivery
         to the corporation's principal place of business, shall be addressed to
         the president of the corporation.

                  (c) A telegram,  telex, cablegram or similar transmission by a
         stockholder, or a photographic, photostatic, facsimile or other similar
         reproduction of a writing signed by a stockholder, shall be regarded as
         signed by the stockholder for the purposes of this section.

                  (d) Prompt notice of the taking of any action by  stockholders
         without a meeting by less than unanimous written consent shall be given
         to those  stockholders who did not consent in writing to the action and
         who,  if the  action  had been  taken at a  meeting,  would  have  been
         entitled to notice of the  meeting if the record date for such  meeting
         had been the date that written  consents signed by a sufficient  number
         of holders to take the action were delivered to the corporation.

         Section 2.9. Fixing A Record Date.

                  (a)  In  order  that  the   corporation   may   determine  the
         stockholders  entitled  to  notice  of or to  vote  at any  meeting  of
         stockholders or any adjournment thereof, the board or directors may fix
         a record date,  which record date shall not precede the date upon which
         the  resolution  fixing  the  record  date is  adopted  by the board of
         directors,  and which record date shall not be more than sixty nor less
         than ten days before the date of such meeting. If no record is fixed by
         the board of directors,  the record date for  determining  stockholders
         entitled to notice of or to vote at a meeting of stockholders  shall be
         at the close of  business  on the day next  preceding  the day on which
         notice is given,  or if notice is waived,  at the close of  business on
         the day  next  preceding  the day on  which  the  meeting  is  held.  A
         determination  of  stockholders  of record  entitled to notice of or to
         vote at a meeting of stockholders shall apply to any adjournment of the
         meeting; providing,  however, that the board of directors may fix a new
         record date for the adjourned meeting.

                  (b)  In  order  that  the   corporation   may   determine  the
         stockholders entitled to consent to corporate action in writing without
         a meeting,  the board of directors may fix a record date,  which record
         date shall not  precede the date upon which the  resolution  fixing the
         record date is adopted by the board of directors,  and which date shall
         not be more  than ten days  after the date  upon  which the  resolution
         fixing the record  date is  adopted  by the board of  directors.  If no
         record date has been fixed by the board of  directors,  the record date
         for determining stockholders entitled to consent to corporate action in
         writing  without  a  meeting,  when no  prior  action  by the  board of
         directors is required by this chapter, shall be the first date on which
         a signed written  consent setting forth the action taken or proposed to
         be taken is delivered to the  corporation by delivery to its registered
         office in this State, its principal place of business, or an officer or
         agent  of  the  corporation   having  custody  of  the  book  in  which
         proceedings of meetings of stockholders are recorded.  Delivery made to
         a corporation's  registered  office shall be by hand or by certified or
         registered mail, return receipt  requested.  If no record date has been
         fixed by the  board of  directors  and  prior  action  by the  board of
         directors is required by this chapter,  the record date for determining
         stockholders entitled to consent to corporate action in writing without
         a  meeting  shall be at the close of  business  on the day on which the
         board of directors adopts the resolution taking such prior action.

                  (c)  In  order  that  the   corporation   may   determine  the
         stockholders  entitled  to  receive  payment of any  dividend  or other
         distribution or allotment of any rights or the stockholders entitled to
         exercise any rights in respect of any change, conversion or exchange of
         stock,  or for the  purpose of any other  lawful  action,  the board of
         directors  may fix a record  date,  which record date shall not precede
         the date upon which the  resolution  fixing the record date is adopted,
         and which  record  date shall be not more than sixty days prior to such
         action.  If no record date is fixed,  the record  date for  determining
         stockholders  for any such purpose shall be at the close of business on
         the day on which the board of directors adopts the resolution  relating
         thereto.


                                       -3-
<PAGE>

         Section 2.10.  Telephone Meetings.  Stockholders may participate in and
hold a  meeting  by means  of  conference  telephone  or  similar  communication
equipment  by means of which all persons  participating  in the meeting can hear
each other.  Participation in such a meeting shall constitute presence in person
at the  meeting,  except  where a person  participates  in the  meeting  for the
express  purpose of objecting to the  transaction  of any business on the ground
that the meeting is not lawfully called or convened.

         Section 2.11.  Minutes.  The stockholders shall keep regular minutes of
their  proceedings,  and such minutes  shall be placed in the minute book of the
corporation.

                                  ARTICLE III.
                                    DIRECTORS

         Section 3.1. Number,  Qualifications  and Term of Office.  The business
and  affairs  of the  corporation  shall  be  managed  by a board  of  directors
consisting of five members. Each director shall be elected at the annual meeting
of the  stockholders,  except as  provided  in Section  3.3,  and each  director
elected  shall hold office  until the next annual  meeting of  stockholders  and
until his or her  successor  is duly  elected and  qualified or until his or her
earlier death, resignation or removal.

         Section 3.2. Removals. Subject to the preferential voting rights of the
holders  of  preferred  stock  or  any  other  class  of  capital  stock  of the
corporation or any series of any of the foregoing that is then outstanding, each
director  may be removed  from office at any time by the  stockholders,  with or
without cause, by the affirmative  vote of the holders of at least a majority of
the voting  power of all of the shares of the  corporation  entitled to vote for
the election of such director.

         Section 3.3.  Vacancies.  Subject to the preferential  voting rights of
the  holders  of  preferred  stock or any other  class of  capital  stock of the
corporation or any series of any of the foregoing that is then  outstanding  and
except as otherwise  required by law, all  vacancies in the board of  directors,
whether caused by resignation,  death or otherwise,  may be filled by a majority
of the remaining  directors  though less than a quorum.  Each director so chosen
shall hold office for the unexpired term of his or her predecessor and until his
or her  successor is elected and  qualified  or until his or her earlier  death,
resignation or removal.

         Section  3.4.  Annual  Meeting.  The  annual  meeting  of the  board of
directors may be held without  notice  immediately  after the annual  meeting of
stockholders  at  the  location  of  the  stockholders'  meeting.  If  not  held
immediately after the annual meeting of the stockholders,  the annual meeting of
the board of directors shall be held as soon thereafter as may be convenient.

         Section 3.5. Other Meetings and Notice.  Regular  meetings of the board
of directors may be held without  notice at such time and at such place as shall
from time to time be determined by the board of directors.  Special  meetings of
the board of directors may be called by or at the request of the chairman of the
board or the  president  and shall be called by the chairman of the board on the
written request of a majority of directors, in each case on at least twenty-four
hours notice to each director.

         Section 3.6.  Quorum. A majority of the total number of directors shall
be  necessary  at all meetings to  constitute  a quorum for the  transaction  of
business.  If a quorum  shall  not be  present  at any  meeting  of the board of
directors,  the directors  present  thereat may adjourn the meeting from time to
time,  without  notice other than  announcement  at the meeting,  until a quorum
shall be present.  At such adjourned meeting at which a quorum shall be present,
any business may be transacted that might have been transacted at the meeting as
originally notified and called.

         Section 3.7. Committees. Standing or temporary committees consisting of
one or more  directors  of the  corporation  may be  appointed  by the  board of
directors  from time to time,  and the board of directors  may from time to time
invest  such  committees  with  such  powers  as it  may  see  fit,  subject  to


                                       -4-
<PAGE>

limitations  imposed by statute and such  conditions as may be prescribed by the
board of directors. An executive committee may be appointed by resolution passed
by a majority of the entire  board of  directors  and if appointed it shall have
all the powers provided by statute,  except as specially limited by the board of
directors.  All  committees  so  appointed  shall  keep  regular  minutes of the
transactions of their meetings and shall cause them to be recorded in books kept
for that purpose in the office of the corporation,  and shall report the same to
the board of directors at its next meeting. The board of directors may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified  member at any meeting of the committee.  The board shall
have the power at any time to change the  membership of, to increase or decrease
the  membership  of, to fill all  vacancies in and to discharge any committee of
the board, or any member thereof, either with or without cause.

         Section 3.8.  Committee Rules. Each committee of the board of directors
may fix its own rules of  procedure  and shall hold its  meetings as provided by
such rules,  except as may otherwise be provided by the  resolution of the board
of directors  designating  such  committee,  but in all cases the presence of at
least a  majority  of the  members  of such  committee  shall  be  necessary  to
constitute a quorum.

         Section 3.9. Telephonic Meetings.  Members of the board of directors or
any  committee  designated  by the board of  directors  may  participate  in any
meeting of the board of  directors  or such  committee  by means of a conference
telephone  or other  communications  equipment  by means  of which  all  persons
participating  in the  meeting  can hear  each  other.  Participation  in such a
meeting shall constitute presence in person at such meeting.

         Section 3.10.  Presumption of Assent. A director of the corporation who
is present at a meeting of the board of  directors or any  committee  thereof at
which action on any  corporate  matter is taken shall be deemed to have assented
to the action taken unless his or her dissent shall be entered in the minutes of
the  meeting or unless he or she shall file his or her  written  dissent to such
action  with the  person  acting as the  secretary  of the  meeting  before  the
adjournment  thereof or shall  forward  such dissent by  registered  mail to the
secretary of the corporation  immediately  after the adjournment of the meeting.
Such right to dissent  shall not apply to a director  who voted in favor of such
action.

         Section 3.11.  Informal Action.  Any action required or permitted to be
taken at any meeting of the board of directors or of any  committee  thereof may
be taken  without a meeting  if all  members of the board of  directors  or such
committee,  as the case may be, consent  thereto in writing,  and the writing or
writings are filed with the minutes of  proceedings of the board of directors or
committee.  Action  taken  pursuant  to such  written  consent  of the  board of
directors or of any committee thereof shall have the same force and effect as if
taken by the  board of  directors  or the  committee,  as the case may be,  at a
meeting thereof.

         Section  3.12.  Compensation.  The board of  directors  shall  have the
authority to fix the compensation of directors.

         Section  3.13.  Minutes.  The board of  directors  shall  keep  regular
minutes of its proceedings,  and such minutes shall be placed in the minute book
of the corporation.

                                   ARTICLE IV.
                                    OFFICERS

         Section  4.1.  Number.  The  officers  of the  corporation  shall  be a
chairman of the board,  a vice chairman of the board,  a president,  one or more
vice presidents, a secretary, a treasurer, and such other officers and assistant
officers as the board of directors may, by resolution,  appoint. Any two or more
offices  may be held  by the  same  person.  In its  discretion,  the  board  of
directors  may  choose  not to fill any  office  for any  period  as it may deem
advisable, except the offices of president and secretary.

         Section  4.2.  Election  and  Term  of  Office.  The  officers  of  the
corporation  shall be elected  annually by the board of  directors at the annual
meeting of the board of directors. If the election of officers shall not be held


                                       -5-
<PAGE>

at such  meeting,  such  election  shall  be held as soon  thereafter  as may be
convenient.  Each officer shall hold office until the next annual meeting of the
board of directors  and until his or her successor is duly elected and qualified
or until  his or her  earlier  death,  resignation  or  removal  as  hereinafter
provided.

         Section 4.3. The Chairman of the Board. The chairman of the board shall
preside at all meetings of the  stockholders  and directors.  He or she shall be
the chief executive officer of the corporation and shall have general and active
management  of the  business of the  corporation,  shall see that all orders and
resolutions of the board of directors are carried into effect and, in connection
therewith,  shall be  authorized  to delegate to the vice chairman of the board,
president and other officers such of his or her powers and duties as chairman of
the board at such time and in such manner as he or she may deem to be advisable.
The  chairman  of the  board  shall  be an ex  officio  member  of all  standing
committees  and he or she shall  have such  other  powers and duties as may from
time to time be assigned by the board of directors.

         The  chairman  of  the  board  may,  from  time  to  time,  appoint  an
attorney-in-fact or attorneys-in-fact, or an agent or agents, of the corporation
in the name and on behalf of the  corporation to cast as a  stockholder,  in any
other corporation, any of the securities that may be held by the corporation, at
meetings of the holders of such securities of such corporation, or to consent in
writing to any such action by any such other  corporation,  and may instruct the
person or persons  so  appointed  as to the manner of casting  such votes or the
giving of any  consent,  or may execute or cause to be executed on behalf of the
corporation  and under its  corporate  seal or otherwise  such written  proxies,
consents,  waivers,  or other  instruments  as he or she may deem  necessary  or
proper, or he or she may attend any meeting of the holders of such securities of
any such other  corporation and thereat vote or exercise any or all other powers
of the corporation as the holder of such securities of such corporation.

         Section 4.4. The Vice  Chairman of the Board.  The vice chairman of the
board shall be the  corporation's  executive  officer  next in  authority to the
chairman of the board.  The vice chairman of the board shall assist the chairman
of the board in the management of the business of the  corporation,  and, in the
absence  or  disability  of the  chairman  of the  board,  shall  preside at all
meetings of the  stockholders  and the board of directors and exercise the other
powers and perform the other  duties of the  chairman of the board or  designate
the  executive  officers of the  corporation  by whom such other powers shall be
exercised and other duties performed. The vice chairman of the board shall be an
ex officio member of all standing committees and he or she shall have such other
powers and duties as may from time to time be assigned by the board of directors
or by the chairman of the board. In addition to the foregoing, the vice chairman
of the board shall have such other  powers,  duties and  authority as may be set
forth elsewhere in these bylaws.

         Section 4.5. The President.  The president  shall be the  corporation's
executive  officer next in authority to the vice chairman of the board and shall
be its chief  operating  officer  unless  otherwise  determined  by the board of
directors.  The  president  shall  assist  the  chairman  of  the  board  in the
management of the business of the corporation, and, in the absence or disability
of the chairman of the board and the vice  chairman of the board,  shall preside
at all meetings of the  stockholders and the board of directors and exercise the
other  powers  and  perform  the other  duties of the  chairman  of the board or
designate the executive  officers of the  corporation  by whom such other powers
shall be exercised  and other duties  performed.  The  president  shall be an ex
officio  member of all standing  committees  and he or she shall have such other
powers and duties as may from time to time be assigned by the board of directors
or by the chairman of the board.  In addition to the  foregoing,  the  president
shall  have  such  other  powers,  duties,  and  authority  as may be set  forth
elsewhere in these bylaws.  If the board of directors  does not elect a chairman
or vice  chairman  of the board,  the  president  shall also have the duties and
responsibilities,  and  exercise  all  functions,  of the  chairman and the vice
chairman of the board as provided in these bylaws.

         Section  4.6.  Vice  Presidents.  Each vice  president  shall have such
powers and  discharge  such duties as may be  assigned  from time to time by the
chairman of the board.  During the absence or disability of the  president,  one
such vice president,  when designated by the board of directors,  shall exercise
all the functions of the president.

         Section 4.7. The Secretary and  Assistant  Secretary.  The secretary or
the chairman of the board shall issue  notices for all  meetings.  The secretary
shall  keep  minutes  of all  meetings,  shall  have  charge of the seal and the


                                       -6-
<PAGE>

corporate books and shall make such reports and perform such other duties as are
incident to the office,  and perform  such other duties  designated  or properly
required by the chairman of the board.  The assistant  secretary shall be vested
with the same  powers  and duties as the  secretary,  and any act may be done or
duty  performed,  by the assistant  secretary with like effect as though done or
performed by the secretary. The assistant secretary shall have such other powers
and perform such other duties as may be assigned by the chairman of the board.

         Section 4.8. The Treasurer and Assistant Treasurer. The treasurer shall
have the custody of all moneys and securities of the  corporation and shall keep
regular books of account.  He or she shall disburse the funds of the corporation
in payment of just demands against the corporation,  or as may be ordered by the
chairman of the board or by the board of directors,  taking proper  vouchers for
such disbursements, and shall render to the board of directors from time to time
as may be required of him or her, an account of all  transactions  as  treasurer
and of the financial  condition of the corporation.  The treasurer shall perform
all duties incident to the office,  and perform such other duties  designated or
properly required by the chairman of the board. The assistant treasurer shall be
vested  with the same  powers  and duties as the  treasurer,  and any act may be
done, or duty  performed by the assistant  treasurer  with like effect as though
done or performed by the  treasurer.  The  assistant  treasurer  shall have such
other powers and perform such other duties as may be assigned by the chairman of
the board.

         Section 4.9. Vacancies.  Vacancies in any office arising from any cause
may be filled by the  directors  for the  unexpired  portion  of the term with a
majority  vote of the  directors  then in office.  In the case of the absence or
inability  to act of any  officer of the  corporation  and of any person  herein
authorized  to act in his or her place,  the board of directors may from time to
time  delegate the powers or duties of such officer to any other  officer or any
director or other person whom it may select.

         Section 4.10. Other Officers,  Assistant Officers and Agents. Officers,
assistant  officers,  and  agents,  if any,  other than those  whose  duties are
provided for in these  bylaws shall hold their  offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the board of directors. Unless the board of directors decides otherwise,
if an officer title is one commonly used for officers of a business  corporation
formed under the Delaware  General  Corporation  Law or any successor or similar
statute,  the  assignment of such title shall  constitute the delegation to such
officer of the  authority  and duties  that are  normally  associated  with that
office,  subject to any specific delegation of authority and duties made to such
officer by the board of directors.

                                   ARTICLE V.
         INDEMNIFICATION AND INSURANCE OF DIRECTORS, OFFICERS AND OTHERS

         Section  5.1.  Indemnification.  To the  fullest  extent  permitted  by
Delaware law the corporation shall, indemnify any and all officers and directors
of the corporation,  from and against all expenses (including  attorneys' fees),
liabilities or other matters  arising out of their status as such or their acts,
omissions or services  rendered by such persons in such  capacities or otherwise
while serving at the request of the corporation.  Unless specifically  addressed
in a repeal or amendment of Delaware law with regard to a corporation's  ability
to  indemnify  its  officers and  directors,  no such repeal or amendment  shall
adversely affect any  indemnification  rights of any person existing at the time
of such repeal or amendment.

         Section 5.2.  Advancement of Expenses.  Reasonable  expenses (including
attorneys'  fees) incurred by a director or officer who was, is or is threatened
to be made a named  defendant or  respondent in a proceeding by reason of his or
her status as a director or officer of the  corporation or services  rendered by
such persons in such  capacities or otherwise at the request of the  corporation
or incurred by a director or officer for  prosecuting  a claim under Section 5.3
shall be paid by the  corporation  in advance of the final  disposition  of such
proceeding  upon receipt of a written  affirmation by the director or officer of
his or her good  faith  belief  that he or she has met the  standard  of conduct
necessary for  indemnification  and a written undertaking by or on behalf of the
director or officer to repay such amount if it shall  ultimately  be  determined
that  he or  she  is not  entitled  to be  indemnified  by  the  corporation  as
authorized in this Article.


                                       -7-
<PAGE>

         Section  5.3.  Expenses  of  Contested  Indemnification  Claims.  If  a
claimant  makes a claim  on the  corporation  under  Section  5.1 or 5.2 and the
corporation  does not pay such  claim in full  within  thirty  days after it has
received such written claim,  the claimant may at any time thereafter bring suit
against  the  corporation  to  recover  the unpaid  amount of the claim and,  if
successful in whole or in part,  the claimant  shall also be entitled to be paid
the expenses of prosecuting such claim.

         Section 5.4.  Indemnification  Not Exclusive.  The  indemnification and
advancement of expenses  provided by, or granted pursuant to, this Article shall
not  be  deemed   exclusive  of  any  other   rights  to  which  those   seeking
indemnification  or  advancement  of expenses  may be  entitled  under any other
bylaw, agreement,  vote of stockholders or disinterested directors or otherwise,
both as to action in his or her  official  capacity  and as to action in another
capacity while holding such office.

         Section 5.5. Survival of  Indemnification  and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article  shall  continue as to a person who has ceased to be a director
or  officer  and  shall  inure  to the  benefit  of  the  heirs,  executors  and
administrators of such person.

         Section  5.6.  Permissive  Indemnification  of  Employees,  Agents  and
Others.  To the fullest extent of Delaware law, the corporation may grant rights
of  indemnification  and advancement of expenses to any person who is not at the
time a current director or officer of the corporation.

         Section 5.7. Contract Right. Each of the rights of indemnification  and
advancement of expenses  provided by, or granted pursuant to, this Article shall
be a  contract  right and any  repeal or  amendment  of the  provisions  of this
Article shall not adversely  affect any such right of any person existing at the
time of such repeal or amendment  with respect to any act or omission  occurring
prior to the time of such repeal or amendment,  and further,  shall not apply to
any proceeding,  irrespective of when the proceeding is initiated,  arising from
the service of such person prior to such repeal or amendment.

         Section  5.8.  Insurance.  To the fullest  extent of Delaware  law, the
corporation shall have power to purchase and maintain insurance on behalf of any
person,  including one who is or was a director,  officer,  employee or agent of
the  corporation  or is or was  serving at the request of the  corporation  as a
director, officer, employee or agent of another enterprise against any liability
asserted against him or her and incurred by him or her in any such capacity,  or
arising out of his or her status as such,  whether or not the corporation  would
have the  power  to  indemnify  him or her  against  such  liability  under  the
provisions of this Article.

         Section 5.9.  Certain  References Under Article V. For purposes of this
Article,  references  to "the  corporation,"  "proceeding"  and  "serving at the
request of the corporation"  shall have the meanings given such terms in Section
145 of the Delaware General Corporation Law or any successor or similar statute.

                                   ARTICLE VI.
                              CERTIFICATES OF STOCK

         Section 6.1. Form.  Certificates  of stock shall be issued in numerical
order,  and each  stockholder  shall be entitled to a certificate  signed by the
chairman of the board,  the president or any vice  president and the  secretary,
any assistant secretary, the treasurer or any assistant treasurer, certifying to
the number of shares owned by such stockholder. Where, however, such certificate
is signed by a transfer  agent or an assistant  transfer  agent or by a transfer
clerk acting on behalf of the corporation, and a registrar or by an agent acting
in the dual capacity of transfer agent and  registrar,  the signatures of any of
the  above-named  officers  may be facsimile  signatures.  In the event that any
officer  who has  signed,  or whose  facsimile  signature  has  been  used on, a
certificate  has  ceases  to be an  officer  before  the  certificate  has  been
delivered, such certificate may nevertheless be adopted and issued and delivered
by the  corporation,  as though the  officer  who  signed  such  certificate  or
certificates,  or whose facsimile  signature or signatures  shall have been used
thereon, had not ceased to be such officer of the corporation.


                                       -8-

<PAGE>

         Section 6.2. Transfers.  Transfers of stock shall be made only upon the
transfer books of the corporation or respective  transfer  agents  designated to
transfer the several  classes of stock,  and before a new certificate is issued,
the old certificate shall be surrendered for cancellation.

         Section 6.3. Lost or Destroyed Certificates.  The corporation may issue
a new certificate of stock in place of any certificate theretofore issued by it,
alleged to have been  lost,  stolen or  destroyed,  and the  corporation  shall,
except as otherwise  determined by the board of  directors,  the chairman of the
board, the president,  any vice president or other authorized  officer,  require
the owner of the  lost,  stolen or  destroyed  certificate,  or his or her legal
representative,  to give the  corporation  a bond  sufficient  to  indemnify  it
against any claim that may be made  against it on account of the  alleged  loss,
theft  or  destruction  of any  such  certificate  or the  issuance  of such new
certificate.

         Section 6.4. Registered Stockholders. The corporation shall be entitled
to recognize  the  exclusive  right of a person  registered  on its books as the
owner of shares to receive  dividends,  and to vote as such  owner,  and to hold
liable for calls and  assessments a person  registered on its books as the owner
of shares,  and shall not be bound to recognize  any equitable or other claim to
or  interest in such  shares on the part of another  person,  whether or not the
corporation  shall have  express or other  notice  thereof,  except as otherwise
provided by the laws of the state of Delaware.

                                  ARTICLE VII.
                          CERTAIN BUSINESS COMBINATIONS

         The provision of Section 203 of the Delaware  General  Corporation  Law
shall not apply to the corporation.

         This Article VII shall be amended, altered or repealed only as provided
in Section 203 of the Delaware General Corporation Law.

                                  ARTICLE VIII.
                               GENERAL PROVISIONS

         Section  8.1.  Dividends.  Dividends  upon  the  capital  stock  of the
corporation,  subject  to  any  applicable  provisions  of  the  certificate  of
incorporation,  may be  declared  by the board of  directors  at any  regular or
special meeting,  pursuant to law. Dividends may be paid in cash, in property or
in shares of the capital  stock,  subject to the  applicable  provisions  of the
certificate of incorporation.  Before payment of any dividend,  there may be set
aside out of any funds of the  corporation  available for dividends  such sum or
sums as the directors  from time to time, in their  absolute  discretion,  think
proper  as a  reserve  or  reserves  to meet  contingencies,  or for  equalizing
dividends,  or for repairing or maintaining any property of the corporation,  or
for such other purpose as the directors  shall think in the best interest of the
corporation,  and the  directors  may modify or abolish any such  reserve in the
manner in which it was created.

         Section 8.2. Moneys.  The moneys of the corporation  shall be deposited
in the name of the  corporation  in such bank or banks or trust company or trust
companies as the board of directors shall designate, and shall be drawn out only
by check signed by the chairman of the board or the president and  countersigned
by the secretary,  assistant secretary, treasurer or the assistant treasurer, or
signed  and  countersigned  by such  other  persons  as shall be  designated  by
resolution of the board of directors,  except that the chairman of the board may
designate  one or more  officers  to  transfer  by letter or wire  funds from an
account of the  corporation  in one bank to an account of the  corporation  or a
subsidiary  in  another  bank  and the  chairman  of the  board  shall  have the
authority  on bank  accounts to  designate  that one  signature of an officer or
other person shall be sufficient.

                                   ARTICLE IX.
                                     NOTICES

         Section 9.1.  General.  Whenever the provisions of any statute or these
bylaws require notice to be given to any director, officer or stockholder,  such
notice may be given  personally or in writing by  facsimile,  by telegraph or by


                                       -9-
<PAGE>

depositing the same in the United States mail with postage prepaid  addressed to
each director, officer or stockholder at his or her address, as the same appears
in the books of the corporation,  and the time when the same shall be personally
given,  sent by  facsimile or telegraph or mailed shall be deemed to be the time
of the giving of such notice.

         Section 9.2.  Waivers.  Whenever any notice  whatever is required to be
given under provisions of law or of the certificate of incorporation or of these
bylaws,  a waiver thereof in writing signed by the person or persons entitled to
said notice,  whether before or after the time stated  therein,  shall be deemed
equivalent to the giving of such notice.

         Section 9.3. Attendance as Waiver.  Attendance of a person at a meeting
shall  constitute  a waiver  of notice of such  meeting,  except  where a person
attends a meeting for the express  purpose of objecting at the  beginning of the
meeting to the  transaction of any business  because the meeting is not lawfully
called or convened.

         Section 9.4. Omission of Notice to Stockholders. Any notice required to
be given to any stockholder  under any statutory  provision,  the certificate of
incorporation or these bylaws need not be given to the stockholder if:

                  (a) notice of two consecutive  annual meetings and all notices
         of meetings held or actions by written  consent taken during the period
         between those annual meetings, if any, or

                  (b) all,  and at least two,  payments  (if sent by first class
         mail) of distributions or interest on securities  during a twelve month
         period

have been mailed to that person, addressed at his or her address as shown on the
share transfer records of the corporation, and have been returned undeliverable.
Any action or meeting  taken or held without  notice to such a person shall have
the same force and effect as if the notice had been duly given. If such a person
delivers  to the  corporation  a written  notice  setting  forth his or her then
current  address,  the requirement  that notice be given to that person shall be
reinstated.


                                  ADOPTED BY THE BOARD OF DIRECTORS AS
                                  OF DECEMBER 31, 2000


                                   /s/ A. Andrew R. Louis
                                   ---------------------------------------------
                                   A. Andrew R. Louis, Secretary


                                      -10-
<PAGE>


                                    EXHIBIT C
                                VOTING AGREEMENT

                                VOTING AGREEMENT


         THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
December 31, 2000, among Valhi, Inc., a Delaware corporation ("Valhi"),  Tremont
Holdings, LLC, a Delaware limited liability company ("TRE Holdings" and together
with Valhi, the "Stockholders"), and Tremont Group, Inc., a Delaware corporation
("TGI"). Unless otherwise provided in this Agreement,  certain capitalized terms
used herein are defined in Section 8.

                                    Recitals

         The parties  hereto desire to enter into this  Agreement to establish a
mechanism to elect as a director of TGI one person  designated in writing by TRE
Holdings.

                                    Agreement

         In  consideration  of the mutual  covenants  contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement hereby agree as follows.

         Section 1. Voting for Directorship. Valhi agrees to vote all of its TGI
Shares,  and will take all other  necessary  or  desirable  actions  within  its
control,  to elect as a director of TGI one person  designated in writing by TRE
Holdings.  The parties agree that the initial person  designated by TRE Holdings
to be elected a director of TGI is J. Landis Martin.  If in the future more than
one person holds TRE  Holdings'  TGI Shares,  such persons must jointly agree on
one  designee  that they  desire to have Valhi  elect as a  director  of TGI and
notify Valhi in writing of such designee before Valhi is obligated to elect such
designee under this section.

         Section  2.  Size of Board of  Directors;  Governing  Instruments.  The
Stockholders  hereby agree (a) that the board of directors shall be comprised of
five (5) persons as directors,  and each  Stockholder  shall take or cause to be
taken all action to require that the certificate of incorporation  and bylaws of
TGI shall so  provide  and (b) to ensure at all times  that the  certificate  of
incorporation  and  bylaws  of TGI are not at any  time  inconsistent  with  the
provisions of this Agreement.

         Section 3. Impairment.  Valhi agrees that it will not vote or otherwise
consent or take action with respect to its TGI Shares to amend TGI's certificate
of  incorporation  or bylaws in a manner that would affect the voting  rights of
TGI's stockholders.

         Section 4. Transfer of Shares. Valhi agrees that the agreement relating
to the voting of its TGI Shares  evidenced by this Agreement shall encumber such
shares,  and that any permitted  successor,  assignee,  or transferee shall take
such shares subject to this Agreement.  In addition,  each party agrees to cause
any permitted successor, assignee, or transferee of such party to become a party
to this Agreement.

<PAGE>

         Section 5. Term. Unless earlier terminated by agreement of the parties,
this  Agreement  shall  remain  in  effect  for as long as TRE  Holdings  or its
permitted successors, assigns and transferees hold TGI Shares.

         Section 6. Legend.  Each certificate  evidencing Valhi's TGI Shares and
each certificate  issued in exchange for or upon the transfer of such TGI Shares
(if such  shares  remain  subject  to the  terms of this  Agreement  after  such
transfer) shall be stamped or otherwise imprinted with a legend in substantially
the following form:

         THE SECURITIES  REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
         AGREEMENT  ("AGREEMENT") DATED AS OF DECEMBER 31, 2000 AMONG THE ISSUER
         OF SUCH SECURITIES (THE "ISSUER") AND THE ISSUER'S SECURITY HOLDERS.  A
         COPY OF SUCH AGREEMENT  WILL BE FURNISHED  WITHOUT CHARGE BY THE ISSUER
         TO THE HOLDER HEREOF UPON WRITTEN REQUEST.

The legend set forth above shall be removed from the certificates evidencing TGI
Shares  that  cease  to be  subject  to  the  terms  of  this  Agreement  or the
termination of this Agreement.

         Section 7.  Specific  Performance.  Valhi agrees that the remedy at law
for any breach by it of this  Agreement will be inadequate and that, in addition
to any other  remedies TRE Holdings  might have, TRE Holdings shall be entitled,
without the necessity of proving actual  damages,  to specific  performance  and
injunctive relief to prevent the breach of any provisions of this Agreement.

         Section 8.  Definitions.

                  "Common  Stock" means TGI's common stock,  par value $0.01 per
         share.

                  "Stockholder"  means any  stockholder of TGI who is subject to
         the terms of this Agreement.

                  "TGI  Shares"  means any  Common  Stock  and any other  voting
         securities of TGI purchased or otherwise  acquired by any  Stockholder.
         As to any particular shares  constituting TGI Shares,  such shares will
         cease to be  subject  to this  Agreement  if and when  they  have  been
         repurchased by TGI.

         Section 9.  Miscellaneous.

                  (a) Amendment and Waiver. Except as otherwise provided herein,
         no modification, amendment or waiver of any provision of this Agreement
         will be  effective  against a  Stockholder,  unless such  modification,
         amendment  or waiver is  approved in writing by such  Stockholder.  The
         failure of any party to enforce any of the provisions of this Agreement
         will in no way be construed as a waiver of such provisions and will not
         affect the right of such  party  thereafter  to enforce  each and every
         provision of this Agreement in accordance with its terms.

                                       -2-
<PAGE>

                  (b) Severability.  Whenever  possible,  each provision of this
         Agreement  will be  interpreted  in such manner as to be effective  and
         valid under  applicable  law, but if any provision of this Agreement is
         held to be invalid,  illegal or  unenforceable in any respect under any
         applicable law or rule in any jurisdiction, such invalidity, illegality
         or  unenforceability  will not affect any other  provision or any other
         jurisdiction,  but  this  Agreement  will be  reformed,  construed  and
         enforced  in  such   jurisdiction  as  if  such  invalid,   illegal  or
         unenforceable provision had never been contained herein.

                  (c)  Entire  Agreement.  This  Agreement  contains  the entire
         understanding  among  the  parties  with  respect  to the  transactions
         contemplated   hereby  and   supersedes   all  other   agreements   and
         understandings  among the parties with respect to the subject matter of
         this Agreement.

                  (d)  Successors  and  Assigns.  Except as  otherwise  provided
         herein,  this  Agreement  will bind and inure to the  benefit of and be
         enforceable by TGI and its successors and assigns, and the Stockholders
         and any subsequent holders of TGI Shares, and the respective successors
         and assigns of each of them, so long as they hold TGI Shares.

                  (e)   Counterparts.   This   Agreement   may  be  executed  in
         counterparts  each of which will be an original  and all of which taken
         together shall constitute one and the same agreement.

                  (f)  Notice.  All notices  and other  communications  that are
         required to be or may be given under this Agreement shall be in writing
         and shall be deemed to have been duly given when delivered in person or
         transmitted  by confirmed  telecopy or upon receipt  after  dispatch by
         overnight courier or by certified or registered mail,  postage prepaid,
         to the party to whom the notice is given. Notices shall be given to the
         address for the respective party appearing under the party's  signature
         to this  Agreement or to such other address as such party may designate
         by giving notice of such change of address to the other parties to this
         Agreement.

                  (g) Applicable  Law. This  Agreement  shall be governed by and
         construed  in  accordance  with  the  domestic  laws  of the  state  of
         Delaware, without giving effect to any choice of law or conflict of law
         provision  or rule  (whether  of the  state of  Delaware  or any  other
         jurisdiction)  that  would  cause  the  application  of the laws of any
         jurisdiction other than the state of Delaware.

                  (h)  Headings.  The sections and other  headings  contained in
         this Agreement are for reference  purposes only and shall not effect in
         any way the meaning or interpretation of this Agreement.

                                       -3-
<PAGE>


         The parties  hereto have caused this  Agreement to be executed by their
duly authorized officers as of the date first written above.

                                   TREMONT GROUP, INC.




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

                                       Address:    Three Lincoln Centre
                                                   5430 LBJ Freeway, Suite 1700
                                                   Dallas, Texas   75240-2697
                                                   FAX:  972.448.1445
                                                   Attention:  General Counsel

                                   VALHI, INC.




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

                                       Address:    Three Lincoln Centre
                                                   5430 LBJ Freeway, Suite 1700
                                                   Dallas, Texas   75240-2697
                                                   FAX:  972.448.1445
                                                   Attention:  General Counsel

                                   TREMONT HOLDINGS, LLC




                                   By: /s/ Robert D. Hardy
                                       -----------------------------------------
                                       Robert D. Hardy, Vice President

                                       Address:    Two Greenspoint Plaza
                                                   16825 Northchase Drive
                                                   Suite 1200
                                                   Houston, Texas   77060-2544
                                                   FAX:  281.423.3333
                                                   Attention:  General Counsel


                                       -4-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>SUBSIDIARIES OF THE REGISTRANT
<TEXT>


<TABLE>
<CAPTION>
                                                                    EXHIBIT 21.1

                         SUBSIDIARIES OF THE REGISTRANT

                                                Jurisdiction of
                                                 incorporation       % of Voting
          NAME OF CORPORATION                   or organization  Securities Held
- --------------------------------------------    ---------------  ---------------

<S>                                             <C>                          <C>

Kronos, Inc.                                     Delaware                    100
  Kronos (US) Inc.                               Delaware                    100
  Kronos International, Inc.                     Delaware                    100
    NL Industries GmbH & Co. OHG                 Germany                     100
      Kronos Titan GmbH & Co. OHG                Germany                     100
        Unterstutzungskasse Kronos Titan-GmbH    Germany                     100
    Kronos Chemie-GmbH                           Germany                     100
    Kronos World Services S.A./N.V.              Belgium                     100
    Kronos Canada, Inc.                          Canada                      100
    2969157 Canada Inc.                          Canada                      100
    Bentone Sud, S.A.                            France                      100
    Societe Industrielle Du Titane, S.A.         France                       94
    Kronos Limited                               United Kingdom              100
    Kronos Denmark ApS                           Denmark                     100
      Kronos Europe S.A./N.V.                    Belgium                     100
        Kronos B.V.                              Holland                     100
      Kronos Norge A/S                           Norway                      100
        Kronos Titan A/S                         Norway                      100
        Titania A/S                              Norway                      100
          The Jossingfjord Manufacturing
           Company A/S                           Norway                      100
  Kronos Louisiana, Inc.                         Delaware                    100
    Louisiana Pigment Company, L.P.              Delaware                     50(a)
NL Capital Corporation                           Delaware                    100(b)
Other:
  NL Industries (USA), Inc.                      Texas                       100
  NLO, Inc.                                      Ohio                        100
  Salem Lead Company                             Massachusetts               100
  Sayre & Fisher Land Company                    New Jersey                  100
  RK Export, Inc.                                Barbados                    100(c)
  153506 Canada Inc.                             Canada                      100
  NL Industries Chemie, GmbH                     Germany                     100
  Tremont Holdings, LLC                          Delaware                    100
  NL Environmental Management Services, Inc.     New Jersey                   78(d)
  The 1230 Corporation                           California                  100
  United Lead Company                            New Jersey                  100

</TABLE>

(a)  Unconsolidated joint venture accounted for by the equity method.

(b)  On February 1, 2000, NL Capital Corporation merged into Kronos
     International, Inc.

(c)  Liquidated in December 2000.

(d)  Registrant  directly owns 56% and  indirectly  owns 22% via 153506  Canada,
     Inc.

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>7
<FILENAME>0007.txt
<DESCRIPTION>CONSENT OF INDEPENDENT ACCOUNTANTS
<TEXT>


                                                                    EXHIBIT 23.1





                CONSENT OF INDEPENDENT ACCOUNTANTS


We consent to the incorporation by reference in the:

      (i)  Registration   Statement  No.   33-29287  on  Form  S-8  and  related
           Prospectus with respect to the 1989 Long Term  Performance  Incentive
           Plan of NL Industries, Inc.; and

      (ii) Registration   Statement  No.   33-25913  on  Form  S-8  and  related
           Prospectus with respect to the NL Industries, Inc. Retirement Savings
           Plan; and

      (iii)Registration   Statement  No.  333-65817  on  Form  S-8  and  related
           Prospectus  with respect to the NL  Industries,  Inc. 1998  Long-Term
           Incentive Plan; and

      (iv) Registration   Statement  No.   33-48145  on  Form  S-8  and  related
           Prospectus with respect to the NL Industries,  Inc. 1992 Non-Employee
           Directors Stock Option Plan.

of our  report  dated  February  28,  2001  on our  audits  of the  consolidated
financial statements and financial statement schedules of NL Industries, Inc. as
of  December  31,  2000 and 1999,  and for each of the three years in the period
ended December 31, 2000,  which report is included in this Annual Report on Form
10-K.





                               PricewaterhouseCoopers LLP



Houston, Texas
March 9, 2001


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