Forbes Energy Services (FLSS) Risk Analysis
Risk Overview Q1, 2020
Source: the company's latest filing for the period ended Mar 31, 2020, filed Jun 29, 2020
Risk Change Over Time
No filing history is available.
- Corporate Activity and Growth - Risk 1The termination of the Merger Agreement could negatively impact the Company, including impairing its ability to continue as a going concern.
The Merger Agreement's termination may have various consequences, including that the Company's business may be adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Mergers, without realizing any of the anticipated benefits of completing the transaction. The Company has incurred substantial net losses and losses from operations for the years ended December 31, 2019 and 2018 and the three months ended March 31, 2020. As of March 31, 2020, the Company had cash and cash equivalents of approximately $8.1 million and negative working capital of approximately $0.3 million, after taking into account that the mandatorily convertible notes of $61.8 million will not result in a cash settlement. The Company's Revolving Loan is also due January 2021. Recent negotiations to extend the maturity date have not been successful and there can be no assurance that the Company will be able to negotiate an extension on the current Revolving Loan or have sufficient funds to repay its obligations when they come due. In addition, the Company has $61.8 million of mandatorily convertible PIK Notes outstanding as of March 31, 2020, but does not at present have sufficient authorized common share capital to fully convert the PIK Notes upon maturity. In addition, the Company may not have access to other sources of external capital on reasonable terms or at all. We also expect to experience continued volatility in market demand which creates oil and gas price fluctuations as well as external market pressures due to effects of global health concerns such as the recent outbreak of COVID-19 and the precipitous decline in oil prices that are not within our control. As a result of these and other factors, there is substantial doubt that the Company will be able to continue as a going concern. Since the Mergers will not be completed, these concerns will be heightened, and there can be no assurance that alternative strategic plans will provide sufficient liquidity for the Company to continue its operations.
Risk Highlights Q1, 2020
Risk Word Cloud
Risk Factors Full Breakdown - Total Risks 43
- Share Price & Shareholder Rights - Risk 1Company stockholders will experience a reduction in percentage ownership and voting power in Newco as a result of the Mergers.
Company stockholders will experience a substantial reduction in their percentage ownership interests and effective voting power in respect of Newco relative to their percentage ownership interests in the Company prior to the Mergers. Consequently, Company stockholders should expect to exercise less influence over the management and policies of Newco following the Mergers than they currently exercise over the management and policies of the Company.
- Share Price & Shareholder Rights - Risk 2The Forbes Merger may trigger certain "change of control" provisions and other restrictions in contracts of the Company and the failure to obtain any required consents or waivers could adversely impact Newco.
Certain agreements of the Company will or may require the consent or waiver of one or more counterparties in connection with the Forbes Merger. The failure to obtain any such consent or waiver may permit such counterparties to terminate, or otherwise increase their rights or the Company's obligations under, any such agreement because the Forbes Merger may violate an anti-assignment, change of control or similar provision relating to any of such transactions. If this occurs, the Company may have to seek to replace that agreement with a new agreement or seek an amendment to such agreement. The Company cannot assure you that it will be able to replace or amend any such agreement on comparable terms or at all. If any such agreement is material, the failure to obtain consents, amendments or waivers under, or to replace on similar terms or at all, any of these agreements could adversely affect the financial performance or results of operations of Newco following the Mergers.
- Share Price & Shareholder Rights - Risk 3Some of our executive officers have interests in the Mergers that are different from the interests of our stockholders generally.
Some of our executive officers have interests in the Mergers that are different from, or are in addition to, the interests of our stockholders generally. These interests may include vesting of their equity awards in connection with the consummation of the Mergers.
- Share Price & Shareholder Rights - Risk 4We incur significant costs as a result of being obligated to comply with Securities Exchange Act reporting requirements, the Sarbanes-Oxley Act, and the Term Loan Agreement covenants and that our management is required to devote substantial time to compliance matters.
As a public company, we incur significant legal, accounting, insurance and other expenses, including costs associated with public company reporting requirements. We also have incurred and will incur costs associated with the Sarbanes-Oxley Act of 2002 and related rules implemented by the SEC. We will incur ongoing periodic expenses in connection with the administration of our organizational structure. The expenses incurred by public companies generally for reporting and corporate governance purposes have been increasing. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. In estimating these costs, we took into account expenses related to insurance, legal, accounting, and compliance activities, as well as other expenses not currently incurred. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board, our Board committees or as our executive officers. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to fines, sanctions and other regulatory action and potentially civil litigation.
- Share Price & Shareholder Rights - Risk 5We have anti-takeover provisions in our organizational documents that may discourage a change of control.
Our organizational documents contain provisions that could make it more difficult for a third party to acquire us without the consent of our Board. These provisions provide for the following: - requirements that our Board be divided into three classes, serving in staggered three year terms, which may not be altered or repealed without the affirmative vote of the holders of at least 80% of the shares entitled to vote in an election of directors;- requirements that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of such stockholders and may not be effected by consent in writing by such stockholders;- requirements that special meetings of stockholders may be called only by our Chief Executive Officer, our Chairman of the Board, or our Board;- restrictions on the ability of a person who would be an "interested stockholder" (as defined in our Certificate of Incorporation) to effect various business combinations with us for a three-year period;- requirements that if notice is provided for a stockholders meeting, other than an annual meeting, the business transacted at such meeting shall be limited to the matters so stated in our notice of meeting;- renouncement of the "corporate opportunity" doctrine as it applies to certain stockholders and the affiliates of such stockholders; and - rights to issue authorized but unissued shares of our common stock and/or any preferred stock without stockholder approval. In addition, our organizational documents do not provide for cumulative voting with respect to the election of directors or any other matters, and cumulative voting is not otherwise provided under state law. All of the foregoing provisions could make it more difficult for a third party to acquire, or discourage a third party from attempting to acquire control of us, even if the third party's offer was considered beneficial by many stockholders. As a result, these provisions could limit the price that investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a takeover of the Company that would otherwise be beneficial to investors.
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