View:
As filed with the Securities and Exchange Commission on August 2, 2002
Registration No. 333-96741
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Amendment No.1
to
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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COMSTOCK RESOURCES, INC.
(Exact name of registrant as specified in its charter)
NEVADA 1311 94-1667468
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
COMSTOCK OIL & GAS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 1311 75-2272352
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
COMSTOCK OIL & GAS - LOUISIANA, LLC
(Exact name of registrant as specified in its charter)
NEVADA 1311 26-0012430
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
COMSTOCK OFFSHORE, LLC
(Exact name of registrant as specified in its charter)
NEVADA 1311 75-2733811
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
COMSTOCK OIL & GAS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
NEVADA 1311 75-2968982
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
DEVX ENERGY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 1311 75-2615565
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
DEVX ENERGY, INC.
(Exact name of registrant as specified in its charter)
NEVADA 1311 75-2564071
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
DEVX OPERATING COMPANY
(Exact name of registrant as specified in its charter)
NEVADA 1311 75-2593510
(State of other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
5300 Town and Country Blvd., Suite 500 M. Jay Allison
Frisco, Texas 75034 President and Chief Executive Officer
(972) 668-8800 5300 Town and Country Blvd., Suite 500
(Address, including zip code, and Frisco, Texas 75034
telephone number, including area code, (972) 668-8800
of Registrant's principal executive offices) Copies to: (Name, Address, including zip
Jack E. Jacobsen code, and telephone number, including area
Locke Liddell & Sapp LLP code, of agent for service)
2200 Ross Avenue, Suite 2200
Dallas, Texas 75201
(214) 740-8000
Approximate date of commencement of proposed sale to the public: As soon as practicable after this
Registration Statement is declared effective.
If the securities being registered on this form are being offered in connection with the formation of a
holding company and there is compliance with General Instruction G, check the following box.
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act, check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check
the following box and list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.
--------------------
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to
delay its effective date until the Registrant shall file a further amendment which specifically states that
this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS
COMSTOCK RESOURCES, INC.
$75,000,000
OFFER TO EXCHANGE OUR OUTSTANDING 11 1/4% SENIOR NOTES DUE 2007
FOR 11 1/4% SENIOR NOTES DUE 2007
THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
THE NEW NOTES:
o will be freely tradeable and otherwise substantially identical to the
outstanding notes; and
o will not be listed on any securities exchange or on any automated dealer
quotation system.
THE EXCHANGE OFFER:
o is for up to $75,000,000 of our outstanding 11 1/4% senior notes due 2007;
o provides that we will exchange all of your validly tendered and not
withdrawn outstanding notes for an equal principal amount of new notes that
are registered under the Securities Act of 1933, as amended, and are freely
tradeable;
o permits you to withdraw your tenders of outstanding notes at any time prior
to the expiration of the exchange offer;
o should not be a taxable event to you for U.S. federal income tax purposes;
o expires at 5:00 p.m., New York City time, on September 3, 2002, unless
extended; and
o is not conditioned upon any minimum aggregate principal amount of
outstanding notes being tendered.
You should consider carefully the risk factors beginning on page 11 of this
prospectus before participating in the exchange offer.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the new notes or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is August 5, 2002.
TABLE OF CONTENTS
Page
Forward-Looking Statements.................................................. ii
Where You Can Find More Information......................................... ii
Information Incorporated by Reference....................................... iii
Prospectus Summary.......................................................... 1
Risk Factors................................................................ 11
Use of Proceeds............................................................. 20
Capitalization.............................................................. 21
The Exchange Offer.......................................................... 21
Description of the Bank Credit Facility..................................... 31
Description of the Notes.................................................... 32
Certain United States Federal Tax Considerations............................ 72
Plan of Distribution........................................................ 74
Legal Matters............................................................... 74
Experts..................................................................... 74
Glossary.................................................................... 76
This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. You may
obtain documents that we file with the Securities and Exchange Commission and
that are incorporated by reference in this prospectus at no cost by writing or
telephoning us at our principal executive offices at: 5300 Town and Country
Blvd., Suite 500, Frisco, Texas 75034, Attention: Roland O. Burns, Senior Vice
President, telephone number (972) 668-8800. To obtain timely delivery, please
make your request for information not later than August 26, 2002, which is five
business days before the expiration of the exchange offer.
We have not authorized any dealer, salesperson or other person to give any
information or to make any representations to you other than the information
contained in this prospectus. You must not rely on any information or
representations not contained this prospectus as if we had authorized it. This
prospectus does not offer to sell or solicit any offer to buy any securities
other than the registered notes to which it relates, nor does it offer to buy
any notes in any jurisdiction to any person to whom it is unlawful to make such
offer or solicitation in such jurisdiction.
The information contained in this prospectus is current only as of the date
on the cover page of this prospectus, and may change after that date. We do not
imply that there has been no change in the information contained in this
prospectus or in our affairs since that date by delivering this prospectus.
i
FORWARD-LOOKING STATEMENTS
This prospectus, including the documents incorporated by reference herein,
includes "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical facts included in or
incorporated by reference to this prospectus, are forward-looking statements,
including statements under "Prospectus Summary" and "Risk Factors," regarding:
o budgeted capital expenditures;
o increases in oil and natural gas production;
o our financial position;
o oil and natural gas reserve estimates;
o business strategy; and
o other plans and objectives for future operations.
Although we believe that the expectations reflected in these
forward-looking statements are reasonable, we can give no assurance that these
expectations will prove to have been correct. There are numerous uncertainties
inherent in estimating quantities of proved oil and natural gas reserves and in
projecting future rates of production and timing of development expenditures,
including many factors beyond our control. Reserve engineering is a subjective
process of estimating underground accumulations of oil and natural gas that
cannot be precisely measured. Furthermore, the accuracy of any reserve estimate
is a function of the quality of available data and of engineering and geological
interpretation and judgment. As a result, estimates made by different engineers
often vary from one another. In addition, results of drilling, testing and
production subsequent to the date of an estimate may justify revisions of the
estimate and the revisions, if significant, would change the schedule of any
further production and development drilling. Accordingly, reserve estimates are
generally different from the quantities of oil and gas that are ultimately
recovered. Additional important factors that could cause actual results to
differ materially from our expectations are discussed in "Prospectus Summary"
and "Risk Factors" and elsewhere in this prospectus. Should one or more of these
risks or uncertainties occur, or should underlying assumptions prove incorrect,
our actual results and plans for 2002 and beyond could differ materially from
those expressed in the forward-looking statements. All subsequent written and
oral forward-looking statements attributable to us or persons acting on our
behalf are expressly qualified in their entirety by such factors.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Exchange Act, and
therefore we file annual, quarterly and current reports, proxy statements and
other documents with the SEC. You may read and copy any of the reports, proxy
statements and any other information that we file at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. In addition, the SEC maintains a website at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. We also maintain a
website at http://www.comstockresources.com; however, the information contained
at this website does not constitute part of this prospectus. Our common stock is
quoted on the New York Stock Exchange under the trading symbol "CRK."
Reports, proxy and information statements and other information about us
may be inspected at the New York Stock Exchange, 20 Broad Street, New York, New
York 10005.
The financial statements as of December 31, 2001 and 2000 and for the three
years ended December 31, 2001 incorporated herein by reference were audited by
ii
Arthur Andersen LLP. After reasonable efforts, we have not been able to obtain
Arthur Andersen's consent to the incorporation by reference of its audit report
dated March 25, 2002 into the registration statement of which this prospectus is
a part. However, Rule 437a under the Securities Act permits us to file the
registration statement of which this prospectus is a part without Arthur
Andersen's consent. Accordingly, investors will not be able to sue Arthur
Andersen pursuant to Section 11 of the Securities Act, and any recovery under
that section you may have may be limited as a result of the lack of Arthur
Andersen's consent.
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act, with respect to the notes offered in this prospectus. This
prospectus is part of that registration statement and, as permitted by the SEC's
rules, does not contain all of the information set forth in the registration
statement. For further information about us and the notes, we refer you to the
information that has been filed as exhibits to the registration statement. You
can review and copy the registration statement and its exhibits and schedules
from the SEC at the address listed above or from its web site.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" into this prospectus
certain information we file with the SEC in other documents. This means that we
can disclose important information to you by referring to other documents that
we file with the SEC. The information may include documents filed after the date
of this prospectus which update and supersede the information you read in this
prospectus. We incorporate by reference the documents listed below, except to
the extent information in those documents is different from the information
contained in this prospectus, and all future documents filed by us with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Exchange Act until the offering
of these notes is terminated:
o Our Annual Report on Form 10-K for the year ended December 31,
2001;
o Our Annual Report on Form 10-K/A for the year ended December 31,
2001;
o Our Quarterly Report on Form 10-Q for the three months ended
March 31, 2002;
o Our Proxy Statement on Schedule 14A dated April 16, 2002 for the
2002 annual meeting of stockholders;
o Our Current Report on Form 8-K dated April 26, 2002;
o Our Current Report on Form 8-K dated March 7, 2002; and
o Our Current Report on Form 8-K/A filed on February 6, 2002.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus shall be deemed modified,
superseded or replaced for purposes of this prospectus to the extent that a
statement contained in this prospectus or in any subsequently filed document
that also is or is deemed to be incorporated by reference in this prospectus
modifies, supersedes or replaces such statement. Any statement so modified,
superseded or replaced shall not be deemed, except as so modified, superseded or
replaced, to constitute a part of this prospectus.
We will provide without charge to each person, including any beneficial
owner, to whom a copy of this prospectus is delivered, upon that person's
written or oral request, a copy of any or all of the information incorporated by
reference in this prospectus (other than exhibits to those documents, unless the
exhibits are specifically incorporated by reference into the information that
this prospectus incorporates). Requests should be directed to:
Comstock Resources, Inc.
Attention: Roland O. Burns, Senior Vice President
5300 Town and County Blvd., Suite 500
Frisco, Texas 75034
Telephone number: (972) 668-8800
iii
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and the financial statements incorporated by reference in this
prospectus. The estimated proved reserve information included in, or
incorporated by reference into, this prospectus is based on reports prepared by
Lee Keeling and Associates, Inc., independent petroleum consultants. Certain oil
and gas terms used in this prospectus are defined in the "Glossary" included on
page 75 of this prospectus. The term "outstanding notes" refers to our 11 1/4%
Senior Notes due 2007 that we issued on March 7, 2002. The term "new notes"
refers to the 11 1/4% Senior Notes due 2007 issuable in the exchange offer. The
term "notes" collectively refers to the outstanding notes, the new notes and any
additional notes or additional series of notes issued under the indenture
relating to the notes. References to "Comstock," "we," "us" and "our" refer to
Comstock Resources, Inc. and its subsidiaries, unless the context clearly
indicates the reference to the parent company only.
COMSTOCK RESOURCES
We are an independent energy company engaged in the acquisition,
development, production and exploration of oil and natural gas properties. Our
oil and natural gas operations are concentrated in the East Texas/North
Louisiana, the Gulf of Mexico, Southeast Texas and South Texas regions. In
addition, we have properties in the Illinois Basin in Kentucky and in the
Mid-Continent regions located in the Texas Panhandle, Oklahoma and Kansas. Our
oil and natural gas properties are estimated to have proved reserves of 566.2
Bcfe with an estimated Present Value of Proved Reserves of $540.7 million as of
December 31, 2001. Our reserve base is 82% natural gas and 69% proved developed
on a Bcfe basis as of December 31, 2001. In 2001 we had revenues of $167.9
million and generated earnings before interest, taxes, depreciation and
amortization, or "EBITDA," of $131.2 million.
Our proved reserves at December 31, 2001 and our 2001 average daily
production are summarized below:
Reserves at December 31, 2001 2001 Daily Production
--------------------------------- ------------------------------------
% of % of
Oil Gas Total Total Oil Gas Total Total
-------- ------ ------- ----- -------- ------- -------- ------
(MMBbls) (Bcf) (Bcfe) (MBbls/d) (MMcf/d) (MMcfe/d)
East Texas/North Louisiana 1.3 186.7 194.2 34.3 0.2 23.9 25.0 24.5
Gulf of Mexico ........... 12.1 85.3 158.1 27.9 2.8 21.2 38.2 37.3
Southeast Texas .......... 3.3 103.4 123.1 21.7 1.1 29.8 36.7 35.9
South Texas .............. 0.3 27.0 28.8 5.1 0.1 0.7 1.0 1.0
Other Regions ............ 0.3 59.7 62.0 11.0 -- 1.3 1.3 1.3
------ ------ ------ ----- ----- ------ ------- ------
Total................ 17.3 462.1 566.2 100.0% 4.2 76.9 102.2 100.0%
====== ====== ====== ===== ===== ====== ======= ======
Strengths
Quality Properties. Our operations are focused in four geographically
concentrated areas, the East Texas/North Louisiana, Gulf of Mexico, Southeast
Texas and South Texas regions, which account for approximately 34%, 28%, 22% and
5% of our proved reserves, respectively. We have high price realizations
relative to benchmark prices for natural gas and crude oil production. We also
have favorable operating costs which results in us having high cash margins.
Finally, our properties have an average reserve life of approximately 12.0 years
and have extensive development and exploration potential.
Successful Development and Exploration Program. In 2001, we spent $51.4
million on the exploitation and development of our oil and natural gas
properties for development drilling, recompletions, workovers and production
facilities. Overall, we drilled 35 development wells, 18.8 wells net to us, with
a 89% success rate. We also had a successful exploratory drilling program in
1
2001, spending a total of $33.4 million to drill 17 wells, 5.9 net to us, with
an 82% success rate. We spent an additional $8.2 million in acquiring new
acreage and seismic data in 2001 to support our exploration program.
Successful Acquisitions. We have historically grown through acquisitions.
Since 1991, we have added 652.6 Bcfe of proved oil and natural gas reserves from
26 acquisitions at an average cost of $0.88 per Mcfe. Our application of strict
economic and reserve risk criteria enables us to successfully evaluate and
integrate acquisitions.
Efficient Operator. We operate 57% of our proved oil and natural gas
reserve base as of December 31, 2001. This allows us to control operating costs,
the timing and plans for future development, the level of drilling and lifting
costs and the marketing of production. As an operator, we receive reimbursements
for overhead from other working interest owners, which reduces our general and
administrative expenses.
High Price Realizations. The majority of our wells are located in areas
which can access attractive natural gas and crude oil markets. In addition, our
natural gas production has a relatively high Btu content of approximately 1,100
Btu. Our crude oil production has a favorable API gravity of approximately 40
degrees. Due to these factors, we have relatively high price realizations
compared to benchmark prices. In 2001 our average natural gas price was $4.58
per Mcf, which represented a $0.31 premium to the average 2001 NYMEX monthly
settlement price and our average crude oil price was $25.40 per barrel, which
represented a $2.53 per barrel premium to the average monthly West Texas
intermediate crude oil price for 2001 posted by Koch Industries, Inc.
High Cash Margins. As a result of our quality properties, higher price
realizations and efficient operations, we have higher cash margins.
Consequently, our oil and natural gas reserves have a higher value per Mcfe than
reserves that generate lower cash margins.
Business Strategy
Exploit Existing Reserves. We seek to maximize the value of our oil and
natural gas properties by increasing production and recoverable reserves through
active workover, recompletion and exploitation activities. We utilize advanced
industry technology, including 3-D seismic data, improved logging tools and
formation stimulation techniques. During 2001, we spent approximately $43.6
million to drill 35 development wells, 18.8 net to us, of which 31, 17.0 net to
us, were successful, representing a success rate of 89%. In addition, we spent
approximately $7.8 million for new production facilities, leasehold costs and
recompletion and workover activities. For 2002, we have budgeted $40.0 million
for development drilling and for workover and recompletion activity.
Pursue Exploration Opportunities. We conduct exploration activities to find
additional reserves on our undeveloped acreage and in our core operating areas.
In 2001, we spent approximately $33.4 million to drill 17 exploratory wells, 5.9
net to us, of which 14, 4.8 net to us, were successful, representing a success
rate of 82%. We also spent $8.2 million in acquiring new acreage and seismic
data in 2001 to support our exploration program. We have budgeted $35.0 million
in 2002 for exploration activities which will be focused primarily in our Gulf
of Mexico and South Texas regions.
Maintain Low Cost Structure. We seek to increase cash flow by carefully
controlling operating costs and general and administrative expenses. Our average
oil and gas operating costs per Mcfe were $0.87 in 2001. In addition, we have
been able to grow our reserves and production substantially over the past five
years with minimal increase to general and administrative expenses. As a result,
general and administrative expenses per Mcfe averaged only $0.12 in 2001.
2
Acquire High Quality Properties at Attractive Costs. We have a successful
track record of increasing our oil and natural gas reserves through
opportunistic acquisitions. Since 1991, we have added 652.6 Bcfe of proved oil
and natural gas reserves from 26 acquisitions at a total cost of $577.2 million,
or $0.88 per Mcfe. The acquisitions were acquired at an average of 74% of their
Present Value of Proved Reserves in the year the acquisitions were completed. We
apply strict economic and reserve risk criteria in evaluating acquisitions. We
target properties in our core operating areas with established production and
low operating costs that also have potential opportunities to increase
production and reserves through exploration and exploitation activities.
Maintain Flexible Capital Expenditure Budget. The timing of most of our
capital expenditures is discretionary and we have not made any significant
long-term capital expenditure commitments. Consequently, we have a significant
degree of flexibility to adjust the level of such expenditures according to
market conditions. We anticipate spending approximately $75.0 million on
development and exploration projects in 2002. We intend to primarily use our
operating cash flow to fund our drilling expenditures in 2002. We may also make
additional property acquisitions in 2002 that would require additional sources
of funding. Such sources may include borrowings under our bank credit facility
or sales of equity or debt securities.
For additional information regarding us and our business, please see our
Annual Report on Form 10-K and Form 10-K/A for the year ended December 31, 2001,
our Quarterly Report on Form 10-Q for the period ended March 31, 2002, and all
other documents we have incorporated by reference and made a part of this
prospectus.
Risk Factors
You should carefully consider the information set forth in the "Risk
Factors" section of this prospectus beginning on page 11.
Summary of the Exchange Offer
On March 7, 2002, we completed the private offering of the outstanding
notes.
When we issued the outstanding notes we entered into a registration rights
agreement with the initial purchasers in which we agreed to deliver to you this
prospectus and to use our best efforts to complete the exchange offer within 180
days after the date we issued the outstanding notes. You are entitled to
exchange in the exchange offer all of your outstanding notes for new notes with
substantially identical terms that are registered under the Securities Act and
are freely tradeable.
You should read the discussion under the headings "--Summary Description of
the New Notes" beginning on page 7 and "Description of the Notes" beginning on
page 32 for further information regarding the new notes.
We summarize the terms of the exchange offer below. You should read the
discussion under the headings "The Exchange Offer" beginning on page 21 for
further information regarding the exchange offer and resale of the new notes.
The Exchange Offer........... We are offering to exchange up to $75.0 million in
aggregate principal amount of new notes for up to
$75.0 million in an equal aggregate principal
amount of outstanding notes. Outstanding notes may
be exchanged only in integral multiples of $1,000.
3
Expiration Date.............. The exchange offer will expire at 5:00 p.m., New
York City time, on September 3, 2002, or such
later date and time to which we extend it.
Withdrawal of Tenders.........You may withdraw your tender of outstanding notes
at any time prior to the expiration date. We will
return to you, without charge, promptly after the
expiration or termination of the exchange offer
any outstanding notes that you tendered but that
were not accepted for exchange.
Conditions to the
Exchange Offer...... We will not be required to accept outstanding
notes for exchange if the exchange offer would be
unlawful or would violate any interpretation of
the staff of the SEC. The exchange offer is not
conditioned upon any minimum aggregate principal
amount of outstanding notes being tendered. Please
read the section "The Exchange Offer-- Certain
Conditions to the Exchange Offer" beginning on
page 29 for more information regarding the
conditions to the exchange offer.
Procedures for Tendering
Outstanding Notes............ If your outstanding notes are held through The
Depositary Trust Company and you wish to
participate in the exchange offer, you may do so
through the automated tender offer program of The
Depositary Trust Company. If you tender under this
program, you will agree to be bound by the letter
of transmittal that we are providing with this
prospectus as though you had signed the letter of
transmittal. By signing or agreeing to be bound by
the letter of transmittal, you will represent to
us that, among other things:
o any new ordinary course of your business;
o you have person or entity to participate in
the distribution of the new notes;
o if you a and do not intend to engage in the
distribution of the new notes;
o if you a for your own account in exchange
for outstanding notes that were acquired as
a result of market-making activities, you
will deliver a prospectus, required by law,
in connection with any resale of such new
notes;
o you are the Securities Act, or, if you are
our affiliate, you will comply with any
applicable registration and prospectus
delivery requirements of the Securities Act.
4
Special Procedures
for Beneficial Owners..... If you beneficially own outstanding notes that are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee,
and you wish to tender the outstanding notes in
the exchange offer, you should contact the
registered holder promptly and instruct the
registered holder to tender on your behalf.
Guaranteed Delivery
Procedures................ If you wish to tender your outstanding notes and
cannot comply, prior to the expiration date, with
the applicable procedures under the automated
tender program of The Depositary Trust Company,
you must tender your outstanding notes according
to the guaranteed delivery procedures described in
"The Exchange Offer--Guaranteed Delivery
Procedures" beginning on page 28.
Certain U.S. Federal
Income Tax Considerations... The exchange of outstanding notes for new notes in
the exchange offer should not be a taxable event
to you for U.S. federal income tax purposes.
Please read "Certain United States Federal Income
Tax Considerations" beginning on page 72.
Consequences of
Failure to Exchange
Outstanding Notes.......... If you do not exchange your outstanding notes in
this exchange offer, you will no longer be able to
require us to register the outstanding notes under
the Securities Act except in limited circumstances
provided under the registration rights agreement.
In addition, you will not be able to resell, offer
to resell or otherwise transfer the outstanding
notes unless we have registered the outstanding
notes under the Securities Act, or unless you
resell, offer to resell or otherwise transfer them
under an exemption from the registration
requirements of, or in a transaction not subject
to, the Securities Act.
Use of Proceeds............. We will not receive any cash proceeds from the
issuance of the new notes.
5
The Exchange Agent
We have appointed The Bank of New York Trust Company of Florida, N.A. as
exchange agent for the exchange offer. You should direct questions and requests
for assistance, requests for additional copies of this prospectus or of the
letter of transmittal and requests for the notice of guaranteed delivery to the
exchange agent addressed as follows:
FOR DELIVERY BY MAIL, OVERNIGHT DELIVERY OR BY HAND:
The Bank of New York Trust Company of Florida, N.A.
Corporate Trust Operations
Reorganization Unit
101 Barclay Street - 7 East
New York, New York 10286
Attention: Kin Lau
FOR FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
The Bank of New York Trust Company of Florida, N.A.
Fax: (212) 298-1915
Confirm by Phone: (212) 815-3750
6
Summary Description of the New Notes
The new notes will be freely tradeable and otherwise substantially
identical to the outstanding notes. The new notes will not have registration
rights or provisions for additional interest. The new notes will evidence the
same $75.0 million in debt as the outstanding notes, and the outstanding notes
are and the new notes will be governed by the same indenture. The $75.0 million
of current outstanding notes is part of the same series of notes we issued on
April 29, 1999 in the total amount of $150.0 million, of which $145.0 million
remains outstanding and is already freely tradable.
Securities Offered........... $75,000,000 aggregate principal amount of our 11
1/4% Senior Notes due 2007, the exchange of which
has been registered under the Securities Act.
Maturity..................... May 1, 2007.
Interest..................... Interest will be payable in cash on May 1 and
November 1, of each year, beginning May 1, 2002.
Optional Redemption.......... We may redeem any of the notes beginning on May 1,
2004. The initial redemption price is 105.625% of
the principal amount of the notes, plus accrued
interest. The redemption price of the notes will
decline each year after 2004 and will be 100% of
the principal amount, plus accrued interest,
beginning on May 1, 2006.
Change of Control........... Upon a change of control (as defined under
"Description of the Notes"), we will be required
to make an offer to purchase the notes at 101% of
their principal amount, plus accrued interest. We
may not have sufficient funds available at the
time of any change of control to make any required
debt repayment (including repurchases of the
notes).
Guarantees.................. The payment of principal and interest on the
outstanding notes is, and payment of principal and
interest on the new notes will be, unconditionally
guaranteed on a senior basis jointly and severally
by each of our principal operating subsidiaries.
Such guarantees will rank equally with all other
unsecured senior indebtedness of our subsidiary
guarantors.
Ranking..................... The notes will rank equally with all our existing
and future unsecured senior indebtedness. The
notes will be junior to all of our secured
indebtedness, including indebtedness under our
bank credit facility, and to all liabilities of
our subsidiaries.
7
Certain Covenants............ The terms of the notes will restrict our ability
and the ability of our subsidiaries to:
o incur additional indebtedness;
o pay dividends or make distributions in
respect of capital stock;
o repurchase or redeem capital stock;
o make certain investments and other
restricted payments;
o create liens;
o enter into transactions with stockholders or
affiliates;
o engage in sale-leaseback transactions;
o sell assets;
o issue or sell stock of certain subsidiaries;
and
o engage in mergers or consolidations.
However, these limitations will be subject to a
number of important qualifications and exceptions.
Rights Under Registration
Rights Agreement............ If we fail to complete the exchange offer as
required by the registration rights agreement, we
will be obligated to pay additional interest to
holders of the outstanding notes.
Please read the section in this prospectus
entitled "The Exchange Offer" beginning on page 21
for more information regarding your rights as a
holder of outstanding notes.
8
Summary Financial Data
The following summary operating and financial data for each of the years in
the five-year period ended December 31, 2001 have been derived from our
financial statements, which have been audited by Arthur Andersen, LLP. The data
presented below should be read in conjunction with, and are qualified in their
entirety by reference to, the Management's Discussion and Analysis of Financial
Condition and Results of Operations section of our annual and quarterly reports,
and our consolidated financial statements and notes thereto incorporated by
reference in this prospectus. Please see the section in this prospectus entitled
"Information Incorporated by Reference."
Three Months Ended
Year Ended December 31, March 31,
---------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- --------
Statement of Operations Data: (in thousands, except ratios)
Revenues:
Oil and gas sales........................... $ 87,882 $ 92,069 $ 89,493 $169,001 $167,186 $ 67,257 $ 26,678
Gain on sales of property................... 85 -- 130 33 12 -- --
Other income................................ 704 274 1,911 319 699 147 120
-------- -------- -------- -------- -------- -------- --------
Total revenues.......................... 88,671 92,343 91,534 169,353 167,897 67,404 26,798
-------- -------- -------- -------- -------- -------- --------
Expenses:
Oil and gas operating (1)................... 17,591 24,148 23,261 29,462 32,065 9,440 8,136
Exploration................................. 2,810 8,301 1,832 3,192 4,215 2,831 1,953
Depreciation, depletion and amortization.... 25,454 50,546 44,948 44,785 49,068 11,980 13,561
General and administrative, net............. 2,668 1,617 2,399 3,537 4,351 829 930
Interest.................................... 5,934 16,977 23,361 24,611 20,737 5,505 6,810
Impairment of oil and gas properties........ -- 16,942 -- -- 1,400 -- --
Loss from derivatives....................... -- -- -- -- -- -- 1,964
-------- -------- -------- -------- -------- -------- --------
Total expenses.......................... 54,457 118,531 95,801 105,587 111,836 30,585 33,354
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing operations
before income taxes....................... 34,214 (26,188) (4,267) 63,766 56,061 36,819 (6,556)
Income tax benefit (expense).................. (11,774) 9,166 1,494 (22,318) (19,621) (12,887) 2,295
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from continuing operations.. 22,440 (17,022) (2,773) 41,448 36,440 23,932 (4,261)
Preferred stock dividends..................... (410) -- (1,853) (2,471) (1,604) (395) (395)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from continuing
operations attributable to common stock.... 22,030 (17,022) (4,626) 38,977 34,836 23,537 (4,656)
-------- -------- -------- -------- -------- -------- --------
Income (loss) from discontinued
operations, including loss on
disposal, net of income taxes............ (284) (146) (43) (45) 18 41 (769)
-------- -------- -------- -------- -------- -------- --------
Net income(loss) attributable to common stock. $ 21,746 $(17,168) $ (4,669) $ 38,932 $ 34,854 $ 23,578 $ (5,425)
======== ======== ======== ======== ======== ======== ========
Other Financial Data:
EBITDA (2).................................... $ 68,413 $ 66,578 $ 65,874 $136,354 $131,227 $ 57,135 $ 18,124
Capital expenditures.......................... 254,843 67,387 35,981 83,394 189,646 27,973 15,721
Ratio of EBITDA to interest expense (3)....... 11.3x 3.5x 2.8x 5.5x 6.3x 10.4x 2.6x
Ratio of earnings to fixed charges (4)........ 6.2x -- -- 3.3x 3.4x 7.2x --
- ------------------------
(1) Includes lease operating costs and production and ad valorem taxes.
(2) As used in this prospectus, EBITDA means income (loss) from continuing operations
before income taxes, plus interest, depreciation, depletion and amortization,
exploration expense, impairment of oil and gas properties and unrealized gains or
losses from derivatives. EBITDA is a financial measure commonly used in our industry
and should not be considered in isolation or as a substitute for net income, cash
flow provided by operating activities or other income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of a
company's profitability or liquidity.
(3) For the purpose of calculating the ratio of EBITDA to interest expense, interest
expense includes interest expense, capitalized interest expense and that portion of
non-capitalized rental expense deemed to be the equivalent of interest.
(4) For the purpose of calculating the ratio of earnings to fixed charges, fixed charges
include interest expense, capitalized interest expense, preferred stock dividends and
that portion of non-capitalized rental expense deemed to be the equivalent of
interest. Earnings represents income before income taxes from continuing operations
before fixed charges. Earnings were insufficient to cover fixed charges by $28.5
million, $6.1 million and $7.0 million for the years ended December 31, 1998 and
1999, and the three months ended March 31, 2002, respectively.
9
Summary Financial Data (continued)
As of
March 31, 2002
--------------
Balance Sheet Data: (in thousands)
Property and equipment, net... $637,024
Total assets ................. 674,939
Total debt ................... 378,002
Stockholders' equity ......... 211,269
Summary Reserve Data and Operating Data
The following tables summarize the estimates of our net proved oil and
natural gas reserves as of the dates indicated and the present value
attributable to these reserves at such dates based on reserve reports prepared
by Lee Keeling and Associates, Inc. and certain summary operating data for us
for the periods indicated. For additional information relating to our oil and
natural gas reserves, please refer to the section in this prospectus entitled
"Risk Factors-- There are many uncertainties in estimating reserves and future
net cash flows."
As of December 31,
--------------------------------------
1999 2000 2001
---------- ---------- ----------
Reserve Data:
Total Proved Reserves:
Natural gas (MMcf) ............. 258,121 297,835 462,085
Oil (MBbls) ...................... 19,467 17,451 17,348
---------- ---------- ----------
Total (MMcfe) .......... 374,922 402,542 566,173
---------- ---------- ----------
Proved Developed Reserves:
Natural Gas (MMcf) ............. 184,124 200,349 315,779
Oil (MBbls) .................... 14,379 12,289 12,212
---------- ---------- ----------
Total (MMcfe) .......... 270,398 274,083 389,051
---------- ---------- ----------
Present Value of
Proved Reserves (000's)...... $ 515,059 $1,768,849 $ 540,679
Reserve Replacement Percentage.... 108% 173% 539%
Three Months Ended
-------------------
Year Ended December 31, March 31,
------------------------------ -------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
Net Production Data:
Oil (MBbls) ................................... 2,111 1,803 1,526 415 344
Natural gas (MMcf) ............................ 23,735 26,932 28,018 7,436 8,269
Natural gas equivalent (MMcfe)................. 36,402 37,750 37,174 9,923 10,335
Average Sales Price:
Oil (MBbls).................................. $ 17.36 $ 30.02 $ 25.41 $ 28.19 $ 20.67
Natural gas (MMcf)........................... 2.23 4.27 4.58 7.47 2.37
Average equivalent price (per Mcfe).......... 2.46 4.48 4.50 6.78 2.58
Expenses ($ per Mcfe):
Oil and gas operating (1).................... $ 0.64 $ 0.78 $ 0.86 $ 0.95 $ 0.79
General and administrative................... 0.07 0.09 0.12 0.08 0.09
Depreciation, depletion and
amortization (2).......................... 1.23 1.15 1.28 1.17 1.28
Cash Margin ($ per Mcfe) (3) $ 1.75 $ 3.60 $ 3.52 $ 5.74 $ 1.70
- ---------------------
(1) Includes lease operating costs and production ad valorem taxes.
(2) Represents depreciation, depletion and amortization of oil and gas properties only.
(3) Represents average equivalent price per Mcfe less oil and gas operating expenses
per Mcfe and general and administrative expenses per Mcfe.
10
RISK FACTORS
You should consider carefully the following risk factors together with all
of the other information included in this prospectus and in the documents
incorporated by reference before you decide to participate in the exchange
offer. This section includes or refers to certain forward-looking statements.
You should refer to the explanation of the qualifications and limitations on
such forward-looking statements discussed under the heading "Forward-Looking
Statements" in this prospectus.
Risks Related to Our Business
Our business is dependent upon the prices for oil and natural gas and these
prices are volatile.
Our business is dependent upon the prices of, and demand for, oil and
natural gas. Historically, the prices for oil and natural gas have been volatile
and are likely to remain volatile in the future. The prices we receive for our
oil and natural gas production and the level of such production are subject to
wide fluctuations and depend on numerous factors beyond our control, including,
without limitation:
o seasonality;
o the condition of the United States economy;
o imports of crude oil and natural gas;
o political conditions in other oil-producing and natural gas-producing
countries;
o the actions of the Organization of Petroleum Exporting Countries; and
o domestic government regulation, legislation and policies.
Our average price received for crude oil production on December 31, 2000
was $26.34 per barrel. On December 31, 2001, this price declined to $18.74 per
barrel. Our average price received for natural gas production on December 31,
2000 was $10.51 per Mcf. On December 31, 2001, this price declined to $2.69 per
Mcf. Any continued and extended decline in the price of crude oil or natural gas
will adversely affect our:
o revenues, profitability and cash flow from operations;
o the present value of proved reserves;
o borrowing capacity; and
o ability to obtain additional capital.
In order to reduce our exposure to price risks, we may enter into oil and
natural gas price swap arrangements to hedge a portion of our anticipated sales.
Such arrangements may limit our ability to benefit from increases in oil and
natural gas prices. In March 2002, we hedged a portion of our natural gas
production for the period April 2002 through October 2002 in order to increase
the predictability of our cash flow from operations and to support our planned
2002 drilling program. The hedges cover approximately 45% to 50% of our expected
2002 natural gas production from April 2002 to October
11
2002. Although we are not currently experiencing any significant involuntary
curtailment of our natural gas production, market, economic and regulatory
factors may in the future materially affect our ability to sell our natural gas
production.
We plan to pursue acquisitions as part of our growth strategy and there are
risks in connection with acquisitions.
Our growth in recent years is attributable in part to acquisitions of
producing properties and companies that also perform activities similar to our
activities. We expect to continue to evaluate and, where appropriate, pursue
acquisition opportunities on terms we consider favorable. However, we cannot
assure you that suitable acquisition candidates will be identified in the
future, or that we will be able to finance such acquisitions on favorable terms.
In addition, we compete against other companies for acquisitions, and we cannot
assure you that we will successfully acquire any material property interests.
Further, we cannot assure you that future acquisitions by us, including our
recent acquisition of DevX Energy, Inc. ("DevX") in December 2001, will be
integrated successfully into our operations or will increase our profits.
The successful acquisition of producing properties requires an assessment
of numerous factors beyond our control, including, without limitation:
o recoverable reserves;
o exploration potential;
o future oil and natural gas prices;
o operating costs; and
o potential environmental and other liabilities.
In connection with such an assessment, we perform a review of the subject
properties that we believe to be generally consistent with industry practices.
The resulting assessments are inexact and their accuracy uncertain, and such a
review may not reveal all existing or potential problems, nor will it
necessarily permit us to become sufficiently familiar with the properties to
fully assess their merits and deficiencies. Inspections may not always be
performed on every well, and structural and environmental problems are not
necessarily observable even when an inspection is made.
Additionally, significant acquisitions can change the nature of our
operations and business depending upon the character of the acquired properties,
which may be substantially different in operating and geologic characteristics
or geographic location than our existing properties. While our current
operations are focused in the Gulf of Mexico, East Texas/North Louisiana,
Southeast Texas, South Texas, the Illinois Basin and the Mid-Continent regions,
we may pursue acquisitions or properties located in other geographic areas.
12
We have substantial debt and debt service requirements.
Large Amount of Debt
We have substantial debt and debt service requirements. As of March 31,
2002, our ratio of total debt to total capitalization was approximately 64%.
Consequences of Debt
Our substantial debt will have important consequences, including, without
limitation:
o a substantial portion of our cash flow from operations will be
required to make debt service payments;
o our ability to borrow additional amounts for working capital, capital
expenditures, including acquisitions, or other purposes will be
limited; and
o our debt could limit our ability to capitalize on significant business
opportunities, our flexibility in planning for or reacting to market
conditions and our ability to withstand competitive pressures and
economic downturns.
In addition, future acquisition or development activities may require us to
alter our capitalization significantly. These changes in capitalization may
significantly increase our debt. Moreover, our ability to meet our debt service
obligations and to reduce our total debt will be dependent upon our future
performance, which will be subject to general economic conditions and financial,
business and other factors affecting our operations, many of which are beyond
our control. If we are unable to generate sufficient cash flow from operations
in the future to service our indebtedness and to meet other commitments, we will
be required to adopt one or more alternatives, such as refinancing or
restructuring our indebtedness, selling material assets or seeking to raise
additional debt or equity capital. We cannot assure you that any of these
actions could be effected on a timely basis or on satisfactory terms or that
these actions would enable us to continue to satisfy our capital requirements.
Restrictive Debt Covenants
Our bank credit facility contains a number of significant covenants. Among
other things, these covenants:
o generally limit our ability to borrow additional money except for
unsecured debt up to $5.0 million in the aggregate and certain
debt incurred in hedging transactions;
o limit our ability to merge, consolidate or dispose of assets with
a value greater than $25.0 million, except for sales of assets in
the ordinary course of business;
o limit our ability to make certain investments, such as
investments that would alter the fundamental character of our
business;
o prohibit transactions with our affiliates, except in the ordinary
course of business and on fair terms; and
o restrict us from paying cash dividends that exceed an aggregate
amount of $10.0 million since the closing of the bank credit
facility in December 2001, excluding the dividends on our
outstanding preferred stock which may not exceed a rate of 9.0%
per year.
13
In addition to the above restrictions, our bank credit facility requires us
to maintain compliance with three financial covenants that are determined at the
end of each quarter:
o a minimum tangible net worth;
o an interest coverage ratio; and
o a current ratio.
Our tangible net worth may not at any time be less than the sum of:
(i) $176.5 million; plus
(ii) 50% of our net income for each fiscal quarter beginning on December
31, 2001, except that net losses are not to be added back to the
$176.5 million total; plus
(iii) 75% of the net cash proceeds from any equity offering or other sale
of our capital stock other than net cash proceeds in an aggregate
amount per fiscal year not to exceed $2.5 million received by us in
connection with exercises of stock options.
As we posted a net loss for, and did not conduct any equity offerings in,
the quarter ended March 31, 2002, the minimum net tangible worth requirement at
March 31, 2002 was $176.5 million. By comparison, our actual tangible net worth
at March 31, 2002 was $205.3 million.
The credit agreement also requires that our ratio of (i) EBITDA for the
four most recent fiscal quarters to (ii) our interest expense for the same
period be not less than 2.5 to 1.0. For the four quarters ended March 31, 2002,
our EBITDA was $89.3 million and interest expense was $22.3 million, resulting
in our interest coverage being 4.0 to 1.0.
We are also required to maintain at all times a current ratio of not less
than 1.0 to 1.0. Under our bank credit facility, the current ratio is calculated
as (i) the sum of our current assets plus the unused availability under the bank
credit facility, as compared to (ii) our current liabilities. At March 31, 2002,
our current ratio was 3.6 to 1.0.
Our failure to comply with these covenants would cause a default under our
bank credit facility and the indenture governing the notes. A default, if not
waived, could result in acceleration of our indebtedness, in which case the debt
would become immediately due and payable. If this occurs, we may
not be able to repay our debt or borrow sufficient funds to refinance it. Even
if new financing is available, it may not be on terms that are acceptable to us.
Complying with these covenants may cause us to take actions that we otherwise
would not take or not take actions that we otherwise would take.
We may not have sufficient funds to meet our substantial capital requirements.
We make, and will continue to make, substantial capital expenditures for
the acquisition, development and exploration of oil and natural gas reserves.
Historically, we have financed these expenditures primarily with cash generated
by operations, bank borrowings and the sale of equity securities and non-
strategic assets. We believe that we will have sufficient cash provided by
operating activities to fund anticipated 2002 capital expenditures other than
significant acquisitions. We intend to borrow under our bank credit facility or
to obtain other debt or equity financing as needed to finance future
acquisitions. If revenues or our borrowing base decrease as a result of lower
oil and natural gas prices, operating difficulties or declines in reserves, our
ability to obtain the capital necessary to undertake or complete future
development programs and to pursue acquisition opportunities may be limited. We
cannot assure you that additional debt or equity financing or cash generated by
operations will be available to meet these requirements. If we need additional
funds, our inability to raise them may adversely affect our operations.
14
Our future success depends on our ability to replace our reserves.
Our future success depends upon our ability to find, develop or acquire
additional oil and natural gas reserves that are economically recoverable. Our
proved reserves will generally decline as reserves are depleted, except to the
extent that we conduct successful exploration or development activities or
acquire properties containing proved reserves, or both. To increase reserves and
production, we must continue our acquisition and drilling activities. We cannot
assure you, however, that our acquisition and drilling activities will result in
significant additional reserves or that we will have continuing success drilling
productive wells at low finding and development costs. Furthermore, while our
revenues may increase if prevailing oil and natural gas prices increase
significantly, our finding costs for additional reserves could also increase.
Drilling activities are subject to many risks.
Drilling activities are subject to many risks, including the risk that no
commercially productive reservoirs will be encountered. We cannot assure you
that new wells we drill will be productive or that we will recover all or any
portion of our investment. Drilling for oil and natural gas may involve
unprofitable efforts, not only from dry wells, but from wells that are
productive but do not produce sufficient net revenues to return a profit after
drilling, operating and other costs. The cost of drilling, completing and
operating wells is often uncertain. Our drilling operations may be curtailed,
delayed or canceled as a result of numerous factors, many of which are beyond
our control, including, without limitation:
o title problems;
o adverse weather conditions;
o compliance with governmental requirements; and
o shortages or delays in the delivery of equipment and services.
Our operations are subject to operating hazards and uninsured risks.
Our operations are subject to all of the risks normally associated with the
exploration for and the production of oil and natural gas, including, without
limitation, blowouts, cratering, oil spills and fires, each of which could
result in damage to or destruction of oil and natural gas wells, production
facilities or other property, or injury to persons. In addition, we may from
time to time conduct relatively deep drilling which will involve increased
drilling risks of high pressures and mechanical difficulties, including stuck
pipe, collapsed casing and separated cable. We cannot assure you that our
insurance will adequately cover any losses or liabilities. Furthermore, we
cannot predict the continued availability of insurance, or availability at
commercially acceptable prices.
We operate in a highly competitive industry.
The oil and natural gas industry is highly competitive. Our competitors for
the acquisition, development and exploration of oil and natural gas properties,
purchases and marketing of natural gas, transportation and processing of natural
gas, and capital to finance such activities, include companies that have greater
financial and personnel resources than we do. These resources could allow those
competitors to price their products and services more aggressively than we can,
15
which could hurt our profitability. Moreover, our ability to acquire additional
properties and to discover reserves in the future will be dependent upon our
ability to evaluate and select suitable properties and to close transactions in
a highly competitive environment.
There are many uncertainties in estimating reserves and future net cash flows.
There are many uncertainties in estimating quantities and values of proved
reserves, projecting future rates of production and timing of development
expenditures, including many factors beyond our control. Reserve engineering is
a subjective process of estimating the recovery from underground accumulations
of oil and natural gas that cannot be precisely measured. The accuracy of any
reserve estimate depends on the quality of available data, production history
and engineering and geological interpretation and judgment. Because all reserve
estimates are to some degree speculative, the quantities of oil and natural gas
that are ultimately recovered, production and operating costs, the amount and
timing of future development expenditures and future oil and natural gas prices
may all differ materially from those assumed in these estimates. In addition,
different reserve engineers may make different estimates of reserve quantities
and cash flows based upon the same available data. The Present Value of Proved
Reserves set forth in this prospectus are estimates only and should not be
construed as the current market value of the estimated oil and natural gas
reserves attributable to our properties. Thus, the information set forth in this
prospectus includes revisions of certain reserve estimates attributable to
proved properties included in the preceding year's estimates. Such revisions
reflect additional information from subsequent activities, production history of
the properties involved and any adjustments in the projected economic life of
such properties resulting from changes in product prices. Any future downward
revisions could adversely affect our financial condition, borrowing base under
our bank credit facility, future prospects and the market value of our
securities.
We are subject to extensive governmental regulation.
Our business is affected by certain federal, state and local laws and
regulations relating to the development, production, marketing, pricing,
transportation and storage of oil and natural gas. Our business is also subject
to extensive and changing environmental and safety laws and regulations
governing plugging and abandonment of wells, the discharge of materials into the
environment or otherwise relating to environmental protection. Sanctions for
noncompliance with these laws and regulations may include administrative, civil
and criminal penalties, revocation of permits and corrective action orders.
These laws sometimes apply retroactively. In addition, a party can be liable for
environmental damage without regard to that party's negligence or fault.
Therefore, we could have liability for the conduct of others, or for acts that
were in compliance with all applicable laws at the time we performed them.
Environmental laws have become more stringent over the years. In addition, the
modification or interpretation of existing laws or regulations or the adoption
of new laws or regulations curtailing exploratory or development drilling for
oil and gas could limit well servicing opportunities. We cannot assure you that
present or future regulation will not adversely affect our operations.
We depend on our key personnel.
We believe that the success of our business strategy and our ability to
operate profitably depend on the continued employment of M. Jay Allison,
President and Chief Executive Officer, and a limited number of other senior
management personnel. Loss of the services of Mr. Allison or any of those other
individuals could have a material adverse effect on our operations.
16
Our former use of Arthur Andersen LLP as our independent auditors may pose risks
to us and will limit your ability to seek potential recoveries from them related
to their work.
On June 15, 2002, Arthur Andersen LLP, our former independent auditor, was
convicted on a federal obstruction of justice charge. Some investors, including
institutional investors, may choose not to invest in or hold securities of a
company whose financial statements were audited by Arthur Andersen, which may
serve to, among other things, suppress the price of our securities. On April 22,
2002, our board of directors decided to no longer engage Arthur Andersen and
engaged KPMG LLP to serve as our independent auditors.
SEC rules require us to present our audited financial statements in various
SEC filings, along with Arthur Andersen's consent to our inclusion of its audit
report in those filings. The SEC recently has provided regulatory relief
designed to allow companies that file reports with the SEC to dispense with the
requirement to file a consent of Arthur Andersen in certain circumstances. We
have been unable to obtain, after reasonable efforts, the written consent of
Arthur Andersen to our naming it as an expert and as having audited the
consolidated financial statements incorporated by reference into this
prospectus. Notwithstanding the SEC's regulatory relief, the inability of Arthur
Andersen to provide its consent or to provide assurance services to us could
negatively affect our ability to, among other things, access the public capital
markets. Any delay or inability to access the public markets as a result of this
situation could have a material adverse impact on our business. Also, an
investor's ability to seek potential recoveries from Arthur Andersen related to
any claims that an investor may assert as a result of the work performed by
Arthur Andersen will be limited significantly in the absence of a consent and
may be further limited by the diminished amount of assets of Arthur Andersen
that are or may in the future be available for claims.
Risks Relating to the Notes
The notes are effectively subordinated to our secured indebtedness and we are
dependent on the cash flow generated by our subsidiaries to pay our obligations.
The notes are unsecured and will be junior in rank to all our existing and
future secured indebtedness, including all indebtedness under our bank credit
facility, to the extent of the assets securing such indebtedness. Although our
obligations under the notes will be guaranteed by our subsidiary guarantors,
these guarantees effectively will also be subordinated to all secured
indebtedness (including guarantees) of our subsidiary guarantors including the
indebtedness under our bank credit facility. The indebtedness under our bank
credit facility is secured by substantially all of our assets and those of our
subsidiaries. As of March 31, 2002, we had $158 million of outstanding secured
indebtedness (not including approximately $82 million of borrowing capacity
available to us under our bank credit facility which, if borrowed, would be
secured indebtedness) and we had no pari passu indebtedness (other than the
notes and the $220 million of notes which remain outstanding) or subordinated
indebtedness outstanding. In addition, the indenture permits us to incur
significant amounts of additional secured indebtedness under certain
circumstances.
Because the notes and subsidiary guarantees are not secured, in the event
of a liquidation or dissolution of us or a subsidiary guarantor or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding, the
holders of secured indebtedness will be entitled to receive payment in full (to
the extent of the collateral) before you would receive any payment. In addition,
under certain circumstances, no payments may be made with respect to principal
of, or premium, if any, or interest on, or other obligations under, the notes if
a default exists with respect to any secured indebtedness.
17
We currently conduct all of our business through subsidiaries. Accordingly,
we are dependent on the cash flow generated by our subsidiaries for the payment
of our obligations, including the notes. Except for the subsidiary guarantees,
our subsidiaries have no obligation to make payments under the notes. To the
extent that one of our subsidiaries does not become a subsidiary guarantor or
the subsidiary guarantee of a subsidiary guarantor is not enforceable under
applicable law, the notes will be subordinated to any indebtedness or other
obligations of our subsidiaries.
There are risks that the subsidiary guarantees could be voided.
Under the federal bankruptcy laws and comparable provisions of state
fraudulent transfer laws, a subsidiary guarantee could be voided, or claims in
respect of a subsidiary guarantee could be subordinated to all other debts of
that subsidiary guarantor if, among other things, the subsidiary guarantor, at
the time it incurred the indebtedness evidenced by its subsidiary guarantee:
o received less than reasonably equivalent value or fair consideration
for the incurrence of such subsidiary guarantee;
o was insolvent or rendered insolvent by reason of such incurrence;
o was engaged in a business or transaction for which the subsidiary
guarantor's remaining assets constituted unreasonably small capital;
or
o intended to incur, or believed that it would incur, debt beyond its
ability to pay such debts as they mature.
In addition, any payment by that subsidiary guarantor to its subsidiary
guarantee could be voided and required to be returned to the subsidiary
guarantor, or to a fund for the benefit of the creditors of the subsidiary
guarantor.
The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. However, a subsidiary guarantor would
generally be considered insolvent if:
o the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets;
o if the present fair saleable value of its assets were less than the
amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become
absolute and mature; or
o it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, we believe that each subsidiary guarantor, after giving
effect to its subsidiary guarantee of the notes, will not be insolvent, will not
have unreasonably small capital for the business in which it is engaged and will
not have incurred debts beyond its ability to pay such debts as they mature. We
cannot assure you, however, as to what standard a court would apply in making
such determinations or that a court would agree with our conclusions in this
regard.
18
We may not be able to repurchase the notes upon a change of control.
In the event of certain types of change of control events, you will have
the right, at your option, to require us to repurchase all or a portion of your
notes at a purchase price equal to 101% of the principal amount of such notes,
plus accrued and unpaid interest, if any, to the date of purchase. Our ability
to repurchase the notes upon a change of control may be limited by the terms of
our secured indebtedness. Further, our ability to repurchase notes upon a change
of control will be dependent on the availability of sufficient funds and
compliance with applicable securities laws. Accordingly, we cannot assure you
that we will be able to repurchase the notes upon a change of control. The term
"change of control" is limited to certain specified transactions and may not
include other events that might adversely affect our financial condition or
result in a downgrade of the credit rating, if any, of the notes. In addition,
the requirement that we offer to repurchase the notes upon a change of control
would not necessarily afford you protection in the event we undertake a highly
leveraged reorganization, merger or similar transaction. Please refer to the
section of this prospectus entitled "Description of the Notes."
A downgrade in our credit rating could negatively affect our ability to access
capital.
Standard & Poor's Corporation ("S&P") and Moody's Investor Service
("Moody's") currently rate our senior unsecured debt at B- and B2, respectively.
Neither of these ratings are investment grade and generally indicate a greater
risk of default than securities with investment grade ratings. A security rating
is not a recommendation to buy, sell or hold securities and may be subject to
revision or withdrawal at any time by the assigning rating organization. We
cannot assure you that any of our current ratings will remain in effect for any
given period of time or that a rating will not be lowered or withdrawn entirely
by a rating agency if, in its judgment, circumstances in the future so warrant.
We do not have any ratings downgrade triggers that would accelerate the
maturity dates of our debt or trigger any other contractual obligation on our
part. Neither the existing ratings nor any future downgrades will affect our
ability to use our existing bank credit facility. However, a downgrade in our
credit rating could signal an increase in our credit risk to the capital markets
and have a material adverse effect on the cost of renewing existing credit
facilities or obtaining access to new facilities. In addition, we would likely
be required to pay a higher interest rate in any future financings, and our pool
of potential investors and funding sources could decrease. In the past, our main
sources of liquidity have been our cash flows from operations, bank financings,
issuance of debt securities and the proceeds from sales of certain of our
properties. A deterioration in business or economic or financial conditions
could negatively affect our ability to pay interest or principal on our debt
obligations, including the notes.
If a rating agency downgrades its rating on the notes in the future, the
trading price of the notes could decline. Accordingly, no assurance can be given
as to the price at which you may be able to sell your notes.
If you do not properly tender your outstanding notes for new notes, you will
continue to hold unregistered notes which are subject to transfer restrictions.
We will only issue new notes for outstanding notes that are timely received
by the exchange agent together with all required documents. Therefore, you
should allow sufficient time to ensure timely delivery of the outstanding notes
and you should carefully follow the instructions on how to tender your
19
outstanding notes set forth under "The Exchange Offer-- Procedures for Tendering
Outstanding Notes" and in the letter of transmittal that you have received with
this prospectus. Neither we nor the exchange agent are required to tell you of
any defects or irregularities with respect to your tender of the outstanding
notes. If you do not tender your outstanding notes or if we do not accept your
outstanding notes because you did not tender your outstanding notes properly,
then you will continue to hold outstanding notes that are subject to the
existing transfer restrictions. In addition, if you tender outstanding notes for
the purpose of participating in a distribution of the new notes, you will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale of the new notes. If you
continue to hold any outstanding notes after the exchange offer is completed,
you may have difficulty selling them because of the restrictions on transfer and
because there will be fewer outstanding notes outstanding.
If an active trading market does not develop for the new notes, you may be
unable to sell the new notes or to sell the new notes at a price that you deem
sufficient.
The new notes will be new securities for which there is no established
trading market. Although we have registered the new notes under the Securities
Act through the registration statement of which this prospectus is a part, we do
not intend to apply for listing of the new notes on any securities exchange or
for quotation of the new notes in any automated dealer quotation system. In
addition, the initial purchasers of the outstanding notes have advised us that
they intend to make a market in the new notes, as permitted by applicable laws
and regulations; however, the initial purchasers are not obligated to make a
market in the new notes, and they may discontinue their market-making activities
at any time without notice. Therefore, we cannot assure you that an active
market for the new note will develop or, if developed, that it will continue.
Historically, the market for noninvestment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the new notes. We cannot assure you that the market, if any, for the
new notes will be free from similar disruptions or that any such disruptions may
not adversely affect the prices at which you may sell your notes. In addition,
subsequent to their initial issuance, the new notes may trade at a discount from
their initial offering price, depending upon prevailing interest rates, the
market for similar notes, our performance and other factors. Finally, if a large
number of holders of outstanding notes do not tender their outstanding notes or
tender their outstanding notes improperly, the limited amount of new notes that
would be issued and outstanding after we consummate the exchange offer could
adversely affect the development of a market for these new notes.
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under the
registration rights agreement with the initial purchasers of the outstanding
notes. We will not receive any proceeds from the exchange offer. The net
proceeds from the offering of the outstanding notes were approximately $72.9
million, after deducting expenses of the offering. All of the net proceeds were
used to reduce outstanding indebtedness under our bank credit facility. At March
31, 2002 approximately $158.0 million in total borrowings were outstanding under
our bank credit facility at an average interest rate of 4.1% per annum.
Outstanding borrowings under our bank credit facility were used to refinance
existing indebtedness under our prior bank credit facility, to finance the
acquisition of DevX, to repurchase the DevX 121/2% senior notes issued by DevX
and to develop and explore our oil and gas properties. See the section in this
prospectus entitled "Description of the Bank Credit Facility."
20
CAPITALIZATION
The following table sets forth the consolidated capitalization of Comstock
as of March 31, 2002. This information should be read in conjunction with the
consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in our reports incorporated by reference in this prospectus. Please
see the section of this prospectus entitled "Information Incorporated by
Reference."
As of
March 31, 2002
----------------
(in thousands)
Long-term debt:
Bank credit facility ..................................... $ 158,000
11 1/4% senior notes ..................................... 220,000
Other..................................................... 2
---------
Total long-term debt ............................. 378,002
---------
Stockholders' equity:
Preferred stock-- $10.00 par, 5,000,000 shares authorized;
1,757,310 shares issued and outstanding ............... 17,573
Common stock-- $.50 par, 50,000,000 shares authorized;
28,572,553 shares issued and outstanding .............. 14,286
Additional paid-in capital ............................... 131,265
Retained earnings ........................................ 48,758
Deferred compensation-- restricted stock grants ............ (1,128)
Accumulated other comprehensive income ..................... 515
---------
Total stockholders' equity ....................... 211,269
---------
Total capitalization ........................... $ 589,271
=========
THE EXCHANGE OFFER
Registration Rights
In connection with the initial issuance and sale of the outstanding notes,
we entered into a registration rights agreement pursuant to which we agreed, for
the benefit of the holders of the outstanding notes, at our cost, to use our
best efforts:
o to cause to be filed with the SEC a registration statement with
respect to the exchange offer;
o to keep the registration statement effective until the closing of the
exchange offer;
o to close the exchange offer not later than 60 days after the SEC
declares the registration statement effective; and
o to file a shelf registration statement and have it declared effective
by the SEC by September 3, 2002, if the exchange offer is not closed
by September 3, 2002.
Promptly after the registration statement is declared effective, we will offer
the new notes in exchange for surrender of the outstanding notes. We will keep
the exchange offer open for not less than 20 business days after the date notice
of the exchange offer has been mailed to the holders of the outstanding notes.
21
In the event the exchange offer is not consummated on or before September
3, 2002, or upon the request of the initial purchasers of the outstanding notes
in certain circumstances, we will, among other things, in lieu of effecting (or,
in the case of such a request by the initial purchasers, in addition to
effecting) the registration of the new notes pursuant to the registration
statement:
o as promptly as practicable, use our best efforts to file with the SEC
a shelf registration statement covering sales of the notes;
o use our best efforts to cause such shelf registration statement to be
declared effective under the Securities Act on or before September 3,
2002, or promptly in the event of a request by the initial purchasers;
and
o use our best efforts to keep continuously effective such shelf
registration statement until the expiration of the time period
referred to in Rule 144(k) under the Securities Act or until all of
the notes covered by such shelf registration statement have been sold.
In the event of the filing of a shelf registration statement, we will, among
other things:
o provide to each holder for whom such shelf registration statement was
filed copies of the prospectus which is a part of the shelf
registration statement,
o notify each such holder when the shelf registration statement has
become effective, and
o take certain other actions as are required to permit unrestricted
resales of the outstanding notes or the new notes, as the case may be.
A holder of outstanding notes that sells such notes pursuant to the shelf
registration statement generally will be required to be named as a selling
security holder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement which are applicable to such a
holder, including certain indemnification obligations. In addition, each holder
of the outstanding notes will be required to deliver information to be used in
connection with the shelf registration statement in order to have its
outstanding notes included in the shelf registration statement and to benefit
from the provisions regarding the increase in the interest rate borne by the
outstanding notes described in the second succeeding paragraph.
The registration rights agreement provides that, upon receipt of notice
from us of the occurrence of any event that makes any statement in the
prospectus that is part of the shelf registration statement untrue in any
material respect or that requires the making of any changes in such prospectus
in order to make the statements therein not misleading or of certain other
events specified in the registration rights agreement, such holder will suspend
the sale of outstanding notes pursuant to such prospectus until we have
furnished copies of an amended or supplemented prospectus to such holder
correcting such misstatement or omission. If we shall give such notice to
suspend the sale of the outstanding notes, we shall extend the relevant period
referred to above during which we are required to keep effective the shelf
registration statement by the number of days during the period from and
including the date of the giving of such notice to and including the date when
holders shall have received copies of the supplemented or amended prospectus
necessary to permit resales of the outstanding notes or to and including the
date on which we have given notice that the sale of outstanding notes may be
resumed, as the case may be.
22
Broker-dealers that receive new notes in exchange for outstanding notes
that were acquired by such broker-dealers as a result of market-making or other
trading activities and that are required to deliver this prospectus in
connection with sales of the new notes will also have and be subject to most,
but not all of the rights and obligations under the registration rights
agreement of holders participating in a shelf registration statement with such
reasonable modifications as may be requested by the representatives thereof.
In the event that the exchange offer is not consummated or a shelf
registration statement is not declared effective on or prior to September 3,
2002 (such event, a "Registration Default "), then we will pay additional
interest (in addition to the interest otherwise due on the outstanding notes) to
each holder of outstanding notes during the first 90-day period immediately
following the occurrence of each such Registration Default in an amount equal to
0.50% per annum for any and all Registration Defaults. Such additional interest
will cease accruing on such outstanding notes when the Registration Default has
been cured.
The registration rights agreement is governed by, and to be construed in
accordance with the laws of the State of New York. The summary of certain
provisions of the registration rights agreement is not complete and is subject
to, and is qualified in its entirety by reference to, all the provisions of the
registration rights agreement, a copy of which is filed as an exhibit to the
registration statement of which this prospectus forms a part. In addition, the
information set forth above concerning certain interpretations of and positions
taken by the staff of the SEC is not intended to constitute legal advice and
prospective investors should consult their own legal advisors with respect to
such matters.
Terms of the Exchange Offer; Period for Tendering Outstanding Notes
Upon the terms and subject to the conditions set forth in this prospectus
and in the accompanying letter of transmittal, we will accept for exchange
outstanding notes that are properly tendered on or prior to the expiration date
of the exchange offer and not withdrawn as permitted below. The expiration date
of the exchange offer means 5:00 p.m., New York City time, on September 3, 2002;
provided, however, that if we, in our sole discretion, have extended the period
of time for which the exchange offer is open, the expiration date means the
latest time and date to which the exchange offer has been extended.
As of the date of this prospectus, $75.0 million aggregate principal amount
of outstanding notes is outstanding. This prospectus, together with the
accompanying letter of transmittal, is first being sent on or about August 5,
2002, to all holders of outstanding notes known to us. Our obligation is to
accept outstanding notes for exchange pursuant to the exchange offer is subject
to certain conditions as set forth under "--Certain Conditions to the Exchange
Offer" below.
We expressly reserve the right, at any time or from time to time, to extend
the period of time during which the exchange offer is open, and thereby delay
acceptance for exchange of any outstanding notes, by giving oral or written
notice of such extension to the holders thereof as described below. During any
such extension, all outstanding notes previously tendered will remain subject to
the exchange offer and may be accepted for exchange by us. Any outstanding notes
not accepted for exchange will be returned without expense to the tendering
holder thereof as promptly as practicable after the expiration or termination of
the exchange offer.
Outstanding notes tendered in the exchange offer must be in denominations
of principal amount of $1,000 or any integral multiple thereof.
23
We expressly reserve the right to amend or terminate the exchange offer,
and not to accept for exchange any outstanding notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions to the exchange offer
specified below under "--Certain Conditions to the Exchange Offer." We will give
oral or written notice of any extension, amendment, nonacceptance or termination
to the holders of the outstanding notes as promptly as practicable, such notice
in the case of any extension to be issued by means of a press release or other
public announcement no later than 9:00 a.m., New York City time, on the next
business day following the previously scheduled expiration date.
Procedures for Tendering Outstanding Notes
The tender to Comstock of outstanding notes by a holder thereof as set
forth below and the acceptance thereof by Comstock will constitute a binding
agreement between the tendering holder and Comstock upon the terms and subject
to the conditions set forth in this prospectus and in the accompanying letter of
transmittal. Except as set forth below, a holder (which term, for purposes of
the exchange offer, includes any participant in The Depository Trust Company
system (the "Book -Entry Transfer Facility ") whose name appears on the security
position listing as the holder of such outstanding notes) who wishes to exchange
outstanding notes pursuant to the exchange offer must either comply with the
Book-Entry Transfer Facility's Automated Tender Offer Program ("ATOP") described
below or transmit a properly completed and duly executed letter of transmittal,
including all other documents required by such letter of transmittal, to the
exchange agent at the address set forth below under "Exchange Agent" on or prior
to the expiration date, accompanied by either:
o certificates for such outstanding notes; or
o a Book-Entry Confirmation of the transfer of such outstanding notes
into the exchange agent's account at the Book-Entry Transfer Facility
pursuant to the procedure for book-entry transfer described below.
Persons holding outstanding notes through the Book-Entry Transfer Facility and
wishing to accept the exchange offer may do so pursuant to ATOP, by which each
tendering participant will agree to be bound by the terms of the letter of
transmittal. A holder who is unable to timely comply with the above- described
procedure prior to the expiration date may effect a tender of outstanding notes
by complying with the guaranteed delivery procedures described below.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF EACH HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OUTSTANDING
NOTES SHOULD BE SENT TO COMSTOCK.
Any beneficial owner whose outstanding notes are registered in the name of
a broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on his own behalf, such beneficial owner must,
prior to completing and executing the letter of transmittal and delivering
outstanding notes, either make appropriate arrangements to register ownership of
the outstanding notes in such beneficial owner's name or obtain a properly
completed bond power from the registered holder. The transfer of registered
ownership may take considerable time.
24
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the outstanding notes surrendered for
exchange are tendered:
o by a registered holder of the outstanding notes who has not completed
the box entitled "Special Issuance Instructions" or "Special Delivery
Instructions" on the letter of transmittal; or
o for the account of an Eligible Institution (as defined below).
If signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, are required to be guaranteed, then such guarantees must be by a firm or
other entity identified in Rule 17Ad-15 under the Exchange Act as "an eligible
guarantor institution," including (as such terms are defined therein):
o a bank;
o a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer;
o a credit union;
o a national securities exchange, registered securities association or
clearing agency; or
o a savings association that is a participant in a Securities Transfer
Association (collectively, "Eligible Institutions ").
If outstanding notes are registered in the name of a person other than the
signatory of the letter of transmittal, then the outstanding notes surrendered
for exchange must be endorsed by, or be accompanied by a written instrument or
instruments of transfer or exchange, in satisfactory form as determined by
Comstock in its sole discretion, duly executed by the registered holder with the
signature thereon guaranteed by an Eligible Institution, in either case signed
exactly as the name or names of the registered holder or holders appear on the
outstanding notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of outstanding notes tendered for exchange will be
determined by Comstock in its sole discretion, which determination shall be
final and binding. Comstock reserves the absolute right to reject any and all
tenders of any particular outstanding notes not properly tendered or to not
accept any particular outstanding note which acceptance might, in the judgment
of Comstock or its counsel, be unlawful. Comstock also reserves the absolute
right to waive any defects or irregularities or conditions of the exchange offer
as to any particular outstanding notes either before or after the expiration
date (including the right to waive the ineligibility of any holder who seeks to
tender outstanding notes in the exchange offer). The interpretation of the terms
and conditions of the exchange offer as to any particular outstanding notes
either before or after the expiration date (including the letter of transmittal
and the instructions thereto) by Comstock shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of outstanding notes for exchange must be cured within such reasonable period of
time as Comstock shall determine. Neither Comstock, the exchange agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of outstanding notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the letter of transmittal or any outstanding notes or powers of attorney
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
25
officers of corporations or others acting in a fiduciary or representative
capacity, then such persons should so indicate when signing, and, unless waived
by Comstock, proper evidence satisfactory to Comstock of their authority to so
act must be submitted.
By tendering, each holder will represent to Comstock that, among other
things, the new notes acquired pursuant to the exchange offer are being obtained
in the ordinary course of business of the person receiving such new notes,
whether or not such person is the holder, and that neither the holder nor such
other person has any arrangement or understanding with any person to participate
in the distribution of the new notes. In the case of a holder that is not a
broker-dealer, each such holder, by tendering, will also represent to Comstock
that such holder is not engaged in and does not intend to engage in, a
distribution of the new notes. If any holder or any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of Comstock, or is
engaged in or intends to engage in or has an arrangement or understanding with
any person to participate in a distribution of such new notes to be acquired
pursuant to the Exchange Offer, such holder or any such other person:
o will not be able to rely on the applicable interpretations of the
staff of the SEC discussed below under "--Resale of New Notes"; and
o must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives new notes for its own account in exchange for
outstanding notes, where such outstanding notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such new
notes. See "--Resale of New Notes" below and the section of this prospectus
entitled "Plan of Distribution." The letter of transmittal states that by so
acknowledging and by delivering such a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
Acceptance of Outstanding Notes for Exchange; Delivery of New Notes
Upon satisfaction or waiver of all conditions to the exchange offer,
Comstock will accept, promptly after the expiration date, all outstanding notes
properly tendered and will issue the new notes promptly after acceptance of the
outstanding notes. See "--Certain Conditions to the Exchange Offer" below. For
purposes of the exchange offer, Comstock shall be deemed to have accepted
properly tendered outstanding notes for exchange when, as and if Comstock has
given oral or written notice thereof to the exchange agent, with written
confirmation of any oral notice to be given promptly thereafter.
For each outstanding note accepted for exchange, the holder will receive a
new note having a principal amount equal to that of the surrendered outstanding
note. The new notes will bear interest from the most recent date to which
interest has been paid on the outstanding notes or, if no interest has been paid
on the outstanding notes, from May 1, 2002. Accordingly, holders of new notes on
the relevant record date for the first interest payment date following the
consummation of the exchange offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from May 1, 2002. Outstanding notes accepted for exchange will cease to accrue
interest from and after the date of consummation of the exchange offer. Holders
of outstanding notes whose outstanding notes are accepted for exchange will not
receive any payment in respect of accrued interest on such outstanding notes
otherwise payable on any interest payment date the record date for which occurs
on or after the date of consummation of the exchange offer, and any and all
rights to receive interest on such outstanding notes will terminate upon
consummation of the exchange offer.
26
In all cases, issuance of new notes for outstanding notes that are accepted
for exchange pursuant to the exchange offer will be made only after timely
receipt by the exchange agent of:
o certificates for such outstanding notes (or a timely Book-Entry
Confirmation of the transfer of such outstanding notes into the
exchange agent's account at the Book-Entry Transfer Facility);
o a properly completed and duly executed letter of transmittal or an
agent's message from the Book-Entry Transfer Facility confirming that
it has received ATOP instructions from a participant with respect
thereto; and
o all other required documents.
If any tendered outstanding notes are not accepted for any reason set forth
in the terms and conditions of the exchange offer or if outstanding notes are
submitted for a greater principal amount than the holder desires to exchange,
such unaccepted or non-exchanged outstanding notes will be returned without
expense to the tendering holder (or, in the case of outstanding notes tendered
by book-entry transfer into the exchange agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry procedures described below, such
non-exchanged outstanding notes will be credited to an account maintained with
such Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the exchange offer.
Book-Entry Transfer
The exchange agent will make a request to establish an account with respect
to the outstanding notes at the Book-Entry Transfer Facility for purposes of the
exchange offer within two (2) business days after the date of this prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of outstanding notes by causing
the Book-Entry Transfer Facility to transfer such outstanding notes into the
exchange agent's account at the Book-Entry Transfer Facility in accordance with
such Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of outstanding notes may be effected through book-entry transfer at the
Book-Entry Transfer Facility, the letter of transmittal or facsimile thereof,
with any required signature guarantees and any other required documents, must,
in any case other than as set forth in the following paragraph, be transmitted
to and received by the exchange agent at the address set forth below under
"--Exchange Agent" on or prior to the expiration date or in accordance with the
guaranteed delivery procedures described below.
ATOP may be used to process exchange offers through the Book-Entry Transfer
Facility. To accept the exchange offer through ATOP, Participants in the
Book-Entry Transfer Facility must send electronic instructions to the Book-Entry
Transfer Facility through the Book-Entry Transfer Facility communication system
by which they agree to be bound by the terms of the letter of transmittal in
place of sending a signed, hard copy letter of transmittal. The Book-Entry
Transfer Facility is obligated to communicate those electronic instructions to
the exchange agent. To tender outstanding notes through ATOP, the electronic
instructions sent to the Book-Entry Transfer Facility and transmitted by the
Book-Entry Transfer Facility to the exchange agent must contain the character by
which the participant acknowledges its receipt of and agrees to be bound by the
letter of transmittal.
27
Guaranteed Delivery Procedures
If a holder of the outstanding notes desires to tender such outstanding
notes and the outstanding notes are not immediately available, or if time will
not permit such holder's outstanding notes or other required documents to reach
the exchange agent before the expiration date, or if the procedure for
book-entry transfer or a tender pursuant to ATOP cannot be completed on a timely
basis, then a tender may be effected if:
o the tender is made through an Eligible Institution;
o prior to the expiration date, the exchange agent has received from
such Eligible Institution (by facsimile transmission, mail or hand
delivery) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Comstock, (a) setting
forth the name and address of the holder of outstanding notes and the
amount of outstanding notes tendered, (b) stating that the tender is
being made thereby and (c) guaranteeing that, (I) within five New York
Stock Exchange trading days after the execution of the Notice of
Guaranteed Delivery, the certificates for all tendered outstanding
notes, in proper form for transfer, or a Book-Entry Confirmation, as
the case may be, (II) the letter of transmittal (or an agent's message
from the Book-Entry Transfer Facility confirming that it has received
ATOP instructions from a participant with respect thereto) and (III)
any other documents required by the letter of transmittal will all be
deposited by the Eligible Institution with the exchange agent; and
o the certificates for all tendered outstanding notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, the
letter of transmittal (or an agent's message as described above) and
all other documents required by the letter of transmittal, are all
received by the exchange agent within five New York Stock Exchange
trading days after the execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of outstanding notes may be withdrawn at any time prior to 5:00
p.m., New York City time, on the expiration date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at the address or, in the case of Eligible
Institutions, at the facsimile number, set forth below under "--Exchange Agent"
or the appropriate procedures of ATOP must be complied with prior to 5:00 p.m.,
New York City time, on the expiration date. Any such notice of withdrawal must:
o specify the name of the person having tendered the outstanding notes
to be withdrawn (the "Depositor ");
o identify the outstanding notes to be withdrawn (including the
certificate number or numbers and principal amount of such outstanding
notes);
o contain a statement that such person is withdrawing his election to
have such outstanding notes exchanged;
o be signed by the person in the same manner as the original signature
on the letter of transmittal by which such outstanding notes were
tendered (including any required signature guarantees) or
28
be accompanied by documents of transfer to have the trustee with
respect to the outstanding notes register the transfer of such
outstanding notes in the name of the person withdrawing the tender;
and
o specify the name in which such outstanding notes are registered, if
different from that of the Depositor.
If outstanding notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the Book-Entry Transfer Facility to be
credited with the withdrawn outstanding notes and otherwise comply with the
procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
Comstock, whose determination shall be final and binding on all parties. Any
outstanding notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the exchange offer, and no new notes will be issued
with respect thereto, unless the outstanding notes so withdrawn are validly
re-tendered. Any outstanding notes that have been tendered for exchange but that
are not exchanged for any reason will be returned to the tendering holder
without cost to such holder (or, in the case of outstanding notes tendered by
book-entry transfer into the exchange agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described above, such
outstanding notes will be credited to an account maintained with the Book-Entry
Transfer Facility for the outstanding notes) as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn outstanding notes may be retendered by following the procedures
described under "--Procedures for Tendering Outstanding Notes" above at any time
on or prior to 5:00 p.m., New York City time, on the expiration date.
Certain Conditions to the Exchange Offer
Notwithstanding any other provision of the exchange offer, Comstock shall
not be required to accept for exchange, or to issue new notes in exchange for,
any outstanding notes and may terminate or amend the exchange offer if, at any
time before the acceptance of such outstanding notes for exchange or the
exchange of the new notes for such outstanding notes, Comstock determines that
the exchange offer violates any applicable law, any applicable interpretation of
the staff of the SEC or any order of any governmental agency or court of
competent jurisdiction.
The foregoing conditions are for the sole benefit of Comstock and may be
asserted by Comstock regardless of the circumstances giving rise to any such
condition or may be waived by Comstock in whole or in part at any time and from
time to time in its reasonable discretion. The failure by Comstock at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
In addition, Comstock will not accept for exchange any outstanding notes
tendered, and no new notes will be issued in exchange for any such outstanding
notes, if at such time any stop order shall be threatened or in effect with
respect to:
o the registration statement of which this prospectus constitutes a
part; or
o the qualification of the indenture under the Trust Indenture Act of
1939, as amended.
In any such event, Comstock is required to use its reasonable best efforts to
obtain the withdrawal of any stop order at the earliest possible time.
29
Resale of New Notes
Based on interpretations of the SEC staff in no-action letters issued to
third parties, Comstock believes that the new notes will be freely transferable
by holders of the outstanding notes other than affiliates of Comstock after the
exchange offer without further registration under the Securities Act if you, as
a holder of the new notes represent that:
o you are acquiring the new notes in the ordinary course of its
business;
o you have no arrangement or understanding with any person to
participate in the distribution of the new notes; and
o you are not an "affiliate" of Comstock, as that term is defined in
Rule 405 under the Securities Act.
Any purchaser of notes, however, who is an "affiliate" of Comstock, who is
not acquiring the new notes in the ordinary course of its business, or who
intends to participate in the exchange offer for the purpose of distributing the
new notes:
o will not be able to rely on the interpretations of the staff of the
SEC;
o will not be able to exchange its outstanding notes in the exchange
offer; and
o must comply with the registration and prospectus delivery provisions
of the Securities Act in connection with any sale or transfer of the
outstanding notes unless such sale or transfer is made pursuant to an
exemption from such requirements.
However, the staff of the SEC has not rendered a no-action letter with
respect to the exchange offer, and there can be no assurance that the staff
would make a similar determination for the exchange offer as in such other
circumstances.
Broker-dealers receiving new notes in the exchange offer will have a
prospectus delivery requirement with respect to resales of such new notes. In
addition, each participating broker-dealer must acknowledge that such
outstanding notes were acquired as a result of market-making activities or other
trading activities. The SEC has taken the position that participating
broker-dealers may fulfill their prospectus delivery requirements with respect
to new notes (other than a resale of an unsold allotment from the original sale
of the outstanding notes) with the prospectus contained in the registration
statement filed in connection with the exchange offer. Under the registration
rights agreement, Comstock is required to allow participating broker-dealers to
use the prospectus contained in the registration statement in connection with
the resale of such new notes. Please refer to the section in this prospectus
entitled "Plan of Distribution."
Exchange Agent
The Bank of New York Trust Company of Florida, N.A. has been appointed as
the exchange agent for the exchange offer. All executed letters of transmittal
should be directed to the exchange agent at the address set forth below.
Questions and requests for assistance, requests for additional copies of this
prospectus or of the letter of transmittal and requests for Notices of
Guaranteed Delivery should be directed to the exchange agent addressed as
follows:
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The Bank of New York Trust Company of Florida, N.A.
Corporate Trust Operations
Reorganization Unit
101 Barclay Street - 7 East
New York, New York 10286
Attn: Kin Lau
Phone: (212) 815-3750
Fax: (212) 298-1915
Fees and Expenses
Comstock will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer. The estimated cash expenses to be incurred in
connection with the exchange offer will be paid by Comstock and are estimated to
total $20,000.
Payment of Interest
The new notes will bear interest from the most recent date to which
interest has been paid on the outstanding notes. Accordingly, registered holders
of new notes on the relevant record date for the first interest payment date
following the consummation of the exchange offer will receive interest accruing
from the most recent date to which interest has been paid. Outstanding notes
accepted for exchange will cease to accrue interest from and after the date of
consummation of the exchange offer. Holders of outstanding notes whose
outstanding notes are accepted for exchange will not receive any payment of
interest on such outstanding notes otherwise payable on any interest payment
date the record date for which occurs on or after the date of consummation of
the exchange offer, and any and all rights to receive interest on such
outstanding notes will terminate upon consummation of the exchange offer.
Consequences of Not Exchanging Outstanding Notes
Holders of outstanding notes who do not exchange their outstanding notes
for new notes pursuant to the exchange offer will continue to be subject to the
provisions in the indenture regarding transfer and exchange of the outstanding
notes and the restrictions on transfer of such outstanding notes as set forth in
the legend thereon as a consequence of the issuance of the outstanding notes
pursuant to exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the outstanding notes may not be offered or sold unless registered
under, pursuant to an exemption from or in a transaction not subject to, the
Securities Act and applicable state securities laws. Comstock does not currently
anticipate that it will register outstanding notes under the Securities Act.
Material Federal Income Tax Considerations
A summary of the material United States federal income tax consequences
associated with the exchange of outstanding notes for new notes and the
ownership and disposition of the new notes by holders who acquired the new notes
pursuant to the exchange offer is included herein under "Certain United States
Federal Income Tax Considerations."
DESCRIPTION OF THE BANK CREDIT FACILITY
On December 17, 2001, we entered into a new revolving credit agreement with
Toronto Dominion (Texas), Inc., as administrative agent, Toronto-Dominion Bank,
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issuing bank, and a syndicate of banks. The bank credit facility provides for a
$350.0 million commitment in the form of a three-year revolving credit
commitment, and had an initial borrowing base of $270.0 million. In connection
with the private placement of the $75.0 million of outstanding notes, the
borrowing base was reduced to $240.0 million. On May 21, 2002 the borrowing base
was increased to $250.0 million. As of March 31, 2002, the total outstanding
principal balance under the bank credit facility was $158.0 million at a
weighted average interest rate of 4.1%.
Indebtedness under the bank credit facility is secured by substantially all
of our and our subsidiaries' assets. The bank credit facility is subject to
borrowing base availability, which will be redetermined semiannually based on
the banks' estimates of the future net cash flows of our oil and gas properties.
The borrowing base may be affected by the performance of our properties and
changes in oil and gas prices. The determination of the borrowing base will be
at the sole discretion of the administrative agent and the bank group. The
revolving credit line will bear interest, based on the utilization of the
borrowing base, at our option at either: (i) LIBOR plus 1.5% to 2.375% or (ii)
the base rate plus 0.5% to 1.375%. The bank credit facility will mature on
January 2, 2005 or such earlier date as we may elect. The bank credit facility
contains covenants that, among other things, restrict the payment of cash
dividends, limit the amount of consolidated debt and limit our ability to make
certain loans and investments. Financial covenants include the maintenance of a
current ratio, maintenance of tangible net worth and maintenance of an interest
coverage ratio.
DESCRIPTION OF THE NOTES
The $75.0 million of outstanding notes have been, and the new notes will
be, issued pursuant to an indenture dated as of April 29, 1999 by and among
Comstock, as issuer, Comstock Oil & Gas, Inc., Comstock Oil & Gas Holdings,
Inc., DevX Energy, Inc., a Delaware corporation, DevX Energy Inc., a Nevada
corporation, DevX Operating Company, Comstock Oil & Gas - Louisiana, LLC and
Comstock Offshore, LLC, as subsidiary guarantors (the "Subsidiary Guarantors"),
and U.S. Trust Company of Texas, N.A., now known as The Bank of New York Trust
Company of Florida, N.A., as trustee (the "Trustee"), as amended and
supplemented by that certain first supplemental indenture dated as of March 7,
2002 (collectively, the"Indenture"). The terms of the notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939. The notes are subject to all such terms, and holders of
notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The $75.0 million of outstanding notes are and the new notes will be,
part of the same series as the $150.0 million in notes we issued on April 29,
1999, of which $145.0 million remain outstanding. The new notes are to be issued
in exchange for outstanding notes pursuant to the registration rights agreement
as further described in "The Exchange Offer" section of this prospectus. A copy
of the Indenture and the registration rights agreement are filed as exhibits to
the registration statement of which this prospectus is a part and are
incorporated herein by reference. The statements under this caption relating to
the notes, the Indenture and the registration rights agreement are summaries and
do not purport to be complete, and where reference is made to particular
provisions of the Indenture and the registration rights agreement, such
provisions, including the definitions of certain terms, are qualified in their
entirety by such reference. The definitions of certain terms used in the
following summary are set forth below under "--Certain Definitions." Capitalized
terms not otherwise defined below under "--Certain Definitions" or elsewhere in
this prospectus have the meanings given to them in the Indenture.
The outstanding notes and the new notes, as well as the $150.0 million of
notes issued by Comstock on April 29, 1999, of which $145.0 million remain
outstanding, are treated as a single series of debt securities under the
Indenture. Holders of outstanding notes who do not exchange their outstanding
notes for new notes pursuant to the exchange offer will vote together with the
Holders of the new notes (and the holders of the $145.0 million of notes issued
on April 29, 1999 that remain outstanding) as a single series of notes for all
relevant purposes under the Indenture. In that regard, the Indenture requires
32
that certain actions by the Holders thereunder (including acceleration following
an Event of Default) must be taken, and certain rights must be exercised, by
specified minimum percentages of the aggregate principal amount of the
outstanding securities issued under the Indenture. In determining whether
holders of the requisite percentage of principal amount have given any notice,
consent or waiver or taken any other action permitted under the Indenture, any
outstanding notes that remain outstanding after the exchange offer will be
aggregated with the new notes (and the holders of the $145.0 million of notes
issued on April 29, 1999 that remain outstanding), and the Holders of such notes
will vote together for all such purposes. Accordingly, at any time after the
exchange offer is consummated, all references herein to specified percentages of
aggregate principal amount of the outstanding notes means such percentages of
aggregate principal amount of the outstanding notes and the new notes (and the
holders of the $145.0 million of notes issued on April 29, 1999 that remain
outstanding) then outstanding.
General
The notes will mature on May 1, 2007. The outstanding notes were issued in
an aggregate principal amount of $75.0 million. The notes bear interest at 11
1/4% from February 28, 2002, or from the most recent interest payment date to
which interest has been paid, payable semiannually in cash on May 1 and November
1, of each year, commencing May 1, 2002, to the Persons in whose name the notes
are registered in the note register at the close of business on April 15 or
October 15, next preceding such interest payment date. Interest is computed on
the basis of a 360-day year comprised of twelve 30-day months. See the section
of this prospectus entitled "The Exchange Offer--Registration Rights" for a
description of the circumstances under which the interest rate on the notes may
be increased.
Principal of, premium, if any, and interest on the notes will be payable at
the office or agency of Comstock in New York City maintained for such purpose,
and the notes may be surrendered for transfer or exchange at the corporate trust
office of the Trustee. In addition, in the event the notes do not remain in
book-entry form, interest may be paid, at the option of Comstock, by check
mailed to the Holders of the notes at their respective addresses as shown on the
note register, subject to the right of any Holder of notes in the principal
amount of $500,000 or more to request payment by wire transfer. No service
charge will be made for any transfer, exchange or redemption of the notes, but
Comstock or the Trustee may require payment of a sum sufficient to cover any tax
or other governmental charge that may be payable in connection therewith. The
notes will be issued only in registered form, without coupons, in denominations
of $1,000 and integral multiples thereof.
The obligations of Comstock under the notes will be jointly and severally
guaranteed by the Subsidiary Guarantors. See "--Subsidiary Guarantees of Notes."
33
Redemption
Optional Redemption. The notes will be redeemable at the option of
Comstock, in whole or in part, at any time on or after May 1, 2004, upon not
less than 30 or more than 60 days' notice, at the redemption prices (expressed
as percentages of principal amount) set forth below, plus accrued and unpaid
interest, if any, to the date of redemption (subject to the right of Holders of
record on the relevant record date to receive interest due on an interest
payment date that is on or prior to the date of redemption), if redeemed during
the 12-month period beginning on May 1, of the years indicated below:
Redemption
Year Price
---------------------- ---------
2004 ................. 105.625%
2005 ................. 102.813%
2006 and thereafter... 100.000%
In the event that less than all of the notes are to be redeemed, the
particular notes (or any portion thereof that is an integral multiple of $1,000)
to be redeemed shall be selected not less than 30 nor more than 60 days prior to
the date of redemption by the Trustee, from the outstanding notes not previously
called for redemption, pro rata, by lot or by any other method the Trustee shall
deem fair and appropriate.
Offers to Purchase. As described below, (i) upon the occurrence of a Change
of Control, Comstock will be obligated to make an offer to purchase all of the
notes at a purchase price equal to 101% of the principal amount thereof,
together with accrued and unpaid interest, if any, to the date of purchase and
(ii) upon certain sales or other dispositions of assets, Comstock may be
obligated to make offers to purchase the notes with a portion of the Net
Available Cash of such sales or other dispositions at a purchase price equal to
100% of the principal amount thereof, together with accrued and unpaid interest,
if any, to the date of purchase. See "--Certain Covenants-- Change of Control"
and "--Limitation on Asset Sales."
Sinking Fund
There will be no sinking fund payments for the notes.
Ranking
The notes will be general unsecured obligations of Comstock and will rank
pari passu in right of payment with all existing and future Senior Indebtedness
of Comstock, and senior in right of payment to all future subordinated
indebtedness of Comstock. The notes, however, will be effectively subordinated
to secured Indebtedness of Comstock and its Subsidiaries with respect to the
assets securing such Indebtedness, including indebtedness under the Bank Credit
Facility, which is secured by a lien on substantially all of the assets of
Comstock (including assets of the Subsidiary Guarantors). As of March 31, 2002,
Comstock and the Subsidiary Guarantors had no senior unsecured Indebtedness
(other than the notes and trade payables), and approximately $158 million of
secured Indebtedness. Comstock had no subordinated Indebtedness as of such date.
Subject to certain limitations, Comstock and its Subsidiaries may incur
additional Indebtedness in the future.
34
Subsidiary Guarantees of Notes
Each Subsidiary Guarantor will unconditionally guarantee, jointly and
severally, to each Holder and the Trustee, the full and prompt performance of
Comstock's obligations under the Indenture and the notes, including the payment
of principal of, premium, if any, and interest on the notes pursuant to its
Subsidiary Guarantee. The initial Subsidiary Guarantors are currently all of
Comstock's principal operating subsidiaries. In addition to the initial
Subsidiary Guarantors, Comstock is obligated under the Indenture to cause each
Restricted Subsidiary that becomes, or comes into existence as, a Restricted
Subsidiary after the date of the Indenture and has assets, businesses,
divisions, real property or equipment with a Fair Market Value in excess of $5.0
million to execute and deliver a supplement to the Indenture pursuant to which
such Restricted Subsidiary will guarantee the payment of the notes on the same
terms and conditions as the Subsidiary Guarantees by the initial Subsidiary
Guarantors.
The obligations of each Subsidiary Guarantor will be limited to the maximum
amount as will, after giving effect to all other contingent and fixed
liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Subsidiary Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Each Subsidiary Guarantor that makes a
payment or distribution under a Subsidiary Guarantee shall be entitled to a
contribution from each other Subsidiary Guarantor in a pro rata amount based on
the Adjusted Net Assets of each Subsidiary Guarantor.
Each Subsidiary Guarantor may consolidate with or merge into or sell or
otherwise dispose of all or substantially all of its properties and assets to
Comstock or another Subsidiary Guarantor without limitation, except to the
extent any such transaction is subject to the "Merger, Consolidation and Sale of
Assets" covenant of the Indenture. Each Subsidiary Guarantor may consolidate
with or merge into or sell all or substantially all of its properties and assets
to a Person other than Comstock or another Subsidiary Guarantor (whether or not
affiliated with the Subsidiary Guarantor), provided that (i) if the surviving
Person is not the Subsidiary Guarantor, the surviving Person agrees to assume
such Subsidiary Guarantor's Subsidiary Guarantee and all its obligations
pursuant to the Indenture (except to the extent the following paragraph would
result in the release of such Subsidiary Guarantee) and (ii) such transaction
does not (a) violate any of the covenants described below under "--Certain
Covenants" or (b) result in a Default or Event of Default immediately thereafter
that is continuing.
Upon the sale or other disposition (by merger or otherwise) of a Subsidiary
Guarantor (or all or substantially all of its properties and assets) to a Person
other than Comstock or another Subsidiary Guarantor and pursuant to a
transaction that is otherwise in compliance with the Indenture (including as
described in the foregoing paragraph), such Subsidiary Guarantor shall be deemed
released from its Subsidiary Guarantee and the related obligations set forth in
the Indenture; provided, however, that any such release shall occur only to the
extent that all obligations of such Subsidiary Guarantor under all of its
guarantees of, and under all of its pledges of assets or other security
interests which secure, other Indebtedness of Comstock or any Restricted
Subsidiary shall also be released upon such sale or other disposition. Each
Subsidiary Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the Indenture shall be released from its Subsidiary Guarantee
and related obligations set forth in the Indenture for so long as it remains an
Unrestricted Subsidiary.
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Certain Covenants
The Indenture contains, among others, the covenants described below.
Limitation on Indebtedness and Disqualified Capital Stock. Comstock will
not, and will not permit any of its Restricted Subsidiaries to, create, incur,
issue, assume, guarantee or in any manner become directly or indirectly liable
for the payment of (collectively, "incur") any Indebtedness (including any
Acquired Indebtedness), except for Permitted Indebtedness, and Comstock will
not, and will not permit any of its Restricted Subsidiaries to, issue any
Disqualified Capital Stock (except for the issuance by Comstock of (A) the
Preferred Stock concurrently with the issuance of the outstanding notes and (B)
Disqualified Capital Stock (1) which is redeemable at Comstock's option in cash
or Qualified Capital Stock and (2) the dividends on which are payable at
Comstock's option in cash or Qualified Capital Stock); provided however, that
Comstock and its Restricted Subsidiaries that are Subsidiary Guarantors may
incur Indebtedness or issue shares of Disqualified Capital Stock if (i) at the
time of such event and after giving effect thereto on a pro forma basis the
Consolidated Fixed Charge Coverage Ratio for the four full quarters immediately
preceding such event, taken as one period, would have been equal to or greater
than 2.5 to 1.0 and (ii) no Default or Event of Default shall have occurred and
be continuing at the time such additional Indebtedness is incurred or such
Disqualified Capital Stock is issued or would occur as a consequence of the
incurrence of the additional Indebtedness or the issuance of the Disqualified
Capital Stock. For purposes of determining compliance with this covenant, in the
event that an item of Indebtedness meets the criteria of one or more of the
categories of Permitted Indebtedness described in clauses (i) through (xi) of
such definition or is entitled to be incurred (whether incurred under the Bank
Credit Facility or otherwise) pursuant to the proviso of the foregoing sentence,
Comstock may, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness will be
treated as having been incurred pursuant to only one of such clauses of the
definition of Permitted Indebtedness or the proviso of the foregoing sentence
and an item of Indebtedness may be divided and classified in more than one of
the types of Indebtedness permitted hereunder.
Limitation on Restricted Payments. Comstock will not, and will not permit
any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any other distribution to
Holders of, any shares of Capital Stock of Comstock (other than dividends
or distributions payable solely in shares of Qualified Capital Stock of
Comstock or in options, warrants or other rights to purchase Qualified
Capital Stock of Comstock);
(ii) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of Comstock or any Affiliate thereof (other than any Wholly
Owned Restricted Subsidiary of Comstock) or any options, warrants or other
rights to acquire such Capital Stock (other than the purchase, redemption,
acquisition or retirement of any Disqualified Capital Stock of Comstock
solely in shares of Qualified Capital Stock of Comstock);
(iii) make any principal payment on or repurchase, redeem, defease or
otherwise acquire or retire for value, prior to any scheduled principal
payment, scheduled sinking fund payment or maturity, any Subordinated
Indebtedness, except in any case out of the net cash proceeds of Permitted
Refinancing Indebtedness; or
(iv) make any Restricted Investment,
36
(such payments or other actions described in clauses (i) through (iv) being
collectively referred to as "Restricted Payments"), unless at the time of and
after giving effect to the proposed Restricted Payment (the amount of any such
Restricted Payment, if other than cash, shall be the amount determined by the
Board of Directors of Comstock, whose determination shall be conclusive and
evidenced by a Board Resolution):
(1) no Default or Event of Default shall have occurred and be continuing;
(2) Comstock could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) in accordance with the "--Limitation on Indebtedness and
Disqualified Capital Stock" covenant; and
(3) the aggregate amount of all Restricted Payments declared or made after
the date of the Indenture shall not exceed the sum (without duplication) of the
following:
(A) 50% of the Consolidated Net Income of Comstock accrued on a
cumulative basis during the period beginning on the first day of the month
in which the Indenture is signed and ending on the last day of Comstock's
last fiscal quarter ending prior to the date of such proposed Restricted
Payment (or, if such Consolidated Net Income is a loss, minus 100% of such
loss); plus
(B) the aggregate Net Cash Proceeds, or the Fair Market Value of
assets and property other than cash, received after the date of the
Indenture by Comstock from the issuance or sale (other than to any of its
Restricted Subsidiaries) of shares of Qualified Capital Stock of Comstock
or any options, warrants or rights to purchase such shares of Qualified
Capital Stock of Comstock; plus
(C) the aggregate Net Cash Proceeds, or the Fair Market Value of
assets and property other than cash, received after the date of the
Indenture by Comstock (other than from any of its Restricted Subsidiaries)
upon the exercise of any options, warrants or rights to purchase shares of
Qualified Capital Stock of Comstock; plus
(D) the aggregate Net Cash Proceeds received after the date of the
Indenture by Comstock from the issuance or sale (other than to any of its
Restricted Subsidiaries) of Indebtedness or shares of Disqualified Capital
Stock that have been converted into or exchanged for Qualified Capital
Stock of Comstock, together with the aggregate cash received by Comstock at
the time of such conversion or exchange; plus
(E) to the extent not otherwise included in Consolidated Net Income,
the net reduction in Investments in Unrestricted Subsidiaries resulting
from dividends, repayments of loans or advances, or other transfers of
assets, in each case to Comstock or a Restricted Subsidiary after the date
of the Indenture from any Unrestricted Subsidiary or from the redesignation
of an Unrestricted Subsidiary as a Restricted Subsidiary (valued in each
case as provided in the definition of "Investment"), not to exceed in the
case of any Unrestricted Subsidiary the total amount of Investments (other
than Permitted Investments) in such Unrestricted Subsidiary made by
Comstock and its Restricted Subsidiaries in such Unrestricted Subsidiary
after the date of the Indenture.
Notwithstanding paragraph (a) above, Comstock and its Restricted
Subsidiaries may take the following actions so long as (in the case of clauses
(ii), (iii) and (iv) below) no Default or Event of Default shall have occurred
and be continuing:
37
(i) the payment of any dividend on any Capital Stock of Comstock within 60
days after the date of declaration thereof, if at such declaration date such
declaration complied with the provisions of paragraph (a) above (and such
payment shall be deemed to have been paid on such date of declaration for
purposes of any calculation required by the provisions of paragraph (a) above);
(ii) the payment of dividends through June 30, 2004 on any shares of
Comstock's Preferred Stock outstanding on the date of the Indenture in an
aggregate annual amount not in excess of 9.0% of the par value of such shares
that are outstanding, provided that (A) such dividends are paid within 60 days
of the date of declaration thereof and (B) on the date of declaration and having
given pro forma effect to the making of such payment, the Consolidated Fixed
Charge Coverage Ratio for the four full fiscal quarters immediately preceding
such event, taken as one period, would have been equal to or greater than 2.25
to 1.0;
(iii) the repurchase, redemption or other acquisition or retirement of any
shares of any class of Capital Stock of Comstock or any Restricted Subsidiary,
in exchange for, or out of the aggregate Net Cash Proceeds from, a substantially
concurrent issuance and sale (other than to a Restricted Subsidiary) of shares
of Qualified Capital Stock of Comstock;
(iv) the purchase, redemption, repayment, defeasance or other acquisition
or retirement for value of any Subordinated Indebtedness in exchange for, or out
of the aggregate Net Cash Proceeds from, a substantially concurrent issuance and
sale (other than to a Restricted Subsidiary) of shares of Qualified Capital
Stock of Comstock;
(v) the purchase, redemption, repayment, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness (other than Disqualified
Capital Stock) in exchange for, or out of the aggregate net cash proceeds of, a
substantially concurrent incurrence (other than to a Restricted Subsidiary) of
Subordinated Indebtedness of Comstock so long as (A) the principal amount of
such new Indebtedness does not exceed the principal amount (or, if such
Subordinated Indebtedness being refinanced provides for an amount less than the
principal amount thereof to be due and payable upon a declaration of
acceleration thereof, such lesser amount as of the date of determination) of the
Subordinated Indebtedness being so purchased, redeemed, repaid, defeased,
acquired or retired, plus the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Indebtedness
refinanced or the amount of any premium reasonably determined by Comstock as
necessary to accomplish such refinancing, plus the amount of expenses of
Comstock incurred in connection with such refinancing, (B) such new Indebtedness
is subordinated to the notes at least to the same extent as such Subordinated
Indebtedness so purchased, redeemed, repaid, defeased, acquired or retired, and
(C) such new Indebtedness has an Average Life to Stated Maturity that is longer
than the Average Life to Stated Maturity of the notes and such new Indebtedness
has a Stated Maturity for its final scheduled principal payment that is at least
91 days later than the Stated Maturity for the final scheduled principal payment
of the notes; and
(vi) loans made to officers, directors or employees of Comstock or any
Restricted Subsidiary approved by the Board of Directors in an aggregate amount
not to exceed $1.0 million outstanding at any one time, the proceeds of which
are used solely (A) to purchase common stock of Comstock in connection with a
restricted stock or employee stock purchase plan, or to exercise stock options
received pursuant to an employee or director stock option plan or other
incentive plan, in a principal amount not to exceed the exercise price of such
stock options or (B) to refinance loans, together with accrued interest thereon,
made pursuant to item (A) of this clause (vi).
38
The actions described in clauses (i), (ii), (iii), (iv) and (vi) of this
paragraph (b) shall be Restricted Payments that shall be permitted to be made in
accordance with this paragraph (b) but shall reduce the amount that would
otherwise be available for Restricted Payments under clause (3) of paragraph (a)
(provided that any dividend paid pursuant to clause (i) of this paragraph (b)
shall reduce the amount that would otherwise be available under clause (3) of
paragraph (a) when declared, but not also when subsequently paid pursuant to
such clause (i)), and the actions described in clause (iv) of this paragraph (b)
shall be permitted to be taken in accordance with this paragraph and shall not
reduce the amount that would otherwise be available for Restricted Payments
under clause (3) of paragraph (a).
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. Comstock (i) will not permit any Restricted Subsidiary to issue or
sell any Capital Stock to any Person other than Comstock or one of its Wholly
Owned Restricted Subsidiaries and (ii) will not permit any Person other than
Comstock or one of its Wholly Owned Restricted Subsidiaries to own any Capital
Stock of any Restricted Subsidiary, except, in each case, for (a) directors'
qualifying shares, (b) the Capital Stock of a Restricted Subsidiary owned by a
Person at the time such Restricted Subsidiary became a Restricted Subsidiary or
acquired by such Person in connection with the formation of such Restricted
Subsidiary, or transfers thereof, (c) a sale of all the Capital Stock of a
Restricted Subsidiary owned by Comstock or its Subsidiaries effected in
accordance with the provisions of the Indenture described under "--Limitation on
Asset Sales," (d) Qualifying TECONS or (e) any sale or issuance of Capital Stock
of a Foreign Subsidiary that is required to be issued or owned by the government
of a foreign jurisdiction or individual or corporate citizens of such foreign
jurisdiction in order for such Foreign Subsidiary to transact business in such
foreign jurisdiction, provided, that any such sale or issuance shall be deemed
to be an Asset Sale to the extent the percentage of the total outstanding Voting
Stock of such Foreign Subsidiary owned directly and indirectly by Comstock is
reduced as a result of such sale or issuance and any such sale or issuance must
be made in compliance with the provisions of the Indenture described under
"--Limitation on Asset Sales."
Limitation on Transactions with Affiliates. Comstock will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions (including,
without limitation, the sale, purchase, exchange or lease of assets or property
or the rendering of any services) with, or for the benefit of, any Affiliate of
Comstock (other than Comstock or a Wholly Owned Restricted Subsidiary), unless
(a) such transaction or series of related transactions is on terms that are no
less favorable to Comstock or such Restricted Subsidiary, as the case may be,
than those that would be available in a comparable arm's length transaction with
unrelated third parties, (b) with respect to any one transaction or series of
related transactions involving aggregate payments in excess of $2.5 million,
Comstock delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of transactions complies with clause (a) above and that
such transaction or series of transactions has been approved by a majority of
the Disinterested Directors of Comstock, and (c) with respect to any one
transaction or series of related transactions involving aggregate payments in
excess of $10.0 million, the Officers' Certificate referred to in clause (b)
above also certifies that Comstock has obtained a written opinion from an
independent nationally recognized investment banking firm or appraisal firm
specializing or having a speciality in the type and subject matter of the
transaction or series of related transactions at issue, which opinion shall be
to the effect set forth in clause (a) above or shall state that such transaction
or series of related transactions is fair from a financial point of view to
Comstock or such Restricted Subsidiary; provided, however, that the foregoing
restriction shall not apply to:
39
(i) loans or advances to officers, directors and employees of Comstock or
any Restricted Subsidiary made in the ordinary course of business in an
aggregate amount not to exceed $1.0 million outstanding at any one time;
(ii) indemnities of officers, directors, employees and other agents of
Comstock or any Restricted Subsidiary permitted by corporate charter or other
organizational document, bylaw or statutory provisions;
(iii)the payment of reasonable and customary fees to directors of Comstock
or any of its Restricted Subsidiaries who are not employees of Comstock or any
Affiliate;
(iv) Comstock's employee compensation and other benefit arrangements;
(v) transactions exclusively between or among Comstock and any of the
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture; and
(vi) any Restricted Payment permitted to be paid pursuant to the terms of
the Indenture described under "--Limitation on Restricted Payments."
Limitation on Liens. Comstock will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create, incur, assume, affirm or suffer
to exist or become effective any Lien of any kind, except for Permitted Liens,
upon any of their respective property or assets, whether now owned or acquired
after the date of the Indenture, or any income, profits or proceeds therefrom,
or assign or convey any right to receive income thereon, unless (a) in the case
of any Lien securing Subordinated Indebtedness, the notes are secured by a lien
on such property, assets or proceeds that is senior in priority to such Lien and
(b) in the case of any other Lien, the notes are directly secured equally and
ratably with the obligation or liability secured by such Lien. The incurrence of
additional secured Indebtedness by Comstock and its Restricted Subsidiaries is
subject to further limitations on the incurrence of Indebtedness as described
under "--Limitation on Indebtedness and Disqualified Capital Stock."
Limitation on Asset Sales. Comstock will not, and will not permit any
Restricted Subsidiary to, consummate any Asset Sale unless (i) Comstock or such
Restricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the Fair Market Value of the assets and
property subject to such Asset Sale and (ii) all of the consideration paid to
Comstock or such Restricted Subsidiary in connection with such Asset Sale is in
the form of cash, Cash Equivalents, Liquid Securities, Exchanged Properties or
the assumption by the purchaser of liabilities of Comstock (other than
liabilities of Comstock that are by their terms subordinated to the notes) or
liabilities of any Subsidiary Guarantor that made such Asset Sale (other than
liabilities of a Subsidiary Guarantor that are by their terms subordinated to
such Subsidiary Guarantor's Subsidiary Guarantee), in each case as a result of
which Comstock and its remaining Restricted Subsidiaries are no longer liable
for such liabilities ("Permitted Consideration"); provided, however, that
Comstock and its Restricted Subsidiaries shall be permitted to receive assets
and property other than Permitted Consideration, so long as the aggregate Fair
Market Value of all such assets and property other than Permitted Consideration
received from Asset Sales and held by Comstock or any Restricted Subsidiary at
any one time shall not exceed 7.5% of Adjusted Consolidated Net Tangible Assets.
40
The Net Available Cash from Asset Sales by Comstock or a Restricted
Subsidiary may be applied by Comstock or such Restricted Subsidiary, to the
extent Comstock or such Restricted Subsidiary elects (or is required by the
terms of any Senior Indebtedness of Comstock or a Subsidiary Guarantor), to
o repay Indebtedness of Comstock under the Bank Credit Facility;
o to reinvest in Additional Assets (including by means of an Investment
in Additional Assets by a Restricted Subsidiary with Net Available
Cash received by Comstock or another Restricted Subsidiary); or
o purchase notes or purchase both notes and one or more series or issues
of other Senior Indebtedness on a pro rata basis (excluding notes and
Senior Indebtedness owned by Comstock or an Affiliate of Comstock).
Any Net Available Cash from an Asset Sale not applied in accordance with
the preceding paragraph within 365 days from the date of such Asset Sale shall
constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds
exceeds $10.0 million, Comstock will be required to make an offer to purchase
notes having an aggregate principal amount equal to the aggregate amount of
Excess Proceeds (the "Prepayment Offer") at a purchase price equal to 100% of
the principal amount of such notes plus accrued and unpaid interest, if any, to
the Purchase Date (as defined) in accordance with the procedures (including
prorating in the event of oversubscription) set forth in the Indenture. If the
aggregate principal amount of notes tendered by Holders thereof exceeds the
amount of available Excess Proceeds, then such Excess Proceeds will be allocated
pro rata according to the principal amount of the notes tendered and the Trustee
will select the notes to be purchased in accordance with the Indenture. To the
extent that any portion of the amount of Excess Proceeds remains after
compliance with the second sentence of this paragraph and provided that all
Holders of notes have been given the opportunity to tender their notes for
purchase as described in the following paragraph in accordance with the
Indenture, Comstock and its Restricted Subsidiaries may use such remaining
amount for purposes permitted by the Indenture and the amount of Excess Proceeds
will be reset to zero.
Within 30 days after the 365th day following the date of an Asset Sale,
Comstock shall, if it is obligated to make an offer to purchase the notes
pursuant to the preceding paragraph, send a written Prepayment Offer notice, by
first-class mail, to the Holders of the notes (the "Prepayment Offer Notice"),
accompanied by such information regarding Comstock and its Subsidiaries as
Comstock believes will enable such Holders of the notes to make an informed
decision with respect to the Prepayment Offer. The Prepayment Offer Notice will
state, among other things:
o that Comstock is offering to purchase notes pursuant to the provisions
of the Indenture;
o that any note (or any portion thereof) accepted for payment (and duly
paid on the Purchase Date) pursuant to the Prepayment Offer shall
cease to accrue interest on the Purchase Date;
o that any notes (or portions thereof) not properly tendered will
continue to accrue interest;
o the purchase price and purchase date, which shall be, subject to any
contrary requirements of applicable law, no less than 30 days nor more
than 60 days after the date the Prepayment Offer Notice is mailed (the
"Purchase Date");
o the aggregate principal amount of notes to be purchased;
41
o a description of the procedure which Holders of notes must follow in
order to tender their notes and the procedures that Holders of notes
must follow in order to withdraw an election to tender their notes for
payment; and
o all other instructions and materials necessary to enable Holders to
tender notes pursuant to the Prepayment Offer.
Comstock will comply, to the extent applicable, with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws or regulations
thereunder to the extent such laws and regulations are applicable in connection
with the purchase of notes as described above. To the extent that the provisions
of any securities laws or regulations conflict with the provisions relating to
the Prepayment Offer, Comstock will comply with the applicable securities laws
and regulations and will not be deemed to have breached its obligations
described above by virtue thereof.
Limitation on Guarantees by Subsidiary Guarantors. Comstock will not permit
any Subsidiary Guarantor to guarantee the payment of any Subordinated
Indebtedness of Comstock unless such guarantee shall be subordinated to such
Subsidiary Guarantor's Subsidiary Guarantee at least to the same extent as such
Subordinated Indebtedness is subordinated to the notes; provided, however, that
this covenant will not be applicable to any guarantee of any Subsidiary
Guarantor that (i) existed at the time such Person became a Subsidiary of
Comstock and (ii) was not incurred in connection with, or in contemplation of,
such Person becoming a Subsidiary of Comstock.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. Comstock will not, and will not permit any Restricted Subsidiary
to, directly or indirectly, create or suffer to exist or allow to become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary:
o to pay dividends, in cash or otherwise, or make any other
distributions on its Capital Stock, or make payments on any
Indebtedness owed, to Comstock or any other Restricted Subsidiary;
o to make loans or advances to Comstock or any other Restricted
Subsidiary; or
o to transfer any of its property or assets to Comstock or any other
Restricted Subsidiary (any such restrictions being collectively
referred to herein as a "Payment Restriction"), except for such
encumbrances or restrictions existing under or by reason of: (i)
customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of Comstock or any Restricted
Subsidiary, or customary restrictions in licenses relating to the
property covered thereby and entered into in the ordinary course of
business, (ii) any instrument governing Indebtedness of a Person
acquired by Comstock or any Restricted Subsidiary at the time of such
acquisition, which encumbrance or restriction is not applicable to any
other Person, other than the Person, or the property or assets of the
Person, so acquired, provided that such indebtedness was not incurred
in anticipation of such acquisition, or (iii) the Bank Credit Facility
as in effect on the date of the Indenture or any agreement that
amends, modifies, supplements, restates, extends, renews, refinances
or replaces the Bank Credit Facility, provided that the terms and
conditions of any Payment Restrictions thereunder are not materially
less favorable to the Holders of the notes than those under the Bank
Credit Facility as in effect on the date of the Indenture.
42
Limitation on Sale and Leaseback Transactions. Comstock will not, and will
not permit any of its Restricted Subsidiaries to, enter into any Sale/Leaseback
Transaction unless (i) Comstock or such Restricted Subsidiary, as the case may
be, would be able to incur Indebtedness in an amount equal to the Attributable
Indebtedness with respect to such Sale/Leaseback Transaction or (ii) Comstock or
such Restricted Subsidiary receives proceeds from such Sale/Leaseback
Transaction at least equal to the fair market value thereof (as determined in
good faith by Comstock's Board of Directors, whose determination in good faith,
evidenced by a resolution of such Board shall be conclusive) and such proceeds
are applied in the same manner and to the same extent as Net Available Cash and
Excess Proceeds from an Asset Sale.
Limitation on Conduct of Business. Comstock will not, and will not permit
any of its Restricted Subsidiaries to, engage in the conduct of any business
other than the Oil and Gas Business.
Change of Control. Upon the occurrence of a Change of Control, Comstock
shall be obligated to make an offer to purchase all of the then outstanding
notes (a "Change of Control Offer"), and shall purchase, on a Business Day (the
"Change of Control Purchase Date") not more than 60 nor less than 30 days
following such Change of Control, all of the then outstanding notes validly
tendered pursuant to such Change of Control Offer, at a purchase price (the
"Change of Control Purchase Price") equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the Change of Control Purchase Date.
The Change of Control Offer is required to remain open for at least 20 Business
Days and until the close of business on the fifth Business Day prior to the
Change of Control Purchase Date.
In order to effect such Change of Control Offer, Comstock shall, not later
than the 30th day after the Change of Control, give to the Trustee and each
Holder a notice of the Change of Control Offer, which notice shall govern the
terms of the Change of Control Offer and shall state, among other things, the
procedures that Holders must follow to accept the Change of Control Offer.
The existing Bank Credit Facility contains, and any future credit
agreements or other agreements relating to Senior Indebtedness or other
obligations of Comstock may contain, prohibitions or restrictions on Comstock's
ability to effect a Change of Control Offer. In the event a Change of Control
occurs at a time when such prohibitions or restrictions are in effect, Comstock
could seek the consent of its lenders to the repurchase of notes or could
attempt to refinance the borrowings or renegotiate the agreements that contain
such prohibitions. If Comstock does not obtain such a consent or repay such
borrowings or change such agreements, Comstock will be effectively prohibited
from repurchasing notes. Failure by Comstock to purchase the notes when required
would result in an Event of Default, whether or not such purchase is permitted
by the subordination provisions of the Indenture. See "--Subordination" and "--
Events of Default." There can be no assurance that Comstock would have adequate
resources to repay or refinance all Indebtedness and other obligations owing
under the Bank Credit Facility and such other agreements and to fund the
purchase of the notes upon a Change of Control.
Comstock will not be required to make a Change of Control Offer upon a
Change of Control if another Person makes the Change of Control Offer at the
same purchase price, at the same times and otherwise in substantial compliance
with the requirements applicable to a Change of Control Offer to be made by
Comstock and purchases all notes validly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the
disposition of "all or substantially all" of the properties and assets of
Comstock and its Restricted Subsidiaries, taken as a whole. Although there is a
developing body of case law interpreting the phrase "substantially all," there
43
is no precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of the notes to require Comstock to
purchase such notes as a result of a disposition of less than all of the
properties and assets of Comstock and its Restricted Subsidiaries, taken as a
whole, to another Person may be uncertain.
Comstock intends to comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder, if applicable, in the event
that a Change of Control occurs and Comstock is required to purchase notes as
described above. The existence of a Holder's right to require, subject to
certain conditions, Comstock to repurchase its notes upon a Change of Control
may deter a third party from acquiring Comstock in a transaction that
constitutes, or results in, a Change of Control.
Reports. Comstock (and the Subsidiary Guarantors, if applicable) will file
on a timely basis with the Securities and Exchange Commission, to the extent
such filings are accepted by the Commission and whether or not Comstock has a
class of securities registered under the Exchange Act, the annual reports,
quarterly reports and other documents that Comstock would be required to file if
it were subject to Section 13 or 15 of the Exchange Act. Comstock (and the
Subsidiary Guarantors, if applicable) will also be required (a) to file with the
Trustee (with exhibits), and provide to each Holder of notes (without exhibits),
without cost to such Holder, copies of such reports and documents within 15 days
after the date on which Comstock (and the Subsidiary Guarantors, if applicable)
file such reports and documents with the Commission or the date on which
Comstock (and the Subsidiary Guarantors, if applicable) would be required to
file such reports and documents if Comstock (and the Subsidiary Guarantors, if
applicable) were so required and (b) if filing such reports and documents with
the Commission is not accepted by the Commission or is prohibited under the
Exchange Act, to supply at its cost copies of such reports and documents
(including any exhibits thereto) to any Holder of notes promptly upon written
request. Comstock is obligated to make available, upon request, to any Holder of
notes the information required by Rule 144A(d)(4) under the Securities Act,
during any period in which Comstock is not subject to Section 13 or 15(d) of the
Exchange Act.
Future Designation of Restricted and Unrestricted Subsidiaries. The
foregoing covenants (including calculation of financial ratios and the
determination of limitations on the incurrence of Indebtedness and Liens) may be
affected by the designation by Comstock of any existing or future Subsidiary of
Comstock as an Unrestricted Subsidiary. The definition of "Unrestricted
Subsidiary" set forth under the caption "-- Certain Definitions" describes the
circumstances under which a Subsidiary of Comstock may be designated as an
Unrestricted Subsidiary by the Board of Directors of Comstock.
Merger, Consolidation and Sale of Assets
Comstock will not, in any single transaction or series of related
transactions, merge or consolidate with or into any other Person, or sell,
assign, convey, transfer, lease or otherwise dispose of all or substantially all
of the properties and assets of Comstock and its Restricted Subsidiaries on a
consolidated basis to any Person or group of Affiliated Persons, and Comstock
will not permit any of its Restricted Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
transactions, in the aggregate, would result in the sale, assignment,
conveyance, transfer, lease or other disposition of all or substantially all of
the properties and assets of Comstock and its Restricted Subsidiaries on a
consolidated basis to any other Person or group of Affiliated Persons, unless at
the time and after giving effect thereto:
o either (i) if the transaction is a merger or consolidation, Comstock
shall be the surviving Person of such merger or consolidation, or (ii)
the Person (if other than Comstock) formed by such
44
consolidation or into which Comstock is merged or to which the
properties and assets of Comstock or its Restricted Subsidiaries, as
the case may be, are sold, assigned, conveyed, transferred, leased or
otherwise disposed of (any such surviving Person or transferee Person
being the "Surviving Entity") shall be a corporation organized and
existing under the laws of the United States of America, any state
thereof or the District of Columbia and shall, in either case,
expressly assume by a supplemental indenture to the Indenture executed
and delivered to the Trustee, in form satisfactory to the Trustee, all
the obligations of Comstock under the notes and the Indenture, and, in
each case, the Indenture shall remain in full force and effect;
o immediately before and immediately after giving effect to such
transaction or series of related transactions on a pro forma basis
(and treating any Indebtedness not previously an obligation of
Comstock or any of its Restricted Subsidiaries which becomes an
obligation of Comstock or any of its Restricted Subsidiaries in
connection with or as a result of such transaction as having been
incurred at the time of such transaction), no Default or Event of
Default shall have occurred and be continuing; o except in the case of
the consolidation or merger of any Restricted Subsidiary with or into
Comstock, immediately after giving effect to such transaction or
transactions on a pro forma basis, the Consolidated Net Worth of
Comstock (or the Surviving Entity if Comstock is not the continuing
obligor under the Indenture) is at least equal to the Consolidated Net
Worth of Comstock immediately before such transaction or transactions;
o except in the case of the consolidation or merger of Comstock with or
into a Restricted Subsidiary or any Restricted Subsidiary with or into
Comstock or another Restricted Subsidiary, immediately before and
immediately after giving effect to such transaction or transactions on
a pro forma basis (assuming that the transaction or transactions
occurred on the first day of the period of four fiscal quarters ending
immediately prior to the consummation of such transaction or
transactions, with the appropriate adjustments with respect to the
transaction or transactions being included in such pro forma
calculation), Comstock (or the Surviving Entity if Comstock is not the
continuing obligor under the Indenture) could incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant
to the "--Limitation on Indebtedness and Disqualified Capital Stock"
covenant;
o if Comstock is not the continuing obligor under the Indenture, then
each Subsidiary Guarantor, unless it is the Surviving Entity, shall
have by supplemental indenture to the Indenture confirmed that its
Subsidiary Guarantee of the notes shall apply to the Surviving
Entity's obligations under the Indenture and the notes;
o if any of the properties or assets of Comstock or any of its
Restricted Subsidiaries would upon such transaction or series of
related transactions become subject to any Lien (other than a
Permitted Lien), the creation and imposition of such Lien shall have
been in compliance with the "Limitation on Liens" covenant; and
o Comstock (or the Surviving Entity if Comstock is not the continuing
obligor under the Indenture) shall have delivered to the Trustee, in
form and substance reasonably satisfactory to the Trustee, (a) an
Officers' Certificate stating that such consolidation, merger,
transfer, lease or other disposition and any supplemental indenture in
respect thereto comply with the requirements under the Indenture and
(b) an Opinion of Counsel stating that the requirements of clause of
this paragraph have been satisfied.
45
Upon any consolidation or merger or any sale, assignment, lease,
conveyance, transfer or other disposition of all or substantially all of the
properties and assets of Comstock and its Restricted Subsidiaries on a
consolidated basis in accordance with the foregoing, in which Comstock is not
the continuing corporation, the Surviving Entity shall succeed to, and be
substituted for, and may exercise every right and power of, Comstock under the
Indenture with the same effect as if the Surviving Entity had been named as
Comstock therein, and thereafter Comstock, except in the case of a lease will be
discharged from all obligations and covenants under the Indenture and the notes
and may be liquidated and dissolved.
Events of Default
The following are "Events of Default" under the Indenture:
(i) default in the payment of the principal of or premium, if any, on
any of the notes, whether such payment is due at Stated Maturity, upon
redemption, upon repurchase pursuant to a Change of Control Offer or a
Prepayment Offer, upon acceleration or otherwise;
(ii) default in the payment of any installment of interest on any of
the notes, when due, and the continuance of such default for a period of 30
days;
(iii) default in the performance or breach of the provisions of the
"Merger, Consolidation and Sale of Assets" section of the Indenture, the
failure to make or consummate a Change of Control Offer in accordance with
the provisions of the "Change of Control" covenant or the failure to make
or consummate a Prepayment Offer in accordance with the provisions of the
"Limitation on Asset Sales" covenant;
(iv) Comstock or any Subsidiary Guarantor shall fail to perform or
observe any other term, covenant or agreement contained in the notes, any
Subsidiary Guarantee or the Indenture (other than a default specified in
(i), (ii) or (iii) above) for a period of 60 days after written notice of
such failure stating that it is a "notice of default" under the Indenture
and requiring Comstock or such Subsidiary Guarantor to remedy the same
shall have been given (x) to Comstock by the Trustee or (y) to Comstock and
the Trustee by the Holders of at least 25% in aggregate principal amount of
the notes then outstanding);
(v) the occurrence and continuation beyond any applicable grace period
of any default in the payment of the principal of, premium, if any, or
interest on any Indebtedness of Comstock (other than the notes) or any
Subsidiary Guarantor or any other Restricted Subsidiary for money borrowed
when due, or any other default resulting in acceleration of any
Indebtedness of Comstock or any Subsidiary Guarantor or any other
Restricted Subsidiary for money borrowed, provided that the aggregate
principal amount of such Indebtedness shall exceed $10.0 million and
provided, further, that if any such default is cured or waived or any such
acceleration rescinded, or such Indebtedness is repaid, within a period of
10 days from the continuation of such default beyond the applicable grace
period or the occurrence of such acceleration, as the case may be, such
Event of Default under the Indenture and any consequential acceleration of
the notes shall be automatically rescinded, so long as such rescission does
not conflict with any judgment or decree;
(vi) any Subsidiary Guarantee shall for any reason cease to be, or be
asserted by Comstock or any Subsidiary Guarantor, as applicable, not to be
in full force and effect (except pursuant to the release of any such
Subsidiary Guarantee in accordance with the Indenture);
46
(vii) final judgments or orders rendered against Comstock or any
Subsidiary Guarantor or any other Restricted Subsidiary that are
unsatisfied and that require the payment in money, either individually or
in an aggregate amount, that is more than $10.0 million over the coverage
under applicable insurance policies and either (A) commencement by any
creditor of an enforcement proceeding upon such judgment (other than a
judgment that is stayed by reason of a pending appeal or otherwise) or (B)
the occurrence of a 60-day period during which a stay of such judgment or
order, by reason of pending appeal or otherwise, was not in effect;
(viii) the entry of a decree or order by a court having jurisdiction
in the premises (A) for relief in respect of Comstock or any Subsidiary
Guarantor or any other Restricted Subsidiary in an involuntary case or
proceeding under any applicable federal or state bankruptcy, insolvency,
reorganization or other similar law or (B) adjudging Comstock or any
Subsidiary Guarantor or any other Restricted Subsidiary bankrupt or
insolvent, or approving a petition seeking reorganization, arrangement,
adjustment or composition of Comstock or any Subsidiary Guarantor or any
other Restricted Subsidiary under any applicable federal or state law, or
appointing under any such law a custodian, receiver, liquidator, assignee,
trustee, sequestrator or other similar official of Comstock or any
Subsidiary Guarantor or any other Restricted Subsidiary or of a substantial
part of its consolidated assets, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree or order for relief
or any such other decree or order unstayed and in effect for a period of 60
consecutive days; or
(ix) the commencement by Comstock or any Subsidiary Guarantor or any
other Restricted Subsidiary of a voluntary case or proceeding under any
applicable federal or state bankruptcy, insolvency, reorganization or other
similar law or any other case or proceeding to be adjudicated bankrupt or
insolvent, or the consent by Comstock or any Subsidiary Guarantor or any
other Restricted Subsidiary to the entry of a decree or order for relief in
respect thereof in an involuntary case or proceeding under any applicable
federal or state bankruptcy, insolvency, reorganization or other similar
law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by Comstock or any Subsidiary
Guarantor or any other Restricted Subsidiary of a petition or consent
seeking reorganization or relief under any applicable federal or state law,
or the consent by it under any such law to the filing of any such petition
or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or other similar official)
of Comstock or any Subsidiary Guarantor or any other Restricted Subsidiary
or of any substantial part of its consolidated assets, or the making by it
of an assignment for the benefit of creditors under any such law, or the
admission by it in writing of its inability to pay its debts generally as
they become due or taking of corporate action by Comstock or any Subsidiary
Guarantor or any other Restricted Subsidiary in furtherance of any such
action.
If an Event of Default (other than as specified in clause (viii) or (ix)
above) shall occur and be continuing, the Trustee, by written notice to
Comstock, or the Holders of at least 25% in aggregate principal amount of the
notes then outstanding, by written notice to the Trustee and Comstock, may, and
the Trustee upon the request of the Holders of not less than 25% in aggregate
principal amount of the notes then outstanding shall, declare the principal of,
premium, if any, and accrued and unpaid interest on all of the notes due and
payable immediately, upon which declaration all amounts payable in respect of
the notes shall be immediately due and payable. If an Event of Default specified
in clause (viii) or (ix) above occurs and is continuing, then the principal of,
premium, if any, and accrued and unpaid interest on all of the notes shall
become and be immediately due and payable without any declaration, notice or
other act on the part of the Trustee or any Holder of notes.
47
After a declaration of acceleration under the Indenture, but before a
judgment or decree for payment of the money due has been obtained by the
Trustee, the Holders of a majority in aggregate principal amount of the
outstanding notes, by written notice to Comstock, the Subsidiary Guarantors and
the Trustee, may rescind and annul such declaration if (a) Comstock or any
Subsidiary Guarantor has paid or deposited with the Trustee a sum sufficient to
pay (i) all sums paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, (ii) all overdue interest on all notes, (iii) the
principal of and premium, if any, on any notes which have become due otherwise
than by such declaration of acceleration and interest thereon at the rate borne
by the notes, and (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest and overdue principal at the rate borne by the
notes (without duplication of any amount paid or deposited pursuant to clause
(ii) or (iii)); (b) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction; and (c) all Events of Default,
other than the non-payment of principal of, premium, if any, or interest on the
notes that has become due solely by such declaration of acceleration, have been
cured or waived.
No Holder will have any right to institute any proceeding with respect to
the Indenture or any remedy thereunder, unless such Holder has notified the
Trustee of a continuing Event of Default and the Holders of at least 25% in
aggregate principal amount of the outstanding notes have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding as
Trustee under the notes and the Indenture, the Trustee has failed to institute
such proceeding within 60 days after receipt of such notice and the Trustee,
within such 60-day period, has not received directions inconsistent with such
written request by Holders of a majority in aggregate principal amount of the
outstanding notes. Such limitations will not apply, however, to a suit
instituted by the Holder of a note for the enforcement of the payment of the
principal of, premium, if any, or interest on such note on or after the
respective due dates expressed in such note.
During the existence of an Event of Default, the Trustee will be required
to exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise thereof as a prudent person would
exercise under the circumstances in the conduct of such person's own affairs.
Subject to the provisions of the Indenture relating to the duties of the Trustee
in case an Event of Default shall occur and be continuing, the Trustee will not
be under any obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders unless such Holders
shall have offered to the Trustee reasonable security or indemnity. Subject to
certain provisions concerning the rights of the Trustee, the Holders of a
majority in aggregate principal amount of the outstanding notes will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee under the Indenture.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee shall mail to each Holder notice of the Default or
Event of Default within 60 days after the occurrence thereof. Except in the case
of a Default or an Event of Default in payment of principal of, premium, if any,
or interest on any notes, the Trustee may withhold the notice to the Holders of
the notes if the Trustee determines in good faith that withholding the notice is
in the interest of the Holders of the notes.
Comstock will be required to furnish to the Trustee annual and quarterly
statements as to the performance by Comstock of its obligations under the
Indenture and as to any default in such performance. Comstock is also required
to notify the Trustee within 10 days of any Default or Event of Default.
48
Legal Defeasance or Covenant Defeasance of Indenture
Comstock may, at its option and at any time, terminate the obligations of
Comstock and the Subsidiary Guarantors with respect to the outstanding notes
(such action being a "legal defeasance"). Such legal defeasance means that
Comstock and the Subsidiary Guarantors shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding notes and to
have been discharged from all their other obligations with respect to the notes
and the Subsidiary Guarantees, except for, among other things:
o the rights of Holders of outstanding notes to receive payment in
respect of the principal of, premium, if any, and interest on such
notes when such payments are due;
o Comstock's obligations to replace any temporary notes, register the
transfer or exchange of any notes, replace mutilated, destroyed, lost
or stolen notes and maintain an office or agency for payments in
respect of the notes;
o the rights, powers, trusts, duties and immunities of the Trustee; and
o the defeasance provisions of the Indenture. In addition, Comstock may,
at its option and at any time, elect to terminate the obligations of
Comstock and each Subsidiary Guarantor with respect to certain
covenants that are set forth in the Indenture, some of which are
described under "-- Certain Covenants" above, and any omission to
comply with such obligations shall not constitute a Default or an
Event of Default with respect to the notes (such action being a
"covenant defeasance").
In order to exercise either legal defeasance or covenant defeasance:
o Comstock or any Subsidiary Guarantor must irrevocably deposit with the
Trustee, in trust, for the benefit of the Holders of the notes, cash
in United States dollars, U.S. Government Obligations (as defined in
the Indenture), or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, premium, if
any, and interest on the outstanding notes to redemption or maturity;
o Comstock shall have delivered to the Trustee an Opinion of Counsel to
the effect that the Holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a
result of such legal defeasance or covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such legal
defeasance or covenant defeasance had not occurred (in the case of
legal defeasance, such opinion must refer to and be based upon a
published ruling of the Internal Revenue Service or a change in
applicable federal income tax laws);
o no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as clauses (viii) and (ix)
under the first paragraph of "Events of Default" are concerned, at any
time during the period ending on the 91st day after the date of
deposit;
o such legal defeasance or covenant defeasance shall not cause the
Trustee to have a conflicting interest under the Indenture or the
Trust Indenture Act with respect to any securities of Comstock or any
Subsidiary Guarantor;
49
o such legal defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a default under, any material
agreement or instrument to which Comstock or any Subsidiary Guarantor
is a party or by which it is bound; and
o Comstock shall have delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel satisfactory to the Trustee, which, taken
together, state that all conditions precedent under the Indenture to
either legal defeasance or covenant defeasance, as the case may be,
have been complied with.
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
notes, as expressly provided for in the Indenture) as to all outstanding notes
when:
o either (i) all the notes theretofore authenticated and delivered
(except lost, stolen, mutilated or destroyed notes which have been
replaced or paid and notes for whose payment money or certain United
States government obligations have theretofore been deposited in trust
or segregated and held in trust by Comstock and thereafter repaid to
Comstock or discharged from such trust) have been delivered to the
Trustee for cancellation or (ii) all notes not theretofore delivered
to the Trustee for cancellation have become due and payable or will
become due and payable at their Stated Maturity within one year, or
are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the serving of notice of redemption by
the Trustee in the name, and at the expense, of Comstock, and Comstock
has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay and discharge the entire
Indebtedness on the notes not theretofore delivered to the Trustee for
cancellation, for principal of, premium, if any, and interest on the
notes to the date of deposit (in the case of notes which have become
due and payable) or to the Stated Maturity or Redemption Date, as the
case may be, together with instructions from Comstock irrevocably
directing the Trustee to apply such funds to the payment thereof at
maturity or redemption, as the case may be;
o Comstock has paid all other sums payable under the Indenture by
Comstock; and
o Comstock has delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel which, taken together, state that all conditions
precedent under the Indenture relating to the satisfaction and
discharge of the Indenture have been complied with.
Amendments and Waivers
From time to time, Comstock, the Subsidiary Guarantors and the Trustee may,
without the consent of the Holders of the notes, amend or supplement the
Indenture or the notes for certain specified purposes, including, among other
things, curing ambiguities, defects or inconsistencies, qualifying, or
maintaining the qualification of, the Indenture under the Trust Indenture Act,
adding or releasing any Subsidiary Guarantor pursuant to the terms of the
Indenture, or making any change that does not materially adversely affect the
rights of any Holder of notes. Other amendments and modifications of the
Indenture or the notes may be made by Comstock, the Subsidiary Guarantors and
the Trustee with the consent of the Holders of not less than a majority of the
aggregate principal amount of the outstanding notes; provided, however, that no
such modification or amendment may, without the consent of the Holder of each
outstanding note affected thereby:
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o change the Stated Maturity of the principal of, or any installment of
interest on, any note;
o reduce the principal amount of, premium, if any, or interest on any
note;
o change the coin or currency of payment of principal of, premium, if
any, or interest on, any note;
o impair the right to institute suit for the enforcement of any payment
on or with respect to any note;
o reduce the above-stated percentage of aggregate principal amount of
outstanding notes necessary to modify or amend the Indenture;
o reduce the percentage of aggregate principal amount of outstanding
notes necessary for waiver of compliance with certain provisions of
the Indenture or for waiver of certain defaults;
o modify any provisions of the Indenture relating to the modification
and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified;
o modify any provisions of the Indenture relating to the Subsidiary
Guarantees in a manner adverse to the Holders; or
o amend, change or modify the obligation of Comstock to make and
consummate a Change of Control Offer in the event of a Change of
Control or make and consummate a Prepayment Offer with respect to any
Asset Sale or modify any of the provisions or definitions with respect
thereto.
The Holders of not less than a majority in aggregate principal amount of
the outstanding notes may, on behalf of the Holders of all notes, waive any past
default under the Indenture, except a default in the payment of principal of,
premium, if any, or interest on the notes, or in respect of a covenant or
provision which under the Indenture cannot be modified or amended without the
consent of the Holder of each note outstanding.
The Trustee
The Bank of New York Trust Company of Florida, N.A., as
successor-in-interest to U.S. Trust Company of Texas, N.A. serves as trustee
under the Indenture. The Indenture (including provisions of the Trust Indenture
Act incorporated by reference therein) contains limitations on the rights of the
Trustee thereunder, should it become a creditor of Comstock, to obtain payment
of claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Indenture permits the
Trustee to engage in other transactions; provided, however, if it acquires any
conflicting interest (as defined in the Trust Indenture Act) it must eliminate
such conflict or resign.
Governing Law
The Indenture, the notes and the Subsidiary Guarantees are governed by, and
construed and enforced in accordance with, the laws of the State of New York.
51
Certain Definitions
"Acquired Indebtedness" means Indebtedness of a Person (a) existing at the
time such Person becomes a Restricted Subsidiary or (b) assumed in connection
with acquisitions of properties or assets from such Person (other than any
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition). Acquired Indebtedness
shall be deemed to be incurred on the date the acquired Person becomes a
Restricted Subsidiary or the date of the related acquisition of properties or
assets from such Person.
"Additional Assets" means (i) any assets or property (other than cash, Cash
Equivalents or securities) used in the Oil and Gas Business or any business
ancillary thereto, (ii) Investments in any other Person engaged in the Oil and
Gas Business or any business ancillary thereto (including the acquisition from
third parties of Capital Stock of such Person) as a result of which such other
Person becomes a Restricted Subsidiary, (iii) the acquisition from third parties
of Capital Stock of a Restricted Subsidiary or (iv) Investments pursuant to
clause (v) of the definition of "Permitted Investments."
"Adjusted Consolidated Net Tangible Assets" means (without duplication), as
of the date of determination, the remainder of:
(i) the sum of (a) discounted future net revenues from proved oil and
gas reserves of Comstock and its Restricted Subsidiaries calculated in
accordance with Commission guidelines before any state, federal or foreign
income taxes, as estimated by Comstock and confirmed by a nationally
recognized firm of independent petroleum engineers in a reserve report
prepared as of the end of Comstock's most recently completed fiscal year
for which audited financial statements are available, as increased by, as
of the date of determination, the estimated discounted future net revenues
from (1) estimated proved oil and gas reserves acquired since such
year-end, which reserves were not reflected in such year-end reserve
report, and (2) estimated oil and gas reserves attributable to upward
revisions of estimates of proved oil and gas reserves since such year-end
due to exploration, development or exploitation activities, in each case
calculated in accordance with Commission guidelines (utilizing the prices
utilized in such year-end reserve report), and decreased by, as of the date
of determination, the estimated discounted future net revenues from (3)
estimated proved oil and gas reserves produced or disposed of since such
year-end and (4) estimated oil and gas reserves attributable to downward
revisions of estimates of proved oil and gas reserves since such year-end
due to changes in geological conditions or other factors which would, in
accordance with standard industry practice, cause such revisions, in each
case calculated in accordance with Commission guidelines (utilizing the
prices utilized in such year-end reserve report); provided that, in the
case of each of the determinations made pursuant to clauses (1) through
(4), such increases and decreases shall be as estimated by Comstock's
petroleum engineers, unless there is a Material Change as a result of such
acquisitions, dispositions or revisions, in which event the discounted
future net revenues utilized for purposes of this clause (i)(a) shall be
confirmed in writing by a nationally recognized firm of independent
petroleum engineers, (b) the capitalized costs that are attributable to oil
and gas properties of Comstock and its Restricted Subsidiaries to which no
proved oil and gas reserves are attributable, based on Comstock's books and
records as of a date no earlier than the date of Comstock's latest annual
or quarterly financial statements, (c) the Net Working Capital on a date no
earlier than the date of Comstock's latest annual or quarterly financial
statements and (d) the greater of (1) the net book value on a date no
earlier than the date of Comstock's latest annual or quarterly financial
statements and (2) the appraised value, as estimated by independent
appraisers, of other tangible assets (including, without duplication,
Investments in unconsolidated Restricted Subsidiaries) of Comstock and its
Restricted Subsidiaries, as of the date no earlier than the date of
Comstock's latest audited financial statements, minus
52
(ii) the sum of (a) minority interests, (b) any net gas balancing
liabilities of Comstock and its Restricted Subsidiaries reflected in
Comstock's latest audited financial statements, (c) to the extent included
in (i)(a) above, the discounted future net revenues, calculated in
accordance with Commission guidelines (utilizing the prices utilized in
Comstock's year-end reserve report), attributable to reserves which are
required to be delivered to third parties to fully satisfy the obligations
of Comstock and its Restricted Subsidiaries with respect to Volumetric
Production Payments (determined, if applicable, using the schedules
specified with respect thereto) and (d) the discounted future net revenues,
calculated in accordance with Commission guidelines, attributable to
reserves subject to Dollar-Denominated Production Payments which, based on
the estimates of production and price assumptions included in determining
the discounted future net revenues specified in (i)(a) above, would be
necessary to fully satisfy the payment obligations of Comstock and its
Restricted Subsidiaries with respect to Dollar-Denominated Production
Payments (determined, if applicable, using the schedules specified with
respect thereto).
"Adjusted Net Assets" of a Subsidiary Guarantor at any date shall mean the
amount by which the fair value of the properties and assets of such Subsidiary
Guarantor exceeds the total amount of liabilities, including, without
limitation, contingent liabilities (after giving effect to all other fixed and
contingent liabilities incurred or assumed on such date), but excluding
liabilities under its Subsidiary Guarantee, of such Subsidiary Guarantor at such
date.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control," when used with respect to any Person, means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of this definition, beneficial ownership of 10% or more of the voting
common equity (on a fully diluted basis) or options or warrants to purchase such
equity (but only if exercisable at the date of determination or within 60 days
thereof) of a Person shall be deemed to constitute control of such Person.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than Comstock or any of its Restricted
Subsidiaries (including, without limitation, by means of a merger or
consolidation) (collectively, for purposes of this definition, a "transfer"),
directly or indirectly, in one or a series of related transactions, of (a) any
Capital Stock of any Restricted Subsidiary held by Comstock or any Restricted
Subsidiary, (b) all or substantially all of the properties and assets of any
division or line of business of Comstock or any of its Restricted Subsidiaries
or (c) any other properties or assets of Comstock or any of its Restricted
Subsidiaries other than (i) a transfer of cash, Cash Equivalents, hydrocarbons
or other mineral products in the ordinary course of business or (ii) any lease,
abandonment, disposition, relinquishment or farm-out of any oil and gas
properties in the ordinary course of business. For the purposes of this
definition, the term "Asset Sale" also shall not include (i) any transfer of
properties or assets (including Capital Stock) that is governed by, and made in
accordance with, the provisions described under "--Merger, Consolidation and
Sale of Assets"; (ii) any transfer of properties or assets to an Unrestricted
Subsidiary, if permitted under the "Limitation on Restricted Payments" covenant;
or (iii) any transfer of properties or assets (including Capital Stock) having a
Fair Market Value of less than $2.5 million.
"Attributable Indebtedness" means, with respect to any particular lease
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the present value of the total net amount of
rent required to be paid by such Person under the lease during the primary term
53
thereof, without giving effect to any renewals at the option of the lessee,
discounted from the respective due dates thereof to such date at the rate of
interest per annum implicit in the terms of the lease. As used in the preceding
sentence, the net amount of rent under any lease for any such period shall mean
the sum of rental and other payments required to be paid with respect to such
period by the lessee thereunder excluding any amounts required to be paid by
such lessee on account of maintenance and repairs, insurance, taxes,
assessments, water rates or similar charges. In the case of any lease which is
terminable by the lessee upon payment of a penalty, such net amount of rent
shall also include the amount of such penalty, but no rent shall be considered
as required to be paid under such lease subsequent to the first date upon which
it may be so terminated.
"Average Life" means, with respect to any Indebtedness, as at any date of
determination, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years (and any portion thereof) from the date of determination
to the date or dates of each successive scheduled principal payment (including,
without limitation, any sinking fund or mandatory redemption payment
requirements) of such Indebtedness multiplied by (ii) the amount of each such
principal payment by (b) the sum of all such principal payments.
"Bank Credit Facility" means that certain Credit Agreement dated as of
December 17, 2001 among Comstock Resources, Inc., as Borrower, the lenders party
thereto from time to time, Toronto Dominion (Texas), Inc., as Administrative
Agent, and Toronto-Dominion Bank, as issuing bank, and together with all related
documents executed or delivered pursuant thereto at any time (including, without
limitation, all mortgages, deeds of trust, guarantees, security agreements and
all other collateral and security documents), in each case as such agreements
may be amended (including any amendment and restatement thereof), supplemented
or otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder provided that such
increase in borrowings is within the definition of Permitted Indebtedness or is
otherwise permitted under the covenant described "Limitation on Indebtedness and
Disqualified Capital Stock") or adding Subsidiaries as additional borrowers or
guarantors thereunder and all or any portion of the Indebtedness and other
Obligations under such agreement or agreements or any successor or replacement
agreement or agreements, and whether by the same or any other agent, lender or
group of lenders.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, rights or other equivalents in the equity interests
(however designated) in such Person, and any rights (other than debt securities
convertible into an equity interest), warrants or options exercisable for,
exchangeable for or convertible into such an equity interest in such Person.
"Capitalized Lease Obligation" means any obligation to pay rent or other
amounts under a lease of (or other agreement conveying the right to use) any
property (whether real, personal or mixed) that is required to be classified and
accounted for as a capital lease obligation under GAAP, and, for the purpose of
the Indenture, the amount of such obligation at any date shall be the
capitalized amount thereof at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500 million; (iii) commercial
54
paper with a maturity of 180 days or less issued by a corporation that is not an
Affiliate of Comstock and is organized under the laws of any state of the United
States or the District of Columbia and rated at least A-l by S&P or at least P-l
by Moody's; (iv) repurchase obligations with a term of not more than seven days
for underlying securities of the types described in clause (i) above entered
into with any commercial bank meeting the specifications of clause (ii) above;
(v) overnight bank deposits and bankers acceptances at any commercial bank
meeting the qualifications specified in clause (ii) above; (vi) deposits
available for withdrawal on demand with any commercial bank not meeting the
qualifications specified in clause (ii) above but which is a lending bank under
the Bank Credit Facility, provided all such deposits do not exceed $5.0 million
in the aggregate at any one time; (vii) demand and time deposits and
certificates of deposit with any commercial bank organized in the United States
not meeting the qualifications specified in clause (ii) above, provided that
such deposits and certificates support bond, letter of credit and other similar
types of obligations incurred in the ordinary course of business; and (viii)
investments in money market or other mutual funds substantially all of whose
assets comprise securities of the types described in clauses (i) through (v)
above.
"Change of Control" means the occurrence of any event or series of events
by which: (a) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of more than 50% of
the total Voting Stock of Comstock; (b) Comstock consolidates with or merges
into another Person or any Person consolidates with, or merges into, Comstock,
in any such event pursuant to a transaction in which the outstanding Voting
Stock of Comstock is changed into or exchanged for cash, securities or other
property, other than any such transaction where (i) the outstanding Voting Stock
of Comstock is changed into or exchanged for Voting Stock of the surviving or
resulting Person that is Qualified Capital Stock and (ii) the holders of the
Voting Stock of Comstock immediately prior to such transaction own, directly or
indirectly, not less than a majority of the Voting Stock of the surviving or
resulting Person immediately after such transaction; (c) Comstock, either
individually or in conjunction with one or more Restricted Subsidiaries, sells,
assigns, conveys, transfers, leases or otherwise disposes of, or the Restricted
Subsidiaries sell, assign, convey, transfer, lease or otherwise dispose of, all
or substantially all of the properties and assets of Comstock and such
Restricted Subsidiaries, taken as a whole (either in one transaction or a series
of related transactions), including Capital Stock of the Restricted
Subsidiaries, to any Person (other than Comstock or a Wholly Owned Restricted
Subsidiary); (d) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of Comstock
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of Comstock was approved by a
vote of 66 2/3% of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of Comstock then in office; or (e) the liquidation or
dissolution of Comstock.
"Closing Date" means the date on which the outstanding notes are originally
issued under the Indenture.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Exploration Expenses" means, for any period, exploration
expenses of Comstock and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP.
55
"Consolidated Fixed Charge Coverage Ratio" means, for any period, the ratio
on a pro forma basis of (a) the sum of Consolidated Net Income, Consolidated
Interest Expense, Consolidated Income Tax Expense and Consolidated Non-cash
Charges each to the extent deducted in computing Consolidated Net Income, in
each case, for such period, of Comstock and its Restricted Subsidiaries on a
consolidated basis, all determined in accordance with GAAP, decreased (to the
extent included in determining Consolidated Net Income) by the sum of (x) the
amount of deferred revenues that are amortized during such period and are
attributable to reserves that are subject to Volumetric Production Payments and
(y) amounts recorded in accordance with GAAP as repayments of principal and
interest pursuant to Dollar- Denominated Production Payments, to (b) the sum of
such Consolidated Interest Expense for such period; provided, however, that (i)
the Consolidated Fixed Charge Coverage Ratio shall be calculated on a pro forma
basis assuming that (A) the Indebtedness to be incurred (and all other
Indebtedness incurred after the first day of such period of four full fiscal
quarters referred to in the covenant described under "--Certain Covenants--
Limitation on Indebtedness and Disqualified Capital Stock" through and including
the date of determination), and (if applicable) the application of the net
proceeds therefrom (and from any other such Indebtedness), including to
refinance other Indebtedness, had been incurred on the first day of such
four-quarter period and, in the case of Acquired Indebtedness, on the assumption
that the related transaction (whether by means of purchase, merger or otherwise)
also had occurred on such date with the appropriate adjustments with respect to
such acquisition being included in such pro forma calculation and (B) any
acquisition or disposition by Comstock or any Restricted Subsidiary of any
properties or assets outside the ordinary course of business, or any repayment
of any principal amount of any Indebtedness of Comstock or any Restricted
Subsidiary prior to the Stated Maturity thereof, in either case since the first
day of such period of four full fiscal quarters through and including the date
of determination, had been consummated on such first day of such four-quarter
period, (ii) in making such computation, the Consolidated Interest Expense
attributable to interest on any Indebtedness required to be computed on a pro
forma basis in accordance with the covenant described under "--Certain
Covenants-- Limitation on Indebtedness and Disqualified Capital Stock" and (A)
bearing a floating interest rate shall be computed as if the rate in effect on
the date of computation had been the applicable rate for the entire period and
(B) which was not outstanding during the period for which the computation is
being made but which bears, at the option of Comstock, a fixed or floating rate
of interest, shall be computed by applying, at the option of Comstock, either
the fixed or floating rate, (iii) in making such computation, the Consolidated
Interest Expense attributable to interest on any Indebtedness under a revolving
credit facility required to be computed on a pro forma basis in accordance with
the covenant described under "--Certain Covenants-- Limitation on Indebtedness
and Disqualified Capital Stock" shall be computed based upon the average daily
balance of such Indebtedness during the applicable period, provided that such
average daily balance shall be reduced by the amount of any repayment of
Indebtedness under a revolving credit facility during the applicable period,
which repayment permanently reduced the commitments or amounts available to be
reborrowed under such facility, (iv) notwithstanding clauses (ii) and (iii) of
this provision, interest on Indebtedness determined on a fluctuating basis, to
the extent such interest is covered by agreements relating to Interest Rate
Protection Obligations, shall be deemed to have accrued at the rate per annum
resulting after giving effect to the operation of such agreements, (v) in making
such calculation, Consolidated Interest Expense shall exclude interest
attributable to Dollar-Denominated Production Payments, and (vi) if after the
first day of the period referred to in clause (a) of this definition Comstock
has permanently retired any Indebtedness out of the Net Cash Proceeds of the
issuance and sale of shares of Qualified Capital Stock of Comstock within 30
days of such issuance and sale, Consolidated Interest Expense shall be
calculated on a pro forma basis as if such Indebtedness had been retired on the
first day of such period.
"Consolidated Income Tax Expense" means, for any period, the provision for
federal, state, local and foreign income taxes (including state franchise taxes
56
accounted for as income taxes in accordance with GAAP) of Comstock and its
Restricted Subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP.
"Consolidated Interest Expense" means, for any period, without duplication,
the sum of (i) the interest expense of Comstock and its Restricted Subsidiaries
for such period as determined on a consolidated basis in accordance with GAAP,
including, without limitation, (a) any amortization of debt discount, (b) the
net cost under Interest Rate Protection Obligations (including any amortization
of discounts), (c) the interest portion of any deferred payment obligation
constituting Indebtedness, (d) all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and (e) all accrued interest, in each case to the extent attributable to such
period, (ii) to the extent any Indebtedness of any Person (other than Comstock
or a Restricted Subsidiary) is guaranteed by Comstock or any Restricted
Subsidiary, the aggregate amount of interest paid (to the extent not accrued in
a prior period) or accrued by such other Person during such period attributable
to any such Indebtedness, in each case to the extent attributable to that
period, (iii) the aggregate amount of the interest component of Capitalized
Lease Obligations paid (to the extent not accrued in a prior period), accrued or
scheduled to be paid or accrued by Comstock and its Restricted Subsidiaries
during such period as determined on a consolidated basis in accordance with GAAP
and (iv) the aggregate amount of dividends paid (to the extent such dividends
are not accrued in a prior period and excluding dividends paid in Qualified
Capital Stock) or accrued on Disqualified Capital Stock of Comstock and its
Restricted Subsidiaries, to the extent such Disqualified Capital Stock is owned
by Persons other than Restricted Subsidiaries, less, to the extent included in
any of clauses (i) through (iv), amortization of capitalized debt issuance costs
of Comstock and its Restricted Subsidiaries during such period.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of Comstock and its Restricted Subsidiaries for such period as
determined in accordance with GAAP, adjusted by excluding (a) net after-tax
extraordinary gains or losses (less all fees and expenses relating thereto), (b)
net after-tax gains or losses (less all fees and expenses relating thereto)
attributable to Asset Sales, (c) the net income (or net loss) of any Person
(other than Comstock or any of its Restricted Subsidiaries), in which Comstock
or any of its Restricted Subsidiaries has an ownership interest, except to the
extent of the amount of dividends or other distributions actually paid to
Comstock or any of its Restricted Subsidiaries in cash by such other Person
during such period (regardless of whether such cash dividends or distributions
is attributable to net income (or net loss) of such Person during such period or
during any prior period), (d) net income (or net loss) of any Person combined
with Comstock or any of its Restricted Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of combination, (e) the net
income of any Restricted Subsidiary to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary is
not at the date of determination permitted, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Restricted
Subsidiary or its stockholders, (f) dividends paid on Qualifying TECONS, (g)
dividends paid in Qualified Capital Stock, (h) income resulting from transfers
of assets received by Comstock or any Restricted Subsidiary from an Unrestricted
Subsidiary, (i) Consolidated Exploration Expenses and any write-downs or
impairments of non-current assets and (j) the cumulative effect of a change in
accounting principles.
"Consolidated Net Worth" means, at any date, the consolidated stockholders'
equity of Comstock and its Restricted Subsidiaries less the amount of such
stockholders' equity attributable to Disqualified Capital Stock or treasury
stock of Comstock and its Restricted Subsidiaries, as determined in accordance
with GAAP.
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"Consolidated Non-cash Charges" means, for any period, the aggregate
depreciation, depletion, amortization and exploration expense and other non-cash
expenses of Comstock and its Restricted Subsidiaries reducing Consolidated Net
Income for such period, determined on a consolidated basis in accordance with
GAAP (excluding any such non-cash charge for which an accrual of or reserve for
cash charges for any future period is required).
"Default" means any event, act or condition that is, or after notice or
passage of time or both would become, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of Comstock is
required to deliver a resolution of the Board of Directors under the Indenture,
a member of the Board of Directors of Comstock who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of Comstock) in or with respect
to such transaction or series of transactions.
"Disqualified Capital Stock" means any Capital Stock that, either by its
terms, by the terms of any security into which it is convertible or exchangeable
or by contract or otherwise, is, or upon the happening of an event or passage of
time would be, required to be redeemed or repurchased prior to the final Stated
Maturity of the notes or is redeemable at the option of the Holder thereof at
any time prior to such final Stated Maturity, or is convertible into or
exchangeable for debt securities at any time prior to such final Stated
Maturity. For purposes of the covenant described under "--Certain Covenants--
Limitation on Indebtedness and Disqualified Capital Stock" covenant,
Disqualified Capital Stock shall be valued at the greater of its voluntary or
involuntary maximum fixed redemption or repurchase price plus accrued and unpaid
dividends. For such purposes, the "maximum fixed redemption or repurchase price"
of any Disqualified Capital Stock which does not have a fixed redemption or
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were redeemed
or repurchased on the date of determination, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock, such fair
market value shall be determined in good faith by the board of directors of the
issuer of such Disqualified Capital Stock; provided, however, that if such
Disqualified Capital Stock is not at the date of determination permitted or
required to be redeemed or repurchased, the "maximum fixed redemption or
repurchase price" shall be the book value of such Disqualified Capital Stock.
"Dollar-Denominated Production Payments" means production payment
obligations of Comstock or a Restricted Subsidiary recorded as liabilities in
accordance with GAAP, together with all undertakings and obligations in
connection therewith.
"Event of Default" has the meaning set forth above under the caption
"Events of Default."
"Exchanged Properties" means properties or assets used or useful in the Oil
and Gas Business received by Comstock or a Restricted Subsidiary in trade or as
a portion of the total consideration for other such properties or assets.
"Fair Market Value" means the fair market value of property or assets
(including shares of Capital Stock) as determined in good faith by the Board of
Directors of Comstock and evidenced by a Board Resolution, which determination
shall be conclusive for purposes of the Indenture; provided, however, that
unless otherwise specified herein, the Board of Directors shall be under no
obligation to obtain any valuation or assessment from any investment banker,
appraiser or other third party.
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"Finance Person" means a Subsidiary of Comstock, the Common Stock of which
is owned by Comstock, that does not engage in any activity other than (i) the
holding of Subordinated Indebtedness with respect to which payments of interest
on such Subordinated Indebtedness can, at the election of the issuer thereof, be
deferred for one or more payment periods, (ii) the issuance of Qualifying TECONS
and Common Stock and/or debt securities and (iii) any activity necessary,
incidental or related to the foregoing.
"Foreign Subsidiary" means a Restricted Subsidiary that is formed in a
jurisdiction other than the United States of America or a State thereof or the
District of Columbia, that engages in the Oil and Gas Business exclusively
outside the United States of America and that is treated as a corporation or an
association taxable as a corporation for U.S. federal income tax purposes.
"GAAP" means generally accepted accounting principles, consistently
applied, that are set forth in the opinions and pronouncements of the Accounting
Principles Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or in
such other statements by such other entity as may be approved by a significant
segment of the accounting profession of the United States of America, which are
applicable as of the date of the Indenture.
The term "guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down under letters of credit. When used as a verb,
"guarantee" has a corresponding meaning.
"Holder" means a Person in whose name a note is registered in the Note
Register.
"Indebtedness" means, with respect to any Person, without duplication, (a)
all liabilities of such Person, contingent or otherwise, for borrowed money or
for the deferred purchase price of property or services (excluding any trade
accounts payable and other accrued current liabilities incurred and reserves
established in the ordinary course of business) and all liabilities of such
Person incurred in connection with any agreement to purchase, redeem, exchange,
convert or otherwise acquire for value any Capital Stock of such Person, or any
warrants, rights or options to acquire such Capital Stock, outstanding on the
date of the Indenture or thereafter, if, and to the extent, any of the foregoing
would appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP, (b) all obligations of such Person evidenced by bonds,
notes, debentures or other similar instruments, if, and to the extent, any of
the foregoing would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, (c) all obligations of such Person with
respect to letters of credit, (d) all indebtedness of such Person created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even if the rights and remedies of
the seller or lender under such agreement in the event of default are limited to
repossession or sale of such property), but excluding trade accounts payable
arising and reserves established in the ordinary course of business, (e) all
Capitalized Lease Obligations of such Person, (f) the Attributable Indebtedness
(in excess of any related Capitalized Lease Obligations) related to any
Sale/Leaseback Transaction of such Person, (g) all Indebtedness referred to in
the preceding clauses of other Persons and all dividends of other Persons, the
payment of which is secured by (or for which the Holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured by) any Lien upon
59
property (including, without limitation, accounts and contract rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness (the amount of such obligation being deemed to be
the lesser of the value of such property or the amount of the obligation so
secured), (h) all guarantees by such Person of Indebtedness referred to in this
definition (including, with respect to any Production Payment, any warranties or
guaranties of production or payment by such Person with respect to such
Production Payment but excluding other contractual obligations of such Person
with respect to such Production Payment) and (i) all obligations of such Person
under or in respect of currency exchange contracts, oil and natural gas price
hedging arrangements and Interest Rate Protection Obligations; provided,
however, that Indebtedness shall not include Qualifying TECONS and Indebtedness
(including guarantees thereof) relating to Qualifying TECONS and held by a
Finance Person. Subject to clause (h) of the first sentence of this definition,
neither Dollar-Denominated Production Payments nor Volumetric Production
Payments shall be deemed to be Indebtedness. In addition, Disqualified Capital
Stock shall not be deemed to be Indebtedness.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's and any of its Subsidiaries exposure to
fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct or indirect
advance, loan, guarantee of Indebtedness or other extension of credit or capital
contribution to (by means of any transfer of cash or other property or assets to
others or any payment for property, assets or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities (including derivatives) or
evidences of Indebtedness issued by, any other Person. In addition, the Fair
Market Value of the net assets of any Restricted Subsidiary at the time that
such Restricted Subsidiary is designated an Unrestricted Subsidiary shall be
deemed to be an "Investment" made by Comstock in such Unrestricted Subsidiary at
such time. "Investments" shall exclude (a) extensions of trade credit or other
advances to customers on commercially reasonable terms in accordance with normal
trade practices or otherwise in the ordinary course of business, (b) Interest
Rate Protection Obligations entered into in the ordinary course of business or
as required by any Permitted Indebtedness or any Indebtedness incurred in
compliance with the "Limitation on Indebtedness and Disqualified Capital Stock"
covenant, but only to the extent that the stated aggregate notional amounts of
such Interest Rate Protection Obligations do not exceed 105% of the aggregate
principal amount of such Indebtedness to which such Interest Rate Protection
Obligations relate and (c) endorsements of negotiable instruments and documents
in the ordinary course of business.
"Lien" means any mortgage, charge, pledge, lien (statutory or other),
security interest, hypothecation, assignment for security, claim or similar type
of encumbrance (including, without limitation, any agreement to give or grant
any lease, conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing) upon or with
respect to any property of any kind. A Person shall be deemed to own subject to
a Lien any property which such Person has acquired or holds subject to the
interest of a vendor or lessor under any conditional sale agreement, capital
lease or other title retention agreement.
"Liquid Securities" means securities (i) of an issuer that is not an
Affiliate of Comstock, (ii) that are publicly traded on the New York Stock
60
Exchange, the American Stock Exchange or the Nasdaq National Market and (iii) as
to which Comstock is not subject to any restrictions on sale or transfer
(including any volume restrictions under Rule 144 under the Securities Act or
any other restrictions imposed by the Securities Act) or as to which a
registration statement under the Securities Act covering the resale thereof is
in effect for as long as the securities are held; provided that securities
meeting the requirements of clauses (i), (ii) and (iii) above shall be treated
as Liquid Securities from the date of receipt thereof until and only until the
earlier of (a) the date on which such securities are sold or exchanged for cash
or Cash Equivalents and (y) 150 days following the date of receipt of such
securities. If such securities are not sold or exchanged for cash or Cash
Equivalents within 120 days of receipt thereof, for purposes of determining
whether the transaction pursuant to which Comstock or a Restricted Subsidiary
received the securities was in compliance with the provisions of the Indenture
described under "--Certain Covenants --Limitation on Asset Sales," such
securities shall be deemed not to have been Liquid Securities at any time.
"Material Change" means an increase or decrease (except to the extent
resulting from changes in prices) of more than 30% during a fiscal quarter in
the estimated discounted future net revenues from proved oil and gas reserves of
Comstock and its Restricted Subsidiaries, calculated in accordance with clause
(i)(a) of the definition of Adjusted Consolidated Net Tangible Assets; provided,
however, that the following will be excluded from the calculation of Material
Change: (i) any acquisitions during the quarter of oil and gas reserves with
respect to which Comstock's estimate of the discounted future net revenues from
proved oil and gas reserves has been confirmed by independent petroleum
engineers and (ii) any dispositions of properties and assets during such quarter
that were disposed of in compliance with the provisions of the Indenture
described under "--Certain Covenants-- Limitation on Asset Sales."
"Maturity" means, with respect to any note, the date on which any principal
of such note becomes due and payable as therein or in the Indenture provided,
whether at the Stated Maturity with respect to such principal or by declaration
of acceleration, call for redemption or purchase or otherwise.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Cash" from an Asset Sale or Sale/Leaseback Transaction means
cash proceeds received therefrom (including (i) any cash proceeds received by
way of deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as and when received and (ii) the Fair Market
Value of Liquid Securities and Cash Equivalents, and excluding (a) any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to the assets or property that is the
subject of such Asset Sale or Sale/Leaseback Transaction and (b) except to the
extent subsequently converted to cash, Cash Equivalents or Liquid Securities
within 240 days after such Asset Sale or Sale/ Leaseback Transaction,
consideration constituting Exchanged Properties or consideration other than as
identified in the immediately preceding clauses (i) and (ii)), in each case net
of (a) all legal, title and recording expenses, commissions and other fees and
expenses incurred, and all federal, state, foreign and local taxes required to
be paid or accrued as a liability under GAAP as a consequence of such Asset Sale
or Sale/ Leaseback Transaction, (b) all payments made on any Indebtedness (but
specifically excluding Indebtedness of Comstock and its Restricted Subsidiaries
assumed in connection with or in anticipation of such Asset Sale or
Sale/Leaseback Transaction) which is secured by any assets subject to such Asset
Sale or Sale/ Leaseback Transaction, in accordance with the terms of any Lien
upon such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Sale or Sale/Leaseback Transaction or by applicable law,
be repaid out of the proceeds from such Asset Sale or Sale/Leaseback
Transaction, provided that such payments are made in a manner that results in
the permanent reduction in the balance of such Indebtedness and, if applicable,
61
a permanent reduction in any outstanding commitment for future incurrences of
Indebtedness thereunder, (c) all distributions and other payments required to be
made to minority interest Holders in Subsidiaries or joint ventures as a result
of such Asset Sale or Sale/Leaseback Transaction and (d) the deduction of
appropriate amounts to be provided by the seller as a reserve, in accordance
with GAAP, against any liabilities associated with the assets disposed of in
such Asset Sale or Sale/Leaseback Transaction and retained by Comstock or any
Restricted Subsidiary after such Asset Sale or Sale/Leaseback Transaction;
provided, however, that if any consideration for an Asset Sale or Sale/Leaseback
Transaction (which would otherwise constitute Net Available Cash) is required to
be held in escrow pending determination of whether a purchase price adjustment
will be made, such consideration (or any portion thereof) shall become Net
Available Cash only at such time as it is released to such Person or its
Restricted Subsidiaries from escrow.
"Net Cash Proceeds," with respect to any issuance or sale of Qualified
Capital Stock or other securities, means the cash proceeds of such issuance or
sale net of attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant and other fees
and expenses actually incurred in connection with such issuance or sale and net
of taxes paid or payable as a result thereof.
"Net Working Capital" means (i) all current assets of Comstock and its
Restricted Subsidiaries, less (ii) all current liabilities of Comstock and its
Restricted Subsidiaries, except current liabilities included in Indebtedness, in
each case as set forth in consolidated financial statements of Comstock prepared
in accordance with GAAP.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of Comstock or any Restricted Subsidiary incurred in connection
with the acquisition by Comstock or such Restricted Subsidiary of any property
or assets and as to which (a) the Holders of such Indebtedness agree that they
will look solely to the property or assets so acquired and securing such
Indebtedness for payment on or in respect of such Indebtedness, and neither
Comstock nor any Subsidiary (other than an Unrestricted Subsidiary) (i) provides
credit support, including any undertaking, agreement or instrument which would
constitute Indebtedness or (ii) is directly or indirectly liable for such
Indebtedness, and (b) no default with respect to such Indebtedness would permit
(after notice or passage of time or both), according to the terms thereof, any
Holder of any Indebtedness of Comstock or a Restricted Subsidiary to declare a
default on such Indebtedness or cause the payment thereof to be accelerated or
payable prior to its Stated Maturity.
"Note Register" means the register maintained by or for Comstock in which
Comstock shall provide for the registration of the notes and, after the Exchange
Offer, the Exchange Notes and the transfer of the notes and the Exchange Notes.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, payments with respect to any letters of
credit, reimbursements, damages and other liabilities payable under the
documentation governing any Indebtedness.
"Oil and Gas Business" means (i) the acquisition, exploration, development,
operation and disposition of interests in oil, gas and other hydrocarbon
properties, (ii) the gathering, marketing, treating, processing, storage,
refining, selling and transporting of any production from such interests or
properties, (iii) any business relating to or arising from exploration for or
development, production, treatment, processing, storage, refining,
transportation or marketing of oil, gas and other minerals and products
produced in association therewith, and (iv) any activity necessary, appropriate
or incidental to the activities described in the foregoing clauses (i) through
(iii) of this definition.
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"Permitted Indebtedness" means any of the following:
(i) Indebtedness under the Bank Credit Facility in an aggregate
principal amount at any one time outstanding not to exceed the borrowing
base thereunder, plus all interest and fees and other Obligations under
such facility and any guarantee of any such Indebtedness,
(ii) Indebtedness under the Offered Notes,
(iii) Indebtedness outstanding or in effect on the date of the
Indenture (and not repaid or defeased with the proceeds of the offering of
the Offered Notes),
(iv) obligations pursuant to Interest Rate Protection Obligations, but
only to the extent such obligations do not exceed 105% of the aggregate
principal amount of the Indebtedness covered by such Interest Rate
Protection Obligations; obligations under currency exchange contracts
entered into in the ordinary course of business; hedging arrangements
entered into in the ordinary course of business for the purpose of
protecting production, purchases and resales against fluctuations in oil or
natural gas prices, and any guarantee of any of the foregoing,
(v) the Subsidiary Guarantees of the notes (and any assumption of the
obligations guaranteed thereby),
(vi) Indebtedness of Comstock owing to and held by a Wholly Owned
Restricted Subsidiary and Indebtedness of any Restricted Subsidiary owing
to and held by Comstock or a Wholly Owned Restricted Subsidiary,
(vii) Permitted Refinancing Indebtedness and any guarantee thereof,
(viii) Non-Recourse Indebtedness,
(ix) in-kind obligations relating to net gas balancing positions
arising in the ordinary course of business,
(x) Indebtedness in respect of bid, performance or surety bonds issued
for the account of Comstock or any Restricted Subsidiary in the ordinary
course of business, including guaranties and letters of credit supporting
such bid, performance or surety obligations (in each case other than for an
obligation for money borrowed), and
(xi) any additional Indebtedness in an aggregate principal amount not
in excess of $25.0 million at any one time outstanding and any guarantee
thereof.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in property, plant and equipment used in the
ordinary course of business; (iii) Investments in Comstock or any of its
Restricted Subsidiaries; (iv) Investments by Comstock or any of its Restricted
Subsidiaries in another Person, if as a result of such Investment (A) such other
Person becomes a Restricted Subsidiary or (B) such other Person is merged or
consolidated with or into, or transfers or conveys all or substantially all of
its properties and assets to, Comstock or a Restricted Subsidiary;
63
(v) entry into operating agreements, joint ventures, partnership agreements,
working interests, royalty interests, mineral leases, processing agreements,
farm-out agreements, contracts for the sale, transportation or exchange of oil
and natural gas, unitization agreements, pooling arrangements, area of mutual
interest agreements or other similar or customary agreements, transactions,
properties, interests or arrangements, and Investments and expenditures in
connection therewith or pursuant thereto, in each case made or entered into in
the ordinary course of the Oil and Gas Business, excluding, however, Investments
in corporations; (vi) entry into any hedging arrangements in the ordinary course
of business for the purpose of protecting Comstock's or any Restricted
Subsidiary's production, purchases and resales against fluctuations in oil or
natural gas prices; (vii) entry into any currency exchange contract in the
ordinary course of business; or (viii) Investments in stock, obligations or
securities received in settlement of debts owing to Comstock or any Restricted
Subsidiary as a result of bankruptcy or insolvency proceedings or upon the
foreclosure, perfection or enforcement of any Lien in favor of Comstock or any
Restricted Subsidiary, in each case as to debt owing to Comstock or any
Restricted Subsidiary that arose in the ordinary course of business of Comstock
or any such Restricted Subsidiary.
"Permitted Liens" means the following types of Liens:
(i) Liens existing as of the date of the Indenture,
(ii) Liens securing the notes or the Subsidiary Guarantees,
(iii) Liens in favor of Comstock or any Restricted Subsidiary,
(iv) Liens securing Indebtedness of Comstock under the Bank Credit
Facility that constitutes Permitted Indebtedness pursuant to clause (i) of
the definition of "Permitted Indebtedness",
(v) Liens for taxes, assessments and governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which Comstock or its Restricted Subsidiaries shall
have set aside on its books such reserves as may be required pursuant to
GAAP,
(vi) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof,
(vii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the payment or performance
of tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, government contracts and leases, performance and return of money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money but including lessee or operator obligations
under statutes, governmental regulations or instruments related to the
ownership, exploration and production of oil, gas and minerals on state,
Federal or foreign lands or waters),
(viii) judgment and attachment Liens not giving rise to an Event of
Default so long as any appropriate legal proceedings which may have been
duly initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated
shall not have expired,
(ix) easements, rights-of-way, restrictions and other similar charges
or encumbrances not interfering in any material respect with the ordinary
conduct of the business of Comstock or any of its Restricted Subsidiaries,
64
(x) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease,
(xi) purchase money Liens; provided, however, that (i) the related
purchase money Indebtedness shall not be secured by any property or assets
of Comstock or any Restricted Subsidiary other than the property or assets
so acquired (including, without limitation, those acquired indirectly
through the acquisition of stock or other ownership interests) and any
proceeds therefrom and (ii) the Lien securing such Indebtedness shall be
created within 90 days of such acquisition,
(xii) Liens securing obligations under hedging agreements that
Comstock or any Restricted Subsidiary enters into in the ordinary course of
business for the purpose of protecting its production, purchases and
resales against fluctuations in oil or natural gas prices,
(xiii) Liens upon specific items of inventory or other goods of any
Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods,
(xiv) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property or
assets relating to such letters of credit and products and proceeds
thereof,
(xv) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of Comstock or its
Restricted Subsidiaries relating to such property or assets,
(xvi) Liens encumbering deposits made to secure obligations arising
from statutory, regulatory, contractual or warranty requirements of
Comstock or any of its Restricted Subsidiaries, including rights of offset
and set-off,
(xvii) Liens securing Interest Rate Protection Obligations which
Interest Rate Protection Obligations relate to Indebtedness that is secured
by Liens otherwise permitted under the Indenture,
(xviii) Liens on, or related to, properties or assets to secure all or
part of the costs incurred in the ordinary course of business for the
exploration, drilling, development or operation thereof,
(xix) Liens on pipeline or pipeline facilities which arise by
operation of law,
(xx) Liens arising under operating agreements, joint venture
agreements, partnership agreements, oil and gas leases, farm-out
agreements, division orders, contracts for the sale, transportation or
exchange of oil and natural gas, unitization and pooling declarations and
agreements, area of mutual interest agreements and other agreements which
are customary in the Oil and Gas Business,
(xxi) Liens reserved in oil and gas mineral leases for bonus or rental
payments or for compliance with the terms of such leases,
(xxii) Liens constituting survey exceptions, encumbrances, easements,
or reservations of, or rights to others for, rights-of-way, zoning or other
restrictions as to the use of real properties, and minor defects of title
which, in the case of any of the foregoing, were not incurred or created to
secure the payment of borrowed money or the deferred purchase price of
property, assets or services, and in the aggregate do not materially
adversely affect the value of properties and assets of Comstock and the
Restricted Subsidiaries, taken as a whole, or materially impair the use of
such properties and assets for the purposes for which such properties and
assets are held by Comstock or any Restricted Subsidiaries,
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(xxiii) Liens securing Non-Recourse Indebtedness; provided, however,
that the related Non- Recourse Indebtedness shall not be secured by any
property or assets of Comstock or any Restricted Subsidiary other than the
property and assets acquired (including, without limitation, those acquired
indirectly through the acquisition of stock or other ownership interests)
by Comstock or any Restricted Subsidiary with the proceeds of such
Non-Recourse Indebtedness,
(xxiv) Liens on property existing at the time of acquisition thereof
by Comstock or any Subsidiary of Comstock and Liens on property or assets
of a Subsidiary existing at the time it became a Subsidiary, provided that
such Liens were in existence prior to the contemplation of the acquisition
and do not extend to any assets other than the acquired property, and
(xxv) Liens resulting from the deposit of funds or evidences of
Indebtedness in trust for the purpose of defeasing Indebtedness of Comstock
or any of its Restricted Subsidiaries. Notwithstanding anything in clauses
(i) through (xxv) of this definition, the term "Permitted Liens" does not
include any Liens resulting from the creation, incurrence, issuance,
assumption or guarantee of any Production Payments other than Production
Payments that are created, incurred, issued, assumed or guaranteed in
connection with the financing of, and within 30 days after, the acquisition
of the properties or assets that are subject thereto.
"Permitted Refinancing Indebtedness" means Indebtedness of Comstock or a
Restricted Subsidiary, the net proceeds of which are used to renew, extend,
refinance, refund or repurchase (including, without limitation, pursuant to a
Change of Control Offer or Prepayment Offer) outstanding Indebtedness of
Comstock or any Restricted Subsidiary, provided that (a) if the Indebtedness
(including the notes) being renewed, extended, refinanced, refunded or
repurchased is pari passu with or subordinated in right of payment to either the
notes or the Subsidiary Guarantees, then such Indebtedness is pari passu with or
subordinated in right of payment to the notes or the Subsidiary Guarantees, as
the case may be, at least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased, (b) such Indebtedness has a
Stated Maturity for its final scheduled principal payment that is no earlier
than the Stated Maturity for the final scheduled principal payment of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased and
(c) such Indebtedness has an Average Life at the time such Indebtedness is
incurred that is equal to or greater than the Average Life of the Indebtedness
being renewed, extended, refinanced, refunded or repurchased; provided, further,
that such Indebtedness is in an aggregate principal amount (or, if such
Indebtedness is issued at a price less than the principal amount thereof, the
aggregate amount of gross proceeds therefrom is) not in excess of the aggregate
principal amount then outstanding of the Indebtedness being renewed, extended,
refinanced, refunded or repurchased (or if the Indebtedness being renewed,
extended, refinanced, refunded or repurchased was issued at a price less than
the principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) plus the amount of any
premium required to be paid in connection with such renewal, extension or
refinancing, refunding or repurchase pursuant to the terms of the Indebtedness
being renewed, extended, refinanced, refunded or repurchased or the amount of
any premium reasonably determined by Comstock as necessary to accomplish such
renewal, extension, refinancing, refunding or repurchase, plus the amount of
reasonable fees and expenses incurred by Comstock or such Restricted Subsidiary
in connection therewith.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
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"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the date of the Indenture, including, without limitation, all classes and series
of preferred or preference stock of such Person.
"Production Payments" means, collectively, Dollar-Denominated Production
Payments and Volumetric Production Payments.
"Public Equity Offering" means an offer and sale of Common Stock of
Comstock for cash pursuant to a registration statement that has been declared
effective by the Commission pursuant to the Securities Act (other than a
registration statement on Form S-8 or otherwise relating to equity securities
issuable under any employee benefit plan of Comstock).
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Capital Stock and, with respect to Comstock,
Qualified Capital Stock includes, without limitation, any Qualifying TECONS.
"Qualifying TECONS" means preferred trust securities or similar securities
issued by a Finance Person after the date of the Indenture.
"Restricted Investment" means (without duplication) (i) the designation of
a Subsidiary as an Unrestricted Subsidiary in the manner described in the
definition of "Unrestricted Subsidiary" and (ii) any Investment other than a
Permitted Investment.
"Restricted Subsidiary" means any Subsidiary of Comstock, whether existing
on or after the date of the Indenture, unless such Subsidiary of Comstock is an
Unrestricted Subsidiary or is designated as an Unrestricted Subsidiary pursuant
to the terms of the Indenture.
"S&P" means Standard and Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale/Leaseback Transaction" means, with respect to Comstock or any of its
Restricted Subsidiaries, any arrangement with any Person providing for the
leasing by Comstock or any of its Restricted Subsidiaries of any principal
property, acquired or placed into service more than 180 days prior to such
arrangement, whereby such property has been or is to be sold or transferred by
Comstock or any of its Restricted Subsidiaries to such Person.
"Senior Indebtedness" means any Indebtedness of Comstock (whether
outstanding on the date hereof or hereinafter incurred), unless such
Indebtedness is Subordinated Indebtedness.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the date specified in the instrument evidencing
or governing such Indebtedness as the fixed date on which the principal of such
Indebtedness or such installment of interest is due and payable.
"Subordinated Indebtedness" means Indebtedness of Comstock or a Subsidiary
Guarantor which is expressly subordinated in right of payment to the notes or
the Subsidiary Guarantees, as the case may be.
"Subsidiary" means, with respect to any Person, (i) a corporation a
majority of whose Voting Stock is at the time, directly or indirectly, owned by
such Person, by one or more Subsidiaries of such Person or by such Person and
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one or more Subsidiaries thereof or (ii) any other Person (other than a
corporation), including, without limitation, a joint venture, in which such
Person, one or more Subsidiaries thereof or such Person and one or more
Subsidiaries thereof, directly or indirectly, at the date of determination
thereof, have at least majority ownership interest entitled to vote in the
election of directors, managers or trustees thereof (or other Person performing
similar functions).
"Subsidiary Guarantee" means any guarantee of the notes by any Subsidiary
Guarantor in accordance with the provisions described under "--Subsidiary
Guarantees of Notes."
"Subsidiary Guarantor" means (i) Comstock Oil & Gas, Inc., (ii) Comstock
Oil & Gas-Louisiana, Inc., (iii) Comstock Offshore, LLC, (iv) each of Comstock's
other Restricted Subsidiaries, if any, executing a supplemental indenture in
which such Subsidiary agrees to be bound by the terms of the Indenture and (v)
any Person that becomes a successor guarantor of the notes in compliance with
the provisions described under "--Subsidiary Guarantees of Notes."
"Unrestricted Subsidiary" means (i) any Subsidiary of Comstock that at the
time of determination will be designated an Unrestricted Subsidiary by the Board
of Directors of Comstock as provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors of Comstock may designate any
Subsidiary of Comstock as an Unrestricted Subsidiary so long as (a) neither
Comstock nor any Restricted Subsidiary is directly or indirectly liable pursuant
to the terms of any Indebtedness of such Subsidiary; (b) no default with respect
to any Indebtedness of such Subsidiary would permit (upon notice, lapse of time
or otherwise) any Holder of any other Indebtedness of Comstock or any Restricted
Subsidiary to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its Stated Maturity; (c) such
designation as an Unrestricted Subsidiary would be permitted under the
"Limitation on Restricted Payments" covenant; and (d) such designation shall not
result in the creation or imposition of any Lien on any of the properties or
assets of Comstock or any Restricted Subsidiary (other than any Permitted Lien
or any Lien the creation or imposition of which shall have been in compliance
with the "Limitation on Liens" covenant); provided, however, that with respect
to clause (a), Comstock or a Restricted Subsidiary may be liable for
Indebtedness of an Unrestricted Subsidiary if (1) such liability constituted a
Permitted Investment or a Restricted Payment permitted by the "Limitation on
Restricted Payments" covenant, in each case at the time of incurrence, or (2)
the liability would be a Permitted Investment at the time of designation of such
Subsidiary as an Unrestricted Subsidiary. Any such designation by the Board of
Directors of Comstock shall be evidenced to the Trustee by filing a Board
Resolution with the Trustee giving effect to such designation. The Board of
Directors of Comstock may designate any Unrestricted Subsidiary as a Restricted
Subsidiary if, immediately after giving effect to such designation on a pro
forma basis, (i) no Default or Event of Default shall have occurred and be
continuing, (ii) Comstock could incur $1.00 of additional Indebtedness (not
including the incurrence of Permitted Indebtedness) under the "Limitation on
Indebtedness and Disqualified Capital Stock" covenant and (iii) if any of the
properties and assets of Comstock or any of its Restricted Subsidiaries would
upon such designation become subject to any Lien (other than a Permitted Lien),
the creation or imposition of such Lien shall have been in compliance with the
"Limitation on Liens" covenant.
"Volumetric Production Payments" means production payment obligations of
Comstock or a Restricted Subsidiary recorded as deferred revenue in accordance
with GAAP, together with all undertakings and obligations in connection
therewith.
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"Voting Stock" means any class or classes of Capital Stock pursuant to
which the Holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary of
Comstock to the extent (i) all of the Capital Stock or other ownership interests
in such Restricted Subsidiary, other than directors' qualifying shares mandated
by applicable law, is owned directly or indirectly by Comstock or (ii) such
Restricted Subsidiary does substantially all of its business in one or more
foreign jurisdictions and is required by the applicable laws and regulations of
any such foreign jurisdiction to be partially owned by the government of such
foreign jurisdiction or individual or corporate citizens of such foreign
jurisdiction in order for such Restricted Subsidiary to transact business in
such foreign jurisdiction, provided that Comstock, directly or indirectly, owns
the remaining Capital Stock or ownership interest in such Restricted Subsidiary
and, by contract or otherwise, controls the management and business of such
Restricted Subsidiary and derives the economic benefits of ownership of such
Restricted Subsidiary to substantially the same extent as if such Subsidiary
were a wholly owned subsidiary.
Book-Entry; Delivery; Form and Transfer
The outstanding notes are represented by global notes ("Global Outstanding
Notes") that were deposited with the Trustee as custodian for The Depository
Trust Company ("DTC") and registered in the name of Cede & Co., as nominee of
DTC, and are held for credit to the respective accounts of the purchasers of the
outstanding notes. Beneficial interests in the Global Outstanding Notes are
shown on, and transfers thereof are effected only through, records maintained by
DTC. Except as provided below, the new notes also will be issued in the form of
one or more global notes (the "Global New Notes" and together with the Global
Outstanding Notes, the "Global Notes"). The Global New Notes will be deposited
on the date of issuance thereof with the Trustee as custodian for DTC and
registered in the name of Cede & Co., as nominee of DTC. Initially, the Trustee
will act as Paying Agent and Registrar. The notes may be presented for
registration of transfer and exchange at the offices of the Registrar.
Pursuant to the procedures established by DTC: (a) upon the issuance of the
Global Notes, DTC or its custodian will credit, on its internal system, the
principal amount of notes of the individual beneficial interests represented by
the Global Notes to the respective accounts of persons who have accounts with
DTC and (b) ownership of beneficial interests in the Global Notes will be shown
on, and the transfer of such ownership will be effected only through, records
maintained by DTC or its nominee (with respect to interests of Participants (as
defined herein)) and the records of Participants (with respect to interests of
persons other than Participants). Ownership of beneficial interests in the
Global Notes will be limited to persons who have accounts with DTC
("Participants") or persons who hold interests through Participants. Interests
in the Global Notes may be held directly through DTC by Participants, or
indirectly through organizations which are Participants ("Indirect
Participants"). DTC will not maintain records of the ownership interests of, or
the transfer of ownership interests by and between, Indirect Participants or
other owners of beneficial interests in the Global Notes. Participants and
Indirect Participants must maintain their own records of the ownership interests
of, and the transfer of ownership interests by and between, Indirect
Participants and other owners of beneficial interests in the Global Notes.
So long as DTC, or its nominee, is the registered owner or Holder of the
Global Notes, DTC or such nominee, as the case may be, will be considered the
sole owner or Holder of notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in any Global Notes will
be able to transfer that interest except in accordance with applicable
procedures of DTC and those provided for under the Indenture. Payments of the
principal of, premium, if any, and interest on the Global Notes will be made to
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DTC or its nominee, as the case may be, as the registered owner thereof. None of
Comstock or the Trustee or any paying agent will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of beneficial ownership interests in the Global Notes or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interest.
Comstock expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of the Global Notes, will
credit Participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of the Global Notes as
shown on the records of DTC or its nominee. Comstock also expects that payments
by Participants to owners of beneficial interests in the Global Notes held
through such Participants will be governed by standing instructions and
customary practice, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such Participants.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. The Global Notes will trade in DTC's Same-Day Funds
Settlement System and, therefore, transfers between Participants in DTC will be
effected in accordance with DTC's procedures and will be settled in immediately
available funds. Transfers between Indirect Participants (other than Indirect
Participants who hold an interest in the notes through Euroclear or CEDEL) who
hold an interest through a Participant will be effected in accordance with the
procedures of such Participants but generally will settle in immediately
available funds. Transfers among Indirect Participants who hold interests in the
notes through Euroclear and CEDEL will be effected in the ordinary way in
accordance with their respective rules and operating procedures. If a Holder
requires physical delivery of a Certificated Note for any reason, including to
sell notes to persons in states which require physical delivery of the notes, or
to pledge such securities, such Holder must transfer its interest in a Global
Note in accordance with the normal procedures of DTC and with the procedures set
forth in the Indenture.
Subject to compliance with transfer restrictions applicable to the notes
described herein, cross-market transfers between Participants in DTC, on the one
hand, and Indirect Participants who hold interests in the notes through
Euroclear and CEDEL on the other hand, will be effected by Euroclear and CEDEL's
respective nominee through DTC in accordance with DTC's rules on behalf of
Euroclear and CEDEL; provided, that delivery of instructions relating to
cross-market transactions must be made directly to Euroclear or CEDEL, as the
case may be, by the counterparty in accordance with the rules and procedures of
Euroclear or CEDEL and within their established deadlines. Indirect Participants
who hold interests in the notes through Euroclear and CEDEL may not deliver
instructions directly to Euroclear's or CEDEL's nominee. Euroclear or CEDEL
will, if the transaction meets its settlement requirements, deliver instructions
to its respective nominee to deliver or receive interests on Euroclear's or
CEDEL's behalf in the relevant Global Note in DTC, and make or receive payment
in accordance with normal procedures for same-day fund settlement applicable to
DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or CEDEL during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and CEDEL customers will not have access to the cash
amount credited to their accounts as a result of a sale of an interest in a
Global Note acquired pursuant to Regulation S to a DTC Participant until the
European business day for Euroclear or CEDEL immediately following DTC's
settlement date.
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Transfers by an owner of a beneficial interest in the Global Note that was
initially acquired pursuant to Rule 144A to a transferee who takes delivery of
such interest through the Global Note that was initially issued pursuant to
Regulation S will be made only upon receipt by the Trustee of a certification to
the effect that such transfer is being made in accordance with Regulation S.
Transfers involving an exchange of a beneficial interest in Global Notes
acquired pursuant to Regulation S for a beneficial interest in Global Notes or
vice versa will be effected by DTC by means of an instruction originated by the
Trustee through DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in
connection with such transfer, appropriate adjustments will be made to reflect a
decrease in the principal amount of one Global Note and a corresponding increase
in the principal amount of the other Global Note, as applicable. Any beneficial
interest in one Global Note that is transferred to a Person who takes delivery
in the form of the other Global Note will, upon transfer, cease to be an
interest in such first Global Note and become an interest in such other Global
Note and, accordingly, will thereafter be subject to all transfer restrictions
and other procedures applicable to beneficial interests in such other Global
Note for as long as it remains such an interest.
DTC has advised Comstock that it will take any action permitted to be taken
by a Holder of notes (including the presentation of notes for exchange) only at
the direction of one or more Participants to whose account the DTC interests in
the Global Notes are credited and only in respect of such portion of the
aggregate principal amount of notes as to which such Participant or Participants
has or have given such direction. However, if there is an Event of Default under
the Indenture, DTC may request an exchange of the Global Notes in whole for
Certificated Notes, which it will distribute to the Participants.
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among Participants,
Euroclear and CEDEL, they are under no obligation to perform or to continue to
perform such procedures, and such procedures may be discontinued at any time.
None of Comstock, the Subsidiary Guarantors or the Trustee will have any
responsibility for the performance by DTC, Euroclear or CEDEL or their
respective Participants and Indirect Participants of their respective
obligations under the rules and procedures governing any of their operations.
DTC has advised Comstock as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions of
Section 17A of the Exchange Act. DTC was created to hold securities for
Participants and facilitate the clearance and settlement of securities
transactions between Participants through electronic book-entry changes in
accounts of its Participants, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and clearing corporation and certain other organizations.
Indirect access to the DTC system is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship, with a Participant either directly or indirectly.
Although DTC, Euroclear and Cedel are expected to follow the foregoing
procedures in order to facilitate transfers of interests in the Global Notes
among Participants of DTC, Euroclear and Cedel, they are under no obligation to
perform such procedures, and such procedures may be discontinued at any time.
Neither Comstock nor the Trustee will have any responsibility for the
performance by DTC, Euroclear or Cedel or the Participants or Indirect
Participants of their respective obligations under the rules and procedures
governing their operations.
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Certificated Notes
Owners of beneficial interests in the Global Notes will not have notes
registered in their names, will not receive physical delivery of notes in
certificated form and will not be considered the registered owners or Holders
thereof under the Indenture for any purpose. A Global Note will be exchangeable
for definitive notes in registered certificated form ("Certificated Notes") if:
o DTC notifies Comstock that it is unwilling or unable to continue as
depository for the global notes;
o DTC ceases to be a clearing agency registered under the Exchange Act;
o Comstock, at its option, notifies the Trustee in writing that it
elects to cause the issuance of certificated notes; or
o an event of default under the Indenture has occurred and is
continuing.
Beneficial interests in Global Notes held by any Participant or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Participant (for itself or on behalf of an Indirect Participant), through the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Note will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Participants or Indirect Participants (in accordance with
DTC's customary procedures).
Neither Comstock, the Subsidiary Guarantors nor the Trustee will be liable
for any delay by the Holder of the Global Notes or DTC in identifying the
beneficial owners of notes, and Comstock, the Subsidiary Guarantors and the
Trustee may conclusively rely on, and will be protected in relying on,
instructions from the Holder of the Global Notes or DTC for all purposes.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences relating to the exchange of outstanding notes for new notes
pursuant to the exchange offer. The federal income tax considerations set forth
below are based upon currently existing provisions of the Internal Revenue Code
of 1986, as amended, applicable Treasury Regulations, judicial authority, and
current administrative rulings and pronouncements of the Internal Revenue
Service (IRS) as of the date of this memorandum. There can be no assurance that
the IRS will not take a contrary view, and no ruling from the IRS has been, or
will be, sought on the issues discussed in this summary. Legislative, judicial,
or administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences discussed below.
The summary does not address all potential federal tax considerations, such
as estate and gift tax considerations, that may be relevant to particular
holders and does not address foreign, state, local or other tax consequences.
This summary does not address the federal income tax consequences to taxpayers
who may be subject to special tax treatment, including, without limitation:
o banks, insurance companies, or other financial institutions;
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o dealers in securities or currencies;
o broker-dealers;
o tax-exempt organizations; or
o persons that hold the notes as part of a position in a straddle, or as
part of a hedging, conversion, or other integrated investment
transaction.
This summary is limited to persons that hold the notes as capital assets
within the meaning of section 1221 of the Internal Revenue Code.
The exchange of the outstanding notes for the new notes pursuant to the
exchange offer will not be treated as an exchange or other taxable event for
United States federal income tax purposes. Rather, the new notes received by a
holder will be treated as a continuation of the outstanding notes in the hands
of such holder. As a result, there will be no United States federal income tax
consequences to holders who exchange outstanding notes for new notes pursuant to
the exchange offer and any such holder will have the same tax basis and holding
period in the new notes as it had in the outstanding notes immediately before
the exchange.
THIS SUMMARY OF MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS IS
FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE. THIS SUMMARY IS NOT INTENDED
TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSEQUENCES RELATING TO THE
EXCHANGE OF OUTSTANDING NOTES FOR NEW NOTES PURSUANT TO THE EXCHANGE OFFER OR
THE ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW NOTES. EACH HOLDER IS
URGED TO CONSULT ITS TAX ADVISOR REGARDING THE APPLICATION OF UNITED STATES
FEDERAL INCOME TAX LAWS WITH RESPECT TO ITS PARTICULAR SITUATION AS WELL AS ANY
TAX CONSEQUENCES ARISING UNDER THE UNITED STATES FEDERAL ESTATE OR GIFT TAX
RULES OR UNDER THE LAWS OF ANY STATE, LOCAL, FOREIGN OR OTHER TAXING
JURISDICTION OR UNDER ANY APPLICABLE TAX TREATY.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer in exchange for outstanding notes, where such outstanding
notes were acquired by such broker-dealer as a result of market making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such new notes. This prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of new notes received in exchange for
outstanding notes if such outstanding notes were acquired as a result of market-
making activities or other trading activities. Comstock has agreed that, for a
period of 180 days after the completion of the exchange offer, it will make this
prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale.
Comstock will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such new notes. Any broker-dealer that
resells new notes that were received by it for its own account pursuant to the
exchange offer and any broker-dealer that participates in a distribution of such
new notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of new notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. By acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the expiration date of the exchange offer,
Comstock will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker- dealer that requests
such documents. To the extent provided in the registration rights agreement,
Comstock has agreed to pay all expenses incident to the exchange offer
(including the expenses of counsel for the holders of the notes) other than
commissions or concessions of any broker-dealers and will indemnify the holders
of the notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the issuance of the new notes will be passed upon for us by
Locke Liddell & Sapp LLP, Dallas, Texas.
EXPERTS
The estimates as of December 31, 1999, 2000 and 2001 relating to Comstock's
proved oil and natural gas reserves, future net revenues of oil and natural gas
reserves and present value of future net revenues of oil and natural gas
reserves included or incorporated by reference herein are based upon reports
prepared by Lee Keeling and Associates, Inc. and are included or incorporated by
reference herein in reliance upon such reports and upon the authority of such
firm as experts in petroleum engineering.
The consolidated financial statements as of December 31, 2001 and for the
three years in the period then ended, included in Comstock's annual report on
74
Form 10-K for the year ended December 31, 2001, which is incorporated by
reference in this registration statement, have been audited by Arthur Andersen
LLP, independent public accountants, as stated in their audit report appearing
herein. Such financial statements are incorporated herein by reference in
reliance on such report given upon the authority of such firm as experts in
accounting and auditing.
We have been unable to obtain, after reasonable efforts, the written
consent of Arthur Andersen to our naming it as an expert and as having audited
our consolidated financial statements as of December 31, 2001 and for the three
years in the period then ended. Accordingly, in accordance with recent SEC
rules, such consent is not included in the registration statement on Form S-4 of
which this prospectus is a part. This limits your ability to recover damages
from Arthur Andersen under Section 11 of the Securities Act for any untrue
statements of a material fact contained in the financial statements audited by
Arthur Andersen or any omissions to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. See "Risk
Factors -- Our former use of Arthur Andersen as our independent auditor may pose
risks to us and will limit your ability to seek potential recoveries from them
related to their work."
The audit committee of Comstock's board of directors annually considers and
recommends to the board of directors the selection of Comstock's independent
public accountants. As recommended by the audit committee, on April 22, 2002,
the board of directors decided to no longer engage Arthur Andersen LLP as
Comstock's independent public accountants and engaged KPMG LLP to serve as
Comstock's independent public accountants for 2002.
Arthur Andersen's reports on Comstock's consolidated financial statements
for the past two years did not contain an adverse opinion or disclaimer of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles.
During Comstock's two most recent fiscal years and through April 26, 2002
(the date of the change), there were no disagreements with Arthur Andersen on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Arthur
Andersen's satisfaction, would have caused them to make reference to the subject
matter in connection with their report on Comstock's consolidated financial
statements for such years; and there were no reportable events, as listed in
Item 304(a)(l)(v) of Regulation S-K.
During Comstock's two most recent fiscal years and through April 26, 2002,
Comstock did not consult KPMG with respect the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on Comstock's consolidated financial
statements, or any other matters or reportable events lised in Items 304
(a)(2)(i) and (ii) of Regulation S-K.
With respect to the unaudited interim financial information for the periods
ended March 31, 2002 incorporated by reference herein, the independent
accountants have reported that they applied limited procedures in accordance
with professional standards for a review of such information. However, their
separate report included in the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 2002, and incorporated by reference herein, states that
they did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to the liability provisions
of Section 11 of the Securities Act of 1933 (the "1933 Act") for their report on
the unaudited interim financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by the
accountants within the meaning of Sections 7 and 11 of the 1933 Act.
75
GLOSSARY
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry and this prospectus. Natural gas equivalents and crude
oil equivalents are determined using the ratio of six Mcf to one barrel.
"API" means American Petroleum Institute.
"Bbl" means a barrel of 42 U.S. gallons of oil.
"Bcf" means one billion cubic feet of natural gas.
"Bcfe" means one billion cubic feet of natural gas equivalent.
"Btu" means British thermal unit, which is the quantity of heat required to
raise the temperature of one pound of water from 58.5 to 59.5 degrees
Fahrenheit.
"Cash Margin per Mcfe" means the equivalent price per Mcfe less oil and gas
operating expenses per Mcfe and general and administrative expenses per Mcfe.
"Completion" means the installation of permanent equipment for the
production of oil or gas.
"Development well" means a well drilled within the proved area of an oil or
gas reservoir to the depth of a stratigraphic horizon known to be productive.
"Exploratory well" means a well drilled to find and produce oil or natural
gas reserves not classified as proved, to find a new productive reservoir in a
field previously found to be productive of oil or natural gas in another
reservoir or to extend a known reservoir.
"Gross" when used with respect to acres or wells, production or reserves
refers to the total acres or wells in which Comstock or other specified person
has a working interest.
"MBbls" means one thousand barrels of oil.
"MMBbls" means one million barrels of oil.
"Mcf" means one thousand cubic feet of natural gas.
"Mcfe" means thousand cubic feet of natural gas equivalent.
"MMcf" means one million cubic feet of natural gas.
"MMcfe" means one million cubic feet of natural gas equivalent.
"Mmcfe/d" means on million cubic feet of natural gas equivalent per day.
"Net" when used with respect to acres or wells, refers to gross acres of
wells multiplied, in each case, by the percentage working interest owned by
Comstock.
76
"Net production" means production that is owned by Comstock less royalties
and production due others.
"Oil" means crude oil or condensate.
"Operator" means the individual or company responsible for the exploration,
development, and production of an oil or gas well or lease.
"Present Value of Proved Reserves" means the present value of estimated
future revenues to be generated from the production of proved reserves
calculated in accordance with the Securities and Exchange Commission guidelines,
net of estimated production and future development costs, using prices and costs
as of the date of estimation without future escalation, without giving effect to
non- property related expenses such as general and administrative expenses, debt
service, future income tax expense and depreciation, depletion and amortization,
and discounted using an annual discount rate of 10%.
"Proved developed reserves" means reserves that can be expected to be
recovered through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery will be included as "proved developed
reserves" only after testing by a pilot project or after the operation of an
installed program has confirmed through production response that increased
recovery will be achieved.
"Proved reserves" means the estimated quantities of crude oil, natural gas,
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on
escalations based upon future conditions.
(i) Reservoirs are considered proved if economic producibility is
supported by either actual production or conclusive formation tests. The
area of a reservoir considered proved includes (A) that portion delineated
by drilling and defined by gas-oil and/or oil-water contacts, if any; and
(B) the immediately adjoining portions not yet drilled, but which can be
reasonably judged as economically productive on the basis of available
geological and engineering data. In the absence of information on fluid
contacts, the lowest known structural occurrence of hydrocarbons controls
the lower proved limit of the reservoir.
(ii) Reserves which can be produced economically through application
of improved recovery techniques (such as fluid injection) are included in
the "proved" classification when successful testing by a pilot project, or
the operation of an installed program in the reservoir, provides support
for the engineering analysis on which the project or program was based.
(iii) Estimates of proved reserves do not include the following: (A)
oil that may become available from known reservoirs but is classified
separately as "indicated additional reserves"; (B) crude oil, natural gas,
and natural gas liquids, the recovery of which is subject to reasonable
doubt because of uncertainty as to geology, reservoir characteristics, or
economic factors; (C) crude oil, natural gas, and natural gas liquids, that
may occur in undrilled prospects; and (D) crude oil, natural gas, and
natural gas liquids, that may be recovered from oil shales, coal, gilsonite
and other such resources.
77
"Proved undeveloped reserves" means reserves that are expected to be
recovered from new wells on undrilled acreage, or from existing wells where a
relatively major expenditure is required for recompletion. Reserves on undrilled
acreage shall be limited to those drilling units offsetting productive units
that are reasonably certain of production when drilled. Proved reserves for
other undrilled units can be claimed only where it can be demonstrated with
certainty that there is continuity of production from the existing productive
formation. Under no circumstances should estimates for proved undeveloped
reserves be attributable to any acreage for which an application of fluid
injection or other improved recovery technique is contemplated, unless such
techniques have been proved effective by actual tests in the area and in the
same reservoir.
"Recompletion" means the completion for production of an existing well bore
in another formation from that in which the well has been previously completed.
"Reserve life" means the calculation derived by dividing year-end reserves
by total production in that year.
"Reserve replacement" means the calculation derived by dividing additions
to reserves from acquisitions, extensions, discoveries and revisions of previous
estimates in a year by total production in that year.
"Royalty" means an interest in an oil and gas lease that gives the owner of
the interest the right to receive a portion of the production from the leased
acreage (or of the proceeds of the sale thereof), but generally does not require
the owner to pay any portion of the costs of drilling or operating the wells on
the leased acreage. Royalties may be either landowner's royalties, which are
reserved by the owner of the leased acreage at the time the lease is granted, or
overriding royalties, which are usually reserved by an owner of the leasehold in
connection with a transfer to a subsequent owner.
"3-D seismic" means an advanced technology method of detecting
accumulations of hydrocarbons identified by the collection and measurement of
the intensity and timing of sound waves transmitted into the earth as they
reflect back to the surface.
"Working interest" means an interest in an oil and gas lease that gives the
owner of the interest the right to drill for and produce oil and gas on the
leased acreage and requires the owner to pay a share of the costs of drilling
and production operations. The share of production to which a working interest
owner is entitled will always be smaller than the share of costs that the
working interest owner is required to bear, with the balance of the production
accruing to the owners of royalties. For example, the owner of a 100% working
interest in a lease burdened only by a landowner's royalty of 12.5% would be
required to pay 100% of the costs of a well but would be entitled to retain
87.5% of the production.
"Workover" means operations on a producing well to restore or increase
production.
78
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 78.7502 of the General Corporation Law of Nevada permits a
corporation to indemnify any person who was, or is, or is threatened to be made
a party in a completed, pending or threatened proceeding, whether civil,
criminal, administrative or investigative (except an action by or in the right
of the corporation), by reason of being or having been an officer, director,
employee or agent of the corporation or serving in certain capacities at the
request of the corporation. Indemnification may include attorneys' fees,
judgments, fines and amounts paid in settlement. The person to be indemnified
must have acted in good faith and in a manner he reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to any
criminal action, such person must have had no reasonable cause to believe his
conduct was unlawful.
With respect to actions by or in the right of the corporation,
indemnification may not be made for any claim, issue or matter as to which such
a person has been finally adjudged by a court of competent jurisdiction to be
liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action was brought or
other court of competent jurisdiction determines upon application that in view
of all circumstances the person is fairly and reasonably entitled to indemnity
for such expenses as the court deems proper.
Unless indemnification is ordered by a court, the determination to pay
indemnification must be made by the stockholders, by a majority vote of a quorum
of the Board of Directors who were not parties to the action, suit or
proceeding, or in certain circumstances by independent legal counsel in a
written opinion. Section 78.751 of the General Corporation law of Nevada permits
the Articles of Incorporation or Bylaws to provide for payment to an indemnified
person of the expenses of defending an action as incurred upon receipt of an
undertaking to repay the amount if it is ultimately determined by a court of
competent jurisdiction that the person is not entitled to indemnification.
Section 78.7502 also provides that to the extent a director, officer,
employee or agent has been successful on the merits or otherwise in the defense
of any such action, he must be indemnified by the corporation against expenses,
including attorneys' fees, actually and reasonably incurred in connection with
the defense.
Article VI, "Indemnification of Directors, Officers, Employees and Agents",
of Comstock's Bylaws provides as follows with respect to indemnification of
Comstock's directors, officers, employees and agents:
Section 1. To the fullest extent allowed by Nevada law, any director of the
Corporation shall not be liable to the corporation or its shareholders for
monetary damages for an act or omission in the director's capacity as a
director, except that this Article VI does not eliminate or limit the liability
of a director for:
(a) an act or omission which involves intentional misconduct, fraud or
a knowing violation of law; or
(b) the payment of dividends in violation of N.R.S. 78.300.
Section 2. The Corporation shall indemnify each director, officer, employee
and agent, now or hereafter serving the Corporation, each former director,
officer, employee and agent, and each person who may now or hereafter serve or
who may have heretofore served at the Corporation's request as a director,
officer, employee or agent of another corporation or other business enterprise,
and the respective heirs, executors, administrators and personal representatives
of each of them against all expenses actually and reasonably incurred by, or
imposed upon, him in connection with the defense of any claim, action, suit or
proceeding, civil or criminal, against him by reason of his being or having been
I-1
such director, officer, employee or agent, except in relation to such matters as
to which he shall be adjudged by a court of competent jurisdiction after
exhaustion of all appeals therefrom in such action, suit or proceeding to be
liable for gross negligence or willful misconduct in the performance of duty.
For purposes hereof, the term "expenses" shall include but not be limited to all
expenses, costs, attorneys' fees, judgements (including adjudications other than
on the merits), fines, penalties, arbitration awards, costs of arbitration and
sums paid out and liabilities actually and reasonably incurred or imposed in
connection with any suit, claim, action or proceeding, and any settlement or
compromise thereof approved by the Board of Directors as being in the best
interests of the Corporation. However, in any case in which there is no
disinterested majority of the Board of Directors available, the indemnification
shall be made: (1) only if the Corporation shall be advised in writing by
counsel that in the opinion of counsel (a) such officer, director, employee or
agent was not adjudged or found liable for gross negligence or willful
misconduct in the performance of duty as such director, officer, employee or
agent or the indemnification provided is only in connection with such matters as
to which the person to be indemnified was not so liable, and in the case of
settlement or compromise, the same is in the best interests of the Corporation;
and (b) indemnification under the circumstances is lawful and falls within the
provisions of these Bylaws; and (2) only in such amount as counsel shall advise
the Corporation in writing is, in his opinion, proper. In making or refusing to
make any payment under this or any other provision of these Bylaws, the
Corporation, its directors, officers, employees and agents shall be fully
protected if they rely upon the written opinion of counsel selected by, or in
the manner designated by, the Board of Directors.
Section 3. Expenses incurred in defending a civil or criminal action, suit
or proceeding may be paid by the Corporation in advance of the final disposition
of such action, suit or proceeding as authorized by the Board of Directors upon
receipt of an undertaking by or on behalf of the director, officer, employee or
agent to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the Corporation as authorized in these Bylaws.
Section 4. The Corporation may indemnify each person, though he is not or
was not a director, officer, employee or agent of the Corporation, who served at
the request of the Corporation on a committee created by the Board of Directors
to consider and report to it in respect of any matter. Any such indemnification
may be made under the provisions hereof and shall be subject to the limitations
hereof, except that (as indicated) any such committee member need not be nor
have been a director, officer, employee or agent of the Corporation.
Section 5. The provisions hereof shall be applicable to actions, suits or
proceedings (including appeals) commenced after the adoption hereof, whether
arising from acts or omissions to act occurring before or after the adoption
hereof.
Section 6. The indemnification provisions herein provided shall not be
deemed exclusive of any other rights to which those indemnified may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, or by law or statute, both as to action in his official capacity and
as to action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 7. The corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust, or other enterprise, and persons described in Section 4 of this
Article above, against any liability asserted against him and incurred by him in
any such capacity or arising out of his status, as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of these Bylaws.
I-2
Item 21. Exhibits and Financial Statement Schedules.
(a) The following is a list of all exhibits filed as part of the
Registration Statement on Form S-4, including those incorporated
by reference herein.
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger among Comstock, Comstock Holdings,
Inc., Comstock Acquisition Inc. and DevX Energy, Inc. dated as of
November 12, 2001 (incorporated by reference to Exhibit 2.1 to
our Current Report on Form 8-K filed on November 13, 2001).
3.1(a) Restated Articles of Incorporation of Comstock (incorporated by
reference to Exhibit 3.1 to Comstock's Annual Report on Form 10-K
for the year ended December 31, 1995).
3.1(b) Certificate of Amendment to the Restated Articles of
Incorporation of Comstock dated July 1, 1997 (incorporated herein
by reference to Exhibit 3.1 to the Comstock's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997).
3.2 Bylaws of Comstock (incorporated by reference to Exhibit 3.2 to
Comstock's Registration Statement on Form S-3, dated October 25,
1996).
4.1 Rights Agreement dated as of December 14, 2000, by and between
Comstock and American Stock Transfer and Trust Company, as Rights
Agent (incorporated herein by reference to Exhibit 1 to our
Registration Statement on Form 8-A dated January 11, 2001).
4.2 Certificate of Voting Powers, Designations, Preferences, and
Relative, Participating, Optional or Other Special Rights of the
Series A 1999 Convertible Preferred Stock and Series B 1999
Non-Convertible Preferred Stock (incorporated herein by reference
to Exhibit 4.1 to our Current Report on Form 8-K dated April 29,
1999).
4.3 Stock Purchase Agreement dated April 29, 1999 between Comstock
and certain purchasers (incorporated herein by reference to
Exhibit 10.1 to our Current Report on Form 8-K dated April 29,
1999).
4.4 Certificate of Designation, Preferences and Rights of Series B
Junior Participating Preferred Stock (incorporated herein by
reference to Exhibit 2 to our Registration Statement on Form 8-A
dated January 11, 2001).
4.5 Indenture dated April 29, 1999 between Comstock, the subsidiary
guarantors party thereto, and U.S. Trust Company of Texas, N.A.,
Trustee for the 11 1/4% Senior Notes due 2007 (incorporated
herein by reference to Exhibit 10.5 to our Current Report on Form
8-K dated April 29, 1999).
4.6 First Supplemental Indenture, dated March 7, 2002, between
Comstock, the subsidiary guarantors party thereto, and U.S. Trust
Company of Texas, N.A., Trustee for the 11 1/4% Senior Notes due
2007 (incorporated by reference to Exhibit 4.1 to our Current
Report on Form 8-K dated March 12, 2002).
4.7 Credit Agreement, dated as of December 17, 2001, by and among
Comstock, as borrower, each lender from time to time party
thereto, Toronto Dominion (Texas), Inc., as administrative agent,
and Toronto-Dominion Bank, as Issuing Bank (incorporated by
reference to Exhibit 10.1 to our Current Report on Form 8-K dated
December 21, 2001).
I-3
4.8 Amendment No.1 dated December 26, 2001 to the Credit Agreement,
dated as of December 17, 2001, by and among Comstock, as
borrower, each lender from time to time party thereto, Toronto
Dominion (Texas), Inc., as administrative agent, and
Toronto-Dominion Bank, as Issuing Bank (incorporated by reference
to Exhibit 10.2 to our Form 10-K for the year ended December 31,
2001).
4.9 Amendment No. 2 dated February 4, 2002 to the Credit Agreement,
dated as of December 17, 2001, by and among Comstock, as
borrower, each lender from time to time party thereto, Toronto
Dominion (Texas), Inc., as administrative agent, and
Toronto-Dominion Bank, as Issuing Bank (incorporated by reference
to Exhibit 10.3 to our Form 10-K for the year ended December 31,
2001).
4.10 Placement Agreement dated February 28, 2002, by and between
Comstock, the subsidiary guarantors party thereto, and Morgan
Stanley & Co. Incorporated, TD Securities (USA), Inc. and BMO
Nesbitt Burns Corp. (incorporated herein by reference to Exhibit
10.1 to our Current Report on Form 8-K filed on March 12, 2002).
4.11 Registration Rights Agreement dated March 7, 2002, by and between
Comstock, the subsidiary guarantors party thereto, and Morgan
Stanley & Co. Incorporated, TD Securities (USA), Inc. and BMO
Nesbitt Burns Corp. (incorporated herein by reference to Exhibit
10.2 to our Current Report on Form 8-K filed on March 12, 2002).
5.1* Opinion of Locke Liddell & Sapp LLP
12. * Computation of Ratios
15.1* Awareness Letter of KPMG LLP
16 Letter from Arthur Andersen LLP to the Securities and Exchange
Commission dated April 26, 2002 (incorporated by reference to
Exhibit 16 to Comstock's Current Report on Form 8-K dated April
26, 2002).
23.1* Consent of Counsel (Included in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP, Independent Public Accountants
(omitted pursuant to Rule 437a).
99.1* Form of Letter of Transmittal.
99.2* Form of Letter to Clients.
99.3* Form of Letter to Registered Holders and DTC Participants.
99.4* Form of Notice of Guaranteed Delivery.
(b) All financial statement schedules are omitted as inapplicable or
because the required information is contained in Comstock's consolidated
financial statements or included in the notes thereto.
-------------
* Filed herewith.
I-4
Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
Comstock's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefits
plan's annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Comstock pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this form, within one business day of receipt
of such request, and to send the incorporated documents by first class mail
or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration
statement through the date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
I-5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Frisco, State of Texas,
on August 2, 2002.
COMSTOCK RESOURCES, INC.
By: /s/ M. JAY ALLISON
-----------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/M. JAY ALLISON President, Chief Executive Officer and August 2, 2002
- ----------------- Chairman of the Board of Directors
M. Jay Allison (Principal Executive Officer)
/s/ROLAND O. BURNS Senior Vice President, Chief August 2, 2002
- ------------------ Financial Officer, Secretary, Treasurer
Roland O. Burns and Director
(Principal Financial and Accounting Officer)
* Director August 2, 2002
- -------------------
David K. Lockett
* Director August 2, 2002
- ----------------------
Cecil E. Martin, Jr.
* Director August 2, 2002
- ------------------
David W. Sledge
*Signed by Roland O. Burns,
Attorney in Fact
I-6
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Frisco, State of Texas,
on August 2, 2002.
COMSTOCK OIL & GAS, INC.
By: /s/ M. JAY ALLISON
-----------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/M. JAY ALLISON President, Chief Executive Officer and August 2, 2002
- ----------------- Chairman of the Board of Directors
M. Jay Allison (Principal Executive Officer)
/s/ROLAND O. BURNS Senior Vice President, Chief August 2, 2002
- ------------------ Financial Officer, Secretary, Treasurer
Roland O. Burns and Director
(Principal Financial and Accounting Officer)
* Director August 2, 2002
- -------------------
David K. Lockett
* Director August 2, 2002
- ----------------------
Cecil E. Martin, Jr.
* Director August 2, 2002
- ------------------
David W. Sledge
*Signed by Roland O. Burns,
Attorney in Fact
I-7
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Frisco, State of Texas,
on August 2, 2002.
COMSTOCK OIL & GAS - LOUISIANA, LLC
By: /s/ M. JAY ALLISON
-----------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/M. JAY ALLISON President, Chief Executive Officer and August 2, 2002
- ----------------- Chairman of the Board of Managers
M. Jay Allison (Principal Executive Officer)
/s/ROLAND O. BURNS Senior Vice President, Chief August 2, 2002
- ------------------ Financial Officer, Secretary, Treasurer
Roland O. Burns and Manager
(Principal Financial and Accounting Officer)
I-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Frisco, State of Texas,
on August 2, 2002.
COMSTOCK OFFSHORE, LLC
By: /s/ M. JAY ALLISON
-----------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/M. JAY ALLISON President, Chief Executive Officer and August 2, 2002
- ----------------- Chairman of the Board of Managers
M. Jay Allison (Principal Executive Officer)
/s/ROLAND O. BURNS Senior Vice President, Chief August 2, 2002
- ------------------ Financial Officer, Secretary, Treasurer
Roland O. Burns and Manager
(Principal Financial and Accounting Officer)
I-9
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Frisco, State of Texas,
on August 2, 2002.
COMSTOCK OIL & GAS HOLDINGS INC.
By: /s/ M. JAY ALLISON
-----------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/M. JAY ALLISON President, Chief Executive Officer and August 2, 2002
- ----------------- Chairman of the Board of Directors
M. Jay Allison (Principal Executive Officer)
/s/ROLAND O. BURNS Senior Vice President, Chief August 2, 2002
- ------------------ Financial Officer, Secretary, Treasurer
Roland O. Burns and Director
(Principal Financial and Accounting Officer)
* Director August 2, 2002
- -------------------
David K. Lockett
* Director August 2, 2002
- ----------------------
Cecil E. Martin, Jr.
* Director August 2, 2002
- ------------------
David W. Sledge
*Signed by Roland O. Burns,
Attorney in Fact
I-10
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Frisco, State of Texas,
on August 2, 2002.
DEVX ENERGY, INC.
By: /s/ M. JAY ALLISON
-----------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/M. JAY ALLISON President, Chief Executive Officer and August 2, 2002
- ----------------- Chairman of the Board of Directors
M. Jay Allison (Principal Executive Officer)
/s/ROLAND O. BURNS Senior Vice President, Chief August 2, 2002
- ------------------ Financial Officer, Secretary, Treasurer
Roland O. Burns and Director
(Principal Financial and Accounting Officer)
I-11
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Frisco, State of Texas,
on August 2, 2002.
DEVX ENERGY, INC.
By: /s/ M. JAY ALLISON
-----------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/M. JAY ALLISON President, Chief Executive Officer and August 2, 2002
- ----------------- Chairman of the Board of Directors
M. Jay Allison (Principal Executive Officer)
/s/ROLAND O. BURNS Senior Vice President, Chief August 2, 2002
- ------------------ Financial Officer, Secretary, Treasurer
Roland O. Burns and Director
(Principal Financial and Accounting Officer)
I-12
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Frisco, State of Texas,
on August 2, 2002.
DEVX OPERATING COMPANY
By: /s/ M. JAY ALLISON
-----------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
Signature Title Date
--------- ----- ----
/s/M. JAY ALLISON President, Chief Executive Officer and August 2, 2002
- ----------------- Chairman of the Board of Directors
M. Jay Allison (Principal Executive Officer)
/s/ROLAND O. BURNS Senior Vice President, Chief August 2, 2002
- ------------------ Financial Officer, Secretary, Treasurer
Roland O. Burns and Director
(Principal Financial and Accounting Officer)
I-13
August 2, 2002
Comstock Resources, Inc.
5300 Town and Country Blvd., Suite 500
Frisco, TX 75034
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
This firm has acted as special counsel to Comstock Resources, Inc., a
Nevada corporation (the "Company"), and its subsidiary guarantor co-registrants,
in connection with the Registration Statement on Form S-4 (the "Registration
Statement") pertaining to the Company's offering of up to $75,000,000 principal
amount of its 11 1/4% Senior Notes due 2007 (the "New Notes"). The New Notes are
to be issued pursuant to an exchange offer (the "Exchange Offer") in exchange
for a like principal amount of the Company's issued and outstanding 11 1/4%
Senior Notes due 2007 (the "Outstanding Notes") under an Indenture by and among
the Company, the subsidiary guarantors party thereto, and U.S. Trust Company of
Texas, N.A., the predecessor in interest to The Bank of New York Trust Company
of Florida, N.A., as Trustee (the "Trustee"), as such has been amended and
supplemented by that certain First Supplemental Indenture dated March 7, 2002
(collectively, the "Indenture").
This opinion is being furnished in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended (the
"Act").
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of: (i) the Registration
Statement; (ii) the Indenture (including the First Supplemental Indenture);
(iii) the form of the New Notes certificate(s); and (iv) such other documents
and records of the Company, such certificates of public officials and of
officers and other representatives of the Company and all such other documents,
agreements, records or certificates as we have deemed necessary or appropriate
as a basis for the opinions set forth herein.
In connection with this opinion, we have, with your permission, made the
following assumptions: (i) all documents submitted to or reviewed by us,
including all amendments and supplements thereto, are accurate and complete and,
if not originals, are true, correct and complete copies of the originals; (ii)
the signatures on each of such documents by the parties thereto are genuine;
(iii) each individual who signed such documents had the legal capacity to do so;
and (iv) all persons who signed such documents on behalf of a business entity
were duly authorized to do so. We have assumed that there are no amendments,
modifications or supplements to such documents other than those amendments,
modifications and supplements that are known to us.
We have additionally assumed, without independent investigation or inquiry
with respect to any such matter, that (i) the Trustee has all requisite power
and authority to execute, deliver and perform its obligations under the
Indenture; (ii) the execution and delivery of the Indenture and the performance
of such obligations have been duly authorized by all necessary action on the
Trustee's part and the Indenture has been duly delivered by it; and (iii) the
Indenture is enforceable against the Trustee in accordance with the terms
thereof.
Based upon the foregoing, and subject to the limitations and qualifications
set forth herein, we are of the opinion that when the New Notes (in the form
examined by us) have been duly executed and authenticated in accordance with the
terms of the Indenture and have been delivered upon consummation of the Exchange
Offer against receipt of Outstanding Notes surrendered in exchange therefor in
accordance with the terms of the Exchange Offer, the New Notes will constitute
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms, except to the extent that enforcement thereof may
be limited by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and (ii) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity).
In rendering the opinion set forth above, we have assumed that the
execution and delivery by the Company of the Indenture and the New Notes and the
performance by the Company of its obligations thereunder do not and will not
violate, conflict with or constitute a default under any agreement or instrument
to which the Company or its properties is subject, except for those agreements
and instruments which have been identified to us by the Company as being
material to it and which are listed in Part II of the Registration Statement.
With respect to any agreement or instrument (other than the Indenture) reviewed
by us, that by its terms or otherwise is governed by the law of any jurisdiction
other than the laws of the State of Texas, our opinion herein is based solely on
our understanding of the plain language of such agreement or instrument and we
do not express any opinion with respect to the interpretation, validity, binding
nature or enforceability of any such agreement or instrument, and we do not
assume any responsibility with respect to the affect on the opinions or
statements set forth herein of any interpretation thereof inconsistent with such
understanding.
This opinion is subject to the further qualification that indemnification
or contribution provisions in the Indenture and the related documents may be
unenforceable to the extent that such indemnification or contribution may be
held to be in violation of or against public policy, including, without
limitation, limitations under certain circumstances on enforceability of
provisions (i) indemnifying a party against loss attributable to or liability
for its own negligent acts or (ii) providing for contribution with respect to
such loss or liability.
We are members of the State Bar of Texas and we do not express any opinion
herein with respect to the law of any jurisdiction other than the State of
Texas, applicable federal law, the General Corporation Law of the State of
Nevada and the contract laws of the State of New York.
This opinion is intended solely for your benefit. It is not to be quoted in
whole or in part, disclosed, made available to or relied upon by any other
person, firm or entity without our express prior written consent. This opinion
is limited to the specific opinions expressly stated herein, and no other
opinion is implied or may be inferred beyond the specific opinions expressly
stated herein.
This opinion is based upon our knowledge of the law and facts relevant to
the transactions herein referenced as of the date hereof. We assume no duty to
update or supplement this opinion to reflect any facts or circumstances that may
hereafter come to our attention or to reflect any changes in any law that may
hereafter occur or become effective.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our name under the heading "Legal
Matters" in the Prospectus. In giving this consent, we do not thereby admit that
we are included in the category of persons whose consent is required under
Section 7 of the Act or the rules and regulations of the U.S. Securities and
Exchange Commission.
Respectfully submitted,
LOCKE LIDDELL & SAPP LLP
By: /s/JACK. E. JACOBSEN
-------------------------
Jack E. Jacobsen
Partner
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS
Three Months Ended
Year Ended December 31, March 31,
---------------------------------------------------- -------------------
1997 1998 1999 2000 2001 2001 2002
-------- -------- -------- -------- -------- -------- --------
Ratio of EBITDA to Interest Expense: (in thousands, except ratios)
Interest expense:
Interest expense...................... $ 5,934 $ 16,977 $ 23,361 $ 24,611 $ 20,737 $ 5,505 $ 6,810
Capitalized interest expense.......... 133 2,273 -- -- 230 -- 60
Rental expense deemed interest........ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total interest expense.......... $ 6,067 $ 19,250 $ 23,361 $ 24,611 $ 20,967 $ 5,505 $ 6,870
======== ======== ======== ======== ======== ======== ========
EBITDA:
Income (loss) from continuing operations
before income taxes................ $ 34,214 $(26,188) $ (4,267) 63,766 $ 56,061 $ 36,819 $ (6,556)
Interest expense...................... 5,934 16,977 23,361 24,611 20,737 5,505 6,810
Depreciation, depletion and amortization.. 25,454 50,546 44,948 44,785 49,068 11,980 13,561
Exploration........................... 2,810 8,301 1,832 3,192 4,215 2,831 1,953
Unrealized gain (loss) from derivatives -- -- -- -- 254 -- (2,356)
Impairment of oil and gas properties.. -- 16,942 -- -- 1,400 -- --
-------- -------- -------- -------- -------- -------- --------
EBITDA (1)...................... $ 68,413 $ 66,578 $ 65,874 $136,354 $131,227 $ 57,135 $ 18,124
======== ======== ======== ======== ======== ======== ========
Ratio of EBITDA to interest expense(2).... 11.3x 3.5x 2.8x 5.5x 6.3x 10.4x 2.6x
Ratio of Earnings to Fixed Charges:
Fixed charges:
Interest expense...................... $ 5,934 $ 16,977 $ 23,361 $ 24,611 $ 20,737 $ 5,505 $ 6,810
Capitalized interest expense.......... 133 2,273 -- -- 230 -- 60
Preferred stock dividends............. (410) -- (1,853) (2,471) (1,604) (395) (395)
Rental expense deemed interest........ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total fixed charges............. $ 6,477 $ 19,250 $ 25,214 $ 27,082 $ 22,571 $ 5,900 $ 7,265
======== ======== ======== ======== ======== ======== ========
Earnings, as defined:
Income (loss) from continuing operations
before income taxes................ $ 34,214 $(26,188) $ (4,267) $ 63,766 $ 56,061 $ 36,819 (6,556)
Interest expense...................... 5,934 16,977 23,361 24,611 20,737 5,505 6,810
Rental expense deemed interest........ -- -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Earnings, as defined (3)........ $ 40,148 $ (9,211) $ 19,094 $ 88,377 $ 76,798 $ 42,324 $ 254
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges (4).... 6.2x -- -- 3.3x 3.4x 7.2x --
__________
(1)EBITDA means income (loss) from continuing operations before income taxes,
plus interest, depreciation, depletion and amortization, exploration expense,
impairment of oil and gas properties and unrealized gains or losses from
derivatives. EBITDA is a financial measure commonly used in our industry and
should not be considered in isolation or as a substitute for net income, cash
flow provided by operating activities or other income or cash flow data
prepared in accordance with generally accepted accounting principles or as a
measure of a company's profitability or liquidity.
(2)For purposes of calculating the ratio of EBITDA to interest expense, interest
expense includes interest expense, capitalized interest expense and that
portion of non-capitalized rental expense deemed to be the equivalent of
interest.
(3)Earnings represents income before income taxes from continuing operations
before fixed charges.
(4)For the purpose of calculating the ratio of earnings to fixed charges, fixed
charges include interest expense, capitalized interest expense, preferred
stock dividends and that portion of non-capitalized rental expense deemed to
be the equivalent of interest. Earnings represents income before income taxes
from continuing operations before fixed charges. Earnings were insufficient
to cover fixed charges by $28.5 million, $6.1 million and $7.0 million for
the years ended December 31, 1998 and 1999, and the three months ended March
31, 2002, respectively.
Awareness Letter of KPMG LLP
August 2, 2002
Comstock Resources, Inc.
5300 Town and Country Blvd. Suite 500
Frisco, Texas 75034
With respect to the subject registration statement, we acknowledge our awareness
of the use therein of our report dated May 7, 2002 related to our review of
interim financial information.
Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is
not considered part of a registration statement prepared or certified by an
accountant, or a report prepared or certified by an accountant within the
meaning of Sections 7 and 11 of the Act.
KPMG LLP
Dallas, Texas
LETTER OF TRANSMITTAL
COMSTOCK RESOURCES, INC.
Offer For Any and All Outstanding
11 1/4% Senior Notes due 2007
in Exchange for
11 1/4% Senior Notes due 2007
Which Have Been Registered Under The Securities Act of 1933
Pursuant to the Prospectus dated August 5, 2002
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 3, 2002, UNLESS THE OFFER IS EXTENDED IN ACCORDANCE WITH THE
TERMS OF THE EXCHANGE OFFER. TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW
YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
The Exchange Agent For The Exchange Offer Is:
THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A.
By Mail, Hand Delivery or Courier:
The Bank of New York
Trust Company of Florida, N.A.
The Bank of New York Trust Company of Florida, N.A.
Corporate Trust Operations
Reorganization Unit
101 Barclay Street - 7 East
New York, New York 10286
Attention: Kin Lau
Confirm by Telephone (For Eligible Institutions):
(212) 815-3750
(212) 298-1915 (facsimile)
Delivery of this letter of transmittal to an address other than as set
forth above or transmission of instructions via facsimile other than as set
forth above does not constitute a valid delivery of such letter of transmittal.
The undersigned acknowledges receipt of the Prospectus, dated August 5,
2002, as it may be amended from time to time (the "Prospectus"), of Comstock
Resources, Inc., a Nevada corporation (the "Company"), and this Letter of
Transmittal, which together constitute the Company's offer (the "Exchange
Offer") to exchange an aggregate principal amount of up to $75,000,000 of the
Company's 11 1/4% Senior Notes due 2007 which have been registered (the "New
Notes") under the Securities Act of 1933, as amended (the "Securities Act"), for
an equal principal amount of the Company's issued and outstanding 11 1/4% Senior
Notes due 2007 (the "Outstanding Notes") from the holders thereof.
PLEASE READ THE INSTRUCTIONS CONTAINED HEREIN CAREFULLY BEFORE COMPLETING
THIS LETTER OF TRANSMITTAL.
Holders of New Notes will not be entitled to certain rights of holders of
the Outstanding Notes under the Registration Rights Agreement, dated March 7,
2002, among the Company, certain subsidiaries of the Company, and Morgan Stanley
& Co. Incorporated, as the representative of the initial purchasers (the
"Registration Rights Agreement"), which rights will be terminated upon
consummation of the Exchange Offer with respect to holders who hold the New
Notes.
Capitalized terms used but not otherwise defined herein shall have the same
meanings respectively given to them in the Prospectus. The term "holder" with
respect to the Exchange Offer means any person in whose name Outstanding Notes
are registered on the books of the Company or any other person who has obtained
a properly completed bond power from such registered holder.
This Letter of Transmittal is to be completed by holders of Outstanding
Notes, whether certificates for Outstanding Notes ("Certificates") are to be
forwarded herewith or whether tenders of Outstanding Notes are to be made by
book-entry transfer to an account maintained by The Bank of New York Trust
Company of Florida, N.A. (the "Exchange Agent") at the Depository Trust Company
(the "Book Entry Transfer Facility" or "DTC") pursuant to the procedures set
forth in "The Exchange Offer--Procedures for Tendering Outstanding Notes" in the
Prospectus.
Participants in the Book-Entry Transfer Facility may also tender
Outstanding Notes by complying with the Book-Entry Transfer Facility's Automated
Tender Offer Program by which tendering participants will agree to be bound by
the terms of this Letter of Transmittal as described in the Prospectus. In that
case physical delivery of this Letter of Transmittal is not required.
Holders of Outstanding Notes whose certificates are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the expiration date of the
Exchange Offer (as provided in the Prospectus, the "Expiration Date") or who
cannot complete the procedures for book-entry transfer on a timely basis, may
tender their Outstanding Notes by complying with the guaranteed delivery
procedures set forth in "The Exchange Offer--Guaranteed Delivery Procedures" in
the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
The undersigned has completed the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
- ----------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES 1 2 3
- ----------------------------------------------------------------------------------------
Name(s) and Address(es) of Certificate Aggregate Principal
Registered Holder(s): Number(s)* Principal Amount of
(Please fill in, if blank) Amount of Outstanding Notes
Outstanding Tendered
Notes (if less than all)***
- ------------------------------ ----------- ----------- --------------
- ------------------------------ ----------- ----------- --------------
- ------------------------------ ----------- ----------- --------------
- ------------------------------ ----------- ----------- --------------
* Need not be completed if Outstanding Notes are being tendered by book-entry
holders.
** Outstanding Notes tendered in the Exchange Offer must be tendered in
denominations of the principal amount of $1,000 or any integral multiples
of $1,000 in excess thereof. See Instruction 4. Unless otherwise indicated
in the column, a Holder will be deemed to have tendered all Outstanding
Notes represented by the Outstanding Notes indicated in Column 2. See
Instruction 4.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
|_| CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:________________________________
Account Number:_______________________________________________
Transaction Code Number:______________________________________
2
|_| CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING:
Name of Holder(s):_________________________________________________________
Window Ticket Number (if any):_____________________________________________
Date of Execution of Notice of Guaranteed Delivery:__________________ ,1999
Name of Institution which Guaranteed Delivery:
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution:_____________________________________________
DTC Account Number:________________________________________________________
Transaction Code Number:___________________________________________________
|_| CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OUTSTANDING
NOTES ARE TO BE RETURNED BY CREDITING THE BOOK-ENTRY TRANSFER FACILITY
ACCOUNT NUMBER SET FORTH ABOVE.
|_| CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OUTSTANDING NOTES
FOR YOUR OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name:___________________________________
Address & Phone:____________________
____________________
____________________
(include zip code)
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the above described aggregate
principal amount of the Company's Outstanding Notes in exchange for a like
aggregate principal amount of the Company's New Notes, upon the terms and
subject to the conditions set forth in the Prospectus, receipt of which is
acknowledged, and in this Letter of Transmittal (which, together with the
Prospectus, constitute the Exchange Offer). Subject to and effective upon the
acceptance for exchange of all or any portion of the Outstanding Notes tendered
herewith in accordance with the terms and conditions of the Exchange Offer
(including, if the Exchange Offer is extended or amended, the terms and
conditions of any such extension or amendment), the undersigned hereby sells,
assigns and transfers to or upon the order of the Company all right, title and
interest in and to such Outstanding Notes as are being tendered herewith.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as its agent and attorney-in-fact (with full knowledge that the Exchange
Agent is also acting as agent of the Company in connection with the Exchange
Offer) with respect to the tendered Outstanding Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power,
coupled with an interest) subject only to the right of withdrawal described in
"The Exchange Offer -- Withdrawal Rights" in the Prospectus, to (i) deliver
Certificates to the Company, together with all accompanying evidences of
3
transfer and authenticity to, or upon the order of, the Company, upon receipt by
the Exchange Agent, as the undersigned's agent, of the New Notes to be issued in
exchange for such Outstanding Notes, (ii) present Certificates for transfer, and
to transfer the Outstanding Notes on the books of the Company and (iii) receive
for the account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Outstanding Notes, all in accordance with the terms
and conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE
OUTSTANDING NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR
EXCHANGE, THE COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE
THERETO, FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES,
AND THAT THE OUTSTANDING NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE
CLAIMS, PROXIES, OR ANY OTHER RIGHTS OF THIRD PARTIES. UPON REQUEST, THE
UNDERSIGNED WILL EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY THE
COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE
EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OUTSTANDING NOTES TENDERED HEREBY, AND
THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT. THE UNDERSIGNED HAS READ AND AGREED TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The undersigned agrees that acceptance of any tendered Outstanding Notes by
the Company and the issuance of New Notes in exchange for Outstanding Notes will
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement and that the Company will have no further
obligations or liabilities thereunder.
If they are not already set forth above, please print the name(s) and
address(es) of the holder(s) of the Outstanding Notes tendered hereby as they
appear on the Certificates. The undersigned should indicate the Certificate
number(s) of the Outstanding Notes that the undersigned wishes to tender in the
appropriate boxes above.
If any tendered Outstanding Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more
Outstanding Notes than are tendered or accepted for exchange, Certificates for
such nonexchanged or nontendered Outstanding Notes will be returned (or, in the
case of Outstanding Notes tendered by book-entry transfer, such Outstanding
Notes will be credited to an account maintained at DTC), without expense to the
tendering Holder, promptly following the Expiration Date.
The undersigned understands that tenders of Outstanding Notes pursuant to
any one of the procedures described in "The Exchange Offer--Procedures for
Tendering Outstanding Notes" in the Prospectus and in the instructions attached
hereto will, upon the Company's acceptance for exchange of such tendered
Outstanding Notes, constitute a binding agreement between the undersigned and
the Company upon the terms and subject to the conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Outstanding Notes tendered hereby.
Unless otherwise indicated under "Special Issuance Instructions" below, the
undersigned hereby directs that the New Notes be issued in the name(s) of the
undersigned or, in the case of a book-entry transfer of Outstanding Notes, that
such New Notes be credited to the account indicated above and maintained at DTC.
If applicable, substitute Certificates not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Outstanding Notes, will be credited to the account indicated above
and maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions," New Notes will be delivered to the undersigned at the
address shown below the undersigned's signature.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance on certain interpretive letters by the staff of the Securities and
Exchange Commission (the "SEC") to third parties in unrelated transactions. On
the basis thereof, the New Notes issued in exchange for the Outstanding Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by holders of the New Notes (other than any such holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
4
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders are not participating in, and
have no arrangement or understanding with any person to participate in, the
distribution of such New Notes.
BY TENDERING OUTSTANDING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL,
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT (I) THE UNDERSIGNED IS NOT
AN "AFFILIATE" OF THE COMPANY, (II) ANY NEW NOTES TO BE RECEIVED BY THE
UNDERSIGNED ARE BEING ACQUIRED IN THE ORDINARY COURSE OF ITS BUSINESS, (III) THE
UNDERSIGNED HAS NO ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO PARTICIPATE
IN A DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE
RECEIVED IN THE EXCHANGE OFFER AND (IV), IF THE UNDERSIGNED IS NOT A BROKER-
DEALER, THE UNDERSIGNED IS NOT ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A
DISTRIBUTION (WITHIN THE MEANING OF THE SECURITIES ACT) OF SUCH NEW NOTES. BY
TENDERING OUTSTANDING NOTES PURSUANT TO THE EXCHANGE OFFER AND EXECUTING THIS
LETTER OF TRANSMITTAL, A HOLDER OF OUTSTANDING NOTES THAT IS A BROKER- DEALER
REPRESENTS AND WARRANTS, CONSISTENT WITH CERTAIN INTERPRETIVE LETTERS ISSUED BY
THE STAFF OF THE DIVISION OF CORPORATION FINANCE OF THE SECURITIES AND EXCHANGE
COMMISSION TO THIRD PARTIES, THAT (A) THE BROKER-DEALER HOLDS SUCH OUTSTANDING
NOTES ONLY AS A NOMINEE, OR (B) THE BROKER-DEALER ACQUIRED SUCH OUTSTANDING
NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER
TRADING ACTIVITIES AND THAT IT WILL DELIVER A PROSPECTUS (AS AMENDED OR
SUPPLEMENTED FROM TIME TO TIME) MEETING THE REQUIREMENTS OF THE SECURITIES ACT
IN CONNECTION WITH ANY RESALE OF SUCH NEW NOTES (PROVIDED THAT, BY SO
ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS, SUCH BROKER-DEALER WILL NOT BE
DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF THE SECURITIES
ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE REGISTRATION
RIGHTS AGREEMENT, A PARTICIPATING BROKER-DEALER (AS DEFINED BELOW) MAY USE THE
PROSPECTUS, AS IT MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME, IN
CONNECTION WITH RESALES OF NEW NOTES THAT SUCH PARTICIPATING BROKER-DEALER
ACQUIRED FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES OR OTHER
TRADING ACTIVITIES, FOR A PERIOD ENDING 180 DAYS AFTER CONSUMMATION OF THE
EXCHANGE OFFER OR, IF EARLIER, WHEN SUCH PARTICIPATING BROKER-DEALER HAS
DISPOSED OF ALL SUCH NEW NOTES. IN THAT REGARD, EACH BROKER-DEALER THAT ACQUIRED
OUTSTANDING NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER
TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER"), BY TENDERING SUCH
OUTSTANDING NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, AGREES THAT, UPON
RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE OF ANY EVENT OR THE
DISCOVERY OF ANY FACT THAT MAKES ANY STATEMENT CONTAINED OR INCORPORATED BY
REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR THAT CAUSES THE
PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER TO MAKE THE
STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT OF THE
CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING, OR OF THE OCCURRENCE
OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS AGREEMENT, SUCH
PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES PURSUANT TO THE
PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE PROSPECTUS TO
CORRECT SUCH MISSTATEMENT OR OMISSION AND THE COMPANY HAS FURNISHED COPIES OF
THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR
UNTIL THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE
RESUMED, AS THE CASE MAY BE. IF THE COMPANY GIVES NOTICE TO SUSPEND THE SALE OF
THE NEW NOTES, IT SHALL EXTEND THE 180-DAY PERIOD REFERRED TO ABOVE DURING WHICH
PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION
WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND
INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE WHEN
5
PARTICIPATING BROKER- DEALERS SHALL HAVE RECEIVED COPIES OF THE SUPPLEMENTED OR
AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES OR TO AND
INCLUDING THE DATE ON WHICH THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF NEW
NOTES MAY BE RESUMED, AS THE CASE MAY BE.
Holders of Outstanding Notes whose Outstanding Notes are accepted for
exchange will not receive any payment in respect of accrued interest on such
Outstanding Notes otherwise payable on any interest payment date the record date
for which occurs on or after the date of consummation of the Exchange Offer.
Outstanding Notes accepted for exchange will cease to accrue interest from and
after the date of consummation of the Exchange Offer. Such holders, as holders
of New Notes on the relevant record date for the first interest payment date
following the consummation of the Exchange Offer, will receive interest accruing
from the most recent date to which interest has peen paid or, if no interest has
been paid, from May 1, 2002.
Upon request, the undersigned will execute and deliver any additional
documents that the Company or the Exchange Agent may deem necessary or desirable
to complete the sale, assignment and transfer of the Outstanding Notes tendered
hereby. All authority herein conferred or agreed to be conferred in this Letter
of Transmittal shall survive the death or incapacity of the undersigned and all
obligations of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, a tender of Outstanding Notes is irrevocable.
BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OUTSTANDING NOTES" ABOVE AND
DULY SIGNING AND DELIVERING THIS LETTER OF TRANSMITTAL, THE UNDERSIGNED WILL BE
DEEMED TO HAVE TENDERED THE OUTSTANDING NOTES AS SET FORTH IN SUCH BOX.
6
HOLDER(S) SIGN HERE
(SEE INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 INCLUDED HEREWITH)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
- --------------------------------------------------------------------------------
X________________________________________ _____________________ _______________________
Telephone Number Taxpayer Identification
X________________________________________ (including area code) or Social Security No.
Signature(s) of Holder(s):
Dated:___________________________________
(Must be signed by holder(s)
exactly as name(s) appear(s) on
Certificate(s) hereby tendered or on the
Note Register, or by any person(s)
authorized to become the holder(s) by
endorsements and documents transmitted
herewith (including such opinions of
counsel, certifications and other
information as may be required by the
Company for the Outstanding Notes to
comply with the restrictions on transfer
applicable to the Outstanding Notes). If
signature is by an attorney-in-fact,
executor, administrator, trustee,
guardian, officer of a corporation or a GUARANTEE OF SIGNATURE(S)
person acting in another fiduciary or (SEE INSTRUCTIONS 2 AND 5):
representative capacity, please set
forth the signatory's full title. See
Instruction 5.) Authorized Signature:_____________
Date:______________________________,1999 Date:_____________________________
Name(s):_______________________________ Name of firm:_____________________
(please print)
Capacity (full title):_________________ Capacity (full title):____________
Address:________________________________ Address:__________________________
________________________________ __________________________________
(Include Zip Code) (Include Zip Code)
__________________________________
Telephone Number
(including area code)
- --------------------------------------------------------------------------------
IMPORTANT: UNLESS GUARANTEED DELIVERY PROCEDURES ARE COMPLIED WITH, THIS
LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATE(S)
FOR OUTSTANDING NOTES AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
EXCHANGE AGENT PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
ALL SHAREHOLDERS MUST COMPLETE THIS SUBSTITUTE FORM W-9; FAILURE TO DO SO
MAY RESULT IN BACKUP WITHHOLDING OF 30% OF ANY PAYMENTS MADE TO YOU PURSUANT TO
THE EXCHANGE OFFER.
7
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if the New Notes or Outstanding Notes not tendered are
to be issued in the name of someone other than the Holder of the Outstanding
Notes whose name(s) appear(s) above.
- --------------------------------------------------------------------------------
Please issue:
|_| Outstanding Notes not tendered to: |_| New Notes to:
Name(s): ________________________________ Name(s): ________________________________
________________________________ ________________________________
(please print) (please print)
Capacity (full Title):___________________ Capacity (full Title):___________________
Address: ________________________________ Address: ________________________________
________________________________ ________________________________
(include zip code) (include zip code)
Telephone Number Telephone Number
(including area code):___________________ (including area code):___________________
Taxpayer Identification or Taxpayer Identification or
Social Security Number(s):_______________ Social Security Number(s):_______________
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if New Notes or Outstanding Notes not tendered are to
be sent to someone other than the Holder of the Outstanding Notes whose name(s)
appear(s) above, or to such holder(s) at an address other than that shown above.
- ---------------------------------------------------------------------------------------
Please mail:
|_| Outstanding Notes not tendered to: |_| New Notes to:
Name(s): ________________________________ Name(s): ________________________________
________________________________ ________________________________
(please print) (please print)
Capacity (full Title):___________________ Capacity (full Title):___________________
Address: ________________________________ Address: ________________________________
________________________________ ________________________________
(include zip code) (include zip code)
Telephone Number Telephone Number
(including area code):___________________ (including area code):___________________
Taxpayer Identification or Taxpayer Identification or
Social Security Number(s):_______________ Social Security Number(s):_______________
- ---------------------------------------------------------------------------------------
8
INSTRUCTIONS
(FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER)
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed if either (a)
certificates representing the Outstanding Notes ("Certificates") are to be
forwarded herewith or (b) tenders are to be made pursuant to the procedures for
tender by book-entry transfer set forth in "The Exchange Offer--Procedures for
Tendering Outstanding Notes" in the Prospectus, and in either case the
Book-Entry Transfer Facility's Automated Tender Offer Procedure ("ATOP") is not
being used. The Exchange Agent must receive Certificates, or timely confirmation
of a book-entry transfer of such Outstanding Notes into the Exchange Agent's
account at DTC, as well as this Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees,
and any other documents required by this Letter of Transmittal, at its address
set forth herein on or prior to the Expiration Date. Outstanding Notes may be
tendered in whole or in part in the principal amount of $1,000 and integral
multiples thereof; provided, however, that, if any Outstanding Notes are
tendered for exchange in part, the untendered principal amount thereof must be
$1,000 or any integral multiple thereof.
Holders who wish to tender their Outstanding Notes (i) whose Outstanding
Notes are not immediately available, (ii) who cannot deliver their Outstanding
Notes, this Letter of Transmittal and all other required documents to the
Exchange Agent on or prior to the Expiration Date or (iii) who cannot complete
the procedures for delivery by book-entry transfer on a timely basis, may tender
their Outstanding Notes by properly completing and duly executing a Notice of
Guaranteed Delivery pursuant to the guaranteed delivery procedures set forth in
"The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus. Pursuant
to such procedures: (i) such tender must be made by or through an Eligible
Institution (as defined below); (ii) the Exchange Agent must receive a properly
completed and duly executed Notice of Guaranteed Delivery, substantially in the
form that the Company has made available, on or prior to the Expiration Date;
and (iii) the Exchange Agent must receive the Certificates (or a book-entry
confirmation (as defined in the Prospectus)) representing all tendered
Outstanding Notes, in proper form for transfer, together with a Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees (or an agent's message from the Book-Entry
Transfer Facility confirming that it has received ATOP instructions with respect
to the tendered Outstanding Notes) and any other documents required by this
Letter of Transmittal, within five (5) New York Stock Exchange trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in "The Exchange Offer--Guaranteed Delivery Procedures" in the
Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Outstanding Notes
to be properly tendered pursuant to the guaranteed delivery procedure, the
Exchange Agent must receive a Notice of Guaranteed Delivery on or prior to the
Expiration Date. As used herein and in the Prospectus, "Eligible Institution"
means a firm or other entity identified in Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN THE EXCHANGE AGENT ACTUALLY RECEIVES
ALL OF SUCH DOCUMENTS. IF DELIVERY IS BY MAIL, THEN REGISTERED MAIL WITH RETURN
RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS
RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY
DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering holder, by execution and delivery of this Letter of
Transmittal (or facsimile thereof), waives any right to receive any notice of
the acceptance of such tender.
9
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the holder (which term, for
purposes of this Letter of Transmittal, shall include any participant
in DTC whose name appears on the Note Register as the owner of the
Outstanding Notes) of Outstanding Notes tendered herewith, unless such
holder(s) has completed either "Special Issuance Instructions" or
"Special Delivery Instructions" above; or
(ii) such Outstanding Notes are tendered for the account of a firm that
is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Outstanding Notes" is inadequate, the Certificate number(s)
and/or the principal amount of Outstanding Notes and any other required
information should be listed on a separate signed schedule that is attached to
this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Outstanding Notes will
be accepted only in the principal amount of $1,000 and integral multiples
thereof; provided, however, that, if any Outstanding Notes are tendered for
exchange in part, the untendered principal amount thereof must be $1,000 or any
integral multiple thereof. If less than all the Outstanding Notes evidenced by
any Certificate submitted are to be tendered, please indicate the principal
amount of Outstanding Notes that are to be tendered in the box entitled
"Principal Amount of Outstanding Notes Tendered (if less than all)." In such
case, new Certificate(s) for the remainder of the Outstanding Notes that were
evidenced by the old Certificate(s) will only be sent to the holder of the
Outstanding Notes, promptly after the Expiration Date. All Outstanding Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time on or prior to 5:00 p.m., New York City time on the
Expiration Date. In order for a withdrawal to be effective on or prior to that
time, the Exchange Agent must timely receive a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal at one of its addresses set
forth above or in the Prospectus or the appropriate procedures of ATOP must be
complied with on or prior to the Expiration Date. Any such notice of withdrawal
must (i) specify the name of the person having tendered the Outstanding Notes to
be withdrawn (the "Depositor"), (ii) identify the Notes to be withdrawn
(including the certificate number or numbers and principal amount of such
Outstanding Notes), (iii) contain a statement that such person is withdrawing
his election to have such Outstanding Notes exchanged, (iv) be signed by the
person in the same manner as the original signature on the Letter of Transmittal
by which such Outstanding Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer to have the trustee with
respect to the Outstanding Notes register the transfer of such Outstanding Notes
in the name of the person withdrawing the tender, and (v) specify the name in
which such Outstanding Notes are registered, if different from that of the
Depositor. If Outstanding Notes have been tendered pursuant to the procedures
for book-entry transfer set forth in the Prospectus under "The Exchange
Offer--Procedures for Tendering Outstanding Notes," the notice of withdrawal
must specify the name and number of the account at DTC to be credited with the
withdrawal of Outstanding Notes, in which case a notice of withdrawal will be
effective if timely delivered to the Exchange Agent by written, telegraphic,
telex or facsimile transmission. Withdrawals of tenders of Outstanding Notes may
not be rescinded. Outstanding Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described in the Prospectus under "The Exchange Offer--Procedures for
Tendering Outstanding Notes."
The Company will determine, in its sole discretion, all questions as to the
validity, form and eligibility (including time of receipt) of any such
withdrawal notice, and such determination shall be final and binding on all
parties. None of the Company, any affiliates or assigns of the Company, the
Exchange Agent or any other person shall be under any duty to give any
notification of any irregularities in any notice of withdrawal or shall incur
any liability for failure to give any such notification. Any Outstanding Notes
that have been tendered but that are withdrawn will be returned to the holder
without cost to such holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the holder(s) of the Outstanding Notes
10
tendered hereby, the signature(s) must correspond exactly with the name(s) as
written on the face of the Certificate(s) without alteration, enlargement or any
change whatsoever.
If any tendered Outstanding Notes are owned of record by two or more joint
holders, all such holders must sign this Letter of Transmittal.
If any tendered Outstanding Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in another fiduciary or representative
capacity, such persons must so indicate when signing and must submit proper
evidence satisfactory to the Company, in its sole discretion, of each such
person's authority to act.
If this Letter of Transmittal is signed by the holder(s) of the Outstanding
Notes listed and transmitted hereby, no endorsement(s) of Certificate(s) or
separate bond power(s) are required unless New Notes are to be issued in the
name of a person other than the holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by
an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the holder
of the Outstanding Notes listed and transmitted hereby, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the holder(s) appear(s) on the Certificates, and also must be
accompanied by such opinions of counsel, certifications and other information as
the Company or the trustee for the Outstanding Notes may require in accordance
with the restrictions on transfer applicable to the Outstanding Notes.
Signatures on such Certificates or bond powers must be guaranteed by an Eligible
Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signatory of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signatory
of this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal must be completed. Certificates
for Outstanding Notes not exchanged will be returned by mail or, if tendered by
book-entry transfer, by crediting the account indicated above maintained at DTC.
See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion, all
questions as to the form of documents, validity, eligibility (including time of
receipt) and acceptance for exchange of any tender of Outstanding Notes. Such
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders that it determines not to be in
proper form or the acceptance of which, or exchange for which, may, in the view
of counsel to the Company, be unlawful. The Company also reserves the absolute
right, subject to applicable law, to waive any of the conditions of the Exchange
Offer set forth in the Prospectus under "The Exchange Offer--Certain Conditions
to the Exchange Offer" or any conditions or irregularity in any tender of
Outstanding Notes by any particular holder, whether or not the Company waives
similar conditions or irregularities in the case of any other holder. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including this Letter of Transmittal and the instructions hereto) will be final
and binding on all parties. No tender of Outstanding Notes will be deemed to
have been validly made until all irregularities with respect to such tender have
been cured or waived. None of the Company, any affiliates or assigns of the
Company, the Exchange Agent or any other person shall be under any duty to give
notification of any irregularities in tenders or shall incur any liability for
failure to give such notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions and
requests for assistance may be directed to the Exchange Agent at its address and
telephone number set forth on the front cover of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from a broker,
dealer, commercial bank, trust company or other nominee.
11
9. 30% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under current U.S. federal
income tax law, a holder whose tendered Outstanding Notes are accepted for
exchange is required to provide the Exchange Agent with such holder's correct
taxpayer identification number (e.g. social security number or employer
identification number) ("TIN") on Substitute Form W-9 below and certify, under
penalties of perjury, that such number is correct and he or she is not subject
to backup withholding. If the Exchange Agent is not provided with the correct
TIN, the Internal Revenue Service (the "IRS") may subject the holder or other
payee to a $50 penalty. In addition, payments to such holders or other payees
with respect to Outstanding Notes exchanged pursuant to the Exchange Offer may
be subject to 30% backup withholding.
The tendering holder may write "Applied For" in the box requiring the
holder's TIN if the tendering holder has not been issued a TIN and has applied
for a TIN or intends to apply for a TIN in the near future. If the tendering
holder has indicated "Applied For," the holder must also complete the
Certificate of Awaiting Taxpayer Identification Number below in order to avoid
backup withholding. Notwithstanding that the tendering holder has indicated
"Applied For" and the Certificate of Awaiting Taxpayer Identification Number has
been completed, the Exchange Agent will withhold 30% of all reportable payments
made prior to the time that a properly certified TIN is provided to the Exchange
Agent. The Exchange Agent will retain such amounts withheld during the 60 day
period following the date of the Substitute Form W-9. If the holder furnishes
the Exchange Agent with its TIN within 60 days after the date of the Substitute
Form W-9, the amounts retained during the 60 day period will be remitted to the
holder and no further amounts shall be retained or withheld from payments made
to the holder thereafter. If, however, the holder has not provided the Exchange
Agent with its TIN within such 60 day period, amounts withheld will be remitted
to the IRS as backup withholding and 30% of all payments made thereafter will be
withheld and remitted to the IRS until a correct TIN is provided.
The holder is required to give the Exchange Agent the TIN of the holder of
the Outstanding Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Outstanding Notes. If the Outstanding Notes are
registered in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
Certain holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such holders should nevertheless
complete the attached Substitute Form W-9 below and write "exempt" on the face
thereof to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8
signed under penalties of perjury attesting to its exempt status. Please consult
the enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional guidance on which holders are exempt from
backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather,
the U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of tax, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive
satisfaction of any or all conditions to the Exchange Offer enumerated herein or
in the Prospectus.
11. NO CONDITIONAL TENDERS. The Company will not accept any alternative,
conditional, irregular or contingent tenders. By execution and delivery of this
Letter of Transmittal, a tendering Holder of Outstanding Notes shall be deemed
to have irrevocably waived any right to receive notice of acceptance of such
Outstanding Notes for exchange.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Outstanding Notes have been lost, destroyed or stolen, the holder
should promptly notify the Exchange Agent, which will instruct the holder as to
the steps that must be taken in order to replace the Certificate(s). In such
event, the Exchange Agent will be unable to process this Letter of Transmittal
and related documents until the holder has followed the procedures for replacing
lost, destroyed or stolen Certificate(s).
12
13. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of the Outstanding Notes in the Exchange Offer;
provided, however, that if a transfer tax is imposed because the New Notes are
to be delivered to, or are to be issued in the name of, any person other than
the holder of the Outstanding Notes tendered, or if a transfer tax is imposed
for any reason other than the exchange of Outstanding Notes in connection with
the Exchange Offer, then the tendering holder must pay the amount of any such
transfer tax (whether imposed on the holder or any other person). If the
tendering holder submits satisfactory evidence of payment of such taxes or
exemption therefrom with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder. If the tendering holder
is responsible for the transfer taxes in accordance with this paragraph 13, then
the Company will not be required to deliver any New Notes to, or at the
discretion of, the tendering holder until such time as such transfer taxes are
paid.
IMPORTANT: THE EXCHANGE AGENT MUST RECEIVE THIS LETTER OF TRANSMITTAL
(OR FACSIMILE THEREOF) AND ALL OTHER REQUIRED
DOCUMENTS ON OR PRIOR TO THE EXPIRATION DATE.
13
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(See Instruction 9)
- --------------------------------------------------------------------------------
SUBSTITUTE Part I-Taxpayer Identification
FORM W-9 Number-Enter your taxpayer
Department of the Treasury identification number in the ___________________________
Internal Revenue Service appropriate box. For most Social security number
individuals, this is your social
Payer's Request for security number. If you do not OR
Taxpayer Identification Number have a number, see "Obtaining a
("TIN") Number" in the enclosed ____________________________
Guidelines. Certify by signing Employer identification number
and dating below. (If awaiting TIN write "Applied For")
Note: if the account is in more
than one name, check in the
enclosed Guidelines for guidelines
on which number to give the payer.
- ---------------------------------------------------------------------------------------------------------------
Part II-For Payers Exempt from Backup Withholding, see the enclosed Guidelines
and complete as instructed therein
- ----------------------------------------------------------------------------------------------------------------
CERTIFICATION-Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to back-up withholding as a result of
failure to report all interest or dividends, or (c) the IRS has notified me
that I am no longer subject to back-up withholding.
CERTIFICATE INSTRUCTIONS-You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2). (Also see instructions in the
enclosed Guidelines.)
Signature:___________________________________ Date: __________________,200___
- --------------------------------------------------------------------------------
NOTE:FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 30% OF ANY PAYMENTS MADE TO YOU. PLEASE REVIEW THE ENCLOSED "GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9"
FOR ADDITIONAL DETAILS.
NOTE:YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING (OR WILL
SOON APPLY FOR) A TAXPAYER IDENTIFICATION NUMBER.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number
has not been issued to me, and either (i) I have mailed or delivered an
application to receive a taxpayer to receive a taxpayer identification number to
the appropriate Internal Revenue Service Center or Social Security
Administration office or (2) I intend to mail or deliver an application in the
near future. I understand that if I do not provide a Taxpayer Identification
Number by the time of payment, 30% of all reportable payments made to me
thereafter will be retained until I provide a Taxpayer Identification Number to
the Exchange Agent and that, if I do not provide my taxpayer identification
number within 60 days, such retained amounts shall be remitted to the Internal
Revenue Service as backup withholding and 30% of all reportable payments made to
me thereafter will be withheld and remitted to the Internal Revenue Service
until I provide a Taxpayer Identification Number.
Signature:___________________________________ Date: __________________, 200___
- --------------------------------------------------------------------------------
14
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number for the Payee (You)
to Give the Payer. Social security numbers have nine digits separated by two
hyphens: i.e., 000-00-0000. Employer identification numbers have nine digits
separated by only one hyphen: i.e., 00-0000000. The table below will help
determine the number to give the payer. All "Section" references are to the
Internal Revenue Code of 1986, as amended. "IRS" is the Internal Revenue
Service.
- ------------------------------------------------------- -----------------------------------------------------
Give the SOCIAL Give the EMPLOYER
For this type of account: SECURITY For this type of account IDENTIFICATION
number of - number of --
- ------------------------------------------------------- -----------------------------------------------------
1. An individual's account The individual 6. A valid trust, estate or The legal entity (4)
pension trust
2. Two or more individuals The actual owner of 7. Corporate The corporation
(joint account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor The minor(2) 8. Association, club, The organization
(Uniform Gift to Minors Act) religious, charitable,
educational or other
tax-exempt entity
4. a. The usual revocable The grantor-trustee(1) 9. Partnership The partnership
savings trust account
(grantor is also trustee)
b. So-called trust account The actual owner(1) 10. A broker or registered The broker or nominee
that is not a legal or valid nominee
trust under State law
5. Sole proprietorship The owner(3) 12. Account with the The public entity
Department of
Agriculture in the name
of a public entity
(such as a State or
local government,
school district or
prison) that receives
agricultural program
payments
- ------------------------------------------------------- -----------------------------------------------------
(1) List first and circle the name of the person whose number you furnish. If only one person or a joint account
has a social security number, that person's social security number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show your individual name. You may also enter your business name. You may use your social security number
or employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate or pension trust. (Do not furnish the taxpayer
identification number of the personal representative or trustee unless the legal entity itself is not
designated in the account title.)
NOTE:If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Page 2
Obtaining a Number
If you don't have a taxpayer o Payments of tax-exempt interest
identification number or you don't (including exempt-interest
know your number, obtain Form SS-5, dividends under Section 852).
Application for a Social Security o Payments described in Section
Card, or Form SS-4, Application for 6049(b)(5) to nonresident aliens.
Employer Identification Number, at o Payments on tax-free covenant
the local office of the Social bonds under Section 1451.
Security Administration or the o Payments made by certain foreign
Internal Revenue Service and apply organizations.
for a number. o Payments made to a nominee.
Payees Exempt from Backup Withholding Exempt payees described above should
file Form W-9 to avoid possible
Payees specifically exempted from erroneous backup withholding. FILE
backup withholding or information THIS FORM WITH THE PAYER, FURNISH
reporting on ALL payments include the YOUR TAXPAYER IDENTIFICATION NUMBER,
following: WRITE "EXEMPT" ON THE FACE OF THE
o A corporation. FORM, AND RETURN IT TO THE PAYER. IF
o A financial institution. THE PAYMENTS ARE INTEREST, DIVIDENDS
o An organization exempt from tax OR PATRONAGE DIVIDENDS, ALSO SIGN AND
under Section 501(a), any DATE THE FORM.
individual retirement plan or
custodial account under Section Certain payments, other than
403(b)(7) (if the account interest, dividends and patronage
satisfies the requirements of dividends that are not subject to
Section 401(f)(2)). information reporting are also not
o The United States or any agency or subject to backup withholding. For
instrumentality thereof. details, see the regulations under
o A State, the District of Columbia, Sections 6041, 6041A(a), 6042, 6044,
a possession of the United States 6045, 6049, 6050A and 6050N
or any subdivision or
instrumentality thereof. Privacy Act Notice. - Section 6109
o A foreign government, a political requires most recipients of dividend,
subdivision of a foreign interest or other payments to give
government or any agency or taxpayer identification numbers to
instrumentality thereof. payers who must report the payments
o An international organization or to IRS. IRS uses the numbers for
any of its agencies or identification purposes. Payers must
instrumentalities. be given the numbers whether or not
o A dealer in securities or recipients are required to file tax
commodities required to register returns. Payers must generally
in the U.S. or a possession of the withhold 30% of taxable interest,
U.S. dividend and certain other payments
o A real estate investment trust. to a payee who does not furnish a
o A common trust fund operated by a taxpayer identification number to a
bank under Section 584(a). payer. Certain penalties may also
o A trust exempt from tax under apply.
Section 664 or described in
Section 4947. Penalties
o An entity registered at all times
under the Investment Company Act (1) Penalty for Failure to Furnish
of 1940. Identification Number. - If you fail
o A foreign central bank of issue. to furnish your taxpayer
identification number to a payer, you
Payments Not Generally Exempt From are subject to a penalty of $50 for
Backup Withholding each such failure unless your failure
is due to reasonable cause and not to
Payments of dividends and patronage willful neglect.
dividends not generally subject to
backup withholding include the (2) Civil Penalty for False
following: Information With Respect to
o Payments to nonresident aliens Withholding. - If you make a false
subject to withholding under statement with no reasonable basis
Section 1441. which results in no imposition of
o Payments to partnerships not backup withholding, you are subject
engaged in a trade or business in to a penalty of $500.
the U.S. and which have at least
one nonresident partner. (3) Criminal Penalty for Falsifying
o Payments of patronage dividends Information. - Falsifying
where the amount received is not certifications or affirmations may
paid in money. subject you to criminal penalties
o Payments made by certain foreign including fines and/or imprisonment.
organizations.
o Payments made to a nominee. FOR ADDITIONAL INFORMATION CONTACT
YOUR TAX CONSULTANT OR THE INTERNAL
Payments of interest not generally
subject to backup withholding
including the following:
o Payments of interest on
obligations issued by individuals.
Note: You may be subject to backup
withholding if this interest is
$600 or more and is paid in the
course of the payer's trade or
business and you have not provided
your correct taxpayer
identification number to the
payer.
16
COMSTOCK RESOURCES, INC.
Letter to Clients Regarding
The Offer to Exchange Any and All Outstanding
11 1/4% Senior Notes Due 2007
For 11 1/4% Senior Notes Due 2007
That Have Been Registered
Under the Securities Act of 1933
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK
CITY TIME, ON SEPTEMBER 3, 2002 UNLESS THE EXCHANGE
OFFER IS EXTENDED (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
OUTSTANDING NOTES TENDERED IN THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO 5:00 P.M., NEW YORK CITY
TIME, ON THE EXPIRATION DATE.
To Our Clients:
We are enclosing herewith a Prospectus, dated August 5, 2002, of Comstock
Resources, Inc., a Nevada corporation (the "Company"), and a related Letter of
Transmittal (which together constitute the "Exchange Offer"), relating to the
offer by the Company to exchange its 11 1/4% Senior Notes due 2007 (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), for a like principal amount of its issued and
outstanding 11 1/4% Senior Notes due 2007 (the "Outstanding Notes"), upon the
terms and subject to the conditions set forth in the Exchange Offer.
The Exchange Offer is not conditioned upon any minimum number of Outstanding
Notes being tendered.
We are the holder of record of Outstanding Notes held by us for your own
account. A tender of such Outstanding Notes can be made only by us as the record
holder and pursuant to your instructions. The Letter of Transmittal is furnished
to you for your information only and cannot be used by you to tender Outstanding
Notes held by us for your account.
We request instructions as to whether you wish to tender any or all of the
Outstanding Notes held by us for your account pursuant to the terms and
conditions of the Exchange Offer. We also request that you confirm that we may
on your behalf make the representations and warranties contained in the Letter
of Transmittal.
Pursuant to the Letter of Transmittal, each holder of Outstanding Notes will
represent to the Company that: (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
undersigned; (ii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
within the meaning of the Securities Act of such New Notes; (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Outstanding Notes, neither the
undersigned nor any such other person is engaged in or intends to participate in
the distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Outstanding Notes, it represents
that such Outstanding Notes were acquired as a result of market-making
activities or other trading activities, and it acknowledges that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes, the undersigned is not deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
- ---------------------------------------------------------------------------------------------------------------------
PLEASE RETURN YOUR INSTRUCTIONS TO US IN THE ENCLOSED ENVELOPE WITHIN AMPLE TIME
TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION DATE.
- ---------------------------------------------------------------------------------------------------------------------
Very truly yours,
INSTRUCTION TO BOOK-ENTRY TRANSFER PARTICIPANT
To the Registered Holder and/or Participant in the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus dated August 5,
2002 (the "Prospectus") of Comstock Resources, Inc., a Nevada corporation (the
"Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer") to exchange its 11 1/4% Senior Notes due 2007 which have been registered
under the Securities Act of 1933 (the "New Notes"), for all of its outstanding
11 1/4% Senior Notes due 2007 (the "Outstanding Notes"). Capitalized terms used
but not defined herein have the meanings ascribed to them in the Prospectus or
the Letter of Transmittal.
This will instruct you, the DTC participant, as to the action to be taken by
you relating to the Exchange Offer with respect to the Outstanding Notes held by
you for the account of the undersigned.
The aggregate face amount of the Outstanding Notes held by you for the
account of the undersigned is (FILL IN AMOUNT):
$__________________ of the 11 1/4% Senior Notes due 2007.
WITH RESPECT TO THE EXCHANGE OFFER, THE UNDERSIGNED HEREBY INSTRUCTS YOU
(CHECK APPROPRIATE BOX):
[ ] TO TENDER THE FOLLOWING AMOUNT OF OUTSTANDING NOTES HELD BY YOU FOR THE
ACCOUNT OF THE UNDERSIGNED (INSERT PRINCIPAL AMOUNT OF OUTSTANDING NOTES TO BE
TENDERED. IF THIS SPACE IS LEFT BLANK, WE WILL ASSUME THAT YOU WISH TO TENDER
ALL OF YOUR OUTSTANDING NOTES): $_____________________.
[ ] NOT TO TENDER ANY OUTSTANDING NOTES HELD BY YOU FOR THE ACCOUNT OF THE
UNDERSIGNED.
If the undersigned instructs you to tender the Outstanding Notes held by you
for the account of the undersigned, it is understood that you are authorized to
make, on behalf of the undersigned (and the undersigned, by its signature below,
hereby makes to you), the representations contained in the Letter of Transmittal
that are to be made with respect to the undersigned as a beneficial owner,
including, but not limited to, the representations and warranties, that: (i) the
New Notes acquired pursuant to the Exchange Offer are being acquired in the
ordinary course of business of the undersigned; (ii) neither the undersigned nor
any such other person has an arrangement or understanding with any person to
participate in the distribution within the meaning of the Securities Act of
1933, as amended (the "Securities Act") of such New Notes; (iii) if the
undersigned is not a broker-dealer, or is a broker-dealer but will not receive
New Notes for its own account in exchange for Outstanding Notes, neither the
undersigned nor any such other person is engaged in or intends to participate in
the distribution of such New Notes and (iv) neither the undersigned nor any such
other person is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act or, if the undersigned is an "affiliate," that the
undersigned will comply with the registration and prospectus delivery
requirements of the Securities Act to the extent applicable. If the undersigned
is a broker-dealer (whether or not it is also an "affiliate") that will receive
New Notes for its own account in exchange for Outstanding Notes, it represents
that such Outstanding Notes were acquired as a result of market-making
activities or other trading activities, and it acknowledges that it will deliver
a prospectus meeting the requirements of the Securities Act in connection with
any resale of such New Notes. By acknowledging that it will deliver and by
delivering a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes, the undersigned is not deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
SIGN HERE
Name of beneficial owner(s): ___________________________________________
Signature(s): ___________________________________________
Name(s) (please print): ___________________________________________
Address: ___________________________________________
Telephone Number: ___________________________________________
Taxpayer Identification or
Social Security Number: ___________________________________________
Date: ___________________________________________
Exhibit 99.3
COMSTOCK RESOURCES, INC.
Letter to Registered Holders and
Depository Trust Company Participants
Regarding
The Offer to Exchange Any and All Outstanding 11 1/4% Senior Notes Due 2007
In Exchange For
11 1/4% Senior Notes Due 2007
That Have Been Registered Under the Securities Act of 1933
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 3, 2002 UNLESS THE EXCHANGE OFFER IS EXTENDED
(THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
OUTSTANDING NOTES TENDERED IN THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME ON OR PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
To Registered Holders and Depository Trust Company Participants:
We are enclosing herewith the material listed below relating to the offer by
Comstock Resources, Inc. (the "Company"), a Nevada corporation, to exchange its
11 1/4% Senior Notes due 2007 (the "New Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a like
principal amount of its issued and outstanding 11 1/4% Senior Notes due 2007
(the "Outstanding Notes"), upon the terms and subject to the conditions set
forth in the Company's Prospectus, dated August 5, 2002, and the related Letter
of Transmittal (which together constitute the "Exchange Offer").
Enclosed herewith are copies of the following documents:
1. Prospectus dated August 5, 2002;
2. Letter of Transmittal (together with accompanying Substitute Form
W-9 Guidelines);
3. Notice of Guaranteed Delivery; and
4. Letter that may be sent to your clients for whose account you hold
Outstanding Notes in your name or in the name of your nominee, with
space provided for obtaining such client's instruction with regard
to the Exchange Offer.
We urge you to contact your clients promptly. Please note that the Exchange
Offer will expire on the Expiration Date unless extended.
The Exchange Offer is not conditioned upon any minimum number of Outstanding
Notes being tendered.
Pursuant to the Letter of Transmittal, each holder of Outstanding Notes will
represent to the Company that: (i) the New Notes acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving such New Notes, whether or not the undersigned; (ii) neither
the undersigned nor any such other person has an arrangement or understanding
with any person to participate in the distribution within the meaning of the
Securities Act of such New Notes; (iii) if the undersigned is not a
broker-dealer, or is a broker-dealer but will not receive New Notes for its own
account in exchange for Outstanding Notes, neither the undersigned nor any such
other person is engaged in or intends to participate in the distribution of such
New Notes and (iv) neither the undersigned nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or, if the undersigned is an "affiliate," that the undersigned will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable. If the undersigned is a broker-dealer (whether or not
it is also an "affiliate") that will receive New Notes for its own account in
exchange for Outstanding Notes, it represents that such Outstanding Notes were
acquired as a result of market-making activities or other trading activities,
and it acknowledges that it will deliver a prospectus meeting the requirements
of the Securities Act in connection with any resale of such New Notes. By
acknowledging that it will deliver and by delivering a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes, the undersigned is not deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The enclosed Letter to Clients contains an authorization by the beneficial
owners of the Outstanding Notes for you to make the foregoing representations.
The Company will not pay any fee or commission to any broker or dealer to any
other persons (other than the Exchange Agent) in connection with the
solicitation of tenders of Outstanding Notes pursuant to the Exchange Offer. The
Company will pay or cause to be paid any transfer taxes payable on the transfer
of Outstanding Notes to it, except as otherwise provided in Instruction 13 of
the enclosed Letter of Transmittal.
Additional copies of the enclosed material may be obtained from the
undersigned.
Very truly yours,
Comstock Resources, Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS WILL CONSTITUTE YOU OR ANY
OTHER PERSON THE AGENT OF COMSTOCK RESOURCES, INC. OR THE EXCHANGE AGENT, OR OF
ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE YOU OR ANY OTHER PERSON TO
USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF THE FOREGOING IN
CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS
CONTAINED THEREIN.
2
Exhibit 99.4
Notice of Guaranteed Delivery
With Respect to Tender of
Any and All Outstanding 11 1/4% Senior Notes Due 2007
In Exchange For 11 1/4% Senior Notes Due 2007 of
Comstock Resources, Inc.
Which Have Been Registered Under the Securities Act of
Pursuant to the Prospectus Dated August 5, 2002
As set forth in the Prospectus, dated August 5, 2002 (as the same may be
amended or supplemented from time to time, the "Prospectus"), of Comstock
Resources, Inc., a Nevada corporation (the "Company"), under the caption
"Exchange Offer - Guaranteed Delivery Procedures" and in the accompanying Letter
of Transmittal ("Letter of Transmittal") to tender the Company's issued and
outstanding ("Outstanding Notes") 11 1/4% Senior Notes due 2007 in exchange for
the Company's 11 1/4% Senior Notes due 2007, which have been registered under
the Securities Act of 1933, this form or one substantially equivalent hereto
must be used to accept the Exchange Offer (as defined below) if: (i)
certificates for Outstanding Notes of the Company are not immediately available;
(ii) time will not permit all required documents to reach the Exchange Agent for
the Exchange Offer on or prior to the Expiration Date (as defined below); or
(iii) the procedures for book-entry transfer cannot be completed on or prior to
the Expiration Date. This form may be delivered by facsimile transmission, by
registered or certified mail, by hand, or by overnight delivery service to the
Exchange Agent. See "Exchange Offer - Procedures for Tendering Outstanding
Notes" in the Prospectus.
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON SEPTEMBER 3, 2002 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS
EXTENDED BY THE COMPANY.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A.
BY MAIL, OVERNIGHT COURIER BY FACSIMILE:
AND HAND DELIVERY: (212) 298-1915
The Bank of New York Trust Company of (For Eligible Institutions Only)
Florida, N.A.
Corporate Trust Operations CONFIRM BY TELEPHONE:
Reorganization Unit (212) 815-3750
101 Barclay Street - 7 East
New York, New York 10286
Attn: Kim Lau
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS
OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION
OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION TO A
NUMBER OTHER THAN AS SET FORTH ABOVE,
WILL NOT CONSTITUTE A VALID DELIVERY.
LADIES AND GENTLEMEN:
The undersigned hereby tender(s) to the Company, upon the terms and
conditions set forth in the Prospectus and in the accompanying Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the principal amount of Outstanding Notes set forth
below pursuant to the guaranteed delivery procedures described in the Prospectus
and in the Letter of Transmittal.
The undersigned understands and acknowledges that the Exchange Offer will
expire at 5:00 p.m., New York City time, on September 3, 2002, unless extended by
the Company in accordance with the Prospectus.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
- -----------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES TENDERED
- -----------------------------------------------------------------------------------------------
CERTIFICATE NUMBER(S)(IF KNOWN)OF
OUTSTANDING NOTES OR ACCOUNT NUMBER AGGREGATE PRINCIPAL AMOUNT
AT THE BOOK-ENTRY FACILITY REPRESENTED* PRINCIPAL AMOUNT TENDERED
- -----------------------------------------------------------------------------------------------
- ------------------------------------- ------------------------------------------------------
- ------------------------------------- ------------------------------------------------------
- ------------------------------------- ------------------------------------------------------
Total: Total:
-------------------- --------------------
- ----------------------------------------------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly as
name(s) appear(s) on certificates for the Outstanding Notes or, if tendered by a
participant in the Depository Trust Company, exactly as the participant's name
appears on the security position listing as the owner of the Outstanding Notes,
or by person(s) authorized to become holder(s) by endorsements and documents
transmitted with the Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such persons must set forth his or her full title below.
SIGNATURE(S): PRINTED NAME(S):
-------------------
ADDRESS: CAPACITY (FULL TITLE), IF SIGNING IN A REPRESENTATIVE
-------------------------------
CAPACITY:
- ----------------------------------------
(ZIP CODE)
------------------------
AREA CODE AND TELEPHONE: TAXPAYER IDENTIFICATION OR SOCIAL SECURITY
------------------------ NUMBER:
---------------------
DATED: _________, 2002
- ----------------------------------------------------------------------------------------------------------------------
THE GUARANTEE ON THE FOLLOWING PAGE MUST BE COMPLETED
* Must be in denominations of a principal amount of $1,000 and any integral
multiple thereof.
2
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, being a member firm of a registered national securities
exchange, a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office in the United States, hereby
guarantees (a) that the above named person(s) "own(s)" the Outstanding Notes
tendered herby within the meaning of Rule 14e-4 ("Rule 14e-4") under the
Securities Exchange Act of 1934, as amended, (b) that such tender of such
Outstanding Notes complies with Rule 14e-4, and (c) to deliver to the Exchange
Agent the certificates representing the Outstanding Notes tendered hereby or
confirmation of book-entry transfer of such Outstanding Notes into the Exchange
Agent's account at The Depository Trust Company, in proper form for transfer,
together with the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees and any
other required documents, within three New York Stock Exchange trading days
after the Expiration Date:
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Outstanding Notes tendered hereby to the Exchange Agent
within the trial period set forth above and that failure to do so could result
in a financial loss to the undersigned.
- --------------------------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
Address:
-------------------------------------------------------------------
Area Code and Telephone No.
-----------------------------------------------------
Authorized Signature:
-----------------------------------------------------------
Printed Name:
-------------------------------------------------------------------
Title:
-------------------------------------------------------------------------
Dated: ___________________, 2002
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND CERTIFICATES OF OUTSTANDING NOTES WITH THIS FORM. CERTIFICATES
OF OUTSTANDING NOTES SHOULD BE SENT ONLY WITH A LETTER OF TRANSMITTAL TO
THE EXCHANGE AGENT.
3