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<SEC-DOCUMENT>0000950129-03-002011.txt : 20030414
<SEC-HEADER>0000950129-03-002011.hdr.sgml : 20030414
<ACCEPTANCE-DATETIME>20030414154546
ACCESSION NUMBER:		0000950129-03-002011
CONFORMED SUBMISSION TYPE:	DEF 14A
PUBLIC DOCUMENT COUNT:		1
CONFORMED PERIOD OF REPORT:	20030520
FILED AS OF DATE:		20030414
EFFECTIVENESS DATE:		20030414

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:		DEF 14A
		SEC ACT:		1934 Act
		SEC FILE NUMBER:	001-00640
		FILM NUMBER:		03648621

	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>DEF 14A
<SEQUENCE>1
<FILENAME>h03391def14a.txt
<DESCRIPTION>NL INDUSTRIES, INC.- MEETING DATE: MAY 20, 2003
<TEXT>
<PAGE>
                                                             OMB APPROVAL
                                                      --------------------------
                                                      OMB Number:      3235-0059
                                                      Expires:   August 31, 2004
                                                      Estimated average burden
                                                      hours per response...14.73

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  SCHEDULE 14A

          Proxy Statement Pursuant to Section 14(a) of the Securities
                     Exchange Act of 1934 (Amendment No.  )

Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]

Check the appropriate box:

[ ]  Preliminary Proxy Statement.
[ ]  CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
     RULE 14a-6(e)(2)).
[X]  Definitive Proxy Statement.
[ ]  Definitive Additional Materials.
[ ]  Soliciting Material Pursuant to Section 240.14a-12


- --------------------------------------------------------------------------------

                              NL Industries, Inc.
- --------------------------------------------------------------------------------
    (Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (check the appropriate box):

[X]  No fee required.

[ ]  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

     1) Title of each class of securities to which transaction applies:

- --------------------------------------------------------------------------------

     2) Aggregate number of securities to which transaction applies:

- --------------------------------------------------------------------------------

     3) Per unit price or other underlying value of transaction computed
        pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
        filing fee is calculated and state how it was determined):

- --------------------------------------------------------------------------------

     4) Proposed maximum aggregate value of transaction:

- --------------------------------------------------------------------------------

     5) Total fee paid:

- --------------------------------------------------------------------------------

[ ]  Fee paid previously with preliminary materials.

[ ]  Check box if any part of the fee is offset as provided by Exchange Act
     Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
     paid previously. Identify the previous filing by registration statement
     number, or the Form or Schedule and the date of its filing.

     1) Amount Previously Paid:

- --------------------------------------------------------------------------------

     2) Form, Schedule or Registration Statement No.:

- --------------------------------------------------------------------------------

     3) Filing Party:

- --------------------------------------------------------------------------------

     4) Date Filed:

- --------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.

SEC 1913 (02-02)


<PAGE>
                               NL INDUSTRIES, INC.
                       16825 NORTHCHASE DRIVE, SUITE 1200
                              HOUSTON, TEXAS 77060



                                  April 7, 2003


Dear Shareholder:

         You are cordially invited to attend the 2003 Annual Meeting of
Shareholders of NL Industries, Inc., which will be held on Tuesday, May 20,
2003, at 10:00 a.m. (C.D.T.) at the offices of Valhi, Inc. located at Three
Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas. In addition to the
matters to be acted upon at the meeting, which are described in detail in the
attached Notice of Annual Meeting of Shareholders and Proxy Statement, we will
update you on the Company. I hope that you will be able to attend.

         Whether or not you plan to be at the meeting, please complete, date,
sign and return the proxy card or voting instruction form enclosed with this
Proxy Statement promptly or vote via the Internet or telephone following the
instructions on the proxy card so that your shares are represented at the
Meeting and voted in accordance with your wishes. Your vote, whether given by
proxy or in person at the Meeting, will be held in confidence by the Inspector
of Election for the meeting in accordance with NL's By-Laws.


                                       Sincerely,




                                       J. Landis Martin
                                       President and Chief Executive Officer



<PAGE>

                               NL INDUSTRIES, INC.
                       16825 NORTHCHASE DRIVE, SUITE 1200
                              HOUSTON, TEXAS 77060

                    NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

                             TO BE HELD MAY 20, 2003


To the Shareholders of NL Industries, Inc.:

         NOTICE IS HEREBY GIVEN that the 2003 Annual Meeting of Shareholders
(the "Annual Meeting") of NL Industries, Inc., a New Jersey corporation (the
"Company" or "NL"), will be held on Tuesday, May 20, 2003, at 10:00 a.m.
(C.D.T.) at the offices of Valhi, Inc. located at Three Lincoln Centre, 5430 LBJ
Freeway, Suite 1700, Dallas, Texas, for the following purposes:

         1.   To elect seven directors to serve until the 2004 Annual Meeting of
              Shareholders and until their successors are duly elected and
              qualified; and

         2.   To transact such other business as may properly come before the
              Annual Meeting or any adjournment or postponement thereof.

         The Board of Directors of the Company set the close of business on
March 24, 2003, as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Annual Meeting. Only
holders of record of NL's common stock, $.125 par value per share, at the close
of business on the Record Date are entitled to notice of, and to vote at, the
Annual Meeting. The Company's stock transfer books will not be closed following
the Record Date.

         You are cordially invited to attend the Annual Meeting. Whether or not
you expect to attend the Annual Meeting in person, please complete, sign, date
and mail the enclosed proxy card or voting instruction form promptly or vote via
the Internet or telephone following the instructions on the proxy card so that
your shares may be represented and voted at the Annual Meeting. You may revoke
your proxy by following the procedures set forth in the accompanying Proxy
Statement. If you choose, you may vote in person at the Annual Meeting even
though you previously submitted your proxy.

                                   By order of the Board of Directors,



                                   David B. Garten
                                   Vice President, General Counsel and Secretary





Houston, Texas
April 7, 2003



<PAGE>

                               NL INDUSTRIES, INC.
                       16825 NORTHCHASE DRIVE, SUITE 1200
                              HOUSTON, TEXAS 77060

                                   ----------

                                 PROXY STATEMENT

                                   ----------

                               GENERAL INFORMATION


         This Proxy Statement and the accompanying proxy card or voting
instruction form are being furnished in connection with the solicitation of
proxies by and on behalf of the Board of Directors (the "Board") of NL
Industries, Inc., a New Jersey corporation (the "Company" or "NL"), for use at
the Company's 2003 Annual Meeting of Shareholders to be held at 10:00 a.m.
(C.D.T.) on Tuesday, May 20, 2003, at the offices of Valhi, Inc. located at
Three Lincoln Centre, 5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697,
and at any adjournment or postponement thereof (the "Annual Meeting"). This
Proxy Statement and the accompanying proxy card or voting instruction form were
first mailed to the holders of the Company's common stock, $.125 par value per
share ("Common Stock"), on or about April 14, 2003.


                            PURPOSE OF ANNUAL MEETING

         At the Annual Meeting, shareholders of the Company will consider and
vote upon (i) the election of seven directors to serve until the Company's 2004
Annual Meeting of Shareholders and until their successors are duly elected and
qualified, and (ii) such other business as may properly come before the Annual
Meeting. The Company is not aware of any other business expected to come before
the Annual Meeting.


                  QUORUM AND VOTING RIGHTS; PROXY SOLICITATION

         The presence in person or by proxy of the holders of a majority of the
votes represented by the outstanding shares of Common Stock entitled to vote at
the Annual Meeting is necessary to constitute a quorum for the conduct of
business at the Annual Meeting. Director nominees will be elected by a plurality
of the votes cast. Except as may be provided in the Company's Amended and
Restated Certificate of Incorporation (the "Certificate"), any other matter that
may be submitted to a shareholder vote will require the affirmative vote of a
majority of the votes cast at the Annual Meeting. Shares of Common Stock that
are voted to abstain from business coming before the Annual Meeting and
broker/nominee non-votes will be counted as being in attendance at the Annual
Meeting for purposes of determining whether a quorum is present, but will not be
counted as votes for or against any matter coming before the Annual Meeting. The
accompanying proxy card provides space for a shareholder to withhold voting for
any or all nominees for the Board. Because director nominees must receive a
plurality of the votes cast at the Annual Meeting, a vote withheld from a
particular nominee will not affect the election of that nominee.

         The record date for determination of shareholders entitled to notice
of, and to vote at, the Annual Meeting is the close of business on March 24,
2003 (the "Record Date"). As of the Record Date, there were issued and
outstanding 47,694,784 shares of Common Stock, each of which entitles the holder
to one vote on all matters that come before the Annual Meeting. Valhi, Inc.
("Valhi") and a wholly owned subsidiary of Valhi together held approximately
84.6% of the outstanding shares of the Common Stock as of the Record Date and
have indicated their intention to have their shares represented at the Annual
Meeting. Valhi is a diversified company engaged in the titanium dioxide pigments
(through its ownership of NL stock), component products (ergonomic computer
support systems, precision ball bearing slides and security



<PAGE>

products), titanium metals products, and waste management industries. Valhi is
an affiliate of Contran Corporation ("Contran"). See "Security Ownership" and
"Election of Directors." If the shares of Common Stock held by Valhi are
represented at the Annual Meeting, a quorum will be present.

         All shares of Common Stock represented by properly executed proxies
will, unless such proxies have been previously revoked, be voted in accordance
with the instructions indicated in such proxies. If no such instructions are
indicated, such shares will be voted (i) "FOR" the election of each of the seven
nominees for director, and (ii) to the extent allowed by federal securities
laws, in the discretion of the proxy holders on any other matter that may
properly come before the Annual Meeting. Any holder of Common Stock has the
unconditional right to revoke his or her proxy at any time prior to the voting
thereof at the Annual Meeting by (i) filing with the Company's Secretary written
revocation of his or her proxy, (ii) giving a duly executed proxy bearing a
later date, or (iii) voting in person at the Annual Meeting. Attendance by a
shareholder at the Annual Meeting will not in and of itself revoke his or her
proxy.

         THIS PROXY SOLICITATION IS MADE BY AND ON BEHALF OF THE BOARD.
Solicitation of proxies for use at the Annual Meeting may be made by mail,
telephone or in person, by directors, officers and employees of the Company.
Such persons will receive no additional compensation for any solicitation
activities. The Company will request banking institutions, brokerage firms,
custodians, trustees, nominees and fiduciaries to forward solicitation materials
to the beneficial owners of Common Stock held of record by such entities, and
the Company will, upon the request of such record holders, reimburse reasonable
forwarding expenses. The costs of preparing, printing, assembling and mailing
the Proxy Statement, proxy card or voting instruction form and all materials
used in the solicitation of proxies from shareholders of the Company, and all
clerical and other expenses of such solicitation, will be borne by the Company.

         EquiServe Trust Company, N.A. ("EquiServe"), the transfer agent and
registrar for the Common Stock, has been appointed by the Board to serve as
inspector of election (the "Inspector of Election") to determine the number of
shares of Common Stock represented and voted at the Annual Meeting. All proxies
and ballots delivered to EquiServe shall be kept confidential by EquiServe in
accordance with the terms of the Company's By-Laws.

         THE AGENTS DESIGNATED IN THE ENCLOSED PROXY CARD WILL VOTE "FOR" THE
ELECTION OF ALL SEVEN NOMINEES FOR DIRECTOR IDENTIFIED BELOW UNLESS AUTHORITY IS
WITHHELD BY THE SHAREHOLDER GRANTING THE PROXY. IF ANY NOMINEE BECOMES
UNAVAILABLE TO SERVE FOR ANY REASON, THE PROXY WILL BE VOTED FOR A SUBSTITUTE
NOMINEE OR NOMINEES TO BE SELECTED BY THE BOARD, UNLESS THE SHAREHOLDER
WITHHOLDS AUTHORITY TO VOTE FOR THE ELECTION OF DIRECTORS. VALHI AND A
SUBSIDIARY OF VALHI, WHICH TOGETHER HOLD APPROXIMATELY 84.6% OF THE OUTSTANDING
COMMON STOCK, HAVE INFORMED THE COMPANY THAT THEY WILL VOTE THEIR SHARES IN
FAVOR OF THE NOMINEES SET FORTH IN THIS PROXY STATEMENT. VALHI'S VOTES ARE
SUFFICIENT TO ELECT ALL SEVEN NOMINEES.


                              ELECTION OF DIRECTORS

         The Certificate provides for a Board consisting of not less than seven
and not more than seventeen persons, as such number is determined from time to
time by a majority of the entire Board. The Board has determined that it shall
consist of seven members.

         At the Annual Meeting, holders of Common Stock will be asked to elect
seven nominees to the Board, each to serve for a one-year term ending at the
2004 Annual Meeting of Shareholders and until his or her successor shall have
been elected and qualified or until his or her earlier resignation, removal or
death. All of the nominees have agreed to serve if elected.



                                       2
<PAGE>

         THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES IDENTIFIED
BELOW.

NOMINEES FOR DIRECTOR

         The information provided below has been provided by the respective
nominees for election as directors for a term expiring at the 2004 Annual
Meeting of Shareholders of the Company. Each of the following nominees for
election except Dr. Turner is currently a director of the Company whose term
expires at the Annual Meeting.

         J. LANDIS MARTIN, age 57, has been President and Chief Executive
Officer of NL since 1987, and a director of NL since 1986. Mr. Martin has served
as Chairman of the Board and Chief Executive Officer of Titanium Metals
Corporation ("TIMET"), an integrated producer of titanium metals products that
is 40% owned by Valhi, since prior to 1998. He also has served as Chairman of
the Board, President and Chief Executive Officer of Tremont Corporation
("Tremont") from prior to 1998 until 2003. Mr. Martin is a director of
Halliburton Company, Apartment Investment and Management Corporation, Crown
Castle International Corporation, and Special Metals Corporation.

         GEORGE E. POSTON, age 66, has been a director of NL since 2002. He is
President of Poston Real Estate Co., a privately-held commercial real estate
investment company, and President of Poston Capital Co., a privately-held
investment company, since 1970. Mr. Poston is a member of NL's Audit Committee,
Nominations Committee, Management Development and Compensation Committee, and
Pension and Benefits Committee.

         GLENN R. SIMMONS, age 75, has been a director of NL since 1986 and a
director of NL's insurance subsidiary, EWI RE, Inc. ("EWI, Inc."), since 2003.
Mr. Simmons is Chairman of the Board of Keystone Consolidated Industries, Inc.
("Keystone"), a steel fabricated wire products, industrial wire and carbon steel
rod company that is affiliated with Contran, and CompX International Inc.
("CompX"), a manufacturer of ergonomic computer support systems, precision ball
bearing slides and security products that is also affiliated with Contran. Since
prior to 1998, Mr. Simmons has been Vice Chairman of the Board of Valhi and
Contran, a diversified holding company which directly and through related
entities holds approximately 91% of the outstanding common stock of Valhi. Mr.
Simmons is also a director of TIMET. Mr. Simmons has been an executive officer
and/or director of various companies related to Valhi and Contran since 1969. He
serves as Chairman of NL's Pension and Benefits Committee. He is a brother of
Harold C. Simmons.

         HAROLD C. SIMMONS, age 71, has been a director of NL since 1986 and
Chairman of the Board of NL since 1987. He has been Chairman of the Board of
Valhi and Contran since prior to 1998, was Chief Executive Officer of Valhi and
Contran from prior to 1998 to 2002, and was President of Valhi and Contran from
prior to 1997 to 1998. Mr. Simmons has been an executive officer and/or director
of various companies related to Valhi and Contran since 1961. He is a brother of
Glenn R. Simmons.

         GENERAL THOMAS P. STAFFORD (retired), age 72, served as a director of
NL from 1984 to 1986 and was re-appointed in February 2000. General Stafford was
a co-founder of and has been affiliated with Stafford, Burke and Hecker, Inc., a
Washington-based consulting firm, since 1982. He was selected as an astronaut in
1962, piloted Gemini VI in 1965 and commanded Gemini IX in 1966. In 1969,
General Stafford was named Chief of the Astronaut Office and was the Apollo X
commander for the first lunar module flight to the moon. He commanded the
Apollo-Soyuz joint mission with the Soviet cosmonauts in 1975. After his
retirement from the United States Air Force in 1979 as Lieutenant General, he
became Chairman of Gibraltar Exploration Limited, an oil and gas exploration and
production company, and served in that position until 1984, when he joined
General Technical Services, Inc., a consulting firm. In addition to serving as a
director of NL, General Stafford is a director of TIMET. General Stafford is a
member of NL's Audit



                                       3
<PAGE>

Committee and Nominations Committee, and is Chairman of NL's Management
Development and Compensation Committee.

         DR. R. GERALD TURNER, age 57, has served since 1997 as President of
Southern Methodist University in Dallas, Texas. He held previous executive and
administrative positions at the University of Mississippi, the University of
Oklahoma, and Pepperdine University. He serves on the Board of Directors of J.C.
Penney, American Aadvantage Funds, and California Preferred Capital Corporation.

         STEVEN L. WATSON, age 52, has been a director of NL since 2000. Mr.
Watson has been president and a director of Valhi and Contran since 1998, and
Chief Executive Officer of Valhi since 2002. Mr. Watson is also a director of
CompX, Keystone, and TIMET. Mr. Watson has served as an executive officer and/or
director of various companies related to Valhi and Contran since 1980. He is
Chairman of NL's Nominations Committee.

         See also "Certain Relationships and Transactions."


                             MEETINGS AND COMMITTEES

         The Board held six meetings and took action by unanimous written
consent in lieu of a meeting on seven occasions in 2002. Each of the directors
participated in more than 75% of the total number of meetings of the Board and
committees on which he or she served that were held during his or her period of
service in 2002.

         The Board has established four standing committees: an Audit Committee,
a Management Development and Compensation Committee, a Nominations Committee,
and a Pension and Benefits Committee, all of which are composed entirely of
individuals who are not employees of the Company.

         AUDIT COMMITTEE. The principal responsibilities of the Audit Committee
are to serve as an independent and objective party to review the Company's
auditing, accounting, and financial reporting processes. The Company's Board of
Directors has adopted a written charter for the Audit Committee. Each of the
members of the Audit Committee is independent within the meaning of the New York
Stock Exchange listing standards. The Audit Committee held ten meetings and took
action by written consent in lieu of a meeting on one occasion in 2002. The
current members of the Audit Committee are Ms. Ann Manix, a current director not
standing for reelection (Chair), Mr. Poston, and General Stafford. See
"Independent Auditor Matters - Audit Committee Report."

         MANAGEMENT DEVELOPMENT AND COMPENSATION COMMITTEE. The principal
responsibilities of the Management Development and Compensation Committee are to
review and make recommendations regarding executive compensation policies,
periodically to review and approve or make recommendations with respect to
matters involving executive compensation, to take action or to review and make
recommendations to the Board regarding employee benefit plans or programs, and
to serve as a counseling committee to the Chief Executive Officer regarding
matters of key personnel selection, organization strategies, and such other
matters as the Board may from time to time direct. The Management Development
and Compensation Committee also is responsible for reviewing and approving stock
option and other stock-based compensation awards under the Company's incentive
plan and for reviewing and approving the Company's target and performance levels
under the Variable Compensation Plan. The Management Development and
Compensation Committee held one meeting and took action by written consent in
lieu of a meeting on one occasion in 2002. Its current members are General
Stafford (Chairman), Ms. Manix, and Mr. Poston.

         NOMINATIONS COMMITTEE. The principal responsibilities of the
Nominations Committee are to review and make recommendations to the Board
regarding such matters as the size and composition of the Board and criteria for
director nominations, director candidates, the term of office of directors, and
such other related



                                       4
<PAGE>
matters as the Board may request from time to time. The Nominations Committee
held one meeting in 2002. The current members of the Nominations Committee are
Mr. Watson (Chairman), Ms. Manix, and Mr. Poston. The Nominations Committee made
its recommendations to the Board of Directors with respect to the election of
directors at the Annual Meeting. The Nominations Committee will consider
recommendations by shareholders of the Company with respect to nominees for
election as director if such recommendations are submitted in writing to the
Secretary of the Company and received not later than December 31, 2003 for the
2004 annual meeting of shareholders, and are accompanied by a full statement of
qualifications and confirmation of the recommended nominees' willingness to
serve.

         PENSION AND BENEFITS COMMITTEE. The principal responsibilities of the
Pension and Benefits Committee are to provide oversight and make decisions with
respect to NL's employee pension benefit plans, welfare benefit plans, or any
fringe benefit plan, including decisions with respect to the management,
disposition, or investment of plan assets and the appointment of investment
managers/advisors, and to monitor investment performance of the assets of the
plans. The Pension and Benefits Committee did not meet in 2002. Its current
members are Mr. Glenn Simmons (Chairman), Ms. Manix, and Mr. Poston.

         The Board has previously established, and from time to time may
establish, other committees to assist it in discharging its responsibilities.


                        EXECUTIVE OFFICERS OF THE COMPANY

         Set forth below is certain information regarding the Company's
executive officers. Biographical information with respect to Messrs. Simmons and
Martin is set forth above under "Election of Directors."

<Table>
<Caption>
       Name                         Age                         Position(s)
       ----                         ---                         -----------
<S>                                 <C>              <C>
Harold C. Simmons                   71               Chairman of the Board

J. Landis Martin                    57               President and Chief Executive Officer

Dr. Lawrence A. Wigdor              61               Executive Vice President; President and Chief Executive Officer of
                                                     Kronos, Inc. ("Kronos") and Chief Executive Officer of Kronos
                                                     International, Inc. ("KII")

David B. Garten                     51               Vice President, General Counsel and Secretary

Robert D. Hardy                     42               Vice President, Chief Financial Officer, Controller, and
                                                     Assistant Secretary and Chief Financial Officer of KII

John A. St. Wrba                    46               Vice President and Treasurer
</Table>

         DR. LAWRENCE A. WIGDOR has been Executive Vice President of NL and
President and Chief Executive Officer of Kronos, a wholly owned subsidiary of NL
involved in the titanium dioxide pigments business, since prior to 1998. From
1992 until 2002, Dr. Wigdor served as a director of NL.

         DAVID B. GARTEN has been Vice President, General Counsel and Secretary
of NL since prior to 1998.

         ROBERT D. HARDY has been Chief Financial Officer of NL since January
2002, Vice President and Controller of the Company since 1999, Assistant
Treasurer since prior to 1998, and Assistant Secretary since 1998. From January
2002 until February 2003 he also served as NL's Treasurer. From prior to 1998 to
1998, Mr. Hardy served as the Company's Director of Taxes, and from 1998 to 1999
served as Vice President-Tax.



                                       5
<PAGE>
         JOHN A. ST. WRBA has been Vice President and Treasurer of NL since
February 2003 and was NL's Assistant Treasurer from 2002 to 2003. He served as
NL's Assistant Treasurer from prior to 1998 until 2000. From 2000 until 2002, he
was Assistant Treasurer of Kaiser Aluminum & Chemical Corporation.


                               SECURITY OWNERSHIP

         Ownership of NL Common Stock. The following table and accompanying
notes set forth as of the Record Date the beneficial ownership, as defined by
the regulations of the Securities and Exchange Commission (the "Commission"), of
Common Stock held by (a) each person or group of persons known by NL to
beneficially own more than 5% of the outstanding shares of Common Stock, (b)
each director or nominee for director of NL, (c) each person listed in the
Summary Compensation Table below, and (d) all current executive officers and
directors of NL as a group. See note (3) below for information concerning
individuals and entities that may be deemed to indirectly beneficially own those
shares of Common Stock held by Valhi, as reported in the table below. No
securities of NL's subsidiaries are beneficially owned by any director, nominee
for director, or officer of NL. Information concerning ownership of equity
securities of NL's parent companies is contained in note (3) below and the table
under the caption "Ownership of Valhi Common Stock" below. All information is
taken from or based upon ownership filings made by such persons with the
Commission or information provided by such persons to NL.

<Table>
<Caption>
                                                                                      NL COMMON STOCK
                                                                       ----------------------------------------------
             NAME OF                                                     AMOUNT AND NATURE OF              PERCENT OF
         BENEFICIAL OWNER                                              BENEFICIAL OWNERSHIP(1)              CLASS(2)
         ----------------                                              -----------------------             ----------
<S>                                                                    <C>                                  <C>
Valhi, Inc.                                                                   30,135,390(3)                    63.2%
Tremont LLC                                                                   10,215,541(3)                    21.4%
Ann Manix                                                                          4,000(4)                      --
J. Landis Martin                                                                 225,300(5)                      --
George E. Poston                                                                   1,000                         --
Glenn R. Simmons                                                                  11,000(3)(6)                   --
Harold C. Simmons                                                                 82,475(3)(7)                   --
General Thomas P. Stafford (retired)                                               9,000(8)                      --
Dr. R. Gerald Turner                                                                 -0-                         --
Steven L. Watson                                                                  10,000(3)(9)                   --
Dr. Lawrence A. Wigdor                                                           196,800(10)                     --
David B. Garten                                                                  120,835(11)                     --
Robert D. Hardy                                                                   73,344(12)                     --
John A. St. Wrba                                                                     -0-                         --

All current directors and executive officers
    of the Company as a group (11 persons)                                       733,754(3)(4)(5)(6)(7)         1.5%
                                                                                        (8)(9)(10)(11)(12)
</Table>

- ----------

(1)      All beneficial ownership is sole and direct unless otherwise noted.

(2)      No percent of class is shown for holdings of less than 1%.

(3)      Valhi and Tremont LLC are the direct holders of approximately 63.2% and
         21.4%, respectively, of the outstanding common stock of NL. Valhi is
         the direct holder of 100% of the membership interests of



                                       6
<PAGE>

         Tremont LLC. Valhi Group, Inc. ("VGI"), National City Lines, Inc.
         ("National"), Contran, the Harold Simmons Foundation, Inc. (the
         "Foundation"), the Contran Deferred Compensation Trust No. 2 (the "CDCT
         No. 2") and The Combined Master Retirement Trust (the "CMRT") are the
         direct holders of approximately 77.6%, 9.1%, 2.8%, 1.3%, 0.4%, and
         0.1%, respectively, of the outstanding shares of Valhi common stock,
         par value $.01 per share ("Valhi Common Stock"). National, NOA, Inc.
         ("NOA") and Dixie Holding Company ("Dixie Holding") are the direct
         holders of approximately 73.3%, 11.4% and 15.3%, respectively, of the
         outstanding common stock of VGI. Contran and NOA are the direct holders
         of approximately 85.7% and 14.3%, respectively, of the outstanding
         common stock of National. Contran and Southwest Louisiana Land Company,
         Inc. ("Southwest") are the direct holders of approximately 49.9% and
         50.1%, respectively, of the outstanding common stock of NOA. Dixie Rice
         Agricultural Corporation, Inc. ("Dixie Rice") is the direct holder of
         100% of the outstanding common stock of Dixie Holding. Contran is the
         holder of 100% of the outstanding common stock of Dixie Rice and
         approximately 88.9% of the outstanding common stock of Southwest.

         Substantially all of Contran's outstanding voting stock is held by
         trusts established for the benefit of certain children and
         grandchildren of Harold C. Simmons (the "Trusts"), of which Mr. Simmons
         is the sole trustee. As sole trustee of each of the Trusts, Mr. Simmons
         has the power to vote and direct the disposition of the shares of
         Contran stock held by each of the Trusts.

         Harold C. Simmons is the chairman of the board NL, Tremont LLC, Valhi,
         VGI, National, NOA, Dixie Holding, Dixie Rice, Southwest and Contran.

         The Foundation directly holds approximately 1.3% of the outstanding
         shares of Valhi Common Stock. The Foundation is a tax-exempt foundation
         organized for charitable purposes. Harold C. Simmons is the chairman of
         the board of the Foundation and may be deemed to control the
         Foundation.

         The CDCT No. 2 directly holds approximately 0.4% of the outstanding
         shares of Valhi Common Stock. U.S. Bank National Association serves as
         the trustee of the CDCT No. 2. Contran established the CDCT No. 2 as an
         irrevocable "rabbi trust" to assist Contran in meeting certain deferred
         compensation obligations that it owes to Harold C. Simmons. If the CDCT
         No. 2 assets are insufficient to satisfy such obligations, Contran is
         obligated to satisfy the balance of such obligations as they come due.
         Pursuant to the terms of the CDCT No. 2, Contran (i) retains the power
         to vote the shares of Valhi Common Stock held directly by the CDCT No.
         2, (ii) retains dispositive power over such shares and (iii) may be
         deemed the indirect beneficial owner of such shares.

         The CMRT directly holds approximately 0.1% of the outstanding shares of
         Valhi Common Stock. Valhi established the CMRT to permit the collective
         investment by master trusts that maintain the assets of certain
         employee benefit plans Valhi and related companies adopt. Harold C.
         Simmons is the sole trustee of the CMRT and a member of the trust
         investment committee for the CMRT. Valhi's board of directors selects
         the trustee and members of the trust investment committee for the CMRT.
         Harold C. Simmons, Glenn R. Simmons and Steven L. Watson are
         participants in one or more of the employee benefit plans that invest
         through the CMRT. Each of such persons disclaims beneficial ownership
         of the shares of Valhi Common Stock held by the CMRT, except to the
         extent of his individual vested beneficial interest, if any, in the
         assets held by the CMRT.

         By virtue of the holding of the offices, the stock ownership and his
         services as trustee, all as described above, (a) Harold C. Simmons may
         be deemed to control such entities and (b) Mr. Simmons and certain of
         such entities may be deemed to possess indirect beneficial ownership of
         shares directly held by certain of such other entities. However, Mr.
         Simmons disclaims such beneficial ownership of the shares beneficially
         owned, if any, directly or indirectly, by any of such entities, except
         to the extent of his vested beneficial interest in shares held by the
         CMRT and his interest as a beneficiary of the CDCT No. 2.



                                       7
<PAGE>

         Valmont Insurance Company ("Valmont"), NL and a subsidiary of NL
         directly own 1,000,000, 3,522,967 and 1,186,200 shares of Valhi Common
         Stock, respectively. Valhi is the direct holder of 100% of the
         outstanding common stock of Valmont. NL understands that, pursuant to
         Delaware law, Valhi treats its shares of Valhi Common Stock that
         Valmont, NL, and the subsidiary of NL own as treasury stock for voting
         purposes. For the purposes of the percentage calculations herein, such
         shares are not deemed outstanding.

         The business address of Valhi, Tremont LLC, VGI, National, NOA, Dixie
         Holding, the CMRT, the Foundation and Contran is Three Lincoln Centre,
         5430 LBJ Freeway, Suite 1700, Dallas, Texas 75240-2697. The business
         address of Dixie Rice is 600 Pasquiere Street, Gueydan, Louisiana
         70542. The business address of Southwest is 402 Canal Street, Houma,
         Louisiana 70360.

(4)      The shares of Common Stock shown as beneficially owned include 2,000
         shares of Common Stock which Ann Manix has the right to acquire by
         exercise of options within 60 days of the Record Date under the 1998
         Incentive Plan.

(5)      The shares of Common Stock shown as beneficially owned include 214,800
         shares of Common Stock which J. Landis Martin has the right to acquire
         by exercise of options within 60 days of the Record Date under the
         Company's 1989 and 1998 Long-Term Incentive Plans (the "1989 Incentive
         Plan" and "1998 Incentive Plan," respectively, and collectively the
         "Incentive Plans").

(6)      The shares of Common Stock shown as beneficially owned include 8,000
         shares which Glenn R. Simmons has the right to acquire by exercise of
         options within 60 days of the Record Date under the 1998 Incentive
         Plan.

(7)      The shares of Common Stock shown as beneficially owned by Harold C.
         Simmons include 69,475 shares held by Harold C. Simmons' wife with
         respect to which beneficial ownership is disclaimed by Mr. Simmons and
         8,000 shares which Mr. Simmons has the right to acquire by exercise of
         options within 60 days of the Record Date under the 1998 Incentive
         Plan.

(8)      The shares of Common Stock shown as beneficially owned include 6,000
         shares which General Thomas P. Stafford has the right to acquire by
         exercise of options within 60 days of the Record Date under the 1998
         Incentive Plan.

(9)      The shares of Common Stock shown as beneficially owned include 4,000
         shares of Common Stock which Mr. Watson has the right to acquire by
         exercise of options within 60 days of the Record Date under the
         Incentive Plans.

(10)     The shares of Common Stock shown as beneficially owned include 193,800
         shares of Common Stock which Dr. Lawrence A. Wigdor has the right to
         acquire by exercise of options within 60 days of the Record Date under
         the Incentive Plans.

(11)     The shares of Common Stock shown as beneficially owned include (i)
         100,000 shares of Common Stock which David B. Garten has the right to
         acquire by exercise of options within 60 days of the Record Date under
         the Incentive Plans, and (ii) 20,835 shares held by Mr. Garten and his
         wife as joint tenants.

(12)     The shares of Common Stock shown as beneficially owned include (i)
         62,000 shares of Common Stock which Robert D. Hardy has the right to
         acquire by exercise of options within 60 days of the Record Date under
         the Incentive Plans, and (ii) 11,344 shares held by Mr. Hardy and his
         wife as joint tenants.



                                       8
<PAGE>

         Ownership of Valhi Common Stock. The following table and accompanying
notes set forth as of the Record Date the beneficial ownership, as defined
above, of Valhi Common Stock held by (i) each director or nominee for director
of NL, (ii) each person listed in the Summary Compensation Table below, and
(iii) all current executive officers and directors of NL as a group. See note
(3) to the table following the caption "Ownership of NL Common Stock" above, for
information concerning individuals and entities who may be deemed to indirectly
beneficially own those shares of Common Stock directly beneficially held by
Valhi. All information is taken from or based upon ownership filings made by
such persons with the Commission or information provided by such persons to NL.

<Table>
<Caption>
                                                                                    VALHI COMMON STOCK
                                                                    --------------------------------------------
NAME OF                                                               AMOUNT AND NATURE OF             PERCENT OF
BENEFICIAL OWNER                                                    BENEFICIAL OWNERSHIP(1)             CLASS(2)
- ----------------                                                    -----------------------            ---------
<S>                                                                 <C>                                <C>
Ann Manix                                                                         -0-                      --
J. Landis Martin                                                               70,679                      --
George E. Poston                                                                  -0-                      --
Glenn R. Simmons                                                              161,247(3)(4)(5)             --
Harold C. Simmons                                                               3,383(3)                   --
General Thomas P. Stafford (retired)                                              -0-                      --
Dr. R. Gerald Turner                                                              -0-                      --
Steven L. Watson                                                              180,546(3)(4)                --
Dr. Lawrence A. Wigdor                                                            -0-                      --
David B. Garten                                                                 1,700                      --
Robert D. Hardy                                                                 1,081                      --
John A. St. Wrba                                                                  -0-                      --

All current directors and executive
  officers of the Company as a group
  (11 persons)                                                                347,957(3)(4)(5)             --
</Table>

- ----------

(1)      All beneficial ownership is sole and direct unless otherwise noted.

(2)      No percent of class is shown for holdings of less than 1%. For purposes
         of calculating the percent of class owned, 3,522,967 shares of Valhi
         Common Stock held by NL, 1,186,200 shares of Valhi Common Stock held by
         a subsidiary of NL and 1,000,000 shares of Valhi Common Stock held by
         Valmont are excluded from the amount of Valhi Common Stock outstanding.
         The Company understands that, pursuant to Delaware law, Valhi treats
         these excluded shares as treasury stock for voting purposes.

(3)      Excludes certain shares that may be deemed to be indirectly
         beneficially owned by such individual as to which he disclaims
         beneficial ownership. See note (3) to the table following "Ownership of
         NL Common Stock" above.

(4)      Includes shares that such person or group could acquire upon the
         exercise of stock options within 60 days of the Record Date. During
         such 60-day period, options for 148,000 shares of Valhi Common Stock
         are exercisable by Glenn R. Simmons, and options for 163,300 shares of
         Valhi Common Stock are exercisable by Steven L. Watson, all of which
         shares are included in the amount outstanding for purposes of
         calculating the percent of class owned by such persons. Also includes
         2,035 shares held in Mr. Watson's individual retirement account.



                                       9
<PAGE>

(5)      Includes 2,383 shares of Valhi Common Stock held in Glenn R. Simmons'
         individual retirement account. The Valhi shares also include 800 shares
         held in a retirement account for Mr. Simmons' wife, with respect to all
         of which beneficial ownership is disclaimed by Mr. Simmons.

         The Company understands that Valhi and related entities may consider
acquiring or disposing of shares of Common Stock through open-market or
privately negotiated transactions, depending upon future developments,
including, but not limited to, the availability and alternative uses of funds,
the performance of the Common Stock in the market, an assessment of the business
of and prospects for the Company, financial and stock market conditions and
other factors deemed relevant by such entities. The Company does not presently
intend, and understands that Valhi does not presently intend to engage in any
transaction or series of transactions that would result in the Common Stock
becoming eligible for termination of registration under the Securities Exchange
Act of 1934, as amended, or ceasing to be traded on a national securities
exchange.

         The Company further understands that approximately 30 million shares of
Common Stock held by Valhi (62.8% of the shares of Common Stock outstanding) are
pledged to secure bank borrowings by Valhi. Foreclosure by the lender on this
pledge in the event of Valhi's default on the loan, which Valhi has advised the
Company is unlikely, may at a subsequent date result in a change in control of
the Company.


             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's executive officers, directors, and persons who own
beneficially more than 10% of a registered class of the Company's equity
securities to file reports of ownership and changes in ownership with the
Commission, the New York Stock Exchange, the Pacific Exchange and the Company.
Based solely on a review of copies of the Section 16(a) reports furnished to the
Company and written representations by certain reporting persons, the Company
believes that all of the Company's executive officers, directors and greater
than 10% beneficial owners filed on a timely basis all reports required during
and with respect to the fiscal year ended December 31, 2002, except that the
initial statement of beneficial ownership of securities for Mr. Poston was filed
late.


                COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
                              AND OTHER INFORMATION

COMPENSATION OF DIRECTORS

         During 2002, fees were paid to each director who was not an employee of
the Company or a subsidiary of the Company. Fees consisted of an annual retainer
of $15,000, payable in quarterly installments and 1,000 shares of Common Stock
granted pursuant to the 1998 Incentive Plan, plus an attendance fee of $1,000
for each meeting (including a telephonic meeting) of the Board or a committee
attended by the director. Such directors also received a fee of $1,000 per day
for each day spent on NL business at the request of the Board or the Chairman of
the Board, other than the day of Board or committee meetings. Directors are
reimbursed for reasonable expenses incurred in attending Board of Directors and
committee meetings. If any director who is not an officer or employee of NL or
any subsidiary or affiliate of NL dies while in active service, his or her
designated beneficiary or estate will be entitled to receive a life insurance
benefit equal to the annual retainer then in effect. Nominees for election as
Director who received fees for serving on the Board of Directors in 2002 are
Messrs. Poston, G. Simmons, H. Simmons, and Watson, and General Stafford. See
"Certain Relationships and Transactions." In addition, General Stafford receives
an annual payment of $15,000 as a result of his service on the Board in the
period prior to 1987.



                                       10
<PAGE>
         In 2002, Messrs. G. Simmons, H. Simmons, and Watson, and General
Stafford and Ms. Manix each were granted an option pursuant to the 1998
Incentive Plan to purchase 2,000 shares of Common Stock at an exercise price of
$13.81 per share, representing the average of the high and low sales prices of
Common Stock on the New York Stock Exchange Composite Tape on the date of the
grant. These options become exercisable one year after the date of grant and
expire on the fifth anniversary following the date of the grant.

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION OF EXECUTIVE OFFICERS

         The Summary Compensation Table set forth below provides certain summary
information concerning annual and long-term compensation awarded to, earned by,
or paid to or on behalf of the Company's Chief Executive Officer and each of its
other three most highly compensated executive officers for services rendered
during the years ended December 31, 2002, 2001 and 2000.


                           SUMMARY COMPENSATION TABLE

<Table>
<Caption>
                                                                                  Long-Term
                                                                               Compensation(1)
                                       Annual Compensation(1)                       Awards
                            -------------------------------------------    ------------------------
                                                              Other                      Securities
                                                              Annual       Restricted    Underlying     All Other
       Name and                     Salary    Bonus(2)     Compensation    Stock Awards   Options      Compensation
  Principal Position        Year     ($)         ($)          (3)($)           ($)          (#)           (5)($)
  ------------------        ----    ------    --------     ------------    ------------  ----------    ------------
<S>                         <C>    <C>        <C>          <C>             <C>           <C>           <C>
J. Landis Martin            2002   600,000      600,000         2,875          -0-           -0-          102,400
President and Chief         2001   600,000      600,000        67,806          -0-         100,000        152,040
Executive Officer(4)        2000   600,000      900,000        13,420          -0-         100,000         96,840

Dr. Lawrence A. Wigdor      2002   750,000      750,000            68          -0-           -0-          186,848
Executive Vice President    2001   750,000    1,350,000         2,729          -0-         100,000        351,658
                            2000   750,000    2,625,000         6,815          -0-         100,000        132,038

David B. Garten             2002   425,000      425,000         -0-            -0-           -0-           82,342
Vice President, General     2001   425,000      525,000         -0-            -0-          50,000         93,309
Counsel and Secretary       2000   325,000      987,500         -0-            -0-          45,000        100,252

Robert D. Hardy             2002   325,000      325,000         -0-            -0-           -0-           71,093
Vice President, Chief       2001   300,000      550,000         -0-            -0-          50,000         93,868
Financial Officer, and      2000   275,000      662,500         -0-            -0-          30,000         38,061
Controller
</Table>

(1)    No payouts under any long-term incentive plans (as defined by applicable
       federal securities regulations) were made during 2002, 2001 or 2000.
       Therefore the column for such compensation otherwise required by
       applicable federal securities regulations has been omitted.

(2)    Amounts paid with respect to each year pursuant to the Variable
       Compensation Plan and, for 2000 and 2001, special discretionary bonuses.
       See "Compensation Committee's Report on Executive Compensation" below.



                                       11
<PAGE>

(3)    Includes the amount which exceeds 120% of the applicable federal
       long-term interest rate accrued on deferred compensation. In the case of
       Mr. Martin in 2001, the amount shown included $8,114 of such excess
       interest and $50,518 in value attributed to use of the Company's aircraft
       by him.

(4)    During 2002, 2001 and 2000, Mr. Martin also served as an executive
       officer of Tremont and TIMET and was compensated directly by Tremont and
       TIMET. Mr. Martin is expected to continue to serve as an executive
       officer of NL and TIMET in 2003 and to be compensated directly by NL for
       services to NL and by TIMET for services to TIMET. During 2002, 2001 and
       2000, Mr. Martin devoted approximately one-half of his working time to
       his duties as President and Chief Executive Officer of NL. See "Certain
       Relationships and Transactions."

(5)    "All Other Compensation" amounts shown below represent (i) matching
       contributions made or accrued by the Company pursuant to the savings
       feature of the Savings Plan, (ii) retirement contributions made or
       accrued by the Company pursuant to the Savings Plan, (iii) life insurance
       premiums paid by the Company, and (iv) amounts paid by the Company under
       the Supplemental Executive Retirement Plan ("SERP") in 2002 and 2001 and
       amounts accrued by the Company in 2000 under the SERP and paid by the
       Company in 2001. In 2001, the MDC Committee directed that the Company
       amend the SERP to provide for the distribution of the accrued balance in
       each SERP participant's account and the payment of future SERP benefits
       to participants as accrued, thus reducing the Company's interest costs.
       In connection with the amendment, in 2001 the Company paid $1,761,661,
       $1,739,924, $481,164, and $176,692, to Dr. Wigdor and Messrs. Martin,
       Garten and Hardy, respectively, which represented the accrued vested
       balance in each of their SERP accounts with interest. These accrued
       amounts were previously reported as compensation in the years accrued.

<Table>
<Caption>
                                              YEAR          MARTIN       WIGDOR      GARTEN       HARDY
                                              ----          ------       ------      ------       -----
<S>                                           <C>          <C>          <C>         <C>         <C>
       Savings Match ($)                      2002           8,000        8,000       8,000       8,000
                                              2001           6,800        6,800       6,800       6,800
                                              2000          10,200       10,200      10,200      10,200

       Retirement Contribution ($)            2002          14,400       16,600      11,000       8,000
                                              2001          12,240       14,110       9,350       6,800
                                              2000          12,240       14,110       9,350       6,800

       Life Insurance ($)                     2002             -0-       10,248       3,342       1,093
                                              2001             -0-       10,248       2,909       1,018
                                              2000             -0-        9,328       2,302         861

       SERP ($)                               2002          80,000       152,000     60,000      54,000
                                              2001         133,000       320,500     74,250      79,250
                                              2000          74,400        98,400     78,400      20,200
</Table>

STOCK OPTION GRANTS

         Other than Harold C. Simmons, no stock options were granted to NL
executive officers or employees during 2002. As a director, NL's Chairman,
Harold C. Simmons, was granted an option to purchase 2,000 shares of Common
Stock, representing one-sixth of the total options granted to directors during
the fiscal year, at an exercise price of $13.81, the average of the high and low
sales prices of Common Stock on the New York Stock Exchange Composite Tape on
the date of the grant. The option became exercisable one year after the date of
grant, expires February 1, 2007, and has a potential realizable value at an
assumed 5% and 10% rate of stock appreciation of $7,630.90 and $16,862.29,
respectively. See "Compensation of Directors and Executive Officers and Other
Information - Compensation of Directors."



                                       12
<PAGE>
STOCK OPTION EXERCISES AND HOLDINGS

         The following table provides information with respect to the persons
named in the Summary Compensation Table, as set forth above, concerning the
exercise of options during the last fiscal year and the value of unexercised
options held as of December 31, 2002. No stock appreciation rights have been
granted under the Incentive Plans.


         AGGREGATED OPTION EXERCISES IN 2002 AND 12/31/02 OPTION VALUES
<Table>
<Caption>
                                                                Number of Securities       Value of Unexercised,
                                   Shares                      Underlying Unexercised     In-the-Money Options at
                                 Acquired on      Value         Options at 12/31/02              12/31/02
                                  Exercise       Realized           (Exercisable/              (Exercisable/
       Name                        (#)(1)         ($)(1)       Unexercisable) (#)(2)       Unexercisable) ($)(2)
       ----                      -----------     --------      ----------------------     -----------------------
<S>                              <C>             <C>           <C>                        <C>
J. Landis Martin                   15,915        $ 97,479          111,000/223,600               0/288,207

Lawrence A. Wigdor                  4,547        $ 27,846          96,000/217,600             14,040/288,207

David B. Garten                    32,539        $183,672          53,000/104,000             20,273/130,275

Robert D. Hardy                    23,425        $127,458           24,000/86,000                0/97,724
</Table>

(1)  In November 2002, the Company and each of Dr. Wigdor and Messrs. Martin,
     Garten and Hardy entered into agreements whereby the officers exercised
     certain options to purchase Common Stock and thereafter certain of the
     shares acquired upon exercise, as well as certain options to purchase
     Common Stock, were purchased by the Company. The shares acquired on
     exercise and the value realized on such exercise are reflected in the table
     above. Dr. Wigdor and Messrs. Martin, Garten and Hardy tendered 3,000
     shares, 10,500 shares, 22,335 shares and 16,344 shares, respectively, of
     their own NL Common Stock, which had been held by such officers for at
     least six months, to pay a portion of the stock option exercise price and
     to pay applicable withholding taxes, as permitted under the Company's
     Incentive Plans. These shares were valued at the market price of the Common
     Stock on the date of exercise. In addition, the Company purchased options
     to purchase 155,835 shares of Common Stock, 203,485 shares of Common Stock,
     52,461 shares of Common Stock, and 25,575 shares of Common Stock,
     respectively, held by Dr. Wigdor and Messrs. Martin, Garten, and Hardy, and
     purchased 1,547 shares, 5,415 shares, 10,204 shares and 7,081 shares,
     respectively, from Dr. Wigdor and Messrs. Martin, Garten, and Hardy. These
     options were sold at a price equal to the market price of the Common Stock
     on the date of sale, less the exercise price of the options, and the shares
     were sold at the market price of the Common Stock on the date of sale. In
     connection with the Company's purchase of the options and shares, the
     Company made an aggregate cash payment of $2,166,387, of which $655,288 was
     paid to Dr. Wigdor and $912,413, $381,750, and $216,936 was paid to Messrs.
     Martin, Garten and Hardy, respectively.

(2)  NL's Chairman, Mr. Harold Simmons, did not exercise any options during
     2002. At 12/31/02, he had 8,000 exercisable options and 2,000 unexercisable
     options. The value of his exercisable and unexercisable in-the-money
     options at 12/31/02 was $13,680 and $6,220, respectively.



                                       13
<PAGE>

PENSION PLAN

         The Retirement Program of NL Industries, Inc. for its U.S. employees
(the "Pension Plan") provides lifetime retirement benefits to eligible
employees. In 1996, the Company approved the suspension of all future accruals
under the salaried component of the Pension Plan. The Pension Plan covers each
person named in the Summary Compensation Table set forth above. No amounts were
paid or distributed to any of such persons in 2002. The estimated accrued annual
benefits payable under the Pension Plan upon retirement at normal retirement age
for Dr. Wigdor and Messrs. Martin, Garten, and Hardy are $29,439, $50,277,
$26,410, and $12,348, respectively.

SEVERANCE AGREEMENTS

          Dr. Wigdor has an executive severance agreement with the Company which
provides that he may be terminated at any time by action of the Board of
Directors. The executive severance agreement also provides that the following
payments shall be made to Dr. Wigdor in the event Dr. Wigdor's employment is
terminated by the Company without cause (as defined in the agreement) or Dr.
Wigdor terminates his employment with the Company for good reason (as defined in
the agreement): (i) the greater of two times Dr. Wigdor's annual base salary
plus target bonus (which target bonus shall not be less than the amount of his
annual salary) or Dr. Wigdor's actual salary and bonus for the two years prior
to termination; (ii) accrued salary and bonus through the date of termination;
(iii) an amount in cash or Common Stock equal to the fair market value of
outstanding stock options granted to Dr. Wigdor in excess of the exercise price
and unvested restricted stock grants; (iv) an amount equal to unvested Company
contributions together with an amount equal to the Company's matching
contributions to Dr. Wigdor's account under the Savings Plan for a period of two
years; (v) an amount equal to the vested and unvested portions of Dr. Wigdor's
account under the SERP; and (vi) certain other benefits. This agreement is
automatically extended for a one-year term commencing each January 1, unless the
Company and Dr. Wigdor agree otherwise in writing.


                           INDEPENDENT AUDITOR MATTERS

         INDEPENDENT AUDITORS. The firm of PricewaterhouseCoopers LLP ("PwC")
served as NL's independent auditor for the year ended December 31, 2002, and has
been appointed to review NL's quarterly unaudited consolidated financial
statements to be included in its Quarterly Reports on Form 10-Q for the first
three quarters of 2003 and to audit NL's annual consolidated financial
statements for the year ending December 31, 2003. Representatives of PwC are
expected to attend the Meeting.

         AUDIT COMMITTEE REPORT. NL's management is responsible for preparing
NL's consolidated financial statements in accordance with accounting principles
generally accepted in the United States. NL's independent auditors, PwC are
responsible for auditing NL's consolidated financial statements in accordance
with auditing standards generally accepted in the United States of America. Our
responsibility as NL's Audit Committee is to monitor and review these auditing,
accounting and financial reporting processes. However, we are not professionally
engaged in the practice of accounting or auditing and are not experts in the
fields of accounting or auditing. We have relied, without independent
verification, on management's representations that the financial statements have
been prepared with integrity and objectivity and in conformity with accounting
principles generally accepted in the United States of America and on the
representations of PwC included in their report on the Company's financial
statements.

          We have reviewed and discussed NL's audited consolidated financial
statements for the year ended December 31, 2002 with NL's management and PwC. We
discussed with PwC the matters required by Statement on Auditing Standards
("SAS") No. 61 (Communication with Audit Committees) and SAS No. 90 (Audit
Committee Communications), received from PwC written disclosures required by
Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committees) and discussed with PwC



                                       14
<PAGE>

its independence. We also considered whether provision by PwC of non-audit
services to NL and its subsidiaries is compatible with such auditor's
independence. Additionally, we discussed with NL's management and PwC other
matters as we deemed appropriate. Based on our review of NL's audited
consolidated financial statements and our discussions with NL's management and
PwC, we recommended to the Board of Directors that NL's audited consolidated
financial statements for the year ended December 31, 2002 be included in NL's
Annual Report on Form 10-K for the year ended December 31, 2002, which has been
filed with the Commission.

<Table>
<S>                                       <C>                                <C>
    Ann Manix                             George E. Poston                   General Thomas P. Stafford (retired)
      Chairman of the                        Member of the                       Member of the
      Audit Committee                        Audit Committee                     Audit Committee
</Table>

         FEES PAID TO PWC. The Commission recently adopted new disclosure rules
applicable to the independent auditor fee information effective May 6, 2003
pursuant to the Sarbanes-Oxley Act of 2002. NL has decided to provide disclosure
in accordance with certain of these rules in advance of the effective date. The
following table shows the aggregate fees PwC has billed or is expected to bill
to NL and its subsidiaries for services rendered for 2001 and 2002. No fees were
billed or expected to be billed by PwC to the Company for services performed in
2001 and 2002 for financial information systems design and implementation.

<Table>
<Caption>
                                                          2002           2001
                                                       ----------     ----------
<S>                                                    <C>            <C>
AUDIT(1)                                               $1,616,245     $  511,081
AUDIT RELATED(2)                                       $  111,301     $   24,512
TAX(3)                                                 $   41,826     $   52,938
ALL OTHER(4)                                           $    4,353     $   26,082
                                                       ----------     ----------
TOTAL                                                  $1,773,725     $  614,613
</Table>

(1)      Fees for the following services:

         (a)      audits of NL's consolidated year-end financials statements for
                  each year;

         (b)      reviews of the unaudited quarterly financial statements
                  appearing in NL's Forms 10-Q for each of the first three
                  quarters of each year;

         (c)      consents and assistance with registration statements filed
                  with the Commission;

         (d)      normally provided statutory or regulatory filings or
                  engagements for each year; and

         (e)      the estimated out-of-pocket costs PwC incurred in providing
                  all of such services for which NL reimburses PwC.

(2)      Fees for assurance and related services reasonably related to the audit
         or review of NL's financial statements for each year. These services
         include employee benefit plan audits, accounting consultations and
         attest services concerning financial accounting and reporting standards
         and advice concerning internal controls.

(3)      Fees for tax compliance, tax advice and tax planning services.

(4)      Fees for all services not described in the other categories, such as
         certain payroll administration services, consultation regarding certain
         subsidiary transactions and certain insurance matters.



                                       15
<PAGE>

         COMPENSATION COMMITTEE'S REPORT ON EXECUTIVE COMPENSATION

         NL's Management Development and Compensation Committee (the "MDC
Committee") consists of individuals who are neither officers nor employees of NL
or its subsidiaries and who are not eligible to participate in any of the
employee benefit plans administered by the MDC Committee.

         The MDC Committee annually reviews and recommends compensation policies
and practices related to NL's executive officers, including the Chief Executive
Officer (the "CEO"). The MDC Committee also was responsible for reviewing all
compensation actions during 2002 involving NL's executive officers, including
stock-based compensation, and approving compensation actions for the executive
officers other than with respect to the CEO's base salary. Changes in the CEO's
base salary are reviewed and approved by the Board after recommendation by the
MDC Committee.

         NL's executive compensation system with respect to its executive
officers, including the CEO, generally consists of two primary components: base
salary and annual variable compensation provided by the Variable Compensation
Plan. In addition, discretionary cash bonuses may be considered from time to
time by the MDC Committee upon recommendation by the CEO and the Chairman of the
Board. The MDC Committee also may consider the grant of stock options,
restricted stock and/or stock appreciation rights, but does not currently
anticipate that such stock-based compensation will be regularly granted. Through
the use of the foregoing, the Committee seeks to achieve a balanced compensation
package that will attract and retain high-quality key executives, appropriately
reflect each such executive officer's individual performance, contributions, and
general market value, and provide further incentives to the officers to maximize
annual operating performance and long-term shareholder value.

BASE SALARIES

         The MDC Committee reviews recommendations by the CEO regarding changes
in base salaries for executive officers, including the CEO. These
recommendations are made by the CEO after consultation with the Chairman of the
Board. The MDC Committee may take such actions, including any modifications, as
it deems appropriate in connection with changes in base salaries. Final action
with respect to changes in the CEO's base salary is taken by the Board, upon
recommendation by the MDC Committee. The CEO's recommendations and the MDC
Committee's actions regarding base salaries in 2002 were based primarily on a
subjective evaluation of past and potential future individual performance and
contributions, and alternative opportunities that might be available to the
executives in question. In 2002, the MDC Committee reviewed and approved a
recommendation from the CEO to increase Mr. Hardy's base salary from $300,000 to
$325,000. The MDC Committee also considered the Chairman of the Board's approval
of this increase and the change in Mr. Hardy's title and responsibilities. No
action was taken with respect to the base salaries of any of the other named
executive officers of NL during 2002. The CEO's base salary, which was
unchanged, was not set based on any specific relationship to Company
performance.

VARIABLE COMPENSATION PLAN

         Awards under the Variable Compensation Plan constitute a significant
portion of an executive's potential annual cash compensation (between 0% and
150% of base salary for the CEO and executive officers). Awards are based on
Kronos achieving annual predetermined operating income goals. NL's management
makes recommendations to the Board regarding the operating income plan for the
year after reviewing market conditions and Kronos' operations, competitive
position, marketing opportunities, and strategies for maximizing financial
performance. The Board approves this recommendation with any modifications it
deems appropriate. Based on the business plan for the year, the MDC Committee
sets NL's and its business segment's operating income goals at three levels
which are designed to help focus NL's executives on achieving superior annual
operating results in light of existing conditions: a threshold level, which is
the minimum operating income level for any award to be made under the Variable
Compensation Plan (the "Minimum Level"), a target level (the "Target Level"),
and a maximum level (the "Maximum Level"). The



                                       16
<PAGE>

Variable Compensation Plan, in combination with base salary, is designed to
result in executive officers and other eligible participants receiving annual
cash compensation below competitive compensation levels if the Minimum Level is
not achieved.

         Pursuant to the Variable Compensation Plan, if operating income is
below the Minimum Level, no variable compensation is paid. If the Minimum Level
is met, executive officers are eligible to receive a variable compensation
payment of 50% of base salary. If the Target Level is reached, the variable
compensation payment is 100% of base salary. If the Maximum Level is reached or
exceeded, executives are eligible to receive a variable compensation payment of
150% of base salary. In view of the achievement of operating income above the
Target Level during 2002, the MDC Committee in 2003 approved Target Level
payments under the Variable Compensation Plan to the executive officers,
including the CEO. Such awards to the CEO and the executive officers under the
Variable Compensation Plan are reported in the bonus column in the Summary
Compensation Table set forth above. In addition, Target levels for operating
income performance were utilized by the MDC Committee and the Board, as
applicable, for determining the contributions by NL to the accounts of eligible
participants, including the CEO and the executive officers, under the Savings
Plan and the SERP.

         Beginning with bonuses awarded with respect to 2003, the CEO will be
eligible to receive a discretionary bonus of 0% to 200% of base salary as
approved by the MDC Committee upon recommendation by the Chairman of the Board,
based upon a subjective assessment of the CEO's performance, taking into account
the financial results of NL, the results of litigation concerning NL, and the
management of the overall expenses associated with NL's litigation and
environmental matters, and will not be eligible to receive a variable
compensation payment under the Variable Compensation Plan.

STOCK-BASED COMPENSATION

         In 2002, following review of the CEO's recommendations, the MDC
Committee determined not to grant any options. In making this determination, the
MDC Committee considered, among other things, the Chairman of the Board's
recommendation, the amount and terms of options already held by such officers,
and discretionary bonuses previously awarded. In addition, in 2002 the MDC
Committee did not make any grants of restricted stock, stock appreciation rights
or other equity-based awards.

SPECIAL DISCRETIONARY BONUSES

         Apart from the Variable Compensation Plan, the MDC Committee may award
other bonuses as the Committee deems appropriate from time to time under its
general authority or under a separate discretionary plan. During 2002, the
Committee made no awards of discretionary bonuses to the CEO or the executive
officers.

TAX CODE LIMITATION ON EXECUTIVE COMPENSATION DEDUCTIONS

         The Internal Revenue Code imposes a $1 million deduction limit on
compensation paid to the CEO and the four other most highly compensated
executive officers of public companies, subject to certain exceptions for
compensation received pursuant to non-discretionary performance-based plans
approved by such company's shareholders. NL's Variable Compensation Plan and
1998 Incentive Plan, which have been approved by NL's shareholders, permit
variable compensation paid or awards or grants made to executives pursuant to
such plans to qualify for deductibility by NL. In addition, executive
compensation is generally structured to attempt to minimize the impact of the
deduction limit.



                                       17
<PAGE>

The foregoing report on executive compensation has been furnished by NL's MDC
Committee of the Board of Directors.


                                 General Thomas P. Stafford (Retired) (Chairman)
                                 Ann Manix
                                 George E. Poston



                      EQUITY COMPENSATION PLAN INFORMATION

         The following table provides summary information with respect to the
Company's equity compensation plans under which the Company's Common Stock may
be issued to employees or non-employees (such as directors, consultants or
advisers). Pursuant to Commission rules, information is provided separately in
the aggregate for the Company's equity compensation plans that have been
approved by the Company's shareholders and for any plans that were not approved
by shareholders.



<Table>
<Caption>
                                      (a)                      (b)                              (c)
                            Number of securities to      Weighted-average         Number of securities remaining
                            be issued upon exercise    price of outstanding     available for future issuance under
                            of outstanding options,   options, warrants and    equity compensation plans (excluding
      Plan Category           warrants and rights             rights            securities reflected in column (a))
      -------------         -----------------------   ---------------------    ------------------------------------
<S>                         <C>                       <C>                       <C>
Equity Compensation Plans
Approved by Security               1,260,800                  $17.50                         3,650,500
Holders

Equity Compensation Plans
Not Approved by                       -0-                      -0-                              -0-
Securities Holders

Total                              1,260,800                  $17.50                         3,650,500
</Table>



                                       18
<PAGE>

                                PERFORMANCE GRAPH

         Set forth below is a line graph comparing the yearly change in the
cumulative total shareholder return on the Common Stock against the cumulative
total return of the S & P Composite 500 Stock Index and the S & P Diversified
Chemicals Index for the period commencing December 31, 1997 and ending December
31, 2002. The graph shows the value at December 31 of each year assuming an
original investment of $100 and reinvestment of dividends and other
distributions to shareholders. In previous proxy statements the Company had
compared the cumulative shareholder return on NL Common Stock to the S & P
Chemicals Index. This index has been discontinued and has been replaced in the
comparison of cumulative shareholder return by the S & P Diversified Chemicals
Index.

                               (PERFORMANCE GRAPH)

<Table>
<Caption>
                               1997     1998     1999     2000     2001     2002
                               ----     ----     ----     ----     ----     ----
<S>                            <C>      <C>      <C>      <C>      <C>      <C>
NL Industries, Inc.            $100     $105     $112     $187     $124     $167
S & P 500                      $100     $129     $156     $141     $125     $ 97
S & P Diversified
Chemicals                      $100     $ 95     $113     $102     $ 95     $ 92
</Table>

                     CERTAIN RELATIONSHIPS AND TRANSACTIONS

RELATIONSHIPS WITH RELATED PARTIES

         As set forth under the caption "Security Ownership," Harold C. Simmons,
through Valhi, may be deemed to control NL. The Company and other entities that
may be deemed to be controlled by or affiliated with Mr. Simmons sometimes
engage in (a) intercorporate transactions such as guarantees, management and
expense sharing arrangements, shared fee arrangements, tax sharing agreements,
joint ventures, partnerships, loans, options, advances of funds on open account,
and sales, leases and exchanges of assets, including securities issued by both
related and unrelated parties, and (b) common investment and acquisition
strategies, business combinations, reorganizations, recapitalizations,
securities repurchases, and purchases and sales (and other acquisitions and
dispositions) of subsidiaries, divisions or other business units, which
transactions have involved both related and unrelated parties and have included
transactions which resulted in the acquisition by one related party of a
publicly-held equity interest in another related party. The Company from time to
time considers, reviews and evaluates, and understands that Contran, Valhi and
related entities consider, review and evaluate, such transactions. Depending
upon the business, tax and other objectives then relevant, including,



                                       19
<PAGE>

without limitation, restrictions under certain indentures and other agreements
of the Company, it is possible that the Company might be a party to one or more
such transactions in the future. It is the policy of the Company to engage in
transactions with related parties on terms, in the opinion of the Company, no
less favorable to the Company than could be obtained from unrelated parties.

         Harold C. Simmons and Glenn R. Simmons, each a director of NL, are also
directors and executive officers of Valhi and Contran. Mr. Martin, the Company's
President and Chief Executive Officer, serves as an executive officer and
director of TIMET and General Stafford and Glenn R. Simmons serve as directors
of TIMET. Glenn R. Simmons also serves as Chairman of the Board of Keystone,
CompX, and EWI, Inc. Mr. Watson, a director and Assistant Secretary of NL, is
also an executive officer of Contran and Valhi and a director of Valhi, Contran,
TIMET, Keystone and CompX. Ms. Manix is a director of CompX. Mr. Hardy serves as
assistant treasurer of TIMET. Such persons served in their current capacities in
2002 and expect to continue to serve in their current capacities in 2003, except
that Ms. Manix will cease to serve as a director of NL upon the election and
qualification of her successor at the 2003 Annual Meeting. Such management
interrelationships and the existing intercorporate relationships may lead to
possible conflicts of interest. These possible conflicts may arise from the
duties of loyalty owed by persons acting as corporate fiduciaries of two or more
companies under circumstances where such companies may have adverse interests.
See "Certain Contractual Relationships and Transactions" below.

         Although no specific procedures are in place that govern the treatment
of transactions among the Company, Valhi, TIMET, and related entities, the
boards of directors of each of the Company, Valhi, and TIMET include one or more
members who are not officers or directors of any other entity that may be deemed
to be related to the Company. Additionally, under applicable principles of law,
in the absence of shareholder ratification or approval by directors of the
Company who may be deemed disinterested, transactions involving contracts among
the Company and any other companies under common control with the Company must
be fair to all companies involved. Furthermore, each director and officer of the
Company owes fiduciary duties of good faith and fair dealing with respect to all
shareholders of the company or companies for which they serve.

CERTAIN CONTRACTUAL RELATIONSHIPS AND TRANSACTIONS

         Intercorporate Services Agreements. The Company and Contran are parties
to an intercorporate services agreement (the "Contran ISA") whereby Contran
makes available to the Company (i) the services of Harold C. Simmons to consult
with the Company and assist in the development and implementation of the
Company's strategic plans and objectives, (ii) certain management, financial,
tax and administration services, and (iii) certain insurance and risk management
services, and the Company provides to Contran certain administrative support
services. The services provided by Contran do not include major corporate
acquisitions, divestitures and other special projects outside the scope of the
Company's business as it has been conducted in the past. NL paid total net fees
of approximately $1,503,000 in 2002 for services pursuant to the Contran ISA,
and expects to pay a higher amount in 2003 for such services. Under the Contran
ISA and included within the total net fees paid by the Company, the Company paid
fees of $950,000 in each of 2002 and 2001 attributable to the services of Mr.
Simmons, and expects to pay a similar amount in 2003 for such services. The
Contran ISA is subject to automatic renewal and may be terminated by either
party pursuant to a written notice delivered 30 days prior to a quarter-end. The
Company pays directors' fees and expenses separately to Harold C. Simmons, Glenn
R. Simmons, and Steven L. Watson. See "Compensation of Directors and Executive
Officers and Other Information" above.

         During 2002, the Company and Tremont were parties to an intercorporate
services agreement (the "Tremont ISA") whereby the Company made available to
Tremont certain services with respect to Tremont's tax compliance and consulting
needs and use of the Company's corporate aircraft. Tremont paid fees of
approximately $121,000 to the Company pursuant to the Tremont ISA during 2002.
The Company expects the Tremont ISA to be terminated.



                                       20
<PAGE>

          The Company and TIMET are parties to an intercorporate services
agreement (the "TIMET ISA") whereby the Company made available to TIMET certain
services with respect to TIMET's tax compliance and consulting needs and use of
the Company's corporate aircraft. TIMET paid fees of approximately $379,000
pursuant to the TIMET ISA during 2002. The TIMET ISA is subject to automatic
renewal and may be terminated by either party pursuant to a written notice
delivered 30 days prior to a quarter-end.

         Insurance Sharing Agreement. Tall Pines Insurance Company ("Tall
Pines"), a wholly owned captive insurance company of Tremont LLC, has assumed
the obligations of the issuer of certain reinsurance contracts that relate to
primary insurance policies issued by a third-party insurance company in favor of
the Company. The Company and Tall Pines are parties to an insurance sharing
agreement with respect to such reinsurance contracts (the "Insurance Sharing
Agreement"). Under the terms of the Insurance Sharing Agreement, the Company
will reimburse Tall Pines with respect to certain loss payments (to the extent
such payments exceed a previously established reserve, as defined) by Tall Pines
that (a) arise out of claims against the Company and its subsidiaries (the "NL
Liabilities"), and (b) are subject to payment by Tall Pines under its
reinsurance contracts with the third-party insurance company. Also pursuant to
the Insurance Sharing Agreement, Tall Pines is to credit the Company with
respect to certain underwriting profits or recoveries that Tall Pines receives
from independent reinsurers that relate to the NL Liabilities. As of December
31, 2002, the Company had current accounts payable to Tall Pines of
approximately $281,000 with respect to such Agreement. At December 31, 2002, the
Company had $1.6 million of restricted cash equivalents that collateralized
letters of credit relating to the NL Liabilities issued and outstanding on
behalf of Tall Pines pursuant to the Insurance Sharing Agreement.

         Insurance Matters. Tall Pines, Valmont Insurance Company ("Valmont")
and EWI, Inc. provide for or broker certain of the Company's, its joint
venture's and its affiliates' insurance policies. Valmont is a wholly owned
captive insurance company of Valhi. During 2001, one of the daughters of Harold
C. Simmons and a wholly owned subsidiary of Contran owned, directly or
indirectly, 57.8% and 42.2%, respectively, of the outstanding common stock of
EWI, Inc. and of the membership interests of EWI, Inc.'s management company, EWI
RE, Ltd. (collectively with EWI, Inc., "EWI"). Through December 31, 2000, a
son-in-law of Harold C. Simmons, managed the operations of EWI. Subsequent to
December 31, 2000, pursuant to an agreement that, as amended, is effective until
terminated by either party with 90 days notice, such son-in-law provides
advisory services to EWI as requested by EWI, for which the son-in-law is paid
$11,875 per month and receives certain other benefits under EWI's benefit plans.
Since March 2003, such son-in-law has served as Chairman of EWI's Board of
Directors. 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 $11.2 million in 2002 for policies provided or brokered by Tall
Pines, Valmont and EWI, and CompX, Contran, Keystone, TIMET, Tremont, and Valhi
paid $911,907, $143,567, $1,926,687, $2,976,284, $140,258, and $357,033,
respectively, for policies brokered by 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 2003.

         In January 2002, the Company purchased EWI from its previous owners for
an aggregate cash purchase price of $9.2 million, and EWI became a wholly owned
subsidiary of the Company. The purchase was approved by a special committee of
the Company's Board of Directors consisting of two of its independent directors,
and the purchase price was negotiated by the special committee based upon its
consideration of relevant factors, including but not limited to, due diligence
performed by independent consultants and an appraisal of EWI conducted by an
independent third party selected by the special committee.



                                       21
<PAGE>

         Tax Sharing Agreement. Effective January 1, 2001, the Company and its
qualifying subsidiaries were 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 makes payments to or receives
payments from Valhi in amounts it would have paid to or received from the
Internal Revenue Service had it not been a member of the Contran Tax Group.
Refunds are limited to amounts previously paid under the Contran Tax Agreement
unless the Company was entitled to a refund from the U.S. Internal Revenue
Service on a separate-company basis. During 2002, the Company received $2.3
million from Valhi pursuant to the terms of the Contran Tax Agreement.

         Investment in Tremont and Tremont Group. At December 31, 2002 the
Company owned 20% of Tremont Group, Inc. ("Tremont Group") and Valhi owned the
remaining 80%. At that time, Tremont Group's only asset was an 80% ownership
interest in Tremont. The Company's stock of Tremont Group was redeemable at the
option of the Company for fair value based on the value of the underlying
Tremont shares, and the Company accounted for its investment in Tremont Group as
an available-for-sale marketable security carried at fair value based on the
fair value of such underlying Tremont shares. At December 31, 2002 the Company
also directly held 8,167 Tremont shares.

         In February 2003 Valhi completed a series of merger transactions
pursuant to which, among other things, Tremont Group and Tremont were merged
into a new wholly owned subsidiary of Valhi. Under these merger transactions,
(i) Valhi issued 3.5 million shares of its common stock to the Company in return
for the Company's 20% ownership interest in Tremont Group and (ii) Valhi issued
3.4 shares of its common stock (plus cash in lieu of fractional shares) to all
Tremont stockholders (other than Valhi and Tremont Group) in exchange for each
Tremont share held by such stockholders. The Company received approximately
27,770 shares of Valhi Common Stock in the second transaction. The number of
shares of Valhi Common Stock issued to the Company in exchange for the Company's
20% ownership interest in Tremont Group was equal to the Company's 20% pro-rata
interest in the Tremont shares held by Tremont Group, adjusted for the same 3.4
exchange ratio. The Valhi Common Stock owned by the Company is restricted under
Commission Rule 144. The shares of Valhi Common Stock cannot be voted by the
Company under Delaware Corporation Law, but the Company receives dividends from
Valhi on these shares when declared.

         Tremont Loan Agreement. In 2001 NL Environmental Management Services,
Inc. ("EMS"), the Company's majority-owned environmental management subsidiary,
loaned $13.4 million to Tremont under a reducing revolving loan agreement that
matured in March 2003. The loan was approved by special committees of the
Company's and EMS's Boards of Directors. In October 2002 a special committee of
the Company's Board of Directors approved new loan terms proposed by Tremont,
whereby Tremont repaid the outstanding principal and interest balance on the EMS
loan with proceeds from a new $15 million revolving loan agreement with the
Company. As such, the EMS loan was extinguished and cancelled. Similar to the
EMS loan, the Company's loan to Tremont bears interest at prime plus 2% (6.25%
at December 31, 2002 with interest payable quarterly), and is collateralized by
10.2 million shares of NL common stock owned by Tremont. The loan is due
December 31, 2004, with no principal payments required prior to that date. The
maximum amount available to Tremont under the revolving loan agreement is $15
million. The creditworthiness of Tremont is dependent in part on the value of
the Company as Tremont's interest in the Company is Tremont's most substantial
asset. At December 31, 2002, no amounts were outstanding under this facility and
Tremont had $15 million of borrowing availability. As a result of the merger of
Tremont with Valhi in February 2003, the revolving loan agreement is now between
a wholly owned subsidiary of Valhi and NL.

         Trust Loan Agreement. In May 2001, a wholly owned subsidiary of EMS
loaned $20 million to the Harold C. Simmons Family Trust No. 2 (the "Family
Trust") under a $25 million revolving credit agreement. The loan was approved by
special committees of the Company's and EMS's Boards of Directors. The loan



                                       22
<PAGE>

bears interest at the prime rate (4.25% at December 31, 2002), is due on demand
upon sixty days notice and is collateralized by 13,749 shares, or approximately
35%, of Contran's outstanding Class A voting common stock and 5,000 shares, or
100%, of Contran's Series E Cumulative preferred stock, both of which are owned
by the Family Trust. The value of this collateral is dependent in part on the
value of the Company as Contran's interest in the Company, through its
beneficial ownership of Valhi, is one of Contran's more substantial assets. In
November 2002 the Family Trust repaid $2 million principal amount of the
revolving credit agreement. At December 31, 2002, $7 million was available for
additional borrowing by the Family Trust. At December 31, 2002, the outstanding
loan balance was $18 million.

         Other Matters. During 2002 Dr. Wigdor's sister-in-law was employed by
the Company and was paid $41,326, and received customary employee benefits,
including medical insurance. She continues to be employed by the Company.

         See also Note 1 to the Aggregated Option Exercise Table on page 13.


                  SHAREHOLDER PROPOSALS FOR 2004 ANNUAL MEETING

         In order to be included in the Company's 2004 Proxy Statement and form
of proxy, shareholder proposals for the 2004 Annual Meeting of Shareholders must
be received at the principal executive offices of the Company, 16825 Northchase
Drive, Suite 1200, Houston, Texas 77060, Attention: Mr. David B. Garten,
Secretary, not later than December 15, 2003. All such proposals shall be treated
in accordance with applicable rules administered by the Commission.


                  2002 ANNUAL REPORT ON FORM 10-K; HOUSEHOLDING

         A copy of the Company's 2002 Annual Report on Form 10-K, as filed with
the Commission, may be obtained without charge by writing: Investor Relations
Department, NL Industries, Inc., 16825 Northchase Drive, Suite 1200, Houston,
Texas 77060. The Annual Report on Form 10-K may also be accessed on the
Company's website at www.nl-ind.com. Commission rules permit a single set of
annual reports and proxy statements to be sent to any household at which two or
more stockholders reside if they appear to be members of the same family. Each
stockholder continues to receive a separate proxy card. This procedure, referred
to as householding, reduces the volume of duplicate information stockholders
receive and reduces mailing and printing expenses. A number of brokerage firms
have instituted householding. Certain beneficial shareholders who share a single
address may have received a notice that only one annual report and proxy
statement would be sent to that address unless any stockholder at that address
gave contrary instructions. However, if any such beneficial stockholder residing
at such an address wishes to receive a separate annual report or proxy statement
in the future, please contact the Company at the above address or call (281)
423-3332.


                                  OTHER MATTERS

         The Board does not know of any business except as described above which
may be presented for consideration at the Annual Meeting. If any business not
described in this Proxy Statement should properly come before the Annual
Meeting, the persons designated as agents in the enclosed proxy card or voting
instruction form will vote on those matters in accordance with their best
judgment.

                                       NL INDUSTRIES, INC.


Houston, Texas
April 7, 2003



                                       23
<PAGE>
<Table>
<S>                                   <C>                                   <C>
[X]  PLEASE MARK YOUR
     VOTES AS IN THIS
     EXAMPLE.

THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED BELOW BY THE SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED "FOR" ALL NOMINEES FOR DIRECTOR LISTED BELOW.

- ------------------------------------------------------------------------------------------------------------------------------------
                       THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL NOMINEES FOR DIRECTOR LISTED BELOW.
- ------------------------------------------------------------------------------------------------------------------------------------
                  FOR      WITHHELD
1. Election of    [ ]         [ ]    Election of Directors.                 2. In their discretion, proxies are authorized to vote
   Directors.                        Nominees: 01. J. Landis Martin,           upon other such business as may properly come before
                                     02. George E. Poston, 03. Glenn           the Annual Meeting or any adjournments or
                                     R. Simmons, 04. Harold C. Simmons,        postponements thereof.
                                     05. General Thomas P. Stafford,
                                     06. Dr. R. Gerald Turner, and
Withheld authority to vote for the   07. Steven L. Watson
following individual nominees:

- -----------------------------------------------------------------------     Please sign exactly as shareholder's name appears on
                                                                            this card. Joint owners should each sign. When signing
                                                                            as attorney, executor, administrator, trustee or
                                                                            guardian, please give full title as such. If a
                                                                            corporation or partnership, please sign full corporate
                                                                            or partnership name and sign authorized person's name
                                                                            and title.

                                                                            The undersigned shareholder hereby revokes all proxies
                                                                            heretofore given by the undersigned to vote at the
                                                                            Annual Meeting or any adjournments or postponements
                                                                            thereof.



                                                                            --------------------------------------------------------


                                                                            --------------------------------------------------------
                                                                            SIGNATURE(S)                           DATE
</Table>

- --------------------------------------------------------------------------------
                            o FOLD AND DETACH HERE o

Dear Stockholder:

NL Industries, Inc. encourages you to take advantage of new and convenient ways
by which you can vote your shares. You can vote your shares electronically
through the Internet or by telephone. This eliminates the need to return the
proxy card.

To vote your shares electronically, you must use the control number printed in
the box above, just below the perforation. The series of numbers that appear in
the box above must be used to access the system.

1.       To vote over the Internet:

         o    Log on to the Internet and go to the web site
              http://www.eproxyvote.com/nl. Internet voting will be available
              until 12:01 A.M. on May 20, 2003.

2.       To vote over the telephone:

         o    On a touch-tone telephone call 1-877-PRX-VOTE (1-877-779-8683) 24
              hours a day, seven days a week. Telephone voting will be available
              until 12:01 A.M. on May 20, 2003.

         o    Non-U.S. stockholders should call 1-201-536-8073.

Your electronic vote authorizes the named Proxies in the same manner as if you
marked, signed, dated and returned the proxy card. If you vote your shares
electronically, do not mail back your proxy card.

                  YOUR VOTE IS IMPORTANT. THANK YOU FOR VOTING.



<PAGE>
PROXY

                               NL INDUSTRIES, INC.
                       16825 NORTHCHASE DRIVE, SUITE 1200
                              HOUSTON, TEXAS 77060

             PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 20, 2003

The undersigned hereby appoints David B. Garten and Robert D. Hardy and each of
them, the proxy and attorney-in-fact for the undersigned, with full power of
substitution in each, to represent the undersigned and to vote on behalf of the
undersigned at the Annual Meeting of Shareholders of NL Industries, Inc. to be
held on May 20, 2003, and at any adjournment or postponement of such meeting
(the "Annual Meeting"), all shares of Common Stock of NL Industries, Inc.
standing in the name of the undersigned or which the undersigned may be entitled
to vote on the matters described on the reverse side.

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF NL INDUSTRIES,
INC.

YOU ARE ENCOURAGED TO SPECIFY YOUR VOTING CHOICES BY MARKING THE APPROPRIATE
BOXES ON THE REVERSE SIDE OF THIS CARD BUT YOU NEED NOT MARK ANY BOXES IF YOU
WISH TO VOTE IN ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. THE
ABOVE-NAMED PROXIES CANNOT VOTE YOUR SHARES UNLESS YOU SIGN, DATE AND PROMPTLY
RETURN THIS CARD. PLEASE USE THE ENCLOSED RETURN ENVELOPE. THIS PROXY MAY BE
REVOKED BY A PROXY ACCEPTED AT A LATER DATE OR OTHERWISE AS SET FORTH IN THE NL
INDUSTRIES, INC. PROXY STATEMENT THAT ACCOMPANIED THIS PROXY CARD.

                                                                     SEE REVERSE
                                                                        SIDE

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                            o FOLD AND DETACH HERE o

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