CARBO CERAMICS INC (Form: 10-K, Received: 02/25/2013 16:57:00)

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

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, 2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No. 001-15903

CARBO Ceramics Inc.

(Exact name of registrant as specified in its charter)

DELAWARE

72-1100013

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification Number)

575 North Dairy Ashford

Suite 300

Houston, Texas 77079

(Address of principal executive offices)

(281) 921-6400

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class		Name of each exchange on which registered
Common Stock, par value $0.01 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The aggregate market value of the Common Stock held by non-affiliates of the Registrant, based upon the closing sale price of the Common Stock on June 30, 2012, as reported on the New York Stock Exchange, was approximately $1,516,456,041. Shares of Common Stock held by each director and executive officer and each person who owns 10% 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 21, 2013, the Registrant had 23,137,201 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for Registrant’s Annual Meeting of Stockholders to be held May 21, 2013, are incorporated by reference in Part III.

TABLE OF CONTENTS


	PART I

Item 1.	Business	1
Item 1A.	Risk Factors	10
Item 1B.	Unresolved Staff Comments	15
Item 2.	Properties	15
Item 3.	Legal Proceedings	16
Item 4.	Mine Safety Disclosure	17

	PART II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6.	Selected Financial Data	20
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 8.	Financial Statements and Supplementary Data	30
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	30
Item 9A.	Controls and Procedures	30
Item 9B.	Other Information	30

	PART III

Item 10.	Directors, Executive Officers and Corporate Governance	31
Item 11.	Executive Compensation	31
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	31
Item 13.	Certain Relationships and Related Transactions, and Director Independence	31
Item 14.	Principal Accounting Fees and Services	31

	PART IV

Item 15.	Exhibits and Financial Statement Schedules	32
Signatures		33
Management’s Report on Internal Control Over Financial Reporting		F-1
Reports of Independent Registered Public Accounting Firm		F-2
Consolidated Financial Statements		F-4

PART I

Item 1.

Business

General

CARBO Ceramics Inc. (the “Company”) is the world’s largest supplier of ceramic proppant and, during 2010, commenced the sale of resin-coated sand in order to broaden its proppant suite of products. The Company is the provider of the industry’s most popular fracture simulation software, and a provider of fracture design and consulting services, and a broad range of technologies for spill prevention, containment and countermeasures. The Company sells the majority of its products and services to operators of oil and natural gas wells and to oilfield service companies to help increase the production rates and the amount of oil and natural gas ultimately recoverable from these wells. The Company’s products and services are primarily used in the hydraulic fracturing of natural gas and oil wells. The Company was incorporated in 1987 in Delaware. As used herein, “Company”, “we”, “our” and “us” may refer to the Company and/or its consolidated subsidiaries.

Hydraulic fracturing is the most widely used method of increasing production from oil and natural 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 proppant, is suspended and transported in the fluid and fills the fracture, “propping” it open once high-pressure pumping stops. The proppant-filled fracture creates a conductive 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 proppant is typically the most expensive. The higher initial cost of ceramic proppant is justified by the fact that the use of these proppants in certain well conditions results in an increase in the production rate of oil and natural gas, an increase in the total oil or natural gas that can be recovered from the well and, consequently, an increase in cash flow for the operators of the well. The increased production rates are primarily attributable to the higher strength and more uniform size and shape of ceramic proppant versus alternative materials.

The Company primarily manufactures five distinct ceramic proppants. CARBO HSP ^® and CARBO PROP ^® are high strength proppants designed primarily for use in deep oil and gas wells. CARBO HSP ^® has the highest strength of any of the ceramic proppants manufactured by the Company and is used primarily in the fracturing of deep oil and gas wells. CARBO PROP ^® is slightly lower in weight and strength than CARBO HSP ^® and was developed for use in deep oil and gas wells that do not require the strength of CARBO HSP ^® .

CARBO LITE ^® , CARBO ECONOPROP ^® and CARBO HYDROPROP ^® are lightweight ceramic proppants. CARBO LITE ^® is used in medium depth oil and gas wells, where the additional strength of ceramic proppant may not be essential, but where higher production rates can be achieved due to the product’s uniform size and spherical shape. CARBO ECONOPROP ^® was introduced to compete directly with sand-based proppant, and CARBO HYDROPROP ^® was introduced in late 2007 to improve performance in “slickwater” fracture treatments.

In addition, the Company manufactures CARBO NRT ^® , a detectable proppant that utilizes a non-radioactive tracer material to assist operators in determining the locations of fractures in a natural gas or oil well. This tracer is incorporated into proppant granules during the manufacturing process, and can be added to any of the types of ceramic proppant that the Company makes.

During the year ended December 31, 2012, the Company generated approximately 77% of its revenues in the United States and 23% in international markets.

The Company also sells fracture simulation software and provides fracture design, engineering and consulting services to oil and natural gas companies worldwide through its wholly-owned subsidiary, StrataGen, Inc. The Company provides a suite of stimulation software solutions to the industry that have marked capabilities for on-site real-time analysis. This has enabled recognition and remediation of potential stimulation problems. This stimulation software is tightly integrated with reservoir simulators, thus allowing for stimulation treatment and production optimization. The Company’s specialized engineering team consults and works with operators around the world to help optimize well placement, fracture treatment design and production stimulation. The broad range of expertise of the Company’s consultants includes: fracture treatment design; completion engineering support; on-site treatment supervision, engineering and quality control; post-treatment evaluation and optimization; reservoir and fracture engineering studies; rock mechanics and software application and training.

Demand for most of the Company’s products and services depends primarily upon the demand for natural gas and oil and on the number of natural gas and oil wells drilled, completed or re-completed worldwide. More specifically, the demand for the Company’s products and services is dependent on the number of oil and natural gas wells that are hydraulically fractured to stimulate production.

The Company also provided a broad range of technologies and products for geotechnical monitoring through its wholly owned subsidiary Applied Geomechanics, Inc. (“AGI”). The AGI business was wound down, and the Company exited this business in late 2012.

Falcon Technologies and Services, Inc. (“Falcon Technologies”), a wholly-owned subsidiary of the Company, provides spill prevention, containment and countermeasure systems for the oil and gas industry. Falcon Technologies uses proprietary technology to provide products that are designed to enable its clients to extend the life of their storage assets, reduce the potential for hydrocarbon spills and provide containment of stored materials.

Competition

As the demand for resin-coated and ceramic proppant continues to be amplified by the large resource plays, the Company expects more entrants into the market for its products. One of the Company’s worldwide proppant competitors is Saint-Gobain Proppants (“Saint-Gobain”). Saint-Gobain is a division of Compagnie de Saint-Gobain, a large French glass and materials company. Saint-Gobain manufactures a variety of ceramic proppants that it markets in competition with each of the Company’s products. Saint-Gobain’s primary manufacturing facility is located in Fort Smith, Arkansas. Saint-Gobain also manufactures ceramic proppant in China. Mineracao Curimbaba (“Curimbaba”), based in Brazil, is also a competitor and manufactures ceramic proppants that it markets in competition with some of the Company’s products. Imerys, S.A., based in France (“Imeyrs”), has begun to manufacture ceramic proppant in the State of Georgia, and is also a competitor of the Company. In addition, Pyramax, LLC is constructing a ceramic proppant plant in the State of Georgia, and may become a competitor of the Company once the plant is completed.

There are two major manufacturers of ceramic proppant in Russia. Borovichi Refractory Plant (“Borovichi”) located in Borovichi, Russia, and FORES Refractory Plant (“FORES”) located in Ekaterinburg, Russia. Although the Company has limited information about Borovichi and FORES, the Company believes that Borovichi primarily manufactures intermediate strength ceramic proppants and markets its products principally within Russia, and that FORES manufactures intermediate strength and lightweight ceramic proppant lines and markets its products both inside and outside of Russia. The Company further believes that these companies have added manufacturing capacity in recent years and now provide a majority of the ceramic proppant used in Russia. The

Company is also aware of an increasing number of manufacturers in China. Most of these companies produce intermediate strength ceramic proppants that are marketed both inside and outside of China. Chinese proppant imports into the United States increased beginning in 2011.

Competition for CARBO HSP ^® and CARBO PROP ^® principally includes ceramic proppant manufactured by Saint-Gobain, Curimbaba and various producers located in China. The Company’s CARBO LITE ^® , CARBO ECONOPROP ^® and CARBO HYDROPROP ^® products compete primarily with ceramic proppant produced by Saint-Gobain, Curimbaba and Imerys and with sand-based proppant for use in the hydraulic fracturing of medium depth natural gas and oil wells. The leading suppliers of mined sand are Unimin Corp., U.S. Silica Company, Badger Mining Corp., Fairmount Minerals Limited, Inc., and Ogelbay-Norton Company. The leading suppliers of resin-coated sand are Momentive Specialty Chemicals (formerly known as Hexion) 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 ceramic proppant 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 good. The Company also believes that its superior technical support has enabled it to persuade customers to use ceramic proppant in an increasingly broad range of applications and thus increased the overall market for the Company’s products. Over the past five years, the Company has increased its manufacturing and resin-coating capacity by nearly 60% and plans to continue its strategy of adding capacity, as needed, to meet anticipated future increases in sales demand.

Product Development

The Company continually conducts testing and development activities with respect to alternative raw materials to be used in the Company’s existing and alternative production methods. More specifically, the Company has developed a new ceramic proppant with increased strength and conductivity when compared to its traditional products. This new product is intended for use in ultra-high stress wells. The Company is currently scaling up its research and development pilot plant for commercial production, and plans to introduce this product before the end of 2013. Accordingly, quantities of this new product are expected to be limited during 2013. The Company continues to evaluate ways in which the technology utilized in this new product development may be applicable to its other product offerings. For information regarding the Company’s research and development expenditures see Note 1 to the “Notes to Consolidated Financial Statements.”

The Company is actively involved in the development of alternative products for use as proppant in the hydraulic fracturing process and is aware of others engaged in similar development activities. The Company believes that while there are potential specialty applications for these products, they will not significantly impact the use of ceramic proppants. The Company believes that the “know-how” and trade secrets necessary to efficiently manufacture a product of consistently high quality are difficult barriers to entry to overcome.

Customers and Marketing

The Company’s largest customers are participants in the petroleum pressure pumping industry. Specifically, Halliburton Energy Services, Inc. and Schlumberger Limited each accounted for more than 10% of the Company’s 2012 and 2011 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 companies to hydraulically fracture wells. The Company works both with the pressure pumping service companies and with the operators of natural gas and oil wells to present the technical and economic advantages of using ceramic proppant. The Company generally supplies its customers with products on a just-in-time basis, as specified in individual purchase orders. Continuing sales of product depend on the Company’s direct customers and the well operators being satisfied with product quality, availability and delivery performance. The Company provides its software simulation products and consulting services directly to owners and/or operators of oil and gas wells and service companies.

The Company recognizes the importance of a technical marketing program in demonstrating long-term economic advantages when selling products and services that offer financial benefits over time. The Company has a broad technical sales force to advise end users on the benefits of using ceramic proppant, resin-coated sand and performing fracture simulation and consultation services.

Although the Company’s initial products were originally intended for use in deep wells that require high-strength proppant, the Company believes that there is economic benefit to well operators of using ceramic proppant in shallower wells that do not necessarily require a high-strength proppant. The Company believes that its new product introductions and education-based technical marketing efforts have allowed it to capture sales in recent years and will continue to do so in the future.

The Company 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 proppant versus alternatives in the hydraulic fracturing of a natural gas or oil well. In addition to the increased technical marketing effort, the Company from time to time engages in field trials to demonstrate the economic benefits of its products and validate the findings of its computer simulations. Periodically, the Company provides proppant to production companies for field trials, on a discounted basis, in exchange for a production company’s agreement to provide production data for direct comparison of the results of fracturing with ceramic proppant as compared to alternative proppants.

The Company’s international marketing efforts are conducted primarily through its sales offices in Dubai, United Arab Emirates; Aberdeen, Scotland; Beijing, China; and Moscow, Russia, and through commissioned sales agents located in South America. The Company’s products and services are used worldwide by U.S. customers operating domestically and abroad, and by foreign customers. Sales outside the United States accounted for 23%, 21% and 23% of the Company’s sales for 2012, 2011 and 2010, respectively. The distribution of the Company’s international and domestic revenues is shown below, based upon the region in which the customer used the products and services:


	For the years ended December 31,
	2012		2011		2010
	($ in millions)
Location
United States	$	500.1	$	495.8	$	365.4
International		145.4		129.9		107.7

Total	$	645.5	$	625.7	$	473.1

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 proppant.

Between 2006 and 2011, the Company, in successive phases, completed construction of four production lines at its manufacturing facility in Toomsboro, Georgia. The stated annual production capacity at this facility is 1.0 billion pounds per year.

During 2010, the Company began production from a resin-coating plant that was built within the existing manufacturing infrastructure of its New Iberia, Louisiana facility. The resin-coating plant is utilized to coat both ceramic proppant manufactured at other Company locations and raw frac sand. A second resin-coating production line at the facility was completed in 2012. The facility also functions as a distribution center.

During 2012, the Company began to utilize its own CARBO Northern White sand in its sand processing facility in Marshfield, Wisconsin. This facility supplies sand to the resin-coating facility in New Iberia.

The following table sets forth the current stated capacity of each of the Company’s existing manufacturing and resin-coating facilities:


Location	Annual Capacity
	(millions of pounds)
Eufaula, Alabama		275
McIntyre, Georgia		275
Toomsboro, Georgia		1,000
Luoyang, China		100
Kopeysk, Russia		100

Total manufacturing capacity		1,750
New Iberia, Louisiana – resin-coating		400	*

Total current capacity		2,150

*	Processing activities at the New Iberia facility involve resin-coating of previously manufactured ceramic proppant substrate and raw frac sand.

In 2011, the Company completed the acquisition of real estate to construct a ceramic proppant plant in the Millen, Georgia area. The Company is moving forward with initial site preparation and construction of the first 250 million pound line and anticipates the Millen plant could commence operation near the end of the first quarter of 2014. Engineering and procurement activities commenced for a 600 million pound per year resin-coating plant in Marshfield, Wisconsin but the Company has deferred construction at this time. The Company will consider resuming construction activities on this resin-coating plant when warranted by market conditions. Additionally, the Company is currently scaling up its research and development pilot plant for commercial production of the new ceramic proppant product that it plans to introduce before the end of 2013. The construction of additional manufacturing capacity beyond these new facilities will be dependent on the expected future demand for the Company’s products and the ability to obtain necessary environmental permits.

The Company generally supplies its domestic pumping service customers with products on a just-in-time basis and operates without any material backlog.

Long-Lived Assets By Geographic Area

Long-lived assets, consisting of net property, plant and equipment, goodwill, intangibles, and other long-term assets as of December 31 in the United States and other countries are as follows:


	2012		2011		2010
	($ in millions)
Long-lived assets:
United States	$	422.3	$	397.5	$	315.5
International (primarily China and Russia)		36.7		40.8		46.4

Total	$	459.0	$	438.3	$	361.9

Distribution

The Company maintains finished goods inventories at each of its manufacturing facilities and at remote stocking facilities. The North American remote stocking facilities consist of bulk storage silos with truck trailer loading facilities, as well as rail yards for direct transloading from rail car to tank trucks. International remote stocking sites are duty-free warehouses operated by independent owners. North American sites are typically supplied by rail, and international sites are typically supplied by container ship. In total, the Company leases

approximately 2,100 rail cars for use in the distribution of its products and expects to add approximately 250 more railcars by the end of 2013. The price of the Company’s products sold for delivery in the lower 48 United States and Canada typically includes just-in-time delivery of proppant to the operator’s well site, which eliminates the need for customers to maintain an inventory of ceramic proppant. The Company expands its distribution network as needed, including rail car additions as well as increasing finished goods storage capacity at stocking locations. During the fourth quarter of 2012, the Company completed an expansion of its distribution facility in South Texas and is targeting completion of an additional distribution center in the Bakken region in the second half of 2013.

Raw Materials

Ceramic proppant is made from alumina-bearing ores (commonly referred to as clay, bauxite, bauxitic clay or kaolin, depending on the alumina content) that are readily available on the world market. Bauxite is largely used in the production of aluminum metal, refractory material and abrasives. The main known deposits of alumina-bearing ores in the United States are in Arkansas, Alabama and Georgia; other economically mineable known deposits are located in Australia, Brazil, China, Gabon, Guyana, India, Jamaica, Russia and Surinam.

For the production of CARBO HSP ^® and CARBO PROP ^® in the United States the Company uses bauxite, and has historically purchased its annual requirements at the seller’s current prices. The Company believes that its ability to purchase bauxite on the open market and current bauxite inventories will sufficiently provide for its bauxite needs in the United States during 2013.

The Company’s Eufaula, McIntyre and Toomsboro facilities primarily use locally mined kaolin for the production of CARBO LITE ^® , CARBO ECONOPROP ^® and CARBOHYDROPROP ^® . The Millen facility, currently under construction, will also use locally mined kaolin in its productions processes. The Company has entered into bi-lateral contracts that require a supplier to sell to the Company, and the Company to purchase from the supplier, at least fifty percent of the Eufaula facility’s and Millen facility’s annual kaolin requirements. The Eufaula contract runs through 2017, with options to extend this agreement for additional three year terms. The Millen contract will begin upon the date in which the plant commences operations and extend for an initial period of five years, with options to extend the agreement for an additional five years. The Company has obtained ownership rights in acreage in Wilkinson County, Georgia, which contains in excess of a fifteen year supply of kaolin for its Georgia facilities at current production rates. The Company has entered into a long-term agreement with a third party to mine and transport this material at a fixed price subject to annual adjustment. The agreement requires the Company to utilize the third party to mine and transport a majority of the McIntyre facility’s annual kaolin requirement.

The Company’s production facility in Luoyang, China, uses both kaolin and bauxite for the production of CARBO PROP ^® and CARBO LITE ^® . Certain of these materials are purchased under a long-term contract that stipulates fixed prices subject to periodic adjustment and provides for minimum purchase requirements.

The Company’s production facility in Kopeysk, Russia currently uses bauxite for the production of CARBO PROP ^® . Bauxite is purchased under annual agreements that stipulate fixed prices for up to a specified quantity of material.

The Company continues to explore options for the purchase of high quality raw materials for its resin-coated sand business. In 2011, the Company secured a five-year contract with a supplier and consummated the purchase of two parcels of property containing sand reserves. During 2012, the Company began to utilize its own CARBO Northern White sand in its sand processing facility in Marshfield, Wisconsin, which supplies the Company’s resin-coating facility in New Iberia, Louisiana.

Ceramic Production Process

Ceramic proppants are made by grinding or dispersing ore to a fine powder, combining the powder into small pellets and firing the pellets in a rotary kiln. The Company uses two different methods to produce ceramic

proppant. The Company’s plants in McIntyre, Georgia; Kopeysk, Russia and Luoyang, China use a dry process, which utilizes clay, bauxite, bauxitic clay or kaolin. The raw material is ground, pelletized and screened. The manufacturing process is completed by firing the product in a rotary kiln.

The Company’s plants in Eufaula, Alabama and Toomsboro, Georgia, use a wet process, which starts with kaolin that is formed into slurry. The slurry is then pelletized in a dryer and the pellets are then fired in a rotary kiln.

The Company’s rotary kilns are primarily heated by the use of natural gas.

Patent Protection and Intellectual Property

The Company makes ceramic proppant and ceramic media used in foundry and scouring processes (the latter two items comprising a minimal volume of overall sales) by processes and techniques that involve a high degree of proprietary technology, some of which is protected by patents.

The Company owns multiple patents in the United States and various foreign countries that relate to different types of ceramic proppant and production methods used for ceramic proppant and media; however, production of products pursuant to these patents does not currently constitute a material portion of the Company’s output. The Company also owns multiple U.S. and foreign patents that relate to methods for the detection of subterranean fractures.

The Company owns multiple U.S. patent applications (together with a number of counterpart applications pending in foreign jurisdictions). Each of the U.S. patent applications cover ceramic proppant, processes for making ceramic proppant, and detection of subterranean fractures. The applications are in various stages of the patent prosecution process, and patents may not issue on such applications in any jurisdiction for some time, if they issue at all.

The Company believes that its patents have historically been important in enabling the Company to compete in the market to supply proppant to the natural gas and oil industry. The Company intends to enforce, and has in the past vigorously enforced, its patents. The Company may from time to time in the future be involved in litigation to determine the enforceability, scope and validity of its patent rights. In addition to patent rights, and perhaps more notably, the Company uses a significant amount of trade secrets, or “know-how,” and other proprietary information and technology in the conduct of its business. None of this “know-how” and technology is licensed from third parties.

Falcon Technologies owns two U.S. patents, which expire in 2026 and 2027 and relate to construction of secondary containment areas, and multiple U.S patent applications (together with a number of counterpart applications pending in foreign jurisdictions), each of which relates to tank bases, anchoring systems, or methods of constructing secondary containment areas.

Environmental and Other Governmental Regulations

The Company believes that its operations are in substantial compliance with applicable domestic and foreign federal, state and local environmental and safety laws and regulations.

Existing federal Environmental requirements such as the Clean Air Act and the Clean Water Act, as amended, impose certain restrictions on air and water pollutants from the Company’s operations via permits and regulations. Those pollutants include volatile organic compounds, nitrogen oxides, sulfur dioxide, particulate matter, storm water and wastewater discharges and other by-products. In addition to meeting environmental requirements for existing operations, the Company must also demonstrate compliance with environmental regulations in order to obtain permits prior to any future expansion. The United States Environmental Protection

Agency (“EPA”) and state programs require covered facilities to obtain individual permits or have coverage under an EPA general permit issued to groups of facilities. A number of federal and state agencies, including but not limited to, the EPA, the Texas Commission of Environmental Quality, the Louisiana Department of Environmental Quality, the Alabama Department of Environmental Management, the Wisconsin Department of Natural Resources, and the Georgia Environmental Protection Division, in states in which we do business, have environmental regulations applicable to our operations. Historically we have been able to obtain permits, where necessary, to build new facilities and modify existing facilities that allow us to continue compliant operations and obtaining these permits in a timely manner will continue to be an important factor in the Company’s ability to do so in the future.

Employees

As of December 31, 2012, the Company had 992 employees worldwide. 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.

Executive Officers of the Registrant

Gary A. Kolstad (age 54) was elected in June 2006, by the Company’s Board of Directors to serve as President and Chief Executive Officer and a Director of the Company. Mr. Kolstad previously served in a variety of positions over 21 years with Schlumberger, Ltd. Mr. Kolstad became a Vice President of Schlumberger, Ltd. in 2001, where he last held the positions of Vice President, Oilfield Services – U.S. Onshore and Vice President, Global Accounts.

Ernesto Bautista III (age 41) joined the Company as a Vice President and Chief Financial Officer in January 2009. From July 2006 until joining the Company, Mr. Bautista served as Vice President and Chief Financial Officer of W-H Energy Services, Inc., a Houston, Texas based diversified oilfield services company (“W-H Energy”). From July 2000 to July 2006, he served as Vice President and Corporate Controller of W-H Energy. From September 1994 to May 2000, Mr. Bautista served in various positions at Arthur Andersen LLP, most recently as a manager in the assurance practice, specializing in emerging, high growth companies. Mr. Bautista is a certified public accountant in the State of Texas.

Mark L. Edmunds (age 57) has been the Vice President, Operations since April 2002. From 2000 until joining the Company, Mr. Edmunds served as Business Unit Manager and Plant Manager for FMC Corporation. Prior to 2000, Mr. Edmunds served Union Carbide Corporation and The Dow Chemical Company in a variety of management positions, including Director of Operations, Director of Internal Consulting and Manufacturing Operations Manager.

Don P. Conkle (age 48) was appointed Vice President, Marketing and Sales in October 2012. Mr. Conkle previously held a variety of domestic and international managerial positions in engineering, marketing and sales, and technology development over a 26 year period with Schlumberger, Ltd. He served in the positions of Vice President of Stimulation Services from 2007 until 2009, as GeoMarket Manager (Qatar & Yemen) from 2009 until 2011 and as Production Group Marketing and Technology Director from 2011 until he joined the Company.

R. Sean Elliott (age 38) joined the Company in November 2007 as General Counsel, and was appointed as Corporate Secretary and Chief Compliance Officer in January 2008 and as a Vice President of the Company in May 2011. Previously, Mr. Elliott served as legal counsel to Aviall, Inc. (an international aviation company) from 2004 to 2007, where he last held the positions of Assistant General Counsel and Assistant Secretary. From 1999 until 2004, Mr. Elliott practiced law with Haynes and Boone, LLP, a Dallas, Texas-based law firm.

All officers are elected 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.

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. The words “believe”, “expect”, “anticipate”, “project”, “estimate”, “forecast”, “plan” or “intend” and similar expressions identify forward-looking statements. Readers are 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. The Company’s forward-looking statements are based on assumptions that we believe to be reasonable but that may not prove to be accurate. All of the Company’s forward-looking information is subject to risks and uncertainties that could cause actual results to differ materially from the results expected. Although it is not possible to identify all factors, these risks and uncertainties include the risk factors discussed below.

The Company’s results of operations could be adversely affected if its business assumptions do not prove to be accurate or if adverse changes occur in the Company’s business environment, including but not limited to:

•

a potential decline in the demand for oil and natural gas;

•

potential declines or increased volatility in oil and natural gas prices that would adversely affect our customers, the energy industry or our production costs;

•

potential reductions in spending on exploration and development drilling in the oil and natural gas industry that would reduce demand for our products and services;

•

an increase in competition in the proppant market;

•

logistical and distribution challenges relating to certain resource plays that do not have the type of infrastructure systems that are needed to efficiently support oilfield services activities;

•

the development of alternative stimulation techniques, such as extraction of oil or gas without fracturing;

•

increased governmental regulation of hydraulic fracturing;

•

increased regulation of emissions from our manufacturing facilities;

•

the development of alternative proppants for use in hydraulic fracturing;

•

general global economic and business conditions;

•

an increase in raw materials costs;

•

fluctuations in foreign currency exchange rates; and

•

the potential expropriation of assets by foreign governments.

The Company’s results of operations could also be adversely affected as a result of worldwide economic, political and military events, including, but not limited to, war, terrorist activity or initiatives by the Organization of the Petroleum Exporting Countries (“OPEC”). For further information, see “Item 1A. Risk Factors.”

Available Information

The Company’s annual reports on Form 10-K, proxy statements, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) are made available free of charge on the Company’s internet website at http://www.carboceramics.com as soon as reasonably practicable after such material is filed with, or furnished to, the Securities and Exchange Commission (“SEC”).

The public may read and copy any materials that the Company files with the SEC at the SEC’s Public Reference Room at 100 F Street, Room 1580, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, at http://www.sec.gov.

Item 1A.

Risk Factors

You should consider carefully the trends, risks and uncertainties described below and other information in this Form 10-K and subsequent reports filed with the SEC before making any investment decision with respect to our securities. If any of the following trends, risks or uncertainties actually occurs or continues, our business, financial condition or operating results could be materially adversely affected, the trading prices of our securities could decline, and you could lose all or part of your investment.

Our business and financial performance depend on the level of activity in the natural gas and oil industries.

Our operations are materially dependent upon the levels of activity in natural gas and oil exploration, development and production. More specifically, the demand for our products is closely related to the number of natural gas and oil wells completed in geologic formations where ceramic or resin-coated sand proppants are used in fracture treatments. These activity levels are affected by both short-term and long-term trends in natural gas and oil prices. In recent years, natural gas and oil prices and, therefore, the level of exploration, development and production activity, have experienced significant fluctuations. Worldwide economic, political and military events, including war, terrorist activity, events in the Middle East and initiatives by OPEC, have contributed, and are likely to continue to contribute, to price volatility. Additionally, warmer than normal winters in North America and other weather patterns may adversely impact the short-term demand for natural gas and, therefore, demand for our products and services. Natural gas prices experienced a significant decline during the second half of 2011 and continued throughout 2012, which resulted in a decline in the United States drilling rig count during 2012. A prolonged reduction in natural gas and oil prices would generally depress the level of natural gas and oil exploration, development, production and well completions activity and result in a corresponding decline in the demand for our products. Such a decline could have a material adverse effect on our results of operations and financial condition.

Our business and financial performance could suffer if the levels of hydraulic fracturing decrease or cease as a result of the development of new processes, increased regulation or a decrease in horizontal drilling activity.

Substantially all of our products are proppants used in the completion and re-completion of natural gas and oil wells through the process of hydraulic fracturing. In addition, demand for our proppants is substantially higher in the case of horizontally drilled wells, which allow for multiple hydraulic fractures within the same well bore but are more expensive to develop than vertically drilled wells. A reduction in horizontal drilling or the development of new processes for the completion of natural gas and oil wells leading to a reduction in, or discontinuation of the use of, hydraulic fracturing could cause a decline in demand for our products. Additionally, increased regulation or environmental restrictions on hydraulic fracturing or the materials used in this process could negatively affect our business by increasing the costs of compliance or resulting in operational

delays, which could cause operators to abandon the process due to commercial impracticability. Moreover, it is possible that future federal, state or foreign laws or regulations could otherwise limit or ban hydraulic fracturing. Any of these events could have a material adverse effect on our results of operations and financial condition.

We face distribution and logistical challenges in our business

As oil and natural gas prices fluctuate, our customers may shift their focus back and forth between different resource plays, some of which can be located in geographic areas that do not have well-developed transportation and distribution infrastructure systems. Transportation and logistical operating expenses continue to comprise a significant portion of our total delivered cost of sales. Therefore, serving our clients in these less-developed areas presents distribution and other operational challenges that affect our sales and negatively impact our operating costs. Disruptions in transportation services, including shortages of rail cars or a lack of rail transportation services or developed infrastructure, could affect our ability to timely and cost effectively deliver to our customers and could provide a competitive advantage to competitors located in closer proximity to customers. Additionally, increases in the price of diesel fuel could negatively impact operating costs if we are unable to pass those increased costs along to our customers. While we made several distribution and infrastructure investments during 2012, we continue to work on long-term solutions to the changing distribution environment. Failure to find long-term solutions to these logistical challenges could adversely affect our ability to respond quickly to the needs of our customers or result in additional increased costs, and thus could negatively impact our results of operations and financial condition.

We operate in an increasingly competitive market.

The proppant market is highly competitive and no one supplier is dominant. We compete with other domestic and international suppliers of ceramic proppant, as well as with suppliers of sand and resin-coated sand for use as proppant, in the hydraulic fracturing of natural gas and oil wells. The expiration of key patents owned by the Company has resulted in additional competition in the market for ceramic proppant. The entry of additional competitors into the market to supply ceramic proppant could have a material adverse effect on our results of operations and financial condition.

We may be adversely affected by decreased demand for our proppant or the development by our competitors of effective alternative proppants.

Ceramic proppant is a premium product capable of withstanding higher pressure and providing more highly conductive fractures than mined sand, which is the most commonly used proppant type. Although we believe that the use of ceramic proppant or resin-coated sand generates higher production rates and more favorable production economics than mined sand, a significant shift in demand from ceramic proppant or resin-coated sand to mined sand could have a material adverse effect on our results of operations and financial condition. The development and use of effective alternative proppant could also cause a decline in demand for our products, and could have a material adverse effect on our results of operations and financial condition.

We rely upon, and receive a significant percentage of our revenues from, a limited number of key customers.

During 2012, our key customers included several of the largest participants in the worldwide petroleum pressure pumping industry. Although the end users of our products are numerous operators of natural gas and oil wells that hire pressure pumping service companies to hydraulically fracture wells, two customers accounted collectively for approximately 49% of our 2012 revenues. We generally supply our domestic pumping service customers with products on a just-in-time basis, with transactions governed by individual purchase orders. Continuing sales of product depend on our direct customers and the end user well operators being satisfied with product quality, availability and delivery performance. Although we believe our relations with our customers and the major well operators are satisfactory, a material decline in the level of sales to any one of our major

customers due to unsatisfactory product performance, delivery delays or any other reason could have a material adverse effect on our results of operations and financial condition.

The operations of our customers are subject to a number of operational risks and interruptions and seasonal variations, including inclement weather.

As hydraulic fracturing jobs have increased in size and intensity, common issues such as weather, equipment delays or changes in the location and types of oil and natural gas plays can result in increased variability in proppant sales volumes. Our business operations and those of our customers involve a high degree of operational risk. Natural disasters, adverse weather conditions, collisions and operator error could cause personal injury or loss of life, severe damage to and destruction of property, equipment and the environment, and suspension of operations. Our customers perform work that is subject to unexpected or arbitrary interruption or termination. The occurrence of any of these events could result in work stoppage, loss of revenue, casualty loss, increased costs and significant liability to third parties. We have not historically considered seasonality to be a significant risk, but with the increase in resource plays in the northern and eastern United States as well as our operations in Marshfield, Wisconsin, our results of operations are exposed to seasonal variations and inclement weather. Operations in these regions involve more seasonal risk in the winter months, and work is hindered during other inclement weather events. The ability of our customers to complete work, as well as our ability to mine sand from cold climate areas, could be affected during the winter months. Our revenue and profitability could decrease during these periods and in other severe weather conditions because work is either prevented or more costly to complete. If a substantial amount of production is interrupted, our cash flow and, in turn, our results of operations could be materially and adversely affected.

A significant portion of our ceramic proppant is manufactured at one of our plants. Any adverse developments at that plant could have a material adverse effect on our financial condition and results of operations.

Our Toomsboro, Georgia plant represents approximately 47% of our total annual capacity at our existing manufacturing facilities. Any adverse developments at this plant, including a material disruption in production, an inability to supply the plant with raw materials at a competitive cost, or adverse developments due to catastrophic events, could have a material adverse effect on our financial condition and results of operations.

We provide environmental warranties on certain of our containment and spill prevention products.

Falcon Technologies’ tank liners, secondary containments and related products and services are designed to contain or avoid spills of hydrocarbons and other materials. If a release of these materials occurs, it could be harmful to the environment. Although we attempt to negotiate appropriate limitations of liability in the applicable terms of sale, some customers have required expanded warranties, indemnifications or other terms that could hold Falcon Technologies responsible in the event of a spill or release under particular circumstances. If Falcon Technologies is held responsible for a spill or release of materials from one of its customer’s facilities, it could have a material adverse effect on our results of operations and financial condition.

We rely upon intellectual property to protect our proprietary rights. Failure to protect our intellectual property rights may affect our competitive position, and protecting our rights or defending against third-party allegations of infringement may be costly.

The Company uses a significant amount of trade secrets, or “know-how,” and other proprietary information and technology in the conduct of its business. In some cases, we rely on trade secrets, trademarks or contractual restrictions to protect intellectual property rights that are not patented. The steps we take to protect the non-patented intellectual property may not be sufficient to protect it and any loss or diminishment of such intellectual property rights could negatively impact our competitive advantage. Additionally, it is possible our competitors could independently develop the same or similar technologies that are only protected by trade secret and thus do

not prevent third parties from competing with us. Furthermore, even protected intellectual property rights can be infringed upon by third parties. Monitoring unauthorized use of Company intellectual property can be difficult and expensive, and adequate remedies may not be available.

Although the Company does not believe that it is infringing upon the intellectual property rights of others by using such proprietary information and technology, it is possible that such a claim will be asserted against the Company in the future. In the event any third party makes a claim against us for infringement of patents or other intellectual property rights of a third party, such claims, with or without merit, could be time-consuming and result in costly litigation. In addition, the Company could experience loss or cancellation of customer orders, experience product shipment delays, or be subject to significant liabilities to third parties. If our products or services were found to infringe on a third party’s proprietary rights, the Company could be required to enter into royalty or licensing agreements to continue selling its products or services. Royalty or licensing agreements, if required, may not be available on acceptable terms, if at all, which could seriously harm our business. Involvement in any patent dispute or other intellectual property dispute or action to protect trade secrets and expertise could have a material adverse effect on the Company’s business.

Significant increases in fuel prices for any extended periods of time will increase our operating expenses.

The price and supply of natural gas are unpredictable, and can fluctuate significantly based on international, political and economic circumstances, as well as other events outside of our control, such as changes in supply and demand due to weather conditions, actions by OPEC and other oil and gas producers, regional production patterns and environmental concerns. Natural gas is a significant component of our direct manufacturing costs and price escalations will likely increase our operating expenses and can have a negative impact on income from operations and cash flows. We operate in a competitive marketplace and may not be able to pass through all of the increased costs that could result from an increase in the cost of natural gas.

Environmental compliance costs and liabilities could reduce our earnings and cash available for operations.

We are subject to increasingly stringent laws and regulations relating to environmental protection, including laws and regulations governing air emissions, water discharges and waste management. The technical requirements of complying with these environmental laws and regulations are becoming increasingly expensive and complex, and may affect the Company’s ability to expand its operations. Our ability to continue the expansion of our manufacturing capacity to meet market demand is contingent upon obtaining required environmental permits and compliance with their terms, which continue to be more restrictive and require longer lead times to obtain in anticipation of any efforts to expand and increase capacity. We incur, and expect to continue to incur, capital and operating costs to comply with environmental laws and regulations.

In addition, we use some hazardous substances and generate certain industrial wastes in our operations. Many of our current and former properties are or have been used for industrial purposes. Accordingly, we could become subject to potentially material liabilities relating to the investigation and cleanup of contaminated properties, and to claims alleging personal injury or property damage as the result of exposures to, or releases of, hazardous substances. These laws also may provide for “strict liability” for damages to natural resources or threats to public health and safety. Strict liability can render a party liable for environmental damage without regard to negligence or fault on the part of the party. Some environmental laws provide for joint and several strict liability for remediation of spills and releases of hazardous substances.

Stricter enforcement of existing laws and regulations, new laws and regulations, the discovery of previously unknown contamination or the imposition of new or increased requirements could restrict our expansion efforts, require us to incur costs, or become the basis of new or increased liabilities. Any of these events could reduce our earnings and our cash available for operations.

Our international operations subject us to risks inherent in doing business on an international level that could adversely impact our results of operations.

International revenues accounted for approximately 23%, 21% and 23% of our total revenues in 2012, 2011 and 2010, respectively. We may not succeed in overcoming the risks that relate to or arise from operating in international markets. Risks inherent in doing business on an international level include, among others, the following:

•

economic and political instability (including as a result of the threat or occurrence of armed international conflict or terrorist attacks);

•

changes in regulatory requirements, tariffs, customs, duties and other trade barriers;

•

transportation delays and costs;

•

power supply shortages and shutdowns;

•

difficulties in staffing and managing foreign operations and other labor problems;

•

currency rate fluctuations, convertibility and repatriation;

•

taxation of our earnings and the earnings of our personnel;

•

potential expropriation of assets by foreign governments; and

•

other risks relating to the administration of or changes in, or new interpretations of, the laws, regulations and policies of the jurisdictions in which we conduct our business.

In particular, we are subject to risks associated with our production facilities in Luoyang, China, and Kopeysk, Russia. The legal systems in both China and Russia are still developing and are subject to change. Accordingly, our operations and orders for products in both countries could be adversely impacted by changes to or interpretation of each country’s law. Further, if manufacturing in either region is disrupted, our overall capacity could be significantly reduced and sales and/or profitability could be negatively impacted.

The manufacture of resin-coated sand is a new process for us.

Resin-coated sand is an alternative to the Company’s traditional ceramic proppant and involves a different manufacturing process that utilizes a different raw material. The expansion of our resin-coated sand operations is driven by market demand and involves capital expenditures and new operational requirements. If we are unable to secure adequate, cost effective supply commitments for the raw materials associated with resin-coated sand or if we are unable to timely and cost effectively construct additional manufacturing capacity and infrastructure to produce resin-coated sand, our ability to sell this product to the marketplace at profitable margins may be adversely impacted. A lack of sales of resin-coated sand or the inability to control the costs associated with manufacturing this product could have a material adverse effect on our results from operations and financial condition.

Undetected defects in our fracture simulation software could adversely affect our business.

Despite extensive testing, our software could contain defects, bugs or performance problems. If any of these problems are not detected, the Company could be required to incur extensive development costs or costs related to product recalls or replacements. The existence of any defects, errors or failures in our software products may subject us to liability for damages, delay the development or release of new products and adversely affect market acceptance or perception of our software products or related services, any one of which could materially and adversely affect the Company’s business, results of operations and financial condition.

The market price of our common stock will fluctuate, and could fluctuate significantly.

The market price of the Company’s common stock will fluctuate, and could fluctuate significantly, in response to various factors and events, including the following:

•

the liquidity of the market for our common stock;

•

differences between our actual financial or operating results and those expected by investors and analysts;

•

changes in analysts’ recommendations or projections;

•

new statutes or regulations or changes in interpretations of existing statutes and regulations affecting our business;

•

changes in general economic or market conditions; and

•

broad market fluctuations.

Our actual results could differ materially from results anticipated in forward-looking statements we make.

Some of the statements included or incorporated by reference in this Form 10-K are forward-looking statements. These forward-looking statements include statements relating to trends in the natural gas and oil industries, the demand for ceramic proppant and our performance in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business” sections of this Form 10-K. In addition, we have made and may continue to make forward-looking statements in other filings with the SEC, and in written material, press releases and oral statements issued by us or on our behalf. Forward-looking statements include statements regarding the intent, belief or current expectations of the Company or its officers. Our actual results could differ materially from those anticipated in these forward-looking statements. (See “Business–Forward-Looking Information.”)

Item 1B.

Unresolved Staff Comments

Not applicable.

Item 2.

Properties

The Company maintains its corporate headquarters in leased office space in Houston and also leases space for its technology center in Houston. The Company owns its manufacturing facilities, land and substantially all of the related production equipment in New Iberia, Louisiana, Eufaula, Alabama, and Kopeysk, Russia and leases its McIntyre and Toomsboro, Georgia, facilities. The Company owns the buildings and production equipment at its facility in Luoyang, China, and has been granted use of the land on which the facility is located through 2051 under the terms of a land use agreement with the People’s Republic of China.

The facilities in McIntyre and Toomsboro, Georgia, include real property, plant and equipment that are leased by the Company from the Development Authority of Wilkinson County. The original lease was executed in 1997 and was last amended in 2008. The term of the current lease, which covers both locations, terminates on November 1, 2013, subject to the Company’s ability to renew the lease through November 2022. Under the terms of the lease, the Company is responsible for all costs incurred in connection with the premises, including costs of construction of the plant and equipment. At the termination of the lease, title to all of the real property, plant and equipment is to 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.

In 2011, the Company purchased land in Millen, Georgia for development and construction of a new ceramic proppant manufacturing facility. The Company is moving forward with initial site preparation and construction of the first 250 million pound line and anticipates the Millen plant could commence operation near

the end of the first quarter of 2014. In November 2012, the Company entered into a lease for the land and improvements associated with the Millen facility. The lease term continues until the tenth anniversary of the completion of the last phase of the facility. Similar to lease terms of the two other Georgia facilities, the Millen lease requires the Company to be responsible for all costs (including construction costs) incurred in connection with the premises. Moreover, title to the real property, plant and equipment of the facility is to be conveyed to the Company at the end of the lease term for nominal consideration, and may be purchased by the Company at any time for a nominal price.

The Marshfield, Wisconsin sand processing plant, which became operational during 2012, and the resin-coating facility for which construction has been currently deferred are located on land owned by the Company.

The Company owns or otherwise utilizes distribution facilities in multiple locations around the world. See “Item 1. Business – Distribution.”

The Company owns approximately 4,150 acres of land and leasehold interests near its plants in Georgia and Alabama. The land contains raw material for use in the production of the Company’s lightweight ceramic proppants. The Company also holds approximately 490 acres of land and leasehold interests in Wisconsin near its resin-coating facility under construction in Marshfield, Wisconsin.

Falcon Technologies owns its service facility located in Decatur, Texas, and leases other regional service facilities within the United States.

Item 3.

Legal Proceedings

On February 9, 2012, the Company and two of its officers, Gary A. Kolstad and Ernesto Bautista III, were named as defendants in a purported class-action lawsuit filed in the United States District Court for the Southern District of New York (the “February SDNY Lawsuit”), brought on behalf of shareholders who purchased the Company’s Common Stock between October 27, 2011 and January 26, 2012 (the “Relevant Time Period”). On April 10, 2012, a second purported class-action lawsuit was filed against the same defendants in the United States District Court for the Southern District of New York, brought on behalf of shareholders who purchased or sold CARBO Ceramics Inc. option contracts during the Relevant Time Period (the “April SDNY Lawsuit”, and collectively with the February SDNY Lawsuit, the “Federal Securities Lawsuit”). In June 2012, the February SNDY Lawsuit and the April SDNY Lawsuit were consolidated, and will now proceed as one lawsuit. The Federal Securities Lawsuit alleges violations of the federal securities laws arising from statements concerning the Company’s business operations and business prospects that were made during the Relevant Time Period and requests unspecified damages and costs. In September 2012, the Company and Messrs. Kolstad and Bautista filed a motion to dismiss this lawsuit. Response and reply briefs on this motion were filed during the fourth quarter of 2012, and a decision from the Court is pending.

On June 13, 2012, the Directors of the Company and Mr. Bautista were named as defendants in a purported derivative action lawsuit brought on behalf of the Company by a stockholder in District Court in Harris County, Texas (the “June Harris County Lawsuit”). This lawsuit alleges various breaches of fiduciary duty and other duties by the defendants that generally are related to the February SDNY Lawsuit as well as a breach of duty by certain defendants in connection with stock sales. This lawsuit also requests unspecified damages and costs. The parties to the June Harris County Lawsuit have also entered into an agreement to stay further proceedings pending the outcome of a motion to dismiss the Federal Securities Lawsuit.

While each of the Federal Securities Lawsuit and the June Harris County Lawsuit are in their preliminary stages, the Company does not believe they have merit, and plans to vigorously contest and defend against them.

Additionally, 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 effect on its business or its results of operations.

The Company cannot predict the ultimate outcome or duration of any lawsuit described in this report.

Item 4.

Mine Safety Disclosure

Several of our U.S. manufacturing facilities process mined minerals, and therefore are viewed as mine operations subject to regulation by the federal Mine Safety and Health Administration under the Federal Mine Safety and Health Act of 1977. Information concerning mine safety violations or other regulatory matters required by section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and the recently proposed Item 106 of Regulation S-K (17 CFR 229.106) is included in Exhibit 95 to this annual report.

PART II

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock Market Prices, Dividends and Stock Repurchases

The Company’s common stock is traded on the New York Stock Exchange (ticker symbol CRR). The number of record and beneficial holders of the Company’s common stock as of February 1, 2013 was approximately 24,696.

The following table sets forth the high and low sales prices of the Company’s common stock on the New York Stock Exchange and dividends for the last two fiscal years:


	2012						2011
	Sales Price				Cash Dividends Declared (1)		Sales Price				Cash Dividends Declared (2)
Quarter Ended	High		Low		Cash Dividends Declared (1)		High		Low		Cash Dividends Declared (2)
March 31	$	133.99	$	85.94	$	0.48	$	141.12	$	98.80	$	0.40
June 30		105.45		72.33		—		162.95		127.54		—
September 30		86.26		62.92		0.54		180.25		102.53		0.48
December 31		81.67		61.00		—		155.94		94.18		—

(1)	Represents quarters during which dividends were declared. The payment months for cash dividends were February 2012 ($0.24), May 2012 ($0.24), August 2012 ($0.27) and November 2012 ($0.27).

(2)	Represents quarters during which dividends were declared. The payment months for cash dividends were February 2011 ($0.20), May 2011 ($0.20), August 2011 ($0.24) and November 2011 ($0.24).

The Company currently expects to continue its policy of paying quarterly cash dividends, although there can be no assurance as to future dividends because they depend on future earnings, capital requirements and financial condition.

On August 28, 2008, the Company’s Board of Directors authorized the repurchase of up to two million shares of the Company’s common stock. Shares are effectively retired at the time of purchase. The Company did not repurchase any shares under this repurchase plan during the fourth quarter of 2012. As of December 31, 2012, the Company has repurchased and retired 1,877,576 shares at an aggregate price of $78.3 million.

The following table provides information about the Company’s repurchases of common stock during the quarter ended December 31, 2012, all of which represent shares surrendered to the Company for tax withholding obligations upon the vesting of restricted stock:

ISSUER PURCHASES OF EQUITY SECURITIES


Period	Total Number of Shares Purchased			Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan (1)		Maximum Number of Shares that May Yet be Purchased Under the Plan (2)
10/01/12 to 10/31/12		3,737	(3)	$	63.78		—		122,424
11/01/12 to 11/30/12		431	(3)	$	76.44		—		122,424
12/01/12 to 12/31/12		—		$	—		—		122,424
Total		4,168	(3)				—

(1)	On August 28, 2008, the Company announced the authorization by its Board of Directors for the repurchase of up to two million shares of its Common Stock.

(2)	Represents the maximum number of shares that may be repurchased under the previously announced authorization as of period end. As of February 21, 2013, a maximum of 92,424 shares may be repurchased under the previously announced authorization.

(3)	Represents shares of stock withheld for the payment of withholding taxes upon the vesting of restricted stock.

Stock Performance Graph

The graph below compares the cumulative shareholder return on the Company’s common stock with the cumulative returns of the S&P 500 index and the S&P SmallCap 600 - Oil & Gas Equipment & Services index. The graph tracks the performance of a $100 investment in the Company’s common stock and in each of the indexes (with the reinvestment of all dividends) from December 31, 2007 to December 31, 2012.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*

Among CARBO Ceramics, Inc., the S&P 500 Index,

and S&P SmallCap 600 - Oil & Gas Equipment & Services Index

LOGO

*	$100 invested on 12/31/07 in stock or index, including reinvestment of dividends. Fiscal year ending December 31

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 Condition and Results of Operations and the consolidated financial statements and notes thereto included elsewhere in this Form 10-K. The Company has determined that its outstanding non-vested restricted stock awards are participating securities. Accordingly, effective January 1, 2009, earnings per common share are computed using the two-class method prescribed by ASC Topic 260 “ Earnings Per Share.” All previously reported earnings per common share data were retrospectively adjusted to conform to the new computation method.


	Years ended December 31,
	2012			2011			2010			2009		2008
	($ in thousands, except per share data)
Statement of Income Data:
Revenues .	$	645,536		$	625,705		$	473,082		$	341,872	$	387,828
Cost of sales .		422,031			363,990			298,411			221,369		260,394

Gross profit		223,505			261,715			174,671			120,503		127,434
Selling, general, & administrative and other operating expenses (1)		64,619			64,113			55,061			41,053		40,351

Operating profit		158,886			197,602			119,610			79,450		87,083
Other (expense) income, net		(296	)		(152	)		(261	)		344		1,266

Income before income taxes		158,590			197,450			119,349			79,794		88,349
Income taxes		52,657			67,314			40,633			26,984		27,944

Income from continuing operations		105,933			130,136			78,716			52,810		60,405
Discontinued operations (2):
Income from discontinued operations, net of taxes		—			—			—			—		5,784
Gain on disposal of discontinued operations, net of tax		—			—			—			—		44,127

Net income	$	105,933		$	130,136		$	78,716		$	52,810	$	110,316

Earnings per basic share:
Income from continuing operations	$	4.59		$	5.62		$	3.41		$	2.27	$	2.47
Income from discontinued operations		—			—			—			—		0.24
Gain on disposal of discontinued operations		—			—			—			—		1.81

Basic earnings per share	$	4.59		$	5.62		$	3.41		$	2.27	$	4.52

Earnings per diluted share:
Income from continuing operations	$	4.59		$	5.62		$	3.40		$	2.27	$	2.46
Income from discontinued operations		—			—			—			—		0.24
Gain on disposal of discontinued operations		—			—			—			—		1.81

Diluted earnings per share	$	4.59		$	5.62		$	3.40		$	2.27	$	4.51


	December 31,
	2012		2011		2010		2009		2008
	($ in thousands, except per share data)
Balance Sheet Data:
Current assets	$	349,917	$	302,565	$	237,655	$	218,870	$	293,310
Current liabilities		50,830		79,066		51,247		32,458		83,848
Property, plant and equipment, net		426,232		392,659		338,483		270,722		244,902
Total assets		808,878		740,865		599,571		513,412		546,877
Total shareholders’ equity		713,078		630,158		521,979		457,316		442,534
Cash dividends per share	$	1.02	$	0.88	$	0.76	$	0.70	$	0.62

(1)	Selling, general, & administrative (SG&A) and other operating expenses include costs of start-up activities and losses on disposal or impairment of assets.

(2)	On October 10, 2008, the Company completed the sale of its fracture and reservoir diagnostics business, the Pinnacle name and related trademarks. Consequently, these operations are presented as discontinued operations.

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Executive Level Overview

CARBO Ceramics Inc. generates revenue primarily through the sale of products and services to the oil and gas industry. The Company’s principal business consists of manufacturing and selling ceramic proppant and resin-coated sand for use primarily in the hydraulic fracturing of oil and natural gas wells. Falcon Technologies, a wholly-owned subsidiary of the Company, uses proprietary technology to provide products that are designed to enable its clients to extend the life of their storage assets, reduce the potential for hydrocarbon spills and provide containment of stored materials. The Company also provides the industry’s most popular hydraulic fracture simulation software FracPro ^® , as well as hydraulic fracture design and consulting.

During 2010, the Company began production of resin-coated ceramic (CARBO BOND ^® LITE ^® ) and resin-coated sand (CARBO BOND ^® RCS ) proppants. The introduction of CARBO BOND ^® LITE ^® addresses a market in which oil and natural gas wells are subject to a high risk of proppant flow-back. The adhesive property of the resin allows the ceramic proppant pack to adhere in place and therefore reduce the risk of proppant flow-back. In the case of CARBO BOND ^® RCS , the Company made the strategic decision to offer a lower cost, lower conductivity alternative to its ceramic proppants thereby broadening its proppant suite of products. Management of the Company believes that this is a natural extension of its core business and enhances the Company’s highly conductive proppant offering.

The Company’s products and services help oil and gas producers increase production and recovery rates from their wells, thereby lowering overall reservoir development costs. As a result, the Company’s business is dependent to a large extent on the level of drilling activity in the oil and gas industry worldwide. Although the Company’s ceramic proppants are more expensive than alternative non-ceramic proppants, the Company has been able to demonstrate the cost-effectiveness of its products to numerous operators of oil and gas wells through increased technical marketing activity. The Company believes its future prospects benefit from both an increase in drilling activity worldwide and the desire of industry participants to improve production results and lower their overall development costs.

The Company believes international sales will continue to represent an important role in its business. International revenues represented 23%, 21% and 23% of total revenues in 2012, 2011 and 2010, respectively.

Management believes the addition of new manufacturing capacity is critical to the Company’s ability to continue its long-term growth in sales volume and revenue for ceramic proppant, resin-coated ceramic proppant and resin-coated sand. In regards to expansion, the Company has been issued an Air Quality Permit for its proposed ceramic proppant manufacturing plant in Millen, Georgia. The Company is moving forward with site work and construction of the first 250 million pound line and anticipates the Millen plant could commence operations near the end of the first quarter of 2014. Upon the completion of the first line, the Company’s total ceramic proppant stated capacity is expected to be 2.0 billion pounds per year. A second resin-coating production line in New Iberia, Louisiana was completed during 2012, bringing the Company’s total resin-coating capacity to 400 million pounds per year. Also during 2012, the Company began to utilize its own CARBO Northern White sand in its sand processing facility in Marshfield, Wisconsin. Construction of a resin-coating facility at this same site in Marshfield has been deferred at this time. The Company will consider resuming construction when warranted by market conditions. Although the Company has operated near or at full capacity at times during the previous ten years, the addition of significant new capacity, as well as the addition of resin-coating capacity, could adversely impact operating profit margins if the timing of this new capacity does not match increases in demand for the Company’s products. In addition, the ability to construct new capacity will be contingent upon the receipt of all needed environmental emission permits. See “Item 1—Business” and “Item 1A—Risk Factors”.

Operating profit margin for the Company’s ceramic proppant business is principally impacted by manufacturing and distribution costs, sales price and the Company’s production levels as a percentage of its capacity. Although most direct production expenses have been relatively stable or predictable over time, the Company has experienced volatility in the cost of natural gas, which is used in production by the Company’s

domestic manufacturing facilities, and bauxite, which is the primary raw material for production of the Company’s high strength ceramic proppant. The cost of natural gas has been a significant component of total monthly domestic direct production expense over the last four years. In an effort to mitigate volatility in the cost of natural gas purchases and reduce exposure to short term spikes in the price of this commodity, the Company contracts in advance for portions of its future natural gas requirements. Despite the efforts to reduce exposure to changes in natural gas prices, it is possible that, given the significant portion of manufacturing costs represented by this item, gross margins as a percentage of sales may decline and changes in net income may not directly correlate to changes in revenue. Investments continue to be made to enhance the Company’s distribution capabilities. The Company recently completed an expansion of its distribution center in South Texas. The Company is targeting the completion of an additional distribution center in the Bakken region in the second half of 2013.

With regard to resin-coating and sand operations, during 2012 the Company completed a second resin-coating line at its New Iberia, Louisiana facility and began to utilize its Northern White sand in its sand processing facility in Marshfield, Wisconsin. The production of resin-coated sand is a different process than the manufacture of ceramic proppant, and profit margins associated with resin-coated sand are not as high as those historically received for the Company’s manufactured ceramic proppant.

As the Company has expanded its operations in both domestic and international markets, there has been an increase in activities and expenses related to marketing, research and development, and finance and administration. As a result, selling, general and administrative expenses have increased in recent years. In the future, the Company expects to continue to actively pursue new business opportunities by:

•

increasing marketing activities globally; and

•

focusing on new product development.

The Company expects that these activities will generate increased revenue. As such, selling, general and administrative expenses may increase in 2013 from 2012 levels as the Company pursues these opportunities and continues to expand its operations.

General Business Conditions

The Company’s proppant business is impacted by the number of natural gas and oil wells drilled in North America, and the need to hydraulically fracture these wells. In markets outside North America, sales of the Company’s products are also influenced by the overall level of drilling and hydraulic fracturing activity. Furthermore, because the decision to use ceramic proppant is based on comparing the higher initial costs to the future value derived from increased production and recovery rates, the Company’s business is influenced by the current and expected prices of natural gas and oil.

During the second half of 2009, the North American drilling rig count improved from the lows experienced during the second half of 2008 and stabilized during 2010. Late in 2011, a severe decline in natural gas prices led certain customers to reduce drilling activities and capital spending in natural gas basins and increase these items in liquids-rich basins. Low natural gas prices continued throughout 2012 and operations were impacted by the shift in drilling activity away from natural gas basins. The impact resulting from this shift included higher distribution costs due to the logistical challenges in these infrastructure limited regions and competitive pricing pressures resulting from an over-supply of Chinese ceramic proppant. While natural gas fundamentals remain weak, the continued strength in oilfield activity by the Company’s clients in oily, liquids-rich plays is encouraging.

Critical Accounting Policies

The Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the U.S., which require the Company to make estimates and assumptions (see Note 1 to the Consolidated Financial Statements). The Company believes that, of its significant accounting policies, the following may involve a higher degree of judgment and complexity.

Revenue is recognized when title passes to the customer (generally upon delivery of products) or at the time services are performed. The Company generates a significant portion of its revenues and corresponding accounts receivable from sales to the petroleum pressure pumping industry. In addition, the Company generates a significant portion of its revenues and corresponding accounts receivable from sales to two major customers, both of which are in the petroleum pressure pumping industry. As of December 31, 2012, approximately 46% of the balance in trade accounts receivable was attributable to those two customers. The Company records an allowance for doubtful accounts based on its assessment of collectability risk and periodically evaluates the allowance based on a review of trade accounts receivable. Trade accounts receivable are periodically reviewed for collectability based on customers’ past credit history and current financial condition, and the allowance is adjusted, if necessary. If a prolonged economic downturn in the petroleum pressure pumping industry were to occur or, for some other reason, any of the Company’s primary customers were to experience significant adverse conditions, the Company’s estimates of the recoverability of accounts receivable could be reduced by a material amount and the allowance for doubtful accounts could be increased by a material amount. At December 31, 2012, the allowance for doubtful accounts totaled $1.8 million.

The Company values inventory using the weighted average cost method. Assessing the ultimate realization of inventories requires judgments about future demand and market conditions. The Company regularly reviews inventories to determine if the carrying value of the inventory exceeds market value and the Company records an adjustment to reduce the carrying value to market value, as necessary. Future changes in demand and market conditions could cause the Company to be exposed to additional obsolescence or slow moving inventory. If actual market conditions are less favorable than those projected by management, lower of cost or market adjustments may be required.

Income taxes are provided for in accordance with ASC Topic 740, “ Income Taxes ”. This standard takes into account the differences between financial statement treatment and tax treatment of certain transactions. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates is recognized as income or expense in the period that includes the enactment date. This calculation requires the Company to make certain estimates about its future operations. Changes in state, federal and foreign tax laws, as well as changes in the Company’s financial condition, could affect these estimates.

Long-lived assets, which include net property, plant and equipment, goodwill, intangibles and other long-term assets, comprise a significant amount of the Company’s total assets. The Company makes judgments and estimates in conjunction with the carrying values of these assets, including amounts to be capitalized, depreciation and amortization methods and useful lives. Additionally, the carrying values of these assets are periodically reviewed for impairment or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. An impairment loss is recorded in the period in which it is determined that the carrying amount is not recoverable. This requires the Company to make long-term forecasts of its future revenues and costs related to the assets subject to review. These forecasts require assumptions about demand for the Company’s products and services, future market conditions and technological developments. Significant and unanticipated changes to these assumptions could require a provision for impairment in a future period.

Results of Operations

Net Income


($ in thousands)	2012		Percent Change		2011		Percent Change		2010
Net Income	$	105,933		(19)%	$	130,136		65%	$	78,716

For the year ended December 31, 2012, the Company reported net income of $105.9 million, a decrease of 19% compared to the $130.1 million reported in the previous year. Operations in 2012 were impacted by the shift in drilling activity away from natural gas basins due to the severe decline in natural gas prices in late 2011. The impact resulting from this shift included higher distribution costs due to the logistical challenges in infrastructure limited regions and competitive pricing pressures resulting from an over-supply of Chinese ceramic proppant. Net income in 2012 decreased primarily as a result of a 5% decrease in the average proppant selling price and a decrease in the proppant gross profit margin as a percentage of sales, partially offset by a 7% increase in proppant sales volume and a greater contribution from the Company’s other business units. Income tax expense in 2012 decreased primarily due to lower pretax income.

For the year ended December 31, 2011, the Company reported net income of $130.1 million, an increase of 65% compared to the $78.7 million reported in the previous year. During 2011, operations continued to be favorably impacted by continued acceptance of the Company’s products and service offerings. Further, additional production capacity from the completion of the third and fourth production lines at the Company’s Toomsboro, Georgia production facility in 2010 and 2011, respectively, enabled the Company to increase sales volumes. Net income in 2011 increased primarily as a result of a 19% increase in proppant sales volume, a 12% increase in the average proppant selling price, and an increase in the gross profit margin as a percentage of sales, partially offset by higher selling, general and administrative expenses. Income tax expense in 2011 increased due to higher pretax income.

Individual components of financial results are discussed below.

Revenues


($ in thousands)	2012		Percent Change			2011		Percent Change			2010
Consolidated revenues	$	645,536		3	%	$	625,705		32	%	$	473,082

Revenues of $645.5 million for the year ended December 31, 2012 increased 3% compared to $625.7 million in 2011. Revenues increased primarily due to a 7% increase in proppant sales volume and an increase in the revenues of some of the Company’s other business units, partially offset by a 5% decrease in the average proppant selling price resulting from competitive pricing pressures. Worldwide proppant sales volume totaled 1.712 billion pounds during 2012 compared to 1.605 billion pounds in 2011. North American (defined as Canada and the U.S.) sales volume increased 3% primarily attributed to an increase in the oil rig count in the U.S. as well as acceptance of the Company’s products in oily, liquids-rich basins. International (excluding Canada) sales volume increased 25% primarily due to increases in China, Russia and Mexico, partially offset by a decrease in Europe. Other Proppants (defined as resin-coated sand, ceramic proppant manufactured on an outsourced basis, and raw sand sold in the course of producing substrate for the resin-coated sand business) represented 169 million pounds of the Company’s worldwide sales volume in 2012, as compared to 129 million pounds in 2011. The average selling price per pound of all proppant, including Company-produced ceramic proppant and Other Proppant, was $0.343 per pound in 2012 compared to $0.360 per pound in 2011.

Revenues of $625.7 million for the year ended December 31, 2011 increased 32% compared to $473.1 million in 2010. Revenues increased primarily due to a 19% increase in proppant sales volume, a 12% increase in the average proppant selling price as a result of price increases and an increase in the revenues of Falcon Technologies. The Company’s worldwide proppant sales volume totaled 1.605 billion pounds during 2011 compared to 1.348 billion pounds in 2010. North American (defined as Canada and the United States) sales volume increased 21% and International (excluding Canada) sales volume increased 12%. North American demand was driven primarily by an increase in the drilling rig count in the United States and Canada as well as continued acceptance of the Company’s products in unconventional resource plays, including shale formations. Additional production capacity from the completion of the third and fourth production lines at the Company’s Toomsboro, Georgia production facility in 2010 and 2011, respectively, enabled the Company to increase sales

volumes. Completion of the first resin-coating line at the Company’s New Iberia, Louisiana production facility during the second quarter of 2010, as well as the purchase of ceramic proppant that meets API and ISO standards and is manufactured on an outsourced basis, also contributed toward improved ability to meet customer demand. Other Proppants represented 129 million pounds of the Company’s worldwide sales volume in 2011, as compared to 66 million pounds in 2010. International sales volume increased primarily due to increases in Russia, Europe and the Asia-Pacific region (including China), partially offset by decreases in Africa and the Middle East. The average selling price per pound of all proppant, including both Company-produced ceramic proppant and Other Proppant, was $0.360 per pound in 2011 compared to $0.322 per pound in 2010.

Gross Profit


($ in thousands)	2012			Percent Change		2011			Percent Change		2010
Consolidated gross profit	$	223,505			(15)%	$	261,715			50%	$	174,671
As a % of revenues		35	%				42	%				37	%

The Company’s cost of sales related to proppant manufacturing consists of manufacturing costs, packaging and transportation expenses associated with the delivery of the Company’s products to its customers and handling costs related to maintaining finished goods inventory and operating the Company’s remote stocking facilities. Variable manufacturing costs include raw materials, labor, utilities and repair and maintenance supplies. Fixed manufacturing costs include depreciation, property taxes on production facilities, insurance and factory overhead.

Gross profit for the year ended December 31, 2012 was $223.5 million, or 35% of revenues, compared to $261.7 million, or 42% of revenues, for 2011. Operations in 2012 were impacted by the shift in drilling activity away from natural gas basins due to the severe decline in natural gas prices in late 2011 and the resulting logistical challenges and costs and the competitive pricing pressures created by this shift. Despite a 7% increase in proppant sales volume, gross profit and gross profit as a percentage of revenues decreased primarily as a result of a decrease in the average proppant selling price, an increase in freight and logistics costs, higher fixed cost absorption, and a shift in sales mix towards lower-margin heavyweight and Other Proppant products. Greater contribution from the Company’s other business units partially offset the decrease in gross profit from proppant sales.

Gross profit for the year ended December 31, 2011 was $261.7 million, or 42% of revenues, compared to $174.7 million, or 37% of revenues, for 2010. The increase in gross profit, as well as gross profit as a percentage of revenues, were primarily the result of higher proppant sales volume, an increase in the average proppant selling price, a change in product mix, and greater contribution from some of the Company’s other business units.

Selling, General & Administrative (SG&A) and Other Operating Expenses


($ in thousands)	2012			Percent Change		2011			Percent Change		2010
Consolidated SG&A and other	$	64,619			1%	$	64,113			16%	$	55,061
As a % of revenues		10	%				10	%				12	%

Operating expenses consisted of $64.0 million of SG&A expenses and $0.6 million of other operating expenses for the year ended December 31, 2012 compared to $62.4 million and $1.7 million, respectively, for 2011. The increase in SG&A expenses primarily resulted from higher administrative spending. Other operating expenses in 2012 consisted primarily of a $0.5 million loss on disposal of assets related to the wind down of the geotechnical monitoring business. Other operating expenses in 2011 consisted primarily of an impairment of goodwill of $0.9 million related to the Company’s geotechnical monitoring business and a write-down of $0.8

million related to a 6% interest in an investment accounted for under the cost method as a result of the sale of the business by majority shareholders. As a percentage of revenues, SG&A and other operating expenses for 2012 remained consistent to 2011.

Operating expenses consisted of $62.4 million of SG&A expenses and $1.7 million of other operating expenses for the year ended December 31, 2011 compared to $52.6 million and $2.4 million, respectively, for 2010. The increase in SG&A expenses primarily resulted from higher marketing, research and development, and administrative spending associated with supporting revenue growth. Other operating expenses in 2011 consisted of start-up costs of $0.2 million primarily related to the start-up of the fourth production line at the Company’s Toomsboro, Georgia facility, an impairment of goodwill of $0.9 million related to the Company’s geotechnical monitoring business and a write-down of $0.8 million related to a 6% interest in an investment accounted for under the cost method as a result of the sale of the business by majority shareholders. Other operating expenses in 2010 consisted of start-up costs of $1.0 million related to the start-up of the first resin-coating line within the Company’s existing manufacturing infrastructure at the New Iberia, Louisiana facility and the third production line at the Company’s Toomsboro, Georgia facility, an impairment of goodwill of $0.4 million related to the Company’s geotechnical monitoring business and a $1.0 million loss on equipment disposals mainly related to the Company’s U.S. manufacturing facilities. As a percentage of revenues, SG&A and other operating expenses in 2011 decreased to 10% compared to 12% for the same period in 2010.

Income Tax Expense


($ in thousands)	2012			Percent Change		2011			Percent Change		2010
Income Tax Expense	$	52,657			(22)%	$	67,314			66%	$	40,633
Effective Income Tax Rate		33.2	%				34.1	%				34.0	%

Consolidated income tax expense was $52.7 million, or 33.2% of pretax income, for the year ended December 31, 2012 compared to $67.3 million, or 34.1% of pretax income for 2011. The $14.7 million decrease is due to lower pre-tax income and a lower effective tax rate primarily associated with the final preparation and filing of the Company’s prior year income tax returns and additional tax benefits relating to mining depletion deductions.

Consolidated income tax expense was $67.3 million, or 34.1% of pretax income, for the year ended December 31, 2011 compared to $40.6 million, or 34.0% of pretax income for 2010. The $26.7 million increase is primarily due to higher pretax income.

Outlook

The Company anticipates that industry activity during 2013 will be similar to that in 2012 and that liquids-rich drilling activity in North America will remain high, offset by low natural gas drilling activity. Overall, the Company believes its operating results for 2013 will continue to be influenced by the level of oil and natural gas drilling in North America. The Company is cautiously optimistic that well completion activity will increase as the year unfolds, however, quarterly fluctuations are possible. Accordingly, the Company believes the supply-demand balance in the proppant market should improve during the year and expects its ability to demonstrate the value of ceramic proppant relative to alternatives will allow it to continue to generate new sales opportunities, especially in oily, liquids-rich plays.

The Company expects to support near-term demand with its current ceramic production capacity of 1.75 billion pounds per year, along with existing inventories of ceramic proppant. The Company has been issued an Air Quality Permit for its proposed ceramic proppant manufacturing plant in Millen, Georgia and is moving forward with site preparation and construction of the first 250 million pound line, which it anticipates could commence operation near the end of the first quarter of 2014.

The increased amount of activity in infrastructure-limited, liquids-rich basins introduced supply chain challenges to the industry and resulted in higher distribution costs during 2012. Although the Company expects these costs will continue at current levels for the near-term, it is making capital investments in certain of these challenged regions to facilitate a reduction of these costs and promote further customer service.

Liquidity and Capital Resources

At December 31, 2012, the Company had cash and cash equivalents of $90.6 million compared to cash and cash equivalents of $41.3 million at December 31, 2011. During 2012, the Company generated $156.4 million of cash from operating activities, retained $1.4 million from excess tax benefits relating to stock based compensation and retained $0.2 million from the effect of exchange rate changes on cash. Uses of cash included $77.2 million for capital expenditures, $23.6 million for the payment of cash dividends and $7.9 million for repurchases of the Company’s common stock. In addition, during 2012, the Company borrowed and fully repaid a total of $10.0 million on its credit facility. Major capital spending in 2012 included engineering, procurement and construction of sand processing and resin-coating facilities in Marshfield, Wisconsin and New Iberia, Louisiana, expansion of the Company’s distribution infrastructure, engineering and procurement activities related to the new manufacturing facility in Millen, Georgia, as well as upgrades and improvements at existing manufacturing facilities.

Subject to its financial condition, the amount of funds generated from operations and the level of capital expenditures, the Company’s current intention is to continue to pay quarterly dividends to holders of its common stock. On January 22, 2013, the Company’s Board of Directors approved the payment of a quarterly cash dividend of $0.27 per share to shareholders of the Company’s common stock on February 1, 2013. The dividend is payable on February 15, 2013. The Company estimates its total capital expenditures in 2013 will be between $115.0 million and $135.0 million, which include costs associated with the construction of the new manufacturing facility in the Millen, Georgia area, expansion of the Company’s distribution infrastructure, as well as various other projects and additions.

The Company has historically maintained an unsecured line of credit with a bank. In March 2012, the Company entered into a first amendment to this credit agreement to (i) extend its maturity date from January 29, 2013 to July 29, 2013, (ii) increase the size from $10.0 million to $25.0 million, and (iii) make other administrative changes to certain covenants and provisions. As of December 31, 2012, there was no outstanding debt under the new credit agreement. The Company anticipates that cash on hand, cash provided by operating activities and funds provided by its line of credit will be sufficient to meet planned operating expenses, tax obligations, capital expenditures and other cash needs for the next 12 months. The Company also believes that it could acquire additional debt financing, if needed. Based on these assumptions, the Company believes that its fixed costs could be met even with a moderate decrease in demand for the Company’s products.

Off-Balance Sheet Arrangements

The Company had no off-balance sheet arrangements as of December 31, 2012.

Contractual Obligations

The following table summarizes the Company’s contractual obligations as of December 31, 2012:


	Payments due in period
($ in thousands)	Total		Less than 1 year		1 - 3 years		3 - 5 years		More than 5 years
Long-term debt obligations	$	—	$	—	$	—	$	—	$	—
Capital lease obligations		—		—		—		—		—
Operating lease obligations:
—Primarily railroad equipment		120,535		15,127		33,763		26,379		45,266
Purchase obligations:
—Natural gas contracts		75,284		25,087		37,358		12,839		—
—Raw materials contracts		4,945		1,676		3,269		—		—
Other long-term obligations		—		—		—		—		—

Total contractual obligations	$	200,764	$	41,890	$	74,390	$	39,218	$	45,266

See Note 4 and Note 13 to the Notes to the Consolidated Financial Statements.

Operating lease obligations relate primarily to railroad equipment leases and include leases of other property, plant and equipment.

The Company uses natural gas to power its domestic manufacturing plants. From time to time, the Company enters into contracts to purchase a portion of the anticipated natural gas requirements at specified prices. As of December 31, 2012, the last such contract was due to expire in December 2017.

The Company has entered into contracts to supply raw materials, primarily kaolin, bauxite and hydro sized sand, to each of its manufacturing plants. Each of the contracts is described in Note 13 to the Notes to the Consolidated Financial Statements. Two outstanding contracts do not require the Company to purchase minimum annual quantities, but do require the purchase of minimum annual percentages, ranging from 50% to 80% of the respective plants’ requirements for the specified raw materials. One outstanding contract requires the Company to purchase a minimum annual quantity of material. The Company also has entered into a supply agreement for its Millen plant that will become effective upon the commencement of operations at the plant and requires the purchase of a minimum annual percentage of 50% of the Millen plant’s requirements of kaolin.

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

The Company’s major market risk exposure is to foreign currency fluctuations that could impact its investments in China and Russia. As of December 31, 2012, the Company’s net investment that is subject to foreign currency fluctuations totaled $93.1 million, and the Company has recorded a cumulative foreign currency translation loss of $1.9 million, net of deferred income tax benefit. This cumulative translation loss is included in Accumulated Other Comprehensive Loss. From time to time, the Company may enter into forward foreign exchange contracts to hedge the impact of foreign currency fluctuations. There were no such foreign exchange contracts outstanding at December 31, 2012.

The Company has a $25.0 million revolving credit agreement with a bank. Under the terms of the agreement, the Company has the option of choosing either the bank’s fluctuating Base Rate or LIBOR Fixed Rate, plus an Applicable Margin, all as defined in the credit agreement. There were no borrowings outstanding under the agreement at December 31, 2012. The Company does not believe that it has any material exposure to market risk associated with interest rates.

The Company is subject to the risk of market price fluctuations of certain commodities, such as natural gas, and utilizes forward purchase contracts to manage or reduce market risks relating to these costs. The Company

does not enter into these transactions for speculative or trading purposes. The Company expects to take delivery of the underlying natural gas and, as such, does not currently believe the market risk exposure on these instruments to be material. As of December 31, 2012, $75.3 million of natural gas forward contracts were outstanding for delivery of gas through 2017.

Item 8.

Financial Statements and Supplementary Data

The information required by this Item is contained in pages F-3 through F-22 of this Report.

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.

Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of December 31, 2012, management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurances of achieving their control objectives. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

(b) Management’s Report on Internal Control Over Financial Reporting

For Management’s Report on Internal Control Over Financial Reporting, see page F-1 of this Report.

For the Report of Independent Registered Public Accounting Firm on the Company’s internal control over financial reporting, see page F-2 of this Report.

(d) Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2012, that materially affected, or are reasonably likely to materially affect, those controls.

Item 9B.

Other Information

Not applicable.

PART III

Certain information required by Part III is omitted from this Report. The Company 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 included in the Proxy Statement.

Item 10.

Directors, Executive Officers and Corporate Governance

Information concerning executive officers under Item 401 of Regulation S-K is set forth in Part I of this Form 10-K. The other information required by this Item is incorporated by reference to the portions of the Company’s Proxy Statement entitled “Security Ownership of Certain Beneficial Owners and Management,” “Election of Directors,” “Board of Directors, Committees of the Board of Directors and Meeting Attendance,” “Code of Business Conduct and Ethics,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Report of the Audit Committee.”

Item 11.

Executive Compensation

The information required by this Item is incorporated by reference to the portions of the Company’s Proxy Statement entitled “Compensation of Executive Officers,” “Director Compensation” and “Potential Termination and Change in Control Payments.”

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item is incorporated by reference from the Company’s Proxy Statement under the captions “Securities Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information.”

Item 13.

Certain Relationships and Related Transactions, and Director Independence

The information required by this Item is incorporated by reference to the portion of the Company’s Proxy Statement entitled “Election of Directors.”

Item 14.

Principal Accounting Fees and Services

The information required by this Item is incorporated by reference to the portion of the Company’s Proxy Statement entitled “Ratification of Appointment of the Company’s Independent Registered Public Accounting Firm.”

PART IV

Item 15.

Exhibits, Financial Statement Schedules

(a)

Exhibits, Financial Statements and Financial Statement Schedules:

Consolidated Financial Statements

The Consolidated Financial Statements of CARBO Ceramics Inc. listed below are contained in pages F-3 through F-22 of this Report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at December 31, 2012 and 2011

Consolidated Statements of Income for each of the three years ended December 31, 2012, 2011 and 2010

Consolidated Statements of Comprehensive Income for each of the three years ended December 31, 2012, 2011 and 2010

Consolidated Statements of Shareholders’ Equity for each of the three years ended December 31, 2012, 2011 and 2010

Consolidated Statements of Cash Flows for each of the three years ended December 31, 2012, 2011 and 2010

Consolidated Financial Statement Schedules

All schedules have been omitted since they are either not required or not applicable.

Exhibits

The exhibits listed on the accompanying Exhibit Index are filed as part of, or incorporated by reference into, this Report.

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/ Gary A Kolstad
		Gary A. Kolstad
		President and Chief Executive Officer

By:		/s/ Ernesto Bautista III
		Ernesto Bautista III
		Vice President and
		Chief Financial Officer

Dated: February 25, 2013

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gary A. Kolstad and Ernesto Bautista III, 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.


Signature	Title	Date

/s/ William C. Morris William C. Morris	Chairman of the Board	February 25, 2013

/s/ Gary A. Kolstad Gary A. Kolstad	President, Chief Executive Officer and Director (Principal Executive Officer)	February 25, 2013

/s/ Ernesto Bautista III Ernesto Bautista III	Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)	February 25, 2013

/s/ Sigmund L. Cornelius Sigmund L. Cornelius	Director	February 25, 2013

/s/ James B. Jennings James B. Jennings	Director	February 25, 2013

/s/ H.E. Lentz, Jr. H.E. Lentz, Jr.	Director	February 25, 2013

/s/ Randy L. Limbacher Randy L. Limbacher	Director	February 25, 2013

/s/ Robert S. Rubin Robert S. Rubin	Director	February 25, 2013

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management, including our Chief Executive Officer and our Chief Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control–Integrated Framework. Based on its assessment and those criteria, management has concluded that the Company maintained effective internal control over financial reporting as of December 31, 2012.

The Company’s independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on the Company’s internal control over financial reporting. That report is included herein.

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Shareholders

CARBO Ceramics Inc.

We have audited CARBO Ceramics Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control–Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). CARBO Ceramics Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

In our opinion, CARBO Ceramics Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of CARBO Ceramics Inc. as of December 31, 2012, and 2011, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012 and our report dated February 25, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana

February 25, 2013

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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, 2012 and 2011, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2012. 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 standards of the Public Company Accounting Oversight Board (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, 2012 and 2011, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2012, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), CARBO Ceramics Inc.’s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2013 expressed an unqualified opinion thereon.

/s/ Ernst & Young LLP

New Orleans, Louisiana

February 25, 2013

F-3

CARBO CERAMICS INC.

CONSOLIDATED BALANCE SHEETS

($ in thousands, except per share data)


	December 31,
	2012			2011
ASSETS
Current assets:
Cash and cash equivalents	$	90,635		$	41,270
Trade accounts and other receivables, net		103,258			112,014
Inventories:
Finished goods		102,625			105,233
Raw materials and supplies		38,061			26,783

Total inventories		140,686			132,016
Prepaid expenses and other current assets		4,293			4,023
Prepaid income taxes		—			3,279
Deferred income taxes		11,045			9,963

Total current assets		349,917			302,565
Property, plant and equipment:
Land and land improvements		19,700			14,512
Land-use and mineral rights		9,559			8,610
Buildings		67,866			67,120
Machinery and equipment		530,129			455,563
Construction in progress		39,564			48,778

Total		666,818			594,583
Less accumulated depreciation and amortization		240,586			201,924

Net property, plant and equipment		426,232			392,659
Goodwill		12,164			12,164
Intangible and other assets, net		20,565			33,477

Total assets	$	808,878		$	740,865

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	20,078		$	38,192
Accrued payroll and benefits		13,986			17,237
Accrued freight		4,925			10,911
Accrued utilities		3,707			3,704
Accrued income taxes		727			—
Other accrued expenses		7,407			9,022

Total current liabilities		50,830			79,066
Deferred income taxes		44,970			31,641
Shareholders’ equity:
Preferred stock, par value $0.01 per share, 5,000 shares authorized, none outstanding		—			—
Common stock, par value $0.01 per share, 80,000,000 and 40,000,000 shares authorized at December 31, 2012 and 2011, respectively; 23,092,906 and 23,106,358 shares issued and outstanding at December 31, 2012 and 2011, respectively		231			231
Additional paid-in capital		57,364			56,539
Retained earnings		657,423			577,253
Accumulated other comprehensive loss		(1,940	)		(3,865	)

Total shareholders’ equity		713,078			630,158

Total liabilities and shareholders’ equity	$	808,878		$	740,865

See accompanying notes to consolidated financial statements.

F-4

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF INCOME

($ in thousands, except per share data)


	Years ended December 31,
	2012			2011			2010
Revenues	$	645,536		$	625,705		$	473,082
Cost of sales		422,031			363,990			298,411

Gross profit		223,505			261,715			174,671
Selling, general and administrative expenses		64,033			62,381			52,635
Start-up costs		68			184			977
Loss on disposal or impairment of assets		518			1,548			1,449

Operating profit		158,886			197,602			119,610
Other income (expense):
Interest income, net		64			197			178
Foreign currency exchange loss, net		(76	)		(135	)		(96	)
Other, net		(284	)		(214	)		(343	)

		(296	)		(152	)		(261	)

Income before income taxes		158,590			197,450			119,349
Income taxes		52,657			67,314			40,633

Net income	$	105,933		$	130,136		$	78,716

Earnings per share:
Basic	$	4.59		$	5.62		$	3.41

Diluted	$	4.59		$	5.62		$	3.40

See accompanying notes to consolidated financial statements.

F-5

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

($ in thousands)


	Years ended December 31,
	2012			2011			2010
Net income	$	105,933		$	130,136		$	78,716
Other comprehensive income:
Foreign currency translation adjustment		2,960			(1,198	)		496
Deferred income tax (expense) benefit		(1,035	)		1,447			599

Other comprehensive income, net of tax		1,925			249			1,095

Comprehensive income	$	107,858		$	130,385		$	79,811

See accompanying notes to consolidated financial statements.

F-6

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

($ in thousands, except per share data)


	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total
Balances at January 1, 2010	$	231		$	54,361		$	407,933		$	(5,209	)	$	457,316
Net income		—			—			78,716			—			78,716
Foreign currency translation adjustment, net of tax benefit of ($599)		—			—			—			1,095			1,095

Comprehensive income														79,811
Exercise of stock options		—			254			—			—			254
Tax benefit from stock based compensation		—			801			—			—			801
Stock granted under restricted stock plan, net		—			79			—			—			79
Stock based compensation		—			3,192			—			—			3,192
Shares repurchased and retired		—			(1,212	)		—			—			(1,212	)
Shares surrendered by employees to pay taxes		—			—			(692	)		—			(692	)
Cash dividends ($0.76 per share)		—			—			(17,570	)		—			(17,570	)

Balances at December 31, 2010		231			57,475			468,387			(4,114	)		521,979
Net income		—			—			130,136			—			130,136
Foreign currency translation adjustment, net of tax benefit of ($1,447)		—			—			—			249			249

Comprehensive income														130,385
Exercise of stock options		—			76			—			—			76
Tax benefit from stock based compensation		—			1,412			—			—			1,412
Stock granted under restricted stock plan, net		—			223			—			—			223
Stock based compensation		—			4,002			—			—			4,002
Shares repurchased and retired		—			(6,649	)		—			—			(6,649	)
Shares surrendered by employees to pay taxes		—			—			(901	)		—			(901	)
Cash dividends ($0.88 per share)		—			—			(20,369	)		—			(20,369	)

Balances at December 31, 2011		231			56,539			577,253			(3,865	)		630,158
Net income		—			—			105,933			—			105,933
Foreign currency translation adjustment, net of tax expense of $1,035		—			—			—			1,925			1,925

Comprehensive income														107,858
Exercise of stock options		—			54			—			—			54
Tax benefit from stock based compensation		—			1,388			—			—			1,388
Stock granted under restricted stock plan, net		1			206			—			—			207
Stock based compensation		—			4,903			—			—			4,903
Shares repurchased and retired		(1	)		(5,726	)		—			—			(5,727	)
Shares surrendered by employees to pay taxes		—			—			(2,200	)		—			(2,200	)
Cash dividends ($1.02 per share)		—			—			(23,563	)		—			(23,563	)

Balances at December 31, 2012	$	231		$	57,364		$	657,423		$	(1,940	)	$	713,078

See accompanying notes to consolidated financial statements.

F-7

CARBO CERAMICS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in thousands)


	Years ended December 31,
	2012			2011			2010
Operating activities
Net income	$	105,933		$	130,136		$	78,716
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		44,893			36,015			27,728
Provision for doubtful accounts		19			229			40
Deferred income taxes		11,212			4,223			2,662
Excess tax benefits from stock based compensation		(1,384	)		(1,399	)		(759	)
Loss on disposal or impairment of assets		518			1,548			1,449
Foreign currency transaction loss, net		76			135			96
Stock compensation expense		5,335			4,719			3,812
Changes in operating assets and liabilities:
Trade accounts and other receivables		8,945			(23,101	)		(29,857	)
Inventories		(7,589	)		(41,704	)		(10,818	)
Prepaid expenses and other current assets		(150	)		(1,142	)		(174	)
Long-term prepaid expenses		12,005			(24,083	)		(14	)
Accounts payable		(18,201	)		15,971			13,439
Accrued expenses		(10,628	)		11,846			8,160
Accrued income taxes, net		5,397			(1,980	)		(2,695	)

Net cash provided by operating activities		156,381			111,413			91,785
Investing activities
Capital expenditures		(77,189	)		(90,395	)		(96,566	)
Acquisition of BBL Falcon Industries, Ltd.		—			—			193
Purchase of short-term investment		—			—			(4,989	)
Proceeds from maturity of short-term investment		—			—			4,989

Net cash used in investing activities		(77,189	)		(90,395	)		(96,373	)
Financing activities
Proceeds from bank borrowings		10,000			—			—
Repayments on bank borrowings		(10,000	)		—			—
Net proceeds from stock based compensation		54			76			254
Dividends paid		(23,563	)		(20,369	)		(17,570	)
Purchase of common stock		(7,927	)		(7,550	)		(1,904	)
Excess tax benefits from stock based compensation		1,384			1,399			759

Net cash used in financing activities		(30,052	)		(26,444	)		(18,461	)
Effect of exchange rate changes on cash		225			40			148

Net increase (decrease) in cash and cash equivalents		49,365			(5,386	)		(22,901	)
Cash and cash equivalents at beginning of year		41,270			46,656			69,557

Cash and cash equivalents at end of year	$	90,635		$	41,270		$	46,656

Supplemental cash flow information
Interest paid	$	78		$	1		$	2

Income taxes paid	$	36,036		$	65,071		$	40,667

See accompanying notes to consolidated financial statements.

F-8

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in thousands, except per share data)

1.	Significant Accounting Policies

Description of Business

CARBO Ceramics Inc. (the “Company”) was formed in 1987 and is a manufacturer of ceramic proppants. During 2010, the Company began production of resin-coated ceramic and resin-coated sand proppants. The Company has six production plants in: New Iberia, Louisiana; Eufaula, Alabama; McIntyre, Georgia; Toomsboro, Georgia; Luoyang, China; and Kopeysk, Russia. The Company predominantly markets its proppant products through pumping service companies that perform hydraulic fracturing for oil and gas companies. Finished goods inventories are stored at the plant sites and various domestic and international remote distribution facilities. The Company also provides the industry’s most popular hydraulic fracture simulation software FracPro ^® , as well as hydraulic fracture design and consulting services. In addition, the Company provides a broad range of technologies for spill prevention, containment and countermeasures. The Company wound-down its geotechnical monitoring business in late 2012.

Principles of Consolidation

The consolidated financial statements include the accounts of CARBO Ceramics Inc. and its operating subsidiaries. All significant intercompany transactions have been eliminated.

Concentration of Credit Risk, Accounts Receivable and Other Receivables

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. The Company establishes an allowance for doubtful accounts based on its assessment of collectability risk and periodically evaluates the balance in the allowance based on a review of trade accounts receivable. Trade accounts receivable are periodically reviewed for collectability based on customers’ past credit history and current financial condition, and the allowance is adjusted if necessary. Credit losses historically have been insignificant. The allowance for doubtful accounts at December 31, 2012 and 2011 was $1,844 and $1,933, respectively. Other receivables were $1,732 and $1,968 as of December 31, 2012 and 2011, respectively, of which 2012 related mainly to miscellaneous receivables in the United States and China. Other receivables for 2011 related mainly to miscellaneous receivables in the United States and China and value added tax receivables in Russia and China.

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.

Inventories

Inventories are stated at the lower of cost (weighted average) or market. Finished goods inventories include costs of materials, plant labor and overhead incurred in the production of the Company’s products and costs to transfer finished goods to distribution centers.

F-9

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

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:


Buildings and improvements		15 to 30 years
Machinery and equipment		3 to 30 years
Land-use rights		30 years

The Company holds approximately 4,150 acres of land and leasehold interests containing kaolin reserves near its plants in Georgia and Alabama. The Company also holds approximately 490 acres of land and leasehold interests near its resin-coating facility currently under construction in Marshfield, Wisconsin containing sand reserves for use as raw material in the production of its resin-coated sand products. The capitalized costs of land and mineral rights as well as costs incurred to develop such property are amortized using the units-of-production method based on estimated total tons of these reserves.

Impairment of Long-Lived Assets and Intangible Assets

Long-lived assets to be held and used and intangible assets that are subject to amortization are reviewed for impairment whenever events or circumstances indicate their carrying amounts might not be recoverable. Recoverability is assessed by comparing the undiscounted expected future cash flows from the assets with their carrying amount. If the carrying amount exceeds the sum of the undiscounted future cash flows an impairment loss is recorded. The impairment loss is measured by comparing the fair value of the assets with their carrying amounts. Intangible assets that are not subject to amortization are tested for impairment at least annually by comparing their fair value with the carrying amount and recording an impairment loss for any excess of carrying amount over fair value. Fair values are generally determined based on discounted expected future cash flows or appraised values, as appropriate. During 2012, 2011 and 2010, the Company recognized losses of $518, $1,548 and $1,449, respectively, on disposal or impairment of various assets. The loss in 2012 consisted primarily of the wind down of the geotechnical monitoring business. The loss in 2011 consisted of an impairment of goodwill related to the Company’s geotechnical monitoring business, a write-down of a 6% interest in an investment accounted for under the cost method as a result of the sale of the business by majority shareholders and certain equipment disposals. The loss in 2010 consisted of an impairment of goodwill related to the Company’s geotechnical monitoring business and equipment disposals.

Capitalized Software

The Company capitalizes certain software costs, after technological feasibility has been established, which are amortized utilizing the straight-line method over the economic lives of the related products, not to exceed five years.

Goodwill

Goodwill represents the excess of the cost of companies acquired over the fair value of their net assets at the date of acquisition. Goodwill relating to each of the Company’s reporting units is tested for impairment annually as well as when an event, or change in circumstances, indicates an impairment is more likely than not to have occurred. As a result of changes in business conditions in the geotechnical monitoring business during 2011 and 2010, the Company recorded an impairment charge of $889 and $470, respectively, on goodwill associated with that reporting unit. The latest impairment review indicated goodwill related to other reporting units was not impaired.

F-10

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

Revenue Recognition

Revenue from proppant sales is recognized when title passes to the customer, generally upon delivery. Revenue from consulting and geotechnical services is recognized at the time service is performed. Revenue from the sale of fracture simulation software is recognized when title passes to the customer at time of shipment. Revenue from the sale of spill prevention services is recognized at the time service is performed. Revenue from the sale of containment goods is recognized at the time goods are delivered.

Shipping and Handling Costs

Shipping and handling costs are classified as cost of sales. Shipping costs consist of transportation costs to deliver products to customers. Handling costs include labor and overhead to maintain finished goods inventory and operate distribution facilities.

Cost of Start-Up Activities

Start-up activities, including organization costs, are expensed as incurred. Start-up costs for 2012 primarily related to the start-up of the second resin-coating line at the Company’s New Iberia, Louisiana facility. Start-up costs for 2011 primarily related to the start-up of the fourth production line at the Company’s Toomsboro, Georgia facility. Start-up costs for 2010 related to the start-up of the first resin-coating line within the Company’s New Iberia, Louisiana facility and the start-up of the third production line at the Company’s Toomsboro, Georgia facility. Start-up costs include organizational and administrative costs associated with the facilities as well as labor, materials, and utilities to bring installed equipment to operating condition.

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 2012, 2011 and 2010 were $6,916, $7,335 and $5,279, respectively.

Foreign Subsidiaries

Financial statements of the Company’s foreign subsidiaries are translated using current exchange rates for assets and liabilities; average exchange rates for the period for revenues, expenses, gains and losses; and historical exchange rates for equity accounts. Resulting translation adjustments are included in, and the only component of, Accumulated Other Comprehensive Loss as a separate component of shareholders’ equity.

New Accounting Pronouncements

In July 2012, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2012-02, “Intangibles — Goodwill and Other (ASC Topic 350),” (“ASU 2012-02”). This accounting update allows entities to perform a qualitative assessment on intangible assets impairment to determine whether it is more likely than not (defined as having a likelihood of more than 50 percent) that the intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test by comparing the fair value with the carrying amount. This guidance is effective for intangible assets impairment tests performed in interim and

F-11

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

annual periods for fiscal years beginning after September 15, 2012. The Company does not expect the adoption of this guidance to have a material impact on the Company’s financial position, results of operations or cash flows.

In September 2011, the FASB issued updated authoritative guidance on goodwill impairment. This update allows for entities to perform a qualitative assessment on goodwill impairment to determine whether it is more likely than not (defined as having a likelihood of more than 50 percent) that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The Company adopted this guidance as of January 1, 2012. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

In June 2011, the FASB issued updated authoritative guidance on the presentation of comprehensive income. This update requires the presentation of the components of net income and other comprehensive income either in a single continuous statement or in two separate but consecutive statements. The requirement to present reclassification adjustments for items that are reclassified from other comprehensive income to net income on the face of the financial statement has been deferred by the FASB. The Company adopted this guidance as of January 1, 2012. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows. Net income and other comprehensive income has been presented in two separate but consecutive statements for the current reporting period and prior comparative periods in the consolidated financial statements.

In December 2010, the FASB issued authoritative guidance on application of the goodwill impairment model when a reporting unit has a zero or negative carrying amount. When a reporting unit has a zero or negative carrying value, Step 2 of the goodwill impairment test should be performed if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The guidance is effective for the Company beginning in the first quarter of fiscal 2012. The Company adopted this guidance as of January 1, 2012. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

In December 2010, the FASB issued authoritative guidance on disclosure of supplementary pro forma information for business combinations. The new guidance requires that pro forma financial information should be prepared as if the business combination occurred as of the beginning of the prior annual period. The guidance is effective for the Company for business combinations with acquisition dates occurring in and from the first quarter of fiscal 2012. The Company adopted this guidance as of January 1, 2012. The adoption did not have a material impact on the Company’s financial position, results of operations or cash flows.

2.	Intangible and Other Assets

Following is a summary of intangible assets as of December 31:


	Weighted Average Life		2012				2011
	Weighted Average Life		Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
Intangibles:
Patents and licenses, software and hardware designs		6 years	$	3,955	$	1,684	$	4,225	$	1,661
Developed technology		10 years		2,782		904		2,782		626
Customer relationships and non-compete		9 years		2,838		1,092		2,838		756
Trademark		Indefinite		833		—		833		—

			$	10,408	$	3,680	$	10,678	$	3,043

F-12

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

Amortization expense for 2012, 2011 and 2010 was $1,224, $1,131 and $1,043, respectively. Estimated amortization expense for each of the ensuing years through December 31, 2017 is $1,117, $1,105, $1,030, $784 and $638, respectively.

Following is a summary of other assets as of December 31:


	2012		2011
Other assets:
Bauxite raw materials:
Inventories	$	13,143	$	23,842
Prepayments		474		1,174
Other assets		220		826

	$	13,837	$	25,842

Bauxite raw materials are used in the production of heavyweight ceramic products. As of December 31, 2012 and 2011, the Company has classified as long-term assets those bauxite raw materials inventories and prepayments in the United States that are not expected to be consumed in production during the upcoming twelve month period.

3.	Bank Borrowings

The Company has an unsecured revolving credit agreement with a bank. On March 5, 2012, the Company entered into a first amendment to this credit agreement to (i) extend its maturity date from January 29, 2013 to July 29, 2013, (ii) increase the size from $10,000 to $25,000, and (iii) make other administrative changes to certain covenants and provisions. The Company has the option of choosing either the bank’s fluctuating Base Rate or LIBOR Fixed Rate, plus an Applicable Margin, all as defined in the credit agreement. The terms of the credit agreement provide for certain affirmative and negative covenants and require the Company to maintain certain financial ratios. Commitment fees are payable quarterly at the annual rate of 0.50% of the unused line of credit. Commitment fees for 2012, 2011 and 2010 were $107, $51 and $47, respectively.

4.	Leases

The Company leases certain property, plant and equipment under operating leases, primarily consisting of railroad equipment leases. Minimum future rental payments due under non-cancelable operating leases with remaining terms in excess of one year as of December 31, 2012 are as follows:


2013	$	15,127
2014		17,123
2015		16,640
2016		13,939
2017		12,440
Thereafter		45,266

Total	$	120,535

Leases of railroad equipment generally provide for renewal options at their fair rental value at the time of renewal. In the normal course of business, operating leases for railroad equipment are generally renewed or replaced by other leases. Rent expense for all operating leases was $21,452 in 2012, $11,590 in 2011 and $9,054 in 2010.

F-13

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

5.	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:


	2012		2011
Deferred tax assets:
Employee benefits	$	1,032	$	1,501
Inventories		7,161		5,797
Goodwill		1,842		2,323
Other		3,761		4,747

Total deferred tax assets		13,796		14,368

Deferred tax liabilities:
Depreciation		45,056		35,402
Foreign earnings		2,665		644

Total deferred tax liabilities		47,721		36,046

Net deferred tax liabilities	$	33,925	$	21,678

Foreign earnings in the table above are presented net of foreign tax credits of $4,432 and $3,868 as of December 31, 2012 and 2011, respectively, which are expected to be utilized upon repatriation of the foreign earnings.

Significant components of the provision for income taxes for the years ended December 31 are as follows:


	2012		2011		2010
Current:
Federal	$	37,596	$	57,429	$	34,061
State		2,268		4,288		3,303
Foreign		1,581		1,374		607

Total current		41,445		63,091		37,971
Deferred		11,212		4,223		2,662

	$	52,657	$	67,314	$	40,633

Provision has been made for deferred U.S. income taxes on all foreign earnings based on the Company’s intent to repatriate foreign earnings. The reconciliation of income taxes computed at the U.S. statutory tax rate to the Company’s income tax expense for the years ended December 31 is as follows:


	2012						2011						2010
	Amount			Percent			Amount			Percent			Amount			Percent
U.S. statutory rate	$	55,507			35.0	%	$	69,107			35.0	%	$	41,772			35.0	%
State income taxes, net of federal tax benefit		2,199			1.4			3,103			1.6			2,148			1.8
Mining depletion		(2,606	)		(1.6	)		(1,162	)		(0.6	)		(1,227	)		(1.0	)
Section 199 Manufacturing Benefit and other		(2,443	)		(1.6	)		(3,734	)		(1.9	)		(2,060	)		(1.8	)

	$	52,657			33.2	%	$	67,314			34.1	%	$	40,633			34.0	%

F-14

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

The Company had a recorded reserve of $227 associated with uncertain tax positions as of December 31, 2012 and there were no significant changes to the recorded reserve during 2012. If these uncertain tax positions are recognized, substantially all of this amount would impact the effective tax rate. Related accrued interest and penalties are recorded in income tax expense and are not material.

The Company files its tax returns as prescribed by the tax laws of the jurisdictions in which it operates, the most significant of which are U.S. federal and certain state jurisdictions. The Company does not currently have material income tax exposure in foreign jurisdictions due to tax holidays, recent commencement of operations or immaterial operations. The 2009 and subsequent tax years are still subject to examination. Various U.S. state jurisdiction tax years remain open to examination as well though the Company believes assessments, if any, would be immaterial to its consolidated financial statements.

6.	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, 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, holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of any Preferred Stock 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 non-assessable.

On January 22, 2013, the Board of Directors declared a cash dividend of $0.27 per share. The dividend is payable on February 15, 2013 to shareholders of record on February 1, 2013.

Preferred Stock

The Company’s charter authorizes 5,000 shares of Preferred Stock. The Board of Directors has the authority to issue 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. In connection with adoption of a shareholder rights plan on February 13, 2002, the Company created the Series A Preferred Stock and authorized 2,000 shares of the Series A Preferred Stock.

Shareholder Rights Plan

On February 13, 2002, the Company adopted a shareholder rights plan and declared a dividend of one right for each outstanding share of Common Stock to shareholders of record on February 25, 2002. With certain exceptions, the rights become exercisable if a tender offer for the Company is announced or any person or group acquires beneficial ownership of at least 15 percent of the Company’s Common Stock. If exercisable, each right entitles the holder to purchase one fifteen-thousandth of a share of Series A Preferred Stock at an exercise price of $133 and, if any person or group acquires beneficial ownership of at least 15 percent of the Company’s Common Stock, to acquire a number of shares of Common Stock having a market value of two times the $133 exercise price. The Company may redeem the rights for $0.01 per right at any time before any person or group acquires beneficial ownership of at least 15 percent of the Common Stock. The rights expired on February 13, 2012.

F-15

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

Common Stock Repurchase Program

On August 28, 2008, the Company’s Board of Directors authorized the repurchase of up to two million shares of the Company’s Common Stock. Shares are effectively retired at the time of purchase. During the years ended December 31, 2012, 2011 and 2010, the Company repurchased and retired 60,000, 55,000 and 19,500 shares respectively, at an aggregate price of $5,727, $6,649 and $1,212, respectively. As of December 31, 2012, the Company has repurchased and retired 1,877,576 shares at an aggregate price of $78,301.

7.	Stock Based Compensation

The CARBO Ceramics Inc. Omnibus Incentive Plan (the “Omnibus Incentive Plan”) provides for granting of cash-based awards, stock options (both non-qualified and incentive) and other equity-based awards (including stock appreciation rights, phantom stock, restricted stock, restricted stock units, performance shares, deferred share units or share-denominated performance units) to employees and non-employee directors. The amount paid under the Omnibus Incentive Plan to any single participant in any calendar year with respect to any cash-based award shall not exceed $2,000. Awards may be granted with respect to a number of shares of the Company’s Common Stock that in the aggregate does not exceed 750,000 shares prior to the fifth anniversary of its effective date, plus (i) the number of shares that are forfeited, cancelled or returned, and (ii) the number of shares that are withheld from the participants to satisfy an option exercise price or minimum statutory tax withholding obligations. No more than 50,000 shares may be granted to any single participant in any calendar year. Equity-based awards may be subject to performance-based and/or service-based conditions. With respect to stock options and stock appreciation rights granted, the exercise price shall not be less than the market value of the underlying Common Stock on the date of grant. The maximum term of an option is ten years. Restricted stock awards granted generally vest (i.e., transfer and forfeiture restrictions on these shares are lifted) in equal annual installments over a three-year period, but subject to certain limitations, awards may specify other vesting periods. As of December 31, 2012, 563,666 shares were available for issuance under the Omnibus Incentive Plan.

As of December 31, 2012, all compensation cost related to stock options granted under the expired stock option plan has been recognized. During 2012, a total of 2,425 options, with a weighted-average exercise price of $22.35 per share, were exercised. There were no options outstanding at December 31, 2012. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010 was $118, $346, and $250, respectively.

A summary of restricted stock activity and related information for the year ended December 31, 2012 is presented below:


	Shares			Weighted- Average Grant-Date Fair Value
Nonvested at January 1, 2012		129,082		$	75.00
Granted		74,460		$	105.22
Vested		(74,887	)	$	62.71
Forfeited		(12,933	)	$	101.02

Nonvested at December 31, 2012		115,722		$	99.50

As of December 31, 2012, there was $6,138 of total unrecognized compensation cost, net of estimated forfeitures, related to restricted shares granted under the Omnibus Incentive Plan. That cost is expected to be

F-16

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

recognized over a weighted-average period of 1.8 years. The weighted-average grant date fair value of restricted stock granted during the years ended December 31, 2011 and 2010 was $104.07 and $68.80, respectively. The total fair value of shares vested during the years ended December 31, 2012, 2011 and 2010 was $4,696, $2,712 and $2,141, respectively.

The Company has made phantom stock awards to key international employees pursuant to the Omnibus Incentive Plan. The units subject to an award vest and cease to be forfeitable in equal annual installments over a three-year period. Participants awarded units of phantom shares are entitled to a lump sum cash payment equal to the fair market value of a share of Common Stock on the vesting date. In no event will Common Stock of the Company be issued with regard to outstanding phantom shares. As of December 31, 2012, there were 10,105 units of phantom shares granted under the plan, of which 3,429 have vested and 1,304 have been forfeited, with a total value of $421, a portion of which is accrued as a liability within Accrued Payroll and Benefits.

8.	Earnings Per Share

ASC Topic 260, “ Earnings Per Share ”, provides that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities and shall be included in the computation of earnings per share pursuant to the two-class method. The Company’s outstanding non-vested restricted stock awards are participating securities. Accordingly, earnings per common share are computed using the two-class method.

The following table sets forth the computation of basic and diluted earnings per share under the two-class method:


	2012			2011			2010
Numerator for basic and diluted earnings per share:
Net income	$	105,933		$	130,136		$	78,716
Effect of reallocating undistributed earnings of participating securities		(553	)		(749	)		(485	)

Net income available under the two-class method	$	105,380		$	129,387		$	78,231

Denominator:
Denominator for basic earnings per share—weighted-average shares		22,968,696			23,011,087			22,969,360
Effect of dilutive securities:
Employee stock options (See Note 7)		625			1,332			3,802
Deferred stock awards (See Note 7)		—			—			4,034

Dilutive potential common shares		625			1,332			7,836

Denominator for diluted earnings per share—adjusted weighted-average shares		22,969,321			23,012,419			22,977,196

Basic earnings per share	$	4.59		$	5.62		$	3.41

Diluted earnings per share	$	4.59		$	5.62		$	3.40

F-17

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

9.	Quarterly Operating Results—(Unaudited)

Quarterly results for the years ended December 31, 2012 and 2011 were as follows:


	Three Months Ended
	March 31		June 30		September 30		December 31
2012
Revenues	$	163,166	$	177,614	$	151,134	$	153,622
Gross profit		63,464		64,253		50,150		45,638
Net income		30,291		31,917		23,898		19,827
Earnings per share:
Basic	$	1.31	$	1.38	$	1.04	$	0.86
Diluted	$	1.31	$	1.38	$	1.04	$	0.86
2011
Revenues	$	150,830	$	149,669	$	167,083	$	158,123
Gross profit		62,056		62,118		72,693		64,848
Net income		30,164		29,944		36,911		33,117
Earnings per share:
Basic	$	1.30	$	1.29	$	1.59	$	1.43
Diluted	$	1.30	$	1.29	$	1.59	$	1.43

Quarterly data may not sum to full year data reported in the Consolidated Financial Statements due to rounding.

10.

Sales to Customers

The following schedule presents customers from whom the Company derived 10% or more of total revenues for the years ended December 31:


	Major Customers
	A			B
2012		13.7	%		35.2	%
2011		15.0	%		33.3	%
2010		15.0	%		37.5	%

11.

Geographic Information

Long-lived assets, consisting of net property, plant and equipment and other long-term assets, as of December 31 in the United States and other countries are as follows:


	2012		2011		2010
Long-lived assets:
United States	$	403,534	$	377,667	$	294,368
International (primarily China and Russia)		36,535		40,835		46,391

Total	$	440,069	$	418,502	$	340,759

F-18

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

Revenues outside the United States accounted for 23%, 21% and 23% of the Company’s revenues for 2012, 2011 and 2010, respectively. Revenues for the years ended December 31 in the United States, Canada and other countries are as follows:


	2012		2011		2010
Revenues:
United States	$	500,106	$	495,777	$	365,346
Canada		30,929		34,001		28,926
Other international		114,501		95,927		78,810

Total	$	645,536	$	625,705	$	473,082

12.

Benefit Plans

The Company has defined contribution savings and profit sharing plans pursuant to Section 401(k) of the Internal Revenue Code. Benefit costs recognized as expense under these plans consisted of the following for the years ended December 31:


	2012		2011		2010
Contributions:
Profit sharing	$	2,132	$	2,690	$	1,606
Savings		1,241		1,081		847

	$	3,373	$	3,771	$	2,453

All contributions to the plans are 100% participant directed. Participants are allowed to invest up to 20% of contributions in the Company’s Common Stock.

13.

Commitments

For the year ended December 31, 2010, the Company purchased $3,603 of kaolin for its Eufaula, Alabama plant under an existing seven year agreement. This agreement expired December 31, 2010. Effective January 1, 2011, the Company entered into a new agreement with another one of the Company’s existing suppliers. The term of the agreement was three years, with options to extend for an additional six years, and required the Company to purchase from the supplier at least 70 percent of the annual kaolin requirements for the Eufaula plant at specified contract prices. In May 2012, the agreement was amended to require the Company to purchase from the supplier at least 50 percent of the annual kaolin requirements for the Eufaula, Alabama plant at specified contract prices for the remainder of 2012 and the ensuing five calendar years. The agreement has options to extend the term for an additional three years. For the years ended December 31, 2012 and 2011, the Company purchased from the supplier $3,012 and $3,205, respectively, of kaolin under the agreement.

In January 2003, the Company entered into a mining agreement with a contractor to provide kaolin for the Company’s McIntyre plant at specified contract prices, from lands owned or leased by either the Company or the contractor. The term of the agreement, which commenced on January 1, 2003, and remains in effect until such time as all Company-owned minerals have been depleted, requires the Company to accept delivery from the contractor of at least 80 percent of the McIntyre plant’s annual kaolin requirements. For the years ended December 31, 2012, 2011 and 2010, the Company purchased $2,491, $2,900 and $1,687, respectively, of kaolin under the agreement.

F-19

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

In October 2008, the Company entered into a ten-year agreement, with options to extend for an additional ten years, to purchase a minimum of 40,000 tons of uncalcined bauxite each year during the first three years of the agreement. Thereafter, the minimum required purchase increased to 70,000 tons annually. The bauxite is purchased at specified contract prices. After meeting annual minimum requirements for the first three years, the agreement was terminated in 2012 with no further required minimum purchases. For the years ended December 31, 2011 and 2010, the Company purchased $1,400 and $1,400, respectively, of bauxite under the agreement.

In 2002, the Company entered into a five-year agreement and a ten-year agreement with two different suppliers to purchase bauxite and hard clays for its China plant at specified contract prices. The five-year agreement, which was automatically renewed for an additional three years, expired in 2010. The ten-year agreement, which expired in 2011, required the Company to accept delivery from the supplier for at least 80 percent of the plant’s annual requirements. For the years ended December 31, 2011 and 2010, the Company purchased $2,918 and $2,834, respectively, of material under these agreements.

In July 2011, the Company entered into a new agreement with a supplier to provide hydro sized sand for the Company’s Marshfield, Wisconsin plant at a specified contract price. The term of the agreement was five years commencing on July 30, 2011 and required the Company to purchase a minimum of 40,000 tons and 100,000 tons of hydro sized sand during 2011 and 2012, respectively. Effective January 30, 2012, the agreement was amended and requires the Company to purchase a minimum of 150,000 tons of hydro sized sand annually during 2012 and 2013 and a minimum of 350,000 tons of hydro sized sand in 2014, all at a stated contract price. For the years ended December 31, 2012 and 2011, the Company purchased $2,538 and $462, respectively, of sand under this agreement.

In May 2012, the Company entered into a new supply agreement to provide kaolin and bauxite to a manufacturing plant in Millen, Georgia, once operations commence. Construction of the facility is expected to be completed in early 2014. The agreement requires the Company to purchase at least 50 percent of the plant’s annual requirements of such products, and has an initial term of five years with options to extend for an additional five years.

The Company has entered into a lease agreement dated November 1, 2008 with the Development Authority of Wilkinson County (the “Wilkinson County Development Authority”) and a lease agreement dated November 1, 2012 with the Development Authority of Jenkins County (the “Jenkins County Development Authority” and together with the Wilkinson County Development Authority, the “Development Authorities”) each in the State of Georgia. Pursuant to the 2008 agreement, the Wilkinson County Development Authority holds the title to the real and personal property of the Company’s McIntyre and Toomsboro manufacturing facilities and leases the facilities to the Company for an annual rental fee of $50 per year through the year 2022. Pursuant to the 2012 agreement, the Jenkins County Development Authority holds title to the real estate and personal property of the Company’s Millen, Georgia manufacturing facility, which is currently under construction, and leases the facility to the Company until the tenth anniversary of completion of the final phase of the facility. At any time prior to the scheduled termination of either lease, the Company has the option to terminate the lease and purchase the property for a nominal fee plus the payment of any rent payable through the balance of the lease term. Furthermore, the Company has security interests in the titles held by the Development Authorities. The Company has also entered into a Memorandum of Understanding (the “MOU”) with the Development Authorities and other local agencies, under which the Company receives tax incentives in exchange for its commitment to invest in the county and increase employment. The MOU with the Jenkins County Development Authority also requires the Company to pay an administrative payment of $50 per year during the

F-20

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

term of the Millen lease. The Company is required to achieve certain employment levels in order to retain its tax incentives. In the event the Company does not meet the agreed-upon employment targets or the MOU is otherwise terminated, the Company would be subjected to additional property taxes annually. The properties subject to these lease agreements are included in Property, Plant and Equipment (net book value of $251,602 at December 31, 2012) in the accompanying consolidated financial statements.

The Company uses natural gas to power its domestic manufacturing plants. From time to time the Company enters into contracts to purchase a portion of the anticipated natural gas requirements at specified prices. As of December 31, 2012, the Company had natural gas contracts totaling $25,087, $18,679, $18,679, $11,619 and $1,220 for years ended 2013, 2014, 2015, 2016 and 2017, respectively.

14.

Employment Agreements

The Company has an employment agreement through December 31, 2013 with its President and Chief Executive Officer. The agreement provides for an annual base salary and incentive bonus. If the President and Chief Executive Officer is terminated early without cause, the Company will be obligated to pay two years base salary and a prorated incentive bonus. Under the agreement, the timing of the payment of severance obligations to the President in the event of the termination of his employment under certain circumstances has been conformed so that a portion of such obligations will be payable in a lump sum, with the remainder of the obligations to be paid over an 18 month period. The agreement also contains a two-year non-competition covenant that would become effective upon termination for any reason. The employment agreement extends automatically for successive one-year periods without prior written notice.

15.

Foreign Currencies

As of December 31, 2012, the Company’s net investment that is subject to foreign currency fluctuations totaled $93,095, and the Company has recorded a cumulative foreign currency translation loss of $1,940, net of deferred income tax benefit. This cumulative translation loss is included in Accumulated Other Comprehensive Loss.

16.

Legal Proceedings and Regulatory Matters

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-21

CARBO CERAMICS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

($ in thousands, except per share data)

Company’s business operations and business prospects that were made during the Relevant Time Period and requests unspecified damages and costs. In September 2012, the Company and Messrs. Kolstad and Bautista filed a motion to dismiss this lawsuit. Response and reply briefs on this motion were filed during the fourth quarter of 2012, and a decision from the Court is pending.

The Company cannot predict the ultimate outcome or duration of these lawsuits.

17.

Subsequent Events

In January 2013, the Company awarded 86,143 shares of restricted stock to certain employees. The fair value of the stock award on the date of grant totaled $6,942, which will be recognized as expense, net of estimated forfeitures, on a straight-line basis over the three-year vesting period.

In January 2013, the Company awarded 4,485 units of phantom shares to certain key international employees. The fair value of the stock award on the date of grant totaled $361.

In February 2013, the Company repurchased and retired 30,000 common shares at an aggregate price of $2,683 under the common stock repurchase program.

F-22

Exhibit Index



3.1		Restated Certificate of Incorporation of CARBO Ceramics Inc. (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 10-Q filed for the period ending June 30, 2012)

3.2		Second Amended and Restated By-Laws of CARBO Ceramics Inc. (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K Current Report filed March 20, 2009)

4.1		Form of Common Stock Certificate of CARBO Ceramics Inc. (incorporated by reference to Exhibit 4.1 of the Registrant’s Form S-1 Registration Statement No. 333-1884 filed July 19, 1996)

4.2		Certificate of Designations of Series A Preferred Stock (incorporated by reference to Exhibit 2 of the Registrant’s Form 8-A12B Registration Statement No. 001-15903 filed February 25, 2002)

10.1		Mining Agreement dated as of January 1, 2003 between CARBO Ceramics Inc. and Arcilla Mining & Land Co. (incorporated by reference to Exhibit 10.8 of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2002)

10.2		Addendum to Mining Agreement dated as of November 10, 2009 between CARBO Ceramics Inc. and Arcilla Mining & Land Co. (incorporated by reference to Exhibit 10.3 of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2010)

*10.3		Second Amended and Restated Employment Agreement dated effective as of January 1, 2012, by and between CARBO Ceramics Inc. and Gary A. Kolstad (incorporated by reference to Exhibit 10.8 of the Registrant’s Form 10-K filed for the period ending December 31, 2011)

10.4		Proppant Supply Agreement dated as of August 28, 2008 between CARBO Ceramics Inc. and Halliburton Energy Services, Inc. (incorporated by reference to Exhibit 10.3 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended September 30, 2008)

10.5		Amendment No. 1 to Proppant Supply Agreement dated as of February 28, 2011 between CARBO Ceramics Inc. and Halliburton Energy Services, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2011)

10.6		Side Letter to Proppant Supply Agreement dated as of August 26, 2011 between CARBO Ceramics Inc. and Halliburton Energy Services, Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended September 30, 2011)

10.7		Lease Agreement dated as of November 1, 2008 between the Development Authority of Wilkinson County and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed December 30, 2008)

10.8		Option Agreement dated as of November 1, 2008 between the Development Authority of Wilkinson County and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 8-K Current Report filed December 30, 2008)

10.9		Lease Agreement dated as of November 1, 2012 between the Development Authority of Jenkins County and CARBO Ceramics Inc.

*10.10		CARBO Ceramics Inc. Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed May 21, 2009)

*10.11		Form of Officer Restricted Stock Award Agreement for Omnibus Incentive Plan (incorporated by reference to Exhibit 10.20 of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2010)

*10.12		Form of Non-Employee Director Restricted Stock Award Agreement for Omnibus Incentive Plan (incorporated by reference to Exhibit 10.21 of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2010)

*10.13		Form of Performance-Based Cash Award Agreement for Omnibus Incentive Plan (incorporated by reference to Exhibit 10.4 of the Registrant’s Form 8-K Current Report filed May 21, 2009)



*10.14		Description of Annual Non-Employee Director Stock Grants (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended June 30, 2010)

*10.15		Description of Modification to Annual Non-Employee Director Stock Grants (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2011)

*10.16		Description of Modification to the Annual Non-Employee Director Stock Grants (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2012).

*10.17		CARBO Ceramics Inc. Omnibus Incentive Plan Annual Incentive Arrangement (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed January 21, 2010)

10.18		Office Lease dated as of January 20, 2009 between I-10 EC Corridor #2 Limited Partnership and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.27 of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2009)

10.19		First Amendment to Lease dated as of January 15, 2010 between I-10 EC Corridor #2 Limited Partnership and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.28 of the Registrant’s Form 10-K Annual Report for the year ended December 31, 2009)

10.20		Credit Agreement, dated as of January 29, 2010, among CARBO Ceramics Inc., as borrower, Wells Fargo Bank, National Association, as administrative agent, issuing lender and swing line lender, and the lenders named therein (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed February 4, 2010).

10.21		Amendment No. 1, dated as of March 5, 2012, among CARBO Ceramics Inc., as borrower, Wells Fargo Bank, National Association, as administrative agent, issuing lender and swing line lender, and the lenders named therein. (Incorporated by reference to Exhibit 10.1 of the Registrant’s Form 8-K Current Report filed March 6, 2012).

*10.22		Form of Change in Control Severance Agreement (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended March 31, 2012).

10.23		Separation Agreement, made as of August 9, 2012, by and between David G. Gallagher and CARBO Ceramics Inc. (incorporated by reference to Exhibit 10.1 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended September 30, 2012).

*10.24		Summary of initial compensation terms for Don P. Conkle (incorporated by reference to Exhibit 10.2 of the Registrant’s Form 10-Q Quarterly Report for the quarter ended September 30, 2012).

21		Subsidiaries

23		Consent of Independent Registered Public Accounting Firm

31.1		Rule 13a-14(a)/15d-14(a) Certification by Gary A. Kolstad

31.2		Rule 13a-14(a)/15d-14(a) Certification by Ernesto Bautista III

32		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

95		Mine Safety Disclosure

101		The following financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, formatted in XBRL: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Shareholders’ Equity; (iv) Consolidated Statements of Cash Flows; and (v) Notes to the Consolidated Financial Statements.

*	Management contract or compensatory plan or arrangement filed as an exhibit pursuant to Item 15(b) of the requirements for an Annual Report on Form 10-K.

Exhibit 10.9

DEVELOPMENT AUTHORITY OF JENKINS COUNTY

(a public body corporate and politic, as Lessor)

and

CARBO CERAMICS INC.

(a Delaware corporation, as Lessee)

LEASE AGREEMENT

Dated as of November 1, 2012

THE RIGHTS AND INTEREST OF THE DEVELOPMENT AUTHORITY OF JENKINS COUNTY IN THE PROJECT LEASED HEREUNDER, THIS LEASE AGREEMENT AND CERTAIN REVENUES AND RECEIPTS DERIVED HEREUNDER, EXCEPT FOR CERTAIN UNASSIGNED RIGHTS, AS DEFINED HEREIN, HAVE BEEN ASSIGNED AND PLEDGED AS SECURITY FOR THE $255,000,000 MAXIMUM PRINCIPAL AMOUNT DEVELOPMENT AUTHORITY OF JENKINS COUNTY TAXABLE INDUSTRIAL DEVELOPMENT REVENUE BOND (CARBO CERAMICS INC. PROJECT), SERIES 2012, AS PROVIDED IN THE DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND LEASES AND SECURITY AGREEMENT, OF EVEN DATE HEREWITH, BETWEEN THE DEVELOPMENT AUTHORITY OF JENKINS COUNTY AND CARBO CERAMICS INC. AND SUCCESSOR HOLDERS OF SUCH BOND.

TABLE OF CONTENTS

(This Table of Contents is not a part of this Lease

Agreement and is only for convenience of reference.)


		Page
Parties and Recitals			1

ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION			2
Section 1.1.	Definitions		2
Section 1.2.	Construction of Certain Terms		6
Section 1.3.	Table of Contents; Titles and Headings		7
Section 1.4.	Contents of Certificates or Opinions		7

ARTICLE II REPRESENTATIONS AND UNDERTAKINGS			7
Section 2.1.	Representations by the Issuer		7
Section 2.2.	Representations by the Company		9

ARTICLE III LEASING CLAUSE; SECURITY; TITLE			10
Section 3.1.	Lease of the Project		10
Section 3.2.	Security for Payments Under the Bond		10
Section 3.3.	Warranties and Covenants of Issuer as to Title		11
Section 3.4.	Warranties and Covenants of Company as to Title		11
Section 3.5.	Acknowledgement of Subordination		11

ARTICLE IV ACQUISITION AND INSTALLATION OF THE PROJECT; ISSUANCE OF THE BOND; FUNDS			12
Section 4.1.	Agreement to Acquire and Install the Project		12
Section 4.2.	Agreement to Issue the Bond		12
Section 4.3.	Application of Proceeds		12
Section 4.4.	Draws under the Bond Purchase Loan Agreement		12
Section 4.5.	Obligation of the Parties to Cooperate in Furnishing Documents; Reliance of the Custodian		13
Section 4.6.	Excess Costs		13
Section 4.7.	Authorized Company and Issuer Representatives and Successors		14
Section 4.8.	Enforcement of Remedies Against Contractors and Subcontractors and Their Sureties and Against Manufacturers and Vendors		14
Section 4.9.	Appointment of Agent		15

ARTICLE V EFFECTIVE DATE OF THIS LEASE; DURATION OF LEASE TERM; RENTAL PROVISIONS; NATURE OF OBLIGATIONS OF COMPANY			15
Section 5.1.	Effective Date of this Lease; Duration of Lease Term		15
Section 5.2.	Delivery and Acceptance of Possession		16
Section 5.3.	Rents and Other Amounts Payable		16
Section 5.4.	Place of Rental Payments		17
Section 5.5.	Nature of Obligations of Company Hereunder		18
Section 5.6.	Restrictions on the Use of Project		19



ARTICLE VI MAINTENANCE, TAXES, INSURANCE AND EMINENT DOMAIN		19
Section 6.1.	Maintenance of Project	19
Section 6.2.	Removal of Fixtures or Equipment	19
Section 6.3.	Taxes, Other Governmental Charges, and Utility Charges	20
Section 6.4.	Insurance Required	21
Section 6.5.	Application of Net Proceeds of Insurance	22
Section 6.6.	Advances by the Issuer or the Holder	22
Section 6.7.	Eminent Domain	22

ARTICLE VII DAMAGE, DESTRUCTION, AND CONDEMNATION		23
Section 7.1.	Election to Repair, Restore or Replace	23
Section 7.2.	Election Not to Repair, Restore or Replace	23

ARTICLE VIII ADDITIONAL COVENANTS; ADDITIONAL BONDS		23
Section 8.1.	No Warranty of Condition or Suitability by the Issuer	23
Section 8.2.	Access to the Project and Records	24
Section 8.3.	Good Standing in the State	24
Section 8.4.	Indemnity	24
Section 8.5.	Licenses and Permits	25
Section 8.6.	Compliance with Laws	25
Section 8.7.	Granting and Release of Easements	26

ARTICLE IX ASSIGNMENT, SUBLEASING, ENCUMBERING, AND SELLING; REDEMPTION; RENT PREPAYMENTS AND ABATEMENT; INSTALLATION OF COMPANY’S OWN MACHINERY AND EQUIPMENT		26
Section 9.1.	Assignment and Subleasing	26
Section 9.2.	Provisions Relating to Sale, Encumbrance, or Conveyance of the Project by the Issuer	29
Section 9.3.	Leasehold Mortgages	30
Section 9.4.	Redemption of Bond	33
Section 9.5.	Prepayment of Rents	34
Section 9.6.	Company Entitled to Certain Rent Abatements if Bond Paid Prior to Maturity	34
Section 9.7.	Installation of Other Machinery and Rented Equipment	34
Section 9.8.	Reference to Bond Ineffective After Bond Paid	34

ARTICLE X EVENTS OF DEFAULT AND REMEDIES		35
Section 10.1.	Events of Default Defined	35
Section 10.2.	Remedies on Default	36
Section 10.3.	Remedies Not Exclusive	36
Section 10.4.	Company to Pay Fees and Expenses	37
Section 10.5.	Waiver of Events of Default	37



ARTICLE XI OPTIONS IN FAVOR OF COMPANY		38
Section 11.1.	Company’s Option to Terminate Lease	38
Section 11.2.	Option to Purchase Project	38
Section 11.3.	No Obligation to Exercise Options	38
Section 11.4.	Conveyance on Exercise of Option to Purchase	38
Section 11.5.	Public Purpose of Option to Purchase	39
Section 11.6.	Priority Position of Option	39

ARTICLE XII MISCELLANEOUS		39
Section 12.1.	Quiet Enjoyment	39
Section 12.2.	Notices	39
Section 12.3.	Construction and Binding Effect	40
Section 12.4.	Severability	40
Section 12.5.	Amounts Remaining in the Funds	40
Section 12.6.	Fees Paid by the Company	40
Section 12.7.	No Issuer Liability; Immunity of Members, Officers, and Employees of Issuer	41
Section 12.8.	Amendments, Changes, and Modifications	41
Section 12.9.	Execution of Counterparts	41
Section 12.10.	Law Governing Construction of this Lease	41
Section 12.11.	Covenants Run with Project	41
Section 12.12.	Subordination to Security Document	41
Section 12.13.	Net Lease	42
Section 12.14.	Surrender of Project	42
Section 12.15.	Immunity of Members and Employees of Company; Limitation of Company’s Liability	42
Section 12.16.	Payments Due on Other than Business Days	42
Section 12.17.	Holder of Pledged Interest	43
Section 12.18.	Estoppel Certificates	43
Section 12.19.	Attorneys’ Fees	43

EXHIBIT A. DESCRIPTION OF THE LEASED LAND
EXHIBIT B DESCRIPTION OF PROJECT PHASES

iii

LEASE AGREEMENT

This LEASE AGREEMENT (this “ Lease ”), dated as of November 1, 2012, is by and between the DEVELOPMENT AUTHORITY OF JENKINS COUNTY (the “ Issuer ”), a public body corporate and politic created and existing under the laws of the State of Georgia, party of the first part, and CARBO CERAMICS INC. (the “ Company ”), a Delaware corporation, party of the second part.

W I T N E S S E T H :

WHEREAS , the Issuer is a development authority and public body corporate and politic duly created by the Development Authorities Law of the State of Georgia, O.C.G.A. § 36-62-1, et seq . (the “ Act ”), the area of operation of which is Jenkins County (the “ County ”); and

WHEREAS , the Act provides that the Issuer is created for the public purposes of promoting industry, trade, commerce and employment opportunities in the County and is authorized by the Act to exercise the powers granted by the Act, including, but not limited to, the power to issue its revenue bonds to finance “projects” (as defined in the Act) to be located in the County which shall be operated and used by private sector persons, firms or corporations in their trades and businesses; the Issuer’s revenue bonds are to be issued and validated under and in accordance with the applicable provisions of the Revenue Bond Law of the State of Georgia (O.C.G.A. § 36-82-60 et seq .), as heretofore and hereafter amended, and other applicable provisions of law; and

WHEREAS , the Act further authorizes and empowers the Issuer: (i) to lease any such project at a rental which, together with other revenues which may be pledged for such purpose, shall be sufficient to pay debt service on such revenue bonds and to pay all other expenses which the Issuer may incur in connection with the undertaking; (ii) to pledge, mortgage, convey, assign, hypothecate or otherwise encumber such projects and the revenues therefrom as security for the Issuer’s revenue bonds; and (iii) to do any and all acts and things necessary or convenient to accomplish the purpose and powers of the Issuer; and

WHEREAS , it is desirable for the Issuer: (i) to issue and sell its Taxable Industrial Development Revenue Bond (CARBO Ceramics Inc. Project), Series 2012 (the “ Bond ”), having a maximum principal amount not to exceed $255,000,000 (the “ Maximum Principal Amount ”); (ii) to acquire the Project (as defined below); and (iii) to lease the Project to the Company under this Lease for use as a manufacturing facility in the County; and

WHEREAS , pursuant to the Bond Resolution (as defined below) adopted by the Issuer, authorizing the issuance and sale of the Bond to the Company, as both the “Purchaser” and the initial “Bondholder,” the execution of this Lease and the other Issuer Documents (identified in the Bond Resolution) relating to the Bond, the Issuer is pledging to the payment of the Bond the Pledged Security (as defined in the Bond Resolution).

NOW, THEREFORE , in consideration of the respective representations and agreements hereinafter contained, the parties hereto agree as follows, provided that, in the performance of the agreements of the Issuer herein contained, any obligation it may thereby incur for the

payment of money shall not constitute a general obligation of the Issuer but shall be payable solely out of the Pledged Security for the Bond, and the Bond shall not constitute a general obligation of the Issuer nor constitute an indebtedness or general obligation of the State of Georgia or any other agency or political subdivision of the State of Georgia, within the meaning of any constitutional or statutory provision whatsoever:

ARTICLE I

DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION

Section 1.1. Definitions . Certain capitalized words and terms used in this Lease are defined in the text hereof or in the Bond Resolution. In addition to the words and terms defined elsewhere herein and in the Bond Resolution, the following words and terms are defined terms under this Lease:

“Additional Rent” means the amounts payable by the Company, described in Section 5.3(b) of this Lease.

“Additions or Alterations” means modifications, upgrades, alterations, additions, enlargements, or expansions to property comprising the Project.

“Affiliate” means a Person which is controlled by the Company or its corporate successor, which controls the Company or its successor, or which is under common control with the Company or its successor (direct or indirect ownership of more than fifty percent (50%) of the voting power constituting “control” of a Person for such purpose).

“Authorized Company Representative” means any officer or official of the Company who executes this Lease and any other person at the time designated to act on behalf of the Company by written certificate furnished to the Issuer, the Holder and the Custodian, containing the specimen signature of such person and signed on behalf of the Company by an officer or official of the Company; more than one person may be designated as an Authorized Company Representative.

“Authorized Issuer Representative” means any officer or official of the Issuer who executes this Lease and any other person at the time designated to act on behalf of the Issuer by written certificate furnished to the Company, the Holder and the Custodian, containing the specimen signature of such person and signed on behalf of the Issuer by the Chairman, or other officer of the Issuer; more than one person may be designated as an Authorized Issuer Representative.

“Basic Rent” means the rent payable by the Company to the Issuer, described under the subheading “Basic Rent” in Section 5.3(a) of this Lease.

“Bond Documents” means the documents, the forms of which are attached to the Bond Resolution as Exhibits B through E thereto.

“Bond Purchase Loan Agreement” means the Bond Purchase Loan Agreement, dated as of the Document Date, between the Issuer and the Company (in its capacities as the lessee hereunder and as the Purchaser), in substantially the form attached to the Bond Resolution, as it may hereafter be amended in accordance with the provisions of the Bond Resolution.

“Bond Resolution” means the resolution adopted by the Issuer, as it may hereafter be amended in accordance with the terms thereof, providing the terms and provisions under which the Bond will be issued and pursuant to which the Pledged Security is assigned and pledged as security for the payment of the principal of, premium, if any, and interest on the Bond; the term “Bond Resolution” shall include any resolution supplemental or amendatory thereto.

“Business Day” means a day which is not a Saturday, Sunday, a legal holiday, or any other day on which banking institutions are authorized to be closed in the State.

“Company” means CARBO Ceramics Inc., a Delaware corporation, and any successor lessee under this Lease.

“Company Documents” means those of the Bond Documents to which the Company is a party signatory.

“Corporate Successor” and “corporate successor” mean any corporation or limited liability company into which the Company may merge, any corporation or limited liability company resulting from a consolidation to which the Company is a party or any corporation or limited liability company to which the Company transfers its interest under this Lease, and also includes any Corporate Successor (as above defined, but substituting “corporate successor” for “Company”) of a Corporate Successor.

“Costs of the Project” means those aggregate costs and expenses paid or incurred in connection with the acquisition, construction, equipping and financing of the Project and permitted by the Act (including, without limitation, those costs and expenses more particularly described in O.C.G.A. § 36-62-2), the Bond Resolution and Section 4.4 hereof to be paid or reimbursed from proceeds of the Bond.

“Custodian” means the Company or any other Person that is serving from time to time as Custodian of the Funds.

“Debt Service” and “ debt service” mean, as to the Bond, the principal of, interest on and redemption amount, if any, payable on the Bond.

“Debt Service Payment Date” means, as to the Bond, any Principal Payment Date or Interest Payment Date and any date on which the Bond is to be redeemed, in whole or in part, and includes any special Debt Service Payment Date established as provided in the Bond Resolution.

“Default Interest Rate” means, as to the Bond, as to delinquent payments of Basic Rent under this Lease and the Debt Service on the Bond, the Stated Interest Rate, and, as to delinquent payments of Additional Rent under this Lease, means the lesser of the Prime Rate plus 300 basis points or the maximum rate allowed by law.

“Document Date” means the date of this Lease.

“Economic Development Agreement” means the Economic Development Agreement, dated as of the Document Date, between the Issuer, the Company, the City of Millen, Georgia, and the County, in substantially the form attached to the Bond Resolution as Exhibit E , as it may hereafter be amended in accordance with Article IX of this Bond Resolution.

“Environmental Laws” means all federal, state, and local laws, rules, regulations, ordinances, programs, permits, guidance, orders, and consent decrees relating to health, safety, and environmental matters, including, but not limited to, the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, the Toxic Substances Control Act, as amended, the Clean Water Act, as amended, the Clean Air Act, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, state and federal superlien and environmental cleanup programs and laws, and U.S. Department of Transportation regulations.

“Event of Default” means, when used with respect to this Lease, the events specified in Section 10.1 of this Lease, and when used with reference to any other instrument, any “Event of Default, “event of default,” “Default,” or “default” (as such term is defined in such other instrument).

“Governing Body” means, as to the Issuer, the members of the Issuer acting as its board of directors.

“Government Obligations” means any direct and general obligations of the United States of America (including obligations issued or held in book-entry form on the books of the Department of Treasury of the United States of America) or obligations the payment of the principal of and interest on which when due are fully and unconditionally guaranteed by the United States of America.

“Holder” and “Bondholder” mean the Person in whose name the Bond is registered on the registration books of the Issuer and, as stated in Section 4.2 of this Lease, initially means the Purchaser.

“Interest Payment Date” means the first November 1 following the issue date of the Bond and November 1 of every year thereafter to and including the Maturity Date of the Bond, unless the Bond is earlier retired in full by redemption.

“Issuer Documents” means those of the Bond Documents to which the Issuer is to be a party signatory.

“Leased Equipment” means any building fixtures and building equipment that the Company elects to include in the Project from time to time, located on the Leased Land or in the Leased Improvements, and that is included as part of the collateral securing the $255,000,000 Maximum Principal Amount Development Authority of Jenkins County Taxable Industrial Development Revenue Bond (CARBO Ceramics Inc. Project), Series 2012.

“Leased Improvements” means the improvements to the Leased Land and all Additions or Alterations, replacements and substitutions for any portion thereof, from time to time located on the Leased Land.

“Leased Land” means the land described in Exhibit A attached hereto.

“Leasehold Interest” means the interest of the Lessee under this Lease.

“Leasehold Mortgage” means any leasehold mortgage or leasehold deed to secure debt pursuant to which the Company pledges its Leasehold Interest to a Lender.

“ Leasehold Mortgagee ” means a holder of a Leasehold Mortgage.

“Lease Term” means the term of this Lease as specified in Section 5.1 hereof.

“Lender” means any financial institution which has advanced credit to the Company with respect to the Project, including, without limitation, any Leasehold Mortgagee and the holder of any deed to secure debt, mortgage, security agreement or similar document that encumbers the Project.

“Loan Documents ” means the loan documents with respect to the Company’s Leasehold Mortgage or a Superior Security Document.

“Net Proceeds” means , when used with respect to any proceeds of casualty insurance received with respect to any damage or destruction of the Project, proceeds of sale or any eminent domain award (or proceeds of sale in lieu of a taking by eminent domain) or with respect to any other recovery on a contractual claim or claim for damage to or for taking of the Project, or any part thereof, the gross proceeds from such insurance, eminent domain award, sale or recovery with respect to which that term is used remaining after payment of all costs and expenses (including attorneys’ fees and reimbursable expenses) incurred in the collection of such gross proceeds

“ Permitted Encumbrances ” means, as of any particular time, (a) liens for ad valorem taxes and special assessments not then delinquent or which are being contested in good faith by the Company, (b) the Bond Documents, (c) utility, access and other easements, licenses, rights-of-way, restrictions, reservations and exceptions which, according to the certificate of an authorized officer of the Company, will not materially interfere with or impair the operations being conducted at the Project (or, if no operations are being conducted therein, the operations for which the Project was designed or last modified), (d) unfiled and inchoate mechanics’, materialmen’s or other similar liens for construction work in progress, (e) mechanics’, laborers’, materialmen’s, suppliers’ and vendors’ liens or other similar liens in connection with the construction or equipping of the Project or the acquisition, construction and installation of any renovations or additions thereto, (f) such defects, irregularities, encumbrances, easements, rights-of-way and clouds on title as do not, in the aggregate, and in the opinion of the Company, materially impair the property affected thereby for the purpose for which it was acquired or is held by the Authority, (g) the rights of sublessees and other tenants having an interest in all or any portion of the Project, (h) any Leasehold Mortgage, and (i) any Superior Encumbrances. In no event may any Permitted Encumbrances impose any obligations or liabilities upon the Issuer.

“ Person ” means a natural person, business organization, public body, or legal entity.

“ Phase ” means each Phase of the Project described on Exhibit B attached hereto.

“Project” means the Leased Land, the Leased Improvements and the Leased Equipment, as the same shall exist from time to time.

“Security Document” means the Deed to Secure Debt, Assignment of Rents and Leases and Security Agreement, dated as of the Document Date, between the Issuer and the Purchaser, its successors and assigns, in substantially the form attached to the Bond Resolution, as it may hereafter be amended in accordance with the Bond Resolution, securing the Bond.

“State” means the State of Georgia.

“Superior Encumbrances” means all encumbrances and title exceptions on the Project in existence at the time of recording of the Security Document relating to the Project and any encumbrances created by any Superior Security Document.

“Superior Security Document” means any deed to secure debt, mortgage, security agreement and/or assignment of leases and rents or similar instrument or instruments in which the Issuer (at the request of the Company), assigns, transfers, pledges or otherwise grants a security interest in the Issuer’s ownership interest in the Project to a Lender; the Issuer may be a grantor or debtor thereunder, but the Issuer’s obligations thereunder shall be non-recourse, except that recourse may be had against the Issuer’s interest in the collateral pledged under such instrument. Any Leasehold Mortgage that is combined with or incorporated into a security instrument described in this definition shall likewise be deemed a Superior Security Document.

“Unassigned Rights” means all of the rights of the Issuer (i) to receive reimbursements and payments pursuant to Sections 5.3(b)(i) and 10.4 hereof, (ii) to receive notices under or pursuant to any provision of this Lease or the Bond Resolution, (iii) certain consensual and enforcement rights pursuant to Sections 5.6, 6.3, 6.4, 8.6 and 10.2 hereof and (iv) to be indemnified as provided in Sections 6.6 and 8.4 of this Lease.

Section 1.2. Construction of Certain Terms . For all purposes of this Lease, except as otherwise expressly provided or unless the context otherwise requires, the following rules of construction shall apply:

(1) the use of the masculine, feminine, or neuter gender is for convenience only and shall be deemed and construed to include correlative words of the masculine, feminine, or neuter gender, as appropriate;

(2) “this Lease” means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more leases supplemental to this Lease and entered into pursuant to the applicable provisions hereof;

(3) all references in this instrument to designated “Articles,” “Sections,” and other subdivisions are to the designated articles, sections, and other subdivisions of this instrument;

(4) the words “herein, “hereof,” and “hereunder” and other words of similar import refer to this Lease as a whole and not to any particular article, section, or other subdivision;

(5) the terms defined in this Article shall have the meanings assigned to them in this Article and include the plural as well as the singular; and

(6) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as promulgated by the American Institute of Certified Public Accountants, on and as of the date of this Lease.

Section 1.3. Table of Contents; Titles and Headings . The table of contents, the titles of the articles, and the headings of the sections of this Lease are solely for convenience of reference, are not a part of this Lease, and shall not be deemed to affect the meaning, construction, or effect of any of its provisions.

Section 1.4. Contents of Certificates or Opinions . Every certificate or written opinion delivered by any director or official of the Issuer or the Company with respect to the compliance by the Issuer or the Company with any condition or covenant provided for in this Lease shall be delivered only after the person or persons signing the same has made such examination or investigation as is necessary to enable him, her or them to express an informed opinion as to whether or not such covenant or condition has been complied with. Any such certificate or opinion made or given by any director or official of the Issuer or the Company, insofar as it relates to legal or accounting matters, may be made or given in reliance upon an opinion of counsel or a letter of such accountant. Any such opinion of counsel or accountant’s letter may be based (insofar as it relates to factual matters with respect to information which is in the possession of a director or an official of the Issuer, the Company or any third party) upon the certificate or opinion of, or representations by such director or official of the Issuer, the Company or such third party on whom such counsel or accountant may reasonably rely, unless such counsel or such accountant knows that the certificate or opinion or representations with respect to the matters upon which his legal opinion or accountant’s letter may be based, as aforesaid, is erroneous or in the exercise of reasonable care should have known that the same was erroneous. The same director or official of the Issuer, the Company or third party, or the same counsel or accountant, as the case may be, need not certify or opine to all of the matters required to be certified or opined under any provision of this Lease, but different directors, officials, counsel, or accountants may certify or opine to different matters, respectively.

ARTICLE II

REPRESENTATIONS AND UNDERTAKINGS

Section 2.1. Representations by the Issuer . The Issuer makes the following representations and warranties as the basis for the undertakings on its part herein contained:

(a) Creation and Authority . The Issuer is a public body corporate and politic duly created and validly existing under the laws of the State. The Issuer has all requisite power and authority under the Act and the laws of the State (i) to issue the Bond, (ii) to acquire the Project and to lease the same to the Company, and (iii) to enter into, perform its obligations under, and exercise its rights under the Issuer Documents.

(b) Findings . After careful study and investigation of the nature of the Project, the Issuer has determined that the Project constitutes a “project” as defined in the Act and that the Project will encourage and promote the expansion and development of industrial facilities in the County so as to relieve, insofar as possible, unemployment in the County. The Issuer has further determined that the undertaking for which the Bond is to be issued is expected to preserve or increase employment in the County and that the issuance of the Bond to finance the Project and the leasing of the Project to the Company will be in the public interest of the inhabitants of the County and of the State, that the Project and the use thereof will further the public purposes of the Act for which the Issuer was created, and that the Project and the Bond will be economically feasible.

(c) Pending Litigation . There are no actions, suits, proceedings, inquiries, or investigations pending or, to the knowledge of the Issuer, after making due inquiry with respect thereto, threatened against or affecting the Issuer in any court or by or before any governmental authority or arbitration board or tribunal, which may have a material adverse effect on the transactions contemplated by the Issuer Documents or which, in any way, would have a material adverse effect on the validity or enforceability of the Bond, the Bond Resolution, this Lease, or any agreement or instrument to which the Issuer is a party and which is used or contemplated for use in the consummation of the transactions contemplated hereby or thereby, nor is the Issuer aware of any facts or circumstances presently existing which would form the basis for any such actions, suits, proceedings, inquiries, or investigations.

(d) Issue, Sale, and Other Transactions Are Legal and Authorized . The issue and sale of the Bond, the execution and delivery by the Issuer of the Issuer Documents, and the adoption by the Issuer of the Bond Resolution and the compliance by the Issuer with all of the provisions of each thereof (i) are within the purposes, powers, and authority of the Issuer, (ii) have been done in full compliance with the provisions of the Act and have been approved by the Governing Body of the Issuer, and (iii) the Bond and the Issuer Documents have been duly authorized by all necessary action on the part of the Issuer, have been duly executed, are legal and valid and do not conflict with or constitute on the part of the Issuer a violation of or a breach of or a default under, or result in the creation or imposition of any lien, charge, restriction, or encumbrance upon any property of the Issuer under the provisions of, any charter instrument, bylaw, indenture, mortgage, deed to secure debt, security agreement, pledge, note, lease, loan, or installment sale agreement, contract, or other agreement or instrument to which the Issuer is a party or by which the Issuer or its properties are otherwise subject or bound, or any license, judgment, decree, law, statute, order, writ, injunction, demand, rule, or regulation of any court or governmental agency or body having jurisdiction over the Issuer or any of its activities or properties.

(e) Governmental Consents . Neither the nature of the Issuer nor any of its activities or properties, nor any relationship between the Issuer and any other Person, nor any circumstance in connection with the offer, issue, sale, or delivery of the Bond is such as to require the consent, approval, permission, order, license, or authorization of, or the filing, registration, or qualification with, any governmental authority on the part of the Issuer in connection with the

execution, delivery, and performance of the Issuer Documents, the adoption of the Bond Resolution, the consummation of any transaction therein contemplated, or the offer, issue, sale, or delivery of the Bond, except as shall have been obtained or made and as are in full force and effect.

(f) No Defaults . To the knowledge of the Issuer, no event has occurred and no condition exists which would constitute an Event of Default (as such term is used in the various Issuer Documents) or which, with the lapse of time or with the giving of notice or both, would become an Event of Default under any of the Issuer Documents. To the knowledge of the Issuer, the Issuer is not in default or violation in any material respect under the Act or under any charter instrument, bylaw, or other agreement or instrument to which it is a party or by which it may be bound.

(g) No Prior Pledge . Neither the Project, this Lease, nor any of the payments or amounts to be received by the Issuer hereunder have been or will be mortgaged, pledged, or hypothecated by the Issuer in any manner or for any purpose or have been or will be the subject of a grant of a security interest by the Issuer other than (i) as security for the payment of the Bond, as provided in the Bond Resolution and the Security Document, or (ii) with the prior written consent of the Company, any Lender and the Holder, as may be provided in a Superior Security Document.

(h) Disclosure . The representations of the Issuer contained in the Issuer Documents and any certificate, document, written statement or other instrument furnished to the Company by or on behalf of the Issuer in connection with the transactions contemplated thereby are true and correct.

(i) Compliance with Conditions Precedent to the Issuance of the Bond . All acts, conditions, and things required to exist, happen, and be performed precedent to and in the execution and delivery by the Issuer of the Bond do exist, have happened, and have been performed in due time, form, and manner as required by law; the issuance of the Bond, together with all other obligations of the Issuer, do not exceed or violate any constitutional or statutory limitation.

Section 2.2. Representations by the Company . The Company makes the following representations and warranties as the basis for the undertakings on its part herein contained:

(a) Organization and Power . The Company is a corporation duly organized, validly existing, and in good standing under and by virtue of the laws of the State of Delaware, and is authorized to do business in the State, and has all requisite power and authority to lease the Project from the Issuer and to enter into and perform its obligations and exercise its rights under the Company Documents.

(b) Agreements Are Legal and Authorized . The Company Documents, the consummation of the transactions therein contemplated, and the fulfillment of or the compliance with all of the provisions thereof (i) are within the power, legal right, and authority of the Company, (ii) have been duly authorized by all necessary and appropriate action on the part of the Company, (iii) have been duly executed and delivered on the part of the Company, (iv) are

legal, valid and binding as to the Company, subject to bankruptcy, moratorium and other equitable principles, and (v) will not conflict with or constitute on the part of the Company a violation of, or a breach of or a default under, any charter instrument, bylaw, indenture, mortgage, deed to secure debt, security agreement, pledge, note, lease, loan, installment sale agreement, contract, or other agreement or instrument to which the Company is a party or by which the Company or its properties are otherwise subject or bound which would have a material adverse impact on the Company’s ability to perform its obligations hereunder, or any judgment, order, writ, injunction, decree, or demand of any court or governmental agency or body having jurisdiction over the Company or any of its activities or properties.

(c) No Defaults . No event has occurred and no condition exists that would constitute an Event of Default (as such term is used in the various Company Documents) by the Company or which, with the lapse of time or with the giving of notice or both, would become an Event of Default by the Company thereunder.

(d) Disclosure . The representations of the Company contained in the Company Documents and any certificate, document, written statement, or other instrument furnished by or on behalf of the Company to the Issuer or Purchaser in connection with the transactions contemplated hereby are true and correct.

(e) Inducement . The issuance of the Bond by the Issuer for the benefit of the Company has been an inducement to the Company to facilitate the construction of the Project, lease the Project from the Issuer, and thereby to promote and expand for the public good and welfare industry and trade within the County and reduce unemployment.

ARTICLE III

LEASING CLAUSE; SECURITY; TITLE

Section 3.1. Lease of the Project . The Issuer, as lessor, hereby leases to the Company, as lessee, and the Company hereby leases from the Issuer, the Project, in accordance with the provisions of this Lease. This Lease shall become effective on execution and delivery, whereupon the Company shall have possession of the Project, and the Term of this Lease and the Leasehold Interest (an “estate for years”) shall commence. The Issuer hereby agrees that third parties shall be entitled to rely on the authorization and appointment set forth in this paragraph. Nothing in this Lease shall be construed to require or permit the Issuer to operate the Project.

Section 3.2. Security for Payments Under the Bond . As security for the payment of the Bond, the Issuer has adopted the Bond Resolution, under the terms of which the Issuer shall execute and deliver to the Purchaser the Security Document, in which the Issuer shall grant unto the Purchaser, its successors and assigns, security title to the Project and shall assign unto the Purchaser, its successors and assigns, all of the right, title, interest, and remedies of the Issuer in, to, and under this Lease (except the Unassigned Rights), together with all rents, revenues, and amounts to be received by the Issuer hereunder (except for amounts the Issuer shall be entitled to receive and retain on account of being included in such Unassigned Rights), as security for, among other things, the payment of the Bond. The Company hereby agrees that its obligations to

pay Basic Rent under this Lease shall be absolute and shall not be subject to any defense, except payment, or to any right of set off, counterclaim, or recoupment arising out of any breach by the Issuer of any obligation to the Company, whether hereunder or otherwise, or arising out of any indebtedness or liability at any time owing to the Company by the Issuer; provided, however, the Company shall not be obligated to pay Basic Rent if for any reason the Company is prevented or prohibited from receiving Debt Service during a period when the Company is also the Holder. Notwithstanding anything to the contrary herein, the Issuer and the Company agree that all payments of Basic Rent required to be made by the Company under this Lease shall be paid directly or credited against the Debt Service due to the Holder as provided in the Bond Resolution and the applicable Bond Documents; provided, however, if the Bond is owned by the Company, the Company shall not be obligated to make any Debt Service payments, but instead may treat such payments and receipt of the principal of and interest on the Bond as being off-set for accounting and all other purposes. The Company further agrees that all payments of rent required to be made under this Lease to the Issuer (except as otherwise provided herein in the case of Additional Rent) shall be paid directly to the Holder. The Holder shall have all rights and remedies herein accorded to the Issuer (except for Unassigned Rights), and any reference herein to the Issuer shall be deemed, with the necessary changes in detail, to include the Purchaser or if the Bond shall have been transferred to a successor Holder, shall be deemed to include such successor Holder and the Purchaser or successor Holder shall be deemed to be and is a third-party beneficiary of the representations, covenants, and agreements of the Company in favor of the Issuer herein contained (except for covenants and agreements pertaining to the Unassigned Rights).

Section 3.3. Warranties and Covenants of Issuer as to Title . The Issuer hereby accepts ownership of and title to the Project. The Issuer disclaims any interest in any items of equipment and related personal property that are neither transferred to the Issuer in consideration of the issuance of the Bond nor Additions or Alterations or replacements or substitutions therefor. The Issuer warrants and covenants that, except for this Lease and the Security Document, the Issuer shall not otherwise encumber the Project or any part thereof, without the prior written consent of the Company, the Holder and any Lender (if any is known to the Issuer). At the request of the Company, the Issuer covenants to take all acts necessary to defend its title to the Project, provided that the cost of such action is paid for in advance by the Company, or the Issuer is indemnified for such costs by the Company to the Issuer’s satisfaction. The Issuer agrees that it will do no act (except as permitted by Sections 9.2 and 9.3 hereof) to impair such title. The Issuer makes no warranty as to the design, suitability, condition or fitness for purpose of the Project.

Section 3.4. Warranties and Covenants of Company as to Title . The Company shall take such actions as are necessary to cause title to the Project to vest in the Issuer subject to the Permitted Encumbrances. The Company further covenants to pay all costs and expenses which are necessary to defend the title of the Issuer to the Project, and will do no act that will impair such title without the prior consent of the Bondholder.

Section 3.5. Acknowledgement of Subordination . Notwithstanding anything contained herein, and except as may be expressly set forth in a separate agreement among the Issuer, the Company and the Lender secured by such Superior Security Document, this Lease is subject and subordinate in all respects to any Superior Security Document, to all other liens granted by the

Company to the holder of any such Superior Security Document with respect to or in connection with the indebtedness secured by such Superior Security Document, and to all modifications, extensions, refinancings (where such liens continue), or renewals of such lien.

ARTICLE IV

ACQUISITION AND INSTALLATION OF THE PROJECT;

ISSUANCE OF THE BOND; FUNDS

Section 4.1. Agreement to Acquire and Install the Project . Simultaneously with the issuance and sale of the Bond, the Issuer will acquire title to the Project as it exists on such date of issuance. Items of used equipment, as well as new equipment, may be included in the Project, provided such equipment is part of the collateral for the $255,000,000 Maximum Principal Amount Development Authority of Jenkins County Taxable Industrial Development Revenue Bond (CARBO Ceramics Inc. Project), Series 2012. The Company will thereafter complete the acquisition, construction and equipping of Phase I of the Project as described on Exhibit B attached hereto. The Company may, using its own funds, pay any of the Costs of the Project, and acquire any property which is to be a part of the Project in its own name, for the purpose of the later transfer of such property by the Company to the Issuer pursuant hereto. The Company is not authorized to and will not obligate the Issuer for any of the costs of completing the Project. The Company may make changes in the Project, so long as such changes do not cause the Project to be unsuitable for its intended purpose or to fail to constitute a “project” under the Act or to violate any applicable provisions of law. Any contracts for the construction of any improvements that are a part of the Project shall be let by the Company as a principal, and not as agent of the Issuer. The Issuer and the Company acknowledge and agree that the Project may be undertaken in phases as described on Exhibit B hereto. The Company is committed to complete Phase I as described on Exhibit B and shall have the right, but not be obligated to, undertake and complete any of the additional Phases of the Project as described on Exhibit B. If the Company decides to undertake any additional Project Phase, it shall provide the pertinent “Activation Notice” as described in the Economic Development Agreement.

Section 4.2. Agreement to Issue the Bond . The Issuer, contemporaneously with the delivery of this Lease, is issuing the Bond to the Purchaser.

Section 4.3. Application of Proceeds . Any cash proceeds of the Bond shall be used to pay or reimburse Costs of the Project and issuance costs of the Bond.

Section 4.4. Draws under the Bond Purchase Loan Agreement . In Section 4.9 below, the Issuer has authorized the Company to act as its agent for the purpose of requesting advances under the Bond Purchase Loan Agreement to pay or reimburse the Costs of the Project in one or more disbursements, upon the submission by the Company to the Purchaser of a disbursement request in the form attached to the Bond Purchase Loan Agreement. Such disbursement requests must be signed by an Authorized Company Representative. It is agreed that advances under the Bond Purchase Loan Agreement may be made by the Purchaser transferring to the Issuer, at the Purchaser’s cost, items of property that are to be a part of the Project, and in such case the same shall be treated as a receipt by the Project Fund of an amount equal to such Costs of the Project and a disbursement of such amount to the Purchaser in payment of the purchase price of such property.

The Bond may be issued in exchange for the Project as it then exists. An amount equal to the Costs of the Project theretofore incurred and any issuance costs of the Bond that the Company elects to include in the initial request for advance under the Bond Purchase Loan Agreement shall be submitted to the Purchaser and the amount thereof shall be the initial Principal Balance of the Bond. Thereafter, the Company, as agent for the Issuer under Section 4.9 below, may request additional advances under the Bond Purchase Loan Agreement, if any are needed, to evidence additional amounts expended by the Company for Costs of the Project, provided that the aggregate amounts drawn down from time to time shall not exceed the Maximum Principal Amount of the Bond, and no draws shall be made after the “Expiration Date” provided for in the Bond Purchase Loan Agreement. In the case of advances for equipment or other personal property, a bill of sale transferring such equipment or personal property shall be attached to the request for advance. Amounts so drawn down shall be deemed disbursed at the direction of the Company, as agent of the Issuer, to pay or to reimburse the Company for Costs of the Project described in this Section and Section 5.3 of the Bond Resolution. Draw requests shall comply with the requirements of the Bond Purchase Loan Agreement and any other agreements between the Company and the Issuer. The amounts drawn down are to be noted by the Holder on the Schedule of Advances and Payments attached to the Bond.

Notwithstanding the foregoing, the Company, when requesting draws under the Bond Purchase Loan Agreement on behalf of the Issuer, may request the Purchaser, or any successor Holder that has assumed the Purchaser’s obligations, to advance cash under the Bond Purchase Loan Agreement, to make payments for Costs of the Project and payments in reimbursement for Costs of the Project directly to (i) contractors, materialmen, vendors and Persons providing services in connection with the Project and the Bond, (ii) the Company or any Affiliate of the Company to reimburse Costs of the Project, or (iii) any combination of the foregoing, in which case the Company shall reflect such draws and payments on its books relating to the Project.

Section 4.5. Obligation of the Parties to Cooperate in Furnishing Documents; Reliance of the Custodian . Upon payment of any expenses of the Issuer incurred pursuant to Section 5.3(b)(i) hereof, the Issuer agrees to cooperate with the Company in furnishing to the Purchaser the documents referred to in Section 4.4 hereof that are required to effect disbursements of Bond Proceeds in accordance with Section 4.4 hereof. In making any such disbursements, the Purchaser may rely on any such orders and certifications delivered to it pursuant to Section 4.4 hereof.

Section 4.6. Excess Costs . The Issuer does not make any warranty, either express or implied, that the amounts which may be drawn down under the Bond Purchase Loan Agreement will be sufficient for the payment of all of the Costs of the Project. The Company agrees that it shall not be entitled to any reimbursement for any costs in excess of the Maximum Principal Amount of the Bond from the Issuer or from the Holder, nor shall it be entitled to any diminution of the amounts payable under Section 5.3(a) hereof.

Section 4.7. Authorized Company and Issuer Representatives and Successors . See the definitions in Section 1.1 hereof, of the terms “Authorized Company Representative” and “Authorized Issuer Representative” relating to the designation thereof. In the event that any person so designated should become unavailable or unable to take any action or make any certificate provided for or required in this Lease, a successor or additional Authorized Company Representative or Authorized Issuer Representative shall be appointed. The Issuer and the Company may appoint two or more Authorized Issuer Representatives or Authorized Company Representatives, respectively.

Section 4.8. Enforcement of Remedies Against Contractors and Subcontractors and Their Sureties and Against Manufacturers and Vendors .

(a) The Issuer hereby authorizes the Company at the expense of the Company, as agent of the Issuer or in its own behalf, to take such action and institute such proceedings as the Company may elect in its sole discretion to cause and require all manufacturers, fabricators, vendors, contractors and subcontractors and suppliers to complete their contracts relating to the Project diligently in accordance with the terms of such contracts, including, without limitation, the correction of any defects. The Issuer agrees that the Company may, from time to time, in its own name, or in the name of the Issuer (provided the Issuer is indemnified to its satisfaction), take such action as the Company may elect in its sole discretion against such manufacturers, fabricators, vendors, contractors and subcontractors and suppliers, and their sureties, to insure the proper acquisition, construction and equipping of the Project.

(b) All plans, specifications, drawings and similar documentation governing the planning, development, construction and improvement of the Project or any portion thereof may be prepared, amended, supplemented or replaced, as the case may be, at the sole discretion of the Company so long as the elements of the Project covered thereunder are consistent with the objectives and requirements of the Act and the general description of the Project in this Lease. The Company may engage or disengage architects, engineers and other professionals in the preparation of all such work product.

(c) All warranties, bonds, letters of credit or other security or other undertakings furnished by or on behalf of any contractors, subcontractors, fabricators, vendors, manufacturers or suppliers which provide labor or materials (including building fixtures) for the Project shall be in the name of the Company and the Company and may be enforced by the Company, at its own risk and expense, without consultation with or direction by either the Issuer or the Holder.

(d) The Issuer hereby authorizes the Company, as agent of the Issuer or on its own behalf, and at the sole expense of the Company, to take such action and institute such proceedings as the Company may elect in its sole discretion to cause and require any contractors, subcontractors, fabricators, vendors, manufacturers, suppliers and dealers that have provided labor or materials (including building fixtures) for the Project to fulfill their warranties and contractual responsibilities diligently in accordance with the terms of any purchase or installation contracts, including, without limitation, the correction of any defective parts or workmanship. The Issuer agrees that the Company may, from time to time, take such action as the Company may elect, in its sole discretion, to insure the conformity of the Project to the specifications therefor.

Section 4.9. Appointment of Agent . The Issuer hereby appoints the Company as its agent and authorizes the Company to act as its irrevocable agent of and attorney-in-fact, coupled with an interest, its interest being the rights and benefits under this Lease, for the Issuer for purposes of:

(a) requesting advances to pay Costs of the Project pursuant to the Bond Purchase Loan Agreement;

(b) serving as, or appointing a, Registrar, Custodian and Paying Agent for the Bond;

(c) requesting funds from the Custodian of the Project Fund for the Project to pay the costs thereof, as provided in the Lease, provided that any contracts in connection therewith shall be by the Company as a principal and not as agent of the Issuer.

During the Term of this Lease, the Company hereby accepts the appointment described above and agrees to perform the duties contemplated thereby in accordance with general agency principles and the terms of the Bond Resolution, this Lease and the Bond Purchase Loan Agreement. The Company agrees to perform such services, without charge, in consideration of the Issuer’s issuance of the Bond and the leasing of the Project to the Company. The Company shall be entitled to reimbursement for expenditures that constitute Costs of the Project, but only to the extent that proceeds of the Bond are available for such purpose, and shall be entitled to reimbursement for expenditures relating to the restoration or replacement of the Project, or portions thereof, which are damaged or destroyed by casualty or taken by eminent domain, but only to the extent that the amounts in the Project Fund for the Project (including Net Proceeds of casualty insurance or any eminent domain award, any funds deposited therein by the Company, and any investment income thereon) are available therefor under the terms of the Lease. This agency appointment shall terminate upon the retirement of the Bond. Such termination shall not affect any right the Company has to reimbursement that accrued prior to the effective date of the termination and shall not affect the Company’s indemnification obligations herein.

ARTICLE V

EFFECTIVE DATE OF THIS LEASE; DURATION OF LEASE TERM;

RENTAL PROVISIONS; NATURE OF OBLIGATIONS OF COMPANY

Section 5.1. Effective Date of this Lease; Duration of Lease Term . This Lease shall become effective upon its delivery and the leasehold interest created hereby shall then begin as provided in Section 3.1, subject to the other provisions of this Lease. The term of this Lease shall expire at 11:59 p.m., Jenkins County, Georgia time, on December 31, of the tenth (10th) year following the completion of the last Phase of the Project completed by the Company pursuant to the Economic Development Agreement, subject to the provisions of this Lease permitting earlier termination or extension (including particularly Articles X and XI hereof). Notwithstanding any expiration or termination of this Lease, those covenants and obligations that by the provisions hereof are stated to survive the expiration or termination of this Lease shall survive the expiration or earlier termination of this Lease.

Section 5.2. Delivery and Acceptance of Possession . The Company shall, commencing with the date of execution and delivery of this Lease, have possession, custody and control of the Project as it exists on such date, and the Company hereby accepts such possession, custody and control. The Issuer covenants and agrees that it shall not take any action, nor permit others to take any action, nor omit to take any action or permit others to omit to take any action, other than pursuant to Article X of this Lease, to prevent the Company from having possession and enjoyment of the Project during the Lease Term and shall, at the request of the Company cooperate with the Company in order that the Company may have peaceful possession and enjoyment of the Project. The Company acknowledges it has had an opportunity to fully examine the Project, including grounds, buildings, improvements and fixtures and accepts them in their present condition. THE COMPANY FURTHER ACKNOWLEDGES THAT THE ISSUER MAKES NO REPRESENTATION OR WARRANTY AS TO THE CONDITION OF THE PROJECT, ANY USE TO WHICH THE PROJECT MAY BE PUT OR AS TO THE SUITABILITY OF THE PROJECT FOR ANY ENDEAVOR. THE COMPANY HAS RELIED UPON ITS OWN SOURCES, AND NOT UPON THE ISSUER, TO ASCERTAIN APPLICABLE ZONING AND LAND USE RESTRICTIONS. THE ISSUER MAKES NO REPRESENTATION OR WARRANTY AS TO THE HABITABILITY OF THE LEASED IMPROVEMENTS OR THE PRESENT CONDITION OF THE PROJECT. THE COMPANY’S ENTRY UPON THE PROJECT AND ITS USE THEREOF IS AT THE COMPANY’S OWN RISK. BY TAKING POSSESSION OF THE PROJECT, THE COMPANY ACKNOWLEDGES THAT IT HAS EXAMINED THE PROJECT AND ACCEPTS THE PROJECT “AS-IS,” IN ITS CONDITION ON THE EFFECTIVE DATE.

Section 5.3. Rents and Other Amounts Payable .

(a) Basic Rent : Until the principal of, redemption premium, if any, and interest on the Bond shall have been fully paid or provision for the payment thereof shall have been made in accordance with the Bond Resolution, the Company shall pay to the Holder for the account of the Issuer as Basic Rent for the Project on or before 11:00 a.m., Georgia time, on each date on which Debt Service on the Bond is due, a sum equal to the amount payable on that date as Debt Service on the Bond, as provided in the Bond and in the Bond Resolution. Such Basic Rent payments shall be applied to and credited as Debt Service payments on the Bond. Notwithstanding anything else contained in this Section 5.03, to the extent the Bond is held by the Company, the Company shall not be obligated to make any payments pursuant to Section 5.03(a) hereof, but instead may treat such payments and receipt of principal of and interest then due and payable on the Bond as being offset for accounting and all other purposes without the necessity of any funds being transmitted or any records being maintained with respect to the Sinking Fund.

(b) Additional Rent :

(i) The Company agrees that, during the Lease Term, it shall pay directly to the Issuer, as Additional Rent, an amount sufficient to reimburse the Issuer for all reasonable expenses and advances reasonably incurred by the Issuer hereunder in connection with the Project subsequent to the execution of this Lease, including, but not limited to, the reasonable fees and expenses of counsel for the Issuer, provided that the same are incurred as a result of the failure of the Company to comply with the terms of

this Lease or are subject to payment or indemnification by the Company under this Section 5.3(b)(i) or Sections 6.6, 8.4 or 10.4 hereof. All payments of Additional Rent described in this paragraph shall be billed to the Company by the Issuer from time to time, together with a statement certifying that the amount for which reimbursement is sought for one or more of the above-described expenditures has been incurred or paid by the Issuer. Amounts so billed shall be paid by the Company within thirty (30) days after receipt of the bill by the Company; the right of the Issuer to payments under this paragraph is one of the Unassigned Rights. In the event the Company shall fail to make any of the payments required in this Section 5.3(b)(i), the unpaid amount shall continue as an obligation of the Company until fully paid, and shall accrue interest from such thirtieth (30 ^th ) day at the Default Interest Rate.

(ii) The Company agrees that, during the Lease Term, it shall pay directly to the Holder, as Additional Rent, an amount sufficient to reimburse the Holder for all expenses and advances reasonably incurred by the Holder hereunder in connection with the Project subsequent to the execution of this Lease, including, but not limited to, the reasonable fees and expenses of counsel for the Issuer, provided that the same are incurred as a result of the failure of the Company to comply with the terms of this Lease or are subject to indemnification by the Company under this Section 5.3(b)(ii) or Sections 6.6, 8.4 or 10.4 hereof. All payments of Additional Rent described in this paragraph shall be billed to the Company by the Holder from time to time, together with a statement: (1) if the bill relates to a reimbursement, certifying that the amount for which reimbursement is sought for one or more of the above described expenditures has been incurred or paid by the Holder, and (2) if the bill relates to an agreed annual or periodic administrative fee, certifying that the amount of the fee is in accordance with such agreement and with the foregoing provisions of this paragraph. Amounts so billed shall be paid by the Company within thirty (30) days after receipt of the bill by the Company. In the event the Company shall fail to make any of the payments required in this Section 5.3(b)(ii), the unpaid amount shall continue as an obligation of the Company until fully paid, and shall accrue interest from such thirtieth day at the Default Interest Rate. The Holder shall be a third party beneficiary of this Section 5.3(b)(ii) and shall be entitled to enforce the same against the Company.

Section 5.4. Place of Rental Payments . The Basic Rent provided for in Section 5.3 (a) hereof shall be paid directly to the Holder for the account of the Issuer in the manner provided in the Bond or in the Bond Resolution for the payment of Debt Service on the Bond. Such payments shall be made in lawful money of the United States of America; provided, however, that so long as the Company is both the lessee of the Project and the Holder of the Bond, such payments need not be made but may be deemed to have been off-set for accounting and all other purposes, without the necessity of any funds being transmitted or any records being maintained with respect to the Sinking Fund.

The Additional Rent provided for in Section 5.3(b)(i) and any interest on late payments thereof shall be payable directly to the Issuer. The Additional Rent provided for in Section 5.3(b)(ii) and any interest on late payments thereof shall be payable directly to the Holder.

Section 5.5. Nature of Obligations of Company Hereunder .

(a) The obligations of the Company to make the payments required in Section 5.3 hereof shall be absolute and unconditional irrespective of any defense or any rights of set-off, recoupment, or counterclaim, except payment, it may otherwise have against the Issuer or the Holder; provided, however, the Company shall not be obligated to pay Basic Rent if, for any reason, the Company is prevented or prohibited from receiving Debt Service during a period when the Company is also the Holder. The Company agrees that it shall not suspend, abate, reduce, abrogate, diminish, postpone, modify, or discontinue any payments provided for in Section 5.3(a) hereof, or except as provided in Section 12.1 hereof, terminate its obligations under this Lease, for any contingency, act of God, event, or cause whatsoever, including, without limiting the generality of the foregoing, failure of the Company to occupy or to use the Project as contemplated in this Lease or otherwise, any change or delay in the time of availability of the Project, any acts or circumstances which may impair or preclude the use or possession of the Project, any defect in the title, design, operation, merchantability, fitness, or condition of the Project or in the suitability of the Project for the Company’s purposes or needs, failure of consideration, any declaration or finding that the Bond is unenforceable or invalid, the invalidity of any provision of this Lease, any acts or circumstances that may constitute an eviction or constructive eviction, destruction of or damage to the Project, the taking by eminent domain of title to or the use of all or any part of the Project, failure of the Issuer’s title to the Project or any part thereof, commercial frustration of purpose, any change in the tax or other laws of the United States of America or of the State or any political subdivision of either thereof or in the rules or regulations of any governmental authority, or any failure of the Issuer to perform and observe any agreement, whether express or implied, or any duty, liability, or obligation arising out of or connected with this Lease.

(b) Nothing contained in this Section shall be construed to release the Issuer from the performance of any of the agreements on its part herein contained. In the event the Issuer should fail to perform any such agreement on its part, the Company may institute such action against the Issuer as the Company may deem necessary to compel performance so long as such action does not abrogate the Company’s obligations hereunder. The Issuer hereby agrees, to the extent legally permissible, that it shall not take or omit to take any action that would cause this Lease to be terminated without the prior written consent of the Holder of the Bond and any Leasehold Mortgagee.

(c) The Company may, however, at its own cost and expense and in its own name or in the name of the Issuer, with prior notice to the Issuer, prosecute or defend any action or proceeding or take any other action involving third persons which the Company deems reasonably necessary in order to secure or protect its right of possession, occupancy, and use hereunder, and in such event the Issuer hereby agrees to cooperate fully with the Company and to take all action necessary to effect the substitution of the Company for the Issuer in any such action or proceeding if the Company shall so request, including without limitation, joining in any legal or administrative proceeding, at the request of the Company, so long as the Company pays the costs in connection with any such action or proceeding or reimburses the Issuer in accordance with Section 5.3(b) hereof.

Section 5.6. Restrictions on the Use of Project . The Company shall not permit the Project, or any part thereof, to be operated in any fashion that would cause the Project to not be a “Project” as defined in the Act, or otherwise violate any law in any material respect. The Issuer’s right to enforce this covenant shall be among the Unassigned Rights.

ARTICLE VI

MAINTENANCE, TAXES, INSURANCE

\AND EMINENT DOMAIN

Section 6.1. Maintenance of Project . The Issuer shall not be under any obligation to renew, repair, or maintain any portion of the Project or to remove and replace any inadequate, obsolete, worn out, unsuitable, undesirable, or unnecessary portion thereof. The Company, shall maintain, or cause to be maintained, the Project at the expense of the Company. Subject to the provisions of Article VII hereof, the Company, at its own expense, may from time to time make any Additions or Alterations and any modifications, upgrades, replacements and substitutions to the Project that it may deem desirable for its purposes. Subject to the provisions of Sections 3.3 and 9.7 hereof, such Additions or Alterations and any modifications, upgrades, replacements and substitutions to the Project so made shall become a part of the Project. The Company shall not do or permit any other Person under its control to do, any work in or about the Project or related to any repair, rebuilding, restoration, replacement, alteration of, or addition to the Project, or any part thereof, unless the Company or such other Person shall have first procured and paid for all requisite municipal and other governmental permits and authorizations. All such work shall be done in a good and workmanlike manner and in compliance with all applicable laws, ordinances, governmental regulations, and requirements. Notwithstanding the foregoing, in the event the Project, or any part thereof, is damaged or destroyed by casualty, the Company’s obligations to repair or replace the Project, or such portion thereof so damaged or destroyed, shall be governed exclusively by Article VII hereof.

Section 6.2. Removal of Fixtures or Equipment . The Company shall not be under any obligation to renew, repair, or replace any inadequate, obsolete, worn out, unsuitable, undesirable, or unnecessary fixtures or equipment that are a part of the Project. If any fixture, item of equipment or parts thereof have become, in the Company’s sole and absolute discretion, obsolete, worn out, unsuitable or unnecessary for the operation of the Project, the Company, at its own expense, may remove from the Project such fixtures, equipment or parts thereof and sell, trade-in or otherwise dispose of them (as a whole or in part) without any responsibility or accountability to the Issuer therefor, so long as the Project would continue to constitute a “project” under the Act. Any such removed property shall cease to be a part of the Project. If the Company, in its sole and absolute discretion, determines that any fixtures, items of equipment or parts thereof should be sold or traded in then the Company may do so provided that it either: (a) replaces such fixture, items of equipment or parts thereof with other items of property having a value at least equal to the net book value of the property sold or traded in and causes title to such replacement property to be transferred to the Issuer, whereupon the replacement property shall become a part of the Project; or (b) prepays in part the principal of the Bond (or if the Company or an Affiliate of the Company then owns the Bond, the Company causes a credit to be reflected on the Schedule of Payments attached to the Bond as a partial payment of principal) in an

amount equal to the net book value of the property sold or traded in. At the written request of the Company, the Issuer shall execute such instruments as shall be required to convey title to any such removed fixture, item of equipment or parts thereof to the Company, to the purchaser thereof or to the person accepting the same as a trade in and the Bondholder shall release the lien and security interest of the Security Document therein. The removal from the Project of any fixture, item of equipment or parts thereof pursuant to the provisions of this Section shall not entitle the Company to any abatement or diminution of the rental payments payable under Section 5.3 hereof (except to the extent that a prepayment of principal or a credit in reduction of principal of the Bond may result in a reduction of Debt Service on the Bond and a corresponding reduction in the Basic Rent hereunder).

Section 6.3. Taxes, Other Governmental Charges, and Utility Charges . The Company shall, throughout the Lease Term, duly pay and discharge, or cause to be paid and discharged, as the same become due and payable: (i) all taxes and governmental charges of any kind whatsoever that may (on account of a change in law or otherwise) at any time be lawfully assessed or levied against or with respect to the interests of the Issuer, of the Company and of the Holder in the Project; (ii) any taxes levied upon or with respect to the lease revenues and receipts of the Issuer from the Project which, if not paid, will become a lien on the Project or a charge on the revenues and receipts therefrom prior to or on a parity with the charge, pledge, and assignment thereof created and made in the Bond Resolution and in the Security Document; (iii) all utility and other charges incurred in the operation, maintenance, use, occupancy, and upkeep of the Project; and (iv) other levies, permit fees, inspection and license fees and all other charges imposed upon or assessed against the Project or any part thereof or upon the revenues, rents, issues, income and profits of the Project or arising in respect of the occupancy, uses or possession thereof. Both the Issuer and the Holder shall be entitled to enforce the provisions of this Section, and the Issuer’s right to enforce the same is one of the Unassigned Rights. It is the understanding of the parties that, under the Act, the Issuer does not pay property taxes on its interest in the Project and that the Leasehold Interest of the Company is to be taxed as provided in the Economic Development Agreement being executed by the Company in connection herewith. The Company shall exhibit to the Issuer and to the Holder upon request validated receipts showing the payment of such taxes and other charges which may be or become a lien or encumbrance on the Project.

Upon notifying the Holder and the Issuer of its intention to do so, the Company may, at its own expense and in its own name and behalf or in the name and behalf of the Issuer and in good faith, contest any such taxes, assessments, and other charges and, in the event of any such contest, may permit the taxes, assessments, or other charges so contested to remain unpaid during the period of such contest and any appeal therefrom, but only so long as neither the Project nor any part thereof will be subject to imminent loss or forfeiture by reason of such nonpayment; provided, that no such contest may be made in the name of the Issuer unless (i) it is in the opinion of the Company necessary to protect or assert the rights or interests of the Company.

Both the Issuer and the Holder shall be entitled to enforce the provisions of this Section, and the Issuer’s right to enforce the same is one of the Unassigned Rights.

Section 6.4. Insurance Required .

(a) The Company, at its expense, throughout the Term, shall carry the following insurance:

(i) hazard and casualty insurance (including flood insurance if the Project is located in a high hazard flood zone and if available at reasonable cost) on the Leased Improvements and any Leased Equipment, exclusive of the foundation of the Leased Improvements, in such commercially reasonable amounts, and subject to deductibles as consistent with those contained in corresponding insurance policies covering similar facilities that are owned or operated by the Company;

(ii) general liability insurance, in minimum amounts of $1,000,000 per occurrence and $2,000,000 in aggregate, subject to deductibles consistent with those contained in corresponding insurance policies covering similar facilities that are owned or operated by the Company; such policy or policies shall name the Issuer as an additional insured; and

(iii) worker’s compensation insurance as required by law relating to the Company’s employees working at the Project.

Any such insurance may be obtained through any combination of underlying and umbrella insurance policies and through one or more blanket insurance policies that insure other properties owned or controlled by the Company or any of its Affiliates. Any insurance required to be carried by the Company may be self-insured (in excess of the deductibles described in subsections (i) and (ii) above) if the Company shall then have and thereafter maintain a net worth of at least $25,000,000, or may be provided as part of the Company’s blanket insurance policy or policies covering other premises, property or insureds in addition to the Project. If the Company shall elect to self-insure, (x) the Company shall provide a notice of its election to self-insure and if financial information as to the Company is not publically available, audited financial statements shall be delivered by the Company to the Issuer confirming the satisfaction of the net worth requirement, and (y) the Issuer shall have all the benefits provided in this Section 6.4 that would have had if the Company carried the required insurance.

(b) The Issuer, by the Security Agreement, shall assign its interest in the casualty insurance described in (a)(i), above, to the Holder, together with all unearned premiums as further security for the Bond.

(c) The Issuer shall be entitled to enforce the provisions of this Article insofar as its rights are concerned and such right to enforce this Article shall be one of the Unassigned Rights. So long as the Company or an Affiliate is the owner of the Bond, the Company shall, however, have the exclusive right to make all elections, determinations, settlements, or decisions with respect to any hazard and casualty insurance policy or the proceeds thereof that may be affected by the provisions of this Section 6.4. Notwithstanding the foregoing, the Company shall have the right to make all settlements as to any casualties that affect the Project without the consent of the Issuer and, so long as the Company or any Affiliate is the owner of the Bond, without the consent of the Holder. Furthermore, so long as the Company or an Affiliate is the owner of the

Bond, the Company shall have the right to pledge to a Lender all of the hazard and casualty insurance proceeds with respect to a casualty affecting the Project and to grant to the Lender the right to govern the distribution of such funds, which shall be superior to the rights of the Issuer and the Holder thereto. The Issuer acknowledges and agrees that, so long as the Company or an Affiliate is the owner of the Bond, the Lender may require the application of the insurance proceeds to the indebtedness owed to the Lender by the Company and, in such event, the insurance proceeds may not be applied in their entirety to the restoration of the Project.

Section 6.5. Application of Net Proceeds of Insurance . The Net Proceeds of the liability insurance carried pursuant to the provisions of Section 6.4 shall be applied toward extinguishment or satisfaction of the liability with respect to which such insurance proceeds have been paid. The Net Proceeds of casualty insurance carried pursuant to Section 6.4 shall be paid to the Company, and shall be transferred to the Custodian and deposited in the Project Fund to be applied as provided in Article VII hereof, or if the same has been pledged to a Lender, the same shall be transferred to such Lender, or otherwise applied as provided in any Superior Security Document, any Leasehold Mortgage or any other agreement between the Company and such Lender.

Section 6.6. Advances by the Issuer or the Holder . Subject to the notice obligations and cure period set forth in Articles X and XII of this Lease, if the Company shall fail to do or cause to be done any act or pay any taxes, assessments, charges or insurance premiums required by this Article, the Issuer or the Holder may (but shall be under no obligation to), after notifying the Company of its or their intention to do so, do any such act or pay any such taxes, assessments, charges or premiums required by this Article, and all amounts so advanced therefor by the Issuer or the Holder shall become an additional obligation of the Company to the one making the advancement, which amounts shall constitute Additional Rent which shall be payable, with interest as provided in Section 5.3 (b). Any remedy herein vested in the Issuer for the collection of rent shall also be available to the Holder for the collection of any Additional Rent payable to the Holder on account thereof.

Section 6.7. Eminent Domain . If the Issuer or the Company obtains knowledge of the institution or threat of institution of any proceedings for the taking of the Project or any portion thereof by exercise of the power of eminent domain, it shall immediately notify the other party hereto and shall also notify the Holder of such proceedings. The Holder may participate in any such proceedings and the Issuer and the Company from time to time shall deliver to the Holder all instruments requested by it to permit such participation. The Issuer and the Company shall not settle any eminent domain proceeding relating to the Project or any part thereof or sell the Project or any part thereof under threat of eminent domain without the prior written consent of the Holder, which consent shall not unreasonably be withheld, conditioned or delayed. The Net Proceeds of any eminent domain award or any sale in lieu of a taking by eminent domain shall be paid to the Company, and shall be transferred to the Custodian and deposited in the Project Fund to be applied as provided in Article VII hereof. Notwithstanding anything to the contrary herein, so long as the Company or an Affiliate is the owner of the Bond, the Company shall, however, have the exclusive right to make all elections, determinations, settlements or decisions with respect to any eminent domain proceeding and proceeds thereof that may be affected by the provision of this Section 6.7. Notwithstanding the foregoing, the Net Proceeds of eminent domain may be pledged to a Lender, and if so pledged, shall be applied in accordance with the terms of such pledge.

ARTICLE VII

DAMAGE, DESTRUCTION, AND CONDEMNATION

Section 7.1. Election to Repair, Restore or Replace . If any portion of the Project is damaged, destroyed or taken by eminent domain or is sold (under threat of eminent domain or otherwise), the Net Proceeds shall be deposited upon receipt in the Project Fund, which shall be held by the Custodian, unless the same are otherwise required to be used as may be provided in any pledge thereof to a Lender. Subject to the rights of any Lender, the Company may, within 210 days following the receipt of such Net Proceeds, elect to use such Net Proceeds, in whole or in part, to repair, restore or replace the Project. Any property repaired, restored or acquired to replace any property which was a part of the Project shall become a part of the Project. Upon the completion of such repair, restoration or replacement of the Project and payment of all costs thereof, any unspent Net Proceeds and investment income remaining in the Project Fund may be used, at the election of the Company, to acquire additional property for the Project or to prepay and redeem principal of the Bond.

Section 7.2. Election Not to Repair, Restore or Replace . If an election to repair, restore or replace damaged, destroyed or taken portions or all of the Project is not made within the time provided in Section 7.1, above, or if prior to such time the Company notifies the Issuer and the Custodian that it elects not to repair, restore or replace damaged, destroyed or taken portions or all of the Project, to the extent any Net Proceeds were deposited with the Custodian as contemplated herein, the Custodian of the Project Fund shall immediately apply such moneys to prepay principal of the Bond then outstanding, unless otherwise provided in a pledge to a Lender. If the Bond is not fully retired, the obligation to pay Basic Rent hereunder shall remain in full force and effect, without abatement or diminution (except to the extent the amount of Basic Rent is reduced on account of such prepayment). If the Company is then the Holder of the Bond, and the Bond is not fully retired, the Company may surrender the Bond for cancellation, whereupon the obligation for payment of Basic Rent shall terminate, and any obligation for Additional Rent theretofore accrued shall become immediately due and payable.

ARTICLE VIII

ADDITIONAL COVENANTS; ADDITIONAL BONDS

Section 8.1. No Warranty of Condition or Suitability by the Issuer . THE ISSUER MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, AS TO THE MERCHANTABILITY, CONDITION, OR WORKMANSHIP OF ANY PART OF THE PROJECT OR THAT THE SAME WILL BE SUITABLE FOR THE COMPANY’S PURPOSES OR NEEDS.

Section 8.2. Access to the Project and Records . The Issuer and the Holder, and their respective duly authorized representatives and agents, shall have the right, upon forty-eight (48) hours prior written notice to the Company and the Operator (except in the case of a bona fide emergency threatening the safety of life or property), and subject to any reasonable restriction imposed by the Company or the Operator for the protection of its patents, trademarks, trade secrets, and other confidential proprietary information, to enter the Project during normal business hours during the Lease Term for the purpose of (i) examining and inspecting the Project and (ii) performing such work relating to the Project as has been made necessary by reason of an Event of Default.

Section 8.3. Good Standing in the State . The Company agrees that it will be in good standing in the State while this Lease is in effect.

Section 8.4. Indemnity .

(a) The Company shall, and agrees to, indemnify and save the Issuer and the Holder and their respective officials, directors, officers, members, counsel, agents and employees (the “Indemnified Persons” ) harmless against and from all claims by or on behalf of any Person arising from the conduct or management of or from any work or thing done at the building at which the Project is located and against and from all claims arising from or relating to (i) any condition of the installation of or the operation of the Project, (ii) any act or negligence of the Company or of any of its agents, contractors, servants, employees, or licensees, (iii) any act or negligence of any assignee or sublessee of the Company (other than the Operator) or of any agents, contractors, servants, employees, or licensees of any assignee or sublessee (other than the Operator) of the Company, (iv) any violation or alleged violation of any federal, state or local law, regulation or ordinance, or (v) any legal proceeding relating to the non-taxability or taxability of this Lease or the Project or the interest of the Issuer in the Project, (vi) any action taken by the Company on behalf of the Issuer or in the name of the Issuer, including, without limitation, enforcing remedies against contractors and others as described in Section 4.8 hereof and contesting any taxes, assessments and other charges as described in Section 6.3 hereof or the application of any laws, ordinances, rules or regulations as described in Section 8.6 hereof, or (vii) any action taken by the Issuer at the request of the Company, including, without limitation, taking any action to defend title to the Project as described in Section 3.3 hereof, or cooperating with the Company in order to permit the Company to have peaceful possession of the Project as described in Sections 5.2 or 5.5 hereof. However, with respect to matters referred to in the preceding clauses (i), (ii), (iii), or (iv) or (vii), this indemnity shall not apply, as to the Issuer, to any acts of gross negligence or willful misconduct or intentional misconduct of the Issuer and, as to the Holder, to any acts of gross negligence or willful misconduct or intentional misconduct of the Holder, or in the case of matters referred to in clause (iv) this indemnity shall not apply to the Holder if the Holder has acquired the Bond other than in a bona fide private placement and has failed to perform a thorough due diligence investigation in connection therewith. The Company shall indemnify and save the Issuer and the Holder (and the other Persons and entities referred to above, as appropriate) harmless from and against all costs and expenses incurred in or in connection with any such claim or in connection with any action or proceeding brought thereon, including attorneys’ fees, and upon notice from the Issuer, the Company shall defend it (and the other persons and entities referred to above, as appropriate) in any such action or proceeding. The indemnities set forth above specifically extend to, but are in no way limited to, governmental or other claims relating to any actual or alleged violation of any Environmental Laws, regardless of whether or not any such violation relates to any period prior to the acquisition of the Project by the Issuer or its acquisition theretofore by the Company.

(b) Notwithstanding the fact that it is the intention of the parties that the Indemnified Persons referred to in (a), above, shall not incur pecuniary liability by reason of the terms of this Lease or the Bond Resolution, or the undertakings required of the Issuer hereunder or by reason of (i) the issuance of the Bond, (ii) the execution of this Lease or the adoption of the Bond Resolution, (iii) the performance of any act required by this Lease or the Bond Resolution, (iv) the performance of any act requested by the Company, or (v) any other costs, fees, or expenses incurred by the Issuer with respect to the Project or the acquisition thereof, including all claims, liabilities, or losses arising in connection with the violation of any statutes or regulations pertaining to the foregoing, nevertheless , if any such Indemnified Person should incur any such pecuniary liability, then in such event the Company shall indemnify and hold harmless such Indemnified Person against all claims by or on behalf of any Person arising out of the same and all costs and expenses incurred in connection with any such claim or in connection with any action or proceeding brought thereon, including reasonable attorneys’ fees, and upon notice from the Issuer, the Company shall defend the Issuer in any such action or proceeding; provided that if a court of competent jurisdiction determines that any of the provisions of this Section violate O.C.G.A. § 13-8-2 and are applicable to this Lease, the indemnity contained in this Section 8.4 shall not extend to any indemnification which is prohibited by O.C.G.A. § 13-8-2.

(c) Nothing contained in this Section 8.4 shall require the Company to indemnify any Indemnified Person for any claim or liability for which the Company was not given a reasonable opportunity to contest or for any settlement of any such action effected without the Company’s consent (assuming such rights are available and have not been waived in writing by the Company). The indemnity of the Indemnified Persons contained in this Section 8.4 shall survive the termination of this Lease.

The Issuer and the Holder shall each be entitled to enforce its right to indemnification under this Section, and the Issuer’s right to indemnification hereunder shall be one of the Unassigned Rights.

Section 8.5. Licenses and Permits . The Company shall do all things necessary to obtain, maintain, and renew, from time to time, as necessary, all permits, licenses, franchises, and other governmental approvals necessary for its ownership of and activities relating to the Project, the lack of which would have a material adverse affect upon the Company’s ability to meet its obligations under this Lease.

Section 8.6. Compliance with Laws . The Company warrants that throughout the Lease Term it shall, at its own expense, maintain the Project, in all material respects, in compliance with all applicable life and safety codes and all applicable building and zoning, health, environmental, and safety ordinances and laws, including the Occupational Health and Safety Act and all applicable Environmental Laws, and all other applicable laws, ordinances, rules, and regulations of the United States of America, the State, and any political subdivision or agency thereof having jurisdiction over the Project and which relate to the operations of the Project, any violation of which would have a material adverse affect on the Company’s ability to fully

perform its obligations under this Lease. The Company’s use of the Project shall, in all material respects, conform to all laws and regulations of any governmental authority possessing jurisdiction thereof, and the Company shall, in its use or operation of the Project, not discriminate or permit discrimination on the basis of race, sex, color or national origin in any manner prohibited by local state or federal laws, rules, orders or regulations.

If the Company shall first notify the Issuer and the Holder, in writing, of its intention to do so, the Company may, at its own expense and in its own name and behalf or in the name and behalf of the Issuer and in good faith, contest any allegation that it has not complied with the laws described in this Section 8.6 and, in the event of any such contest, the provisions of this Section 8.6 shall not apply to any such alleged violations of law during the period of such contest and any appeal therefrom. The Issuer shall, at the expense of the Company, cooperate fully with the Company in any such contest.

The Issuer and the Holder shall each be entitled to enforce the provisions of this Section, and the Issuer’s right to enforce this Section shall be one of the Unassigned Rights.

Section 8.7. Granting and Release of Easements . The Company may at any time or times cause to be granted, modified, amended, released or terminated conveyances to public authorities or utilities, or other Persons, easements, licenses, rights of way (temporary or perpetual and including the dedication of public highways), plats, covenants, restrictions and agreements with respect to any property included in the Project and other contracts or agreements that, in the sole opinion of the Company, may be helpful in effecting the development, construction, maintenance, operation or restoration of the Project and such grant will be free from the lien or security interests created by the Security Document or this Lease and the Issuer agrees that it shall execute and deliver any instrument necessary or appropriate to confirm, grant, amend, modify, terminate or release any such matters within fourteen (14) business days upon receipt of: (i) a copy of the operative instrument, and (ii) a written application of the Company signed by an Authorized Company Representative requesting such instrument and stating (1) that such matter is not detrimental to the proper conduct of the business of the Company, and (2) that such matter will not impair the effective use or materially interfere with the operation of the Project.

ARTICLE IX

ASSIGNMENT, SUBLEASING, ENCUMBERING, AND SELLING;

REDEMPTION; RENT PREPAYMENTS AND ABATEMENT;

INSTALLATION OF COMPANY’S OWN MACHINERY AND EQUIPMENT

Section 9.1. Assignment and Subleasing .

(a) The Company may sublease the Project, as a whole or in part, without the consent of the Issuer or the Holder. No sublease shall relieve the Company from primary liability for any of its obligations hereunder, and in the event of any such sublease, the Company shall continue to remain primarily liable for payment of the rents specified in Section 5.3 hereof and for the payment, performance, and observance of the other obligations and agreements on its part herein

provided to be performed and observed by it. Notwithstanding the foregoing, in no event shall any such sublease cause the Project to become ineligible as a “project” under the Act. The Issuer shall have the right, at any time and from time to time, to notify any sublessee of the rights of the Issuer as provided by this Section. The Issuer, at the request of the Company, shall enter into a non-disturbance and attornment agreement with any subtenant of the Project recognizing its rights and benefits under its sublease so long as the terms and conditions thereof do not conflict with this Lease.

(b) The Company may not assign this Lease except as permitted by this Section. This Lease may be assigned in whole but not in part, without the consent of the Issuer or the Holder of the Bond to (i) a Person that is the survivor of a consolidation, merger or transfer of substantially all of the assets of the Company, (ii) an Affiliate of the Company, or (iii) any other Person having a minimum net worth of $250,000.

For any other assignment not described in (i), (ii) or (iii) above, the Company shall first obtain the written consent of the Issuer and the Holder, unless such assignment constitutes an “Exempt Assignment” as described in subsection (c) of this Section, in which case no such consent shall be required.

(c) Notwithstanding anything to the contrary set forth in this Lease, the Company may assign its interest in this Lease pursuant to an Exempt Assignment (hereinafter defined) without the approval of the Issuer or the Holder of the Bond.

(1) An “Exempt Assignment” means any of the following assignments:

(i) Any bona fide Leasehold Mortgage;

(ii) The acquisition by any grantee or a Lender or its designee of the Company’s interest in this Lease through the exercise of any right or remedy pursuant to any bona fide Superior Security Document or any Leasehold Mortgage, including any assignment of the Company’s interest in this Lease to a Lender or its designee made in lieu of foreclosure;

(iii) Any foreclosure sale by any Lender pursuant to any power of sale contained in a bona fide Superior Security Document or Leasehold Mortgage;

(iv) Any sale or assignment of the Company’s interest in this Lease by any Lender (or its designee) which has acquired the Company’s interest in this Lease by means of any transaction described above;

(v) Any sale or assignment of the Company’s interest in this Lease to the holder of a Superior Security Document;

(vi) Any sale or assignment of the Company’s interest in this Lease to any Qualified Real Estate Investor (hereinafter defined);

(vii) Any sale or assignment of the Company’s interest in this Lease to any person if (a) the Company or the proposed assignee provides Adequate Financial Assurance (hereinafter defined) of the payment of rent and other financial obligations under this Lease for the period the proposed assignee is the Company under this Lease, and (b) the proposed assignee has sufficient experience with respect to properties similar to the Project to properly operate or manage, or oversee the operation or management of, the Project; and

(viii) Any sale or assignment in connection with any sale/leaseback or other arrangement entered into by the Company in connection with a financing transaction.

(ix) Any sale or assignment to any of the following:

(A) Any savings bank, savings and loan association, commercial bank, or trust company having shareholder equity (as determined in accordance with GAAP accounting) of at least $10,000,000;

(B) Any college, university, credit union, trust or insurance company having assets of at least $10,000,000;

(D) Any pension plan established for the benefit of the employees of any state or local government, or any governmental authority, having assets of at least $10,000,000;

(E) Any limited partnership, limited liability company or other investment entity having committed capital of $10,000,000 or more;

(F) Any corporation, limited liability company or other Person having shareholder equity (or its equivalent for non-corporate entities) of at least $10,000,000;

(G) Any lender which performs real estate lending functions similar to any of the foregoing, and which has assets of at least $10,000,000; and

(H) Any partnership having as a general partner any person or entity described in the preceding subparagraphs of this definition, or any corporation, limited liability company or other person or entity controlling, controlled by or controlled with any person or entity described in the preceding subparagraphs of this definition.

(2) “Adequate Financial Assurance ” means the furnishing to the Issuer of either (i) the written assumption of the obligations of the Company hereunder or (ii) guaranty of payment of the rent and other financial obligations of the Company under this Lease made by a Qualified Real Estate Investor for the period of time that a proposed assignee of this Lease is the Company under this Lease.

(3) “Qualified Real Estate Investor” means any Person domiciled within the United States of America that has, together with its Affiliates, a minimum net worth (treating any subordinated or mezzanine financing as equity) at least equal to the lesser of (i) $10,000,000 or (ii) 20% of the appraised value of the Leased Land, as of the date of its (or their) last audited financial statements or as otherwise certified by an independent certified public accountant or firm thereof, provided the managers of such Person or its Affiliates have sufficient experience with respect to developments similar to the Project or have hired a manager or separate management company that has such experience and will manage, or oversee the management of, the Project. For purposes of the above the term “last audited financial statements” shall be deemed to include unaudited financial statements compiled by an independent certified public accountant or firm thereof accompanied by an accountant’s letter or unaudited financial statements certified by a member of the management of the proposed assignee of this Lease.

(d) Any assignment authorized by this Section 9.1 shall be subject to each of the following conditions:

(i) Any such assignee shall agree to fully and unconditionally assume all obligations of the Company under this Lease, including, without limitation, all indemnity provisions contained in this Lease, whereupon the assignor shall automatically be released from all obligations arising under this Lease; and

(ii) The Company shall provide to the Issuer prompt written notice of any assignment of this Lease and shall, within thirty (30) days after the execution thereof, furnish or cause to be furnished to the Issuer a true and complete copy of such assignment and the assumption agreement described in subparagraph (d)(i) of this Section. The Issuer and the Holder shall have the right, at any time and from time to time, to notify any assignee of their rights under this paragraph.

(e) Any purported assignment in violation of this Section shall be void. In the case of an assignment that is permitted hereby or that is consented to as herein described, the assignee may not further assign this Lease except in accordance with this Section. As set forth in Section 2.7(b) of the Bond Resolution, the Bond may be assigned to any assignee of this Lease.

Section 9.2. Provisions Relating to Sale, Encumbrance, or Conveyance of the Project by the Issuer . Except pursuant to the Security Document or a Superior Security Document executed by the Issuer at the written request of the Company, and except for any sale under threat of a taking by eminent domain or a sale pursuant to Article VI hereof, the Issuer agrees that, during the Lease Term, it shall not, except pursuant to or as permitted by the Security Document or Section 8.7 hereof: (1) directly, indirectly, or beneficially sell, convey, or otherwise dispose of any part of its interest in the Project, (2) permit any part of the Project to become subject to any lien, claim of title, encumbrance, security interest, conditional sale contract, title retention arrangement, finance lease, or other charge of any kind, without the written consent of the Company, and (3) assign, transfer, or hypothecate (other than pursuant to the Bond Resolution and the Security Document) any payment of rent (or analogous payment) then due or to accrue in the future under any lease of the Project, except that if the laws of the State at the time shall permit, nothing contained in this Section shall prevent the consolidation of the Issuer

with, or merger of the Issuer into, or transfer of the Project as an entirety to, any public body of the State whose property and income are not subject to taxation and which has authority to carry on the business of owning and leasing the Project, provided, that upon any such consolidation, merger, or transfer, the due and punctual payment of the principal of, premium, if any, and interest on the Bond according to its tenor, and the due and punctual performance and observance of all the agreements and conditions set forth in the Issuer Documents to be kept and performed by the Issuer, shall be expressly assumed in writing by the public body resulting from such consolidation or surviving such merger or to which the Project shall be transferred as an entirety.

The Issuer, at the written request of the Company with the written consent of the Holder of the Bond, shall execute and deliver to a Lender, or shall join the Company in the execution and delivery to a Lender, of a Superior Security Document in favor of such Lender with respect to the Project which encumbers the Issuer’s fee interest and execute any related documents in connection with the Company’s financing or refinancing secured by the Project. At the Company’s written request, and with the prior written consent of the Holder, the Issuer shall, by a subordination agreement, subordinate its fee simple interest and estate in the Project the holder of a Superior Security Document. Any such Superior Security Document or subordination agreement shall be prepared at the expense of the Company and reviewed at the expense of the Company, shall be subject to the approval by the Issuer, which approval shall not unreasonably be withheld, conditioned or delayed, and shall specifically provide that the Issuer’s obligations hereunder shall be non-recourse, except with respect to its interest in the Project.

Section 9.3. Leasehold Mortgages .

(a) The Company shall at all times and from time to time have the right to encumber, pledge or hypothecate all of the Company’s right, title and interest under this Lease pursuant to a Leasehold Mortgage, as security for any debt of the Company (such mortgage, deed to secure debt or other instrument(s) being hereinafter referred to as a “Leasehold Mortgage”, and the holder(s) from time to time of such Leasehold Mortgage being hereinafter referred to as a “Leasehold Mortgagee”), in each case without the consent of either the Issuer or the Holder of the Bond.

In the event that a Leasehold Mortgagee shall provide the Issuer with written notice of its name and address (a “Notice of Leasehold Mortgage”), then, following receipt by the Issuer of such Notice of Leasehold Mortgage and for so long as such Leasehold Mortgage shall remain unsatisfied of record or until written notice of satisfaction of such Leasehold Mortgage is given by the Leasehold Mortgagee to the Issuer, the provisions of subsections (b) through (g) of this Section 9.3 shall apply to each such Leasehold Mortgagee. Upon written request of such Leasehold Mortgagee, the Issuer shall acknowledge receipt of a Notice of Leasehold Mortgage by an instrument in recordable form provided to the Issuer by the Leasehold Mortgagee.

(b) No cancellation, rejection, surrender, amendment or modification (other than by expiration of the Lease Term) of this Lease or release of the Company hereunder shall be effective as to any Leasehold Mortgagee unless consented to in writing by such Leasehold Mortgagee. Without limiting the generality of the foregoing, no rejection of this Lease by Company or by a trustee in bankruptcy for the Company shall be effective as to any Leasehold Mortgagee unless consented to in writing by such Leasehold Mortgagee.

The Issuer shall, on serving the Company with any notice of any default under this Lease, simultaneously serve a copy of such notice upon each Leasehold Mortgagee. No such notice by the Issuer to the Company shall be deemed to have been duly given unless and until a copy thereof has been so provided to every Leasehold Mortgagee in the manner specified herein. From and after the date such notice has been given to a Leasehold Mortgagee, each such Leasehold Mortgagee shall have an additional 90-day period beyond any period granted to the Company under this Lease for remedying any default specified in such notice or causing the same to be remedied, but the Leasehold Mortgagee shall in no manner be obligated to do so. The Issuer shall accept such cure by or at the instigation of the Leasehold Mortgagee as if the same had been performed by the Company. The Company hereby authorizes each Leasehold Mortgagee to take any such action that such Leasehold Mortgagee deems necessary to cure any such default and does hereby authorize entry upon the Project by each such Leasehold Mortgagee for the purpose of curing such defaults.

(c) In the event that the Issuer shall elect to terminate this Lease by reason of any default of the Company under Article VII, such Leasehold Mortgagee shall have the right, which right shall be exercised, if at all, within thirty (30) days after such Leasehold Mortgagee is notified of the Issuer’s election to terminate the Lease, to postpone and extend the specified date for the termination of this Lease as fixed by the Issuer in its notice of termination for a period of not more than twelve (12) months, provided that such Leasehold Mortgagee shall, during such six (6) month period, (A) pay or cause to be paid any Basic Rent and Additional Rent and other payments and charges payable to the Issuer as the same become due and continue its good faith efforts to perform all of the Company’s other obligations under this Lease, excepting (i) obligations of the Company to satisfy or otherwise discharge any lien, charge or encumbrance against Company’s interest in this Lease or the Project provided that such lien, charge or encumbrance is junior in priority to the lien of the mortgage held by such Leasehold Mortgagee and does not affect the Issuer’s fee simple interest in the Project, and (ii) past non-monetary obligations then in default and not reasonably susceptible of being cured by such Leasehold Mortgagee, and (B) if not enjoined or stayed, take steps to acquire or sell the Company’s interest in this Lease by foreclosure of the Leasehold Mortgage or other appropriate means and prosecute the same to completion with due diligence.

If at the end of such twelve (12) month period such Leasehold Mortgagee is complying with the immediately preceding paragraph and such Leasehold Mortgagee is prohibited by any process or injunction issued by any court of competent jurisdiction or by reason of any action in any court of competent jurisdiction from commencing or prosecuting foreclosure or other appropriate proceedings in the nature thereof, this Lease shall not then terminate, and the time for completion by such Leasehold Mortgagee of its proceedings shall continue so long as such Leasehold Mortgagee is enjoined or stayed and thereafter for so long as such Leasehold Mortgagee proceeds in good faith and with due diligence to complete steps to acquire or sell the Company’s interest in this Lease by foreclosure of the Leasehold Mortgage or by other appropriate means. Nothing in this paragraph, however, shall be construed to extend this Lease beyond the original Lease Term, nor to require a Leasehold Mortgagee to continue foreclosure proceedings after a default has been cured. In the event that such default shall be cured and the Leasehold Mortgagee shall discontinue such foreclosure proceedings, this Lease shall continue in full force and effect as if the Company had not defaulted under this Lease.

In the event that a Leasehold Mortgagee complies with this subsection 9.3(c) and Leasehold Mortgagee acquires the Company’s right title and interest herein by foreclosure or otherwise, then, upon the acquisition of the Company’s right, title and interest herein by such Leasehold Mortgagee or its designee, or any other purchaser or assignee at a foreclosure sale or otherwise, this Lease shall continue in full force and effect as if the Company had not defaulted under this Lease.

The granting of a Leasehold Mortgage shall not be deemed to constitute an assignment or transfer of this Lease or of the leasehold estate hereby created, and any conveyance of the leasehold estate created hereby from Company to a Leasehold Mortgagee by foreclosure or otherwise, or from Leasehold Mortgagee as attorney-in-fact of the Company to a purchaser at a foreclosure sale, shall not be deemed to constitute an assignment or transfer of this Lease or of the leasehold estate hereby created requiring the assumption of the obligations of the Company hereunder, but such purchaser or assignee of this Lease and of the leasehold estate hereby created shall be deemed to have agreed to perform all of the terms, covenants and conditions on the part of the Company to be performed hereunder from and after the date of such purchase and assignment. Upon such conveyance, the Issuer shall recognize such Leasehold Mortgagee, or any other purchaser or assignee, as the Company hereunder, from and after the date of such sale or assignment, the holder of any Leasehold Mortgage then existing or thereafter placed on the leasehold estate hereby created shall be considered a Leasehold Mortgagee as contemplated by this Lease, and the Leasehold Mortgagee thereunder shall be entitled to receive the benefit of any and all provisions of this Lease intended for the benefit of a Leasehold Mortgagee, subject to the obligations and duties of the Leasehold Mortgagee under this Lease.

(d) In the event that this Lease is terminated as a result of any default by the Company hereunder or any other cause (including, without limitation, a rejection of this Lease by the Company’s trustee in bankruptcy pursuant to II U.S.C. §365 or any equivalent provision of law), the Issuer shall provide each Leasehold Mortgagee with written notice that the Lease has been terminated, together with a statement of all sums which would at that time be due under this Lease but for such termination, and of all other defaults, if any, then known to the Issuer. At the request of the Leasehold Mortgagee, but subject to the conditions hereinafter described, the Issuer shall enter into a new lease (hereinafter referred to as the “New Lease”) of the Project with any Leasehold Mortgagee or its designee for the remainder of the term of this Lease with the same covenants, conditions and agreements (including, without limitation, any and all options to extend or renew the term of this Lease, but excluding any requirements which have been satisfied by the Company prior to termination) as are contained herein, subject only to (1) the conditions of title as the Project are subject to on the date of the execution of the original Lease, (2) the right, if any, of any parties then in possession of any part of the Project by, through or under Company, and (3) the lien and encumbrance of any security instrument encumbering the Issuer’s fee simple interest in the Project upon receipt by the Issuer of a written request from such Leasehold Mortgagee on or before sixty (60) days after the date of the Issuer’s notice of termination given pursuant to this subsection 9.3(d) and thereafter, the Company under the New Lease shall have the same right, title and interest in and to the Project as the Company had under this Lease. The obligations of the Issuer to enter into a New Lease shall be subject to the following conditions:

(i) Such Leasehold Mortgagee or its designee shall pay or cause to be paid to the Issuer at the time of the execution and delivery of such New Lease any and all sums which would at the time of execution and delivery thereof be due pursuant to this Lease but for such termination and, in addition thereto, all reasonable expenses, including reasonable attorney’s fees, which the Issuer shall have incurred by reason of the Company’s default of which Leasehold Mortgagee has been notified and provided an opportunity to cure as required by this Lease, and such termination and the execution and delivery of the New Lease and which have not otherwise been received by the Issuer from the Company or any other party in interest under the Company. Upon the execution of such New Lease, the Issuer shall allow the Company named therein as an offset against the sums otherwise due under this subsection 9.3(d), an amount equal to the net income derived by the Issuer from the Project during the period from the date of termination of this Lease to the date of beginning of the term of such New Lease; and

(ii) Such Leasehold Mortgagee or its designees shall agree to cure any defaults of the Company in the payment of Additional Rent under the terminated Lease of which the Issuer shall have notified Leasehold Mortgagee.

The new Company under such New Lease shall, upon entering into such New Lease, acquire all of the right, title and interest of the Company in and to any and all subleases of all or any part of the Project.

(e) So long as any Leasehold Mortgage is in existence, unless all Leasehold Mortgagees shall otherwise expressly consent in writing, the fee title to the Project and the leasehold estate of the Company herein created shall not merge but shall remain separate and distinct, notwithstanding the acquisition of said fee title and said leasehold estate by the Issuer or by the Company, or by a third party, by purchase or otherwise.

(f) Notices from the Issuer to the Leasehold Mortgagee shall be mailed to the address furnished the Issuer pursuant to Notice of Leasehold Mortgage, and those from the Leasehold Mortgagee to the Issuer shall be mailed to the address designated pursuant to the provisions of Section 12.2 of this Lease. Such notices, demands and requests shall be given in the manner described in Section 12.2 of this Lease and shall in all respects be governed by the provisions of that section.

(g) The Issuer shall, at the request of the Company, execute, acknowledge and deliver to a Leasehold Mortgagee an agreement among the Issuer, the Company and the Leasehold Mortgagee agreeing to all the provisions of this Section 9.3.

Section 9.4. Redemption of Bond . The Issuer, at the written request of the Company and if the Company provides funds therefor, shall forthwith take all steps that may be necessary under the redemption or defeasance provisions of the Bond Resolution to effect the redemption or defeasance of all or part of the then-Outstanding Bond, as may be specified by the Company, on the earliest date on which such redemption or defeasance may be made under such applicable

provisions, provided, however, in lieu of providing funds in connection with any such redemption, the Company may cause the principal amount of the Bond to be reduced in an amount equal to the principal amount of such redemption through a notation thereof on the Schedule of Advances and Payments attached thereto.

Section 9.5. Prepayment of Rents . There is expressly reserved to the Company the right, and the Company is authorized and permitted, at any time it may choose, to prepay all or any part of the Basic Rent payable under Section 5.3(a) hereof, and the Issuer agrees that it shall accept such prepayments of rents when the same are tendered by the Company. All Basic Rent so prepaid shall at the written direction of the Company be credited toward the Basic Rent payments specified in Section 5.3(a) hereof, in the same manner as such payments are applied to the payment of Debt Service in accordance with terms of the Bond and the Bond Resolution. The Company shall also have the right to surrender the Bond, if it is then owned by the Company, to the Issuer for cancellation, and such Bond, upon such surrender and cancellation, shall be deemed to be paid and no further Basic Rent shall be paid, as provided in Section 9.6, below.

Section 9.6. Company Entitled to Certain Rent Abatements if Bond Paid Prior to Maturity . If at any time the Bond shall cease to be Outstanding, under circumstances not resulting in termination of the Lease Term, and if the Company is not at the time otherwise in default hereunder, the Company shall be entitled to use the Project from the date such Bond is no longer Outstanding to, and including the end of, the Lease Term, with no obligation to make payments of Basic Rent specified in Section 5.3(a) hereof during that interval (but otherwise on the terms and conditions hereof).

Section 9.7. Installation of Other Machinery and Rented Equipment . The Company may from time to time, in its sole discretion and at its own expense, install trade fixtures, machinery, equipment, and other personal property (collectively, the “ Personal Property ”) at the Project. All such Personal Property shall remain the sole property of the Company (or of any leasing company from whom the Company may be renting such items) and the Company or such leasing company, as applicable, may remove the same from the Project at any time, in its sole discretion and at its own expense. The Company or such leasing company, as applicable, may create any mortgage, encumbrance, lien, or charge on any such Personal Property. The Issuer shall not have any interest in and waives any lessor’s lien that it may have on all or any part or item of the Personal Property installed pursuant to this Section, and all such Personal Property shall be and remain identified as the property of the Company or such leasing company on its books and/or by appropriate tags or other markings. All such Personal Property may be removed from the Project by the Company, any such equipment lessor, or any Person to which the same is pledged, and the Issuer and the Company shall provide accesses, ingress and egress to any such Person for purposes of inspection. repair, maintenance or removal of any such Personal Property.

Section 9.8. Reference to Bond Ineffective After Bond Paid . Upon payment in full of the Bond (or provision for payment thereof having been made in accordance with the defeasance provisions of the Bond Resolution), all references in this Lease to the Bond and the Holder shall be ineffective, and the owner of the Bond shall not thereafter have any rights hereunder, saving and excepting those that shall have theretofore vested. For purposes of this Lease the Bond shall be deemed fully paid if it is defeased as provided in the Bond Resolution.

ARTICLE X

EVENTS OF DEFAULT AND REMEDIES

Section 10.1. Events of Default Defined . The following shall be “Events of Default” under this Lease, and the terms “Event of Default” or “Default” shall mean, whenever they are used in this Lease, any one or more of the following events:

(a) a failure of the Company to pay Basic Rent in the amounts and at the times required by Section 5.3(a) of this Lease, for a period of five (5) days after the Company’s receipt of written notice from the Issuer specifying such breach or failure and requesting that it be remedied, provided that if the Company is then the Holder of the Bond such Basic Rent shall be deemed to have been paid and the corresponding Debt Service on the Bond shall be deemed to have also been paid; or

(b) the Company’s failure to observe, perform, or comply with any other covenant, condition, or agreement in this Lease or in any other Company Documents on the part of the Company to be observed or performed (other than as referred to in subsection (a) of this Section) if such covenant, condition or agreement is for the benefit of the Issuer and constitutes any of the Unassigned Rights, for a period of thirty (30) days after the Company’s receipt of written notice from the Issuer specifying such breach or failure and requesting that it be remedied, unless the Issuer shall agree in writing to an extension of such time prior to its expiration. It shall not constitute an Event of Default if corrective action is instituted by or on behalf of the Company within the thirty (30) day period and diligently pursued until the breach or default is corrected; or

(c) the Company’s failure to observe, perform, or comply with any covenant, condition, or agreement in this Lease or in the other Company Documents on the part of the Company to be observed or performed, which covenant, condition or agreement is for the benefit of the Holder other than as referred to in subsections (a) and (b) of this Section, for a period of thirty (30) days after the Company’s receipt of written notice from the Holder specifying such breach or failure and requesting that it be remedied, unless the Holder shall agree in writing to an extension of such time prior to its expiration. It shall not constitute an Event of Default if corrective action is instituted by the Company or on behalf of the Company within the applicable thirty (30) day period and diligently pursued until the breach or default is corrected; or

(d) any default under any of the Loan Documents (after expiration of all applicable notice and cure periods), if the Lender that is a party thereto notifies the Issuer, the Company and the Holder that the same should be deemed an Event of Default hereunder.

The Issuer shall notify the Company, as well as any Lender that has requested such notice and provided its address for such notice to the Issuer and the Holder in writing, of any Event of Default hereunder of which the Issuer has knowledge.

Section 10.2. Remedies on Default . Whenever any Event of Default referred to in Section 10.1 hereof shall have happened and be subsisting, the Issuer, or the Holder as assignee of the Issuer, to the extent permitted by law, may take any one or more of the following remedial steps:

(a) take whatever action at law or in equity or under the terms of this Lease may appear necessary or desirable to collect the rents and other amounts payable by the Company hereunder then due or thereafter to become due, or to enforce performance and observance of any obligation, agreement, or covenant of the Company under this Lease; or

(b) in the case of a material Event of Default only, terminate this Lease, subject to the respective provisions concerning the priority of the Company’s option to purchase the Project that are set forth in this Lease and recover, as and for liquidated and agreed final damages for the Company’s default, all amounts that have theretofore become due plus an amount equal to all unpaid installments of Basic Rent, and if any statute or rule of law shall validly limit the amount of such liquidated final damages to less than the amount agreed upon, the Issuer shall be entitled to the maximum amount allowable under such statute or rule of law; no termination of this Lease pursuant to this Section shall relieve the Company from its obligations pursuant to Section 8.4 hereof.

Any amounts of Basic Rent collected pursuant to action taken under this Section shall be applied in payment of the then-Outstanding Bond, unless a specific action has been taken to collect Additional Rent in which case any amounts collected as Additional Rent shall be paid to the Person or Persons to whom such Additional Rent is due and owing hereunder.

Notwithstanding that this Lease (except for Unassigned Rights) is to be assigned to the Holder, the Issuer shall be entitled to enforce this Lease if any Event of Default relates to such Unassigned Rights or exposes the Issuer, its assets (other than the Project and other amounts or assets securing payment of Debt Service) or its members, officers, employees or agents to any liability. The Holder shall be entitled to enforce the provisions hereof that affect its interests hereunder. Notwithstanding the foregoing and notwithstanding any statutory, decisional, or other law to the contrary, (i) in no event shall the Issuer have any right to terminate this Lease or to enter upon or otherwise obtain possession of the Project by reason of the occurrence of any Event of Default by the Company hereunder without the prior written consent of the Holder, and (ii) in no event shall termination of this Lease or the exercise of any other remedy affect the Company’s options under Article XI hereof.

Section 10.3. Remedies Not Exclusive . The remedies herein expressly conferred upon the Issuer and the Holder are intended to be in addition to other remedies existing at law or in equity or by statute. Without limiting the generality of the foregoing, and notwithstanding the foregoing provisions of this Article, and notwithstanding any other term or provision of this Lease, and notwithstanding any statutory, decisional, or other law to the contrary, in no event shall the Issuer have any right to terminate this Lease, to enter upon and take possession of the Project, to the dispossession of the Company or the repossession of the Project, or otherwise to obtain possession of the Project, by reason of the occurrence of any Event of Default by the Company hereunder without the prior written consent of the Holder of the Bond, of any pledgee of the Bond and of any Lender that is the holder of a Superior Security Document. No delay or

omission to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver thereof, but any such right and power may be exercised from time to time and as often as may be deemed expedient. In order to entitle the Issuer to exercise any remedy reserved to it in this Article, the Holder, any pledgee of the Bond and any Lender that is the holder of a Superior Security Document must consent to such exercise. The Holder, any pledgee of the Bond and any Lender that is the holder of a Superior Security Document shall each be deemed a third party beneficiary of all covenants and agreements herein contained, except for covenants relating solely to the Issuer’s Unassigned Rights.

Section 10.4. Company to Pay Fees and Expenses . In the event the Company should default under any of the provisions of this Lease and the Issuer or the Holder should employ attorneys, accountants, or other experts or incur other expenses for the collection of amounts due it hereunder or the enforcement of performance or observance of any obligation or agreement on the part of the Company herein contained for its benefit, the Company agrees that it shall on demand therefor pay to such Person the reasonable fees and expenses of such attorneys, accountants, or other experts and such other expenses so incurred by the Issuer. Any attorneys’ fees required to be paid by the Company under this Lease shall include reasonable attorneys’ and paralegal’s fees through all proceedings, including, but not limited to, negotiations, administrative hearings, trials, and appeals, as well as reasonable court costs and reimbursable expenses of such attorneys. Further, in the event the Company requests any amendments or modifications to the Bond Documents, the Company agrees that it shall on demand therefor pay to the Issuer the reasonable fees and expenses of the Issuer’s attorneys or other experts and such other reasonable expenses so incurred by the Issuer in connection therewith. The Company and the Holder shall be entitled to enforce their respective rights under this Article and the Issuer’s rights under this Article shall be one of the Unassigned Rights. This Section shall survive the termination of this Lease.

Section 10.5. Waiver of Events of Default . The Issuer may waive any Event of Default hereunder and its consequences or rescind any declaration of acceleration of payments of the rents and other amounts due hereunder, provided that the Issuer shall not waive any Event of Default (other than Events of Default relating to the Unassigned Rights) without the prior written consent of the Holder. The Holder may waive any Event of Default hereunder other than Events of Default relating to the Unassigned Rights, which may be waived only by the Issuer. In case of any such waiver or rescission, or in case any proceeding taken by the Issuer or the Holder on account of any such Event of Default shall be discontinued or abandoned or determined adversely to the Issuer or the Holder, then and in every such case the Issuer , the Holder and the Company shall be restored to their former positions and rights hereunder, but no such waiver or rescission shall extend to or affect any subsequent or other Event of Default or impair or exhaust any right, power, or remedy consequent thereon.

ARTICLE XI

OPTIONS IN FAVOR OF COMPANY

Section 11.1. Company’s Option to Terminate Lease . The Company shall have, and is hereby granted, at any time and without notice, the option to terminate this Lease by (i) causing the Bond to be paid, cancelled, or defeased in accordance with the provisions of the Bond Resolution, (ii) paying any amounts due the Issuer or the Holder for Additional Rent, and (iii) giving the Issuer notice in writing of such termination which shall forthwith become effective. Notwithstanding the foregoing, if the Company exercises the option to terminate this Lease contained in this Section 11.1 but has not also provided the Issuer with a written notice that it elects to exercise the option to purchase the Project set forth in Section 11.2 below, the option to purchase the Project shall be deemed to have been exercised. The termination of this Lease and the purchase of the Project shall be closed within 14 (14) days from the date of such notice.

Section 11.2. Option to Purchase Project . The Company shall have, and is hereby granted, the option to purchase the Project for a purchase price which shall be the sum of Ten Dollar ($10.00), which amount shall be paid directly to the Issuer for its own account and not to the Holder, provided that: (i) the Bond has been fully paid or fully defeased as provided in the Bond Resolution (or paid or defeased as a part of the closing of such purchase or the Bond shall have been surrendered for cancellation), and (ii) any amounts due the Issuer or the Holder for Additional Rent have been paid (or are paid as a part of the closing of such purchase). To exercise such option, the Company or its assignee shall give written notice of exercise to the Issuer and if the Bond has not theretofore been fully paid or defeased, a copy of such notice shall be mailed or delivered by the Company to the Holder at the address of the Holder as reflected on the Bond Register. Notwithstanding, the foregoing, if the Company prior to the sixtieth (60th) day prior to the end of the Lease Term has not filed with the Issuer a written notice that it elects not to exercise such option, the option shall be deemed to have been exercised on the last day of the Lease Term. The purchase of the Project shall be closed within 14 (14) days from the date of such notice. Notwithstanding anything else herein contained, the Company’s option to purchase the Project shall survive the termination or expiration of this Lease and continue for a period of fifty (50) years following the date of any such termination or expiration.

If following such purchase any claim for indemnification under this Lease and other Company Documents arises, the obligation of the Company to pay the same shall become due and the Issuer and the Holder may enforce their right to payment directly against the Company.

Section 11.3. No Obligation to Exercise Options . The Company shall be under no obligation to exercise the options granted in Sections 12.1 or 12.2.

Section 11.4. Conveyance on Exercise of Option to Purchase . At the closing of any purchase pursuant to the exercise of the option to purchase granted herein, the Issuer shall, upon receipt of the purchase price, deliver to the Company a limited warranty deed and a quit claim bill of sale conveying to the Company all of its right title and interest to the property being purchased, as such property then exists.

Section 11.5. Public Purpose of Option to Purchase . The Issuer and the Company acknowledge that the option to purchase the Project granted in this Article constitutes a material inducement to the Company to locate the Project in the County and thereby create employment opportunities in the County and that in granting such options, the Issuer is considering the entire transaction as a whole, including the promotion and expansion for the public good and welfare industry and trade within the County and the increase in jobs in the County, and the fact that as a condition to the exercise of the options, all indebtedness with respect to the Project will have been paid in full.

Section 11.6. Priority Position of Option . Notwithstanding any other provision hereof or of the Bond Resolution, the option granted to the Company in Section 11.2 may be exercised whether or not an Event of Default hereunder has occurred and is continuing or whether or not an Event of Default under the Bond Resolution has occurred and is continuing.

ARTICLE XII

MISCELLANEOUS

Section 12.1. Quiet Enjoyment . The Issuer agrees that so long as the Company shall fully and punctually pay all of the rents and other amounts provided to be paid hereunder by the Company and shall fully and punctually perform all of its other covenants and agreements hereunder, the Company shall peaceably and quietly have, hold, and enjoy the Project during the Lease Term, and the Issuer warrants and covenants that it will defend the Company in such peaceable and quiet possession of the Project.

Section 12.2. Notices . Any request, demand, authorization, direction, notice, consent, or other document provided or permitted by this Lease to be made upon, given or furnished to, or filed with, the Issuer, the Company or the initial Holder as set forth below shall be sufficient for every purpose hereunder if in writing and (except as otherwise provided in this Lease) either (i) delivered personally to the party or, if such party is not an individual, to an officer or other legal representative of the party to whom the same is directed, or (ii) mailed by registered or certified mail, return receipt requested, postage prepaid, or (iii) sent via nationally recognized overnight courier for next business day delivery, as follows:


If to the Authority:		Development Authority of Jenkins County 548 Cotton Avenue Millen, Georgia 30442 Attn: Executive Director

with a copy to:		Seyfarth Shaw LLP 1075 Peachtree Street, N.E. Suite 2500 Atlanta, Georgia 30309 Attn: Daniel M. McRae, Esq.


If to the Company:		CARBO Ceramics Inc. 575 N. Dairy Ashford Suite 300 Houston, Texas 77079 Attn: Chief Financial Officer

with a copy to:		CARBO Ceramics Inc. 575 N. Dairy Ashford Suite 300 Houston, Texas 77079 Attn: General Counsel

and with a copy to:		Alston & Bird LLP 1201 West Peachtree Atlanta, Georgia 30309-3424 Attn: Glenn R. Thomson, Esq.

Any person designated in this Section 12.2 may, by notice given to each of the others, designate any additional or different addresses to which subsequent notices, certificates, or other communications shall be sent.

Section 12.3. Construction and Binding Effect . This Lease constitutes the entire agreement of the parties concerning the subject matter hereof and supersedes any prior agreements with respect thereto. This Lease shall inure to the benefit of the Issuer, the Company, the Holder and their respective successors and assigns, and shall be binding upon the Issuer and the Company, subject, however, to the limitations contained in Sections 9.1 and 9.2 hereof.

Section 12.4. Severability . In the event any provision of this Lease shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.

Section 12.5. Amounts Remaining in the Funds . It is agreed by the parties hereto that any amounts remaining in the Funds upon expiration or sooner termination of the Lease Term, as provided in this Lease, after payment or defeasance of the Bond in full and all sums due and owing to the Issuer and the Holder shall have been paid, shall belong to and shall be paid to the Company as an overpayment of rent.

Section 12.6. Fees Paid by the Company . Except as Section 4.3 hereof permits the payment or reimbursement thereof, subject to the provisions of Section 12.15 hereof, the Company shall pay all fees and expenses relating to this Lease, including but not limited to, any recording fee and tax upon this Lease, and reasonable attorneys’ fees. In case the Issuer, with the written consent of the Company, pays or advances any money for recording, preparation of documents, any expenses incurred in the completion of this transaction, the payment of any insurance premiums, encumbrances, tax, assessment, or other charge or lien upon the Project, or any other amounts necessary for the payment of the Costs of the Project, the same shall be advances payable in accordance with Section 6.6 of this Lease.

Section 12.7. No Issuer Liability; Immunity of Members, Officers, and Employees of Issuer . The Company assumes full responsibility for the acquisition and installation of the Project and for any Additions or Alterations thereto, replacements thereof, and substitutions therefor, and hereby releases the Issuer for any responsibility or liability with respect to the foregoing. No recourse shall be had for the enforcement of any obligation, covenant, promise, or agreement of the Issuer contained in this Lease or for any claim based hereon or otherwise in respect hereof or upon any obligation, covenant, promise, or agreement of the Issuer contained in the Bond Resolution against any director, member, officer, or employee, as such, in his or her individual capacity, past, present, or future, of the Issuer, or any successor Person, whether by virtue of any constitutional provision, statute, or rule of law, or by the enforcement of any assessment or penalty or otherwise, it being expressly agreed and understood that this Lease is solely a corporate obligation of the Issuer payable only from the funds and assets of the Issuer herein specifically provided to be subject to such obligation and that no personal liability whatsoever shall attach to, or be incurred by, any director, member, officer, or employee, as such, past, present, or future, of the Issuer, or of any successor Person, either directly or through the Issuer, or any successor Person, under or by reason of any of the obligations, covenants, promises, or agreements entered into between the Issuer and the Company whether contained in this Lease or in the Bond, in the Bond Resolution, in the Bond Documents or to be implied hereunder or thereunder as being supplemental hereto or thereto, and that all personal liability of that character against every such director, member, officer, and employee of the Issuer or any such successor Person is, by the execution of this Lease and as a condition of and as part of the consideration for the execution of this Lease, expressly waived and released by the Company. The immunity of directors, members, officers, and employees of the Issuer under the provisions contained in this Section shall survive the completion of the Project and the termination of this Lease.

Section 12.8. Amendments, Changes, and Modifications . This Lease may not be amended, modified, altered, or terminated, except as provided herein and in the Bond Resolution.

Section 12.9. Execution of Counterparts . This Lease may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument.

Section 12.10. Law Governing Construction of this Lease . This Lease is prepared and entered into with the intention that the laws of the State of Georgia, exclusive of such state’s rules governing choice of law, shall govern its construction.

Section 12.11. Covenants Run with Project . The covenants, agreements, and conditions herein contained shall run with the Project hereby leased and shall be binding upon, inure to the benefit of, and be enforceable by the parties hereto and their respective successors and assigns.

Section 12.12. Subordination to Security Document. This Lease and the rights and privileges hereunder of the Company are specifically made subject and subordinate to the rights and privileges of the Holder, as set forth in the Security Document.

Section 12.13. Net Lease . This Lease shall be deemed and construed to be a “triple net lease,” and the Company shall pay absolutely net, during the Lease Term, the rent and all other payments required hereunder, free of any deductions, without abatement, diminution, or set-off other than those herein expressly provided.

Section 12.14. Surrender of Project . Except as otherwise provided in this Lease, at the expiration or sooner termination of the Lease Term, the Company agrees to surrender possession of the Project peaceably and promptly to the Issuer in as good condition as at the commencement of the Lease Term, excepting only ordinary wear, tear, and obsolescence, and damage by fire or other casualty or a taking by eminent domain which the Company is not obligated by this Lease to repair. In the event the Company remains in possession of the Project after the expiration of the Lease Term, including any extensions thereof, without the Issuer’s written consent, the Company shall be a month to month tenant. The Company shall be obligated to pay rent for each month that it holds over without written consent at a monthly rental of $1.00. All of the Company’s obligations under this Lease shall apply during such holdover period and the Company shall also be liable for any Additional Rent as herein provided and for any and all other reasonable and actual damages Issuer suffers as a result of such holdover including, without limitation, the loss of a prospective tenant for such space and cost of evicting the Company, including reasonable and actual attorneys’ fees. There shall be no renewal of this Lease by operation of law or otherwise. Nothing in this Section shall be construed as a consent by the Issuer for any holding over by the Company after the expiration of the Lease Term.

Section 12.15. Immunity of Members and Employees of Company; Limitation of Company’s Liability . No recourse shall be had for the enforcement of any obligation, covenant, promise, or agreement of the Company contained in this Lease or for any claim based hereon or otherwise in respect hereof, against any stockholder, director, limited partner (but not general partner), member, manager, employee, trustee for, or agent of the Company or any successor entity, in his or her individual capacity, past, present, or future, whether by virtue of any constitutional provision, statute, or rule of law, or by the enforcement of any assessment or penalty or otherwise, it being expressly agreed and understood that this Lease is solely an obligation of the Company and that no personal liability whatsoever shall attach to, or be incurred by, any such stockholder, director, limited partner (but not general partner), member, manager, employee, trustee for, or agent, either directly or through the Company, or any successor entity, under or by reason of any of the obligations, covenants, promises, or agreements contained in this Lease or to be implied here from, and that all personal liability of that character against every such stockholder, director, limited partner (but not general partner), member, manager, employee, trustee for, or agent is, by the execution of this Lease and as a condition of and as part of the consideration for the execution of this Lease, expressly waived and released. The immunity of each such stockholder, director, limited partner (but not general partner), member, manager, employee, trustee for, or agent of the Company under the provisions contained in this Section shall survive the termination of this Lease.

Section 12.16. Payments Due on Other than Business Days . Whenever a date upon which a payment is to be made under this Lease falls on a date which is not a Business Day, such payment may be made on the next succeeding Business Day without interest for the intervening period.

Section 12.17. Holder of Pledged Interest . The Issuer agrees and the Holder, by its acceptance of the Bond, shall be deemed to have agreed, that upon receipt by the Issuer of notice from the Holder that it has pledged its interest in the Bond, all elections, options, or rights of the Holder under this Lease shall be effective only if consented to in writing by the holder of the pledged interest.

Section 12.18. Estoppel Certificates . Upon ten (10) business days’ written request of the Company, the Issuer will provide a statement to any Lender which is the holder of any Superior Security Document or any Leasehold Mortgage concerning, to the best of its knowledge, (i) the outstanding amount of the Bond; (ii) whether a default exists under this Lease or the other Bond Documents, and if so specifying the nature of such default; (iii) whether this Lease or the other Bondy Documents have been amended, and if so, specifying the amendments; and (iv) any other matter concerning this Lease or the Bond Documents reasonably requested by such Lender.

Section 12.19. Attorneys’ Fees . Wherever used herein, the terms “ attorneys’ fees ,” “ legal fees ” or other similar terms shall mean reasonable attorneys’ fees in the amount actually incurred at the attorneys’ normal hourly rates.

[ SIGNATURES BEGIN ON FOLLOWING PAGE ]

IN WITNESS WHEREOF , the Issuer has executed this Lease by causing its name to be hereunto subscribed by its Chairman or Vice Chairman and by causing the official seal of the Issuer to be impressed hereon and attested by its Secretary or its Assistant Secretary and the Company has executed this Lease by causing its name to be hereunto subscribed by its duly authorized officer, all being done as of the day and year first above written.


DEVELOPMENT AUTHORITY OF JENKINS COUNTY

By:
		Chairman

A TTEST :

Secretary

[ SEAL ]

[ SIGNATURES CONTINUE ON FOLLOWING PAGE ]

[ SIGNATURE PAGE TO LEASE AGREEMENT ]


CARBO CERAMICS INC., a Delaware corporation

By:
		Ernesto Bautista III, Vice President

A TTEST :

R. Sean Elliott, Secretary

[ SEAL ]

[ SIGNATURE PAGE TO LEASE AGREEMENT ]

EXHIBIT A

DESCRIPTION OF THE LEASED LAND

Overall Parcel North of State Route 17

All that tract or parcel of land lying and being in the 1638th G.M. District of Jenkins County, Georgia and being more particularly described as follows:

Beginning at the intersection of the northeasterly right-of-way line of State Route 17 (100-foot right-of-way) with the northwesterly right-of-way line of Clayton Road (60-foot right-of-way); thence, proceed along said State Route 17 right-of-way line North 49 degrees 25 minutes 50 seconds West for a distance of 5.94 feet to a 1-inch crimped top pipe found; thence North 49 degrees 29 minutes 13 seconds West for a distance of 147.16 feet to a ¹ / ₂ -inch rebar found; thence along a curve to the left having a radius of 6123.60 feet and an arc length of 760.15 feet, said arc being subtended by a chord with a bearing of North 53 degrees 18 minutes 04 seconds West and a length of 759.66 feet, to a 1-inch open top pipe; thence North 57 degrees 13 minutes 05 seconds West for a distance of 1159.17 feet to a point, said point being 2.35 feet in a southerly direction from a 1-inch square rod found; thence North 57 degrees 19 minutes 24 seconds West for a distance of 267.61 feet to a capped ¹ / ₂ -inch rebar set; thence along a curve to the left having a radius of 1875.54 feet and an arc length of 620.97 feet, said arc being subtended by a chord with a bearing of North 66 degrees 48 minutes 30 seconds West and a length of 618.14 feet, to a capped ¹ / ₂ -inch rebar set; thence North 76 degrees 17 minutes 36 seconds West for a distance of 454.23 feet to a capped ¹ / ₂ -inch rebar set; thence along a curve to the right having a radius of 1402.73 feet and an arc length of 550.73 feet, said arc being subtended by a chord with a bearing of North 65 degrees 02 minutes 45 seconds West and a length of 547.20 feet, to a concrete monument found; thence, leaving said right-of-way, proceed North 42 degrees 41 minutes 54 seconds East for a distance of 348.99 feet to a concrete monument found; thence North 42 degrees 42 minutes 30 seconds East for a distance of 3022.88 feet to a ³ / ₄ -inch open top pipe found; thence through two 3/4-inch open top pipes found, North 35 degrees 36 minutes 26 seconds West for a distance of 1476.63 feet to an axle found; thence North 35 degrees 09 minutes 38 seconds West for a distance of 428.83 feet to a nail found; thence North 77 degrees 44 minutes 45 seconds East for a distance of 2352.23 feet to a square rod found on the southwesterly right-of-way line of Central of Georgia Rail (150’ R/W); thence South 32 degrees 45 minutes 34 seconds East for a distance of 425.01 feet to a capped ¹ / ₂ -inch rebar set; thence South 24 degrees 08 minutes 53 seconds East for a distance of 325.00 feet to a railroad iron found; thence South 25 degrees 47 minutes 27 seconds East for a distance of 3281.96 feet to a capped ¹ / ₂ -inch rebar set; thence, leaving Central of Georgia Railroad right-of-way (150’) proceed South 64 degrees 30 minutes 00 seconds West for a distance of 116.28 feet to a concrete monument found; thence South 42 degrees 47 minutes 56 seconds East for a distance of 392.85 feet to a concrete monument found on the southwesterly right-of-way line of said Central of Georgia Rail; thence South 25 degrees 30 minutes 12 seconds East for a distance of 965.65 feet to a capped ¹ / ₂ -inch rebar set; thence South 25 degrees 30 minutes 12 seconds East for a distance of 624.26 feet to a capped ¹ / ₂ -inch rebar set on the intersection of the northerly right-of-way line of Clayton Road (60-foot right-of-way), with the southwesterly right-of-way line of Central of Georgia Railroad; thence, following the northerly and northwesterly right-of-way line of Clayton

Road, proceed along a curve to the left having a radius of 2667.48 feet and an arc length of 481.81 feet, said arc being subtended by a chord with a bearing of North 87 degrees 57 minutes 12 seconds West and a length of 481.15 feet, to a capped ¹ / ₂ -inch rebar set; thence South 85 degrees 26 minutes 26 seconds West for a distance of 155.24 feet to a capped ¹ / ₂ -inch rebar set; thence South 80 degrees 38 minutes 07 seconds West for a distance of 680.06 feet to a capped ¹ / ₂ -inch rebar set; thence South 75 degrees 53 minutes 45 seconds West for a distance of 231.71 feet to a capped ¹ / ₂ -inch rebar set; thence South 68 degrees 28 minutes 19 seconds West for a distance of 346.14 feet to a capped ¹ / ₂ -inch rebar set; thence South 66 degrees 42 minutes 09 seconds West for a distance of 256.98 feet to a capped ¹ / ₂ -inch rebar set; thence South 55 degrees 41 minutes 41 seconds West for a distance of 135.54 feet to a capped ¹ / ₂ -inch rebar set; thence South 42 degrees 48 minutes 43 seconds West for a distance of 142.54 feet to a capped ¹ / ₂ -inch rebar set; thence South 38 degrees 54 minutes 38 seconds West for a distance of 368.33 feet to a capped ¹ / ₂ -inch rebar set; thence South 38 degrees 40 minutes 26 seconds West for a distance of 249.50 feet to a point on the intersection of northeasterly right-of-way line of State Route 17 with the northwesterly right-of-way line of Clayton Road, and the True Point of Beginning.

Containing within said bounds 452.845 acres (19,725,919 square feet) more or less.

TOGETHER WITH:

Tract 6, Parcel B

All that tract or parcel of land lying and being in the 1638th G.M. District of Jenkins County, Georgia and being more particularly described as follows:

To find the True Point of Beginning, commence at the intersection of the northeasterly right-of-way line of State Route 17 (100’ right-of-way) and northwesterly right-of-way line of Clayton Road (60’ right-of-way); thence, proceed along said State Route 17 right-of-way North 49 degrees 25 minutes 50 seconds West for a distance of 5.94 feet to a 1” crimped top pipe found; thence, North 49 degrees 29 minutes 13 seconds West for a distance of 147.16 feet to a ¹ / ₂ ” rebar found; thence along a curve to the left having a radius of 6123.60 feet and an arc length of 760.15 feet, said arc being subtended by a chord with a bearing of North 53 degrees 18 minutes 04 seconds West and a length of 759.66 feet, to a 1” open top pipe found; thence leave said right-of-way line and proceed South 32 degrees 57 minutes 47 seconds West a distance of 100.00 feet to a capped ¹ / ₂ ” rebar set on the southwesterly right-of-way line of State Route 17 and True Point of Beginning.

From the True Point of Beginning, as thus established, following the southwesterly right-of-way line of State Route 17, proceed along a curve to the right having a radius of 6023.60 feet and an arc length of 117.95 feet, said arc being subtended by a chord with a bearing of South 56 degrees 17 minutes 36 seconds East and a length of 117.95 feet to a capped ¹ / ₂ ” rebar set; thence leaving said right-of-way line South 28 degrees 22 minutes 42 seconds East for a distance of 1717.75 feet to a capped ¹ / ₂ ” rebar set; thence South 55 degrees 17 minutes 42 seconds East for a distance of 660.00 feet to a capped ¹ / ₂ ” rebar set; thence South 69 degrees 52 minutes 42 seconds East for a distance of 528.00 feet to a capped ¹ / ₂ ” rebar set; thence South 53 degrees 17 minutes 18 seconds West for a distance of 4078.24 feet to a point on the top of the bank of the Ogeechee River; thence following the top of the river bank the following courses and distances: North 37

A-2

degrees 35 minutes 27 seconds West for a distance of 37.82 feet to a point; North 33 degrees 56 minutes 24 seconds West for a distance of 162.77 feet to a point; thence North 39 degrees 59 minutes 16 seconds West for a distance of 62.60 feet to a point; North 51 degrees 47 minutes 35 seconds West for a distance of 120.86 feet to a point; North 53 degrees 23 minutes 58 seconds West for a distance of 102.20 feet to a point; North 54 degrees 15 minutes 16 seconds West for a distance of 135.13 feet to a point; North 68 degrees 08 minutes 27 seconds West for a distance of 68.30 feet to a point; North 82 degrees 08 minutes 36 seconds West for a distance of 84.67 feet to a point; North 83 degrees 42 minutes 15 seconds West for a distance of 96.95 feet to a point; North 87 degrees 06 minutes 01 second West for a distance of 117.70 feet to a point; South 62 degrees 47 minutes 07 seconds West for a distance of 75.05 feet to a point; South 45 degrees 28 minutes 00 seconds West for a distance of 78.67 feet to a point; South 15 degrees 53 minutes 17 seconds West for a distance of 47.35 feet to a point; South 08 degrees 36 minutes 47 seconds East for a distance of 84.14 feet to a point; South 01 degree 09 minutes 04 seconds East for a distance of 81.62 feet to a point; South 08 degrees 20 minutes 06 seconds West for a distance of 73.87 feet to a point; South 63 degrees 12 minutes 19 seconds West for a distance of 117.28 feet to a point; South 86 degrees 35 minutes 30 seconds West for a distance of 77.64 feet to a point; South 79 degrees 39 minutes 17 seconds West for a distance of 74.01 feet to a point; South 84 degrees 04 minutes 31 seconds West for a distance of 89.83 feet to a point; South 74 degrees 45 minutes 28 seconds West for a distance of 173.54 feet to a point; South 79 degrees 33 minutes 07 seconds West for a distance of 134.01 feet to a point; North 27 degrees 40 minutes 59 seconds West for a distance of 35.66 feet to a point; North 18 degrees 52 minutes 20 seconds East for a distance of 107.47 feet to a point; North 24 degrees 34 minutes 22 seconds East for a distance of 81.87 feet to a point; North 03 degrees 13 minutes 05 seconds East for a distance of 88.48 feet to a point; North 14 degrees 43 minutes 42 seconds West for a distance of 163.10 feet to a point; North 32 degrees 20 minutes 35 seconds West for a distance of 77.42 feet to a point; North 37 degrees 57 minutes 17 seconds West for a distance of 119.37 feet to a point; North 48 degrees 52 minutes 23 seconds West for a distance of 66.50 feet to a point; North 37 degrees 03 minutes 24 seconds West for a distance of 74.66 feet to a point; North 69 degrees 54 minutes 30 seconds West for a distance of 79.97 feet to a point; North 51 degrees 59 minutes 35 seconds West for a distance of 67.48 feet to a point; North 56 degrees 57 minutes 33 seconds West for a distance of 96.31 feet to a point; North 64 degrees 30 minutes 36 seconds West for a distance of 90.28 feet to a point; North 55 degrees 07 minutes 17 seconds West for a distance of 68.35 feet to a point; North 49 degrees 48 minutes 49 seconds West for a distance of 96.45 feet to a point; North 11 degrees 10 minutes 06 seconds West for a distance of 77.41 feet to a point; North 12 degrees 57 minutes 54 seconds West for a distance of 101.09 feet to a point; North 07 degrees 54 minutes 28 seconds West for a distance of 73.09 feet to a point; North 23 degrees 54 minutes 27 seconds West for a distance of 82.70 feet to a point; North 24 degrees 29 minutes 05 seconds West for a distance of 86.99 feet to a point; North 12 degrees 09 minutes 56 seconds West for a distance of 98.16 feet to a point; North 24 degrees 08 minutes 33 seconds West for a distance of 60.01 feet to a point; North 09 degrees 13 minutes 27 seconds West for a distance of 62.44 feet to a point; North 23 degrees 59 minutes 00 seconds West for a distance of 63.11 feet to a point; North 22 degrees 44 minutes 15 seconds West for a distance of 76.06 feet to a point; North 25 degrees 22 minutes 39 seconds West for a distance of 84.28 feet to a point; North 29 degrees 26 minutes 17 seconds West for a distance of 128.81 feet to a point; North 40 degrees 30 minutes 35 seconds West for a distance of 81.86 feet to a point; North 44 degrees 45 minutes 50 seconds West for a distance of 54.41 feet to a point; North 52 degrees 40 minutes 21 seconds West for a distance of

A-3

123.53 feet to a point; North 33 degrees 30 minutes 17 seconds West for a distance of 70.03 feet to a point; North 31 degrees 15 minutes 05 seconds West for a distance of 158.47 feet to a point; North 40 degrees 35 minutes 42 seconds West for a distance of 107.78 feet to a point; North 38 degrees 29 minutes 41 seconds West for a distance of 61.13 feet to a point; North 50 degrees 41 minutes 54 seconds West for a distance of 93.05 feet to a point; North 36 degrees 32 minutes 24 seconds West for a distance of 79.93 feet to a point; Thence, leaving said bank, proceed North 68 degrees 27 minutes 18 seconds East for a distance of 2217.53 feet to a ³ / ₄ ” open top pipe found; thence North 35 degrees 36 minutes 34 seconds East for a distance of 2320.85 feet to a point on the southwesterly right-of-way line of State Route 17, said point being 0.98 feet in a northeasterly direction from a 1” open top pipe found; thence following the southwesterly right-of-way line of State Route 17, proceed South 57 degrees 13 minutes 05 seconds East for a distance of 1142.06 feet to a capped ¹ / ₂ ” rebar set and The True Point of Beginning.

Containing within said bounds 372.868 acres (16,242,118 square feet) more or less.

A-4

EXHIBIT B

DESCRIPTION OF PROJECT PHASES

1.1. General Description . The Project is a facility for the manufacturing of ceramic proppants. The Project will be owned by the Authority and leased to CARBO under the Bond Lease (defined below). The Project shall consist of the following phases (each, a “Phase”, and collectively, the “Phases”):

1.1.1. Phase I . Phase I shall consist of the Land (defined below), one production line and such buildings, fixtures and/or other structures and improvements as may be necessary for the foregoing, and such utilities and other infrastructure as CARBO may need for Phase I or desire to install as part of Phase I in order to have it in place to serve subsequent Phases. The Community Investment Goal (defined below) for Phase I shall be $70 million. The Community Jobs Goal (defined below) for Phase I shall be 40 jobs.

1.1.2. Phase II . Phase II shall consist of the build-out and equipping of the second production line together with any additional renovations, additions and other buildings, structures, improvements, fixtures, and equipment, and any remaining utilities and other infrastructure as CARBO may need for Phase II or desire to install as part of Phase II in order to have it in place to serve subsequent Phases. The Community Investment Goal for Phase II shall be $60 million. The Community Jobs Goal for Phase II shall be 10 jobs. The combined Community Investment Goals for Phase I and Phase II is $130 million in the aggregate, and the combined Community Jobs Goals for Phase I and Phase II is 50 jobs.

1.1.3. Phase III . Phase III shall consist of a third production line together with any additional renovations, additions and other buildings, structures, improvements, fixtures and equipment, buildings, and/or other structures as necessary for the foregoing, and such utilities and other infrastructure as CARBO may need for Phase III or desire to install as part of Phase III in order to have it in place to serve Phase IV. The Community Investment Goal for Phase III shall be $ 65 million. The Community Jobs Goal for Phase III shall be 40 jobs. The combined Community Investment Goals for Phases I, II and III is $195 million and the combined Community Jobs Goals for Phases I, II and III is 90 jobs.

1.1.4. Phase IV . Phase IV shall consist of a fourth production line together with any additional renovations, additions and other buildings, structures, improvements, fixtures and equipment, buildings, build-out and equipping of the Phase III production line not previously built out, and any remaining utilities and other infrastructure as CARBO may need for Phase IV. The Community Investment Goal for Phase IV shall be $ 60 million. The Community Jobs Goal for Phase IV shall be 10 jobs. The combined Community Investment Goals for Phases I-IV is $255 million and the combined Community Jobs Goals for Phases I – IV is 100 jobs.

1.2. Activation Notices . The Parties’ proceeding with each Phase is dependent upon the following:

1.2.1. Phase I Activation Notice . For Phase I, CARBO shall, in its discretion, give an activation notice (“Activation Notice”) indicating its intent to proceed with such Phase, by 5:00 o’clock p.m. on the Expiration Date (as defined in Section 5.1 hereof) , or not at all. If such Activation Notice is not given, then this Agreement shall terminate as provided in Section 5.1, below.

1.2.2. Phase II Activation Notice . For Phase II, CARBO shall, in its discretion, give an Activation Notice indicating its intent to proceed with such Phase, after giving the Activation Notice for Phase I but before the third anniversary of the giving of such Phase I Activation Notice, or not at all. If such Activation Notice for Phase II is not given, then the effect of this Agreement shall be limited to Phase I.

1.2.3. Phase III Activation Notice . For Phase III, CARBO shall, in its discretion, give an Activation Notice committing it to proceed with such Phase, after giving the Activation Notice for Phase II but before the fifth anniversary of the giving of such Phase II Activation Notice, or not at all. If such Activation Notice for Phase III is not given, then the effect of this Agreement shall be limited to Phase I and Phase II, and, without limitation, the Tax Schedule shall not apply to any other investment in the Project which shall be subject to normal property taxes, unless otherwise agreed by the Authority.

1.2.4. Phase IV Activation Notice . For Phase IV, CARBO shall, in its discretion, give an Activation Notice committing it to proceed with such Phase, after giving the Activation Notice for Phase III but before the fifth anniversary of the giving of such Phase III Activation Notice, or not at all. If such Activation Notice for Phase IV is not given, then the effect of this Agreement shall be limited to Phase I, Phase II, and Phase III, and without limitation, the Tax Schedule shall not apply to any other investment in the Project which shall be subject to normal property taxes, unless otherwise agreed by the Authority.

B-2

Exhibit 21

CARBO CERAMICS INC.

SUBSIDIARIES


NAME OF ENTITY	JURISDICTION OF ORGANIZATION	PERCENTAGE OWNED
CARBO Ceramics (Mauritius) Inc.	Mauritius		100	%
CARBO Ceramics (China) Company Ltd.	China		100	%
CARBO Ceramics Cyprus Ltd.	Cyprus		100	%
CARBO Ceramics (Eurasia) LLC	Russia		100	%
CARBO International, Inc.	Delaware, USA		100	%
Falcon Technologies and Services, Inc.	Delaware, USA		100	%
StrataGen, Inc.	California, USA		100	%

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:

(1) Registration Statement (Form S-8 No. 333-113688) pertaining to the Carbo Ceramics Inc. Savings and Profit Sharing Plan of CARBO Ceramics Inc.,

(2) Registration Statement (Form S-8 No. 333-137499) pertaining to the Carbo Ceramics Inc. Director Deferred Fee Plan of CARBO Ceramics Inc., and

(3) Registration Statement (Form S-8 No. 333-160145) pertaining to the Carbo Ceramics Inc. Omnibus Incentive Plan of CARBO Ceramics Inc.;

of our reports dated February 25, 2013, with respect to the consolidated financial statements of CARBO Ceramics Inc. and the effectiveness of internal control over financial reporting of CARBO Ceramics Inc. included in this Annual Report (Form 10-K) of CARBO Ceramics Inc. for the year ended December 31, 2012.

/s/ Ernst & Young LLP

New Orleans, Louisiana

February 25, 2013

Exhibit 31.1

Annual Certification

As required by Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934

I, Gary A. Kolstad, certify that:

1. I have reviewed this annual report on Form 10-K of Carbo Ceramics Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2013

/s/ Gary A. Kolstad

Gary A. Kolstad

President & CEO

Exhibit 31.2

Annual Certification

As required by Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934

I, Ernesto Bautista III, certify that:

1. I have reviewed this annual report on Form 10-K of Carbo Ceramics Inc.;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide a reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 25, 2013

/s/ Ernesto Bautista III

Ernesto Bautista III

Chief Financial Officer

Exhibit 32

Certification Pursuant to

18 U.S.C. Section 1350,

As Adopted Pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Carbo Ceramics Inc. (the “Company”), does hereby certify, to such officer’s knowledge, that:

The Annual Report on Form 10-K for the year ended December 31, 2012 (“Form 10-K”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company, as of, and for, the periods presented in the Form 10-K.

Dated: February 25, 2013

/s/ Gary A. Kolstad

Name: Gary A. Kolstad

Title: Chief Executive Officer

Dated: February 25, 2013

/s/ Ernesto Bautista III

Name: Ernesto Bautista III

Title: Chief Financial Officer

Exhibit 95

MINE SAFETY DISCLOSURE

For the year ended December 31, 2012, the Company has the following mine safety information to report in accordance with Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act, in connection with the Eufaula, Alabama processing facility; the McIntyre, Georgia processing facility; the Toomsboro, Georgia processing facility; and the Marshfield, Wisconsin processing facility.


Mine or Operating Name/MSHA Identification Number	Section 104 S&S Citations (#)		Section 104(b) Orders (#)		Section 104(d) Citations and Orders (#)		Section 110(b)(2) Violations (#)		Section 107(a) Orders (#)		Total Dollar Value of MSHA Assessments Proposed ¹ ($) (1)		Total Number of Mining Related Fatalities (#)		Received Notice of Pattern of Violations Under Section 104(e) (yes/no)		Received Notice of Potential to Have Pattern Under Section 104(e) (yes/no)		Legal Actions Pending as of Last Day of Period ² (#)		Aggregate Legal Actions Initiated During Period (#)		Aggregate Legal Actions Resolved During Period (#)
Eufaula Facility MSHA ID 0102687 Eufaula, Alabama		1		0		0		0		0	$	676		0		No		No		0		0		1
McIntyre Facility MSHA ID 0901108 McInytre, Georgia		1		0		0		0		0	$	699		0		No		No		0		0		3
Toomsboro Facility MSHA ID 0901164 Toomsboro, Georgia		0		0		0		0		0	$	600		0		No		No		0		0		0
Marshfield Facility MSHA ID 4073636 Marshfield, Wisconsin		0		0		0		0		0	$	100		0		No		No		0		0		0
Totals		2		0		0		0		0	$	2,075		0						0		0		4

(1)	Amounts represent the total dollar value of proposed assessments received.