EXHIBIT (b)(2)
November 14, 2001
Roland O. Burns
Senior Vice President and Chief Financial Officer
Comstock Holdings, Inc.
5300 Town and Country Blvd.
Suite 500
Frisco, Texas 75034
Dear Roland:
Friedman, Billings, Ramsey & Co., Inc. ("FBR"), as arranger for Toronto
Dominion (Texas), Inc. ("TDTX") and HPC Holding Company ("HPC") is pleased to
advise you that, subject to the terms and conditions herein, TDTX and HPC are
each willing to provide Comstock Holdings, Inc. (the "Borrower") with 50% of a
$57,000,000 Senior Secured Acquisition Loan (the "Credit Facility"), as outlined
in Exhibit A described below.
The Credit Facility will be used to fund the acquisition of shares of
DevX Energy, Inc. ("DevX") by Comstock Acquisition, Inc. ("Acquisition"), a
wholly-owned subsidiary of the Borrower, all as more fully described in the
Proposed Summary of Terms and Conditions attached hereto as Exhibit A (the "Term
Sheet").
FBR will act as an advisor and arranger for the Credit Facility and
TDTX will act as the sole and exclusive administrative agent. As we have
discussed, FBR has solicited commitments from TDTX and HPC (together, the
"Lenders") prior to the execution of this commitment letter in an amount
sufficient to provide the Credit Facility.
The Credit Facility will be provided pursuant to the terms and
conditions of, and shall become effective only upon the execution and delivery
of, a mutually satisfactory credit agreement and other definitive loan
documentation incorporating the terms and conditions set forth in the Term
Sheet, your payment of certain fees set forth in the Term Sheet and other terms
and conditions customarily included in credit facilities of this type, amount
and purpose. These terms and conditions will necessarily be further developed
during the course of preparing and negotiating the loan documentation.
The Borrower agrees to indemnify and hold harmless FBR, the Lenders,
their affiliates and their respective officers, directors, employees, advisors
and agents (each, an "Indemnified Person") from and against any and all losses,
claims, damages and liabilities to which any such Indemnified Person may become
subject arising out of or in connection with this letter, the Credit Facility,
the use of proceeds thereof, the other transactions contemplated hereby, any
related transaction or any claim, investigation or proceeding relating to any of
the foregoing, regardless of whether any Indemnified Person is a party thereto,
and to reimburse each Indemnified Person upon demand for any costs or expenses
(including legal fees) incurred in connection with investigating or defending
any of the foregoing, provided that the foregoing indemnity will not, as to any
Indemnified Person, apply to losses, claims, damages or liabilities to the
extent they arise from the willful misconduct or gross negligence of such
Indemnified Person. No Indemnified Person shall be liable for any indirect or
consequential damages in connection with its activities related to this letter
or the Credit Facility.
In addition, whether or not any loans are made, the Borrower agrees to
reimburse FBR, TDTX and their affiliates on demand for all out-of-pocket
expenses (including, without limitation, travel expenses and reasonable fees,
charges and disbursements of counsel) incurred in connection with the Credit
Facility and the preparation, review, negotiation, execution and delivery of any
related documentation, whether or not executed (including this letter, the Term
Sheet and definitive financing documentation) and the administration, amendment,
modification or waiver thereof.
The terms of this letter may be accepted by Comstock prior to 10:00
p.m. (New York time) on November 14, 2001 in the manner indicated in the final
paragraph of this letter. If this letter is not so accepted by such time on that
date, this commitment shall automatically expire unless extended in writing by
FBR.
In addition, unless extended in writing at the sole discretion of FBR,
all obligations of FBR, TDTX and HPC under this letter or the Term Sheet shall
expire automatically, without further act and regardless of cause or
circumstances on January 11, 2002 if definitive loan documentation is not
executed and delivered by all the parties thereto and initial loans disbursed on
or prior to such date. Notwithstanding anything stated herein to the contrary,
the compensation, reimbursement and indemnification provisions hereof shall
survive any termination or expiration hereof, regardless of whether definitive
financing agreements are executed.
This letter is delivered to you on the condition that neither its
existence nor any of its contents shall be disclosed by you to any person or
entity without FBR's prior written approval, except (i) as may be compelled to
be disclosed in a judicial or administrative proceeding or as otherwise required
by law, (ii) as may be disclosed on a confidential and "need to know" basis to
your directors, officers, employees, advisers, and agents, and (iii) after your
acceptance of the terms hereof, the existence of this letter and a summary of
the principal terms and conditions of the commitments hereunder may be disclosed
in any public filings to be made in connection with the tender offer for DevX
(as defined in the Term Sheet), provided that any such disclosure that
2
is in the writing shall be subject to FBR's prior review and approval, such
approval not to be unreasonably withheld.
If the foregoing is satisfactory to you, please have the enclosed copy
of this letter duly executed by an authorized officer and return copies to us.
This letter may be executed in any number of counterparts, each of which shall
be an original and all of which, when taken together, shall constitute one
agreement. This letter and the Term Sheet may not be assigned by you without the
prior written consent of FBR and may not be amended or any provision hereof or
thereof waived or modified except by an instrument in writing signed by each of
the parties hereto. No person or entity other that the parties hereto TDTX and
HPC shall have any rights under or be entitled to rely upon this letter or the
Term Sheet. This letter and the Term Sheet shall be governed by and construed in
accordance with the law of the State of New York. Delivery of an executed
signature page by facsimile shall be effective execution and delivery.
Please indicate your consent and agreement by your signature below.
Very truly yours,
Friedman, Billings & Ramsey Co., Inc.
By: /s/ Michael W. Mitchell
Name: Michael W. Mitchell
Title: Managing Director
Accepted and agreed to as of the date first above written:
Comstock Holdings, Inc.
By: /s/ Roland O. Burns
Name: Roland O. Burns
Title: Vice President
3
COMSTOCK HOLDINGS, INC. FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
================================================================================
PROPOSED SUMMARY OF TERMS AND CONDITIONS
$57,000,000 SENIOR SECURED ACQUISITION LOAN
CREDIT FACILITY
NOVEMBER 14, 2001
================================================================================
THIS SUMMARY OF TERMS AND CONDITIONS IS NOT AN OFFER OR A COMMITMENT TO LEND.
THESE TERMS ARE FOR DISCUSSION PURPOSES ONLY AND, THEREFORE, REMAIN SUBJECT TO
MODIFICATION.
BORROWER: Comstock Holdings, Inc. ("Borrower").
GUARANTOR: Comstock Acquisition, Inc. ("Guarantor"). This
Guaranty will be released just prior to the merger of
the Guarantor with DevX Energy, Inc.
CO-LEAD ARRANGERS
AND BOOKRUNNER: Friedman, Billings, & Ramsey Co., Inc. and
Toronto-Dominion (Texas), Inc ("Arranger")
ADMINISTRATIVE
AGENT: Toronto-Dominion (Texas), Inc. ("Agent")
LENDERS: Toronto-Dominion (Texas), Inc.- up to 50%
HPC Holding Company - up to 50%
Final bank group composition and commitment
allocations to be decided by Lead Arranger, Agent and
Borrower. For purposes of this term sheet, the
lenders (including, the Agent) participating in the
Credit Facility will be called "Lenders".
COMMITMENT TYPE
& AMOUNT: $57,000,000 Senior Secured Acquisition Loan ("Credit
Facility"), which may be funded in one or more
advances. However, once an advance has been repaid it
may not be reborrowed.
MANDATORY
REPAYMENT: Mandatory Principal Repayment and Commitment
Reduction in the amount of $42,000,000 which shall
occur not later than five business days after the
merger of the Guarantor into DevX Energy, Inc. (the
"Merger").
PURPOSE: The Credit Facility is available to provide funds to
Borrower to contribute such funds to Comstock
Acquisition, Inc. for the purchase of Common Stock of
DevX Energy, Inc. validly tendered and not withdrawn
pursuant to the Tender Offer and to pay the merger
consideration payable with respect to the Merger and
to pay reasonable costs and expenses related to the
Tender Offer and the Merger.
MATURITY: 90 days after closing. Provided that closing must
occur on or before January 11, 2002 unless mutually
agreed otherwise by Borrower and Lenders.
CONFIDENTIAL PAGE 1 11/14/01
COMSTOCK HOLDINGS, INC. FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
REPAYMENT: Principal and interest will be due at maturity. The
Borrower may at any time prepay in whole the
outstanding balance of the facility without premium
or penalty.
COLLATERAL: (i) Perfected first and prior lien on all of the
Borrower's Common Stock ownership in Comstock
Acquisition, Inc. (ii) Perfected first and prior
lien on all common shares of DevX Energy, Inc.
which are purchased after being tendered to secure
the guaranty of Comstock Acquisition, Inc. (iii)
Perfected first and prior lien on at least
3,000,000 unregistered common shares of Comstock
Resources, Inc. (The registered shares of which
are NYSE: CRK).
MAJORITY LENDERS: 66 2/3% of the Commitment.
REPRESENTATIONS
& WARRANTIES: Usual and customary representations and warranties
for transactions of this nature, including but not
limited to the following:
o No material change in financial condition of
Borrower, DevX Energy, Inc., or Comstock
Resources, Inc. as the Borrower's parent
company.
o Compliance with Regulations U and X.
o Absence of litigation or any existing or
pending adverse decree orders from a court
or environmental agency.
CONDITIONS
PRECEDENT: The closing and funding of the Credit Facility shall
be subject to normal and customary conditions
precedent including, but not limited to the
following:
o Initial equity contribution of at least
$37,000,000 cash and 3,000,000 unregistered
common shares of CRK by Comstock Resources,
Inc. and successful solicitation of the
tender offer for DevX Energy, Inc.
o DevX Energy, Inc. entering into a Credit
Facility of at least $42,000,000, on terms
and conditions acceptable to Lenders, to be
effective only upon closing of the merger of
the Guarantor into DevX.
o Comstock Resources, Inc. entering into a
comfort letter with the Lenders, which will
provide for its continued ownership of the
Borrower.
o The maximum tender price for the DevX shares
will not exceed $7.32 per share without the
agreement of the Agent and Lenders.
o All applicable waiting periods including
under Hart-Scott-Rodino shall have expired.
o Compliance with margin regulations including
Regulation U and X and delivery of properly
completed Forms U-1 and G-3.
o Absence of governmental, corporate,
contractual or legal restrictions, whether
in the form of "anti-takeover" statutes,
"shark repellants" or otherwise, which would
restrict, limit or otherwise impede prompt
consummation of the Merger.
o Acceptable opinions of counsel that must
cover "no conflict" with indentures loan
agreements and other material agreements of
Comstock Resources and DevX.
o Negotiation and execution of a comprehensive
loan agreement and loan and collateral
documents, satisfactory to Lenders, Borrower
and their respective counsel.
o Satisfactory review of usual documentation
relating to Borrower and Guarantor including
organization documents, borrowing authority,
ordinary
CONFIDENTIAL PAGE 2 11/14/01
COMSTOCK HOLDINGS, INC. FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
and customary certificates, legal opinion
from Borrower's and Guarantor's counsel, as
well as other documents required by the
Agent's legal counsel.
o Absence of material litigation, pending or
threatened against Borrower, Guarantor,
Comstock Resources, Inc., or DevX Energy,
Inc., except as previously disclosed.
o Absence of any material adverse change in
the business, assets, liabilities or
financial condition of the Borrower,
Guarantor, Comstock Resources, Inc. or DevX.
o Absence of any material adverse change in or
disruption of financial, banking or capital
market conditions (including the loan
syndication market) existing now or in the
future, that in the judgment of the
Arrangers would adversely affect the
satisfactory completion of the syndication
of the Credit Facility.
PERFORMANCE
COVENANTS: In addition to the usual and customary affirmative
and negative covenants for transactions of this
nature, Lenders will require the following from
Borrower and/or Guarantor:
o Certain reporting requirements.
o Prohibition against incurring additional
indebtedness over $250,000, direct or
contingent, including letters of credit or
any other obligation for borrowed money, or
quasi-equity issues such as preferred stock
o Prohibition against creating liens on any
assets of Borrower.
o Restriction against any dividends or
distributions.
o No changes in the material terms or
conditions of the Tender Offer or the Merger
Agreement without prior approval of Agent.
o Restriction against any loans or advances to
third parties or affiliates during the
existence of the loan.
o Prohibition against certain investments.
o Prohibition on asset sales, leases or
transfers of all or any material part of
Borrower's assets
o No change in ownership.
o Restriction on mergers or consolidations
unless Borrower is surviving entity.
o Immediate notice to Agent of any material
litigation, default, or adverse change in
the business of the Borrower.
o Maintain adequate insurance.
o Compliance with all applicable regulatory
requirements, including environmental.
FINANCIAL
COVENANTS: Usual and customary Financial Covenants for
transactions of this nature.
EVENTS OF
DEFAULT: Usual and customary Events of Default for
transactions of this nature. There will not be any
cross-defaults with Comstock Resources, Inc.'s
indebtedness.
SALES BY
ASSIGNMENT/
PARTICIPATION: Assignments will be permitted (i) with the prior
written consent of the Agent and Borrower (which
consent shall not be unreasonably withheld provided
no such consent shall be required in connection with
any assignment to an affiliate of the Lenders which
is an eligible assignee); provided, however, that if
an Event of
CONFIDENTIAL PAGE 3 11/12/01
COMSTOCK HOLDINGS, INC. FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
Default has occurred and is continuing, the consent
of Borrower shall not be required, and (ii) upon
payment of a $3,500 assignment fee by Assignor or
Assignee Lenders to the Agent. Assignments will be in
minimum amounts of $5,000,000, subject to the
assigning Lenders selling its entire interest in the
Credit Facility or retaining at least a $5,000,000
commitment after the sale is consummated.
Any Lenders may participate its commitment and
outstandings to another person without Borrower's
consent. Participants will have limited voting
rights.
DOCUMENTATION: The obligations of the Lenders to make loans under
the Credit Facility are subject to the negotiation,
execution and delivery of definitive credit
documentation (including schedules, exhibits and
ancillary documentation) and other support
documentation reasonably satisfactory to the Agent.
Such documentation shall contain representations and
warranties, funding and yield protection provisions,
conditions precedent, covenants, events of default
and other provisions appropriate for transactions of
this nature.
INCREASED COST/
CHANGE OF
CIRCUMSTANCES: The credit agreement will contain customary
provisions protecting the Lenders in the event of
unavailability of funding, illegality, increased
costs, capital adequacy charges, funding losses,
environmental issues, withholding taxes and other tax
liabilities.
INDEMNIFICATION: The Borrower and Guarantor will jointly indemnify the
Lead Arranger, Agent and the Lenders against all
losses, liabilities, claims, damages, or expenses
relative to the Credit Facility, the Borrower's use
of loan proceeds, or the commitments, including, but
not limited to, legal fees and settlement costs
whether or not the transaction contemplated hereby is
consummated.
FEES AND
EXPENSES: Any and all expenses, including legal fees, incurred
by the Lead Arranger and Agent in the preparation of
any commitment or any of the loan documents,
regardless of whether the transaction closes, and
closing of the contemplated Credit Facility will be
paid by the Borrower, including, but not limited to,
expenses of counsel to Agent. Borrower will not pay
any fees and expenses incurred by any other financial
institution.
GOVERNING LAW: The facility shall be governed by and construed in
accordance with the laws of the State of New York.
AGENT'S COUNSEL: Mayer, Brown & Platt
CONFIDENTIAL PAGE 4 11/14/01
COMSTOCK HOLDINGS, INC. FRIEDMAN, BILLINGS, RAMSEY & CO. INC.
================================================================================
PROPOSED SUMMARY OF TERMS AND CONDITIONS
$57,000,000 SENIOR SECURED ACQUISITION LOAN
CREDIT FACILITY
NOVEMBER 14, 2001
================================================================================
PRICING
INTEREST RATES: Borrowings shall be available under the Prime Rate
option on the Credit Facility. Borrower will pay a
margin (the "Applicable Margin") over that rate as
detailed below:
<Table>
<Caption>
DAY 1-14 DAY 14-30 THEREAFTER
-------- --------- ----------
Prime Rate Margin (bps) 900 1200 1500
</Table>
Prime Rate: A rate equal to the greater of (i) the
rate publicly announced from time to time by Agent as
its Prime Rate or (ii) the Federal Funds rate plus
.50% per annum. Interest on Prime Rate advances shall
accrue on the basis of a 360-day year and shall be
payable at maturity.
OTHER FEES:
ARRANGEMENT FEE
AND AGENCY FEE: To be negotiated between the Arranger and
Borrower.
UPFRONT FEES: $500,000.00 paid at closing to be shared on
a pro-rata basis with the Lenders.
THIS SUMMARY OF PRICING IS NOT AN OFFER OR A COMMITMENT TO LEND. THESE TERMS ARE
FOR DISCUSSION PURPOSES ONLY AND, THEREFORE, REMAIN SUBJECT TO MODIFICATION.
CONFIDENTIAL PAGE 5 11/14/01