Item 1.01 Entry into a Material Definitive Agreement.
The information regarding the DIP Credit Agreement (as defined below) set forth
in Item 2.03 of this Current Report on Form 8-K (this "Current Report") is
incorporated by reference in this Item 1.01.
Item 1.03 Bankruptcy or Receivership.
As previously disclosed, on March 29, 2020 (the "Petition Date"), CARBO Ceramics
Inc. ("CARBO") and its direct wholly owned subsidiaries, Asset Guard Products
Inc. ("AGPI") and StrataGen, Inc. ("StrataGen," and together with CARBO and
AGPI, each, a "Debtor," and collectively, the "Debtors"), filed voluntary
petitions for reorganization under Chapter 11 of Title 11 of the United States
Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the
Southern District of Texas, Houston Division (the "Bankruptcy Court").
On the Petition Date, the Debtors filed a number of motions with the Bankruptcy
Court generally designed to facilitate the Debtors' transition into Chapter 11.
These motions sought authority from the Bankruptcy Court for the Debtors to,
among other things, (i) make payments upon, or otherwise honor, certain
obligations that arose prior to the Petition Date, including obligations related
to employee wages, salaries and benefits, taxes and certain vendors and other
providers essential to the Debtors' businesses, (ii) to establish certain
procedures to preserve, and protect the potential value of, the Debtors'
existing and future net operating losses and certain other tax attributes and
(iii) execute, deliver and perform under the DIP Facility (as defined below). On
March 30, 2020, the Bankruptcy Court approved the relief sought in these motions
on an interim basis. The Bankruptcy Court also approved the joint administrative
of the Chapter 11 cases captioned In re CARBO Ceramics, Inc., et al., Case
No. 20-31973 (the "Chapter 11 Cases"). Each Debtor will continue to operate its
business as a "debtor in possession" under the jurisdiction of the Bankruptcy
Court and in accordance with the applicable provisions of the Bankruptcy Code
and the orders of the Bankruptcy Court
Additional information about the Chapter 11 Cases, including motions, orders and
other court filings relating thereto, may be obtained by visiting
http://dm.epiq11.com/Carbo or by calling 1-866-897-6433 (Toll Free) or
1-646-282-2500 (International). The above-mentioned motions and procedures are
available on the docket of the Chapter 11 Cases, which can be accessed via PACER
at https://www.pacer.gov.
The information regarding the DIP Credit Agreement set forth in Item 2.03 of
this Current Report is incorporated by reference in this Item 1.03.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation
under an Off-Balance Sheet Arrangement of a Registrant.
On March 30, 2020, the Debtors entered into a Superpriority Senior Secured
Debtor-in-Possession Credit Agreement (the "DIP Credit Agreement"), by and among
CARBO, as borrower, AGPI and StrataGen, as guarantors, Wilks Brothers, LLC, as
lender ("Wilks"), and the other guarantors and lenders from time to time party
thereto (any such lenders, together with Wilks, the "Lenders") providing for a
$15 million senior secured superpriority multiple draw term loan facility (the
"DIP Facility"). On March 30, 2020, the Bankruptcy Court granted interim
approval of the motion to approve the DIP Facility, including the DIP Credit
Agreement, and the borrowing by CARBO of up to $5 million of loans thereunder
between March 30, 2020 and the Bankruptcy Court's entry of a final order
approving the DIP Facility and DIP Credit Agreement (the "Interim Period
Borrowings").
The Debtors' obligations under the DIP Credit Agreement are secured by first
priority priming liens on substantially all of the Debtors' assets, subject to
certain customary exclusions and carve-outs. Borrowings under the DIP Facility
will mature August 29, 2020 (the "Maturity Date") and will bear interest at a
rate of 8.00% per annum. The DIP Credit Agreement also provides for the payment
of certain fees, including an unused commitment fee and upfront fee, as well as
a DIP fee to be paid to the Lenders in the event the Debtors enter into an
alternative debtor-in-possession financing arrangement with financial
institutions other than the Lenders in lieu of the DIP Facility. Interest and
any other amounts that become due under the DIP Facility will be paid in cash.
The proceeds of the DIP Facility, including the Interim Period Borrowings, will
be used to pay fees, expenses and other expenditures of the Debtors to be set
forth in rolling budgets prepared in connection with the Chapter 11 Cases,
subject to the approval of the Lenders and certain stipulated exceptions.
The DIP Credit Agreement terminates on the earliest of: (a) the Maturity Date;
(b) the effective date of any Acceptable Plan or any other Chapter 11 Plan (each
as defined in the DIP Credit Agreement); (c) the entry of an order for the
conversion of any of the Chapter 11 Cases to a case under Chapter 7 of the
Bankruptcy Code; (d) the entry of an order for the dismissal of any of the
Chapter 11 Cases; and (e) at the election of the Lenders, the date on which any
event of default under the DIP Credit Agreement is continuing.
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The DIP Credit Agreement contains usual and customary affirmative and negative
covenants and events of default for transactions of this type. In addition, the
Debtors are required to maintain a minimum liquidity of $2,500,000 as of the
last day of any calendar month following the effective date.
The foregoing description of the DIP Credit Agreement does not purport to be
complete and is qualified in its entirety by reference to the full text of the
DIP Credit Agreement, which is filed as Exhibit 10.1 to this Current Report and
incorporated by reference in this Item 2.03.
Cautionary Note Regarding Forward Looking Statements
This Current Report contains "forward-looking statements" within the meaning of
the safe harbor provisions of Section 27A of the Securities Act and Section 21E
of the Exchange Act. Forward-looking statements are not statements of historical
facts and often contain words such as "may," "will," "expect," "believe,"
"anticipate," "plan," "estimate," "seek," "could," "should," "intend,"
"potential," or words of similar meaning. Forward-looking statements are based
on management's current expectations, beliefs, assumptions and estimates
regarding CARBO, industry, economic conditions, government regulations and
energy policies and other factors. Forward-looking statements may include, for
example, statements regarding the Chapter 11 Cases, the DIP Facility, CARBO's
ability to complete the restructuring (the "Restructuring") contemplated by
terms of a prenegotiated Chapter 11 plan of reorganization (the "Plan") that are
set forth in the Restructuring Support Agreement, dated as of March 28, 2020, by
and among the Debtors, Wilks and Equify Financial, LLC; CARBO's ability to
continue operating in the ordinary course while the Chapter 11 Cases are
pending. These statements are subject to significant risks, uncertainties, and
assumptions that are difficult to predict and could cause actual results to
differ materially and adversely from those expressed or implied in the
forward-looking statements, including risks and uncertainties regarding CARBO's
ability to successfully complete a reorganization process under Chapter 11,
including consummation of the Restructuring pursuant to the Plan; potential
adverse effects of the Chapter 11 Cases on CARBO's liquidity and results of
operations; CARBO's ability to obtain timely approval by the Bankruptcy Court
with respect to the motions filed in the Chapter 11 Cases; objections to CARBO's
restructuring process, the DIP Facility, or other pleadings filed that could
protract the Chapter 11 Cases; employee attrition and CARBO's ability to retain
senior management and other key personnel due to the distractions and
uncertainties, including CARBO's ability to provide adequate compensation and
benefits during the Chapter 11 Cases; CARBO's ability to comply with the
restrictions imposed by the DIP Credit Agreement and other financing
arrangements; CARBO's ability to maintain relationships with suppliers,
customers, employees and other third parties and regulatory authorities as a
result of the Chapter 11 filing; the effects of the Chapter 11 Cases on CARBO
and on the interests of various constituents, including holders of CARBO's
common stock; the Bankruptcy Court's rulings in the Chapter 11 Cases and the
outcome of the Chapter 11 Cases generally; the length of time that CARBO will
operate under Chapter 11 protection and the continued availability of operating
capital during the pendency of the Chapter 11 Cases; risks associated with third
party motions in the Chapter 11 Cases, which may interfere with CARBO's ability
to consummate the Restructuring or an alternative restructuring; increased
administrative and legal costs related to the Chapter 11 process; potential
delays in the Chapter 11 process due to the effects of the COVID-19 virus; and
other litigation and inherent risks involved in a bankruptcy process.
Forward-looking statements are also subject to the risk factors and cautionary
language described from time to time in the reports and registration statements
CARBO files with the Securities and Exchange Commission, including those in
CARBO's most recent and forthcoming Annual Report on Form 10-K and any updates
thereto in CARBO's Quarterly Reports on Form 10-Q and Current Reports on Form
8-K. Additional factors, events, or uncertainties that may emerge from time to
time, or those that CARBO currently deems to be immaterial, could cause CARBO's
actual results to differ, and it is not possible for CARBO to predict all of
them. CARBO makes forward-looking statements based on currently available
information, and CARBO assumes no obligation to, and expressly disclaim any
obligation to, update or revise publicly any forward-looking statements made in
this Current Report, whether as a result of new information, future events or
otherwise, except as required by law.
Item 9.01Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Description
10.1 Senior Secured Super Priority Debtor-in-Possession Credit Agreement,
dated as of March 30, 2020, by and among CARBO Ceramics Inc., as
borrower, Asset Guard Products Inc. and StrataGen, Inc., as guarantors,
and Wilks Brothers, LLC, as a lender
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