CARBO CERAMICS INC. Item 1.01 Entry Into Material Definitive Agreement.
Restructuring Support Agreement
On
The RSA sets forth the terms of a prenegotiated Chapter 11 plan of reorganization (the "Plan") pursuant to which, among other things and subject to the terms and conditions of the RSA:
• each Supporting Lender will receive its pro rata share of 100% of the equity
interests in a reorganized CARBO entity ("Reorganized CARBO") in exchange
for such Supporting Lender's secured claims under the Credit Agreement and
the DIP Facility described below, except to the extent such DIP Facility
claims (the "DIP Facility Claims") are converted into borrowings under the
Exit Facility described below, with Reorganized CARBO retaining 100% of the
equity interests in a reorganized AGPI entity and a reorganized StrataGen
entity;
• a liquidating trust will be established for the benefit of general unsecured
creditors, to which the Supporting Lenders will contribute $100,000 to fund
the costs of administering such trust, and any avoidance actions that are
not otherwise released under the Plan will be transferred to such trust; and
• CARBO's existing equity will be cancelled.
The Supporting Lenders have the right to terminate the RSA, and their support for the restructuring contemplated by the RSA (the "Restructuring"), for customary reasons, including, among others, the failure to timely achieve any of the milestones for the progress of the Chapter 11 Cases (as defined below) that are set forth in the DIP Credit Agreement, which include the dates by which the Company RSA Parties are required to, among other things, obtain certain court orders and consummate the Restructuring. Accordingly, no assurance can be given that the Restructuring described in the RSA will be consummated.
DIP Facility and Exit Facility
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The foregoing description of the RSA and Commitment Letter does not purport to be complete and is qualified in its entirety by reference to the full text of the RSA and the Commitment Letter. The Commitment Letter is included as an exhibit to the RSA, and a copy of the RSA is filed as Exhibit 10.1 to this Current Report and incorporated by reference in this Item 1.01.
Item 1.03 Bankruptcy or Receivership.
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who continue to work with the Company RSA Parties on existing terms will be paid in full and in the ordinary course of business for postpetition goods and services. All existing customer contracts are expected to remain in place and transactions thereunder executed in the ordinary course of business.
In addition, the Company RSA Parties filed a motion (the "NOL Motion") seeking
entry of an interim and final order establishing certain procedures and
restrictions (the "Procedures") with respect to the direct or indirect purchase,
disposition or other transfer of equity interests in CARBO ("Stock"), and
seeking related relief, in order to preserve, and protect the potential value
of, the Company RSA Parties' existing and future net operating losses ("NOLs")
and certain other of the Company RSA Parties' tax attributes (together with the
NOLs, the "Tax Attributes"). If approved, the Procedures would, among other
things, restrict certain transactions involving, and require notices of the
holdings of, and proposed transactions by, any person or entity that is or, as a
result of such a transaction, would become, a Substantial Equity Holder of
Stock. For purposes of the Procedures, a "Substantial Equity Holder" is any
person, entity or, in certain cases, group of persons or entities, that has
beneficial ownership (as determined in accordance with applicable rules under
the Internal Revenue Code of 1986, as amended) of, after taking into account
certain options or other similar rights to acquire beneficial ownership of
Stock, at least 1,315,726 shares of Stock (representing approximately 4.5% of
all issued and outstanding shares of Stock as of the Petition Date). Any
prohibited transfer of Stock would be null and void ab initio and will result in
reversal of the noncompliant transaction and such other (or additional) measures
as the
The NOL Motion and Procedures are available on the docket of the Chapter 11
Cases, which can be accessed via PACER at https://www.pacer.gov. The Company RSA
Parties also requested authority to employ
Item 2.04 Triggering Events that Accelerate or Increase a Direct Financial
Obligation or an Obligation Under an Off-Balance Sheet Arrangement.
The filing of the Bankruptcy Petitions constituted an event of default that accelerated CARBO's obligations under the Credit Agreement. The Credit Agreement provides that, as a result of such default, the principal and interest due thereunder shall be immediately due and payable. Any efforts to enforce such payment obligations under the Credit Agreement are automatically stayed as a result of the Chapter 11 Cases, and the creditors' rights of enforcement in respect of the Credit Agreement are subject to the applicable provisions of the Bankruptcy Code.
Item 7.01 Regulation FD Disclosure.
On
The information contained in this Item 7.01, including Exhibit 99.1, shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any of CARBO's filings under the Securities Act of 1933, as amended (the "Securities Act") or the Exchange Act, whether made before or after the date hereof and regardless of any general incorporation language in such filings, except to the extent expressly set forth by specific reference in such a filing. The filing of this Current Report (including the exhibits hereto or any information included herein or therein) shall not be deemed an admission as to the materiality of any information herein that is required to be disclosed solely by reason of Regulation FD.
Item 8.01 Other Events.
CARBO is supplementing the risk factors contained in its Annual Report on Form
10-K for the year ended
On
In the fall of 2019, CARBO engaged an investment bank and financial and legal advisors to assist CARBO and its subsidiaries in, among other things, exploring strategic alternatives, forecasting cash flow, analyzing and preserving liquidity, and implementing contingency planning for a potential in-court process were CARBO unsuccessful in consummating a strategic alternative out of court
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solution. These restructuring efforts led to the execution of the RSA and
commencement of the Chapter 11 Cases in the
The Chapter 11 Cases could have a material adverse effect on CARBO's business,
financial condition, results of operations and liquidity.
Other significant risks include or relate to the following:
• the ability to obtain the Bankruptcy Court's approval with respect to
motions or other requests made to the Bankruptcy Court in the Chapter 11
Cases, including maintaining strategic control as debtors-in-possession;
• delays in the Chapter 11 Cases;
• the ability to consummate the Plan;
• the ability to achieve the Company RSA Parties' stated goals and continue
as a going concern;
• the effects of the filing of the Chapter 11 Cases on the Company RSA
Parties' businesses and the interest of various constituents, including
shareholders, customers, suppliers, service providers, and employees;
• the high costs of bankruptcy proceedings and related advisory costs to
effect a reorganization in accordance with the Plan or otherwise;
• the ability to maintain relationships with customers, suppliers, service
providers, employees and other third parties as a result of the Chapter 11
Cases;
• the ability to maintain contracts that are critical to the operations of
the Company RSA Parties;
• the ability to fund and execute the business plan of the Company RSA Parties;
• the ability to obtain acceptable and appropriate financing;
• Bankruptcy Court rulings in the Chapter 11 Cases as well as the outcome of
the Chapter 11 Cases in general;
• the length of time that the Company RSA Parties will operate with Chapter
11 protection and the continued availability of operating capital during
the pendency of the proceedings;
• the ability to confirm and consummate a plan of reorganization with
respect to the Chapter 11 Cases, views and objections of creditors and
other parties in interest that may make it difficult to consummate a plan
in a timely manner;
• the ability of third parties to seek and obtain Bankruptcy Court approval
to terminate or shorten the exclusivity period for the Company RSA Parties
to propose and confirm a plan of reorganization, to appoint a U.S. trustee
or to convert the Chapter 11 Cases to cases under Chapter 7 of the
Bankruptcy Code;
• third-party motions in the Chapter 11 Cases, which may interfere with the
Company RSA Parties' ability to consummate the Plan; and
• the potential adverse effects of the Chapter 11 Cases on the liquidity and
results of operations of the Company RSA Parties.
Because of the risks and uncertainties associated with the Chapter 11 Cases, CARBO cannot predict or quantify the ultimate impact that events occurring during the Chapter 11 Cases may have on its business, cash flows, liquidity, financial condition and results of operations, nor can CARBO predict the ultimate impact that events occurring during the Chapter 11 Cases may have on its corporate or capital structure, although such proceedings are expected to result in the cancellation of CARBO's common stock on the effective date of a confirmed plan of reorganization.
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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 and its 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
Item 9.01Financial Statements and Exhibits.
(d) Exhibits.
Exhibit Description 10.1 Restructuring Support Agreement, dated as ofMarch 28, 2020 , by and amongCARBO Ceramics Inc. ,Asset Guard Products Inc. ,StrataGen, Inc. ,Wilks Brothers, LLC andEquify Financial, LLC 99.1 Press release, datedMarch 29, 2020
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