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Proc-Type: 2001,MIC-CLEAR
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<SEC-DOCUMENT>0000950134-01-001965.txt : 20010308
<SEC-HEADER>0000950134-01-001965.hdr.sgml : 20010308
ACCESSION NUMBER: 0000950134-01-001965
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 4
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010307
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: CARBO CERAMICS INC
CENTRAL INDEX KEY: 0001009672
STANDARD INDUSTRIAL CLASSIFICATION: ABRASIVE ASBESTOS & MISC NONMETALLIC MINERAL PRODUCTS [3290]
IRS NUMBER: 721100013
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 001-15903
FILM NUMBER: 1563103
BUSINESS ADDRESS:
STREET 1: 600 EAST LAS COLINAS BLVD
STREET 2: STE 1520
CITY: IRVING
STATE: TX
ZIP: 75039
BUSINESS PHONE: 2144010090
MAIL ADDRESS:
STREET 1: 600 E LAS COLINAS BLVD
STREET 2: STE 1520
CITY: IRVING
STATE: TX
ZIP: 75039
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d84697e10-k405.txt
<DESCRIPTION>FORM 10-K FOR FISCAL YEAR END DECEMBER 31, 2000
<TEXT>
<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
COMMISSION FILE NO. 0-28178
CARBO CERAMICS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 72-1100013
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
6565 MACARTHUR BOULEVARD
SUITE 1050
IRVING, TEXAS 75039
(Address of principal executive offices)
(972) 401-0090
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $0.01 PER SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of the Common Stock on
February 28, 2001, as reported on the New York Stock Exchange, was approximately
$198,488,550. Shares of Common Stock held by each officer and director and by
each person who owns 5% or more of the outstanding Common Stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
As of February 28, 2001, Registrant had outstanding 14,875,850 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for Registrant's Annual Meeting of
Shareholders to be held April 10, 2001 are incorporated by reference in Part
III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
CARBO Ceramics Inc. is the world's largest producer and supplier of ceramic
proppants for use in the hydraulic fracturing of natural gas and oil wells.
Demand for ceramic proppants depends primarily upon the demand for natural gas
and oil and on the number of natural gas and oil wells drilled, completed or
recompleted worldwide. More specifically, the demand for ceramic proppants is
dependent on the number of oil and gas wells that are hydraulically fractured to
stimulate production.
Hydraulic fracturing is the most widely used method of increasing
production from oil and gas wells. The hydraulic fracturing process consists of
pumping fluids down a natural gas or oil well at pressures sufficient to create
fractures in the hydrocarbon-bearing rock formation. A granular material, called
a proppant, is suspended in the fluid and packs the newly created fracture,
keeping the fracture open once high-pressure pumping stops. The proppant-filled
fracture creates a permeable channel through which the hydrocarbons can flow
more freely from the formation to the well and then to the surface.
There are three primary types of proppant that can be utilized in the
hydraulic fracturing process: sand, resin-coated sand and ceramic. Sand is the
least expensive proppant, resin-coated sand is more expensive and ceramic
proppants are typically the highest cost. The higher initial cost of ceramic
proppants is justified by the fact that the use of these proppants in certain
well conditions results in increased production of oil and gas and increased
cash flow for the operators of oil and gas wells. The increased production rates
are primarily attributable to the higher strength and more uniform size and
shape of ceramic proppants versus alternative materials.
CARBO Ceramics was formed in 1987 for the purpose of purchasing the assets
of Standard Oil Proppants Company Ltd. (SOPCO). SOPCO was a joint venture formed
to operate the combined proppant businesses of the Carborundum Company and
Dresser Industries. These proppant businesses were started in 1978 and 1984,
respectively. While the Carborundum Company and Dresser Industries had primarily
manufactured high strength, premium priced proppants for use in very deep wells,
CARBO Ceramics has pursued a strategy of introducing new, lower-priced,
lightweight, intermediate strength ceramic proppants to capture a greater
portion of the large market for sand-based proppants.
Based on the Company's internally generated market information and
information contained in the United States Geological Survey Minerals Yearbook,
the Company estimates that it supplies nearly 60% of the ceramic proppants and
8% of all proppants used worldwide. During the year ended December 31, 2000, the
Company generated approximately 63% of its revenues in the U.S. and 37% in
international markets.
PRODUCTS
The Company manufactures four distinct ceramic proppants. CARBOHSP(TM)2000
and CARBOPROP(R) are premium priced, high strength proppants designed primarily
for use in deep gas wells. CARBOHSP(TM)2000 was introduced in January 2000 and
is an improved version of CARBOHSP(TM), which was introduced in 1979 as the
original ceramic proppant. CARBOHSP(TM)2000 has the highest strength of the
ceramic proppants manufactured by CARBO Ceramics and is used primarily in the
fracturing of deep gas wells. CARBOPROP(R), which was introduced by the Company
in 1982, is slightly lower in weight and strength than CARBOHSP(TM)2000 and was
developed for use in deep gas wells that do not require the strength of
CARBOHSP(TM)2000.
The CARBOLITE(R) and CARBOECONOPROP(R) products are lightweight,
intermediate strength proppants designed for use in gas wells of moderate depth
and shallower oil wells. The products are manufactured and sold to compete
directly with sand-based proppants. CARBOLITE(R), introduced in 1984, is used in
medium depth oil and gas wells, where the additional strength of ceramic
proppants may not be essential, but where higher production rates can be
achieved due to the product's roundness and uniform grain size.
1
<PAGE> 3
CARBOECONOPROP(R), introduced in 1992 to compete directly with sand-based
proppants, has been the Company's lowest priced and fastest growing product. The
introduction of CARBOECONOPROP(R) has resulted in ceramics being used in many
new markets by end users that had not previously used ceramic proppants. The
Company believes that many of the users of CARBOECONOPROP(R) had previously used
sand or resin-coated sand.
COMPETITION AND MARKET SHARE
The Company's chief worldwide competitor is Norton-Alcoa Proppants
("Norton-Alcoa"). Norton-Alcoa is a joint venture of Compagnie de Saint-Gobain,
a French glass and materials company, and Aluminum Company of America.
Norton-Alcoa manufactures ceramic proppants that directly compete with each of
the Company's products. In addition, Mineraco Curimbaba ("Curimbaba") based in
Brazil, manufactures a sintered bauxite product similar to the Company's
CARBOHSP(TM), which is marketed in the United States under the name
"Sinterball." The Company believes that Curimbaba has not expanded its U.S.
product line to include a full range of ceramic proppants and is unlikely to do
so in light of patents held by the Company and Norton-Alcoa. The Company
believes that it supplies approximately 60% of the ceramic proppants and
approximately 8% of all proppants used by the oilfield services companies that
perform fracturing services worldwide.
Competition for CARBOHSP(TM)2000 and CARBOPROP(R) includes ceramic
proppants manufactured by Norton-Alcoa and Curimbaba. The Company's CARBOLITE(R)
and CARBOECONOPROP(R) products compete with ceramic proppants produced by
Norton-Alcoa and with sand-based proppants for use in the hydraulic fracturing
of medium depth natural gas and oil wells. The leading suppliers of mined sand
are Unimin Corp., Badger Mining Corp., Fairmount Minerals Limited, Inc. and
Ogelbay-Norton Company. The leading suppliers of resin-coated sand are Borden
Proppants Corp. and Santrol, a subsidiary of Fairmount Minerals.
The Company believes that the most significant factors that influence a
customer's decision to purchase the Company's products are (i) price/performance
ratio, (ii) on-time delivery performance, (iii) technical support and (iv)
proppant availability. The Company believes that its products are competitively
priced and that its delivery performance is excellent. The Company also believes
that its superior technical support has enabled it to persuade customers to use
ceramic proppants in an increasingly broad range of applications and thus
increased the overall market for the Company's products.
Prior to 1997, the Company had generally maintained sufficient inventory to
satisfy demand for its products. However, beginning in 1997 and continuing
through the first half of 1998, it became obvious to the management of the
Company that previous capacity additions were insufficient to satisfy demand in
an improving market. The Company addressed this issue through the construction
of a new manufacturing facility in McIntyre, Georgia, which was completed and
began limited production in June 1999. During the year 2000, the McIntyre
facility increased production to approximately 60 percent of its design
capacity. In total, the Company's manufacturing facilities operated at
approximately 70 percent of capacity in 2000.
The Company continually conducts testing and development activities with
respect to alternative raw materials to be used in the Company's existing
production methods and alternative production methods. The Company is not aware
of the development of alternative products for use as proppants in the hydraulic
fracturing process. The Company believes that the main barriers to entry for
additional competitors are the patent rights held by the Company and certain of
its current competitors and the capital costs involved in building production
facilities of sufficient size to be operated efficiently.
CUSTOMERS AND MARKETING
The Company's largest customers are, in alphabetical order, BJ Services
Company, Halliburton Company and Schlumberger, the three largest participants in
the worldwide petroleum pressure pumping industry. These companies collectively
accounted for approximately 78 percent of the Company's 2000 revenues and
approximately 85 percent of the Company's 1999 revenues. However, the end users
of the Company's products are the operators of natural gas and oil wells that
hire the pressure pumping service
2
<PAGE> 4
companies to hydraulically fracture wells. The Company works both with the
pressure pumping service companies and directly with the operators of natural
gas and oil wells to present the economic advantages of using ceramic proppants.
The Company generally supplies its customers with products on a just-in-time
basis, with transactions governed by individual purchase orders. Continuing
sales of product depend on the Company's direct customers and the well operators
being satisfied with both product quality and delivery performance.
The Company recognizes the importance of a technical marketing program when
selling a product that offers financial benefits over time but is initially more
costly than alternative products. The Company must market its products both to
its direct customers and to owners and operators of natural gas and oil wells.
The Company's sales and marketing staff regularly calls on and keeps close
contact with the people who are influential in the proppant purchasing decision:
production companies, regional offices of oilfield service companies that offer
pressure pumping services, and various completion engineering consultants.
Beginning in 1999, the Company increased its marketing efforts to production
companies. The Company expanded its technical sales force in 2000 and plans to
continue to increase its efforts to educate end users on the benefits of using
ceramic proppants in the future. The Company currently provides a variety of
technical support services and has developed computer software that models the
return on investment achievable by using the Company's ceramic proppants versus
that of other proppants in the hydraulic fracturing of a natural gas or oil
well.
The Company's Senior Vice President of Marketing and Technology coordinates
worldwide sales and marketing activities. The Company's export marketing efforts
in 2000 were conducted through its sales office in Aberdeen, Scotland and
through commissioned sales agents located in South America, China and Australia.
The Company's ceramic proppants are used worldwide by U.S. customers
operating abroad and by foreign customers. Sales outside the United States
accounted for 37%, 39% and 35% of the Company's sales for 2000, 1999 and 1998,
respectively. The distribution of the Company's export and domestic revenues is
shown below, based upon the region in which the customer used the proppants:
<TABLE>
<CAPTION>
LOCATION 2000 1999 1998
- -------- ----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
United States............................................... $58.9 $42.3 $54.3
International............................................... 34.4 27.4 29.8
----- ----- -----
Total............................................. $93.3 $69.7 $84.1
===== ===== =====
</TABLE>
DISTRIBUTION
The Company maintains finished goods inventories at its plants in New
Iberia, Louisiana, Eufaula, Alabama, and McIntyre, Georgia, and at eight remote
stocking facilities located in: Rock Springs, Wyoming; Oklahoma City, Oklahoma;
San Antonio, Texas; Fairbanks, Alaska; Edmonton, Alberta, Canada; Rotterdam, The
Netherlands; and Tianjin and Shanghai, China. The North American remote stocking
facilities consist of bulk storage silos with truck trailer loading facilities.
The Company owns the facilities in San Antonio, Rock Springs and Edmonton and
subcontracts the operation of the facilities and transportation to a local
trucking company in each location. The remaining stocking facilities are owned
and operated by local trucking companies under contract with the Company. The
North American sites are supplied by rail, and the sites in the Netherlands and
China are supplied by container ship. In total, the Company leases 149 rail cars
for use in the distribution of its products. The price of the Company's products
sold for delivery in the lower 48 United States and Canada includes just-in-time
delivery of proppants to the operator's well site, which eliminates the need for
customers to maintain an inventory of ceramic proppants.
RAW MATERIALS
Ceramic proppants are made from alumina-bearing ores (commonly referred to
as bauxite, bauxitic clay or kaolin, depending on the alumina content), that are
readily available on the world market. Bauxite is largely
3
<PAGE> 5
used in the production of aluminum metal, refractory material and abrasives. The
main deposits of alumina-bearing ores in the United States are in Arkansas,
Alabama and Georgia; other economically mineable deposits are located in
Australia, China, Jamaica, Russia and Surinam.
For the production of CARBOHSP(TM)2000, the Company uses calcined,
abrasive-grade bauxite imported from Australia and typically purchased on the
spot market. The Company has entered into an agreement with a sole supplier to
supply its anticipated need for this ore in 2001. For the production of
CARBOPROP(R), the Company uses bauxitic clay mined in Arkansas. The Company has
entered into a contract for the processing and supply of Arkansas bauxitic clay.
The Company believes that this agreement, which stipulates a fixed price for the
ore, subject to annual upward adjustments in accordance with a producer price
index, will provide a sufficient supply of bauxite and bauxitic clay to meet its
anticipated requirement through 2001. The Company is currently evaluating
alternative sources of supply.
The Company's Eufaula facility exclusively employs locally mined uncalcined
kaolin for the production of CARBOLITE(R) and CARBOECONOPROP(R). The Company has
entered into a contract that requires a supplier to sell to the Company up to
200,000 net tons of kaolin per year and the Company to purchase from the
supplier 80% of the Eufaula facility's annual kaolin requirements, each through
2003. This agreement stipulates a fixed price, subject to annual adjustment in
accordance with fluctuations (within an 8% annual limit) in the producer price
index.
The new production facility in McIntyre, Georgia, uses the imported
calcined bauxite and domestic bauxitic clays discussed above for the production
of CARBOHSP(TM)2000 and CARBOPROP(R) and uses locally mined uncalcined kaolin
for the production of CARBOLITE(R) and CARBOECONOPROP(R). The Company has
entered into a long-term supply agreement for kaolin that stipulates a fixed
price subject to annual adjustments for changes in the producer price index and
fuel costs. The agreement requires the Company to purchase at least 80% of the
McIntyre facility's annual kaolin requirement from the supplier. The supply
contract provides for a twenty-year supply of raw materials.
PRODUCTION PROCESS
Ceramic proppants are made by grinding or dispersing ore to a fine powder,
combining the powder into small, green (i.e., unfired) pellets and sintering the
pellets at 2,500(Degreesf) to 3,000(Degreesf) in a rotary kiln.
The Company uses two different methods to produce ceramic proppants. The
Company's plants in New Iberia, Louisiana, and McIntyre, Georgia, use a dry
process (the "Dry Process") which starts with bauxite, bauxitic clay or kaolin
that has been dried to remove both free water and water which was chemically
bound within the ore. This drying process is referred to as calcining. For the
production of CARBOHSP(TM)2000 and CARBOPROP(R), calcined ores are received at
the plant and ground into a dry powder. For the production of CARBOLITE(R) and
CARBOECONOPROP(R) at the McIntyre plant, ores are calcined at the plant before
being ground into a powder. Pellets are formed by combining the powder with
water and binders and introducing the mixture into high-shear mixers. The
process is completed once the green pellets are sintered in a rotary kiln. The
Company's competitors also use the Dry Process to produce ceramic proppants.
The Company's plant in Eufaula, Alabama, uses a wet process (the "Wet
Process"), which starts with moist, uncalcined kaolin from local mines. The
kaolin is dispersed with chemicals in a water slurry. With an atomizer, the
slurry is sprayed into a dryer that causes the slurry to harden into green
pellets. These green pellets are then sintered in rotary kilns. The Company
believes that the Wet Process is unique to its plant in Eufaula, Alabama.
PATENT PROTECTION
The Company's ceramic proppants are made by processes and techniques that
involve a high degree of proprietary technology, some of which are protected by
patents.
The Company owns outright six issued U.S. patents and seven issued foreign
patents; three of these U.S. patents and four of these foreign patents relate to
the CARBOPROP(R) product produced by the Dry Process.
4
<PAGE> 6
The Company jointly owns with A/S NIRO Atomizer ("NIRO"), the Danish
designer and manufacturer of the spray atomizer device used in the Wet Process,
three issued U.S. patents and 17 issued foreign patents. The patents owned
jointly with NIRO generally relate to the Wet Process, and the products produced
thereby (CARBOLITE(R) and CARBOECONOPROP(R)).
The Company's six most important U.S. patents expire at various times in
the years 2002 through 2009 with its two key product patents expiring in 2006
and 2009. The Company believes that these patents have been and will continue to
be important in enabling the Company to compete in the market to supply
proppants to the natural gas and oil industry. The Company intends to enforce
and has in the past vigorously enforced its patents. The Company may be involved
from time to time in the future, as it has been in the past, in litigation to
determine the enforceability, scope and validity of its patent rights. Past
disputes with its main competitor have been resolved in ways that permit the
Company to continue to benefit fully from its patent rights. The Company and
this competitor have cross-licensed certain of their respective patents relating
to intermediate and low density proppants on both a royalty-free and
royalty-bearing basis. (Royalties under these licenses are not material to the
Company's financial results.) The Company and NIRO have not granted any licenses
to third parties relating to the use of the Wet Process. As a result of these
cross licensing arrangements, both the Company and its main competitor are able
to produce a broad range of ceramic proppants, while third parties are unlikely
to be able to enter the ceramic proppants market without infringing on the
patent rights held by the Company, its main competitor or both.
PRODUCTION CAPACITY
The Company believes that constructing adequate capacity ahead of demand
while incorporating new technology to reduce manufacturing costs are important
competitive strategies to increase its overall share of the market for
proppants. Prior to 1993, the Company's production capacity was substantially in
excess of its sales requirements. Since that time, however, the Company has been
expanding its capacity in order to meet the generally increasing demand for its
products. In October 1993, the Company increased the capacity of the Eufaula
facility from 90 million pounds per year to 170 million pounds per year, in
response to the increasing demand for the Company's CARBOLITE(R) and
CARBOECONOPROP(R) products. In May 1995, the Company completed a 40
million-pound per year capacity expansion at the New Iberia facility, intended
to meet increasing demand for CARBOHSP(TM) and CARBOPROP(R). In February 1996,
the Company commenced operation of its second 80 million-pound per year
expansion of the Eufaula plant. Total annual capacity is currently 100 million
pounds at the New Iberia facility and 250 million pounds at the Eufaula
facility.
In June 1999, the Company substantially completed construction of a new
manufacturing facility in McIntyre, Georgia. Design capacity of the plant is 200
million pounds per year and the total cost of the plant was approximately $60
million. The plant consists of two distinct production lines housed in a single
building. Initial production was generated from the first production line in
June 1999 and full design throughput was achieved on that line in November 1999.
Initial production from the second production line began in December 1999 and
the plant operated at approximately 60 percent of its design capacity in 2000.
The plant is capable of producing all of the Company's product lines and has
been designed to be expandable to a capacity of 400 million pounds per year.
5
<PAGE> 7
The following table sets forth the date of construction of and recent
expansion of the Company's manufacturing facilities:
<TABLE>
<CAPTION>
YEAR OF ANNUAL
LOCATION COMPLETION CAPACITY PRODUCTS
- -------- ---------- ------------ --------
(MILLIONS OF
POUNDS)
<S> <C> <C> <C>
New Iberia, Louisiana
Plant 1.............. 1979 20 CARBOHSP(TM) 2000 and
CARBOPROP(R)
Plant 2.............. 1981 40 CARBOHSP(TM) 2000 and
CARBOPROP(R)
1995 Expansion..... 1995 40 CARBOHSP(TM) 2000 and
CARBOPROP(R)
---
Total......... 100
===
Eufaula, Alabama
1983 90 CARBOLITE(R) and
CARBOECONOPROP(R)
1993 Expansion....... 1993 80 CARBOLITE(R) and
CARBOECONOPROP(R)
1996 Expansion....... 1996 80 CARBOLITE(R) and
CARBOECONOPROP(R)
---
Total......... 250
===
McIntyre, Georgia
1999 200 CARBOLITE(R), CARBOECONOPROP(R)
===
CARBOHSP(TM) 2000 and
CARBOPROP(R)
</TABLE>
ORDER BACKLOG
The Company generally supplies its customers with products on a
just-in-time basis and operates without any material backlog.
ENVIRONMENTAL AND OTHER GOVERNMENTAL REGULATIONS
The Company believes that its operations are in substantial compliance with
applicable federal, state and local environmental and safety laws and
regulations. The Company does not anticipate any significant expenditures in
order to continue to comply with such laws and regulations.
EMPLOYEES
At December 31, 2000, the Company had 168 full-time employees. In addition
to the services of its employees, the Company employs the services of
consultants as required. The Company's employees are not represented by labor
unions. There have been no work stoppages or strikes during the last three years
that have resulted in the loss of production or production delays. The Company
believes its relations with its employees are satisfactory.
FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. This Form 10-K, the Company's Annual
Report to Shareholders, any Form 10-Q or any Form 8-K of the Company or any
other written or oral statements made by or on behalf of the Company may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from such statements. This document contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 concerning, among other things, the Company's
prospects, developments and business strategies for its operations, all of which
are subject to certain risks, uncertainties and assumptions. These risks and
uncertainties include, but are not limited to, changes in the demand for oil and
natural gas, the development of alternative stimulation techniques and the
development of alternative proppants for use in hydraulic fracturing. The words
"believe," "expect," "anticipate," "project" and similar expressions identify
forward-looking statements. Readers are
6
<PAGE> 8
cautioned not to place undue reliance on these forward-looking statements, each
of which speaks only as of the date the statement was made. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
ITEM 2. PROPERTIES
The Company maintains its corporate headquarters (approximately 5,000
square feet of leased office space) in Irving, Texas, owns its manufacturing
facilities, land and substantially all of the related production equipment in
New Iberia, Louisiana, and Eufaula, Alabama, and leases its McIntyre, Georgia,
facility through 2009 at which time title will be conveyed to the Company.
The facility in New Iberia, Louisiana, located on 24 acres of land owned by
the Company, consists of two production units (approximately 85,000 square
feet), a laboratory (approximately 4,000 square feet) and an office building
(approximately 3,000 square feet). The Company also owns an 80,000 square foot
warehouse on the plant grounds in New Iberia, Louisiana.
The facility in Eufaula, Alabama, located on 14 acres of land owned by the
Company, consists of one production unit (approximately 111,000 square feet), a
laboratory (approximately 2,000 square feet) and an office (approximately 1,700
square feet).
The facility in McIntyre, Georgia includes real property, consisting of
approximately 36 acres, plant and equipment that are leased by the Company from
the Development Authority of Wilkinson County. The term of the lease commenced
on September 1, 1997 and terminates on January 1, 2009. At the termination of
the lease, title to all of the real property, plant and equipment will be
conveyed to the Company in exchange for nominal consideration. The Company has
the right to purchase the property, plant and equipment at any time during the
term of the lease for a nominal price.
The Company's customer service and distribution operations are located at
the New Iberia facility, while its quality control, testing and development
functions operate at the New Iberia, Eufaula and McIntyre facilities. The
Company owns distribution facilities in San Antonio, Texas, Rock Springs,
Wyoming and Edmonton, Alberta, Canada.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 1999, the Company was served with a U.S. federal grand jury
subpoena requesting the production of documents in connection with an
investigation by the Antitrust Division of the U.S. Department of Justice of
possible anti-competitive activity in the proppants industry. The Company has
complied with this request. It is not possible at this time to predict how this
investigation will proceed or the effect, if any, of its ultimate outcome on the
Company.
From time to time, the Company is the subject of legal proceedings arising
in the ordinary course of business. The Company does not believe that any of
these proceedings will have a material adverse effect on its business or its
results from operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year 2000.
EXECUTIVE OFFICERS OF THE REGISTRANT
Jesse P. Orsini (age, 60): Mr. Orsini, President and Chief Executive
Officer, has served as President, Chief Executive Officer and a Director of the
Company since its organization in 1987.
Terry P. Keefe (age, 52): Mr. Keefe has been Vice President of
Manufacturing since July 1997. Prior to being elected Vice President of
Manufacturing, Mr. Keefe was Plant Manager of the Company's Eufaula, Alabama
plant since the organization of the Company in 1987.
7
<PAGE> 9
Dr. C. Mark Pearson (age, 44): Dr. Pearson has served as Senior Vice
President of Marketing and Technology since January 2000. Dr. Pearson joined the
Company as Vice President of Marketing and Technology in March 1997. Prior to
joining the Company, Dr. Pearson served as Associate Professor of Petroleum
Engineering at the Colorado School of Mines from December 1995 and held various
engineering and management positions with Arco Petroleum Company from 1984
through December 1995.
Paul G. Vitek (age, 41): Mr. Vitek has been the Senior Vice President of
Finance and Administration since January 2000. Prior to serving in his current
capacity, Mr. Vitek served as Vice President of Finance from February 1996 and
has served as Treasurer and Secretary of the Company since 1988.
Dr. C. Mark Pearson has been named to succeed Jesse P. Orsini as President
and Chief Executive Officer of the Company, upon Mr. Orsini's retirement from
the Company on April 10, 2001.
All officers are elected at the Annual Meeting of the Board of Directors
for one-year terms or until their successors are duly elected. There are no
arrangements between any officer and any other person pursuant to which he was
selected as an officer. There is no family relationship between any of the named
executive officers or between any of them and the Company's directors.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Common Stock Market Prices and Dividends
The Company's Common Stock is traded on the New York Stock Exchange (ticker
symbol CRR). The approximate number of holders, including both record holders
and individual participants in security position listings, of the Company's
Common Stock at February 28, 2001 was 2,100.
High and low stock prices and dividends for the last two fiscal years were:
<TABLE>
<CAPTION>
2000 1999
----------------------------- -----------------------------
SALES PRICE CASH SALES PRICE CASH
----------------- DIVIDENDS ----------------- DIVIDENDS
QUARTER ENDED HIGH LOW DECLARED HIGH LOW DECLARED
- ------------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
March 31................... $29.500 $20.000 $0.075 $22.250 $14.000 $0.075
June 30.................... 36.250 25.625 0.075 30.438 17.750 0.075
September 30............... 38.250 25.000 0.075 32.250 20.000 0.075
December 31................ 37.875 25.000 0.075 30.000 19.000 0.075
</TABLE>
The Company expects to continue its policy of paying quarterly cash
dividends at the rate of $0.075 per share, although there is no assurance as to
future dividends because they depend on future earnings, capital requirements
and financial condition.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data are derived from the audited
consolidated financial statements of the Company. The data should be read in
conjunction with Management's Discussion and Analysis of Financial
8
<PAGE> 10
Condition and Results of Operations and the financial statements and notes
thereto included elsewhere in this Report.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Revenues................................. $ 93,324 $ 69,738 $84,095 $85,122 $65,151
Cost of goods sold....................... 57,763 41,718 41,665 42,186 34,517
-------- -------- ------- ------- -------
Gross profit............................. 35,561 28,020 42,430 42,936 30,634
Selling, general and administrative
expenses(1)........................... 12,404 11,761 9,977 8,915 8,126
-------- -------- ------- ------- -------
Operating profit......................... 23,157 16,259 32,453 34,021 22,508
Other, net............................... 268 (288) 974 1,004 175
-------- -------- ------- ------- -------
Income before income taxes............... 23,425 15,971 33,427 35,025 22,683
Income taxes............................. 8,595 5,459 12,719 12,936 5,883
-------- -------- ------- ------- -------
Net income............................... $ 14,830 $ 10,512 $20,708 $22,089 $16,800
======== ======== ======= ======= =======
Earnings per share
Basic................................. $ 1.01 $ 0.72 $ 1.42 $ 1.51
======== ======== ======= =======
Diluted............................... $ 1.00 $ 0.71 $ 1.40 $ 1.50
======== ======== ======= =======
Pro Forma Data (Unaudited)(2):
Income before income taxes............... $22,683
Pro forma income taxes................... 8,393
-------
Pro forma net income..................... $14,290
=======
Pro forma earnings per share(3)
Basic................................. $ 0.98
=======
Diluted............................... $ 0.97
=======
Balance Sheet Data:
Current assets........................... $ 47,415 $ 23,809 $23,783 $46,861 $38,158
Current liabilities excluding bank
borrowings............................ 9,415 5,648 8,638 7,616 5,204
Bank borrowings -- current............... -- 1,809 -- -- --
Property, plant and equipment, net....... 78,007 83,171 75,644 34,093 22,247
Total assets............................. 125,422 106,980 99,427 80,954 60,405
Total shareholders' equity............... 106,140 93,400 87,269 70,942 53,234
Cash dividends per share(4).............. $ 0.30 $ 0.30 $ 0.30 $ 0.30 $ 0.15
</TABLE>
- ---------------
(1) Selling, general and administrative (SG&A) expenses for 2000, 1999 and 1998
include plant start-up costs of $27,000, $1,464,000 and $451,000,
respectively. In 1996, SG&A expenses include an incremental charge of
$877,225 relating to the accelerated recognition of compensation expense for
the vesting of restricted stock in connection with the Company's initial
public offering.
(2) Pro forma data reflects the effects on historical income statement data for
the year ended December 31, 1996 as if the Company had been treated as a C
Corporation for the entire year for income tax purposes, with an estimated
effective income tax rate of 37%. The Company terminated its S Corporation
election on April 23, 1996 prior to its initial public offering.
(3) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128, Earnings
Per Share.
(4) Cash dividends per share for 1996 is based on cash dividends declared
subsequent to the Company's initial public offering and does not include S
Corporation distributions paid prior to and in conjunction with the initial
public offering.
9
<PAGE> 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL BUSINESS CONDITIONS
CARBO Ceramics Inc. manufactures and sells ceramic proppants for use in the
hydraulic fracturing of oil and natural gas wells. Hydraulic fracturing is the
most common technique used to stimulate production from hydrocarbon bearing
formations. The process involves pumping fluids into an oil or gas well at very
high pressure in order to fracture the rock formation that contains the
hydrocarbons. As the fracture is created, the fluids are blended with granular
materials, or proppants, which fill the fracture and prop it open after the
pressure pumping ceases. The proppant filled fracture creates a highly permeable
channel that enables the oil or gas to flow more freely from the formation,
thereby increasing production from the well.
Ceramic proppants are premium products that are sold at higher prices than
sand or resin-coated sand, the two primary alternative proppants. The principal
advantage of ceramic proppants is that they are stronger than sand-based
proppants. The higher strength of ceramic proppants results in higher production
rates in deep wells where sand or resin-coated sand may be crushed under high
closure stress. Consequently, the level of deep drilling activity (generally
defined as wells deeper than 7,500 feet) influences the Company's business.
Ceramic proppants are also more uniform in size and shape than sand-based
proppants. This uniformity can result in higher production rates than sand-based
proppants when used in wells that do not otherwise require ceramics for their
higher strength.
As deep drilling, particularly in North America, is typically focused on
the production of natural gas, the Company's business is significantly impacted
by the number of natural gas wells drilled in North America. In markets outside
North America, sales of the Company's products are less dependent on natural gas
markets but are influenced by the overall level of drilling activity.
Furthermore, because the decision to use ceramic proppants is based on the
present value economics of comparing the higher cost of ceramic proppants to the
future value derived from increased production rates, the Company's business is
influenced by the price of natural gas and oil.
In 1997, demand for ceramic proppants increased to the point that the
availability of all ceramic products was limited. Based on the strong market
demand, the Company raised prices on its products by an average of 5%, effective
in the first quarter 1997. Drilling activity and the demand for ceramic
proppants remained strong throughout 1997 and the Company generated record
earnings for the year. Because management believed that the worldwide demand for
natural gas would continue to increase due to the abundance, relatively low cost
and environmental benefits of natural gas as a source of energy, the Company
initiated construction of a new manufacturing facility in McIntyre, Georgia in
July 1997. The plant cost approximately $60 million and added 200 million pounds
per year of additional capacity (a 60% increase).
The Company raised prices on its products by an average of 5%, effective in
the first quarter of 1998. Strong demand for ceramic proppants continued through
the first half of 1998, with the Company realizing record financial results for
the first three-quarters of the year. However, in the second half of 1998, a
rapid decline in oil prices resulted in a significant reduction in the number of
oil and gas wells drilled and completed. The Company felt the effects of this
decline in the fourth quarter of 1998 as revenues decreased by 29 percent versus
the previous quarter and 33 percent from the fourth quarter of 1997.
Oil and gas prices remained depressed through much of the first half of
1999 and worldwide drilling activity decreased dramatically. In 1999, the
worldwide rig count averaged 1,442, a decline of 22 percent from 1998 and 33
percent from 1997. The Company's financial results for 1999 were adversely
effected by a decrease in its average selling price due to competitive pressures
associated with the depressed industry conditions and by the additional fixed
costs incurred in connection with the start-up of its new production facility in
McIntyre, Georgia.
The price of oil and natural gas and drilling activity improved
significantly in 2000. The recovery was particularly evident in the North
American natural gas activity that is a key driver of the Company's business. As
a result, sales volume, average selling prices, revenues and profitability all
increased versus the previous year. The increase in profitability was tempered
by the impact of high natural gas prices on the Company's
10
<PAGE> 12
manufacturing costs and the continued impact of start-up operations at the
McIntyre, Georgia facility early in the year.
NET INCOME
<TABLE>
<CAPTION>
PERCENT PERCENT
2000 CHANGE 1999 CHANGE 1998
------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net Income.............................. $14,830 41% $10,512 (49)% $20,708
</TABLE>
The Company reported net income for 2000 that was 41% higher than the
previous year. A significant increase in oil and gas drilling activity (and in
oil and natural gas prices) began during the second quarter 2000 and continued
through the remainder of the year. The domestic rig count throughout 2000 was 47
percent higher than 1999, while the average price of natural gas increased by 93
percent over the previous year. Decreased costs at the New Iberia facility (due
to higher production rates resulting from an increase in screening capacity) and
the start-up of the second line at McIntyre contributed to income improvement,
with increased SG&A costs off-setting some of these gains.
The Company reported net income for 1999 that was 49 percent below the
previous year. A significant reduction in oil and gas drilling activity,
combined with higher than expected costs at the Company's manufacturing
facilities, start-up costs at the Company's new facility in McIntyre, Georgia
and price pressure on high-strength products in the South Texas market were the
primary causes of the decline.
Individual components of net income are discussed below.
REVENUES
<TABLE>
<CAPTION>
PERCENT PERCENT
2000 CHANGE 1999 CHANGE 1998
------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues................................ $93,324 34% $69,738 (17)% $84,095
</TABLE>
Carbo Ceramics Inc.'s 2000 revenues of $93.3 million were 34 percent higher
than 1999 revenues. Total sales volumes increased by 34 percent, with domestic
volumes up 39 percent and export volumes up by 25 percent. The increased
domestic volumes were driven by a 70% increase in the South Texas market, while
increased export sales were led by improved sales into Australia, China, Russia,
and Canada. Revenues were also positively impacted by a June 2000 price increase
on our CARBOECONOPROP(R) product. The average selling price for the year was
$0.241 per pound. While this was unchanged versus the previous year, the average
selling price improved in each quarter during 2000 due to a change in the
product mix and a price increase on CARBOECONOPROP(R) that went into effect at
mid-year.
The Company's 1999 revenues of $69.7 million were 17 percent lower than
1998 revenues. Total sales volumes decreased by 12 percent, with domestic
volumes down 15 percent and export volumes down 7 percent from 1998. The decline
in domestic volumes was due in large part to a significant decline in sales of
CARBOECONOPROP(R) into the south Texas market -- the result of a dramatic drop
in rig activity in that area of the country, and a significant decrease in
Alaskan activity -- the direct result of lower oil prices. Revenues were also
negatively impacted by price pressure on high strength products in the South
Texas market. The decline in export volume was due primarily to a decrease in
sales into the Pacific Rim region.
GROSS PROFIT
<TABLE>
<CAPTION>
PERCENT PERCENT
2000 CHANGE 1999 CHANGE 1998
------- ------- ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross Profit............................ $35,561 27% $28,020 (34)% $42,430
Gross Profit %.......................... 38% 40% 50%
</TABLE>
11
<PAGE> 13
The Company's cost of goods sold consists of manufacturing costs and
packaging and transportation expenses associated with the delivery of the
Company's products to its customers. Variable manufacturing expenses include raw
materials, labor, utilities and repair and maintenance supplies. Fixed
manufacturing expenses include depreciation, property taxes on production
facilities, insurance and factory overhead.
Gross profit increased by 27 percent from 1999 to 2000. Gross profit as a
percentage of sales was 38 percent for 2000, compared to 40 percent for 1999.
The increase in gross profit was driven primarily by the significant increase in
sales volume. The major contributor to reduced gross profit margins was the
significant increase in the cost of natural gas at all three manufacturing
facilities. Natural gas costs represent approximately 19 percent of the
Company's total manufacturing costs in 2000 compared to 12 percent in 1999. The
negative effects of the gas price increases were mitigated somewhat by increased
production rates at the New Iberia and McIntyre facilities which resulted in
lower costs per pound. At the McIntyre facility, throughput rates have improved
due to increased familiarity with new equipment and employees.
Gross profit for 1999 was $14.4 million lower than 1998. Gross profit as a
percentage of sales was 40 percent for 1999, compared to 50 percent for 1998.
The significant decrease in gross profit was the result of the decrease in
revenues discussed above and an increase in production expenses. The increase in
production expenses resulted from management's decision to start-up the new
production facility in McIntyre, Georgia despite the weak demand experienced
through much of 1999. This decision was made to position the Company for a
recovering market in 2000 but caused all three of the Company's manufacturing
facilities to operate at less than full capacity. In addition, costs at the New
Iberia facility were adversely affected by a six-week maintenance shutdown in
May/June to install a new kiln shell and replace the rotation system. These
increases in cost were partially offset by lower freight costs experienced in
transferring finished goods from the Eufaula manufacturing facility to the
remote storage facility in San Antonio, Texas. High freight costs were incurred
in 1998 due to rail service problems related to the merger of the Union Pacific
and Southern Pacific railway systems.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES AND PLANT START-UP COSTS
<TABLE>
<CAPTION>
PERCENT PERCENT
2000 CHANGE 1999 CHANGE 1998
------- ------- ------- ------- ------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
SG&A..................................... $12,404 5% $11,761 18% $9,977
SG&A as a % of Revenues.................. 13% 17% 12%
</TABLE>
Selling, general and administrative expenses increased by $643,000 in 2000
over 1999. However, SG&A expenses decreased as a percentage of sales to 13
percent in 2000 from 17 percent in 1999. The single largest item was a drop in
start-up costs related to the new manufacturing facility in McIntyre, Georgia
from $1.5 million in 1999 to $27,000 in 2000. Excluding the start-up costs, SG&A
expenses increased by $2.1 million (or 20%) from 1999 to 2000. Increased costs
in 2000 are those that relate directly to higher activity levels --
distribution, marketing, and management incentive expense, as well as
distribution and marketing expenses related to the development of the China
market, New York Stock Exchange listing fees, and increased legal expenses.
Selling, general and administrative expenses increased by $1.8 million in
1999 over 1998. SG&A expenses also increased as a percentage of sales to 17
percent in 1999 from 12 percent in 1998. The single largest contributor to the
increase was start-up costs related to the new manufacturing facility in
McIntyre, Georgia. These costs totaled $1.5 million in 1999, compared to $0.5
million during 1998. Other significant items include expenses related to
exploring the marketing and manufacturing potentials in China, New Iberia plant
trials to develop products for non-oilfield applications (charged to research
and development), legal fees related to a Department of Justice inquiry, and a
write-off of most of the receivables of one of our customers. That customer was
subsequently acquired by one of our three major customers.
12
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents as of December 31, 2000 were $14.8 million
compared to $0.2 million at the beginning of the year. The Company generated
cash from operations of $21.7 million and realized proceeds from the issuance of
common stock through the exercise of employee stock options of $1.7 million.
Total capital expenditures for the year were $1.6 million, cash dividends paid
totaled $4.4 million, repayment of debt against the Company's line of credit was
$1.8 million, and purchases of investment securities was $1.0 million. There
were no major new capital additions during the year and capital spending for the
maintenance of existing assets was below the historical average. The Company
estimates that normal maintenance capital spending for the existing asset base
should be approximately $3.0 million per year.
The Company's current intention, subject to its financial condition, the
amount of funds generated from operations and the level of capital expenditures
is to continue to pay quarterly dividends to shareholders of its common stock at
the rate of $0.075 per share.
The company maintains an unsecured line of credit of $10.0 million. As of
December 31, 2000, there was no outstanding debt under the credit agreement. The
Company anticipates that cash provided by operating activities and funds
available under its line of credit will be sufficient to meet planned operating
expenses, tax obligations and capital expenditures through 2001.
See "Forward-Looking Information" under Item 1 hereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have operations subject to material risk of foreign
currency fluctuations, nor does it use derivative financial instruments in its
operations or investment portfolio. The Company has a $10.0 million line of
credit with its primary commercial bank. Under the terms of the revolving credit
agreement, the Company may elect to pay interest at either a fluctuating base
rate established by the bank from time to time or at a rate based on the rate
established in the London inter-bank market. The Company does not believe that
it has any material exposure to market risk associated with interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is contained in pages F-1 through
F-14 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
Certain information required by Part III is omitted from this Report in
that the Registrant will file a definitive proxy statement pursuant to
Regulation 14A (the "Proxy Statement") not later than 120 days after the end of
the fiscal year covered by this Report and certain information included therein
is incorporated herein by reference. Only those sections of the Proxy Statement
that specifically address the items set forth herein are incorporated by
reference. Such incorporation does not include the Compensation Committee Report
or the Performance Graph included in the Proxy Statement.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement. Information
concerning executive officers is set forth in Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
13
<PAGE> 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Consolidated Financial Statements:
The consolidated financial statements of CARBO Ceramics Inc. listed below
are contained in pages F-1 through F-14 of this Report:
Report of Independent Auditors
Consolidated Balance Sheets at December 31, 2000 and 1999
Consolidated Statements of Income for each of the three
years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Shareholders' Equity for each of
the three years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows for each of the three
years ended December 31, 2000, 1999 and 1998
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the fourth quarter of 2000.
(c) Exhibits:
The exhibits listed on the accompanying Exhibit Index are filed as part of,
or incorporated by reference into, this Report.
(d) Financial Statement Schedules:
All schedules have been omitted since they are either not required or not
applicable.
14
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CARBO CERAMICS INC.
By: /s/ JESSE P. ORSINI
----------------------------------
Jesse P. Orsini
President and Chief Executive
Officer
By: /s/ PAUL G. VITEK
----------------------------------
Paul G. Vitek
Sr. Vice President, Finance and
Chief Financial Officer
Dated: March 7, 2001
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Jesse P. Orsini and Paul G. Vitek,
jointly and severally, his attorneys-in-fact, each with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report on Form 10-K, and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that each of said attorneys-in-fact, or his
substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM C. MORRIS Chairman of the Board March 7, 2001
- -----------------------------------------------------
William C. Morris
/s/ JESSE P. ORSINI President, Chief Executive March 7, 2001
- ----------------------------------------------------- Officer and Director
Jesse P. Orsini (Principal Executive Officer)
/s/ PAUL G. VITEK Sr. Vice President, Finance and March 7, 2001
- ----------------------------------------------------- Chief Financial Officer
Paul G. Vitek (Principal Financial and
Accounting Officer)
/s/ CLAUDE E. COOKE, JR. Director March 7, 2001
- -----------------------------------------------------
Claude E. Cooke, Jr.
/s/ JOHN J. MURPHY Director March 7, 2001
- -----------------------------------------------------
John J. Murphy
/s/ ROBERT S. RUBIN Director March 7, 2001
- -----------------------------------------------------
Robert S. Rubin
</TABLE>
15
<PAGE> 17
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
CARBO Ceramics Inc.
We have audited the accompanying consolidated balance sheets of CARBO
Ceramics Inc. as of December 31, 2000 and 1999, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of CARBO Ceramics
Inc. at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
ERNST & YOUNG LLP
New Orleans, Louisiana
February 5, 2001
F-1
<PAGE> 18
CARBO CERAMICS INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
2000 1999
-------- --------
($ IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 14,757 $ 193
Investment securities..................................... 1,000 --
Trade accounts receivable................................. 17,783 10,883
Refundable income taxes................................... -- 288
Inventories:
Finished goods......................................... 8,407 7,123
Raw materials and supplies............................. 4,067 4,154
-------- --------
Total inventories................................. 12,474 11,277
Prepaid expenses and other current assets................. 570 481
Deferred income taxes..................................... 831 687
-------- --------
Total current assets.............................. 47,415 23,809
Property, plant and equipment:
Land and land improvements................................ 944 944
Buildings................................................. 7,442 7,378
Machinery and equipment................................... 92,201 90,092
Construction in progress.................................. 728 1,298
-------- --------
Total............................................. 101,315 99,712
Less accumulated depreciation............................... 23,308 16,541
-------- --------
Net property, plant and equipment...................... 78,007 83,171
-------- --------
Total assets...................................... $125,422 $106,980
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank borrowings........................................... $ -- $ 1,809
Accounts payable.......................................... 1,293 1,477
Accrued payroll and benefits.............................. 1,945 1,954
Accrued freight........................................... 1,816 1,545
Accrued utilities......................................... 937 451
Accrued income taxes...................................... 2,581 --
Other accrued expenses.................................... 843 221
-------- --------
Total current liabilities......................... 9,415 7,457
Deferred income taxes....................................... 9,867 6,123
Shareholders' equity:
Preferred stock, par value $0.01 per share, 5,000 shares
authorized: none outstanding........................... -- --
Common stock, par value $0.01 per share, 40,000,000 shares
authorized: 14,699,500 and 14,602,000 shares issued and
outstanding at December 31, 2000 and 1999,
respectively........................................... 147 146
Additional paid-in capital................................ 45,225 42,919
Retained earnings......................................... 60,768 50,335
-------- --------
Total shareholders' equity........................ 106,140 93,400
-------- --------
Total liabilities and shareholders' equity........ $125,422 $106,980
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE> 19
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
2000 1999 1998
---------- ---------- ----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues.................................................... $93,324 $69,738 $84,095
Cost of goods sold.......................................... 57,763 41,718 41,665
------- ------- -------
Gross profit................................................ 35,561 28,020 42,430
Selling, general and administrative expenses................ 12,377 10,297 9,526
Plant start-up costs........................................ 27 1,464 451
------- ------- -------
Operating profit............................................ 23,157 16,259 32,453
Other income (expense):
Interest income........................................... 302 5 800
Interest expense.......................................... (38) (297) --
Other, net................................................ 4 4 174
------- ------- -------
268 (288) 974
------- ------- -------
Income before income taxes.................................. 23,425 15,971 33,427
Income taxes................................................ 8,595 5,459 12,719
------- ------- -------
Net income.................................................. $14,830 $10,512 $20,708
======= ======= =======
Earnings per share:
Basic..................................................... $ 1.01 $ 0.72 $ 1.42
======= ======= =======
Diluted................................................... $ 1.00 $ 0.71 $ 1.40
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 20
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ---------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Balances at January 1, 1998.......................... $146 $42,919 $27,877 $ 70,942
Net income......................................... -- -- 20,708 20,708
Cash dividends ($0.30 per share)................... -- -- (4,381) (4,381)
---- ------- ------- --------
Balances at December 31, 1998........................ 146 42,919 44,204 87,269
Net income......................................... -- -- 10,512 10,512
Cash dividends ($0.30 per share)................... -- -- (4,381) (4,381)
---- ------- ------- --------
Balances at December 31, 1999........................ 146 42,919 50,335 93,400
Net income......................................... -- -- 14,830 14,830
Exercise of stock options.......................... 1 1,663 -- 1,664
Income tax benefit from exercise of stock
options......................................... -- 643 -- 643
Cash dividends ($0.30 per share)................... -- -- (4,397) (4,397)
---- ------- ------- --------
Balances at December 31, 2000........................ $147 $45,225 $60,768 $106,140
==== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 21
CARBO CERAMICS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $14,830 $ 10,512 $ 20,708
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation.............................................. 6,767 4,632 2,154
Deferred income taxes..................................... 3,600 2,936 876
Changes in operating assets and liabilities:
Trade accounts receivable.............................. (6,900) 417 2,943
Inventories............................................ (1,197) (1,050) (1,846)
Prepaid expenses and other current assets.............. (89) 133 47
Accounts payable....................................... (184) (289) (365)
Accrued payroll and benefits........................... (9) (655) 161
Accrued freight........................................ 271 753 (59)
Accrued utilities...................................... 486 101 (72)
Income taxes........................................... 3,512 (554) (752)
Other accrued expenses................................. 622 (766) 241
------- -------- --------
Net cash provided by operating activities................... 21,709 16,170 24,036
INVESTING ACTIVITIES
Maturities of investment securities......................... -- -- 13,905
Purchases of investment securities.......................... (1,000) -- --
Purchases of property, plant and equipment.................. (1,603) (14,027) (41,837)
------- -------- --------
Net cash used in investing activities....................... (2,603) (14,027) (27,932)
FINANCING ACTIVITIES
Proceeds from bank borrowings............................... 5,273 18,059 --
Repayments on bank borrowings............................... (7,082) (16,250) --
Proceeds from issuance of common stock...................... 1,664 -- --
Dividends paid.............................................. (4,397) (4,381) (4,381)
------- -------- --------
Net cash used in financing activities....................... (4,542) (2,572) (4,381)
------- -------- --------
Net increase (decrease) in cash and cash equivalents........ 14,564 (429) (8,277)
Cash and cash equivalents at beginning of year.............. 193 622 8,899
------- -------- --------
Cash and cash equivalents at end of year.................... $14,757 $ 193 $ 622
======= ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................................... $ 38 $ 297 $ --
======= ======== ========
Income taxes paid........................................... $ 1,483 $ 3,077 $ 12,595
======= ======== ========
Purchases of property, plant and equipment through accounts
payable................................................... $ -- $ -- $ 1,868
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 22
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Description of Business
CARBO Ceramics Inc. (the "Company") was formed in 1987 and is a
manufacturer of ceramic proppants. The Company has production plants operating
in New Iberia, Louisiana, Eufaula, Alabama and McIntyre, Georgia. The Company
predominantly markets its proppant products through pumping service companies
that perform hydraulic fracturing for major oil and gas companies. Finished
goods inventories are stored at the three plant sites and eight remote
distribution facilities located in: Rock Springs, Wyoming; Oklahoma City,
Oklahoma; San Antonio, Texas; Fairbanks, Alaska; Edmonton, Alberta, Canada;
Rotterdam, The Netherlands; and Tianjin and Shanghai, China.
Principles of Consolidation
The consolidated financial statements include the accounts of CARBO
Ceramics Inc. and its wholly owned subsidiaries, CARBO Ceramics Sales
Corporation and CARBO Ceramics (UK) Limited. CARBO Ceramics Sales Corporation
was formed on July 31, 1996 under the laws of Barbados. CARBO Ceramics (UK)
Limited was formed on December 19, 1997 under the laws of Scotland. All
significant intercompany transactions have been eliminated.
Concentration of Credit Risk
The Company performs periodic credit evaluations of its customers'
financial condition and generally does not require collateral. Receivables are
generally due within 30 days. The majority of the Company's receivables are from
customers in the petroleum pressure pumping industry. Credit losses historically
have been insignificant.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amounts
reported in the balance sheet for cash equivalents approximate fair value.
Investment Securities
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Company has
both the positive intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost, adjusted for
amortization of premiums and accretion of discounts to maturity. At December 31,
2000, investment securities consisted of auction-rate preferred stock, which
were classified as held-to-maturity. The fair value of the investments
approximated the carrying value at December 31, 2000. The Company held no
investment securities at December 31, 1999.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Finished goods inventories include costs of materials, plant labor and
overhead incurred in the production of the Company's products.
F-6
<PAGE> 23
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Repair and maintenance
costs are expensed as incurred. Depreciation is computed on the straight-line
method for financial reporting purposes using the following estimated useful
lives:
<TABLE>
<S> <C>
Buildings and improvements........................... 15 to 30 years
Machinery and equipment.............................. 3 to 30 years
</TABLE>
Revenue Recognition
Revenue is recognized when title passes to the customer.
Shipping and Handling Costs
Shipping costs, which consist of transportation costs associated with the
delivery of the Company's products to customers, are classified as cost of goods
sold. Handling costs are charged to selling, general and administrative expenses
and include labor and overhead costs related to maintaining finished goods
inventory and operating the Company's remote distribution facilities. Handling
costs incurred in 2000, 1999 and 1998 were $3,175,000, $2,616,000 and
$2,711,000, respectively.
Cost of Start-Up Activities
Effective January 1, 1999, the Company adopted Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities," issued by the American
Institute of Certified Public Accountants. This Statement requires that costs
related to start-up activities, including organization costs, be expensed as
incurred. The Company's policy has always been to expense the costs of start-up
operations. Start-up costs for 2000, 1999 and 1998 represent labor, materials
and utilities expended in bringing installed equipment to normal operating
conditions at the Company's new production facility in McIntyre, Georgia. The
Company incurred no start-up costs beyond the first quarter of 2000.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Research and Development Costs
Research and development costs are charged to operations when incurred and
are included in selling, general and administrative expenses. The amounts
incurred in 2000, 1999 and 1998 were $676,000, $703,000 and $81,000,
respectively.
Stock Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation" (Statement 123),
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
F-7
<PAGE> 24
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BANK BORROWINGS
Under the terms of an unsecured revolving credit agreement with a bank,
dated December 31, 2000, the Company may borrow up to $10.0 million through
December 31, 2003, with the option of choosing either the bank's fluctuating
Base Rate or LIBOR Fixed Rate (as defined in the credit agreement). At December
31, 2000 the unused portion of the credit facility was $10.0 million. The credit
agreement requires the Company to maintain certain financial ratios. The terms
of the credit agreement further provide for certain affirmative and negative
covenants, including a restriction on capital expenditures. The Company was in
compliance with these covenants at December 31, 2000. Commitment fees are
payable quarterly at the annual rate of three-eighths of one percent of the
unused line of credit.
3. LEASES
The Company leases railroad equipment under operating leases. Minimum
future rental payments due under non-cancelable operating leases with remaining
terms in excess of one year as of December 31, 2000 are as follows ($ in
thousands):
<TABLE>
<S> <C>
2001....................................................... $ 652
2002....................................................... 451
2003....................................................... 368
2004....................................................... 335
2005....................................................... 52
------
Total............................................ $1,858
======
</TABLE>
Leases generally provide for renewal options for periods from one to five
years at their fair rental value at the time of renewal. In the normal course of
business, operating leases are generally renewed or replaced by other leases.
Rent expense for all operating leases was $1,560,000 in 2000, $1,168,000 in
1999, and $800,000 in 1998.
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities as of December 31 are as
follows:
<TABLE>
<CAPTION>
2000 1999
------- -------
($ IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Employee benefits........................................... $ 152 $ 200
Inventories................................................. 523 457
Other....................................................... 156 30
------ ------
Total deferred tax assets......................... 831 687
------ ------
Deferred tax liabilities:
Depreciation................................................ 9,749 6,007
Other....................................................... 118 116
------ ------
Total deferred tax liabilities.................... 9,867 6,123
------ ------
Net deferred tax liabilities...................... $9,036 $5,436
====== ======
</TABLE>
F-8
<PAGE> 25
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
------ ------ -------
($ IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $4,450 $2,285 $10,596
State................................................... 545 238 1,247
------ ------ -------
Total current................................... 4,995 2,523 11,843
------ ------ -------
Deferred:
Federal................................................. 3,208 2,695 784
State................................................... 392 241 92
------ ------ -------
Total deferred.................................. 3,600 2,936 876
------ ------ -------
$8,595 $5,459 $12,719
====== ====== =======
</TABLE>
The reconciliation of income taxes computed at the U.S. statutory tax rate
to the Company's income tax expense is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------- ---------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------- -------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
U.S. statutory rate............. $8,199 35.0% $5,592 35.0% $11,715 35.0%
State income taxes, net of
federal tax benefit........... 937 4.0 479 3.0 1,339 4.0
Foreign sales corporation
benefit and other............. (541) (2.3) (612) (3.8) (335) (1.0)
------ ---- ------ ---- ------- ----
$8,595 36.7% $5,459 34.2% $12,719 38.0%
====== ==== ====== ==== ======= ====
</TABLE>
5. SHAREHOLDERS' EQUITY
Common Stock
Holders of Common Stock are entitled to one vote per share on all matters
to be voted on by shareholders and do not have cumulative voting rights. Subject
to preferences of any Preferred Stock that may be issued in the future, the
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared from time to time by the Board of Directors out of funds
legally available for that purpose. In the event of liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
distribution rights of Preferred Stock, if any, then outstanding. The Common
Stock has no preemptive or conversion rights or other subscription rights. There
are no redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable.
On January 8, 2001, the Board of Directors declared a cash dividend of
$0.075 per share. The dividend is payable on February 15, 2001 to shareholders
of record on January 31, 2001.
Preferred Stock
The Company's charter authorizes the issuance of 5,000 shares of Preferred
Stock. The Board of Directors has the authority to issue the Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the Company's shareholders. No shares of
F-9
<PAGE> 26
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock are currently outstanding, and the Company has no present plans
to issue any shares of Preferred Stock.
6. STOCK OPTION PLAN
The Company's 1996 Stock Option Plan for Key Employees (the "Option Plan")
has authorized the grant of options to purchase an aggregate of 1,000,000 shares
of the Company's Common Stock to certain officers and key employees of the
Company chosen by a committee appointed by the Board of Directors (the
"Compensation Committee") to administer such plan. Under the Option Plan, all
options granted have 10-year terms, and conditions relating to the vesting and
exercise of options are determined by the Compensation Committee for each
option. Options granted under the Option Plan are "non-statutory options"
(options which do not afford income tax benefits to recipients, but the exercise
of which may provide tax deductions for the Company). Each option will have an
exercise price per share equal to the fair market value of a share of Common
Stock on the date of grant and no individual employee may be granted options to
purchase more than an aggregate of 500,000 shares of Common Stock. The options
vest annually over a four-year period.
Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for 2000, 1999 and 1998, respectively: risk-free interest rates of
5.00%, 6.40% and 4.44%; a dividend yield of 1.0%; volatility factors of the
expected market price of the Company's Common Stock of .509, .464 and .452; and
a weighted-average expected life of the option of 5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options (net of related expected tax benefits) is amortized to expense over the
options' vesting period. The Company's pro forma information follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income:
As reported......................................... $14,830 $10,512 $20,708
======= ======= =======
Pro forma including the effect of options........... $14,133 $ 9,498 $19,793
======= ======= =======
Basic earnings per share:
As reported......................................... $ 1.01 $ 0.72 $ 1.42
======= ======= =======
Pro forma including the effect of options........... $ 0.96 $ 0.65 $ 1.36
======= ======= =======
Diluted earnings per share:
As reported......................................... $ 1.00 $ 0.71 $ 1.40
======= ======= =======
Pro forma including the effect of options........... $ 0.95 $ 0.65 $ 1.34
======= ======= =======
</TABLE>
F-10
<PAGE> 27
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Company's stock option activity, and related information
for the years ended December 31 follows:
<TABLE>
<CAPTION>
2000 1999 1998
-------------------------- -------------------------- --------------------------
OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE OPTIONS WEIGHTED-AVERAGE
(000) EXERCISE PRICE (000) EXERCISE PRICE (000) EXERCISE PRICE
------- ---------------- ------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning
of year................ 925 $20 895 $20 850 $20
Granted.................. 20 23 30 24 45 26
Exercised................ 97 17 -- --
Forfeited................ 30 29 -- --
------ ------ ------
Outstanding -- end of
year................... 818 $21 925 $20 895 $20
====== ====== ======
Exercisable at end of
year................... 704 $20 579 $19 355 $19
Weighted-average fair
value of options
granted during the
year................... $10.63 $10.93 $10.96
</TABLE>
Following is a summary of the status of fixed options outstanding at
December 31, 2000:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
- ------------------------------------------------------- --------------------------
EXERCISE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
PRICE OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
RANGE (000) CONTRACTUAL LIFE PRICE (000) PRICE
- -------- ------- ---------------- ---------------- ------- ----------------
<S> <C> <C> <C> <C> <C>
$17-24 668 6 years $18 596 $17
32-35 150 7 years 33 108 32
--- ---
818 21 704 20
=== ===
</TABLE>
7. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Numerator for basic and diluted earnings per
share:
Net income.................................. $ 14,830 $ 10,512 $ 20,708
Denominator:
Denominator for basic earnings per share --
weighted average shares.................. 14,655,679 14,602,000 14,602,000
Effect of dilutive securities:
Employee stock options (See Note 6)...... 170,624 109,865 168,709
----------- ----------- -----------
Dilutive potential common shares............ 170,624 109,865 168,709
----------- ----------- -----------
Denominator for diluted earnings per share--
adjusted weighted-average shares......... 14,826,303 14,711,865 14,770,709
=========== =========== ===========
Basic earnings per share...................... $ 1.01 $ 0.72 $ 1.42
=========== =========== ===========
Diluted earnings per share.................... $ 1.00 $ 0.71 $ 1.40
=========== =========== ===========
</TABLE>
F-11
<PAGE> 28
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. QUARTERLY OPERATING RESULTS -- (UNAUDITED)
Quarterly results of operations for the years ended December 31, 2000 and
1999 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED,
-----------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
2000
Revenues................................. $22,101 $21,998 $25,269 $23,956
Gross profit............................. 6,747 9,080 10,302 9,432
Net income............................... 2,462 3,825 4,355 4,188
Earnings per share
Basic.................................. $ 0.17 $ 0.26 $ 0.30 $ 0.28
Diluted................................ $ 0.17 $ 0.26 $ 0.29 $ 0.28
1999
Revenues................................. $20,078 $15,404 $16,888 $17,368
Gross profit............................. 10,002 6,978 6,021 5,019
Net income............................... 4,099 2,528 2,472 1,413
Earnings per share:
Basic.................................. $ 0.28 $ 0.17 $ 0.17 $ 0.10
Diluted................................ $ 0.28 $ 0.17 $ 0.17 $ 0.10
</TABLE>
Quarterly data may not sum to the full year data reported in the Company's
consolidated financial statements due to rounding.
9. SALES TO CUSTOMERS
The following schedule presents the percentages of total revenues related
to the Company's three major customers for the three-year period ended December
31, 2000:
<TABLE>
<CAPTION>
MAJOR CUSTOMERS
------------------
A B C OTHERS TOTAL
---- ---- ---- ------ -----
<S> <C> <C> <C> <C> <C>
2000............................................... 35.4% 22.4% 20.2% 22.0% 100%
1999............................................... 38.7% 30.0% 16.4% 14.9% 100%
1998............................................... 43.4% 26.1% 18.2% 12.3% 100%
</TABLE>
10. INTERNATIONAL SALES
The Company's ceramic proppants are used worldwide by U.S. customers
operating abroad and by foreign customers. Sales outside the United States
accounted for 37%, 39% and 35% of the Company's revenues for 2000, 1999, and
1998, respectively.
<TABLE>
<CAPTION>
2000 1999 1998
----- ----- -----
($ IN MILLIONS)
<S> <C> <C> <C>
Location
United States............................................. $58.9 $42.3 $54.3
International............................................. 34.4 27.4 29.8
----- ----- -----
Total............................................. $93.3 $69.7 $84.1
===== ===== =====
</TABLE>
F-12
<PAGE> 29
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. BENEFIT PLANS
The Company has a defined contribution savings and profit sharing plan
pursuant to Section 401(k) of the Internal Revenue Code. Employees who have
completed one year of service are eligible to participate. Employees may
contribute up to 15% of their monthly compensation.
For employee contributions up to 5% of monthly compensation, the Company
matches the employee contribution at a rate of 50%. Additional contributions by
the Company are discretionary and are determined annually by the Board of
Directors. These discretionary contributions to the plan are allocated to the
participants pro rata based on their respective salary levels.
Benefit costs recognized as expense under this plan consisted of the
following:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
($ IN THOUSANDS)
<S> <C> <C> <C>
Contributions:
Profit sharing............................................ $325 $275 $207
Savings................................................... 191 151 145
---- ---- ----
$516 $426 $352
==== ==== ====
</TABLE>
12. COMMITMENTS
In 1995, the Company entered into an agreement with a supplier to purchase
options to purchase 200,000 tons of green ore for its New Iberia, Louisiana
plant at a specified contract price. All of the green ore purchased by the
Company pursuant to the options will be processed by the supplier at a specified
price. The Company is required to purchase at least 80% of its estimated annual
requirements of processed ore from the supplier until all green ore purchased
pursuant to the options has been processed. The Company anticipates termination
of the agreement by its terms during 2001 and is currently evaluating
alternative sources of supply.
In 1995, the Company entered into an agreement with a supplier to purchase
kaolin for its Eufaula, Alabama plant at a specified contract price. The term of
the agreement is eight years commencing January 1, 1996. Beginning January 1,
1997, the agreement requires the Company to purchase from the supplier at least
80% of the Company's estimated annual requirements of kaolin for its Eufaula
plant.
In 1997, the Company entered into an agreement with a supplier to purchase
kaolin for its McIntyre, Georgia plant at a specified contract price. The term
of the agreement is twenty years commencing on January 1, 1998. The Company has
the right to purchase up to 2.5 million tons of kaolin during the term of the
agreement. The agreement requires the Company to purchase from the supplier at
least 80% of the Company's estimated annual requirements of kaolin for its
McIntyre plant.
The Company was in compliance with the terms of all agreements through
December 31, 2000.
13. EMPLOYMENT AGREEMENTS
The Company has an employment agreement with its current President, which
will expire upon his retirement, scheduled for April 10, 2001. The agreement
provides for an annual base salary and an incentive bonus as defined in the
agreement. In the event the President is terminated without cause prior to April
10, 2001, the Company will be obligated to pay the President two years base
salary and a prorated incentive bonus. In addition, all non-vested stock options
granted to the President will vest immediately and become exercisable. The
agreement also contains a five-year non-competition covenant that would become
effective upon termination for any reason.
The Company has an employment agreement with its Senior Vice President of
Marketing and Technology (President Elect), which becomes effective April 10,
2001. The agreement expires on
F-13
<PAGE> 30
CARBO CERAMICS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 2002. The agreement provides for an annual base salary and an
incentive bonus as defined in the agreement. In the event the President is
terminated without cause prior to December 31, 2002, the Company will be
obligated to pay the President two years base salary and a prorated incentive
bonus. In addition, all non-vested stock options granted to the President will
vest immediately and become exercisable. The agreement also contains a two-year
non-competition covenant that would become effective upon termination for any
reason.
14. LEGAL PROCEEDINGS
The Company is subject to legal proceedings, claims, and litigation arising
in the ordinary course of business. While the outcome of these matters is
currently not determinable, management does not expect that the ultimate costs
to resolve these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations, or cash flows.
F-14
<PAGE> 31
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Certificate of Incorporation of CARBO Ceramics Inc.
(incorporated by reference to exhibit 3.1 to the
registrant's Form S-1 Registration Statement No.
333-1884)
3.2 -- Bylaws of CARBO Ceramics Inc. (incorporated by reference
to exhibit 3.2 to the registrant's Form S-1 Registration
Statement No. 333-1884)
4.1 -- Form of Common Stock Certificate of CARBO Ceramics Inc.
(incorporated by reference to exhibit 4.1 to the
registrant's Form S-1 Registration Statement No.
333-1884)
10.1 -- Second Amended and Restated Credit Agreement dated as of
December 31, 2000, between Brown Brothers Harriman & Co.
and CARBO Ceramics Inc.
10.2 -- Form of Tax Indemnification Agreement between CARBO
Ceramics Inc. and William C. Morris, Robert S. Rubin,
Lewis C. Glucksman, George A. Wiegers, William A.
Griffin, and Jesse P. Orsini (incorporated by reference
to exhibit 10.2 to the registrant's Form S-1 Registration
Statement No. 333-1884)
10.3 -- Form of Employment Agreement between CARBO Ceramics Inc.
and Jesse P. Orsini (incorporated by reference to exhibit
10.4 to the registrant's Form S-1 Registration Statement
No. 333-1884)
10.4 -- Purchase and Sale Agreement dated as of March 31, 1995,
between CARBO Ceramics Inc. and GEO Specialty Chemicals,
Inc., as amended (incorporated by reference to exhibit
10.5 to the registrant's Form S-1 Registration Statement
No. 333-1884)
10.5 -- Raw Material Requirements Agreement dated as of November
21, 1995, between CARBO Ceramics Inc. and C-E Minerals
Inc. (incorporated by reference to exhibit 10.6 to the
registrant's Form S-1 Registration Statement No.
333-1884)
10.6 -- Incentive Compensation Plan (incorporated by reference to
exhibit 10.8 to the registrant's Form S-1 Registration
Statement No. 333-1884)
10.7 -- CARBO Ceramics Inc. 1996 Stock Option Plan for Key
Employees (incorporated by reference to exhibit 10.9 to
the registrant's Form S-1 Registration Statement No.
333-1884)
10.8 -- Form of Stock Option Award Agreement (incorporated by
reference to exhibit 10.10 to the registrant's Form S-1
Registration Statement No. 333-1884)
10.9 -- Raw Material Supply Agreement dated as of November 18,
1997 between CARBO Ceramics Inc. and Arcilla Mining and
Land Co. (incorporated by reference to exhibit 10.9 to
the registrant's Form 10-K Annual Report for the year
ended December 31, 1997)
10.10 -- Amendment to Employment Agreement between CARBO Ceramics
Inc. and Jesse P. Orsini (incorporated by reference to
exhibit 10.10 to the registrant's Form 10-K Annual Report
for the year ended December 31, 1999)
10.11 -- Form of Employment Agreement between CARBO Ceramics Inc.
and C. Mark Pearson
23.1 -- Consent of Ernst & Young LLP
</TABLE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>2
<FILENAME>d84697ex10-1.txt
<DESCRIPTION>SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<TEXT>
<PAGE> 1
EXHIBIT 10.1
U.S. $10,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of December 31, 2000
Between
CARBO CERAMICS INC.
as Borrower
and
BROWN BROTHERS HARRIMAN & CO.
as Lender
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE I
DEFINITIONS............................. 3
SECTION 1.01. Definitions.............................................. 3
SECTION 1.02. Accounting and Other Terms............................... 8
ARTICLE II
AMOUNT AND TERMS OF THE COMMITMENT.................. 8
SECTION 2.01. The Commitment........................................... 8
SECTION 2.02. Making the Advances...................................... 9
SECTION 2.03. Commitment Fee........................................... 9
SECTION 2.04. Optional Termination of the Commitment................... 9
SECTION 2.05. Selection of Interest Options............................ 10
SECTION 2.06. Interest Rate Options.................................... 13
SECTION 2.07. Special Provisions for LIBOR Rate Advances............... 15
SECTION 2.08. Prepayments.............................................. 17
SECTION 2.09. Indemnity and Release.................................... 17
SECTION 2.10. Payments and Computations................................ 18
SECTION 2.11. Evidence of Debt......................................... 19
ARTICLE III
CONDITIONS OF LENDING........................ 19
SECTION 3.01. Condition Precedent to Initial Advance................... 19
SECTION 3.02. Conditions Precedent to All Advances..................... 21
ARTICLE IV
REPRESENTATIONS AND WARRANTIES.................. 22
SECTION 4.01. Representations and Warranties........................... 22
ARTICLE V
COVENANTS OF THE BORROWER....................... 25
SECTION 5.01. Affirmative Covenants.................................... 25
SECTION 5.02. Negative Covenants....................................... 30
ARTICLE VI
EVENTS OF DEFAULT.......................... 31
SECTION 6.01. Events of Default........................................ 31
ARTICLE VII
MISCELLANEOUS............................ 35
SECTION 7.01. Amendments, Etc.......................................... 35
SECTION 7.02. Notices, Etc............................................. 35
SECTION 7.03. No Waiver; Remedies...................................... 35
SECTION 7.04. Costs, Expenses, and Taxes............................... 36
SECTION 7.05. Right of Set-off......................................... 36
SECTION 7.06. Binding Effect........................................... 37
SECTION 7.07. Governing Law............................................ 37
SECTION 7.08. Merger of Agreements..................................... 38
</TABLE>
<PAGE> 3
Schedule I - Litigation
Schedule II - Permitted Liens
Exhibit A - Promissory Note
Exhibit B - Rollover Notice
Exhibit C - No-Default Certificate
<PAGE> 4
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of December 31, 2000
This Second Amended and Restated Credit Agreement is made and effective
as of December 31, 2000, by and between CARBO CERAMICS INC., a Delaware
corporation (the "Borrower"), and BROWN BROTHERS HARRIMAN & CO., a New York
limited partnership (the "Lender").
WITNESSETH:
WHEREAS, the Lender and the Borrower entered into a First Amended and
Restated Credit Agreement dated February 12, 1998, as amended by a First
Amendment dated as of March 31, 1999, a Second Amendment dated as of December
31, 1999, and a Third Amendment dated as of March 31, 2000 (as so amended, the
"Credit Agreement"), pursuant to which the Lender committed, among other things,
to make loans, advances, and other credit facilities available to the Borrower;
WHEREAS, the parties desire to amend and restate the Credit Agreement
in its entirety, as hereinafter set forth;
NOW, THEREFORE, in consideration of the foregoing, for other valuable
consideration hereby acknowledged, and subject to the other terms and conditions
hereof, the Lender and the Borrower agree that the Credit Agreement shall be and
is hereby amended and restated in its entirety, effective the date hereof, as
follows:
<PAGE> 5
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. As used in this Agreement, the following
terms shall have the respective meanings indicated below (such meanings to be
applicable equally to both the singular and plural forms of such terms).
"Adjusted LIBOR Rate" means, an interest rate per annum (rounded
upwards, if necessary, to the next higher 1/100 of 1%) equal to the quotient
obtained by dividing (a) the LIBOR Rate for such LIBOR Interest Period by (b) a
percentage equal to one hundred percent (100%) minus the Eurodollar Reserve
Percentage applicable during such LIBOR Interest Period (or, if more than one
Eurodollar Reserve Percentage is so applicable, minus the daily average of such
Eurodollar Reserve Percentage for those days in such LIBOR Interest Period
during which any such Eurodollar Reserve Percentage may be so applicable).
"Advance" shall mean a disbursement by the Lender to or for the benefit
of the Borrower, all as set forth in Section 2.01 hereof.
"Agreement" means this Second Amended and Restated Credit Agreement,
and all amendments, modifications, and supplements thereto.
"Applicable Contract Rate" means either the Base Rate or the LIBOR
Fixed Rate, whichever is in effect during the particular time period in question
pursuant to the provisions of this Agreement.
"Authorized Officer" means, with respect to any act to be performed or
duty to be discharged by any entity which is not an individual, any officer or
other representative thereof then authorized to perform such act or discharge
such duty.
"Base Rate" means a fluctuating rate per annum which shall be equal to
one-half of one percent (.50%) below the rate of interest established by the
Lender in New York, New York, from
3
<PAGE> 6
time to time as the Lender's base rate of interest charged by the Lender to
commercial borrowers in the United States of America.
"Base Rate Advance" means an Advance during such time as it bears
interest, from time to time, at the Base Rate pursuant to the provisions of this
Agreement.
"Business Day" means any day other than a Saturday, Sunday, or a public
holiday or the equivalent for banks generally under the laws of the State of New
York.
"Closing Date" means the date first shown herein, as of which this
Agreement is executed and effective.
"Commitment" has the meaning set forth for such term in Section 2.01
hereof.
"Consequential Loss" means, with respect to the Borrower's payment or
prepayment of the principal sum of a LIBOR Rate Advance on a day other than the
last day of the Interest Period applicable to such LIBOR Rate Advance, any loss
or expense incurred by the Lender in redepositing such principal sum, including,
without limitation, the sum of (a) the interest which, but for such payment, the
Lender would have earned at the applicable LIBOR Fixed Rate, in respect of such
LIBOR Rate Advance so paid or prepaid, for the remainder of the LIBOR Interest
Period; reduced, if the Lender is reasonably able to redeposit such principal
sum so paid for the balance of such LIBOR Interest Period in a New York City
bank, by the interest earned by the Lender as a result of so redepositing such
principal sum, plus (b) any expense or penalty incurred by the Lender in
redepositing the principal sum of such LIBOR Rate Advance.
"Conversion Date" has the meaning specified in Section 2.06(c)(2)
hereof.
"Conversion Option" has the meaning specified in Section 2.06(c)(2)
hereof.
4
<PAGE> 7
"EBITDA" means the Borrower's earnings before deduction of interest,
taxes, depreciation, and amortization.
"Employee Plan" means an employee benefit plan or other plan covered by
Title IV of ERISA and maintained in whole or in part for employees of the
Borrower.
"ERISA" means the Employee Retirement Income Security Act of 1974,
together with the rules and regulations promulgated thereunder, as in effect
from time to time.
"Eurodollar Reserve Percentage" means, as of the date of any
determination, that reserve percentage actually required to be reserved by the
Lender with respect to the Advances, which percentage is applicable during any
LIBOR Interest Period (or if more than one such percentage is so applicable, the
daily average of such percentages for those days in such LIBOR Interest Period
during which any such percentage shall be applicable) under the regulations
issued, from time to time, by the Board of Governors of the Federal Reserve
System (or other governmental authority having jurisdiction with regard thereto
or any successor), for determining the maximum reserve requirements (including,
without limitation, basic, supplemental, transitional, emergency, or marginal
reserve requirements) for the Lender in respect to liabilities or assets
consisting of, or including, "Eurocurrency liabilities" as defined in Regulation
D. It shall be assumed, for purposes of computing reserve costs hereunder, that
the making and maintaining of the LIBOR Rate Advances have been accomplished by
the Lender through the Lender's principal office in New York City, New York.
"Event of Default" means any of the events set forth in Section 6.01
hereof.
5
<PAGE> 8
"Fixed Charges" means, for any applicable period specified in Section
5.01(c) hereof, the aggregate of the Borrower's interest expense, lease expense,
principal payments, dividends and anticipated annual maintenance capital
expenditures of $4,000,000.
"Increased Costs" shall have the meaning specified in Section 2.07(b)
hereof.
"Indebtedness" means (i) all indebtedness or other obligations for
borrowed money or for the deferred purchase price of property or services, (ii)
all indebtedness or other obligations of another person for borrowed money, the
deferred purchase price of property or services (except for accounts payable by
the Borrower which have been incurred by the Borrower in the ordinary course of
its business), or otherwise, the payment or collection of which the Borrower has
guaranteed or in respect of which the Borrower has any direct or contingent
liability which is reportable on the Borrower's financial statements in
accordance with generally accepted accounting principles, (iii) all lease
obligations that, in accordance with generally accepted accounting principles
consistently applied, have been or should be capitalized on the books of the
lessee and, for purposes hereof, the amount of such obligation shall be the
capitalized amount thereof determined in accordance with such principles, and
(iv) any equity or other interest which, by its terms, is convertible into a
debt instrument.
"Interest Payment Date" means, as to either a Base Rate Advance or a
LIBOR Rate Advance, the first (1st) day of each calendar month during the term
of the Commitment.
"Interest Rate Option" has the meaning specified in Section 2.06(a)
hereof.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.
6
<PAGE> 9
"LIBOR Fixed Rate" means, during the applicable LIBOR Interest Period
for a LIBOR Rate Advance, an interest rate per annum which shall be equal to the
sum of (a) the LIBOR Rate Margin plus (b) the Adjusted LIBOR Rate for such LIBOR
Interest Period.
"LIBOR Interest Period" means, with respect to a LIBOR Rate Advance, a
period commencing on the date specified by notice from the Borrower to the
Lender and ending on (but excluding) the date which is 30, 60, or 90 days
thereafter, as the Borrower shall elect.
"LIBOR Rate" during each applicable LIBOR Interest Period for a LIBOR
Rate Advance, means an interest rate equal to the rate of interest per annum at
which U.S. dollar deposits are offered by the Lender to prime banks in the
London interbank market at 10:00 a.m. (London time) two Business Days prior to
the first (1st) day of such LIBOR Interest Period for a period equal to such
LIBOR Interest Period.
"LIBOR Rate Advance" means an Advance during such time as it bears
interest, from time to time, at the LIBOR Fixed Rate pursuant to the provisions
of this Agreement.
"LIBOR Rate Margin" means three-quarters of one percent (.75%) per
annum.
"Loan Documents" means this Agreement, the Note, and all amendments,
modifications, and supplements thereto.
"Maximum Rate" means the maximum rate of interest, if any, from time to
time permitted under federal or Texas laws applicable to the indebtedness
evidenced hereby.
"No-Default Certificate" means a certificate by an authorized officer
of the Borrower, substantially in the form of Exhibit C hereto.
"Note" has the meaning set forth for such term in Section 2.11 hereof.
7
<PAGE> 10
"Prohibited Transaction" has the meaning specified therefor in Section
4975 of the Internal Revenue Code or Title I of ERISA.
"Regulation D" means Regulation D of the Board of Governors of the
Federal Reserve System, as from time to time in effect, and shall include any
successor or other regulation relating to reserve requirements applicable to
member banks of the Federal Reserve System.
"Reportable Event" has the meaning specified therefor in Title IV of
ERISA.
"Rollover Notice" means a notice in the form of Exhibit B hereto.
"Termination Date" means December 31, 2003; provided, however, that
such date may be extended by mutual consent for additional one-year periods;
provided further, however, if so extended, such extended date may be shortened
during any such one-year period to the end of any calendar quarter within such
one-year period, beginning March 31, 2004, upon not less than thirty (30) days
prior written notice from either party to the other party.
SECTION 1.02. Accounting and Other Terms. All accounting terms used in
this Agreement which are not otherwise defined herein shall be construed in
accordance with generally accepted accounting principles consistently applied
unless otherwise expressly stated herein.
ARTICLE II
AMOUNT AND TERMS OF THE COMMITMENT
SECTION 2.01. The Commitment. The Lender agrees, on the terms and
conditions hereinafter set forth, to make Advances to the Borrower in an
aggregate principal amount not to exceed Ten Million Dollars ($10,000,000), as
such commitment may be terminated pursuant to Section 2.04 hereof (the
"Commitment"). Such Advances shall
8
<PAGE> 11
be made from time to time on any Business Day during the period from the Closing
Date to the Termination Date. Each Advance shall be in an amount not less than
$1,000 or an integral multiple thereof, except that an Advance may be in an
amount equal to the entire unused Commitment. Within the limits of the
Commitment, the Borrower may borrow, prepay pursuant to Section 2.08, and
reborrow under this Section 2.01.
SECTION 2.02. Making the Advances. Each Advance shall be made on the
same day the Borrower has given notice to the Lender, provided the Lender has
received such notice by 12:00 p.m. (New York City time) on such date. Such
notice shall be by telephone and shall be promptly confirmed by the Borrower in
writing. All such notices shall specify the date and amount thereof. Upon
fulfillment by the Borrower of the applicable conditions set forth in Article
III, the Lender will make such Advance available to the Borrower in immediately
available funds at the Lender's office at 59 Wall Street, New York, New York
10005.
SECTION 2.03. Commitment Fee. The Borrower agrees to pay to the Lender
a commitment fee on the average daily unused portion of the Commitment from the
Closing Date until the Termination Date at the rate of three-eighths (3/8) of
one percent (1%) per annum, payable quarterly in arrears on the last Business
Day of each fiscal quarter of the Borrower for the then-ending fiscal quarter of
the Borrower in each year during such period, commencing March 31, 2001, and
ending on the Termination Date.
SECTION 2.04. Optional Termination of the Commitment. The Borrower
shall have the right, upon (i) at least thirty (30) days' notice to the Lender
prior to the end of each fiscal quarter of the Borrower after the first
anniversary of the Closing Date, and (ii) full repayment of all sums, both
principal and accrued interest, then outstanding, to terminate the Commitment in
whole, but not in part. Simultaneously with any termination of the Commitment
under this Section, the Borrower
9
<PAGE> 12
shall pay to the Lender the commitment fee earned through the Termination Date
on the amount of the Commitment so terminated.
SECTION 2.05. Selection of Interest Options. Subject to Section 2.06,
and provided that no Event of Default shall have occurred and is continuing, the
outstanding principal balance of each Advance shall bear interest at the LIBOR
Fixed Rate or the Base Rate, in accordance with the following:
(a) Interest on a Base Rate Advance. A Base Rate Advance shall
bear interest on the unpaid principal balance thereof, from time to
time outstanding, at a fluctuating interest rate per annum which shall,
from day to day, be equal to the lesser of either: (1) the Base Rate;
or (2) the Maximum Rate. Each change in either the Base Rate or the
Maximum Rate (or any component of the Base Rate or the Maximum Rate) as
the case may be, shall become effective, without notice to the Borrower
(which notice is hereby expressly waived by the Borrower), on the date
of each change in either of such interest rates (or any component of
any of such interest rates).
(b) Interest on a LIBOR Rate Advance. A LIBOR Rate Advance
shall bear interest, during each LIBOR Interest Period applicable
thereto, on the unpaid principal balance thereof, from time to time
outstanding, at an interest rate per annum which shall, from day to
day, be equal to the lesser of either: (1) the applicable LIBOR Fixed
Rate; or (2) the Maximum Rate. Each change in the Maximum Rate or any
component of the Maximum Rate, as the case may be, shall become
effective, without notice to the Borrower (which notice is hereby
expressly waived by the Borrower) on the date of each change in such
interest rate or any component of such interest rate.
10
<PAGE> 13
(c) Advance Deemed To Be Base Rate Advance. Unless the
Borrower selects the LIBOR Fixed Rate as the Applicable Contract Rate
with regard to an Advance, as provided for in this Article II, such
Advance shall be deemed to be a Base Rate Advance for the purpose of
computing interest thereon pursuant to this Agreement.
(d) Interest Recoupment. If, at any time, the Applicable
Contract Rate then in effect shall exceed the Maximum Rate, thereby
causing the Applicable Contract Rate to be limited to the Maximum Rate,
any subsequent reductions in the Applicable Contract Rate shall not
reduce the Applicable Contract Rate below the Maximum Rate until the
total amount of interest accrued on the unpaid principal balance of the
Advances from time to time outstanding during the term thereof, equals
the amount of interest which would have accrued thereon if the various
Applicable Contract Rates which are applicable to the unpaid principal
balances of the Advances from time to time outstanding during the term
of this Agreement, had at all times been in effect without the
limitation of the Maximum Rate.
(e) Final Interest Payment. If on the date of the final
payment of all Advances (whether on the Termination Date or otherwise),
the total amount of interest actually paid, or accrued, under the
provisions of the Loan Documents is less than the total amount of
interest which would have accrued if the various Applicable Contract
Rates had at all times been applicable to the principal balance of the
Advances, from time to time outstanding, during the term of this
Agreement, the Borrower agrees to pay, to the extent permitted by
applicable law, to the Lender an amount equal to the difference
between: (1) the lesser of either (A) the amount of interest which
would have accrued on the Advances if the Maximum Rate had at all times
been in effect, or (B) the amount of interest which would
11
<PAGE> 14
have accrued on the Advances if the various Applicable Contract Rates
had at all times been in effect without the limitation of the Maximum
Rate; and (2) the amount of interest which has actually accrued or been
paid on the Advances through the date of such final payment in
accordance with the provisions of the Loan Documents.
(f) Interest After Maturity of the Advances. All delinquent
payments of principal and/or interest on the Advances shall bear
interest at a fluctuating rate per annum equal to the Base Rate plus
four percent (4%) from the date due until paid.
(g) Interest Payment Dates. Interest on the aggregate
principal balance of the Advances from time to time outstanding shall
be payable as it accrues on each Interest Payment Date, beginning with
the Interest Payment Date following the Closing Date, and continuing on
each Interest Payment Date thereafter, until the maturity thereof.
(h) Payment on Business Day. If any payment of principal or
interest to be made on the Advances shall become due on a day other
than a Business Day, such payment may be made on the next succeeding
Business Day (unless the result of such extension of time would be to
extend the date for such payment into another calendar month, beyond
the maturity date of the Advances or beyond the expiration of the
applicable LIBOR Interest Period, in such event, said payment shall be
made on the Business Day immediately preceding the day on which such
payment would otherwise have been due) and such extension of time shall
in such case be included in computing of interest, if any, in
connection with such payment.
(i) Additional Amounts Payable Upon Prepayments or Other
Payments of LIBOR Rate Advances. If any LIBOR Rate Advance is to be
prepaid, or if the Borrower
12
<PAGE> 15
makes any principal payments with respect to any such LIBOR Rate
Advance on any date other than the last day of the LIBOR Interest
Period for such LIBOR Rate Advance, the Borrower shall reimburse the
Lender, on demand, for all Consequential Loss and Increased Costs
incurred by Lender, plus all accrued, but unpaid, interest on the
amount so prepaid to such prepayment or payment date, together with any
other amounts owing to the Lender in connection with such prepayment or
payment pursuant to the terms of this Agreement or any of the other
Loan Documents. All prepayments (whether optional or otherwise) made
pursuant to this Agreement shall be applied first to accrued, but
unpaid, interest and then to principal. A certificate of the Lender
setting forth the amount of any such loss or cost shall, in the absence
of manifest error or bad faith, be final, binding, and conclusive for
all purposes. Any conversion of any LIBOR Rate Advance to a Base Rate
Advance on a day other than on the last day of the applicable LIBOR
Interest Period shall be deemed a principal prepayment for the purpose
of this Subsection 2.05(i).
SECTION 2.06 Interest Rate Options.
(a) Interest Rate Options. Subject to the provisions of this
Section 2.06, and provided that no Event of Default has occurred and is
continuing, the Borrower shall have the option of having an Advance
bear interest at the Base Rate or the LIBOR Fixed Rate (an "Interest
Rate Option"); provided, however, that (i) the Borrower may not have
more than three (3) Interest Rate Options which select the LIBOR Fixed
Rate for the Advances in effect at any one time and (ii) no Interest
Rate Option which selects the LIBOR Fixed Rate for any portion of the
Advances shall be for an amount less than the principal amount of
$2,000,000 plus an integral multiple of $100,000.
13
<PAGE> 16
(b) Changes in Interest Rate Options. Each change in Interest
Rate Options made pursuant to this Section 2.06 shall, for all purposes
of this Agreement, be deemed both a payment of the Base Rate Advance or
LIBOR Rate Advance, whichever is applicable, from which such change was
made and a borrowing (notwithstanding that the aggregate unpaid
principal of the Advances is not thereby changed) of the Base Rate
Advance or LIBOR Rate Advance, whichever is applicable, into which such
Advance is converted.
(c) Selection of Interest Rate Options. The Borrower may
select an Interest Rate Option by giving the Lender a Rollover Notice
in accordance with the provisions of subsections (1) or (2) below, as
applicable, which notice shall specify a LIBOR Interest Period;
provided, however, that (i) any LIBOR Interest Period which would
otherwise end on a day which is not a Business Day shall be extended to
the next succeeding Business Day, unless the result of such extension
would be to extend such LIBOR Interest Period into another calendar
month, in which event such LIBOR Interest Period shall end on the
immediately preceding Business Day; (ii) any LIBOR Interest Period that
begins on the last Business Day of a calendar month shall end on the
last Business Day of a calendar month; (iii) any LIBOR Interest Period
which begins on a day for which there is no numerically corresponding
day in the calendar month at the end of such LIBOR Interest Period
shall end on the last Business Day of such calendar month; (iv) the
length of each LIBOR Interest Period selected by the Borrower shall be
irrevocable for the period so selected; and (v) no LIBOR Interest
Period shall extend beyond the Termination Date.
(1) Selection at Expiration of LIBOR Interest Period.
Before the termination of any LIBOR Interest Period, and
provided that no Event of Default has
14
<PAGE> 17
occurred and is continuing, the Borrower shall give the Lender
a Rollover Notice specifying the Interest Rate Option which
shall be applicable to such LIBOR Rate Advance upon the
expiration of such LIBOR Interest Period. Such Rollover Notice
shall be given to the Lender at least three (3) Business Days
before the termination of such LIBOR Interest Period. If the
Borrower shall specify the LIBOR Fixed Rate, such Rollover
Notice shall also specify the length of the succeeding LIBOR
Interest Period selected by the Borrower. Each Rollover Notice
shall be irrevocable and effective upon receipt thereof by the
Lender. If the required Rollover Notice shall not have been
timely received by the Lender as herein provided before
expiration of the then relevant LIBOR Interest Period, the
applicable LIBOR Rate Advance shall be automatically converted
to a Base Rate Advance on the last day of the then current
LIBOR Interest Period for such LIBOR Rate Advance.
(2) Conversion Option. With respect to Base Rate
Advances, and provided no Event of Default has occurred and is
continuing, the Borrower shall have the option ("Conversion
Option"), on any Business Day ("Conversion Date"), to convert
from the Base Rate to the LIBOR Fixed Rate by giving the
Lender a Rollover Notice specifying such Conversion Option at
least three (3) Business Days prior to such Conversion Date.
SECTION 2.07 Special Provisions for LIBOR Rate Advances.
(a) Unavailability, Illegality, or Inadequacy of the LIBOR
Fixed Rate. If at any time the Lender determines (which determination
shall, for all purposes, be final, conclusive, and binding on the
Borrower) that: (1) the Lender is unable, or that it has become
unlawful
15
<PAGE> 18
for the Lender to obtain, or cause to be obtained, funds in the London
interbank market in order to make, fund, or maintain the principal
balances of any LIBOR Rate Advances during any applicable LIBOR
Interest Period; or (2) the LIBOR Fixed Rate will not adequately and
fairly reflect the cost to the Lender of making, maintaining, or
funding LIBOR Rate Advances for such LIBOR Interest Period, the Lender
shall so notify the Borrower by telephone or telex (to be confirmed in
writing) of such determination, whereupon, until the Lender notifies
the Borrower that the circumstances which have given rise to such
notice no longer exist, (A) the obligation of the Lender to provide the
LIBOR Fixed Rate with respect to such LIBOR Rate Advances shall be
suspended, and (B) such LIBOR Rate Advances shall be made, continued
as, or converted to Base Rate Advances.
(b) Increased Costs. If due either to: (1) the introduction
of, or any change (including, without limitation, any change by way of
any imposition or increase of reserve requirements) in the
interpretation of, any law or regulation, including, without
limitation, Regulation D or (2) the compliance by the Lender with any
guideline or request from any central bank or other governmental
authority (whether or not having the force of law), there shall be any
increase in the cost to the Lender of agreeing to make, fund, or
maintain the LIBOR Rate Advances (such costs being herein collectively
called "Increased Costs"), the Borrower shall, from time to time, upon
demand by the Lender, pay to the Lender, such additional amounts as are
sufficient to indemnify the Lender against such Increased Costs. Absent
manifest error, a certificate as to the amount of such Increased Costs,
submitted to the Borrower by the Lender shall, for all purposes, be
final, conclusive, and binding on the Borrower. It shall be assumed for
purposes of computing Increased Costs, that the making
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and maintaining of LIBOR Rate Advances has been by the Lender's
principal office in New York City, New York.
(c) Indemnity. Without prejudice to any other provisions of
this Agreement or any of the other Loan Documents, the Borrower shall
indemnify the Lender against any loss or expense which the Lender (or
its branches, subsidiaries, affiliates, or partners) may sustain or
incur as a consequence of any Event of Default by the Borrower in
making any payment when due of any amount due hereunder or in making
any scheduled borrowing hereunder with respect to any LIBOR Rate
Advance, including, without limitation, any loss of profit, premium or
penalty incurred by the Lender (or its branches, subsidiaries,
affiliates, or partners) in respect of funds borrowed by the Lender (or
its branches, subsidiaries, affiliates, or partners), for the purpose
of maintaining such LIBOR Rate Advance, as determined by the Lender in
the exercise of its sole, but reasonable, discretion. Absent manifest
error, a certificate as to any such loss or expense submitted by the
Lender to the Borrower shall, for all purposes, be final, conclusive,
and binding on the Borrower.
SECTION 2.08. Prepayments. The Borrower shall have the right to prepay
any principal amount of any Advance, in whole or in part, subject to the
requirements of Sections 2.05(i) and 2.09, but otherwise without premium or
penalty; provided, however, that each such partial prepayment shall be in an
integral multiple of $1,000, except that a prepayment may be in an amount equal
to the entire outstanding principal balance of all Advances.
SECTION 2.09. Indemnity and Release. The Borrower shall indemnify the
Lender against any loss or expense which the Lender may sustain or incur as a
consequence of any failure by the Borrower to fulfill on the date of any Advance
hereunder the applicable conditions set forth
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in Article III, any default in payment or prepayment of the principal amount of
any Advance or any part thereof or interest accrued thereon, as and when due and
payable (at the due date thereof, by irrevocable notice of prepayment, or
otherwise), or the occurrence of any Event of Default. By its execution hereof,
the Borrower hereby certifies to the Lender that as of the date hereof, (i) all
representations and warranties heretofore made by it under any credit agreement,
promissory note or other instrument or document related thereto which are
amended by or which relate to this Agreement are true in all material respects,
(ii) the Borrower does not have or claim to have any offset, counterclaim, or
defense to any of its obligations under any of such prior instruments or
documents, and (iii) in consideration of and to induce the Lender's agreement to
the terms of this Agreement, the Borrower, for itself and its successors and
assigns, does hereby RELEASE, ACQUIT, and FOREVER DISCHARGE the Lender, its
partners, officers, employees, agents, attorneys, other representatives and all
other persons, (collectively, the "Indemnitees") who might be liable, from any
and all claims, demands, liabilities, and causes of action of whatsoever nature,
whether in contract or in tort, or arising under or by virtue of any statute,
rule, regulation, or other laws, for all losses and damages, including but not
limited to exemplary and punitive damages, that have accrued or may ever accrue
to the Borrower and its successors and assigns, and which arise out of, result
from, or are caused by any act or omission of any one or more of the Indemnitees
on or prior to the date hereof in connection with the Loan Documents, or any
matter or thing in connection therewith or related thereto. The Lender shall use
its best efforts to mitigate any loss and to reduce any expense for which it is
being indemnified pursuant to this Section.
SECTION 2.10. Payments and Computations. (a) The Borrower shall make
each payment hereunder and under the Note not later than 12:00 noon (New York
City time) on the day
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when due in lawful money of the United States of America to the Lender for the
account of Borrower at the Lender's office at 59 Wall Street, New York, New York
10005, in same day funds.
(b) The Borrower hereby authorizes the Lender, if and to the
extent payment for interest, principal, or fees is not made when due
hereunder or under the Note, to charge from time to time against any of
the Borrower's accounts with the Lender any amount so due.
(c) Except to the extent the result would cause an interest
rate to exceed the Maximum Rate, all computations of interest and of
commitment fees hereunder shall be made by the Lender on the basis of a
year of 360 days for the actual number of days (including the first day
but excluding the last day) occurring in the period for which such
interest or commitment fee is payable.
SECTION 2.11. Evidence of Debt. The indebtedness of the Borrower
resulting from all Advances made from time to time shall be evidenced by a
promissory note of the Borrower, in substantially the form of Exhibit A hereto
(the "Note"), delivered to the Lender pursuant to Article III.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Condition Precedent to Initial Advance. The obligation of
the Lender to make its initial Advance is subject to the fulfillment, in a
manner satisfactory to the Lender, of each of the following conditions
precedent:
(a) The making of the Commitment shall not contravene any law,
rule, or regulation applicable to the Lender.
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(b) No material adverse change in the condition or operations,
financial or otherwise, of the Borrower, as reasonably determined by
the Lender, shall have occurred and be continuing since the date of the
latest audited financial statements of the Borrower provided to the
Lender, the representations and warranties contained in Section 4.01
shall be true and correct, and no event shall have occurred and be
continuing, or would result from such Advance, which constitutes or
could constitute an Event of Default, as set forth in a certificate
from an Authorized Officer of the Borrower dated as of the Closing
Date.
(c) The Lender shall have received the following, in form and
substance satisfactory to the Lender:
(i) the Note, duly executed by the Borrower;
(ii) a copy of the resolutions of the Borrower's
Board of Directors, certified as of the Closing Date by an
Authorized Officer thereof, authorizing (A) the transactions
contemplated by the Loan Documents to which the Borrower is a
party and (B) the execution, delivery, and performance by the
Borrower of the Loan Documents;
(iii) a certificate, dated as of the Closing Date, of
an Authorized Officer of the Borrower, certifying the names
and genuine signatures of the officers of the Borrower
authorized to sign on behalf of the Borrower the Loan
Documents and the other documents to be executed and delivered
by the Borrower in connection herewith, together with evidence
of the incumbency of such Authorized Officer;
(iv) a copy of the Articles of Incorporation of the
Borrower, recently certified by the Secretary of State of the
State of Delaware;
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(v) a copy of the By-laws of the Borrower, certified
as of the Closing Date by an Authorized Officer;
(vi) Certificates of Existence and Good Standing of
the Borrower, issued by the appropriate government officials
of the State of Delaware, the State of Texas and any other
applicable jurisdiction, together with any other evidence
satisfactory to the Lender that the Borrower has been duly
formed, is validly existing and in good standing under the
laws of the State of Delaware and has been duly qualified to
do business and is in good standing under the laws of the
State of Texas and each other jurisdiction where the Borrower
does business;
(vii) a favorable written opinion of Thompson &
Knight, LLP, counsel to the Borrower, dated the Closing Date,
as to such matters as the Lender may reasonably request; and
(viii) payment of a closing fee of $7,500.
SECTION 3.02. Conditions Precedent to All Advances. The obligation of
the Lender to make each Advance shall be subject to the further conditions
precedent that, on the date of such Advance (a) the Lender shall have received a
notice of such Advance as required by Section 2.02 hereof, (b) the following
statements shall be true, and by making or sending any such notice of an
Advance, the Borrower shall be deemed to have made the following statements to
the Lender as of the date on which such notice is made or sent to the Lender:
(i) The representations and warranties contained in
Section 4.01 are true and correct on and as of the date of
such Advance as though made on and as of such date, and
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(ii) No event has occurred and is continuing, or
would result from such Advance, which constitutes an Event of
Default; and
(c) the Lender shall have received such other approvals, opinions, or documents
as the Lender may reasonably request.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties. The Borrower represents
and warrants as follows:
(a) The Borrower is a corporation duly organized and validly
existing under the laws of the State of Delaware. The Borrower is duly
qualified to do business and in good standing in the States of Texas,
Louisiana, Alabama, Georgia and every other jurisdiction in which the
transaction of any material portion of its business (as now conducted
and as currently contemplated) makes such qualification necessary.
(b) The execution, delivery, and performance by the Borrower
of each Loan Document is within the Borrower's powers, has been duly
authorized by all necessary action, does not contravene (i) the
Borrower's charter or by-laws or (ii) any law or governmental
regulation or contractual restriction binding on or affecting the
Borrower or any of its properties, and does not result in or require
the creation of any lien, security interest, or other charge or
encumbrance upon or with respect to any of its properties.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body
is required for the due execution,
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delivery, and performance by the Borrower of any Loan Document to which
it is or will be a party.
(d) This Agreement is, and each Loan Document to which the
Borrower will be a party when delivered hereunder, will be the legal,
valid, and binding obligations of the Borrower, legally enforceable
against the Borrower in accordance with their respective terms.
(e) Except as set forth on Schedule I hereto, there is no
action, suit, or proceeding pending or threatened against or otherwise
affecting the Borrower before any court, arbitrator, or governmental
department, commission, board, bureau, agency, or instrumentality,
which may materially adversely affect the condition or operations,
financial or otherwise, of the Borrower or the ability of the Borrower
to perform its obligations under the Loan Documents.
(f) The financial statements of the Borrower heretofore
provided to the Lender by the Borrower fairly present the financial
condition of the Borrower as at the respective dates thereof, and the
results of operations of the Borrower for the fiscal periods ended on
such respective dates, all in accordance with generally accepted
accounting principles consistently applied, subject to changes
resulting from normal year-end audit adjustments, and, since December
31, 1999, there has been no material adverse change in such condition
or operations.
(g) The Borrower is not engaged in the business of extending
credit for the purpose of purchasing, carrying, or trading in
securities (within the meaning of Regulation T issued by the Board of
Governors of the Federal Reserve System), and no proceeds of any
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Advance will be used to purchase, carry, or trade in any such
securities or to extend credit to others for the purpose of purchasing,
carrying, or trading in any such securities.
(h) All federal, state, and local tax returns and other
material reports required by applicable law to be filed by the Borrower
have been filed, and except with respect to any taxes, assessments, or
other governmental charges being contested in good faith by the
Borrower, all taxes, assessments, and other governmental charges
imposed upon the Borrower or any of its properties which have become
due and payable on or prior to the date hereof have been paid.
(i) Each Employee Plan, if any, of the Borrower has satisfied
the minimum funding standards under the Internal Revenue Code and ERISA
applicable thereto, and no Employee Plan, if any, has an accumulated
funding deficiency thereunder. The Borrower has not incurred any
liability under ERISA to the Pension Benefit Guaranty Corporation with
respect to any Employee Plan, and no Reportable Event or other event
has occurred which could constitute grounds for the termination of any
Employee Plan by the Pension Benefit Guaranty Corporation or the
appointment of a trustee to administer any Employee Plan. The Borrower
has not participated in any Prohibited Transaction with respect to any
Employee Plan or trust created thereunder, and the consummation of the
transactions contemplated hereby will not involve any Prohibited
Transaction. The Borrower is not in the process of terminating any
Employee Plan, which could result in the creation of any material
liability for the Borrower.
(j) The Borrower has not violated its charter or by-laws or
any law, governmental regulation, order, judgment, or any agreement or
instrument binding on or affecting it or any
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of its properties in such a manner so as to result in a material
adverse change to the condition or operations, financial or otherwise,
of the Borrower.
(k) Except as set forth on Schedule II hereto, and except as
may be created by statute, all of the real property owned by the
Borrower, including any and all real property leasehold interests, is
free and clear of all liens, security interests, and other charges and
encumbrances.
(l) The Borrower has not made a material misstatement of or
failed to disclose a material fact to the Lender at any time during the
course of the negotiations related to this Agreement or in connection
with the Advances.
(m) No proceeds of any Advance will be used to acquire any
security in any transaction which is subject to Sections 13 and 14 of
the Securities Exchange Act of 1934. All proceeds of the Advances will
be used for general corporate and working capital purposes.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any principal of or
interest on the Note shall remain unpaid or the Lender shall have any Commitment
hereunder, the Borrower will, unless the Lender shall otherwise consent in
writing:
(a) Current Ratio. Maintain a ratio of its current assets to
its current liabilities of not less than 2.5 to 1.0.
(b) Minimum Tangible Net Worth. Maintain an amount of tangible
net worth of at least $95,000,000 at all times during its fiscal year
2001, and cause the amount of such
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capital to increase in each fiscal year thereafter by at least fifty
percent (50%) of its net income in the immediately preceding fiscal
year.
(c) Earnings Ratio. Maintain a ratio of its EBITDA to its
Fixed Charges greater than 2.5 to 1.0 calculated quarterly on a rolling
four (4) quarter basis for the four (4) quarters immediately preceding
the date of such calculation.
(d) Ratio of Debt to Worth. Maintain a ratio of its total
Indebtedness to its tangible net worth of less than 0.5 to 1.0.
(e) Capital Expenditures. Maintain its level of capital
expenditures in any fiscal year at a level not more than one-half the
amount of its EBITDA for the preceding fiscal year.
(f) Reporting Requirements. Furnish to the Lender:
(i) as soon as available and in any event within 45
days after the end of each quarter of each fiscal year of the
Borrower, (A) unaudited financial statements (including a
balance sheet, income statement, and statement of cash flows)
of the Borrower as of the end of such quarter, in reasonable
detail, prepared in accordance with generally accepted
accounting principles consistently applied and duly certified
by the Treasurer of the Borrower as (1) fairly presenting the
financial condition of the Borrower at the end of such quarter
and the results of the operations of the Borrower for such
period (subject to changes resulting from normal year-end
audit adjustments) and (2) having been prepared in accordance
with generally accepted accounting principles consistently
applied, together with a No-Default Certificate of such
officer and (B) a copy of SEC Form 10-Q, as filed by the
Borrower with the Securities and
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Exchange Commission for such quarter, unless such SEC Form
10-Q is filed with the Securities and Exchange Commission by
means of the EDGAR electronic filing system;
(ii) as soon as available and in any event within 90
days after the end of each fiscal year of the Borrower, (A)
audited financial statements (including a balance sheet,
income statement, and statement of cash flows) of the Borrower
for such fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting principles
consistently applied, accompanied by a report and opinion,
based on an end-of-year review, each in form and substance
reasonably satisfactory to the Lender, of a public accounting
firm reasonably satisfactory to the Lender, together with a
No-Default Certificate and (B) a copy of SEC Form 10-K, as
filed by the Borrower with the Securities and Exchange
Commission for such fiscal year, unless such SEC Form 10-K is
filed with the Securities and Exchange Commission by means of
the EDGAR electronic filing system;
(iii) as soon as possible and in any event within
five (5) days after the occurrence of each Event of Default or
event which, with the giving of notice or the lapse of time or
both, would constitute an Event of Default, and which is
continuing on the date of such statement, the statement of the
Treasurer or the President of the Borrower setting forth the
details of such Event of Default or event and the action which
the Borrower proposes to take with respect thereto;
(iv) promptly after the filing or receipt thereof,
copies of all reports and notices, if any, which the Borrower
either (A) files in respect of any Employee Plan
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under the Internal Revenue Code or ERISA with the Internal
Revenue Service, the Pension Benefit Guaranty Corporation or
the U.S. Department of Labor, or which the Borrower receives
from any agency thereof, (B) furnishes to any holders of any
Indebtedness of the Borrower, or (C) files with the Securities
and Exchange Commission on SEC Form 8-K, if any of the
information therein could form the basis of, or any dispute
referred to therein which, if determined adversely to the
Borrower, could constitute or give rise to, an Event of
Default or an event which, with the giving of notice or the
lapse of time or both, would constitute an Event of Default;
(v) within five Business Days after the knowledge of
the Borrower of the commencement thereof, notice of each
action, suit, or proceeding before any court, arbitrator, or
governmental department, commission, board, bureau, agency, or
instrumentality involving a claim which may materially
adversely affect the condition or operations, financial or
otherwise, of the Borrower;
(vi) as soon as available and in any event within 45
days after the end of each fiscal quarter of the Borrower, a
quarterly summary setting forth any contingent liability
(including but not limited to any liability as a guarantor,
surety, warrantor, or account party to a letter of credit)
incurred, assumed, or created during such period and any
material joint venture or partnership entered into by the
Borrower; and
(vii) promptly upon request, such other information
concerning the condition or operations, financial or
otherwise, as the Lender may from time to time reasonably
request.
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(g) Maintenance of Existence, Compliance with Laws. Etc.
Maintain its legal existence and permits and authority to do business
in all jurisdictions where the nature of its business requires such
permits and authority to be maintained, and comply in all material
respects with all applicable laws, rules, regulations, and orders, such
compliance to include, without limitation, compliance with ERISA and
all applicable laws pertaining to the environment and workers' health
and safety, paying before the same become delinquent all taxes,
assessments, and governmental charges or levies imposed upon it or upon
its income or profits or upon any of its properties, and paying all
lawful claims which if unpaid might become a lien or charge upon any of
its properties, except to the extent any such taxes, assessments,
governmental charges or levies, and claims may be diligently contested
by the Borrower in good faith and by appropriate proceedings, and for
which adequate reserves have been established by the Borrower.
(h) Insurance. (i) Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers to
such extent and against such risks, including fire and other risks
insured against by extended coverage, as is customary with companies
similarly situated and in the same or similar businesses, (ii) maintain
in full force and effect public liability insurance against claims for
personal injury or death or property damage occurring upon, in, about,
or in connection with the use of any properties owned, occupied, or
controlled by the Borrower, in such amount as shall be reasonably
necessary, and (iii) maintain such other insurance as may be required
by law. The amounts and types of insurance coverages and the insurers
issuing such coverages shall be subject to the Lender's approval, which
approval shall not be unreasonably withheld.
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(i) Keeping of Records and Books of Account. Keep adequate
records and books of account, with complete entries made in accordance
with generally accepted accounting principles consistently applied,
reflecting all of its financial transactions.
(j) Inspection Rights. Permit the Lender or any of its
representatives or agents at any reasonable time and from time to time,
upon reasonable notice, to examine and make copies of and abstracts
from its records and books of account, to visit and inspect its
properties and to discuss its affairs, finances, and accounts with any
of the directors or officers thereof, all as the Lender may reasonably
request.
SECTION 5.02. Negative Covenants. So long as any principal of or
interest on the Note shall remain unpaid or the Lender shall have any Commitment
hereunder, the Borrower will not, without the prior written consent of the
Lender:
(a) Liens, Etc. Create or suffer to exist any lien, security
interest, or other charge or encumbrance, or any other type of
preferential arrangement, upon or with respect to any of its
properties, rights, or other assets, whether now owned or hereafter
acquired, other than:
(i) liens existing as of the date hereof, as shown on
Schedule II hereto; and
(ii) such other liens as may be mutually agreed upon
by the Lender and the Borrower from time to time.
(b) Indebtedness. Create, incur, or suffer to exist any
Indebtedness which would cause the ratio of its total Indebtedness to
its tangible net worth to exceed the ratio specified in Section
5.01(d), above.
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(c) Change in Nature of Business. Change the primary nature of
its business from the manufacture of ceramic proppants.
(d) Sales, Etc. of Assets. Sell, assign, lease, or otherwise
dispose of any of its assets, or any part thereof, including its
receivables, except in the ordinary course of business.
(e) Consolidation, Merger, Etc. Consolidate with, merge into,
or acquire any other entity or convey, transfer, or lease its
properties, voting stock, and assets substantially as an entirety to
any person or entity, or permit any entity to consolidate with, merge
into, or acquire the Borrower or convey, transfer, or lease its
properties, voting stock, or assets substantially as an entirety to the
Borrower; provided, however, that the Lender's prior written consent
shall not be required for any such transaction (i) in which the other
party's principal business is the same as or functionally related to
the Borrower's principal business and (ii) which, when combined with
all other such transactions consummated by the Borrower during any one
of its fiscal years does not involve an aggregate payment by the
Borrower of consideration in cash, securities, or otherwise, of more
than $40,000,000; provided further, that nothing in this subsection (e)
shall be deemed to permit the Borrower to incur any Indebtedness not
expressly permitted under subsection (b) of this Section 5.02.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
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(a) The Borrower shall fail to pay any principal amount of, or
interest on, the Note when due; or
(b) Any representation or warranty made by the Borrower (or
any of its officers) under or in connection with any Loan Document
shall prove to have been incorrect in any material respect when made;
or
(c) The Borrower (i) shall fail to perform or observe any
covenant in subsections (c), (d), or (e) of Section 5.02 hereof, or
(ii) shall fail to perform or observe any other term, covenant, or
agreement contained in any Loan Document on its part to be performed or
observed, and which failure continues for a period of fifteen (15) days
or more, or
(d) The Borrower shall (i) fail to pay any Indebtedness,
including all currently existing Indebtedness of the Borrower to the
Lender, but excluding Indebtedness evidenced by the Note, of the
Borrower, when due (whether by scheduled maturity, required prepayment,
acceleration, demand, or otherwise) and such failure shall continue
after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness, or (ii) fail to perform or
observe any term, covenant, or condition on its part to be performed or
observed under any agreement or instrument relating to any such
Indebtedness, when required to be performed or observed, and such
failure shall continue after the applicable grace period, if any,
specified in such agreement or instrument; or any such Indebtedness
shall be declared to be due and payable, or required to be prepaid
(other than by a regularly scheduled required prepayment), prior to the
stated maturity thereof; or
(e) The Borrower shall admit in writing its inability to pay
its debts as they come due, or shall make a general assignment for the
benefit of creditors; or any proceeding shall
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be instituted by or against the Borrower seeking reorganization,
arrangement, adjustment, composition of it or its debts, or any other
relief under any law relating to bankruptcy, insolvency,
reorganization, or relief of debtors, or seeking appointment of a
receiver, trustee, or other similar official for it or for any
substantial part of its property; or the Borrower shall take any action
to authorize any of the actions set forth above in this subsection (e);
or
(f) The Borrower shall receive notice of termination of an
Employee Plan by reason of the occurrence of a Reportable Event; or
(g) The Borrower shall fail to maintain all material licenses,
authorizations, and approvals required to operate its business, which
failure is not cured to the Lender's satisfaction within fifteen (15)
days following the occurrence of such failure; or
(h) The Borrower shall liquidate, dissolve, or take any action
in contemplation thereof, or there shall be any change in the material
terms of Borrower's charter or by-laws without the prior written
consent of the Lender, which consent shall not be unreasonably
withheld; or
(i) The validity or the enforceability of any of the Loan
Documents is contested by the Borrower; or
(j) The entry of a final non-appealable judgment or order
against the Borrower for the payment of money of $1,000,000 or more in
excess of amounts covered by third-party insurance, and such judgment
or order shall continue unsatisfied and in effect for a period of 60
consecutive days; or
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(k) The failure of the persons who were the shareholders of
the Borrower on March 31, 1996 to maintain their beneficial ownership,
in the aggregate, of at least fifty-one percent (51%) of the
outstanding voting stock of the Borrower; or
(l) Any action or proceeding shall be initiated by or against
the Borrower or any of its properties wherein the validity of or the
Borrower's right to use any patent, copyright, trademark, trade secret,
right, permit, license, or any other form of intellectual property
owned or held by the Borrower shall be contested, which action or
proceeding is not diligently prosecuted in good faith by the Borrower
in appropriate proceedings deemed by the Lender to be satisfactory; or
(m) Any event which, in the good-faith judgment of the Lender,
constitutes or could reasonably be expected to constitute or result in
a material adverse change in the financial condition or business
operations of the Borrower;
then, and in any such event, and the continuance thereof, the Lender may, by
notice to the Borrower, (i) declare its obligation to make Advances to be
terminated, whereupon the same shall forthwith terminate, and (ii) declare the
principal balances of all Advances and the Note, all accrued but unpaid interest
thereon, and other amounts properly payable under this Agreement to be forthwith
due and payable, whereupon the principal balances of all Advances and the Note,
all such interest, and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest, or further notice of any kind,
all of which are hereby expressly waived by the Borrower, (iii) take such other
actions as may be permitted under the Loan Documents, and (iv) exercise any and
all other remedies available under applicable law.
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ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendments, Etc. No amendment or waiver of any provision
of the Loan Documents, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
SECTION 7.02. Notices, Etc. Except as otherwise specifically provided
herein, all notices and other communications provided for hereunder shall be in
writing (including telegraphic communication) and mailed or telegraphed or
delivered, if to the Borrower, at its address at 6565 MacArthur Boulevard, Ste.
1050, Irving, Texas 75038-2461, Attention: Mr. Paul G. Vitek; if to the Lender,
at its address at 59 Wall Street, New York, New York 10005, Attention: Credit
Department; or, as to each party, at such other address as shall be designated
by such party in a written notice to the other party. All such notices and
communications shall, when mailed or telegraphed, be effective when deposited in
the mails or delivered to the telegraph company, respectively, addressed as
aforesaid.
SECTION 7.03. No Waiver; Remedies. No failure on the part of the Lender
to exercise, and no delay in exercising, any right under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right under any Loan Document preclude any other or further exercise thereof or
the exercise of any other right. The remedies provided in the Loan Documents are
cumulative and not exclusive of any remedies that may be available to the Lender
35
<PAGE> 38
at law, in equity, or otherwise. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
SECTION 7.04. Costs, Expenses, and Taxes. (a) The Borrower agrees to
pay on demand all costs and expenses reasonably incurred by the Lender in
connection with the preparation, execution, delivery, filing, recording, and
administration of the Loan Documents and the other documents to be delivered
under the Loan Documents, including, without limitation, all fees and
out-of-pocket expenses of counsel for the Lender with respect thereto and with
respect to advising the Lender as to its rights and responsibilities under the
Loan Documents, and all costs and expenses, if any, in connection with the
enforcement of the Loan Documents and the other documents to be delivered under
the Loan Documents. In addition, the Borrower shall pay any and all stamp and
other taxes, excluding taxes imposed on net income and all income and franchise
taxes of the United States and any political subdivisions thereof (all such
non-excluded taxes being herein referred to as "Taxes") and fees, if any,
payable or determined to be payable in connection with the execution and
delivery of the Loan Documents and the other documents to be delivered under the
Loan Documents, and agrees to save the Lender harmless from and against any and
all liabilities with respect to or resulting from any delay by the Borrower in
paying or omission to pay such Taxes and fees.
SECTION 7.05. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Lender is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing by the Lender
to or for the credit or the account of the Borrower against any and all of the
obligations of
36
<PAGE> 39
the Borrower now or hereafter existing under this Agreement and the Note,
irrespective or whether or not the Lender shall have made any demand under this
Agreement or the Note and although such obligations may be unmatured. The Lender
agrees to use its best efforts to notify the Borrower promptly after any such
set-off and application, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the Lender
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) which the Lender may have.
SECTION 7.06. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the Borrower and the Lender, and their respective
successors and assigns, except that the Borrower shall not have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the Lender. The Lender may, with the Borrower's consent, such consent
not to be unreasonably withheld or delayed, assign to one or more banks or
entities all or any part of, or may grant participations to one or more banks or
other entities in or to all or any part of, any Advance or Advances and the
Note, and to the extent of any such assignment or participation (unless
otherwise stated therein), the assignee or participant of such assignment or
participation shall have the same rights and benefits hereunder and under the
Note as it would have if it were the Lender hereunder.
SECTION 7.07. Governing Law. The Loan Documents shall be governed by
and construed in accordance with the laws of the State of Texas, except to the
extent any law, rule, or regulation of the federal government of the United
States of America may be applicable, in which case such federal law, rule, or
regulation shall govern and control; provided that the provisions of Chapter 346
of the Texas Finance Code shall not be applicable to this Agreement.
37
<PAGE> 40
SECTION 7.08 Merger of Agreements. THE LOAN DOCUMENTS REPRESENT THE
FINAL AGREEMENT BETWEEN THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
CARBO CERAMICS INC.
ATTEST:
By:
---------------------------------
Print Name:
---------------------
Title:
--------------------------
per pro BROWN BROTHERS HARRIMAN & CO.
Print Name:
-------------------------
Title:
-------------------------------
38
<PAGE> 41
SCHEDULE I
Litigation
On April 26, 1999, the Company was served with a U.S. federal grand
jury subpoena requesting the production of documents in connection with an
investigation by the Antitrust Division of the U.S. Department of Justice of
possible anti-competitive practices in the proppants industry.
<PAGE> 42
SCHEDULE II
Permitted Liens
The following liens, security interests, and other charges and
encumbrances are expressly permitted under the terms of this Agreement, and the
amounts of such liens, security interests and other charges and encumbrances
described in (a), (b) and (c) below shall not exceed $500,000 in the aggregate
at any time during the term of this Agreement:
(a) Statutory and Good Faith Deposits. (i) Pledges or deposits under
workmen's compensation laws, unemployment insurance laws, the Social Security
Act, or similar legislation, and (ii) deposits to secure public or statutory
obligations of Borrower, surety, customs, appeal, or performance bonds to which
Borrower is a party, or the payment of contested taxes or import duties of
Borrower, each made and maintained in the ordinary course of business;
(b) Statutory Liens. (i) Any lien which is imposed by law, such as
those of carriers, warehousemen, and mechanics, if payment of the obligation
secured thereby is not yet due, or the validity or amount of which is being
contested by appropriate legal proceedings, or (ii) any lien for taxes,
assessments, or other governmental charges of levies not yet subject to
penalties for nonpayment or the validity or amount of which is being contested
by appropriate legal proceedings;
(c) Minor Title Defects. Minor survey exceptions, minor encumbrances,
easements, or reservations of, or rights of others for, sewers, electric lines,
telegraph and telephone lines, rights of way, and other similar purposes, or
zoning or other restrictions as to the use of any real property; provided that
all of the foregoing, in the aggregate, do not at any time materially detract
from the value of said property or materially impair the use of such property in
the operation of the business of Borrower.
(d) Landlord's Liens. Security interests in favor of Cambridge/Las
Colinas Limited Partnership, as lessor, on personal property of the Borrower now
or hereafter attached or affixed to or used in or about the premises leased by
the said lessor to the Borrower, as lessee, at 6565 MacArthur Boulevard, Suite
1050, Irving, Texas 75038-2461.
(e) Equipment. Security interests in (i) a used Caterpillar 938F Wheel
Loader in favor of Thompson Tractor Co., Inc., as described in that certain
UCC-1 Financing Statement filed with the Secretary of State of the State of
Alabama on December 6, 1996, file No. 96-51148 and (ii) a new Caterpillar 928F
Wheel Loader in favor of Thompson Tractor Co., Inc., as described in that
certain UCC-1 Financing Statement filed with the Secretary of State of the State
of Alabama on February 24, 1997, file No. 97-07667.
<PAGE> 43
Exhibit A
REVOLVING CREDIT NOTE
U.S. $10,000,000 Dated: December 31, 2000
FOR VALUE RECEIVED, the undersigned, CARBO CERAMICS INC., a Delaware
corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of BROWN
BROTHERS HARRIMAN & CO., a New York limited partnership (the "Lender") the
principal amount of each Advance made by the Lender to the Borrower pursuant to
the Credit Agreement (as hereinafter defined). All terms not otherwise defined
herein shall have the meanings set forth for such terms in the Credit Agreement.
The Borrower promises to pay interest on the unpaid principal amount of
each Advance from the date of such Advance until such principal amount is paid
in full, at such interest rate, and payable at such times, as are specified in
the Credit Agreement. In no event, however, shall the rate of interest charged
hereunder exceed the Maximum Rate.
All agreements between the Borrower and the Lender, whether now
existing or hereafter arising and whether written for oral, are hereby expressly
limited so that in no event, whether by reason of acceleration of the maturity
hereof or otherwise, shall the amount paid or agreed to be paid to the holder
hereof for the use, forbearance or detention of the money to be loaned hereunder
or otherwise exceed the Maximum Rate. In fulfillment of any provision hereof or
of any loan agreement or other document evidencing or securing the loan
evidenced by this Note, at the time performance of such provision shall be due,
shall involve transcending the limit of validity prescribed by law, then, ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
validity; and if the holder of this Note shall ever receive anything of value
deemed to be interest under applicable law which would exceed interest at the
Maximum Rate, an amount equal to any such excessive interest shall be applied to
the reduction of the principal amount owing hereunder and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance of principal
hereof, such excess shall be refunded to the Borrower. All sums paid or agreed
to be paid to the holder hereof for the use, forbearance, or detention of the
indebtedness of the Borrower to the Lender shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full term of such indebtedness until payment in full so that the rate of
interest of account of such indebtedness is uniform throughout the term thereof.
The provisions of this paragraph shall control all agreements between the
Borrower and the Lender.
Both principal and interest are payable for the account of Borrower in
lawful money of the United States of America to the Lender at its offices at 59
Wall Street, New York, New York 10005, in same day funds. Each Advance made by
the Lender to the Borrower and the maturity thereof, and all payments made on
account of principal hereof, shall be recorded by the Lender and, prior to any
transfer hereof, either endorsed on the grid attached hereto which is part of
this Promissory Note or maintained in comparable form within the Lender's
internal books and records (which may be electronic).
<PAGE> 44
The Borrower hereby affirms and certifies to the Lender that the
obligation evidenced by this note was not and will not be incurred for the
purposes of purchasing, carrying, or trading in securities, as defined in
Regulation T of the Board of Governors of the Federal Reserve System.
This Promissory Note is the Note referred to in, and is entitled to the
benefits of, the Second Amended and Restated Credit Agreement dated as of
December 31, 2000 (the "Credit Agreement") between the Borrower and the Lender.
The Credit Agreement, among other things, (i) provides for the making of
advances (the "Advances") by the Lender to the Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
Advance being evidenced by this Promissory Note, and (ii) contains provisions
for acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.
This Promissory Note shall be governed by and construed in accordance
with the laws of the State of Texas, except to the extent any law, rule, or
regulation of the federal government of the United States of America may be
applicable, in which case such federal law, rule, or regulation shall govern and
control; provided that the provisions of Chapter 346 of the Texas Finance Code
shall not be applicable to this Promissory Note.
CARBO CERAMICS INC.
ATTEST:
By:
-------------------------------
Print Name:
-------------------
Title:
------------------------
<PAGE> 45
ADVANCES AND PAYMENTS OF PRINCIPAL
<TABLE>
<CAPTION>
Amount of Unpaid
Amount of Principal Principal Notations
Date Advance Payment Balance Made By
- ---- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
</TABLE>
<PAGE> 46
Exhibit C
NO DEFAULT CERTIFICATE
Pursuant to Section 5.01(f) of that certain Second Amended and Restated
Credit Agreement dated as of December 31, 2000 (the "Credit Agreement"), between
Carbo Ceramics Inc. (the "Borrower") and Brown Brothers Harriman & Co. (the
"Lender"), the undersigned, being the Treasurer of the Borrower, hereby
certifies to the Lender as follows:
1. On and as of the date hereof, no event has occurred which
constitutes an Event of Default under the Credit Agreement or which, with the
giving of notice or the lapse of time or both, would constitute an Event of
Default under the Credit Agreement.
2. As of the Borrower's fiscal quarter ended September 30, 2000, the
following statements were true:
(a) The ratio of the Borrower's current assets to its
current liabilities was 5.29 to 1.0.
(b) The Borrower's tangible net worth was $103,054,000.
(c) The ratio of the Borrower's EBITDA to its Fixed
Charges, for the four (4) quarters ending on
September 30, 200 was 3.18 to 1.0.
(d) The ratio of the Borrower's total Indebtedness to its
tangible net worth was N/A to 1.0.
3. The amount of capital expenditures to the date hereof in the
Borrower's current fiscal year is $1,075,000. The amount of the Borrower's
EBITDA for the immediately preceding fiscal year was $20,895,000.
All initially capitalized terms herein have the same meanings as set
forth in the Credit Agreement.
IN WITNESS WHEREOF, this instrument is executed by the undersigned as
of December 29, 2000.
, Treasurer
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.11
<SEQUENCE>3
<FILENAME>d84697ex10-11.txt
<DESCRIPTION>FORM OF EMPLOYMENT AGREEMENT - C MARK PEARSON
<TEXT>
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement"), made as of this ____ day of
January, 2001, by and between C. Mark Pearson, residing at
____________________________ (the "Executive"), and Carbo Ceramics Inc., a
Delaware corporation (the "Company").
WITNESSETH
WHEREAS, the Company wishes to employ the Executive as President and
Chief Executive Officer of the Company and the Executive wishes to serve the
Company in such capacity.
NOW, THEREFORE, in consideration of the conditions and covenants set
forth herein, it is agreed as follows:
1. Employment, Duties and Agreements.
(a) The Company hereby employs the Executive, and the Executive hereby
agrees to be employed by the Company during the Term, as the Company's President
and Chief Executive Officer on the terms and conditions set forth herein. "Term"
shall mean the period commencing on April 10, 2001 (the "Effective Date") and
ending on December 31, 2002 (the "Scheduled Termination Date"); provided, that
the Term may be terminated prior to the Scheduled Termination Date in accordance
with Section 3 hereof. Upon the expiration of the Term on the Scheduled
Termination Date, the Executive's employment with the Company shall be at will.
(b) The Executive shall have such responsibilities and duties as the
Board of Directors of the Company (the "Board") may from time to time reasonably
determine consistent with the Executive's position as President and Chief
Executive Officer of the Company. In rendering his services hereunder, the
Executive shall be subject to, and shall act in accordance with, all reasonable
instructions and directions of the Board and all applicable policies and rules
thereof. The Executive shall devote the Executive's full working time to the
performance of the Executive's responsibilities and duties hereunder. During the
Term, the Executive will not, without the prior written consent of the Board,
render services, whether or not compensated, to any other person or entity as an
employee, independent contractor, director or otherwise (other than as a
director of Pinnacle Technologies Inc. and as an adjunct professor at the
Colorado School of Mines); provided, however, that nothing herein shall restrict
the Executive from rendering services to not-for-profit organizations,
including, without limitation, any country club of which he is a member, or
managing the Executive's personal investments during the Executive's non-working
time.
(c) During the Term, the Executive will not engage in any other
business affiliation with respect to any entity, including, without limitation,
the establishment of a proprietorship or the participation in a partnership or
joint venture, or acquire any equity interest in any entity (other than the
Company) if (i) such engagement or ownership would interfere with the full-time
performance of his responsibilities and duties hereunder or (ii) such entity is
<PAGE> 2
engaged in the business of production, supply or distribution of proppants used
in the hydraulic fracturing of natural gas and oil wells. The Executive
represents and warrants that, as of the Effective Date, the Executive will not
be engaged in any such business affiliation and will not own any such equity
interests.
2. Compensation. During the Term, the Executive shall be entitled to
the following compensation.
(a) The Company shall pay the Executive a base salary at the rate of
$200,000 per annum, payable in accordance with the Company's normal payroll
practices ("Base Salary"). The Board shall have the right to review the
Executive's performance and compensation from time to time and may, in its sole
discretion, increase his Base Salary based on such factors as the Board deems
appropriate.
(b) The Executive will be paid an incentive bonus with respect to each
fiscal year during the Term equal to the sum of (i) 0.5% of the Company's
earnings before interest income and expense and taxes for such fiscal year
("EBIT") up to $20,000,000, plus (ii) 1.0% of EBIT in excess of $20,000,000
("Incentive Bonus"). The amount to be paid under this Section 2(b) with respect
to fiscal year 2001 shall be equal to the Incentive Bonus for such fiscal year
(calculated in accordance with the preceding sentence) multiplied by 266/365.
Any such Incentive Bonus shall be paid to the Executive as soon as practicable
and in any event within thirty (30) days after the completion of the audited
financial statements and determination of EBIT for such fiscal year.
(c) The Executive shall be entitled to four (4) weeks of paid vacation
during each calendar year of the Term in accordance with the Company's standard
vacation policy and practices; provided, that with respect to calendar year
2001, the Executive shall be entitled hereunder to paid vacation of four (4)
weeks minus the number of vacation days which he has taken during the period
commencing on January 1, 2001 and ending on the Effective Date. The Executive
shall take vacations only at such times as are consistent with reasonable
business needs of the Company.
(d) The Company shall reimburse the Executive for all reasonable,
ordinary and necessary expenses incurred by the Executive in the performance of
the Executive's duties hereunder, provided that the Executive accounts to the
Company for such expenses in a manner reasonably prescribed by the Company.
(e) The Executive shall be entitled to such benefits and perquisites as
are generally made available to senior executive officers of the Company,
provided that the Executive shall not be eligible to participate in the
Company's Incentive Compensation Plan.
3. Early Termination of the Term. The Term shall terminate prior to the
Scheduled Termination Date upon the occurrence of any of the following events.
(a) The Term and the Executive's employment hereunder shall terminate
upon written notice to the Executive by the Company specifying Disability as the
basis for such termination. In respect of such termination, the Company shall
pay to the Executive (i) within thirty (30) days after such termination, the
Executive's earned but unpaid Base Salary, earned but
2
<PAGE> 3
unused vacation (determined in accordance with the Company's standard vacation
policy and practices) and reimbursement for expenses incurred (in accordance
with Section 2(d) hereof), all as of the date of such termination, and (ii) as
soon as practicable and in any event within thirty (30) days after the
completion of the audited financial statements and determination of EBIT for the
fiscal year in which such termination takes place, an amount equal to the
Incentive Bonus for such fiscal year (calculated in accordance with the first
sentence of Section 2(b)) multiplied by a fraction, the numerator of which is
the number of days in the period commencing on January 1 of the year in which
such termination takes place and ending on the date of such termination
(inclusive) and the denominator of which is 365. The Executive shall not be
entitled to any further compensation or payments hereunder. "Disability" shall
mean a physical or mental impairment of the Executive that (A) qualifies the
Executive for (x) disability benefits under any long-term disability plan
maintained by the Company or (y) Social Security disability benefits or (B) has
prevented or, at the date of determination, will reasonably be likely to
prevent, the Executive from performing the essential functions of his position
for a period of six (6) consecutive months. The existence of a Disability shall
be determined by the Board in its absolute discretion. The Executive agrees to
submit to medical examinations by a licensed medical doctor selected by the
Board to determine whether a Disability exists, as the Board may request from
time to time.
(b) The Company may terminate the Term and the Executive's employment
hereunder for Cause. Termination for Cause shall be effective upon written
notice to the Executive by the Company specifying that such termination is for
Cause. In respect of such termination, the Company shall pay to the Executive,
within thirty (30) days after such termination, the Executive's earned but
unpaid Base Salary, earned but unused vacation (determined in accordance with
the Company's standard vacation policy and practices) and reimbursement for
expenses incurred (in accordance with Section 2(d) hereof), all as of the date
of such termination. The Executive shall not be entitled to any further
compensation or payments hereunder. "Cause" shall mean: (i) any material
violation by the Executive of this Agreement; (ii) any failure by the Executive
substantially to perform his duties hereunder; (iii) any act or omission
involving dishonesty, fraud, willful misconduct or gross negligence on the part
of the Executive that is or may be materially injurious to the Company; and (iv)
any felony or other crime involving moral turpitude committed by the Executive.
If the basis for terminating the Executive's employment for Cause is the result
of a violation or failure described in clause (i) or (ii) of the foregoing
definition of "Cause" and the majority of the Board (excluding the Executive, if
he is a member of the Board) reasonably determines that such violation or
failure is capable of being remedied, the Board shall give the Executive thirty
(30) days' prior written notice of the Company's intent to terminate the
Executive's employment for Cause, which notice shall set forth the violation or
failure forming the basis for the determination to terminate the Executive's
employment for Cause. The Executive shall have the right to remedy such
violation or failure within a reasonable period of time (as determined by the
Board), provided that the Executive begins to take appropriate steps to remedy
such violation or failure within ten (10) days of the date of such written
notice and diligently prosecutes such efforts thereafter. The Term and the
Executive's employment hereunder may not be terminated for Cause unless a
majority of the Board (excluding the Executive, if he is a member of the Board)
finds in good faith that termination for Cause is justified and, if the basis
for terminating the Executive's employment for Cause arises as a result of a
violation or failure described in clause (i) or (ii) of the definition of
"Cause", that the violation or failure has not been remedied within
3
<PAGE> 4
the period of time designated by the Board or that there is no reasonable
prospect that the Executive will remedy the violation or failure forming the
basis for terminating his employment for Cause.
(c) The Term and the Executive's employment hereunder shall terminate
upon the death of the Executive. In respect of such termination, the Company
shall pay to the Executive's estate or any beneficiary previously designated by
the Executive in writing (a "Designated Beneficiary") (i) within thirty (30)
days after such termination, the Executive's earned but unpaid Base Salary,
earned but unused vacation (determined in accordance with the Company's standard
vacation policy and practices) and reimbursement for expenses incurred (in
accordance with Section 2(d) hereof), all as of the date of such termination,
and (ii) as soon as practicable and in any event within thirty (30) days after
the completion of the audited financial statements and determination of EBIT for
the fiscal year in which such termination takes place, an amount equal to the
Incentive Bonus for such fiscal year (calculated in accordance with the first
sentence of Section 2(b)) multiplied by a fraction, the numerator of which is
the number of days in the period commencing on January 1 of the year in which
such termination takes place and ending on the date of such termination
(inclusive) and the denominator of which is 365. The Executive, his estate and
his Designated Beneficiary shall not be entitled to any further compensation or
payments hereunder.
(d) The Company may terminate the Term and the Executive's employment
hereunder at any time without Cause. Such termination without Cause shall be
effective upon written notice to the Executive from the Company of such
termination. In respect of such termination, the Company shall pay to the
Executive (i) within thirty (30) days after such termination, the Executive's
earned but unpaid Base Salary, earned but unused vacation (determined in
accordance with the Company's standard vacation policy and practices) and
reimbursement for expenses incurred (in accordance with Section 2(d) hereof),
all as of the date of such termination, and (ii) as soon as practicable and in
any event within thirty (30) days after the completion of the audited financial
statements and determination of EBIT for the fiscal year in which such
termination takes place, an amount equal to the Incentive Bonus for such fiscal
year (calculated in accordance with the first sentence of Section 2(b))
multiplied by a fraction, the numerator of which is the number of days in the
period commencing on January 1 of the year in which such termination takes place
and ending on the date of such termination (inclusive) and the denominator of
which is 365. In addition, the Company shall continue to pay to the Executive
(or to the Executive's estate or Designated Beneficiary, if the Executive should
die during such two-year period) the Executive's Base Salary (at the level in
effect immediately preceding such termination) for two years following the date
of such termination of employment without Cause in accordance with the Company's
normal payroll practices. The Executive (or his estate or Designated
Beneficiary) shall not be entitled to any further compensation or payments
hereunder. No salary continuation payments made pursuant to this Section 3(d)
will constitute compensation for any purpose under any retirement plan or other
employee benefit plan, program, arrangement or agreement of the Company, and no
period during which such payments are made to the Executive pursuant to this
Section 3(d) shall constitute a period of employment with the Company for any
such purposes. In respect of such termination, all outstanding stock options
granted to the Executive by the Company pursuant to the Carbo Ceramics Inc. 1996
Stock Option Plan for Key Employees (the "Option Plan"), whether or not they
were exercisable at the time of such termination of employment without Cause,
shall become fully and
4
<PAGE> 5
immediately exercisable and shall remain exercisable until the expiration of
thirty (30) days after such termination, on which date they shall expire;
provided, however, that no such stock option shall be exercisable after the
expiration of ten (10) years after the date such stock option was granted to the
Executive.
(e) During the one-year period following a Change in Control of the
Company, the Company may terminate the Term and the Executive's employment
hereunder without Cause or the Executive may voluntarily terminate the Term and
his employment hereunder for Good Reason. Such termination shall be effective
upon written notice to the Executive from the Company or from the Executive to
the Company, as applicable, of such termination. In respect of such termination,
in lieu of all other amounts or benefits to which the Executive would be
entitled pursuant to any other provisions of Section 3 of this Agreement, the
Company shall pay to the Executive, within thirty (30) days after such
termination (i) the Executive's earned but unpaid Base Salary, earned but unused
vacation (determined in accordance with the Company's standard vacation policy
and practices) and reimbursement for expenses incurred (in accordance with
Section 2(d) hereof), all as of the date of such termination, (ii) an amount
equal to the Incentive Bonus with respect to the fiscal year immediately
preceding the fiscal year in which such termination takes place (calculated in
accordance with the first sentence of Section 2(b)) multiplied by a fraction,
the numerator of which is the number of days in the period commencing on January
1 of the year in which such termination takes place and ending on the date of
such termination (inclusive) and the denominator of which is 365 and (iii) an
amount equal to two times the Executive's Base Salary (at the rate in effect as
of the date of such termination). In respect of such termination, all
outstanding stock options granted to the Executive by the Company pursuant to
the Option Plan, whether or not they were exercisable at the time of such
termination of employment, shall become fully and immediately exercisable and
shall remain exercisable until the expiration of thirty (30) days after such
termination, on which date they shall expire; provided, however, that no such
stock option shall be exercisable after the expiration of ten (10) years after
the date such stock option was granted to the Executive.
(f) For purposes of Section 3(e) hereof:
(1) "Change in Control" shall mean (i) the occurrence of a
change in control of the Company of a nature that would be required to
be reported or is reported in response to Item 1 of the current report
on Form 8-K, as in effect on the Effective Date, pursuant to Sections
13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"); or (ii) any "Person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's outstanding securities
(other than any Person who was a "beneficial owner" of securities of
the Company representing 30% or more of the combined voting power of
the Company's outstanding securities prior to the Effective Date); or
(iii) individuals who constitute the Board on the Effective Date (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the members of the Board, provided that any person becoming
a director subsequent to the Effective Date whose appointment to fill a
vacancy or to fill a new Board position was approved by a
5
<PAGE> 6
vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's
shareholders was approved by the same nominating committee serving
under an Incumbent Board, shall be, for purposes of this clause (iii),
considered as though he were a member of the Incumbent Board; or (iv)
the occurrence of any of the following of which the Incumbent Board
does not approve (A) merger or consolidation in which the Company is
not the surviving corporation or (B) sale of all or substantially all
of the assets of the Company; or (v) stockholder approval pursuant to a
proxy statement soliciting proxies from stockholders of the Company, by
someone other than the then current management of the Company, of a
plan of reorganization, merger or consolidation of the Company with one
or more corporations as a result of which the outstanding shares of the
class of securities then subject to the plan of reorganization are
exchanged or converted into cash or property or securities not issued
by the Company.
(2) "Good Reason" shall mean, without the Executive's express
written consent, the occurrence of any one or more of the following:
(i) the assignment of the Executive to duties materially inconsistent
with the Executive's authorities, duties, responsibilities and status
(including offices, titles, and reporting requirements) as an officer
of the Company, or a reduction or alteration in the nature or status of
the Executive's authorities, duties, or responsibilities from those in
effect immediately prior to the Change in Control, including a failure
to reelect the Executive to, or a removal of him from, any office of
the Company that the Executive held immediately prior to the Change in
Control; or (ii) the Company's requiring the Executive to be based at a
location more than 50 miles from Irving, Texas, except for required
travel on the Company's business to an extent substantially consistent
with the Executive's business obligations immediately prior to the
Change in Control; or (iii) the Company materially breaches this
Agreement or any other written agreement with the Executive; or (iv) a
material reduction in the Executive's level of participation in any of
the Company's welfare benefit, retirement or other employee benefit
plans, policies, practices, or arrangements in which the Executive
participates as of the date of the Change in Control.
4. Restrictive Covenants.
(a) The Executive agrees that all information pertaining to the prior,
current or contemplated business of the Company and its corporate affiliates,
and their officers, directors, employees, agents, shareholders and customers
(excluding (i) publicly available information (in substantially the form in
which it is publicly available) unless such information is publicly available by
reason of unauthorized disclosure by the Executive or by any person or entity of
whose intention to make such unauthorized disclosure the Executive is aware and
(ii) information of a general nature not pertaining exclusively to the Company
that generally would be acquired in similar employment with another company)
constitutes a valuable and confidential asset of the Company. Such information
includes, without limitation, information related to trade secrets, customer
lists, production techniques, and financial information of the Company. The
Executive agrees that he shall, during the Term and continuing thereafter, (A)
6
<PAGE> 7
hold all such information in trust and confidence for the Company and its
corporate affiliates, and (B) not use or disclose any such information to any
person, firm, corporation or other entity other than under court order or other
legal or regulatory requirement.
(b) Upon expiration of the Term and continuing for a period ending two
(2) years after the Executive's employment by the Company terminates for any
reason whatsoever, the Executive agrees that the Executive will not, directly or
indirectly, own, manage, operate, control, be employed by (whether as an
employee, consultant, independent contractor or otherwise, and whether or not
for compensation) or render services to any person, firm, corporation or other
entity, in whatever form, engaged in (i) the business of supply or distribution
of proppants used in the hydraulic fracturing of natural gas and oil wells
("Proppants") other than Baker Hughes Inc., BJ Services Company, Schlumberger
Limited, Halliburton Company and OSCA, Inc. or (ii) the business of production
of Proppants.
(c) During the Term and continuing for a period ending twelve (12)
months after the Executive's employment terminates for any reason whatsoever,
the Executive agrees that the Executive will not, directly or indirectly,
individually or on behalf of other persons, solicit, aid or induce (i) then
remaining employees of the Company or its corporate affiliates to leave their
employment with the Company or its corporate affiliates in order to accept
employment with or render services to or with another person, firm, corporation
or other entity, or assist or aid any other person, firm, corporation or other
entity in identifying or hiring such employees or (ii) any customer of the
Company or its corporate affiliates who was a customer of the Company or its
corporate affiliates at any time during which the Executive was actively
employed by the Company to purchase products or services then sold by the
Company or its corporate affiliates from another person, firm, corporation or
other entity, or assist or aid any other person or entity in identifying or
soliciting any such customer.
(d) Prior to agreeing to, or commencing to, act as an employee,
officer, director, trustee, principal, agent or other representative of any type
of business other than as an employee of the Company during the period in which
the non-competition agreement, as described in Section 4(b), applies, the
Executive shall (i) disclose such agreement in writing to the Company and (ii)
disclose to the other entity with which he proposes to act in such capacity, or
to the other principal together with whom he proposes to act as a principal, the
existence of this Agreement, including, in particular, the non-disclosure
agreement contained in Section 4(a), the non-competition agreement contained in
Section 4(b), and the non-solicitation agreement contained in Section 4(c).
(e) With respect to the restrictive covenants set forth in Sections
4(a), 4(b) and 4(c), the Executive acknowledges and agrees as follows.
(i) The specified duration of a restrictive covenant shall be
extended by and for the term of any period during which the Executive
is in violation of such covenant.
(ii) The restrictive covenants are in addition to any rights
the Company may have in law or at equity.
7
<PAGE> 8
(iii) It is impossible to measure in money the damages which
will accrue to the Company in the event that the Executive breaches any
of the restrictive covenants. Therefore, if the Executive breaches any
restrictive covenant, the Company and its corporate affiliates shall be
entitled to an injunction restraining the Executive from violating such
restrictive covenants. If the Company or any of its corporate
affiliates shall institute any action or proceeding to enforce a
restrictive covenant, the Executive hereby waives the claim or defense
that the Company or any of its corporate affiliates has an adequate
remedy at law and the Executive agrees not to assert in any such action
or proceeding the claim or defense that the Company or any of its
corporate affiliates has an adequate remedy at law. The foregoing shall
not prejudice the Company's or its corporate affiliates' right to
require the Executive to account for and pay over to the Company or its
corporate affiliates, and the Executive hereby agrees to account for
and pay over, the compensation, profits, monies, accruals or other
benefits derived or received by the Executive as a result of any
transaction constituting a breach of the restrictive covenants.
(f) The restrictions in this Section 4 shall be in addition to any
restrictions imposed on the Executive by statute or at common law.
5. Arbitration of Disputes.
(a) Any disagreement, dispute, controversy or claim arising out of or
relating to this Agreement or the interpretation or validity hereof shall be
settled exclusively and finally by arbitration. It is specifically understood
and agreed that any disagreement, dispute or controversy which cannot be
resolved between the parties, including without limitation any matter relating
to interpretation of this Agreement, may be submitted to arbitration
irrespective of the magnitude thereof, the amount in controversy or whether such
disagreement, dispute or controversy would otherwise be considered justiciable
or ripe for resolution by a court or arbitral tribunal. Notwithstanding this
Section 5, the Company shall be entitled to institute a court action or
proceeding for injunctive relief as provided in Section 4 of this Agreement.
(b) The arbitration shall be conducted in accordance with the
Commercial Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association ("AAA").
(c) The arbitral tribunal shall consist of one arbitrator. The parties
to the arbitration jointly shall directly appoint such arbitrator within thirty
(30) days of initiation of the arbitration. If the parties shall fail to appoint
such arbitrator as provided above, such arbitrator shall be appointed by the AAA
as provided in the Arbitration Rules and shall be a person who (i) maintains his
principal place of business within thirty (30) miles of the City of Irving,
Texas and (ii) has substantial experience in executive compensation. The parties
shall each pay an equal portion of the fees, if any, and expenses of such
arbitrator.
(d) The arbitration shall be conducted within thirty (30) miles of the
City of Irving, Texas or in such other city in the United States of America as
the parties to the dispute may designate by mutual written consent.
8
<PAGE> 9
(e) At any oral hearing of evidence in connection with the arbitration,
each party thereto or its legal counsel shall have the right to examine its
witnesses and to cross-examine the witnesses of any opposing party. No evidence
of any witness shall be presented unless the opposing party or parties shall
have the opportunity to cross-examine such witness, except as the parties to the
dispute otherwise agree in writing or except under extraordinary circumstances
where the interests of justice require a different procedure.
(f) Any decision or award of the arbitral tribunal shall be final and
binding upon the parties to the arbitration proceeding. The parties hereto
hereby waive to the extent permitted by law any rights to appeal or to seek
review of such award by any court or tribunal.
(g) Nothing herein contained shall be deemed to give the arbitral
tribunal any authority, power, or right to alter, change, amend, modify, add to
or subtract from any of the provisions of this Agreement.
(h) Notwithstanding anything to the contrary in this Agreement, the
arbitration provisions set forth in this Section 5 shall be governed exclusively
by the Federal Arbitration Act, Title 9, United States Code.
6. Miscellaneous.
(a) Each provision hereof is severable from this Agreement, and if one
or more provisions hereof are declared invalid the remaining provisions shall
nevertheless remain in full force and effect. If any provision of this Agreement
is so broad, in scope or duration or otherwise, as to be unenforceable, such
provision shall be interpreted to be only so broad as is enforceable.
(b) Any notice to be given hereunder shall be given in writing. Notice
shall be deemed to be given when delivered by hand to the party to whom notice
is being given, or ten (10) days after being mailed, postage prepaid, registered
with return receipt requested, or sent by facsimile transmission with a
confirmation by registered or certified mail, postage prepaid. Notices to the
Executive should be addressed to the Executive as follows:
C. Mark Pearson
c/o Carbo Ceramics Inc.
6565 MacArthur Boulevard, Suite 1050
Irving, Texas 75039
Notices to the Company should be sent as follows:
Carbo Ceramics Inc.
6565 MacArthur Boulevard, Suite 1050
Irving, Texas 75039
Attn: Secretary
9
<PAGE> 10
with copies sent to:
Cleary Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, NY 10006
Attn: Stephen H. Shalen, Esq.
Either party may change the address or person to whom notices should be
sent to by notifying the other party in accordance with this Section 6(b).
(c) The failure to enforce at any time any of the provisions of this
Agreement or to require at any time performance by the other party of any of the
provisions hereof shall in no way be construed to be a waiver of such provisions
or to affect the validity of this Agreement, or any part hereof, or the right of
either party thereafter to enforce each and every such provision in accordance
with the terms of this Agreement.
(d) This Agreement contains the entire agreement between the parties
with respect to the employment of the Executive by the Company after the
Effective Date and supersedes any and all prior understandings, agreements or
correspondence between the parties regarding such employment. It may not be
amended or extended in any respect except by a writing signed by both parties
hereto.
(e) The parties hereto acknowledge and agree that each party has
reviewed and negotiated the terms and provisions of this Agreement and has
contributed to its preparation (with advice of counsel, if desired).
Accordingly, the rule of construction to the effect that ambiguities are
resolved against the drafting party shall not be employed in the interpretation
of this Agreement. Rather, the terms of this Agreement shall be construed fairly
as to both parties hereto and not in favor of or against either party,
regardless of which party generally was responsible for the preparation of this
Agreement.
(f) This Agreement shall be governed by, and interpreted in accordance
with, the laws of Texas, without reference to its principles of conflict of
laws.
(g) This Agreement shall not be assignable by either party hereto
without the written consent of the other, provided, however, that the Company
may, without the written consent of the Executive, assign this Agreement to (i)
any entity with which the Company is merged or consolidated or to which the
Company transfers substantially all of its assets or (ii) any entity
controlling, under common control with or controlled by the Company.
(h) This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which shall constitute one and the
same instrument.
(i) The headings in this Agreement are inserted for convenience of
reference only and shall not be a part of or control or affect the meaning of
any provision hereof.
10
<PAGE> 11
IN WITNESS WHEREOF, the Company has caused this Agreement to be signed
by its duly authorized representative and the Executive has hereunto set his
hand as of the day and year first above written.
CARBO CERAMICS INC.
By:
-------------------------------
-----------------------------------
C. Mark Pearson
11
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>4
<FILENAME>d84697ex23-1.txt
<DESCRIPTION>CONSENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 no. 33-25845) pertaining to the CARBO Ceramics Inc. 1996 Stock Option Plan
for Key Employees of our report dated February 5, 2001, with respect to the
consolidated financial statements of CARBO Ceramics Inc. included in the Annual
Report on Form 10-K for the year ended December 31, 2000.
New Orleans, Louisiana
March 6, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
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