On October 17, 2014, the Company entered into an unsecured promissory note with CGF
whereby CGF made a loan to the Company in the initial principal amount of $10.0 million and a maximum amount available for borrowing of up to $20.0 million with a three-year term. On December 18, 2014, the loan agreement was amended
and restated to provide for a maximum capacity of $25 million. On May 23, 2018, Comstock Holding Companies, Inc. (Comstock , CHCI or the Company) entered into a Membership Interest Exchange and Subscription
Agreement (the Membership Exchange Agreement), together with a revised promissory note agreement, in which a note (CGF Note) with an outstanding principal and accrued interest balance of $7.7 million was exchanged for
1,482,300 shares of the Companys Series C Non-Convertible Preferred Stock, par value $0.01 per share and a stated liquidation value of $5.00 per share (the Series C Preferred Stock), issued by the Company to Comstock Development
Services, LLC (CDS), a Company wholly owned by our Chief Executive Officer. The Company exchanged the preferred equity for 91.5% of CDS membership interest in the Comstock Growth Fund promissory note. Concurrently, the face amount of the
CGF Note was reduced to $5.7 million as of the Effective Date. The loan bears interest at a fixed rate of 10% per annum. Interest payments will be made monthly in arrears. There is a principal curtailment requirement of 10% annually based on the
average outstanding balance for the prior year. The Company is the administrative manager of CGF but does not own any membership interests. The Company had approximately $4.9 million and $11.3 million of outstanding borrowings and accrued
interest under the CGF loan, net of discounts, as of June 30, 2018 and December 31, 2017, respectively. As of June 30, 2018, and December 31, 2017, the interest rate was 10.0% and 11.9% per annum, respectively. The maturity date
for the CGF loan is April 16, 2019.
For the three and six months ended June 30, 2018, the Company made interest payments of
$0.3 million. For the three and six months ended June 30, 2017, the Company made interest payments of $0.4 million and $0.8 million, respectively.
During the three and six months ended June 30, 2018, the Company did not make principal payments to CGF. During the three months ended
June 30, 2017, the Company made principal payments to CGF of $1.5 million.
Comstock Growth Fund II
On December 29, 2015, the Company entered into a revolving line of credit promissory note with Comstock Growth Fund II (CGF
II) whereby CGF II made a loan to the Company in the initial principal amount of $5.0 million and a maximum amount available for borrowing of up to $10.0 million with a two-year term, which may
be extended an additional year. The interest rate is 10% per annum, and interest payments will be accrued and paid in kind monthly for the first year, and then paid current monthly in arrears beginning December 31, 2016. The funds obtained
from the loan are being used by the Company (i) to capitalize the Companys current and future development pipeline, (ii) to repay all or a portion of the Companys prior private placements, and (iii) for general corporate
purposes. Effective December 31, 2017, the CGF II loan was extended one year to December 31, 2018. On May 23, 2018, Comstock Holding Companies, Inc. (Comstock , CHCI or the Company) entered into a Note
Exchange and Subscription Agreement (the Note Exchange Agreement) in which a note (CGF2 Note) with an outstanding principal and accrued interest balance of $3.7 million was exchanged for 738,390 shares of the Companys
Series C Non-Convertible Preferred Stock, par value $0.01 per share and a stated liquidation value of $5.00 per share (the Series C Preferred Stock), issued by the Company to Comstock Growth Fund II, L.C. (CGF2), a Company
wholly owned by our Chief Executive Officer. The CGF2 Note was cancelled in its entirety effective as of the Effective Date. As a result of the conversion of CGF & CGF2, the Company recognized a gain of $3.7 million, which was recorded in
Additional paid-in capital in the consolidated balance sheet and an income tax benefit of $0.5 million, which was recorded in the consolidated statement of operations for the three and six months ended June 30, 2018. Refer to Note 14
Fair Value Disclosure for further information regarding the assumptions and methods utilized in determining the fair value of the Preferred Stock issued. As of December 31, 2017, $3.6 million, was outstanding in principal and
accrued interest under the CGF II loan.
13. COMMITMENTS AND CONTINGENCIES
Currently, we are not
subject to any material legal proceedings. From time to time, however, we are named as a defendant in legal actions arising from our normal business activities. Although we cannot accurately predict the amount of our liability, if any, that could
arise with respect to legal actions pending against us; we do not expect that any such liability will have a material adverse effect on our financial position, operating results and cash flows. We believe that we have obtained adequate insurance
coverage, rights to indemnification, or where appropriate, have established appropriate reserves in connection with any such legal proceedings.
Letters of credit, performance bonds and compensating balances
The Company has commitments as a result of contracts with certain third parties, primarily local governmental authorities, to meet certain
performance criteria outlined in such contracts. The Company is required to issue letters of credit and performance bonds to these third parties as a way of ensuring that the commitments entered into are met. These letters of credit and performance
bonds issued in favor of the Company and/or its subsidiaries mature on a revolving basis, and if called into default, would be deemed material if assessed against the Company and/or its subsidiaries for the full amounts claimed. In some
circumstances, we have negotiated with our lenders in connection with foreclosure agreements for the lender to assume certain liabilities with respect to the letters of credit and performance bonds. We cannot accurately predict the amount of any
liability that could be imposed upon the Company with respect to maturing or defaulted letters of credit or performance bonds. At June 30, 2018, and 2017, the Company had $1.1 million in outstanding letters of credit. At June 30,
2018, and 2017, the Company had $4.4 million and $4.2 million in outstanding performance bonds, respectively. No amounts have been drawn against the outstanding letters of credit or performance bonds.
We are required to maintain compensating balances in escrow accounts as collateral for certain letters of credit, which are funded upon
settlement and release of units. The cash contained within these escrow accounts is subject to withdrawal and usage restrictions. As of June 30, 2018, and December 31, 2017, we had approximately $1.0 million in these escrow accounts,
which are included in Restricted cash in the accompanying consolidated balance sheets.