As filed with the Securities and Exchange Commission on September 3, 1999
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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)
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<S> <C> <C>
NEVADA 1311 94-1667468
(State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer
incorporation or organization) (Classification Code Number) Identification Number)
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, Copies to: (972) 668-8800
of Registrant's principal executive offices) Guy H. Kerr (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
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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. |_|
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CALCULATION OF REGISTRATION FEE
=========================================================================================================
Proposed
Title of Each Class Proposed Maximum Maximum
of Securities Amount Offering Price Aggregate Amount of
to be Registered to be Registered Per Share(1) Offering Price Registration Fee
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
11 1/4% Senior Notes due 2007... $150,000,000 100% $150,000,000 $41,700.00
=========================================================================================================
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended.
--------------------
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.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated September 3, 1999
PROSPECTUS
COMSTOCK RESOURCES, INC.
$150,000,000
OFFER TO EXCHANGE 11 1/4% SENIOR NOTES DUE 2007
FOR ALL OUTSTANDING 11 1/4% SENIOR NOTES DUE 2007
THE NEW NOTES
o will be freely tradeable and otherwise substantially identical to the
outstanding notes
o will accrue interest from April 29, 1999 at the rate of 11 1/4% per annum,
payable semi-annually in arrears on each May 1 and November 1, beginning
November 1, 1999
o will be unsecured and will rank equally with all existing and future senior
indebtedness and senior to all future subordinated indebtedness notes and
our other unsecured senior subordinated indebtedness. The new notes,
however, will be effectively subordinated to secured indebtedness under
Comstock's bank credit facility, which is secured by a lien on
substantially all of the assets of Comstock.
o will not be listed on any securities exchange or on any automated dealer
quotation system
THE EXCHANGE OFFER
o expires at 5:00 p.m., New York City time, on , 1999, unless extended
o is not conditioned upon any minimum aggregate principal amount of
outstanding notes being tendered
IN ADDITION, YOU SHOULD NOTE THAT
o all outstanding notes that are validly tendered and not validly withdrawn
will be exchanged for an equal principal amount of new notes that are
registered under the Securities Act of 1933
o tenders of outstanding notes may be withdrawn any time prior to the
expiration of the exchange offer
o the exchange of outstanding notes for new notes in the exchange offer will
not be a taxable event for U.S. federal income tax purposes
You should consider carefully the risk factors beginning on page 16 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 , 1999.
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TABLE OF CONTENTS
Page
Forward-Looking Statements................................................ 4
Where You Can Find More Information....................................... 4
Information Incorporated by Reference..................................... 5
Prospectus Summary........................................................ 6
Risk Factors.............................................................. 16
Use of Proceeds........................................................... 24
Preferred Stock Offering.................................................. 24
Capitalization............................................................ 25
The Exchange Offer........................................................ 25
Description of the Bank Credit Facility................................... 34
Description of the Notes.................................................. 35
Certain United States Federal Tax Considerations.......................... 73
Plan of Distribution...................................................... 77
Legal Matters............................................................. 77
Experts................................................................... 77
Glossary.................................................................. 79
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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 of 1933 and Section 21E of the Securities Exchange Act of 1934.
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 revision, 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 the "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 1999 and beyond could differ
materially from those expressed in 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, and at the Commission's
regional offices at 7 World Trade Center, Suite 1300, New York, New York 10048,
and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. You may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0300. In addition, the SEC maintains a web site
at http: //www.sec.gov that contains reports, proxy and information statements
and other information regarding registrants that file electronically with the
SEC. 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.
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
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prospectus is part of that registration statement and, as permitted by the
Commission'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
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 Section 13(a), 13(c), 14, or 15(d) of the Exchange Act until the offering
of these notes is terminated:
(1) Annual Report on Form 10-K for the year ended December 31, 1998,
(2) Quarterly Report on Form 10-Q for the three months ended March
31, 1999,
(3) Quarterly Report on Form 10-Q for the six months ended June 30,
1999,
(4) Proxy Statement dated April 30, 1999 for the 1999 Annual Meeting
of Stockholders, and
(5) Current Report on Form 8-K dated April 29, 1999.
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., 5300 Town and County Blvd., Suite 500, Frisco, Texas 75034,
Attention: Roland O. Burns, Senior Vice President, telephone number (972)
668-8800.
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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 or incorporated in
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 herein. The term "outstanding
notes" refers to the 11 1/4% Senior Notes due 2007 that were issued on April 26,
1999. 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.
The Company
Comstock is an independent energy company engaged in the acquisition,
development, production and exploration of oil and natural gas properties. Our
oil and natural gas reserve base is entirely concentrated in the Gulf of Mexico,
Southeast Texas and East Texas/North Louisiana regions. Our reserve base is 67%
natural gas and 76% proved developed on a Bcfe basis as of December 31, 1998.
Our estimated proved oil and natural gas reserves are 371.9 Bcfe with an
estimated Present Value of Proved Reserves of $305.3 million as of December 31,
1998 and we operate 83% of the Present Value of Proved Reserves of our
properties. For the year ended December 31, 1998, our total revenues and EBITDA
were $93.2 million and $66.9 million, respectively.
Our proved reserves at December 31, 1998 and our 1998 average daily
production are summarized below:
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Reserves at December 31, 1998 1998 Daily Production
---------------------------------------------- ---------------------------------------------
% of % of
Oil Gas Total Total Net Oil Net Gas Total Total
--- --- ----- ----- ------- ------- ----- -----
(MMBbls) (Bcf) (Bcfe) (MBbls/d) (Mmcfe/d) (MMcfe/d)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Gulf of Mexico.......... 16.6 60.1 159.5 43 5.2 17.5 48.9 42
Southeast Texas......... 2.9 78.5 96.3 26 1.5 28.3 37.6 33
East Texas/North Louisiana .7 111.3 115.5 31 .3 27.1 28.5 25
Other................... -- .5 .6 -- -- .3 .5 --
-------- -------- -------- ------ ------- ------- ------- -----
Total........... 20.2 250.4 371.9 100 7.0 73.2 115.5 100
======== ======== ======== ====== ======= ======= ======= =====
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Strengths
Quality Properties. Our operations are located in three geographically
concentrated areas, the Gulf of Mexico, Southeast Texas and East Texas/North
Louisiana regions, which account for approximately 43%, 26% and 31% 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 gives us attractive cash margins. Finally, our
properties have a reserve life of approximately nine years and extensive
development and exploration potential.
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 (approximately 1,100)
and our crude oil production has a favorable API gravity (approximately 40
degrees). Due to these factors, we have relatively high price realizations
compared to benchmark prices. In 1998 our average natural gas price was $2.25
per Mcf, which represented a $.14 premium to the average 1998 NYMEX monthly
settlement price. Also in 1998, our average crude oil price was $12.73 per
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barrel, which represented a $.77 per barrel premium to the average 1998 monthly
West Texas intermediate crude oil price posted by Koch Industries, Inc.
Efficient Operator. We operate 83% of our Present Value of Proved Reserves
as of December 31, 1998. 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. Our combined lease operating and general and
administrative expenses per Mcfe of $.63 in 1998 was relatively low due to
several factors. First, we have favorable production rates per well in our Gulf
of Mexico and Southeast Texas wells due to the geology of the regions. Second,
in the East Texas/North Louisiana region, our production was 94% natural gas in
1998. Natural gas wells typically have lower costs per unit than oil producing
wells. Finally, because we focus on a few number of properties and have
relatively low corporate overhead, our general and administrative expenses are
generally lower than those of our peers.
Favorable Cash Margins. As a result of our quality properties, higher price
realizations and efficient operations, we have favorable cash margins.
Consequently, our oil and natural gas reserves have a higher value per Mcfe than
reserves that generate lower cash margins.
Successful Acquisitions. We have historically grown through acquisitions.
Since 1991, we have added 482.4 Bcfe of proved oil and natural gas reserves from
18 acquisitions at an average cost of $.85 per Mcfe. Our application of strict
economic and reserve risk criteria enables us to successfully evaluate and
integrate acquisitions.
Successful Exploration and Development Program. In 1998, we continued to
focus on the exploitation and development of our properties through development
drilling, recompletions and workovers with expenditures of $30.6 million.
Overall, we drilled 30 development wells (18.2 net) with an 83% success rate. We
also significantly expanded our exploratory drilling program in 1998, spending a
total of $30.4 million to drill 14 wells (7.2 net) with a 57% success rate. Our
exploration activities were primarily focused in the Gulf of Mexico region,
where we drilled 13 exploratory wells (6.7 net) in 1998 with a 62% success rate.
These discoveries replaced approximately 115% of our 1998 total production.
Strategy
Exploit Existing Reserves. We seek to maximize the value of our 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 1998, we spent approximately $20.4 million to
drill 30 development wells (18.2 net), of which 25 wells (14.7 net) were
successful, representing a success rate of 83%. In addition, we spent
approximately $10.2 million for recompletion and workover activity during 1998.
For 1999, we have budgeted $25.0 million for development drilling and
installation of production facilities.
Pursue Selective Exploration Opportunities. We pursue selective exploration
activities to find additional reserves on our undeveloped acreage. In 1998, we
spent approximately $30.4 million to drill 14 exploratory wells (7.2 net), of
which eight (4.3 net) were successful, representing a success rate of 57%. We
have budgeted $17.0 million in 1999 for exploration activities which will
include drilling prospects generated under a joint exploration program in the
Gulf of Mexico entered into in December 1997 with Bois d' Arc Resources (the
"Bois d' Arc Exploration Venture") and drilling several exploratory wells in our
Southeast Texas region. Under the Bois d' Arc Exploration Venture, Bois d' Arc
is responsible for identifying potential prospects based on 3-D seismic data and
acquiring leasehold acreage or farmouts, the costs for which are shared 80% by
us and 20% by Bois d' Arc. With respect to any prospect in which we elect to
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participate in drilling, we acquire up to 33% working interest and recover any
disproportionate seismic and leasehold costs previously incurred.
Maintain Low Cost Structure. We seek to increase cash flow by carefully
controlling operating costs and general and administrative expenses. We target
acquisitions that possess, among other characteristics, low per unit operating
costs. We have been able to further reduce per unit operating costs on our
acquired properties by eliminating unnecessary field and corporate overhead
costs. We have also divested properties that have high lifting costs with little
future development potential. Through these efforts, our average oil and gas
operating costs per Mcfe have decreased from $.75 in 1994 to $.59 in 1998. In
addition, we have been able to grow our reserves and production substantially
over the past five years with minimal increase to our general and administrative
expenses. As a result, our general and administrative expenses per Mcfe have
decreased from $.19 in 1994 to $.04 in 1998.
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 482.4 Bcfe of proved oil
and natural gas reserves from 18 acquisitions at a total cost of $411.9 million,
or $.85 per Mcfe. The acquisitions were acquired at an average of 63% 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. We
believe the low energy price environment may create opportunities to acquire
selected assets being divested by their owners. Moreover, the trend toward
consolidation in the energy industry and the resulting asset divestitures by the
merged companies may result in additional properties or companies available for
sale.
Maintain Flexible Capital Expenditure Budget. The timing of most of our
capital expenditures is discretionary with no material 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 $42.0 million on development
and exploration projects in 1999. As of June 30, 1999, we have drilled six (1.2
net) exploratory wells, of which five (1.0 net) were successful and we drilled
one (0.2 net) successful development well. We intend to use operating cash flow
to fund our drilling expenditures in 1999 and to utilize any excess cash flow to
reduce amounts outstanding under our bank credit facility or to make oil and gas
property acquisitions. We may also make property acquisitions in 1999 that would
require additional sources of funding, which may include borrowings under our
bank credit facility or sales of equity or debt securities.
Recent Financing Activities
On April 29, 1999, concurrent with the sale of the outstanding notes, we
sold in a private offering 1,948,001 shares of our Series A 1999 Convertible
Preferred Stock and 1,051,999 shares of our Series B 1999 Non-Convertible
Preferred Stock for a total consideration of $30.0 million. On June 30, 1999 we
converted the 1,051,999 shares of Series B 1999 Non-Convertible Preferred Stock
into the same number shares of Series A 1999 Convertible Preferred Stock. The
proceeds from the offering of the preferred stock were used to reduce
outstanding indebtedness under our bank credit facility. The shares of preferred
stock accrue dividends at an annual rate of 9%. Dividends are payable quarterly
in cash or in shares of our common stock, at our election.
In connection with the sale of the outstanding notes and the preferred
stock offering, we entered into a new bank credit facility which consists of a
$162.5 million revolving credit commitment provided by a syndicate of banks for
which The First National Bank of Chicago serves as administrative agent.
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Indebtedness under the new bank credit facility is secured by substantially all
of our assets. Borrowings under the new bank credit facility are subject to
borrowing base availability, which is generally redetermined semiannually based
on the banks' estimates of the future net cash flows of our oil and gas
properties. The borrowing base is $162.5 million as of September 3, 1999 and we
have $105.0 million of indebtedness outstanding and $57.5 million of borrowing
capacity available to us under the new bank credit facility. The next borrowing
base redetermination under the new bank credit facility will not occur until
October 1999.
Summary of the Exchange Offer
On April 29, 1999, 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 your outstanding notes for new notes with
substantially identical terms.
You should read the discussion under the headings "--Summary Description of
the New Notes" beginning on page 12 and "Description of the Notes" beginning on
page 35 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 25 for
further information regarding the exchange offer and resale of the new notes.
The Exchange Offer..We are offering to exchange up to $150.0 million aggregate
principal amount of new notes for up to $150.0 million
aggregate principal amount of the outstanding notes.
Outstanding notes may be exchanged only in integral
multiples of $1,000.
Expiration Date.....The exchange offer will expire at 5:00 p.m., New York City
time, on , 1999, 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, unless previously
accepted for exchange. 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.
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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 32 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 notes that you receive will be acquired in the
ordinary course of your business
o you have no arrangement or understanding with any
person or entity to participate in the distribution of
the new notes
o if you are not a broker-dealer, you are not engaged in
and do not intend to engage in the distribution of the
new notes
o if you are a broker-dealer that will receive new notes
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 not our "affiliate," as defined in Rule 405 of
the Securities Act of 1933, or, if you are our
affiliate, you will comply with any applicable
registration and prospectus delivery requirements of
the Securities Act.
Special Procedures
for Beneficial
Owners..............If you own a beneficial interest in 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.
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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 30.
Certain U.S.
Federal Income
Tax Considerations..The exchange of outstanding notes for new notes in the
exchange offer will not be a taxable event for U.S. federal
income tax purposes. Please read "Certain United States
Federal Income Tax Considerations" beginning on page 73.
Use of Proceeds.....We will not receive any cash proceeds from the issuance of
new notes.
The Exchange Agent
We have appointed U.S. Trust Company of Texas, 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:
U.S. Trust Company of Texas, N.A.
P.O. Box 841
New York, New York 10276
FOR OVERNIGHT DELIVERY ONLY OR BY HAND:
U.S. Trust Company of Texas, N.A.
111 Broadway
New York, New York 10006
FOR FACSIMILE TRANSMISSION (FOR ELIGIBLE INSTITUTIONS ONLY):
U.S. Trust Company of Texas, N.A.
212-420-6504
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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 debt as the outstanding notes, and the outstanding notes are and the new
notes will be governed by the same indenture.
Securities Offered..$150,000,000 aggregate principal amount of 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 November 1, 1999.
Optional
Redemption.........We may redeem any of the notes beginning on May 1, 2004.
The initial redemption price is 105.625% of their principal
amount, 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.
In addition, before May 1, 2002, we may redeem up to 33 1/3%
of the aggregate principal amount of notes using proceeds
from certain sales of our capital stock at 111.25% of their
principal amount, plus accrued interest. We may make such
redemption only if at least 66 2/3% of the aggregate
principal amount of notes originally issued remains
outstanding after any such redemption.
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 the subsidiary
guarantors.
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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.
Certain Covenants...The terms of the notes will restrict our ability and the
ability of certain 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 25 for more information
regarding your rights as a holder of outstanding notes.
Risk Factors
You should carefully consider the information set forth in the "Risk
Factors" section of this prospectus beginning on page 16.
13
<PAGE>
Summary Financial Data
The following summary operating and financial data for each of the years in
the three-year period ended December 31, 1998 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."
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
Statement of Operations Data: (in thousands, except ratios)
Revenues:
<S> <C> <C> <C> <C> <C>
Oil and gas sales ........................ $ 68,915 $ 88,555 $ 92,961 $ 50,264 $ 40,387
Gain on sales of property ................ 1,447 85 -- -- 130
Other income ............................. 593 704 274 188 1,793
--------- --------- --------- --------- ---------
Total revenues ................... 70,955 89,344 93,235 50,452 42,310
--------- --------- --------- --------- ---------
Expenses:
Oil and gas operating(1) ................. 13,838 17,919 24,747 12,445 11,801
Exploration .............................. 436 2,810 8,301 3,877 664
Depreciation, depletion and amortization . 18,269 26,235 51,005 25,798 24,763
General and administrative, net .......... 2,239 2,668 1,617 1,016 910
Interest ................................. 10,086 5,934 16,977 8,446 10,980
Impairment of oil and gas properties ..... -- -- 17,000 -- --
--------- --------- --------- --------- ---------
Total expenses ................... 44,868 55,566 119,647 51,582 49,118
--------- --------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes ....................... 26,087 33,778 (26,412) (1,130) (6,808)
Income tax benefit (expense) ............... -- (11,622) 9,244 396 1,778
--------- --------- --------- --------- ---------
Net income (loss) from continuing
operations ......................... 26,087 22,156 (17,168) (734) (5,030)
Preferred stock dividends .................. (2,021) (410) -- -- (473)
--------- --------- --------- --------- ---------
Net income (loss) from continuing operations
attributable to common stock .............. $ 24,066 $ 21,746 $ (17,168) $ (734) $ (5,503)
========= ========= ========= ========= =========
Other Financial Data:
EBITDA(2) .................................. $ 54,878 $ 68,757 $ 66,871 $ 36,991 $ 29,599
Capital expenditures ....................... 111,962 254,843 67,387 22,342 10,212
Ratio of EBITDA to interest expense(3) ..... 5.4x 11.3x 3.5x 3.9x 2.7x
Ratio of earnings to fixed charges(4)....... 3.0x 6.2x -- -- --
</TABLE>
As of
June 30, 1999
-------------
Balance Sheet Data:
Property and equipment, net ........... $389,245
Total assets .......................... 419,297
Total debt ............................ 260,310
Stockholders' equity .................. 134,593
----------
(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 and impairment of oil and gas properties.
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 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. (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 $28.7 million, $2.3 million and $7.3 million for the
year ended December 31, 1998 and the six months ended June 30, 1998 and June
30, 1999, respectively.
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<PAGE>
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,
1996 1997 1998
------ ------ -----
Reserve Data:
Total Proved Reserves:
Natural gas (MMcf)........................ 234,444 240,117 250,402
Oil (MBbls)............................... 8,994 20,927 20,245
-------- -------- ---------
Total (MMcfe)..................... 288,408 365,677 371,872
======== ======== =========
Proved Developed Reserves:
Natural Gas (MMcf)........................ 187,247 188,102 182,955
Oil (MBbls)............................... 6,953 16,635 16,585
Total (MMcfe)..................... 228,968 287,912 282,467
========= ========= =========
Present Value of Proved Reserves (000's)(1) $ 502,918 $ 459,556 $ 305,309
========= ========= =========
Reserve Replacement Percentage.............. 540% 386% 115%
<TABLE>
<CAPTION>
Six Months Ended
As of December 31, June 30,
1996 1997 1998 1998 1999
------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C>
Production:
Natural gas (MMcf)....................... 19,427 22,860 26,713 13,333 11,680
Oil (MBbls).............................. 952 1,343 2,571 1,375 1,250
------ ------ ------ ------ ------
Total (MMcfe)............................ 25,139 30,919 42,141 21,586 19,180
Average daily production (MMcfe per day). 68.9 84.7 115.5 119.3 106.0
Other Data:
Reserve Life (in years).................. 11.5 11.8 8.8
Average natural gas price (per Mcf)...... $ 2.47 $ 2.73 $ 2.25 $ 2.35 $ 1.97
Average oil price (per Bbl).............. $ 21.96 $ 19.47 $ 12.73 $ 13.73 $ 13.86
Average equivalent price (per Mcfe)...... $ 2.74 $ 2.87 $ 2.21 $ 2.33 $ 2.11
Oil and gas operating expenses (per Mcfe)(2) 0.55 0.58 0.59 0.58 0.62
General and administrative expenses, net (per Mcfe) 0.09 0.09 0.04 0.05 0.05
-------- -------- -------- -------- --------
Cash margin (per Mcfe)................... $ 2.10 $ 2.20 $ 1.58 $ 1.70 $ 1.44
======== ======== ======== ======== ========
</TABLE>
----------
(1) Based upon oil prices per barrel of $24.61, $17.24, and $10.55 as of
December 31, 1996, 1997 and 1998, respectively, and natural gas prices per
Mcf of $3.84, $2.64, and $2.21 as of December 31, 1996, 1997 and 1998,
respectively.
(2) Includes lease operating costs and production and ad valorem taxes.
15
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors together with all
of the other information included in this prospectus and the documents that are
incorporated by reference herein. 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.
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:
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.
The price we receive for crude oil and natural gas has a substantial impact
on our:
o revenues, profitability and cash flow from operations,
o Present Value of Proved Reserves,
o borrowing capacity, and
o ability to obtain additional capital.
Our average price received for crude oil production on December 31, 1997
was $17.24 per barrel. On December 31, 1998, this price had declined to $10.55
per barrel. Our average price received for natural gas production on December
31, 1997 was $2.64 per Mcf. On December 31, 1998, this price had declined to
$2.21 per Mcf. As of September 3, 1999, prices for crude oil and natural gas
have increased to levels above the prices realized in 1997 and 1998.
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 February 1999, we entered into natural gas price swap
agreements covering 9.3 Bcf of our natural gas production from March through
October 1999 at a fixed price of approximately $2.03 per Mcf (including basis
adjustment). 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
16
<PAGE>
natural gas production. Please refer to the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of our forms
incorporated by reference in this prospectus. Please see the section in this
prospectus entitled "Information Incorporated by Reference."
We plan to pursue acquisitions as part of our growth strategy and there are
risks in connection with acquisitions.
Our rapid growth in recent years is attributable in significant part to
acquisitions of producing properties. 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 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:
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, Southeast Texas, and East
Texas/North Louisiana, we may pursue acquisitions or properties located in other
geographic areas.
We have substantial debt and debt service requirements.
As of December 31, 1998, our ratio of total debt to total capitalization
was approximately 72%. As of June 30, 1999, our total debt to total
capitalization was approximately 66%.
Consequences of Debt
Our substantial debt will have important consequences, including:
17
<PAGE>
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.
Please refer to the "Management's Discussion and Analysis of Financial Condition
and Results of Operations --Liquidity and Capital Resources" section of our
forms incorporated by reference in this prospectus. Please see the section in
this prospectus entitled "Information Incorporated by Reference."
Restrictive Debt Covenants
Our bank credit facility contains a number of significant covenants. These
covenants will limit our ability to, among other things:
o borrow additional money,
o merge, consolidate or dispose of assets,
o make certain types of investments,
o enter into transactions with our affiliates, and
o pay dividends.
Our failure to comply with these covenants would cause a default under the
bank credit facility. 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. Please refer to the "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" section of our forms incorporated by reference in this prospectus.
18
<PAGE>
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 1999 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. Please
refer to the "Management's Discussion and Analysis of Financial Condition and
Results of Operations and Liquidity -- Capital Resources" section of our forms
incorporated by reference in this prospectus.
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.
For discuss of our reserves, please refer to the section in our Annual Report on
Form 10-K for the period ended December 31, 1998 entitled "Business and
Properties--Oil and Natural Gas Reserves" incorporated by reference in this
prospectus. Please see the section of this prospectus entitled "Information
Incorporated by Reference."
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:
o title problems,
o adverse weather conditions,
o compliance with governmental requirements, and
o shortages or delays in the delivery of equipment and services.
19
<PAGE>
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 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,
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 consummate
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 and the standardized measure of discounted future net cash flows 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.
There are risk factors that relate specifically 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 are 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 are guaranteed (the "Subsidiary Guarantees") by the
20
<PAGE>
Subsidiary Guarantors (as defined herein), this guarantee effectively is also
subordinated to all secured indebtedness of the Subsidiary Guarantors including
the indebtedness under the 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 September 3, 1999, we had $105.0 million of outstanding
secured indebtedness (not including approximately $57.5 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 (exclusive
of the notes) or subordinated indebtedness outstanding. In addition, the
indenture relating to the notes 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 Comstock 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.
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. Please refer to the section of this prospectus
entitled "Description of the Notes -- Subsidiary Guarantees of Notes."
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, and
o was insolvent or rendered insolvent by reason of such incurrence, or
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, debts 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. Generally, however, a Subsidiary Guarantor
would be considered insolvent if:
21
<PAGE>
o the sum of its debts, including contingent liabilities, were greater
than the fair saleable value of all of its assets, or
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.
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 thereof 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."
There is no public market for the notes.
The new notes will be new securities for which currently there is no
trading market. We do not intend to apply for listing of the notes on any
securities exchange or stock market. The liquidity of any market for the new
notes will depend upon the number of holders of the notes, the interest of
securities dealers in making a market in the notes and other factors.
Accordingly, we cannot assure you that a market or liquidity will develop for
the new notes.
If the notes are traded after their initial issuance, they may trade at a
discount from their initial offering price, depending on prevailing interest
rates, the market for similar securities and other factors. 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 notes.
The new notes may be subject to similar disruptions. Any such disruptions may
adversely affect you as a holder of the new notes.
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<PAGE>
We could be affected by the Year 2000 risk.
Failure by us or our third party service providers to be Year 2000
compliant in a timely manner could have a material effect on our operations.
Because many computers and computer applications define dates by the last two
digits of the year, "00" may not be properly recognized as the year 2000. This
error could cause miscalculations or system errors. We outsource our information
technology systems and software, and our vendors have informed us that these
systems and software are Year 2000 compliant. However, we do not have a formal
contingency plan if our vendors experience Year 2000 problems. The Year 2000
issue may also affect third parties with whom we conduct business, which could
lead to an adverse effect on our operations. Please refer to the "Management's
Discussion and Analysis of Financial Condition and Results of Operations --Year
2000" section of our forms incorporated by reference in this prospectus.
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. Please
refer to the section in our Annual Report on Form 10-K for the year ended
December 31, 1998 entitled "Business and Properties -- Regulation" incorporated
by reference in this prospectus. Please see the section of this prospectus
entitled "Information Incorporated by Reference."
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.
23
<PAGE>
USE OF PROCEEDS
Comstock will not receive any proceeds from the Exchange Offer. The net proceeds
from the offering of the outstanding notes were approximately $143.6 million,
after deducting expenses of the offering. All of the net proceeds were used to
reduce outstanding indebtedness under Comstock's bank credit facility. At
September 3, 1999 approximately $105.0 million in total borrowings was
outstanding under the bank credit facility at an average interest rate of 7.5%
per annum. Outstanding borrowings under the bank credit facility were used to
refinance existing indebtedness under the prior bank credit facility and for
development and exploration activities. See the section in this prospectus
entitled "Description of the Bank Credit Facility."
PREFERRED STOCK OFFERING
On April 29, 1999, Comstock sold to certain purchasers 1,948,001 shares of
its Series A 1999 Convertible Preferred Stock (the "Series A Preferred") and
1,051,999 shares of its Series B 1999 Non-Convertible Preferred Stock (the
"Series B Preferred") for a total consideration of $30.0 million. The proceeds
from the sale of the preferred stock were used to reduce outstanding
indebtedness under Comstock's bank credit facility. On June 30, 1999, we
converted all of the Series B Preferred into shares of Series A Preferred upon
receiving approval from our stockholders on June 23, 1999. The outstanding
shares of preferred stock accrue dividends at an annual rate of 9% which are
payable quarterly in cash or in shares of Comstock's common stock, at our
election.
On May 1, 2005 and on each May 1, thereafter, so long as any shares of the
preferred stock are outstanding, Comstock is obligated to redeem an amount of
shares of preferred stock equal to one-third of the shares of the preferred
stock outstanding on May 1, 2005 at $10.00 per share plus accrued and unpaid
dividends. The mandatory redemption price may be paid either in cash or in
shares of common stock, at the option of Comstock. The holders of the Series A
Preferred have the option to convert all or any part of such shares into shares
of common stock of Comstock at any time at the initial conversion price of $4.00
per share of common stock, subject to adjustment. Comstock has the option to
redeem the shares of preferred stock upon payment to the holders of the
preferred stock of a specified rate of return on the initial purchase. Upon a
change of control of Comstock, the holders of the preferred stock have the right
to require Comstock to purchase all or a portion of the preferred stock.
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CAPITALIZATION
The following table sets forth the consolidated capitalization of Comstock
as of June 30, 1999. 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
June 30, 1999
-------------
(in thousands)
Long-term debt:
Bank credit facility....................................... $ 110,000
111/4% senior notes......................................... 150,000
----------
Total long-term debt............................... 260,000
----------
Stockholders' equity:
Preferred stock -- $10.00 par, 5,000,000 shares authorized;
3,000,000 shares issued and outstanding................. 30,000
Common stock-- $.50 par, 50,000,000 shares authorized;
24,785,061 shares issued and outstanding................ 12,393
Additional paid-in capital................................. 113,516
Retained deficit........................................... (20,437)
Deferred compensation-- restricted stock grants............ (879)
-----------
Total stockholders' equity......................... 134,593
----------
Total capitalization............................. $ 394,593
==========
THE EXCHANGE OFFER
Registration Rights
In connection with the initial issuance and sale of the outstanding notes,
Comstock entered into a registration rights agreement pursuant to which Comstock
agreed, for the benefit of the holders of the outstanding notes, at Comstock's
cost, to use its best efforts (i) to cause to be filed with the SEC a
registration statement with respect to the Exchange Offer, (ii) to keep the
registration statement effective until the closing of the Exchange Offer, (iii)
to consummate the Exchange Offer not later than 60 days after the SEC declares
the registration statement effective, (iv) to consummate the Exchange Offer by
October 29, 1999, and (v) to file a shelf registration statement and have it
declared effective by the SEC by October 29, 1999, if the Exchange Offer is not
consummated by October 29, 1999. Promptly after the registration statement has
been declared effective, Comstock will offer the new notes in exchange for
surrender of the outstanding notes. This is referred to as the "Exchange Offer"
throughout this prospectus. 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.
In the event that the Exchange Offer is not consummated on or before
October 29, 1999, or upon the request of the initial purchasers of the
outstanding notes in certain circumstances, Comstock 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 (i) as promptly as practicable, use its best
efforts to file with the SEC a shelf registration statement covering sales of
the notes, (ii) use its best efforts to cause such shelf registration statement
to be declared effective under the Securities Act on or before October 29, 1999,
(or promptly in the event of a request by the initial purchasers) and (iii) use
its best efforts to keep continuously effective such shelf registration
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<PAGE>
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, Comstock 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 Comstock 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 Comstock has
furnished copies of an amended or supplemented prospectus to such holder
correcting such misstatement or omission. If Comstock shall give such notice to
suspend the sale of the outstanding notes, it shall extend the relevant period
referred to above during which it is 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 Comstock has given notice that the sale of outstanding notes may
be resumed, as the case may be.
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 October 29, 1999
(such event, a "Registration Default"), then Comstock 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 shall be construed in
accordance with, the laws of the State of New York. The summary herein of
26
<PAGE>
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, Comstock will accept for exchange
outstanding notes that are properly tendered on or prior to the Expiration Date
and not withdrawn as permitted below. As used herein, the term "Expiration Date"
means 5:00 p.m., New York City time, on _________, 1999; provided, however, that
if Comstock, in its sole discretion, has extended the period of time for which
the Exchange Offer is open, the term "Expiration Date" means the latest time and
date to which the Exchange Offer has been extended.
As of the date of this prospectus, $150.0 million aggregate principal
amount of outstanding notes is outstanding. This prospectus, together with the
Letter of Transmittal, is first being sent on or about __________, 1999, to all
holders of outstanding notes known to Comstock. Comstock's obligation 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.
Comstock expressly reserves 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 Comstock. 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.
Comstock expressly reserves 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." Comstock 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,
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<PAGE>
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 (i) certificates for such
outstanding notes or (ii) 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.
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 (i) 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 (ii) 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) (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 (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
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<PAGE>
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,
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 (i) will
not be able to rely on the applicable interpretations of the staff of the SEC
discussed below under "--Resale of New Notes" and (ii) 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 April 29, 1999. 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 April 29, 1999. 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.
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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.
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
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basis, then a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) 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 (iii) 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 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
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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 (i) the registration statement of which this prospectus constitutes a
part or (ii) 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.
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 the
holder of the new notes represents that:
o it is acquiring the new notes in the ordinary course of its business,
o it has no arrangement or understanding with any person to participate
in the distribution of the new notes, and
o it is 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,
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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
U.S. Trust Company of Texas, 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:
U.S. Trust Company of Texas, N. A.
P.O. Box 841
Copper Station
New York, New York 10276
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 in
the aggregate to be $50,000.
Transfer Taxes
Holders who exchange their outstanding notes will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
Comstock to register new notes in the name of, or request that outstanding notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax.
Payment of Interest
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 April 29, 1999. Accordingly, registered holders
of new notes on the relevant record date for the first interest payment date
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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 April 29, 1999. 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
Comstock and its subsidiaries have a revolving credit agreement with The
First National Bank of Chicago, as administrative agent, Toronto Dominion
(Texas), Inc. as syndication agent, Paribas as Documentation Agent and a
syndicate of banks. Comstock's bank credit facility provides for a commitment of
$162.5 million in the form of a five-year revolving credit loan maturing on
December 9, 2002. As of September 3, 1999, the total outstanding principal
balance under the bank credit facility was $105.0 million at a weighted average
interest rate of 7.2%.
The total availability of outstanding borrowings is based on a borrowing
base amount established semiannually by the agent and is based on the banks'
estimates of the future net cash flow of Comstock's and its subsidiaries' oil
and gas properties. The borrowing base at September 3, 1999 was $162.5 million.
Comstock has approximately $57.5 million of borrowing capacity available under
the bank credit facility. Comstock may borrow amounts available under the bank
credit facility to fund Comstock's ongoing capital expenditure program or for
general working capital purposes. The revolving credit line will bear interest
at the option of Comstock at either (i) LIBOR plus 2.25% or (ii) the "corporate
base rate" plus 1.25%. A commitment fee of 0.5% (based on average monthly
indebtedness outstanding) is payable quarterly on the amount by which the
borrowing base exceeds the total advances outstanding.
Comstock's bank credit facility is secured by the oil and natural gas
properties and all other assets of Comstock and its subsidiaries. Comstock and
its subsidiaries are obligated to comply with various customary covenants
including, but not limited to, negative covenants regarding:
o liens,
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o debt, guaranties and other obligations,
o mergers and consolidation,
o asset sales, and
o dividends.
Events of default under the bank credit facility will include without
limitation:
o failure to make payments under the bank credit facility,
o breach of certain covenants,
o failure to make payments on other debt of Comstock or its subsidiaries
in the amount of $10.0 million or more, and
o a change of control of Comstock.
Upon the occurrence of such a default, the obligations of Comstock and its
subsidiaries may be accelerated by the lenders.
DESCRIPTION OF THE NOTES
The outstanding notes have been and the new notes will be issued pursuant
to an indenture dated as of April 29, 1999 (the "Indenture") among Comstock, as
issuer, Comstock Oil & Gas, Inc., Comstock Oil & Gas -- Louisiana, Inc. and
Comstock Offshore, LLC, as Subsidiary Guarantors, and U.S. Trust Company of
Texas, N.A., as trustee (the "Trustee"). 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 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 forms 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 or elsewhere in this prospectus have the meanings given to them in the
Indenture.
The outstanding notes and the new notes 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 as a single series of notes
for all relevant purposes under the Indenture. In that regard, the Indenture
requires 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 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
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principal amount of the outstanding notes means such percentages of aggregate
principal amount of the outstanding notes and the new notes then outstanding.
The Indenture provides for the issuance of up to $150.0 million of notes.
The Indenture also provides Comstock the flexibility of issuing up to $75.0
million of additional notes in the future; however, any issuance of such
additional notes would be subject to the covenant described below under
"--Certain Covenants -- Limitation on Indebtedness and Disqualified Capital
Stock."
General
The notes will mature on May 1, 2007, and will be limited to an aggregate
principal amount of $225.0 million. The notes are being issued in an aggregate
principal amount of $150.0 million. The notes will bear interest at the rate set
forth on the cover page of this prospectus from April 29, 1999, 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 November
1, 1999, 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 will be 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."
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)
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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.
Notwithstanding the foregoing, prior to May 1, 2002, Comstock may, at any
time or from time to time, redeem up to 33 1/3% of the aggregate principal
amount of notes originally issued at a redemption price of 111.25% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption, with the Net Cash Proceeds of one or more Public Equity
Offerings, provided that at least 66 2/3% of the aggregate principal amount of
notes originally issued remains outstanding immediately after such redemption
and that such redemption occurs within 60 days following the closing of any such
Public Equity Offering.
Offers to Purchase. As described below, (a) 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
(b) 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 September 3,
1999, Comstock and the Subsidiary Guarantors would have had no senior unsecured
Indebtedness in addition to the notes and trade payables, and approximately
$105.0 million of secured Indebtedness. Comstock would have had no subordinated
Indebtedness as of such date. Subject to certain limitations, Comstock and its
Subsidiaries may incur additional Indebtedness in the future.
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
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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 (a) 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 (b) such transaction
does not (i) violate any of the covenants described below under "-- Certain
Covenants" or (ii) 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.
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
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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. (a) 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,
(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
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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.
(b) 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:
(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,
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(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).
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."
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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:
o 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,
o 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,
o 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,
o Comstock's employee compensation and other benefit arrangements,
o 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
o 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."
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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.
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,
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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,
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
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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.
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.
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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
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 (A) if the transaction is a merger or consolidation, Comstock
shall be the surviving Person of such merger or consolidation, or (B)
the Person (if other than Comstock) formed by such consolidation or
into which Comstock is merged or to which the properties and assets of
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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.
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
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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, or
(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, or
(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, or
(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) or
(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, or
(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), or
(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)
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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, or
(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.
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
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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.
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,
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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,
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
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o either (a) 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 (b) 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,
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,
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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
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.
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
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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
(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
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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
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
April 29, 1999 among Comstock Resources, Inc., Comstock Oil & Gas, Inc.,
Comstock Oil & Gas -- Louisiana, Inc., Comstock Offshore, LLC, as Borrowers, the
lenders party thereto from time to time, The First National Bank of Chicago, as
Administrative Agent, Toronto Dominion (Texas), Inc., as Syndication Agent, and
Paribas, as Documentation Agent, 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
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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
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
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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.
"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
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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
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,
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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.
"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."
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"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.
"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
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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
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.
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"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
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,
a permanent reduction in any outstanding commitment for future incurrences of
Indebtedness thereunder, (c) all distributions and other payments required to be
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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.
"Permitted Indebtedness" means any of the following:
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(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; (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
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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:
(a) Liens existing as of the date of the Indenture,
(b) Liens securing the notes or the Subsidiary Guarantees,
(c) Liens in favor of Comstock or any Restricted Subsidiary,
(d)Liens securing Indebtedness of Comstock under the Bank Credit
Facility that constitutes Permitted Indebtedness pursuant to clause (i) of
the definition of "Permitted Indebtedness",
(e) 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,
(f) 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,
(g) 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),
(h) 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,
(i) 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,
(j) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease,
(k) 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,
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(l) 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,
(m) 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,
(n) 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,
(o) 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,
(p) 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,
(q) Liens securing Interest Rate Protection Obligations which Interest
Rate Protection Obligations relate to Indebtedness that is secured by Liens
otherwise permitted under the Indenture,
(r) 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,
(s) Liens on pipeline or pipeline facilities which arise by operation
of law,
(t) 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,
(u) Liens reserved in oil and gas mineral leases for bonus or rental
payments or for compliance with the terms of such leases,
(v) 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,
(w) 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,
(x) 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,
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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
(y) 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 (a) through (y) 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.
"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
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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
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."
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"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.
"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.
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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 (or in the case of the Global Outstanding Note representing
outstanding notes sold in reliance upon Regulation S, initially for credit to
the accounts of Morgan Guaranty Trust Company of New York, Brussels office, as
operator of the Euroclear System ("Euroclear") or Cedel Bank, S.A., ("Cedel").
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.
Investors who initially acquired their interests in the Global Outstanding
Notes pursuant to Regulation S may hold their interests in the Global New Notes
directly through Cedel or Euroclear, if they are participants in such systems,
or indirectly through organizations which are participants in such systems or
may hold such interests through organizations other than Cedel or Euroclear that
are Participants in the DTC system. Cedel and Euroclear will hold such interests
in the Global New Notes on behalf of their participants through customers'
securities accounts in their respective names on the books of their respective
depositaries, which in turn will hold such interests in the Global New Notes in
customers' securities accounts in the depositaries' names on the books of DTC.
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, if applicable, Euroclear and Cedel, in addition to those
provided for under the Indenture. Payments of the principal of, premium, if any,
and interest on the Global Notes will be made to 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.
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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.
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
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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.
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,
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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 TAX CONSIDERATIONS
The following is a summary of 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 acquire the new
notes pursuant to the Exchange Offer. This summary is based upon provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), regulations, rulings
and decisions currently in effect, all of which are subject to change (possibly
with retroactive effect). The discussion does not purport to deal with all
aspects of the United States federal taxation that may be relevant to particular
holders in light of their particular circumstances (for example, to persons
holding notes as part of a conversion transaction or as part of a hedge or
hedging transaction, or as a position in a straddle for tax purposes), nor does
it discuss the United States federal income tax considerations applicable to
certain types of holders subject to special treatment under the federal income
tax laws (for example, insurance companies, tax-exempt organizations, financial
institutions and persons who are not United States holders or United States
alien holders (each as defined below)). In addition, the discussion does not
consider the effect of any foreign, state, local or other tax laws that may be
applicable to a particular holder. The discussion assumes that holders hold the
notes as "capital assets" within the meaning of Section 1221 of the Code.
Comstock intends to treat the notes as indebtedness and not as equity for United
States federal income tax purposes, and the United States federal income tax
considerations described below are based on that characterization.
Prospective holders considering an exchange of new notes for outstanding
notes should consult their tax advisors with regard to the application of the
United States federal income tax laws to their particular situations as well as
any tax consequences arising under the laws of any state, local or foreign
taxing jurisdiction.
As used in this summary, the term "U.S. Holder" means the beneficial owner
of a note that is for U.S. federal income tax purposes (i) an individual citizen
or resident of the United States, (ii) a corporation, partnership or other
entity created or organized in or under the laws of the United States or any
political subdivision thereof, (iii) an estate the income of which is subject to
United States federal income tax regardless of its source, or (iv) a trust whose
administration is subject to the primary supervision of a United States court
and which has one or more United States persons who have the authority to
control all substantial decisions of the trust.
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As used in this summary, the term "Non-United States Holder" means an owner
of a note that is, for United States federal income tax purposes, (i) a
nonresident alien individual, (ii) a foreign corporation, (iii) a foreign estate
or foreign trust or (iv) a foreign partnership one or more of the members of
which is for United States federal income tax purposes, a nonresident alien
individual or a foreign corporation, estate or trust.
The summary does not address all potential federal 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 are subject to special treatment under federal
income tax laws (such as insurance companies, financial institutions, small
business investment companies, dealers in securities or currencies,
broker-dealers, U.S. Holders whose functional currency is not the U.S. dollar
and tax-exempt organizations) or holders that hold notes as part of a position
in a straddle, or as part of a hedging, conversion, or other integrated
investment transaction for federal income tax purposes. This summary is limited
to holders that hold the notes as capital assets within the meaning of section
1221 of the Code.
The exchange of outstanding notes for 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 because under Treasury regulations, the new
notes will not be considered to differ materially in kind or extent from the
outstanding notes. 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.
Tax Consequences to U.S. Holders
Interest and Original Interest Discount. Generally, interest paid on the
notes will be taxable to a U.S. Holder as ordinary income at the time it accrues
or is received in accordance with such U.S. Holder's method of accounting for
U.S. federal income tax purposes. Because the stated redemption price of the
notes will not exceed their issue price by more than a de minimis amount for tax
purposes, no portion of the original issue discount ("OID") on the notes would
be taxable to a U.S. Holder as ordinary income on a current basis, unless the
U.S. Holder makes an affirmative election to accrue such OID (and all stated
interest and any market discount) into income on a constant interest basis.
Sale, Exchange or Retirement of the Notes. Except as described below under
"Market Discount," upon the sale, exchange, retirement at maturity or other
disposition of a note, a U.S. Holder generally will recognize capital gain or
loss equal to the difference between the amount of cash plus the fair market
value of all property received on such disposition (except to the extent such
cash or property is attributable to accrued interest, which is taxable as
ordinary income) and such holder's adjusted tax basis in the note. In general, a
holder's adjusted tax basis in a note purchased by such holder will be equal to
the price paid for the note increased by any market discount previously included
in income as it accrues by such U.S. Holder or reduced by amortized premium
previously deducted by such U.S. Holder. However, the exchange of an outstanding
note by a U.S. Holder for a new note should not constitute a taxable exchange. A
U.S. Holder should have the same basis and holding period for the new note as
such U.S. Holder had for the outstanding note.
Market Discount. If a U.S. Holder purchases a note for an amount that is
less than its principal amount, the amount of the difference will be treated as
"market discount" for U.S. Federal income tax purposes, unless such difference
is less than a specified de minimis amount. Under the market discount rules, a
U.S. Holder will be required to treat any partial principal payment on, or any
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gain on the sale, exchange, retirement or other disposition of, a note as
ordinary income to the extent of the market discount which has accrued, and has
not previously been included by the U.S. Holder in income, as of the time of
such payment or disposition.
For these purposes, any market discount will be considered to accrue
ratably during the period from the date of acquisition to the maturity date of
the note, unless the U.S. Holder elects to accrue on a constant interest method.
In lieu of the treatment above, a U.S. Holder may elect to include market
discount in income currently as it accrues (on either a ratable or constant
interest method). This election to include market discount in income currently,
once made, applies to all market discount obligations acquired on or after the
first taxable year to which the election applies and may not be revoked without
the consent of the IRS. Under recent legislative proposals, accrual method
taxpayers would be required to include market discount in income currently as it
accrues. It is uncertain at this time whether this proposal will be adopted or,
if adopted, whether it will apply to the notes. Amortizable Bond Premium. A U.S.
Holder that purchases a note for an amount in excess of the principal amount
will be considered to have purchased the note at a "premium." A U.S. Holder
generally may elect to amortize the premium over the remaining term of the note
on a constant yield method. However, if the note is purchased at a time when the
note may be optionally redeemed for an amount that is in excess of its principal
amount, special rules would apply that could result in a deferral of the
amortization of bond premium until later in the term of the note. The amount
amortized in any year will be treated as a reduction of the U.S. Holder's
interest income from, and adjusted tax basis in, the note. The election to
amortize premium on a constant yield method, once made, applies to all debt
obligations held or subsequently acquired by the electing U.S. Holder on or
after the first day of the first taxable year to which the election applies and
may not be revoked without the consent of the IRS.
Back-Up Withholding. A U.S. Holder of notes may be subject to "back-up
withholding" at a rate of thirty-one percent (31%) with respect to certain
"reportable payments," including interest payments and, under certain
circumstances, principal payments on the notes and payments of the proceeds of
the sale of notes. These back-up withholding rules apply if the U.S. Holder,
among other things, (i) fails to furnish a social security number or other
taxpayer identification number ("TIN") certified under penalties of perjury
within a reasonable time after the request therefor, (ii) furnishes an incorrect
TIN, (iii) fails to report interest properly, or (iv) under certain
circumstances, fails to provide a certified statement, signed under penalties of
perjury, that the TIN furnished is the correct number and that such holder is
not subject to back-up penalties imposed by the IRS. Any amount withheld from a
payment to a U.S. Holder under the back-up withholding rules is creditable
against the U.S. Holder's federal income tax liability. Back-up withholding does
not apply, however, if the U.S. Holder properly establishes its eligibility for
an exemption from back-up withholding. Comstock will report to the U.S. Holders
of notes and to the IRS the amount of any "reportable payments" for each
calendar year and the amount of tax withheld, if any, with respect to such
payments.
Tax Consequences to Non-United States Holders
Interest paid by Comstock to a Non-United States Holder will not be subject
to United States federal income or 30% withholding tax if such interest is not
effectively connected with the conduct of a trade or business within the United
States (or a permanent establishment therein, if a tax treaty applies) by such
NonUnited States Holder and such Non-United States Holder (i) does not actually
or constructively own 10% or more of the total combined voting power of all
classes of stock of Comstock; (ii) is not a controlled foreign corporation with
respect to which Comstock is a "related person"; (iii) is not a bank whose
receipt of interest on a note is described in Section 881(c)(3)(A) of the Code;
and (iv) certifies, under penalties of perjury, that such holder is not a United
States person which certification may be made on IRS Form W- 8BEN or substitute
form and provides Comstock with such holder's name and address or a securities
clearing organization, bank, or other financial institution that holds
customers' securities in the ordinary course of its trade or business certifies,
under penalties of perjury, that such certification and information has been
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received by it or a qualifying intermediary from the Non-United States Holder
and furnishes Comstock with a copy thereof. With respect to notes held by a
foreign partnership, under the current law, the certification may be provided by
the foreign partnership. However, for interest and proceeds paid with respect to
a note after December 31, 1999, unless the foreign partnership has entered into
a withholding agreement with the IRS, a foreign partnership will be required, in
addition to providing IRS Form W-8IMY, to attach an appropriate certification by
each partner on IRS Form W-8BEN.
If a Non-United States Holder of a note is engaged in a trade or business
in the United States, and if interest (including market discount) on the note
(or gain realized on its sale, exchange or other disposition) is effectively
connected with the conduct of such trade or business, the Non-United States
Holder, although exempt from withholding tax, will generally be subject to
United States income tax on such effectively connected income in the same manner
as if it were a U.S. Holder. Such holder will be required to provide to the
withholding agent a properly executed IRS Form 4224 (or, after December 31,
1999, a Form W-8ECI) to claim an exemption from withholding tax. In addition, if
such Non-United States Holder is a foreign corporation, it may be subject to a
30% branch profits tax (unless reduced or eliminated by an applicable treaty) of
its effectively connected earnings and profits for the taxable year, subject to
certain adjustments.
Gain on Disposition. A Non-United States Holder will generally not be
subject to United States federal income tax on gain recognized on a sale,
redemption or other disposition of a note unless (i) the gain is effectively
connected with the conduct of a trade or business within the United States (or a
permanent establishment therein, if a tax treaty applies) by the Non-United
States Holder, (ii) in the case of a NonUnited States Holder who is a
nonresident alien individual, such holder is present in the United States for
183 or more days in the taxable year and certain other conditions are met or
(iii) the holder is subject to tax pursuant to the provisions of the Code
applicable to certain United States expatriates.
Information Reporting and Backup Withholding. Comstock will, where
required, report to the Non-United States Holders of notes and the IRS the
amount of any interest paid on the notes in each calendar year and the amounts
of tax withheld, if any, with respect to such payments.
Payments of interest to Non-United States Holders with respect to which
either the requisite certification, as described above, has been received (or
for which an exemption has otherwise been established) will not be subject to
either information reporting or back-up withholding, unless Comstock or its
payment agent has actual knowledge that the Non-United States Holder is a United
States person or that the conditions of any other exemption are not in fact
satisfied. Information reporting and back-up withholding requirements will
apply, however, to the gross proceeds paid to a Non-United States Holder on the
disposition of the notes by or through a United States office of a United States
or foreign broker, unless such holder certifies to the broker under penalties of
perjury as to its name, address and status as a foreign person or otherwise
establishes an exemption. Information reporting requirements, but not back-up
withholding, will also apply to a payment of the proceeds of a disposition of
the notes by or through a foreign office of a United States broker or foreign
brokers with certain types of relationships to the United States unless such
broker has documentary evidence in its file that the Non-United States Holder is
not a United States person, and such broker has no actual knowledge to the
contrary, or the Non-United States Holder establishes an exemption. Neither
information reporting nor back-up withholding generally will apply to a payment
of the proceeds of a disposition of the notes by or through a foreign office of
a foreign broker not subject to the preceding sentence.
Back-up withholding is not an additional tax. Any amounts withheld under
the back-up withholding rules may be refunded or credited against the Non-United
States Holder's United States federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
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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 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 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 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
Comstock by Locke Liddell & Sapp LLP, Dallas, Texas.
EXPERTS
The estimates as of December 31, 1996, 1997 and 1998 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.
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The consolidated financial statements as of December 31, 1998 and for the
three years in the period then ended, included in Comstock's 1998 Form 10-K
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.
With respect to the unaudited interim financial statements as of June 30,
1999 and 1998, included in Comstock's Quarterly Report on Form 10-Q for the six
months ended June 30, 1999, Arthur Andersen LLP has applied limited procedures
in accordance with the professional standards for a review of that information.
However, their separate report thereon 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 that information should be restricted
in light of the limited nature of the review provisions of Section 11 of the
Securities Act of 1933 for their report on the unaudited interim financial
information because that report is not a "report" or "part" of the registration
statement prepared or certified by the accountants within the meaning of Section
7 and 11 of the Securities Act.
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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.
"Condensate" means a hydrocarbon mixture that becomes liquid and separates
from natural gas when the gas is produced and is similar to crude oil.
"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.
"Dry hole" means a well found to be incapable of producing hydrocarbons in
sufficient quantities such that proceeds from the sale of such production exceed
production expenses and taxes.
"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.
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"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.
"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.
"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.
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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.
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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
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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
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.
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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
----------- -----------
3.1(a) Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company'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 dated July 1, 1997 (incorporated
herein by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997).
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement
on Form S-3, dated October 25, 1996).
4.1 Placement Agreement dated April 26, 1999, by and
among Comstock, Morgan Stanley & Co. Incorporated,
Banc One Capital Markets, Inc., TD Securities (USA)
Inc. and Paribas Corporation (incorporated by
reference to Exhibit 10.3 to Comstock's Current
Report on Form 8-K dated April 29, 1999).
4.2 Indenture dated as of April 29, 1999, between U.S.
Trust Company of Texas, N.A. as Trustee, and
Comstock, relating to the 11 1/4% Senior Notes due
2007 of Comstock (the "Indenture"), which includes
the form of global note (incorporated by reference
to Exhibit 10.5 to Comstock's Current Report on
Form 8-K dated April 29, 1999).
4.3 Registration Rights Agreement, dated April 29,
1999, by and among Comstock, Morgan Stanley & Co.
Incorporated, Banc One Capital Markets, Inc., TD
Securities (USA) Inc. and Paribas Corporation
(incorporated by reference to Exhibit 10.4 to
Comstock's Current Report on Form 8-K dated April
29, 1999).
5.1 * Opinion of Locke Liddell & Sapp, LLP.
12. * Computation of Ratios.
23.1 Consent of Counsel (Included in Exhibit 5.1).
23.2 * Consent of Independent Public Accountants.
24.1 Power of Attorney (Included on the Signature Page
of the Prospectus).
25. * Form T-1 with respect to the eligibility of the
Trustee with respect to the Indenture.
(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.
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Item 22. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) To
include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in this registration
statement;
(iii)To include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by Comstock pursuant to
Section 13 or Section 15 (d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) 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 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.
(c) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(d) The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (c) immediately preceding or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as apart of an amendment to the Registration Statement and will not
be used until such amendment is effective, and that, for purpose of
determining any liability under the Securities Act of 1933, each such post-
effective amendment 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.
85
<PAGE>
(e) 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.
(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Items 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 this request.
(g) 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.
86
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Dallas, State of Texas, on September 3, 1999.
COMSTOCK RESOURCES, INC.
By: /s/ M. JAY ALLISON
------------------------
M. Jay Allison
President and Chief Executive Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints M. Jay Allison and Roland O. Burns, each his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, and any registration statement related to the
offering contemplated by this registration statement that is to be effective
upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to
file the same, with all exhibits thereto, and all other documents in connection
therewith, with the Securities and Exchange Commission and any state or other
securities authority, granting unto each said attorney-in-fact and agent full
power and authority to do and perform each and every act in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or either
of them or their or his substitute or substitutes may lawfully do or cause to be
done by virtue hereof.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ M. JAY ALLISON President, Chief Executive Officer,
- ------------------- Director (Principal Executive Officer) September 3, 1999
M. Jay Allison
/s/ ROLAND O. BURNS Senior Vice President, Chief Financial September 3, 1999
- -------------------
Roland O. Burns Officer, Director (Principal Financial
and Accounting Officer)
/s/ RICHARD S. HICKOK Director September 3, 1999
- ---------------------
Richard S. Hickok
/s/ FRANKLIN B. LEONARD Director September 3, 1999
- -----------------------
Franklin B. Leonard
/s/ CECIL E. MARTIN, JR. Director September 3, 1999
- ------------------------
Cecil E. Martin, Jr.
/s/ DAVID W. SLEDGE Director September 3, 1999
- ----------------------
David W. Sledge
</TABLE>
87
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Exhibit Page
- ----------- ------- ----
3.1(a) Restated Articles of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the
Company'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 dated July 1, 1997 (incorporated herein
by reference to Exhibit 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30,
1997).
3.2 Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-3, dated October 25, 1996).
4.1 Placement Agreement dated April 26, 1999, by and among
Comstock, Morgan Stanley & Co. Incorporated, Banc One
Capital Markets, Inc., TD Securities (USA) Inc. and
Paribas Corporation (incorporated by reference to
Exhibit 10.3 to Comstock's Current Report on Form 8-K
dated April 29, 1999).
4.2 Indenture dated as of April 29, 1999, between U.S.
Trust Company of Texas, N.A. as Trustee, and Comstock,
relating to the 11 1/4% Senior Notes due 2007 of
Comstock (the "Indenture"), which includes the form of
global note (incorporated by reference to Exhibit 10.5
to Comstock's Current Report on Form 8-K dated April
29, 1999).
4.3 Registration Rights Agreement, dated April 29, 1999, by
and among Comstock, Morgan Stanley & Co. Incorporated,
Banc One Capital Markets, Inc., TD Securities (USA)
Inc. and Paribas Corporation (incorporated by reference
to Exhibit 10.4 to Comstock's Current Report on Form
8-K dated April 29, 1999).
5.1 * Opinion of Locke Liddell & Sapp, LLP. E-2
12. * Computation of Ratios. E-5
23.1 Consent of Counsel (Included in Exhibit 5.1).
23.2 * Consent of Independent Public Accountants. E-6
24.1 Power of Attorney (Included on the Signature Page of
the Prospectus).
25. * Form T-1 with respect to the eligibility of the Trustee
with respect to the Indenture. E-7
--------------
* Filed herewith.
E-1
Exhibit 5.1
Locke Liddell & Sapp LLP
2200 Ross Avenue Suite 2200
Dallas TX 75201-6776
214-740-8000
September 3, 1999
Comstock Resources, Inc.
Comstock Tower
5300 Town and Country Blvd., #500
Frisco, TX 75034
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
This firm has acted as legal counsel to Comstock Resources, Inc., a Nevada
corporation (the "Company"), in connection with the Registration Statement on
Form S-4 (the "Registration Statement") pertaining to the Company's offering of
up to $150,000,000 principal amount of 11 1/4% Senior Notes due 2007 of the
Company (the "New Notes").
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, as hereinafter defined,
has all requisite power and authority to execute, deliver and perform its
obligations under the Indenture, as hereinafter defined; (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:
1. The Company is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Nevada.
E-2
<PAGE>
September 3, 1999
Page 3
2. The issuance of the New Notes has been duly authorized and, upon the due
execution, authentication and delivery of the New Notes in accordance with the
terms of the Indenture (the "Indenture") governing the New Notes between the
Company and U.S. Trust Company of Texas, N.A., as Trustee (the "Trustee"),
against the exchange of a like principal amount of 11 1/4% Senior Notes due 2007
of the Company (the "Old Notes") in accordance with the terms and conditions set
forth in the prospectus constituting a part of the Registration Statement (the
"Prospectus"), the New Notes will be validly issued.
3. Upon the due execution, authentication and delivery of the New Notes in
accordance with the terms of the Indenture, against the exchange of a like
principal amount of Old Notes in accordance with the terms and conditions set
forth in the Prospectus, the New Notes will constitute enforceable obligations
of the Company, except (i) as such enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent conveyance and other debtor relief laws of
general applicability and (ii) that the remedies of specific performance and
injunctive and other forms of equitable relief are subject to equitable defenses
and to the discretion of the court before which any proceeding may be brought.
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.
For purposes of rendering the opinion set forth in numbered paragraph 1
above, we have relied solely upon a certificate of the Secretary of State of the
State of Nevada dated September 3, 1999.
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 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 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 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
E-3
<PAGE>
September 3, 1999
Page 4
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.
Respectfully submitted,
LOCKE LIDDELL & SAPP LLP
E-4
Exhibit 12
COMSTOCK RESOURCES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------- --------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(in thousands, except ratios)
<S> <C> <C> <C> <C> <C>
Ratio of EBITDA to Interest Expense:
Interest expense:
Interest expense ....................... $ 10,086 $ 5,934 $ 16,977 $ 8,446 $ 10,980
Capitalized interest expense ........... -- 133 2,272 1,124 --
Rental expense deemed interest ......... -- -- -- --
-------- -------- -------- -------- --------
Total interest expense ........... $ 10,086 $ 6,067 $ 19,249 $ 9,570 $ 10,980
-------- -------- -------- -------- --------
EBITDA:
Income (loss) from continuing operations
before income taxes ................. $ 26,087 $ 33,778 $(26,412) $ (1,130) $ (6,808)
Interest expense ....................... 10,086 5,934 16,977 8,446 10,980
Depreciation, depletion and amortization 18,269 26,235 51,005 25,798 24,763
Exploration ............................ 436 2,810 8,301 3,877 664
Impairment of oil and gas properties ... -- 17,000 -- --
-------- -------- -------- -------- --------
EBITDA (1) ....................... $ 54,878 $ 68,757 $ 66,871 $ 36,991 $ 29,599
-------- -------- -------- -------- --------
Ratio of EBITDA to interest expense(2) ..... 5.4x 11.3x 3.5x 3.9x 2.7x
Ratio of Earnings to Fixed Charges:
Fixed charges:
Interest expense ....................... $ 10,086 $ 5,934 $ 16,977 $ 8,446 $ 10,980
Capitalized interest expense ........... -- 133 2,272 1,124 --
Preferred stock dividends .............. 2,021 410 -- -- 473
Rental expense deemed interest ......... -- -- -- -- --
-------- -------- -------- -------- --------
Total fixed charges .............. $ 12,107 $ 6,477 $ 19,249 $ 9,570 $ 11,453
-------- -------- -------- -------- --------
Earnings, as defined:
Income (loss) from continuing operations
before income taxes ................. $ 26,087 $ 33,778 $(26,412) $ (1,130) $ (6,808)
Interest expense ....................... 10,086 5,934 16,977 8,446 10,980
Rental expense deemed interest ......... -- -- -- -- --
-------- -------- -------- -------- --------
Earnings, as defined (3) ......... $ 36,173 $ 39,712 $ (9,435) $ 7,316 $ 4,172
-------- -------- -------- -------- --------
Ratio of earnings to fixed charges (4) .... 3.0x 6.2x -- -- --
</TABLE>
- ----------
(1) EBITDA means income (loss) from continuing operations before income taxes,
plus interest, depreciation, depletion and amortization, exploration expense and
impairment of oil and gas properties. 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 were insufficient to cover fixed charges by
$28.7 million, $2.3 million and $7.3 million for the year ended December 31,
1998 and the six months ended June 30, 1998 and June 30, 1999, respectively.
E-5
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement on Form S-4 of our report dated
February 15, 1999, included in Comstock Resources, Inc.'s Form 10-K for the year
ended December 31, 1998, and to all references to our Firm included in this
registration statement.
ARTHUR ANDERSEN LLP
Dallas, Texas,
September 3, 1999
E-6
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT
OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)
---------------
U.S. TRUST COMPANY OF TEXAS, N.A.
(Exact name of trustee as specified in its charter)
75-2353745
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
2001 Ross Ave, Suite 2700 75201
Dallas, Texas (Zip Code)
(Address of trustee's
principal executive offices)
Compliance Officer
U.S. Trust Company of Texas, N.A.
2001 Ross Ave, Suite 2700
Dallas, Texas 75201
(214) 754-1200
(Name, address and telephone number of agent for service)
---------------
Comstock Resources, Inc.
(Exact name of obligor as specified in its charter)
Texas 94-1667468
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
5005 LBJ Freeway
Dallas, TX 75244
(Address of principal executive offices) (Zip Code)
---------------
11.25% Senior Notes due 2007
(Title of the indenture securities)
E-7
<PAGE>
GENERAL
1. General Information.
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of Dallas (11th District), Dallas, Texas
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Dallas, Texas
The Office of the Comptroller of the Currency, Dallas, Texas
(b) Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an affiliate of the
Trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting
securities of the Trustee:
As of August 23, 1999
Col A. Col B.
------ ------
Title of Class Amount Outstanding
-------------- ------------------
Capital Stock - par value $100 per share 5,000 shares
4. Trusteeships under Other Indentures.
Not Applicable
5. Interlocking Directorates and Similar Relationships with the Obligor or
Underwriters.
Not Applicable
E-8
<PAGE>
6. Voting Securities of the Trustee Owned by the Obligor or its Officials.
Not Applicable
7. Voting Securities of the Trustee Owned by Underwriters or their Officials.
Not Applicable
8. Securities of the Obligor Owned or Held by the Trustee.
Not Applicable
9. Securities of Underwriters Owned or Held by the Trustee.
Not Applicable
10. Ownership or Holdings by the Trustee of Voting Securities of Certain
Affiliates or Security Holders of the Obligor.
Not Applicable
11. Ownership or Holdings by the Trustee of any Securities of a Person Owning
50 Percent or More of the Voting Securities of the Obligor.
Not Applicable
12. Indebtedness of the Obligor to the Trustee.
Not Applicable
13. Defaults by the Obligor.
Not Applicable
14. Affiliations with the Underwriters.
Not Applicable
15. Foreign Trustee.
Not Applicable
16. List of Exhibits.
T-1.1 - A copy of the Articles of Association of U.S. Trust Company of
Texas, N.A.; incorporated herein by reference to Exhibit T-1.1
filed with Form T-1 Statement, Registration No. 22-21897.
E-9
<PAGE>
16. (con't.)
T-1.2 - A copy of the certificate of authority of the Trustee to commence
business; incorporated herein by reference to Exhibit T-1.2 filed
with Form T-1 Statement, Registration No. 22-21897.
T-1.3 - A copy of the authorization of the Trustee to exercise corporate
trust powers; incorporated herein by reference to Exhibit T-1.3
filed with Form T-1 Statement, Registration No. 22-21897.
T-1.4 - A copy of the By-laws of the U.S. Trust Company of Texas, N.A.,
as amended to date; incorporated herein by reference to Exhibit
T-1.4 filed with Form T-1 Statement, Registration No. 22-21897.
T-1.6 - The consent of the Trustee required by Section 321(b) of the
Trust Indenture Act of 1939.
T-1.7 - A copy of the latest report of condition of the Trustee published
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of August 23, 1999, the Trustee had 5,000 shares of Capital Stock
outstanding, all of which are owned by U.S. T.L.P.O. Corp. As of August 23,
1999, U.S. T.L.P.O. Corp. had 35 shares of Capital Stock outstanding, all of
which are owned by U.S. Trust Corporation. U.S. Trust Corporation had
outstanding 18,349,968 shares of $5 par value Common Stock as of August 23,
1999.
The term "Trustee" in Items 2, 5, 6, 7, 8, 9, 10 and 11 refers to each of U.S
Trust Company of Texas, N.A., U.S. T.L.P.O. Corp. and U.S. Trust Corporation.
In as much as this Form T-1 is filed prior to the ascertainment by the Trustee
of all the facts on which to base responsive answers to Items 2, 5, 6, 7, 9, 10
and 11, the answers to said Items are based upon incomplete information. Items
2, 5, 6, 7, 9, 10 and 11 may, however, be considered correct unless amended by
an amendment to this Form T-1.
In answering any items in this Statement of Eligibility and Qualification which
relates to matters peculiarly within the knowledge of the obligors or their
directors or officers, or an underwriter for the obligors, the Trustee has
relied upon information furnished to it by the obligors and will rely on
information to be furnished by the obligors or such underwriter, and the Trustee
disclaims responsibility for the accuracy or completeness of such information.
---------------
E-10
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the Trustee, U.S
Trust Company of Texas, N.A., a national banking association organized under the
laws of the United States of America, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Dallas, and State of Texas on the
23rd day of August, 1999.
U.S. Trust Company
of Texas, N.A., Trustee
By: /s/ John Stohlmann
-----------------------
John Stohlmann
Vice President
E-10
<PAGE>
Exhibit T-1.6
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act of
1939 as amended in connection with the proposed issue of Comstock Resources,
Inc., Senior Notes, we hereby consent that reports of examination by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefore.
U.S. Trust Company of Texas, N.A.
By: /s/ John Stohlmann
-------------------------
John Stohlmann
Vice President
E-11
<PAGE>
Board of Governors of the Federal Reserve System
OMB Number: 7100-003
Federal Deposit Insurance Corporation
OMB Number: 3064-005
Office of the Comptroller of the Currency
Expires March 31, 2002
Federal Financial Institutions Examination Council
1
Please refer to page I, Table
of Contents, for the required
disclosure of estimated burden.
Consolidated Reports of Condition and Income for
A Bank With Domestic Offices Only and Total Assets of
$100 Million or More But Less Than $300 Million - FFIEC 033
Report at the close of business June 30, 1999
This report is required by law: 12 U.S.C. ss. 324 (State member banks); 12
U.S.C. ss. 1817 (State nonmember banks); and 12 U.S.C. ss. 161 (National banks).
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and national Banks.
I, Alfred B. Childs, Managing Director
- ----------------------------------------
Name and Title of Officer Authorized to Sign Report
Of the named bank do hereby declare that the Reports of Condition and Income
(including the supporting schedules) for this report date have been prepared in
conformance with the instructions issued y the appropriate Federal regulatory
authority and are true to the best of my knowledge.
/s/ Alfred B. Childs
- --------------------
Signature of Officer Authorized to Sign Report
July 21, 1999
Date of Signature
Submission of Reports
Each bank must prepare its Reports of Condition and Income either:
(a) in electronic form and then file the computer data file directly with the
banking agencies' collection agent, Electronic Data Systems Corporation
(EDS), by modem or on computer diskette; or
(b) in hard-copy (paper) form and arrange for another party to convert the
paper report to electronic form. That party
FDIC Certificate Number: 33217
(RCRI 9050)
19990630
(RCRI 9999)
This report form is to be filed by banks with domestic offices only. Banks with
foreign offices (as defined in the instructions) must file FFIEC 031.
The Reports of Condition and Income are to be prepared in Accordance with
Federal regulatory authority instructions.
We, the undersigned directors (trustees), attest to the correctness of the
Report of Condition (including the supporting schedules) for this report date
and declare that it has been examined by us and to the best of our knowledge and
belief has been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and is trust and correct.
/s/ Stuart M. Pearman
- ---------------------
(Director (Trustee)
/s/ J.T. More, Jr.
- ------------------
Director (Trustee)
/s/ Peter J. Denker
- -------------------
Director (Trustee)
(if other than EDS) must transmit the bank's computer data file to EDS.
For electronic filing assistance, contact EDS Call Report Services, 2150 N.
Prospect Ave., Milwaukee, WI 53202, telephone (800) 255-1571.
To fulfill the signature and attestation requirement for the Reports of
Condition and Income for this report date, attach this signature page (or a
photocopy or a computer-generated version of this page) to the hard-copy record
of the completed report that the bank places in its files.
U.S. Trust Company of Texas, N.A.
Legal Title of Bank (TEXT 9010)
Dallas
City (TEXT 9130)
TX 75201
State Abbrev. (TEXT 9200) Zip Code (TEXT 9220)
Board of Governors of the Federal Reserve System, Federal Deposit Insurance
Corporation, Office of the Comptroller of the Currency
E-12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
U.S. Trust company of Texas, N.A. Call Date: 06/30/1999 State #: 48-6797 FFIEC 033
2001 Ross Avenue, Suite 2700 Vendor ID: D Cert #: 33217 RC-1
Dallas, TX 75201 Transit#: 11101765 9
</TABLE>
Consolidated Report of Condition for Insured Commercial
And State-Chartered Savings Banks for June 30, 1999
All Schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC - Balance Sheet
<TABLE>
<CAPTION>
C200
Dollar Amounts In Thousands
----------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
1. Cash and balances due from depository institutions (from Schedule RC-A): RCON
a. Noninterest-bearing balances and currency and coin (1) ............. 0081 1,344 1.a
b. Interest-bearing balances (2) ...................................... 0071 1,565 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, Column A) ......... 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D) ....... 1773 129,935 2.b
3. Federal funds sold and securities purchased under agreements to resell . 1350 10,000 3.
4. Loans and lease financing receivables: ................................. RCON
a. Loans and leases, net of unearned income (from Schedule RC-C) ...... 2122 26,398 4.a
b. LESS: Allowance for loan and lease losses ......................... 3123 260 4.b
c. LESS: Allocated transfer risk reserve ............................. 3128 0 4.c
d. Loans and leases, net of unearned income, .......................... RCON
allowance, and reserve (item 4.a minus 4.b and 4.c) ................ 2125 26,138 4.d
5. Trading assets ......................................................... 3545 0 5.
6. Premises and fixed assets (including capitalized leases) ............... 2145 897 6.
7. Other real estate owned (from Schedule RC-M) ........................... 2150 0 7.
8. Investments in unconsolidated subsidiaries and associated
companies (from Schedule RC-M) ..................................... 2130 0 8.
9. Customers' liability to this bank on acceptances outstanding ........... 2155 0 9.
10. Intangible assets (from Schedule RC-M) ................................. 2143 1,917 10.
11. Other assets (from Schedule RC-F) ...................................... 2160 3,195 11.
12. Total assets (sum of items 1 through 11) ............................... 2170 174,991 12.
</TABLE>
(1)Includes cash items in process of collection and unposted debits.
(2)Includes time certificates of deposit not held for trading.
E-13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
U.S. Trust company of Texas, N.A. Call Date: 06/30/1999 State #: 48-6797 FFIEC 033
2001 Ross Avenue, Suite 2700 Vendor ID: D Cert #: 33217 RC-1
Dallas, TX 75201 Transit#: 11101765 10
</TABLE>
Schedule RC - Continued
<TABLE>
<CAPTION>
Dollar Amounts In Thousands
---------------------------
LIABILITES
<S> <C> <C> <C> <C> <C>
13. Deposits: RCON
a. In domestic offices (sum of totals of columns A and C From Schedule RC-E) RCON 2200 151,940 13.a
(1) Noninterest-bearing (1) ............................................ 6631 15,512 13.a.1
(2) Interest-bearing ................................................... 6636 136,428 13.a.2
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs
(1) Noninterest-bearing
(2) Interest-bearing ................................................... RCON
------
14. Federal funds purchased and securities sold under agreements to repurchase . 2800 00 14
15. a. Demand notes issued to the U.S. Treasury ............................... 2840 0 15.a
b. Trading liabilities .................................................... 3548 0 15.b
16. Other borrowed money (includes mortgage indebtedness and obligations
under capitalized leases):
a. With a remaining maturity of one year or less .......................... 2332 0 16.a
b. With a remaining maturity of more than one year through three years .... A547 2,000 16.b
c. With a remaining maturity of more than three years ..................... A548 1,000 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding ................... 2920 0 18
19. Subordinated notes and debentures (2) ...................................... 3200 0 19
20. Other liabilities (from Schedule RC-G) ..................................... 2930 2,275 20
21. Total liabilities (sum of items 13 through 20) ............................. 2948 157,215 21
22. Not applicable
EQUITY CAPITAL RCON
-----
23. Perpetual preferred stock and related surplus .............................. 3838 4,000 23
24. Common stock ............................................................... 3230 500 24
25. Surplus (exclude all surplus related to preferred stock) ................... 3839 8,384 25
26. a. Undivided profits and capital reserves ................................. 3632 5,382 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities 8434 (490) 26.b
c. Accumulated net gains (losses on cash flow hedges) ..................... 4336 0 26.c
27. Cumulative foreign currency translation adjustments
28. Total equity capital (sum of items 23 through 27) .......................... 3210 17,776 28
29. Total liabilities and equity capital (sum of items 21 and 28) .............. 3300 174,991 29
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the at the right, the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external Number
auditors as of any date during 1998 6724 N/A M.1
</TABLE>
1= Independent audit of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm which
submits a report on the bank
2= Independent audit of the bank's parent holding company conducted in
accordance with generally accepted auditing standards by a certified public
accounting firm which submits a report on the consolidated holding company
(but not on the bank separately)
3= Directors' examination of the bank conducted in accordance with generally
accepted auditing standards by a certified public accounting firm (may be
required by state chartering authority)
4= Directors'examination of the bank performed by other external auditors (may
be required by state chartering authority)
5= Review of the bank's financial statements by external auditors
6= Compilation of the bank's financial statements by external auditors
7= Other audit procedures (excluding tax preparation work)
8= No external audit work
(1)Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2)Includes limited-life preferred stock and related surplus.
E-14
