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Item 1.01
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Entry into a Material Definitive Agreement.
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Partial Equity Conversion of a Loan from Comstock Growth
Fund, L.C. to Comstock Holding Companies, Inc
.
On October 17, 2014, Comstock Holding Companies, Inc. (the
“Company”) entered into a promissory note with Comstock Growth Fund, L.C. (“CGF”), which was amended and restated on December 18, 2014, whereby CGF made a loan to the Company with a maximum amount available for borrowing of
up to $25 million with an original three-year term with an interest rate of ten percent (10%) (the “A&R CGF Note”). The A&R CGF Note was amended on April 16, 2018 to extend the term for up to two years (the “Second
A&R CGF Note”). The outstanding principal balance of the Second A&R CGF Note is $13,101,750.
On May 22, 2018, the
Company and members of CGF entered into the Second Amended and Restated Operating Agreement and an amendment to the same (as amended, the “Second OA”), to modify certain terms and provisions governing CGF, including the creation of
Class A members and Class B members. Pursuant to the Second OA, Comstock Development Services, LC (“CDS”), an entity wholly-owned by Christopher Clemente, the Chief Executive Officer of the Company, elected to (i) receive
300,024 shares of the Company’s Class A Common Stock, in lieu of receiving annual interest payments due under the Second A&R CGF Note (ii) convert its capital account balance in CGF to a preferred equity position as a Class B
member, (ii) reduce the principal balance of the Second A&R CGF Note by $8,100,000 to $5,001,750.00, and (iv) grant Class A members a priority cash distribution of payments received by CGF from the Company
Concurrent with the entry into the Second OA, the Company amended and restated the Second A&R CGF Note (the “Third A&R CGF
Note”) to reduce the principal balance of the note to $5,001,750.00, as described above, with payments of interest only at an interest rate of ten percent (10%), consistent with its original terms. The Company was also granted an option to
extend the maturity date of the Third A&R CGF Note to April 16, 2020 upon payment by the Company to CGF of an extension fee equal to one half of one percent of the then outstanding balance of the Third A&R CGF Note.
On May 23, 2018, the Company entered into a Membership Interest Exchange and Subscription Agreement with CDS and CGF (the “Share
Exchange Agreement”) pursuant to which CDS exchanged 98.765% of the newly created Class B membership interests in CGF, valued at $8,000,000 (the “CGF Class B Interest”) for 1,600,000 shares of the Company’s Series C
Non-Convertible
Preferred Stock, par value $0.01 per share and a stated value of $5.00 per share (the “Series C Preferred Stock”). The CGF Class B Interest acquired by the Company as part of the Share
Exchange Agreement was retired as part of the transaction.
Equity Conversion of a Loan from Comstock Growth Fund II, L.C. to Comstock Holding
Companies, Inc.
On May 23, 2018, the Company entered into a Note Exchange and Subscription Agreement (the “Note Exchange
Agreement”) with Comstock Growth Fund II, L.C. (“CGF II”) pursuant to which the Revolving Line of Credit Promissory Note dated December 29, 2015 (as amended or otherwise modified, the “CGF II Note”) with a maximum
amount available for borrowing of up to $10,000,000 issued by the Company CGF II was exchanged for 738,389 shares of the Company’s Series C Preferred Stock. The number of shares of Series C Preferred Stock received by CGF II in exchange for the
CGF II Note represented the principal amount outstanding plus all accrued but unpaid interest under the CGF II Note as of March 31, 2018, which was $3,691,948. The CGF II Note was cancelled in its entirety as of the effective date of the Note
Exchange Agreement.
The foregoing description of the material terms of the Third A&R CGF Note, the Second OA, as amended, the Share
Exchange Agreement and the Note Exchange Agreement are qualified in their entirety by reference to the full text of the form of the documents, which will be filed as exhibits to the Company’s Form
10-Q
for the quarter ending June 30, 2018.
As a result of the equity conversions described above, the Company’s stockholder’s
equity as disclosed in the consolidated balance sheet in Form
10-Q
for the period ended March 31, 2018 of $2.1 million, increased to greater than $10.0 million on the date of the above
conversions.