Item 1.01
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Entry into a Material Definitive Agreement.
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On August 15, 2016, Comstock Investors
X, L.C. (Investors X), a subsidiary of Comstock Holding Companies, Inc. (the Company), entered into a subscription agreement (Subscription Agreement) with an accredited investor (Purchaser). Pursuant
to the Subscription Agreement, the Purchaser purchased membership interests (the Interests) in Investors X at the initial closing for Two Million Five Hundred Thousand Dollars ($2,500,000), which is part of an aggregate capital raise of
up to Fourteen Million Five Hundred Thousand Dollars ($14,500,000) (the Private Placement) that may be drawn as needed at the request of the Company. The Purchaser is an entity wholly owned by Christopher Clemente, the chief executive
officer of the Company. The investment is governed by an operating agreement of Investors X entered into by the Company and the Purchaser (the Operating Agreement). The Operating Agreement contains terms and provisions governing
Investors X, including distributions, representations and covenants of the Purchaser and the Company, and limitations on liability. In addition, the Operating Agreement provides that the Purchaser is entitled to a cumulative, compounded, preferred
return of six percent (6%) per annum on its Interests, compounded annually on its capital account balances.
The proceeds from the
Private Placement provide capital primarily for the planned construction of the Companys Totten Mews project, consisting of forty single family attached homes in Washington, D.C., and its Towns at 1333 project, consisting of eighteen single
family attached homes in the City of Alexandria, Virginia (individually or collectively, a Project). Proceeds of the Private Placement are to be utilized (i) to provide capital needed to complete the Projects, (ii) to reimburse
the Company for prior expenditures incurred on behalf of the Projects, and (iii) for general corporate purposes of the Company.
As
part of the Private Placement, the Company issued a warrant (Warrant) to the Purchaser to purchase shares of the Companys Class A Common Stock (Class A Common Stock). The Warrant represents the right to purchase an
aggregate amount of up to 150,000 shares of Class A Common Stock. The Warrant has an initial exercise price (subject to certain restrictions as indicated on the Warrant) equal to the average of the closing price of the Class A Common Stock
over the 20 trading days preceding the issuance of the Warrant. The exercise price and number of shares of Class A Common Stock issuable upon the exercise of the Warrant will be subject to adjustment as a result of certain events as described
in the Warrant. The Warrant contains a cashless exercise provision. In the event the Purchaser exercises the Warrant on a cashless basis, the Company will not receive any proceeds from such exercise. The Warrant may be exercised at any time in whole
or in part prior to August 15, 2026.
The Subscription Agreement contains certain customary representations, warranties and covenants
of the Purchaser and Investors X, including representations to support the Companys and Investor Xs reasonable belief that, among other things, the Purchaser had access to information concerning the Companys and Investors Xs
operations and financial condition, the Purchaser acquired the securities for its own account and not with a view to the distribution thereof, and the Purchaser is an accredited investor as such term is defined in Regulation D
promulgated under the Securities Act of 1933, as amended (the Securities Act), and certain risk factors related to the Private Placement, the Company and Investors X.
The foregoing description of the material terms of the Subscription Agreement, the Interests, the Operating Agreement and the Warrant is
qualified in its entirety by reference to the full text of the form of Subscription Agreement, the Operating Agreement and the form of Warrant, which will be filed as exhibits to the Companys Form 10-Q for the quarter ending September 30,
2016.