On November 14, 2016, NLKW Holding, LLC, a newly-formed,
wholly-owned subsidiary of the registrant (“NLKW”), entered
into a $50 million revolving credit facility (the “Valhi
Credit Facility”) with Valhi, Inc., the registrant’s
publicly-held parent corporation (“Valhi”). Previously, and
in contemplation of the financing transaction described herein,
the registrant formed NLKW and capitalized it with
approximately 35.2 million shares of the common stock of Kronos
Worldwide, Inc. held by the registrant (the “Kronos Stock”).
to the terms of the Valhi Credit Facility, NLKW can borrow up
to $50 million from Valhi (with such commitment amount subject
to increase from time to time in Valhi’s sole discretion).
Proceeds from any borrowings by NLKW under the Valhi Credit
Facility would be available for the registrant’s general
corporate purposes, but only to the extent one or more loans
are extended by NLKW to the registrant in accordance with the
terms of the Back-to-Back Credit Facility, as described below.
Outstanding borrowings under the Valhi Credit Facility will
bear interest at the prime rate plus 1.875% per annum, payable
quarterly, with all amounts due on December 31, 2023. The
maximum principal amount which may be outstanding from
time-to-time under the Valhi Credit Facility is limited to 50%
of the amount determined by multiplying the number of shares of
Kronos Stock by the most recent closing price of such security
on the New York Stock Exchange (or another recognized national
securities exchange if such security is not listed on the New
York Stock Exchange). Borrowings under the Valhi Credit
Facility are collateralized by (i) the Kronos Stock, to the
terms of a Pledge and Security Agreement, dated November 14,
2016, made by NLKW in favor of Valhi (the “Pledge and Security
Agreement,” and together with the Valhi Credit Facility, the
“Loan Documents”), and (ii) 100% of the membership interest
in NLKW held by the registrant, to the terms of a Back-to-Back
Pledge and Security Agreement, dated November 14, 2016, made by
the registrant in favor of Valhi (the “Back-to-Back Pledge and
Security Agreement”), as described below. The Valhi Credit
Facility contains a number of covenants and restrictions which,
among other things, restrict NLKW’s ability to incur
additional debt, incur liens, and merge or consolidated with,
or sell or transfer substantially all of NLKW’s assets to,
another entity, and require NLKW to maintain a minimum
specified level of consolidated net worth. Upon an event of
default (as defined in the Valhi Credit Facility, which
includes the failure of NLKW to make payments of principal or
interest when due or to otherwise comply with its covenants
under the Loan Documents, certain changes of control of NLKW or
the registrant, certain insolvency events of NLKW or the
registrant and other customary events of default), Valhi will
be entitled to terminate its commitment to make further loans
to NLKW, declare the outstanding loans (with interest)
immediately due and payable, and exercise its rights with
respect to the collateral under the Loan Documents. Such
collateral rights include, upon certain insolvency events with
respect to NLKW or the registrant, the right to purchase all of
the Kronos Stock at a purchase price equal to the aggregate
market value of the Kronos Stock (with such market value
determined by an independent third-party valuation provider),
less amounts owing to Valhi under the Loan Documents , and up
to 50% of such purchase price may be paid by Valhi in the form
of an unsecured promissory note bearing interest at the prime
rate plus 2.75% per annum, payable quarterly, with all amounts
due no later than five years from the date of purchase, with
the remainder of such purchase price payable in cash at the
date of purchase.