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Item 1.01
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Entry into a Material Definitive Agreement
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On May 9, 2018, Comstock Resources, Inc., a Nevada corporation (the “Company”) entered into a Contribution Agreement (the “Contribution Agreement”) with Arkoma Drilling L.P. and Williston Drilling, L.P. (collectively, the “Partnerships”), pursuant to which the Company will acquire interests in certain oil and gas properties located in North Dakota (the “Assets”) from the Partnerships in exchange for a total of up to 88,571,429 newly issued shares (the “Shares”) of common stock, $0.50 par value per share (the “Common Stock”) of the Company, subject to adjustment. Upon completion of the transactions contemplated under the Contribution Agreement, the Partnerships will own approximately 84% of the Company's pro forma outstanding Common Stock.
The Assets
The Company has valued the Assets at $620.0 million. The effective date for the acquisition of the Assets is April 1, 2018. There is no debt associated with the Assets.
Representations, Warranties and Covenants
The Contribution Agreement contains customary representations and warranties by the parties thereto. The representations and warranties of the parties included in the Contribution Agreement survive the closing of the transactions, with certain fundamental representations and warranties surviving indefinitely.
The Contribution Agreement contains customary pre-closing covenants of the parties, including the obligation of the Company and the Partnerships to conduct their respective businesses in the ordinary course consistent with past practice and to refrain from taking certain specified actions, subject to certain exceptions. The Company has also agreed not to take certain actions likely to solicit or lead to other offers or proposals relating (a) to the acquisition of a business or assets of the Company or any other person exceeding certain specified thresholds, (b) a tender offer or exchange offer that would result in any person beneficially owning more than fifteen percent of the total voting power of the equity securities of the Company or (c) a merger, reorganization, consolidation, business combination, recapitalization, liquidation, or similar transaction exceeding certain specified thresholds (each of clauses (a), (b), and (c), an “Alternate Proposal”).
Preemptive Rights
Pursuant to the terms of the Contribution Agreement, after the closing of the transactions, the Partnerships will have preemptive purchase rights in connection with any future proposed offering by the Company of securities, with certain specified exceptions, for so long as the Partnerships continue to own an aggregate of 15% of the Common Stock of the Company.
Registration Rights
Pursuant to the Contribution Agreement, the Company will enter into a Registration Rights Agreement with the Partnerships pursuant to which the Company will agree to register the Shares issued to the Partnerships.
Conditions to the Parties’ Obligations under the Contribution Agreement
The closing of the Contribution Agreement is subject to the satisfaction of customary closing conditions, including the expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as well as approval by the Company's stockholders of (i) the issuance of the Shares of Common Stock and (ii) amendments to the Company’s Articles of Incorporation to (a) increase the number of authorized shares of Common Stock of the Company, (b) permit stockholders to act by written consent of the majority so long as the Partnerships own a majority of the Common Stock, and (c) to the extent permitted by applicable law, renounce any interest by the Company in the business opportunities of the Partnerships and their affiliates (items (i) and (ii) together, the “Stockholder Approvals”). The Stockholder Approvals are required in order to issue the Shares of Common Stock to the Partnerships.
Additionally, the obligations of the Partnerships are subject to the Company obtaining a new revolving credit facility and a new senior unsecured notes issuance, in each case (i) having such terms as are acceptable to the Partnerships and (ii) in an amount as will be sufficient to discharge certain existing indebtedness of the Company (the “Debt Financing”).
There can be no assurance that these closing conditions will be satisfied.
Termination Rights
The Contribution Agreement contains certain customary termination rights, including, among others, in the event of the following: (i) if the closing has not occurred by October 31, 2018 (the “Outside Date”); (ii) by mutual written agreement of the Company and the Partnerships; (iii) if the Stockholder Approvals are not obtained; (iv) if the consummation of the transactions is prohibited by law; and (v) for breach of a representation, warranty, covenant or other agreement by a party which has not been cured by the earlier of (x) 30 days following written notice from the other party of such breach and (y) the Outside Date.
Additionally, the Contribution Agreement may be terminated (a) by the Company prior to receiving the Stockholder Approvals in order to enter into an unsolicited Alternate Proposal meeting certain specified criteria and subject to certain exceptions (a “Superior Proposal”) and (b) by the Partnerships, if the board of directors of the Company has changed its recommendation for the stockholders of the Company to approve the items subject to the Stockholder Approvals or if the Company or its affiliates have failed to fulfill certain obligations under the Contribution Agreement.
In the event the Contribution Agreement is terminated in connection with the events in the preceding clauses (a) or (b), or if the Company enters into or takes certain other actions with respect to an Alternate Proposal, the Company will be obligated to pa
y a termination fee of up to $12.4 million to the Partnerships.
The foregoing description of the Contribution Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Contribution Agreement, a copy of which will be filed by the Company on a subsequent current report on Form 8-K, and is incorporated into this Item 1.01 by reference.